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V.

TAX REMEDIES under the NIRC

A. Government remedies
1. As to Nature of Proceedings
Administrative Remedies in Detail
1. Tax Lien (Section 219, NIRC)
a. CIR v. NLRC, GR No. 74965, 9 November 1994
2. Compromise
3. Distant of personal property or garnishment of bank deposits
4. Levy of real properties
4. Forfeiture
5. Suspension if business operations
6. Enforcement of administrative fines

Judicial remedies
1. Civil Action
2. Criminal Action
Judicial Remedies in Detail (Section 220. NIRC)
1. Period within which the action may be filed
a. Civil Cases (Sections 203, 222, NIRC)
b. Criminal Cases (See: Title X, NIRC; Section 281, NIRC)
2. Where should these cases be filed?
a. Criminal Cases (See the impossible penalty vis-a-vis the jurisdiction of courts)
b. Civil Cases (Consider the amount of tax sought to be collected vis--vis the
jurisdiction of courts, together with the provisions of RA9282)
3. Cases:
a. Republic v. Hizon, GR No. 130430, 13 December 1999 (re approval of filing of civil
and criminal action)
b. CIR v. La Suerte Cigar, G.G. No. 144942, 4 July 2002 (Re participation of the Office
of the Solicitor General)
c. PNOC v. Court of Appeals, G.R. No. 109976, April 26, 2005*
d. Lim v. CA, GR. Nos. 48134-37, 18 October 1990, 190 SCRA 616 (re prescription of
criminal actions, Section 281, NIRC)
e. Marcos II v. CA, GR No. 120880, 5 June 1997 (re enforcement of tax liability during
pendency of probate proceedings)

2. Remedies as to Procedure
Assessment and Collection
Collection without assessment

Assessment -
Concept of assessment
What constitutes assessment?
CIR v. Hon. Gonzales, GR No. 177279, October 13, 2010
CIR v. Enron Subic Power Corporation, GR No. 166387, January 19, 2009 relate
with CIR v. BPI, GR No. 134052, April 17, 2007
CIR v. Pascor Realty, June 29, 1999
CIR v. Reyes, GR No. 159694, January 27, 2006
Principles
Power of the Commissioner to make assessments and prescribe
additional requirements for tax administration and enforcement
Kinds of assessment
Statute of Limitation on Assessment of Internal Revenue Taxes (Sections 202, 222, NIRC)
Rmo 20-90, Philippine Journalists Inc., v. CIR, GR No. 162852, December 16,
2004
CIR v. Kudos Metal Corporation, GR No. 178087, May 5, 2010
CIR v. CA AND CARNATION, GR No. 115712, February 25, 1999
RCBC v. CIR, GR No. 170257, September 7, 2011
Suspension of prescriptive period
BPI v. CIR, GR No. 139736, October 17, 2005
BPI v. CIR, GR No. 174942, March 7, 2008
When assessment is made
General provisions on additions to the tax
Assessment process
Estate of the Late Juliana Diez vda De Gabriel v. CIR, GR No. 155541, January
27, 2004
CIR v. Menguito, GR No. 16750, September 17, 2008 relate with CIR v. Metro
Star Superama, GR No. 185371, December 8, 2010
Necessity of Assessment before taxpayer can be prosecuted for violation of the NIRC
Ungab v. Cusi, May 30, 1980
CIR v. CA, GR No. 119322, June 4, 1996
Retroactivity
Instances when pre-assessment is not required (Section 228)

Collection
Requisites
Prescriptive periods
Distraint of personal property including garnishment
Summary remedy of levy on real property
Forfeiture to government for want of bidder
Further distraint or levy
Tax lien
Compromise
Civil and criminal questions

B. Effects of failure to pay the tax on time: Additions to the tax (Chapter I, Title X, NIRC)
1. Surcharges
a. Ordinary (Section 248A, NIRC)
Failure to pay tax on time as required by the tax code or the regulations
Failure to pay the deficiency tax within the time fixed in the notice
Filing of the return with the wrong office
b. Fraud Penalty (Section 248B, NIRC)
c. Cases:
i. Imposition of Surcharge in mandatory

2. Interest (Section 249, NIRC)


a. In General
b. Deficiency Interest
c. Delinquency Interest
d. On Extended Payments
3. Compromise Penalties
4. Effect of failure to file information returns (Section 250, NIRC)

NOTES
a. No injunction to restrain collection of taxes (Sec. 218, NIRC)
b. Period within which the government could collect (Sections 203, 222, NIRC)
c. Determination of prescription of collection within CTAs appellate jurisdiction: CIR v.
Hambrecht and Quist Philippines, GR No. 169225, 27 November 2010

C. Remedies available to taxpayers


Before Payment
1. Protest (Section 228, NIRC)
a. Requirements of a valid protest Rev. Regs. 12-85
b. Kinds of Protest CIR v. Philippine Global Communication, GR No. 167146, 31 October
2006
c. Effect of Failure to file Protest
d. What should be protested? Allied Banking Corporation v. CIR, 5 February 2010
ALLIED BANKING G.R. No. 175097
CORPORATION,
Petitioner,
Present:

CARPIO, J., Chairperson,


- versus - BRION,
DEL CASTILLO,
ABAD, and
PEREZ, JJ.
COMMISSIONER OF
INTERNAL REVENUE, Promulgated:
Respondent. February 5, 2010
x --------------------------------------------------------x

DECISION

DEL CASTILLO, J.:

The key to effective communication is clarity.


The Commissioner of Internal Revenue (CIR) as well as his duly authorized representative must indicate clearly and unequivocally to the
taxpayer whether an action constitutes a final determination on a disputed assessment. [1] Words must be carefully chosen in order to avoid any
confusion that could adversely affect the rights and interest of the taxpayer.
Assailed in this Petition for Review on Certiorari[2] under Section 12 of Republic Act (RA) No. 9282,[3] in relation to Rule 45 of the Rules
of Court, are the August 23, 2006 Decision[4] of the Court of Tax Appeals (CTA) and its October 17, 2006 Resolution[5] denying petitioners Motion
for Reconsideration.

Factual Antecedents

On April 30, 2004, the Bureau of Internal Revenue (BIR) issued a Preliminary Assessment Notice (PAN) to petitioner Allied Banking
Corporation for deficiency Documentary Stamp Tax (DST) in the amount of P12,050,595.60 and Gross Receipts Tax (GRT) in the amount
of P38,995,296.76 on industry issue for the taxable year 2001.[6] Petitioner received the PAN on May 18, 2004 and filed a protest against it on May
27, 2004.[7]

On July 16, 2004, the BIR wrote a Formal Letter of Demand with Assessment Notices to petitioner, which partly reads as follows:[8]

It is requested that the above deficiency tax be paid immediately upon receipt hereof, inclusive of penalties incident to
delinquency. This is our final decision based on investigation. If you disagree, you may appeal the final decision within thirty
(30) days from receipt hereof, otherwise said deficiency tax assessment shall become final, executory and demandable.
Petitioner received the Formal Letter of Demand with Assessment Notices on August 30, 2004.[9]

Proceedings before the CTA First Division

On September 29, 2004, petitioner filed a Petition for Review[10] with the CTA which was raffled to its First Division and docketed as CTA
Case No. 7062.[11]

On December 7, 2004, respondent CIR filed his Answer.[12] On July 28, 2005, he filed a Motion to Dismiss[13] on the ground that petitioner
failed to file an administrative protest on the Formal Letter of Demand with Assessment Notices. Petitioner opposed the Motion to Dismiss
on August 18, 2005.[14]

On October 12, 2005, the First Division of the CTA rendered a Resolution[15] granting respondents Motion to Dismiss. It ruled:

Clearly, it is neither the assessment nor the formal demand letter itself that is appealable to this Court. It is the decision
of the Commissioner of Internal Revenue on the disputed assessment that can be appealed to this Court ( Commissioner of
Internal Revenue vs. Villa, 22 SCRA 3). As correctly pointed out by respondent, a disputed assessment is one wherein the
taxpayer or his duly authorized representative filed an administrative protest against the formal letter of demand and assessment
notice within thirty (30) days from date [of] receipt thereof. In this case, petitioner failed to file an administrative protest on the
formal letter of demand with the corresponding assessment notices. Hence, the assessments did not become disputed assessments
as subject to the Courts review under Republic Act No. 9282. (See also Republic v. Liam Tian Teng Sons & Co., Inc., 16 SCRA
584.)

WHEREFORE, the Motion to Dismiss is GRANTED. The Petition for Review is hereby DISMISSED for lack of
jurisdiction.

SO ORDERED.[16]

Aggrieved, petitioner moved for reconsideration but the motion was denied by the First Division in its Resolution dated February 1, 2006.
[17]

Proceedings before the CTA En Banc

On February 22, 2006, petitioner appealed the dismissal to the CTA En Banc.[18] The case was docketed as CTA EB No. 167.
Finding no reversible error in the Resolutions dated October 12, 2005 and February 1, 2006 of the CTA First Division, the CTA En
Banc denied the Petition for Review[19]as well as petitioners Motion for Reconsideration.[20]

The CTA En Banc declared that it is absolutely necessary for the taxpayer to file an administrative protest in order for the CTA to acquire
jurisdiction. It emphasized that an administrative protest is an integral part of the remedies given to a taxpayer in challenging the legality or validity
of an assessment. According to the CTA En Banc, although there are exceptions to the doctrine of exhaustion of administrative remedies, the instant
case does not fall in any of the exceptions.
Issue
Hence, the present recourse, where petitioner raises the lone issue of whether the Formal Letter of Demand dated July 16, 2004 can be construed as a
final decision of the CIR appealable to the CTA under RA 9282.

Our Ruling

The petition is meritorious.

Section 7 of RA 9282 expressly provides that the CTA exercises exclusive


appellate jurisdiction to review by appeal decisions of the CIR in cases
involving disputed assessments

The CTA, being a court of special jurisdiction, can take cognizance only of
matters that are clearly within its jurisdiction.[21] Section 7 of RA 9282 provides:

Sec. 7. Jurisdiction. The CTA shall exercise:

(a) Exclusive appellate jurisdiction to review by appeal, as herein provided:

(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed


assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation
thereto, or other matters arising under the National Internal Revenue Code or other laws
administered by the Bureau of Internal Revenue;

(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments,
refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or
other matters arising under the National Internal Revenue Code or other laws
administered by the Bureau of Internal Revenue, where the National Internal Revenue
Code provides a specific period of action, in which case the inaction shall be deemed a
denial; (Emphasis supplied)

xxxx

The word decisions in the above quoted provision of RA 9282 has been interpreted to mean the decisions of the CIR on the protest of the
taxpayer against the assessments.[22]Corollary thereto, Section 228 of the National Internal Revenue Code (NIRC) provides for the procedure for
protesting an assessment. It states:

SECTION 228. Protesting of Assessment. When the Commissioner or his duly authorized representative finds that
proper taxes should be assessed, he shall first notify the taxpayer of his findings: Provided, however, That a preassessment notice
shall not be required in the following cases:
(a) When the finding for any deficiency tax is the result of mathematical error in the computation of the tax as
appearing on the face of the return; or

(b) When a discrepancy has been determined between the tax withheld and the amount actually remitted by the
withholding agent; or

(c) When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period
was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for
the taxable quarter or quarters of the succeeding taxable year; or

(d) When the excise tax due on excisable articles has not been paid; or

(e) When an article locally purchased or imported by an exempt person, such as, but not limited to, vehicles, capital
equipment, machineries and spare parts, has been sold, traded or transferred to non-exempt persons.
The taxpayers shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the
assessment shall be void.

Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required to respond to
said notice. If the taxpayer fails to respond, the Commissioner or his duly authorized representative shall issue an assessment
based on his findings.

Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation within
thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by implementing rules and
regulations. Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been submitted;
otherwise, the assessment shall become final.

If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from submission
of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within thirty
(30) days from receipt of the said decision, or from the lapse of the one hundred eighty (180)-day period; otherwise, the decision
shall become final, executory and demandable.

In the instant case, petitioner timely filed a protest after receiving the PAN. In response thereto, the BIR issued a Formal Letter of Demand
with Assessment Notices. Pursuant to Section 228 of the NIRC, the proper recourse of petitioner was to dispute the assessments by filing an
administrative protest within 30 days from receipt thereof. Petitioner, however, did not protest the final assessment notices. Instead, it filed a Petition
for Review with the CTA. Thus, if we strictly apply the rules, the dismissal of the Petition for Review by the CTA was proper.

The case is an exception to the


rule on exhaustion of administrative remedies

However, a careful reading of the Formal Letter of Demand with Assessment Notices leads us to agree with petitioner that the instant case
is an exception to the rule on exhaustion of administrative remedies, i.e., estoppel on the part of the administrative agency concerned.

In the case of Vda. De Tan v. Veterans Backpay Commission,[23] the respondent contended that before filing a petition with the court,
petitioner should have first exhausted all administrative remedies by appealing to the Office of the President. However, we ruled that respondent was
estopped from invoking the rule on exhaustion of administrative remedies considering that in its Resolution, it said, The opinions promulgated by the
Secretary of Justice are advisory in nature, which may either be accepted or ignored by the office seeking the opinion, and any aggrieved party has
the court for recourse. The statement of the respondent in said case led the petitioner to conclude that only a final judicial ruling in her favor would be
accepted by the Commission.

Similarly, in this case, we find the CIR estopped from claiming that the filing of the Petition for Review was premature because petitioner
failed to exhaust all administrative remedies.

The Formal Letter of Demand with Assessment Notices reads:

Based on your letter-protest dated May 26, 2004, you alleged the following:

1. That the said assessment has already prescribed in accordance with the provisions of Section 203 of the Tax
Code.

2. That since the exemption of FCDUs from all taxes found in the Old Tax Code has been deleted, the
wording of Section 28(A)(7)(b) discloses that there are no other taxes imposable upon FCDUs aside from the
10% Final Income Tax.
Contrary to your allegation, the assessments covering GRT and DST for taxable year 2001 has not prescribed for [sic] simply
because no returns were filed, thus, the three year prescriptive period has not lapsed.

With the implementation of the CTRP, the phrase exempt from all taxes was deleted. Please refer to Section 27(D)(3) and 28(A)
(7) of the new Tax Code. Accordingly, you were assessed for deficiency gross receipts tax on onshore income from foreign
currency transactions in accordance with the rates provided under Section 121 of the said Tax Code. Likewise, deficiency
documentary stamp taxes was [sic] also assessed on Loan Agreements, Bills Purchased, Certificate of Deposits and related
transactions pursuant to Sections 180 and 181 of NIRC, as amended.

The 25% surcharge and 20% interest have been imposed pursuant to the provision of Section 248(A) and 249(b), respectively, of
the National Internal Revenue Code, as amended.

It is requested that the above deficiency tax be paid immediately upon receipt hereof, inclusive of penalties incident to
delinquency. This is our final decision based on investigation. If you disagree, you may appeal this final decision within
thirty (30) days from receipt hereof, otherwise said deficiency tax assessment shall become final, executory and
demandable.[24] (Emphasis supplied)
It appears from the foregoing demand letter that the CIR has already made a final decision on the matter and that the remedy of petitioner is
to appeal the final decision within 30 days.

In Oceanic Wireless Network, Inc. v. Commissioner of Internal Revenue,[25] we considered the language used and the tenor of the letter sent
to the taxpayer as the final decision of the CIR.

In this case, records show that petitioner disputed the PAN but not the Formal Letter of Demand with Assessment Notices. Nevertheless,
we cannot blame petitioner for not filing a protest against the Formal Letter of Demand with Assessment Notices since the language used and the
tenor of the demand letter indicate that it is the final decision of the respondent on the matter. We have time and again reminded the CIR to indicate,
in a clear and unequivocal language, whether his action on a disputed assessment constitutes his final determination thereon in order for the taxpayer
concerned to determine when his or her right to appeal to the tax court accrues. [26] Viewed in the light of the foregoing, respondent is now estopped
from claiming that he did not intend the Formal Letter of Demand with Assessment Notices to be a final decision.

Moreover, we cannot ignore the fact that in the Formal Letter of Demand with Assessment Notices, respondent used the word appeal
instead of protest, reinvestigation, or reconsideration. Although there was no direct reference for petitioner to bring the matter directly to the CTA, it
cannot be denied that the word appeal under prevailing tax laws refers to the filing of a Petition for Review with the CTA. As aptly pointed out by
petitioner, under Section 228 of the NIRC, the terms protest, reinvestigation and reconsideration refer to the administrative remedies a taxpayer may
take before the CIR, while the term appeal refers to the remedy available to the taxpayer before the CTA. Section 9 of RA 9282, amending Section
11 of RA 1125,[27] likewise uses the term appeal when referring to the action a taxpayer must take when adversely affected by a decision, ruling, or
inaction of the CIR. As we see it then, petitioner in appealing the Formal Letter of Demand with Assessment Notices to the CTA merely took the cue
from respondent. Besides, any doubt in the interpretation or use of the word appeal in the Formal Letter of Demand with Assessment Notices should
be resolved in favor of petitioner, and not the respondent who caused the confusion.

To be clear, we are not disregarding the rules of procedure under Section 228 of the NIRC, as implemented by Section 3 of BIR Revenue
Regulations No. 12-99.[28] It is the Formal Letter of Demand and Assessment Notice that must be administratively protested or disputed within 30
days, and not the PAN. Neither are we deviating from our pronouncement in St. Stephens Chinese Girls School v. Collector of Internal Revenue,
[29]
that the counting of the 30 days within which to institute an appeal in the CTA commences from the date of receipt of the decision of the CIR on
the disputed assessment, not from the date the assessment was issued.

What we are saying in this particular case is that, the Formal Letter of Demand with Assessment Notices which was not administratively
protested by the petitioner can be considered a final decision of the CIR appealable to the CTA because the words used, specifically the words final
decision and appeal, taken together led petitioner to believe that the Formal Letter of Demand with Assessment Notices was in fact the final decision
of the CIR on the letter-protest it filed and that the available remedy was to appeal the same to the CTA.

We note, however, that during the pendency of the instant case, petitioner availed of the provisions of Revenue Regulations No. 30-2002
and its implementing Revenue Memorandum Order by submitting an offer of compromise for the settlement of the GRT, DST and VAT for the
period 1998-2003, as evidenced by a Certificate of Availment dated November 21, 2007.[30]Accordingly, there is no reason to reinstate the Petition
for Review in CTA Case No. 7062.

WHEREFORE, the petition is hereby GRANTED. The assailed August 23, 2006 Decision and the October 17, 2006 Resolution of the
Court of Tax Appeals are REVERSED and SET ASIDE. The Petition for Review in CTA Case No. 7062 is hereby DISMISSED based solely on
the Bureau of Internal Revenues acceptance of petitioners offer of compromise for the settlement of the gross receipts tax, documentary stamp tax
and value added tax, for the years 1998-2003.

e. Effect of a protest on the period to collect deficiency taxes Cases: CIR v. Wyeth Suaco
Laboratories, GR No. 76281, 30 September 1991
G.R. No. 76281 September 30, 1991
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
WYETH SUACO LABORATORIES, INC. and THE COURT OF TAX APPEALS, respondents.

FERNAN, C.J.:p

The sole issue in this petition for review on certiorari is whether or not petitioner's right to collect deficiency withholding tax
at source and sales tax liabilities from private respondent is barred by prescription.

The antecedent facts are as follows:

Private respondent Wyeth Suaco Laboratories, Inc. (Wyeth Suaco for brevity) is a domestic corporation engaged in the
manufacture and sale of assorted pharmaceutical and nutritional products. Its accounting period is on a fiscal year basis
ending October 31 of every year.

By virtue of Letter of Authority No. 52415 dated June 17, 1974 issued by then Commissioner of Internal Revenue Misael
P. Vera, Revenue Examiner Dante Kabigting conducted an investigation and examination of the books of accounts of
Wyeth Suaco. 1 On October 15, 1974, he submitted a report containing the result of his investigation. The report disclosed
that Wyeth Suaco was paying royalties to its foreign licensors as well as remuneration for technical services to Wyeth
International Laboratories of London. Wyeth Suaco was also found to have declared cash dividends on September 27,
1973 and these were paid on October 31, 1973. However, it allegedly failed to remit withholding tax at source for the
fourth (4th) quarter of 1973 on accrued royalties, remuneration for technical services and cash dividends, resulting in a
deficiency withholding tax at source in the aggregate amount of P3,178,994.15. 2

Moreover, it was reported that during the periods from November 1, 1972 to December 31, 1972 and January 1, 1973 to
October 31, 1973, Wyeth Suaco deducted the cost of non-deductible raw materials, resulting in its alleged failure to pay
the correct amount of advance sales tax. There was reportedly also a short payment of advance sales tax in its
importation of "Mega Polymycin D" on October 3, 1972. All these resulted in a deficiency sales tax in the amount of
P60,855.21 and compromise penalty in the amount of P300.00 or a total amount of P61,155.21. 3

Consequently, the Bureau of Internal Revenue assessed Wyeth Suaco on the aforesaid tax liabilities in two (2) notices
dated December 16, 1974 and December 17, 1974. These assessment notices were both received by Wyeth Suaco on
December 19, 1974. 4

Thereafter, Wyeth Suaco through its tax consultant SGV &Co., sent the Bureau of Intemal Revenue two (2) letters dated
January 17, 1975 and February 8, 1975, protesting the assessments and requesting their cancellation or withdrawal on
the ground that said assessments lacked factual or legal basis.

Wyeth Suaco argued that it was not liable to pay withholding tax at source on the accrued royalties and dividends
because they have yet to be remitted or paid abroad. It claimed that it was not able to remit the balance of fifty percent
(50%) of the accrued royalties to its foreign licensors because of Central Bank Circular No. 289 allowing remittance of
royalties up to fifty percent (50%) only. With regard to what the Bureau of Internal Revenue claimed as the amount of
P2,952,391.00 forming part of the cash dividends declared in 1973, Wyeth Suaco alleged that the same was due its
foreign stockholders. Again, Wyeth Suaco was not able to remit these dividends because of the restriction of the Central
Bank in a memorandum implementing CB Circular No. 289 dated February 21, 1970. Thus, Wyeth Suaco's contention
was that a withholding tax at source on royalties and dividends becomes due and payable only upon their actual payment
or remittance.

On the matter of the withholding tax at source on remuneration for technical services, Wyeth Suaco insisted that it was up-
to-date in remitting the corresponding withholding tax on this income to the Bureau of Internal Revenue.

As to the assessed deficiency sales tax, Wyeth Suaco maintained that the difference between its landed cost figure (which
is the basis for computing the advancesales tax) and that of the revenue examiner, was due to the use of estimated
amounts by the Bureau of Customs and to foreign exchange differential.

Wyeth Suaco however, admitted liability with respect to the short payment of advance sales tax in the amount of
P1,000.00 on its importation of "Mega Polymycin D." 5

On September 12, 1975, the Commissioner of Internal Revenue asked Wyeth Suaco to avail itself of the compromise
settlement under LOI 308. In its answer, Wyeth Suaco manifested its conformity to a 10% compromise provided it be
applied only to the basic sales tax, excluding surcharge and interest. As to the deficiency withholding tax at source, Wyeth
took exception on the ground that it involves purely a legal question and some of the amounts included in the assessment
have already bee paid.

On December 10, 1979, petitioner, thru then acting Commissioner of Internal Revenue Ruben B. Ancheta, rendered a
decision reducing the assessment of the withholding tax at source for 1973 to P1,973,112.86. However, the amount of
P61,155.21 as deficiency sales tax remained the same. 6
Thereafter, Wyeth Suaco filed a petition for review in Court of Tax Appeals on January 18, 1980, praying that lpeti tioner
be enjoined from enforcing the assessments by reason of prescription and that the assessments be declared null and void
for lack of legal and factual basis. 7

On February 7, 1980, petitioner issued a warrant of distrain of personal property and warrant of levy of real property again
private respondent to enforce collection of the deficiency taxes. These were served on private respondent on March 12,
1980. 8 However, collection of the deficiency taxes by virtue of warrants of distraint and levy was enjoined by respondent
court upon motion of Wyeth Suaco in a resolution dated May 22, 1980. 9

On May 30, 1980, petitioner filed his answer to Wyeth Suaco's petition for review praying, among others, that private
respondent be declared liable to pay the amount of P61,155.21 as deficiency sales tax for the periods November 1, 1972
to December 31, 1972 and January 1, 1973 to October 31, 1973, plus 14% annual interest thereon from December 17,
1974 until payment thereof pursuant to Section 183 (now Section 193) of the Tax Code, and the amount of P1,973,112.86
as deficie withholding tax at source for the 4th quarter of 1973 plus 5% surcharge and 14% per annum interest thereon
from December 16, 1974 to December 16, 1977, pursuant to Section 51 (e) of the Tax Code of 1977, as amended. 10

On August 29, 1986, the Court of Tax Appeals rendered a decision enjoining the Commissioner of Internal Revenue from
collecting the deficiency taxes, the dispositive portion of which reads as follows:

WHEREFORE, the decision appealed from is hereby reversed and respondent Commissioner of Internal
Revenue is hereby enjoined from collecting the deficiency withholding tax at source for the fourth quarter
of 1973 as well as the deficiency sales tax assessed against petitioner (Wyeth Suaco). Without
pronouncement as to costs. 11

The basis of the above decision was the finding of the Tax Court that while the assessments for the deficiency taxes were
made within the five-year period of limitation, the right of petitioner to collect the same has already prescribed, in
accordance with Section 319 (c) of the Tax Code of 1977. The said law provides that an assessment of any internal
revenue tax within the five-year period of limitation may be collected by distraint or levy or by a proceeding in court, but
only if begun within five (5) years after the assessment of the tax.

Hence, this recourse by petitioner.

The applicable laws in the instant case are Sections 318 and 319 (c) of the National Internal Revenue Code of 1977 (now
Sections 203 and 224 of the National Internal Revenue Code of 1986), to wit:

SEC. 318. Period of limitation upon assessment and collection Except as provided in the succeeding
section, internal revenue taxes shall be assessed within five years after the return was filed, and no
proceeding in court without assessment for the collection of such taxes shall be begun after the expiration
of such period. ...

SEC. 319. Exceptions as to period of limitations of assessment and collection of taxes.

xxx xxx xxx

(c) Where the assessment of any internal revenue tax has been made within the period of limitation
above-prescribed such tax may be collected by distraint or levy by a proceeding in court, but only if begun
(1) within five years after the assessment of the tax, or (2) prior the expiration of any period for collection
agreed upon in writing by the Commissioner and the taxpayer before the expiration of such five-year
period. The period so agreed upon may be extended by subsequent agreements in writing made before
the expiration of the period previously agreed upon. (emphasis supplied)

The main thrust of petitioner for the allowance of this petition is that the five-year prescriptive period provided by law to
mak a collection by distraint or levy or by a proceeding in court has not yet prescribed. Although he admits that more than
five (5) years have already lapsed from the time the assessment notices were received by private respondent on
December 19, 1974 up to the time the warrants of distraint and levy were served on March 12, 1980, he avers that the
running of the prescriptive period was stayed or interrupted when Wyeth Suaco protested the assessments. Petitioner
argues that the protest letters sent by SGV & Co. in behalf of Wyeth Suaco dated January 17, 1975 and February 8, 1975,
requesting for withdrawal and cancellation of the assessments were actually requests for reinvestigation or
reconsideration, which could interrupt the running of the five-year prescriptive period.

Wyeth Suaco, on the other hand, maintains the position that it never asked for a reinvestigation nor reconsideration of th
assessments. What it requested was the cancellation and with drawal of the assessments for lack of legal and factual
basis. Thus, its protest letters dated January 17, 1975 and February 8, 1975 did not suspend or interrupt the running of
the five-year prescriptive period.

Settled is the rule that the prescriptive period provided by law to make a collection by distraint or levy or by a proceeding
in court is interrupted once a taxpayer requests for reinvestigation or reconsideration of the assessment. In the case
of Commissioner of Internal Revenue vs. Capitol Subdivision, Inc., 12 this Court held:
The period of prescription of action to collect a taxpayer's deficiency income tax assessment is interrupted
when the taxpayer request for a review or reconsideration of said assessment, and starts to run again
when said request is denied.

In another case, this Court stated that the statutory period of limitation for collection may be interrupted if by the taxpayer's
repeated requests or positive acts the Government has been, for good reasons, persuaded to postpone collection to make
him feel that the demand was not unreasonable or that no harassment or injustice is meant by the Goverrument. 13 Also in
the case of Cordero vs. Gonda, 14 we held:

Partial payment would not prevent the government from suing the taxpayer. Because, by such act of
payment, the government is not thereby "persuaded to postpone collection to make him feel that the
demand was not unreasonable or that no harassment or injustice is meant." This is the underlying reason
behind the rule that the prescriptive period is arrested by the taxpayer's request for re-examination or
reinvestigation even if he "has not previously waived it (prescription in writing)". ... (emphasis supplied)

Thus, the pivotal issue in this case is whether or not Wyeth Suaco sought reinvestigation or reconsideration of the
deficiency tax assessments issued by the Bureau of Internal Revenue.

After carefully examining the records of the case, we find that Wyeth Suaco admitted that it was seeking reconsideration
of the tax assessments as shown in a letter of James A. Gump, its President and General Manager, dated April 28, 1975,
the relevant portion of which is quoted hereunder, to wit:

We submit this letter as a follow-up to our protest filed with your office, through our tax advisers, Sycip,
Gorres, Velayo & Co., on January 20 and February 10, 1975 regarding alleged deficiency on withholding
tax at source of P3,178,994.15 and on percentage tax of P60,855.21, including interest and
surcharges, on which we are seeking reconsideration. 15 (emphasis supplied)

Furthermore, when Wyeth Suaco thru its tax consultant SGV & Co. sent the letters protesting the assessments, the
Bureau of Internal Revenue, Manufacturing Audit Division, conducted a review and reinvestigation of the assessments.
This fact was admitted by Wyeth Suaco thru its Finance Manager in a letter dated July 1, 1975 addressed to the Chief,
Tax Accounts Division. The pertinent portion of said letter reads as follows:

This will acknowledge receipt of your letter dated May 22, 1975 regarding our alleged income and
business tax deficiencies for fiscal year 1972/73.

xxx xxx xxx

Nevertheless, please be advised that the deficiency tax stated in your letter is what we are protesting on
pursuant to the letters we filed with the Bureau of Internal Revenue on January 20, 1975 and on February
10, 1975.

xxx xxx xxx

As we understand, the matter is now undergoing review and consideration by your Manufacturing Audit
Division. Pending the outcome of their decision, we regret our inability to make settlement. ... 16(Emphasis
supplied)

Although the protest letters prepared by SGV & Co. in behalf of private respondent did not categorically state or use th
words "reinvestigation" and "reconsideration," the same are to be treated as letters of reinvestigation and reconsideration.
By virtue of these letters, the Bureau of Internal Revenue ordered its Manufacturing Audit Division to review the
assessment made. Furthermore, private respondent's claim that it did not seek reinvestigation or reconsideration of the
assessments is belied by the subsequent correspondence or letters written by its officers, as shown above.

These letters of Wyeth Suaco interrupted the running of the five-year prescriptive period to collect the deficiency taxes.
The Bureau of Internal Revenue, after having reviewed the record of Wyeth Suaco, in accordance with its request for
reinvestigation, rendered a final assessment. This final assessment issue by then Acting Commissioner Ruben B. Ancheta
was date December 10, 1979 and received by private respondent on January 2, 1980, fixed its tax liability at
P1,973,112.86 as deficiency withholding tax at source and P61,155.21 as deficiency sales tax. It was only upon receipt by
Wyeth Suaco of this final assessment that the five-year prescriptive period started to run again.

Verily, the original assessments dated December 16 and 17, 1974 were both received by Wyeth Suaco on December 19,
1974. However, when Wyeth Suaco protested the assessments and sought its reconsideration in two (2) letters received
by the Bureau of Internal Revenue on January 20 and February 10, 1975, the prescriptive period was interrupted. This
period started to run again when the Bureau of Internal Revenue served the final assessment to Wyeth Suaco on January
2, 1980. Since the warrants of distraint and levy were served on Wyeth Suaco on March 12, 1980, then, only about four
(4) months of the five-year prescriptive period was used.

Having resolved the issue of prescription, we now come to the merits of the case.

Wyeth Suaco questions the legality of the regulation imposed by the Bureau of Intemal Revenue of requiring a withholding
agent or taxpayer to remit the taxes deducted and withheld at source on incomes which have not yet been paid. It
maintains the stand that withholding tax at source should only be remitted to the Bureau of Internal Revenue once the
incomes subject to withholding tax at source have actually been paid. Thus, private respondent avers that it was not liable
to remit the taxes withheld at source on royalties and dividends unless these incomes have been actually paid to its
foreign licensors and stockholders.

It is said that taxes are what we pay for civilized society. Without taxes, the government would be paralyzed for lack of the
motive power to activate and operate it. ... It is the lifeblood of the government and so should be collected without
unnecessary hindrance ... 17

In line with this principle, the Tax Code, particularly Section 54 (a) [now Section 51 (a)] provides that "the Commissioner of
Internal Revenue may, with the approval of the Secretary of Finance, require the withholding agents to pay or deposit the
taxes deducted and withheld at more frequent intervals when necessary to protect the interest of the government. The
return shall be filed and the payment made within 25 days from the close of each calendar quarter". Presently, Revenue
Regulation No. 6-85 effective July 1, 1985, requires the filing of monthly return and payment of taxes withheld at source
within (10) days after the end of each month.

Moreover, the records show that Wyeth Suaco adopted the accrual method of accounting wherein the effect of
transactions and other events on assets and liabilities are recognized and reported in the time periods to which they relate
rather than only when cash is received or paid. The "Report of Investigation" submitted by the tax examiner indicated that
accrual was the basis of the taxpayer's return. 18 Thus, private respondent recorded accrued royalties and dividends
payable as well as the withholding tax at source payable on these incomes. Having deducted and withheld the tax at
source and having recorded the withholding tax at source payable in its books of accounts, private respondent was
obligated to remit the same to the Bureau of Internal Revenue.

With regard to the accuracy of the assessment on deficiency sales tax, we rule that the examiner's assessment should be
given full weight and credit, in the absence of proof submitted by Wyeth Suaco to the contrary. This is in line with our
ruling in several cases wherein we said that tax assessments by tax examiners are presumed correct and made in good
faith. The taxpayer has the duty to prove otherwise. In the absence of proof of any irregularities in the performance of
duties, an assessment duly made by a Bureau of Internal Revenue examiner and approved by his superior officers will not
be disturbed. All presumptions are in favor of the correctness of tax assessments. 19 The case of Commissioner of Internal
Revenue vs. Construction Resources of Asia, Inc., 20 where this Court cited 51 Am. Jur. pp. 620-621, states the principle in
detail, thus:

All presumptions are in favor of the correctness of tax assessments. The good faith of tax assessors and
the validity of their actions are presumed. They will be presumed to have taken into consideration all the
facts to which their attention was called. No presumption can be indulged that all of the public officials of
the State in the various counties who have to do with the assessment of property for taxation will
knowingly violate the duties imposed upon them by law.

The final assessment issued by the Bureau of Internal Revenue declared the issuance of deficiency sales tax
assessments to be legal and valid. It was ascertained that during the investigation, Wyeth Suaco deducted non-deductible
raw materials which were not subjected to advance sales tax thereby resulting in its failure to pay the correct amount of
sales tax under Section 183, in relation to Section 186 and 186-B of the Tax Code, prior to and after amendment by
Presidential Decree No. 69. Wyeth Suaco was not able to refute this by submitting supporting documents. 21

WHEREFORE, the petition is GRANTED. Wyeth Suaco Laboratories, Inc, is hereby ordered to pay the Bureau of Internal
Revenue the amount of P1,973,112.86 as deficiency withholding tax at source, with interest and surcharge in accordance
with law, without prejudice to any reduction brought about by payments or remittance made. Wyeth Suaco Laboratories,
Inc. is also ordered to pay the Bureau of Internal Revenue the amount of P60,855.21 as deficiency sales tax with interest
and surcharge in accordance with law. Costs against private respondent.

SO ORDERED.

f. Failure if the BIR to act within the 180-day period See RCBC v. CIR (2007)
RCBC v. CIR (2007)

G.R. No. 168498 April 24, 2007

RIZAL COMMERCIAL BANKING CORPORATION, Petitioner,


vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

RESOLUTION

YNARES-SANTIAGO, J.:

For resolution is petitioners Motion for Reconsideration of our Decision 1 dated June 16, 2006 affirming the Decision of the
Court of Tax Appeals En Banc dated June 7, 2005 in C.T.A. EB No. 50, which affirmed the Resolutions of the Court of Tax
Appeals Second Division dated May 3, 2004 and November 5, 2004 in C.T.A. Case No. 6475, denying petitioners Petition
for Relief from Judgment and Motion for Reconsideration, respectively.
Petitioner reiterates its claim that its former counsels failure to file petition for review with the Court of Tax Appeals within
the period set by Section 228 of the National Internal Revenue Code of 1997 (NIRC) was excusable and raised the
following issues for resolution:

A.

THE DENIAL OF PETITIONERS PETITION FOR RELIEF FROM JUDGMENT WILL RESULT IN THE DENIAL OF
SUBSTANTIVE JUSTICE TO PETITIONER, CONTRARY TO ESTABLISHED DECISIONS OF THIS HONORABLE
COURT BECAUSE THE ASSESSMENT SOUGHT TO BE CANCELLED HAS ALREADY PRESCRIBED A FACT NOT
DENIED BY THE RESPONDENT IN ITS ANSWER.

B.

CONTRARY TO THIS HONORABLE COURTS DECISION, AND FOLLOWING THE LASCONA DECISION, AS WELL AS
THE 2005 REVISED RULES OF THE COURT OF TAX APPEALS, PETITIONER TIMELY FILED ITS PETITION FOR
REVIEW BEFORE THE COURT OF TAX APPEALS; THUS, THE COURT OF TAX APPEALS HAD JURISDICTION OVER
THE CASE.

C.

CONSIDERING THAT THE SUBJECT ASSESSMENT INVOLVES AN INDUSTRY ISSUE, THAT IS, A DEFICIENCY
ASSESSMENT FOR DOCUMENTARY STAMP TAX ON SPECIAL SAVINGS ACCOUNTS AND GROSS ONSHORE TAX,
PETITIONER IN THE INTEREST OF SUBSTANTIVE JUSTICE AND UNIFORMITY OF TAXATION, SHOULD BE
ALLOWED TO FULLY LITIGATE THE ISSUE BEFORE THE COURT OF TAX APPEALS.2

Petitioners motion for reconsideration is denied for lack of merit.

Other than the issue of prescription, which is raised herein for the first time, the issues presented are a mere rehash of
petitioners previous arguments, all of which have been considered and found without merit in our Decision dated June 16,
2006.

Petitioner maintains that its counsels neglect in not filing the petition for review within the reglementary period was
excusable. It alleges that the counsels secretary misplaced the Resolution hence the counsel was not aware of its
issuance and that it had become final and executory.

We are not persuaded.

In our Decision, we held that:

Relief cannot be granted on the flimsy excuse that the failure to appeal was due to the neglect of petitioners counsel.
Otherwise, all that a losing party would do to salvage his case would be to invoke neglect or mistake of his counsel as a
ground for reversing or setting aside the adverse judgment, thereby putting no end to litigation.

Negligence to be "excusable" must be one which ordinary diligence and prudence could not have guarded against and by
reason of which the rights of an aggrieved party have probably been impaired. Petitioners former counsels omission
could hardly be characterized as excusable, much less unavoidable.

The Court has repeatedly admonished lawyers to adopt a system whereby they can always receive promptly judicial
notices and pleadings intended for them. Apparently, petitioners counsel was not only remiss in complying with this
admonition but he also failed to check periodically, as an act of prudence and diligence, the status of the pending case
before the CTA Second Division. The fact that counsel allegedly had not renewed the employment of his secretary,
thereby making the latter no longer attentive or focused on her work, did not relieve him of his responsibilities to his client.
It is a problem personal to him which should not in any manner interfere with his professional commitments. 3

Petitioner also argues that, in the interest of substantial justice, the instant case should be re-opened considering that it
was allegedly not accorded its day in court when the Court of Tax Appeals dismissed its petition for review for late filing. It
claims that rules of procedure are intended to help secure, not override, substantial justice.

Petitioners arguments fail to persuade us.

As correctly observed by the Court of Tax Appeals in its Decision dated June 7, 2005:

If indeed there was negligence, this is obviously on the part of petitioners own counsel whose prudence in handling the
case fell short of that required under the circumstances. He was well aware of the motion filed by the respondent for the
Court to resolve first the issue of this Courts jurisdiction on July 15, 2003, that a hearing was conducted thereon on
August 15, 2003 where both counsels were present and at said hearing the motion was submitted for resolution.
Petitioners counsel apparently did not show enthusiasm in the case he was handling as he should have been vigilant of
the outcome of said motion and be prepared for the necessary action to take whatever the outcome may have been. Such
kind of negligence cannot support petitioners claim for relief from judgment.
Besides, tax assessments by tax examiners are presumed correct and made in good faith, and all presumptions are in
favor of the correctness of a tax assessment unless proven otherwise. 4 Also, petitioners failure to file a petition for review
with the Court of Tax Appeals within the statutory period rendered the disputed assessment final, executory and
demandable, thereby precluding it from interposing the defenses of legality or validity of the assessment and prescription
of the Governments right to assess.5

The Court of Tax Appeals is a court of special jurisdiction and can only take cognizance of such matters as are clearly
within its jurisdiction. Section 7 of Republic Act (R.A.) No. 9282, amending R.A. No. 1125, otherwise known as the Law
Creating the Court of Tax Appeals, provides:

Sec. 7. Jurisdiction. The CTA shall exercise:

(a) Exclusive appellate jurisdiction to review by appeal, as herein provided:

(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds
of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising
under the National Internal Revenue or other laws administered by the Bureau of Internal Revenue;

(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds
of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising
under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue,
where the National Internal Revenue Code provides a specific period of action, in which case the inaction
shall be deemed a denial;

Also, Section 3, Rule 4 and Section 3(a), Rule 8 of the Revised Rules of the Court of Tax Appeals 6 state:

RULE 4
Jurisdiction of the Court

xxxx

SECTION 3. Cases Within the Jurisdiction of the Court in Divisions. The Court in Divisions shall exercise:

(a) Exclusive original or appellate jurisdiction to review by appeal the following:

(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds
of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising
under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue;

(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds
of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising
under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue,
where the National Internal Revenue Code or other applicable law provides a specific period for action:
Provided, that in case of disputed assessments, the inaction of the Commissioner of Internal Revenue
within the one hundred eighty day-period under Section 228 of the National Internal Revenue Code shall
be deemed a denial for purposes of allowing the taxpayer to appeal his case to the Court and does not
necessarily constitute a formal decision of the Commissioner of Internal Revenue on the tax case;
Provided, further, that should the taxpayer opt to await the final decision of the Commissioner of Internal
Revenue on the disputed assessments beyond the one hundred eighty day-period abovementioned, the
taxpayer may appeal such final decision to the Court under Section 3(a), Rule 8 of these Rules; and
Provided, still further, that in the case of claims for refund of taxes erroneously or illegally collected, the
taxpayer must file a petition for review with the Court prior to the expiration of the two-year period under
Section 229 of the National Internal Revenue Code;

xxxx

RULE 8
Procedure in Civil Cases

xxxx

SECTION 3. Who May Appeal; Period to File Petition. (a) A party adversely affected by a decision, ruling or the inaction
of the Commissioner of Internal Revenue on disputed assessments or claims for refund of internal revenue taxes, or by a
decision or ruling of the Commissioner of Customs, the Secretary of Finance, the Secretary of Trade and Industry, the
Secretary of Agriculture, or a Regional Trial Court in the exercise of its original jurisdiction may appeal to the Court by
petition for review filed within thirty days after receipt of a copy of such decision or ruling, or expiration of the period fixed
by law for the Commissioner of Internal Revenue to act on the disputed assessments. In case of inaction of the
Commissioner of Internal Revenue on claims for refund of internal revenue taxes erroneously or illegally collected, the
taxpayer must file a petition for review within the two-year period prescribed by law from payment or collection of the
taxes. (n)
From the foregoing, it is clear that the jurisdiction of the Court of Tax Appeals has been expanded to include not only
decisions or rulings but inaction as well of the Commissioner of Internal Revenue. The decisions, rulings or inaction of the
Commissioner are necessary in order to vest the Court of Tax Appeals with jurisdiction to entertain the appeal, provided it
is filed within 30 days after the receipt of such decision or ruling, or within 30 days after the expiration of the 180-day
period fixed by law for the Commissioner to act on the disputed assessments. This 30-day period within which to file an
appeal is jurisdictional and failure to comply therewith would bar the appeal and deprive the Court of Tax Appeals of its
jurisdiction to entertain and determine the correctness of the assessments. Such period is not merely directory but
mandatory and it is beyond the power of the courts to extend the same. 7

In case the Commissioner failed to act on the disputed assessment within the 180-day period from date of submission of
documents, a taxpayer can either: 1) file a petition for review with the Court of Tax Appeals within 30 days after the
expiration of the 180-day period; or 2) await the final decision of the Commissioner on the disputed assessments and
appeal such final decision to the Court of Tax Appeals within 30 days after receipt of a copy of such decision. However,
these options are mutually exclusive, and resort to one bars the application of the other.

In the instant case, the Commissioner failed to act on the disputed assessment within 180 days from date of submission
of documents. Thus, petitioner opted to file a petition for review before the Court of Tax Appeals. Unfortunately, the petition
for review was filed out of time, i.e., it was filed more than 30 days after the lapse of the 180-day period. Consequently, it
was dismissed by the Court of Tax Appeals for late filing. Petitioner did not file a motion for reconsideration or make an
appeal; hence, the disputed assessment became final, demandable and executory.

Based on the foregoing, petitioner can not now claim that the disputed assessment is not yet final as it remained unacted
upon by the Commissioner; that it can still await the final decision of the Commissioner and thereafter appeal the same to
the Court of Tax Appeals. This legal maneuver cannot be countenanced. After availing the first option, i.e., filing a petition
for review which was however filed out of time, petitioner can not successfully resort to the second option, i.e., awaiting
the final decision of the Commissioner and appealing the same to the Court of Tax Appeals, on the pretext that there is yet
no final decision on the disputed assessment because of the Commissioners inaction.

Lastly, we note that petitioner is raising the issue of prescription for the first time in the instant motion for reconsideration.
Although the same was raised in the petition for review, it was dismissed for late filing. No motion for reconsideration was
filed hence the disputed assessment became final, demandable and executory. Thereafter, petitioner filed with the Court
of Tax Appeals a petition for relief from judgment. However, it failed to raise the issue of prescription therein. After its
petition for relief from judgment was denied by the Court of Tax Appeals for lack of merit, petitioner filed a petition for
review before this Court without raising the issue of prescription. It is only in the instant motion for reconsideration that
petitioner raised the issue of prescription which is not allowed. The rule is well-settled that points of law, theories, issues
and arguments not adequately brought to the attention of the lower court need not be considered by the reviewing court
as they cannot be raised for the first time on appeal, 8 much more in a motion for reconsideration as in this case, because
this would be offensive to the basic rules of fair play, justice and due process. 9 This last ditch effort to shift to a new theory
and raise a new matter in the hope of a favorable result is a pernicious practice that has consistently been rejected.

WHEREFORE, in view of the foregoing, petitioners motion for reconsideration is DENIED.

g. Administrative actions taken during the 180-day period Compare: CIR v. Union Shipping,
GR No. 66160, 21 May 1990, 185 SCRA 548 and CIR v. Isabela Cultural Corporation, GR
No. 135210, 11 July 2001
G.R. No. L-66160 May 21, 1990

COMMISSIONER OF INTERNAL REVENUE, petitioner,


vs.
UNION SHIPPING CORPORATION and THE COURT OF TAX APPEALS, respondents.

Artemio M. Lobrin for private respondent.

PARAS, J.:

This is a petition for review on certiorari of the December 9, 1983 decision * of the Court of Tax Appeals in CTA Case No.
2989 reversing the Commissioner of Internal Revenue.

In a letter dated December 27, 1974 (Exhibit "A") herein petitioner Commissioner of Internal Revenue assessed against
Yee Fong Hong, Ltd. and/or herein private respondent Union Shipping Corporation, the total sum of P583,155.22 as
deficiency income taxes due for the years 1971 and 1972. Said letter was received on January 4, 1975, and in a letter
dated January 10, 1975 (Exhibit "B"), received by petitioner on January 13, 1975, private respondent protested the
assessment.

Petitioner, without ruling on the protest, issued a Warrant of Distraint and Levy (Exhibit "C"), which was served on private
respondent's counsel, Clemente Celso, on November 25, 1976.
In a letter dated November 27, 1976 (Exhibit "D"), received by petitioner on November 29, 1976 (Exhibit "D-1") private
respondent reiterated its request for reinvestigation of the assessment and for the reconsideration of the summary
collection thru the Warrant of Distraint and Levy.

Petitioner, again, without acting on the request for reinvestigation and reconsideration of the Warrant of Distraint and Levy,
filed a collection suit before Branch XXI of the then Court of First Instance of Manila and docketed as Civil Case No.
120459 against private respondent. Summons (Exhibit "E") in the said collection case was issued to private respondent on
December 28, 1978.

On January 10, 1979, private respondent filed with respondent court its Petition for Review of the petitioner's assessment
of its deficiency income taxes in a letter dated December 27, 1974, docketed therein as CTA Case No. 2989 (Rollo, pp.
44-49), wherein it prays that after hearing, judgment be rendered holding that it is not liable for the payment of the income
tax herein involved, or which may be due from foreign shipowner Yee Fong Hong, Ltd.; to which petitioner filed his answer
on March 29, 1979 (Rollo, pp. 50-53).

Respondent Tax Court, in a decision dated December 9, 1983, ruled in favor of private respondent

WHEREFORE, the decision of the Commissioner of Internal Revenue appealed from, assessing against
and demanding from petitioner the payment of deficiency income tax, inclusive of 50% surcharge, interest
and compromise penalties, in the amounts of P73,958.76 and P583,155.22 for the years 1971 and 1972,
respectively, is reversed.

Hence, the instant petition.

The Second Division of this Court, after the filing of the required pleadings, in a resolution dated January 28, 1985,
resolved to give due course to the petition, and directed petitioner therein, to file his brief (Rollo, p. 145). In compliance,
petitioner filed his brief on May 10, 1985 (Rollo, p. 151). Respondents, on the other hand, filed their brief on June 6, 1985
(Rollo, p. 156).

The main issues in this case are: (a) on the procedural aspect, whether or not the Court of Tax Appeals has jurisdiction
over this case and (b) on the merits, whether or not Union Shipping Corporation acting as a mere "husbanding agent" of
Yee Fong Hong Ltd. is liable for payment of taxes on the gross receipts or earnings of the latter.

The main thrust of this petition is that the issuance of a warrant of distraint and levy is proof of the finality of an
assessment because it is the most drastic action of all media of enforcing the collection of tax, and is tantamount to an
outright denial of a motion for reconsideration of an assessment. Among others, petitioner contends that the warrant of
distraint and levy was issued after respondent corporation filed a request for reconsideration of subject assessment, thus
constituting petitioner's final decision in the disputed assessments (Brief for petitioner, pp. 9 and 12).

Petitioner argues therefore that the period to appeal to the Court of Tax Appeals commenced to run from receipt of said
warrant on November 25, 1976, so that on January 10, 1979 when respondent corporation sought redress from the Tax
Court, petitioner's decision has long become final and executory.

On this issue, this Court had already laid down the dictum that the Commissioner should always indicate to the taxpayer
in clear and unequivocal language what constitutes his final determination of the disputed assessment.

Specifically, this Court ruled:

. . . we deem it appropriate to state that the Commissioner of Internal Revenue should always indicate to
the taxpayer in clear and unequivocal language whenever his action on an assessment questioned by a
taxpayer constitutes his final determination on the disputed assessment, as contemplated by sections 7
and 11 of Republic Act 1125, as amended. On the basis of this statement indubitably showing that the
Commissioner's communicated action is his final decision on the contested assessment, the aggrieved
taxpayer would then be able to take recourse to the tax court at the opportune time. Without needless
difficulty, the taxpayer would be able to determine when his right to appeal to the tax court accrues. This
rule of conduct would also obviate all desire and opportunity on the part of the taxpayer to continually
delay the finality of the assessment and, consequently, the collection of the amount demanded as
taxes by repeated requests for recomputation and reconsideration. On the part of the Commissioner,
this would encourage his office to conduct a careful and thorough study of every questioned assessment
and render a correct and definite decision thereon in the first instance. This would also deter the
Commissioner from unfairly making the taxpayer grope in the dark and speculate as to which action
constitutes the decision appealable to the tax court. Of greater import, this rule of conduct would meet a
pressing need for fair play, regularity, and orderliness in administrative action. (Surigao Electric Co., Inc. v.
C.T.A., 57 SCRA 523, 528, [1974]).

There appears to be no dispute that petitioner did not rule on private respondent's motion for reconsideration but contrary
to the above ruling of this Court, left private respondent in the dark as to which action of the Commissioner is the decision
appealable to the Court of Tax Appeals. Had he categorically stated that he denies private respondent's motion for
reconsideration and that his action constitutes his final determination on the disputed assessment, private respondent
without needless difficulty would have been able to determine when his right to appeal accrues and the resulting confusion
would have been avoided.
Much later, this Court reiterated the above-mentioned dictum in a ruling applicable on all fours to the issue in the case at
bar, that the reviewable decision of the Bureau of Internal Revenue is that contained in the letter of its Commissioner, that
such constitutes the final decision on the matter which may be appealed to the Court of Tax Appeals and not the warrants
of distraint (Advertising Associates, Inc. v. Court of Appeals, 133 SCRA 769 [1984] emphasis supplied). It was likewise
stressed that the procedure enunciated is demanded by the pressing need for fair play, regularity and orderliness in
administrative action.

Under the circumstances, the Commissioner of Internal Revenue, not having clearly signified his final action on the
disputed assessment, legally the period to appeal has not commenced to run. Thus, it was only when private respondent
received the summons on the civil suit for collection of deficiency income on December 28, 1978 that the period to appeal
commenced to run.

The request for reinvestigation and reconsideration was in effect considered denied by petitioner when the latter filed a
civil suit for collection of deficiency income. So. that on January 10, 1979 when private respondent filed the appeal with
the Court of Tax Appeals, it consumed a total of only thirteen (13) days well within the thirty day period to appeal pursuant
to Section 11 of R.A. 1125.

On the merits, it was found fully substantiated by the Court of Tax Appeals that, respondent corporation is the husbanding
agent of the vessel Yee Fong Hong, Ltd. as follows:

Coming to the second issue, petitioner contended and was substantiated by satisfactory uncontradicted
testimonies of Clemente Celso, Certified Public Accountant, and Rodolfo C. Cabalquinto, President and
General Manager, of petitioner that it is actually and legally the husbanding agent of the vessel of Yee
Fong Hong, Ltd. as (1) it neither performed nor transacted any shipping business, for and in
representation, of Yee Fong Hong, Ltd. or its vessels or otherwise negotiated or procured cargo to be
loaded in the vessels of Yee Fong Hong, Ltd. (p. 21, t.s.n., July 16, 1980); (2) it never solicited or
procured cargo or freight in the Philippines or elsewhere for loading in said vessels of Yee Fong Hong,
Ltd. (pp. 21 & 38, ibid.); (3) it had not collected any freight income or receipts for the said Yee Fong Hong,
Ltd. (pp. 22 & 38, ibid; pp. 46 & 48, t.s.n., Nov. 14, 1980.); (4) it never had possession or control, actual or
constructive, over the funds representing payment by Philippine shippers for cargo loaded on said vessels
(pp. 21 & 38, ibid; p. 48, ibid); petitioner never remitted to Yee Fong Hong, Ltd. any sum of money
representing freight incomes of Yee Fong Hong, Ltd. (p. 21, ibid.; p. 48, ibid); and (5) that the freight
payments made for cargo loaded in the Philippines for foreign destination were actually paid directly by
the shippers to the said Yee Fong Hong, Ltd. upon arrival of the goods in the foreign ports. (Rollo, pp. 58-
59).

On the same issue, the Commissioner of Internal Revenue Misael P. Vera, on query of respondent's counsel, opined that
respondent corporation being merely a husbanding agent is not liable for the payment of the income taxes due from the
foreign ship owners loading cargoes in the Philippines (Rollo, p. 63; Exhibit "I", Rollo, pp. 64-66).

Neither can private respondent be liable for withholding tax under Section 53 of the Internal Revenue Code since it is not
in possession, custody or control of the funds received by and remitted to Yee Fong Hong, Ltd., a non-resident taxpayer.
As correctly ruled by the Court of Tax Appeals, "if an individual or corporation like the petitioner in this case, is not in the
actual possession, custody, or control of the funds, it can neither be physically nor legally liable or obligated to pay the so-
called withholding tax on income claimed by Yee Fong Hong, Ltd." (Rollo, p. 67).

Finally, it must be stated that factual findings of the Court of Tax Appeals are binding on this Court (Industrial Textiles
Manufacturing Company of the Phil., Inc. (ITEMCOP) v. Commissioner of Internal Revenue, et al. (136 SCRA 549 [1985]).
It is well-settled that in passing upon petitions for review of the decisions of the Court of Tax Appeals, this Court is
generally confined to questions of law. The findings of fact of said Court are not to be disturbed unless clearly shown to be
unsupported by substantial evidence (Commissioner of Internal Revenue v. Manila Machinery & Supply Company, 135
SCRA 8 [1985]).

A careful scrutiny of the records reveals no cogent reason to disturb the findings of the Court of Tax Appeals.

PREMISES CONSIDERED, the instant petition is hereby DISMISSED and the assailed decision of the Court of Tax
Appeals is hereby AFFIRMED.

G.R. No. 135210 July 11, 2001

COMMISSIONER OF INTERNAL REVENUE, petitioner,


vs.
ISABELA CULTURAL CORPORATION, respondent.

PANGANIBAN, J.:

A final demand letter from the Bureau of Internal Revenue, reiterating to the taxpayer the immediate payment of a tax
deficiency assessment previously made, is tantamount to a denial of the taxpayer's request for reconsideration. Such
letter amounts to a final decision on a disputed assessment and is thus appealable to the Court of Tax Appeals (CTA).

The Case
Before this Court is a Petition for Review on Certiorari1 pursuant to Rule 45 of the Rules of Court, seeking to set aside the
August 19, 1998 Decision2 of the Court of Appeals3 (CA) in CA-GR SP No. 46383 and ultimately to affirm the dismissal of
CTA Case No. 5211. The dispositive portion of the assailed Decision reads as follows:

"WHEREFORE, the assailed decision is REVERSED and SET ASIDE. Accordingly, judgment is hereby rendered
REMANDING the case to the CTA for proper disposition." 4

The Facts

The facts are undisputed. The Court of Appeals quoted the summary of the CTA as follows:

"As succinctly summarized by the Court of Tax appeals (CTA for brevity), the antecedent facts are as follows:

'In an investigation conducted on the 1986 books of account of [respondent, petitioner] had the
preliminary [finding] that [respondent] incurred a total income tax deficiency of P9,985,392.15, inclusive of
increments. Upon protest by [respondent's] counsel, the said preliminary assessment was reduced to the
amount of P325,869.44, a breakdown of which follows:

Deficiency Income Tax P321,022.68

Deficiency Expanded Withholding Tax 4,846.76

Total P325,869.44

(pp. 187-189, BIR records)'

On February 23, 1990, [respondent] received from [petitioner] an assessment letter, dated February 9, 1990,
demanding payment of the amounts of P333,196.86 and P4,897.79 as deficiency income tax and expanded
withholding tax inclusive of surcharge and interest, respectively, for the taxable period from January 1, 1986 to
December 31, 1986. (pp. 204 and 205, BIR rec.)

In a letter, dated March 22, 1990, filed with the [petitioner's] office on March 23, 1990 (pp. 296-311, BIR rec.),
[respondent] requested x x x a reconsideration of the subject assessment.

Supplemental to its protest was a letter, dated April 2, 1990, filed with the [petitioner's] office on April 18, 1990 (pp.
224 & 225, BIR rec.), to which x x x were attached certain documents supportive of its protest, as well as a Waiver
of Statute of Limitation, dated April 17, 1990, where it was indicated that [petitioner] would only have until April 5,
1991 within which to asses and collect the taxes that may be found due from [respondent] after the re-
investigation.

On February 9, 1995, [respondent] received from [petitioner] a Final Notice Before Seizure, dated December 22,
1994 (p. 340, BIR rec.). In said letter, [petitioner] demanded payment of the subject assessment within ten (10)
days from receipt thereof. Otherwise, failure on its part would constrain [petitioner] to collect the subject
assessment through summary remedies.

[Respondent] considered said final notice of seizure as [petitioner's] final decision. Hence, the instant petition for
review filed with this Court on March 9, 1995.

The CTA having rendered judgment dismissing the petition, [respondent] filed the instant petition anchored on the
argument that [petitioner's] issuance of the Final Notice Before Seizure constitutes [its] decision on [respondent's]
request for reinvestigation, which the [respondent] may appeal to the CTA." 5

Ruling of the Court of Appeals

In its Decision, the Court of Appeals reversed the Court of Tax Appeals. The CA considered the final notice sent by
petitioner as the latter's decision, which was appealable to the CTA. The appellate court reasoned that the final Notice
before seizure had effectively denied petitioner's request for a reconsideration of the commissioner's assessment. The CA
relied on the long-settled tax jurisprudence that a demand letter reiterating payment of delinquent taxes amounted to a
decision on a disputed assessment.

Hence, this recourse.6

Issues
In his Memorandum,7 petitioner presents for this Court's consideration a solitary issue:

"Whether or not the Final Notice Before Seizure dated February 9, 1995 signed by Acting Chief Revenue
Collection Officer Milagros Acevedo against ICC constitutes the final decision of the CIR appealable to the CTA." 8

The Court's Ruling

The Petition is not meritorious.

Sole Issue:
The Nature of the Final Notice Before Seizure

The Final Notice Before Seizure sent by the Bureau of Internal Revenue (BIR) to respondent reads as follows:

"On Feb. 9, 1990, [this] Office sent you a letter requesting you to settle the above-captioned assessment. To date,
however, despite the lapse of a considerable length of time, we have not been honored with a reply from you.

In this connection, we are giving you this LAST OPPORTUNITY to settle the adverted assessment within ten (10)
days after receipt hereof. Should you again fail, and refuse to pay, this Office will be constrained to enforce its
collection by summary remedies of Warrant of Levy of Road Property, Distraint of Personal Property or Warrant of
Garnishment, and/or simultaneous court action.

Please give this matter your preferential attention.

Very truly yours,

ISIDRO B. TECSON, JR.


Revenue District Officer

By:

(Signed)
MILAGROS M. ACEVEDO
Actg. Chief Revenue Collection Officer"9

Petitioner maintains that this Final Notice was a mere reiteration of the delinquent taxpayer's obligation to pay the taxes
due. It was supposedly a mere demand that should not have been mistaken for a decision on a protested assessment.
Such decision, the commissioner contends, must unequivocably indicate that it is the resolution of the taxpayer's request
for reconsideration and must likewise state the reason therefor.

Respondent, on the other hand, points out that the Final Notice Before Seizure should be considered as a denial of its
request for reconsideration of the disputed assessment. The Notice should be deemed as petitioner's last act, since failure
to comply with it would lead to the distraint and levy of respondent's properties, as indicated therein.

We agree with respondent. In the normal course, the revenue district officer sends the taxpayer a notice of delinquent
taxes, indicating the period covered, the amount due including interest, and the reason for the delinquency. If the taxpayer
disagrees with or wishes to protest the assessment, it sends a letter to the BIR indicating its protest, stating the reasons
therefor, and submitting such proof as may be necessary. That letter is considered as the taxpayer's request for
reconsideration of the delinquent assessment. After the request is filed and received by the BIR, the assessment becomes
a disputed assessment on which it must render a decision. That decision is appealable to the Court of Tax Appeals for
review.

Prior to the decision on a disputed assessment, there may still be exchanges between the commissioner of internal
revenue (CIR) and the taxpayer. The former may ask clarificatory questions or require the latter to submit additional
evidence. However, the CIR's position regarding the disputed assessment must be indicated in the final decision. It is this
decision that is properly appealable to the CTA for review.

Indisputably, respondent received an assessment letter dated February 9, 1990, stating that it had delinquent taxes due;
and it subsequently filed its motion for reconsideration on March 23, 1990. In support of its request for reconsideration, it
sent to the CIR additional documents on April 18, 1990. The next communication respondent received was already the
Final Notice Before Seizure dated November 10, 1994.
In the light of the above facts, the Final Notice Before Seizure cannot but be considered as the commissioner's decision
disposing of the request for reconsideration filed by respondent, who received no other response to its request. Not only
was the Notice the only response received; its content and tenor supported the theory that it was the CIR's final act
regarding the request for reconsideration. The very title expressly indicated that it was a final notice prior to seizure of
property. The letter itself clearly stated that respondent was being given "this LAST OPPORTUNITY" to pay; otherwise, its
properties would be subjected to distraint and levy. How then could it have been made to believe that its request for
reconsideration was still pending determination, despite the actual threat of seizure of its properties?

Furthermore, Section 228 of the National Internal Revenue Code states that a delinquent taxpayer may
nevertheless directly appeal a disputed assessment, if its request for reconsideration remains unacted upon 180 days
after submission thereof. We quote:

"Sec. 228. Protesting an Assessment. x x x

Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required to respond
to said notice. If the taxpayer fails to respond, the Commissioner or his duly authorized representative shall issue
an assessment based on his findings.

Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation
within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by
implementing rules and regulations. Within sixty (60) days from filing of the protest, all relevant supporting
documents shall have become final.

If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from
submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of
Tax Appeals within (30) days from receipt of the said decision, or from the lapse of the one hundred eighty (180)-
day period; otherwise the decision shall become final, executory and demandable." 10

In this case, the said period of 180 days had already lapsed when respondent filed its request for reconsideration on
March 23, 1990, without any action on the part of the CIR.

Lastly, jurisprudence dictates that a final demand letter for payment of delinquent taxes may be considered a decision on
a disputed or protested assessment. In Commissioner of Internal Revenue v. Ayala Securities Corporation, this Court
held:

"The letter of February 18, 1963 (Exh. G), in the view of the Court, is tantamount to a denial of the reconsideration
or [respondent corporation's] x x x protest o[f] the assessment made by the petitioner, considering that the said
letter [was] in itself a reiteration of the demand by the Bureau of Internal Revenue for the settlement of the
assessment already made, and for the immediate payment of the sum of P758,687.04 in spite of the vehement
protest of the respondent corporation on April 21, 1961. This certainly is a clear indication of the firm stand of
petitioner against the reconsideration of the disputed assessment, in view of the continued refusal of the
respondent corporation to execute the waiver of the period of limitation upon the assessment in question.

This being so, the said letter amount[ed] to a decision on a disputed or protested assessment and, there, the
court a quo did not err in taking cognizance of this case." 11

Similarly, in Surigao Electric Co., Inc. v. Court of Tax Appeals12 and again in CIR v. Union Shipping Corp.,13 we ruled:

"x x x. The letter of demand dated April 29, 1963 unquestionably constitutes the final action taken by the
commissioner on the petitioner's several requests for reconsideration and recomputation. In this letter the
commissioner not only in effect demanded that the petitioner pay the amount of P11,533.53 but also gave warning
that in the event it failed to pay, the said commissioner would be constrained to enforce the collection thereof by
means of the remedies provided by law. The tenor of the letter, specifically the statement regarding the resort to
legal remedies, unmistakably indicate[d] the final nature of the determination made by the commissioner of the
petitioner's deficiency franchise tax liability."

As in CIR v. Union Shipping,14 petitioner failed to rule on the Motion for Reconsideration filed by private respondent, but
simply continued to demand payment of the latter's alleged tax delinquency. Thus, the Court reiterated the dictum that the
BIR should always indicate to the taxpayer in clear and unequivocal language what constitutes final action on a disputed
assessment. The object of this policy is to avoid repeated requests for reconsideration by the taxpayer, thereby delaying
the finality of the assessment and, consequently, the collection of the taxes due. Furthermore, the taxpayer would not be
groping in the dark, speculating as to which communication or action of the BIR may be the decision appealable to the tax
court.15

In the instant case, the second notice received by private respondent verily indicated its nature that it was final.
Unequivocably, therefore, it was tantamount to a rejection of the request for reconsideration.

Commissioner v. Algue16 is not in point here. In that case, the Warrant of Distraint and Levy, issued to the taxpayer without
any categorical ruling on its request for reconsideration, was not deemed equivalent to a denial of the request. Because
such request could not in fact be found in its records, the BIR cannot be presumed to have taken it into consideration. The
request was considered only when the taxpayer gave a copy of it, duly stamp-received by the BIR. Hence, the Warrant
was deemed premature.1wphi1.nt
In the present case, petitioner does not deny receipt of private respondent's protest letter. As a matter of fact, it
categorically relates the following in its "Statement of Relevant Facts": 17

"3. On March 23, 1990, respondent ICC wrote the CIR requesting for a reconsideration of the assessment on the
ground that there was an error committed in the computation of interest and that there were expenses which were
disallowed (Ibid., pp. 296-311).

"4. On April 2, 1990, respondent ICC sent the CIR additional documents in support of its protest/reconsideration.
The letter was received by the BIR on April 18, 1990. Respondent ICC further executed a Waiver of Statute of
Limitation (dated April 17, 1990) whereby it consented to the BIR to assess and collect any taxes that may be
discovered in the process of reinvestigation, until April 3, 1991 (Ibid., pp. 296-311). A copy of the waiver is hereto
attached as Annex 'C'."

Having admitted as a fact private respondent's request for reconsideration, petitioner must have passed upon it prior to
the issuance of the Final Notice Before Seizure.

WHEREFORE, the Petition is hereby DENIED and the assailed Decision AFFIRMED.

h. Effect of a protest filed out of time Protectors Services v. CA, GR No. 118176, 12 April
2000

1985..........P1,514,047.86.......18-450-85B-87-B2

On December 7, 1987, respondent Commissioner sent by registered mail, demand letters for payment of the aforesaid
assessments. However, petitioner alleged that on December 10, 1987, it only received Demand Letter Nos. 18-452-83B-
87 -B2 and 18-451-84B-87 -B2 for the years 1983 and 1984, respectively. It denied receiving any notice of deficiency
percentage tax for the year 1985.

Petitioner sent a protest letter dated January 02, 1988, to the BIR regarding the 1983 and 1984 assessments. The
petitioner claimed that its gross receipts subject to percentage taxes should exclude the salaries of the security guards as
well as the corresponding employer's share of Social Security System (SSS), State Insurance Fund (SIP) and Medicare
contributions. Sclaw

Without formally acting on the petitioner's protest, the BIR sent a follow-up letter dated July 12, 1988, ordering the
settlement of taxes based on its computation. Additional documentary stamp taxes of two thousand twenty-five
(P2,025.00) pesos on petitioner's capitalization for 1983 and 1984, and seven hundred three pesos and forty-one
centavos (P703.41) as deficiency expanded withholding tax were included in the amount demanded. The total unsettled
tax amounted to two million, eight hundred fifty-one thousand, eight hundred five pesos and sixteen centavos
(P2,851,805.16).

On July 21, 1988, petitioner paid the P2,025.00 documentary stamp tax and the P703.41 deficiency expanded withholding
tax. On the following day, July 22, 1988, petitioner filed its second protest on the 1983 and 1984 percentage taxes, and
included, for the first time, its protest against the 1985 assessment.

On November 9, 1990, BIR Deputy Commissioner Eufracio Santos sent a letter to the petitioner which denied with finality
the latter's protests against the subject assessments, stating thus:

"...[T]hat the salaries paid to the security guards form part of your taxable gross receipts in the
determination of the 3% and 4% contractor's tax imposed under Section 191 of the Tax Code prior to its
amendment by the provision of Executive Order No.273.

Considering that the security guards are actually your employees and not that of your clients, the salaries
corresponding to the services rendered by your employees form part of your taxable receipts. This
contention finds support in the case of Avecilla Building Corporation versus Commissioner, et al., G.R. L-
42395, 17 January 1985 and Resty Arbon Singh versus Commissioner, CTA Case No.1901, 5 December
1970."[3]

On December 5, 1990, petitioner filed a petition for review before the CTA contending that:

1).....Assessments for documentary stamp tax and expanded withholding tax are without basis since they
were paid on July 22, 1988.

2).....The period for collection of the 1985 percentage tax had prescribed, because PSI denied having
received any assessment letter for the same year. Sc lex

3).....Percentage taxes for the three quarters of 1984 were filed as follows: 1st Qtr. -April 23, 1984; 2nd
Qtr. -July 20, 1984, and; 3rd Qtr. - October 19, 1984. The three-year prescriptive period to collect
percentage taxes for the 1st, 2nd and 3rd quarters had prescribed because the BIR sent an assessment
letter only on December 10, 1987.
4).....The base amount for computing percentage tax was erroneous because the BIR included in the
taxable amount, the salaries of the security guards and the employer's corresponding remittances to SSS,
SIF, and Medicare, which amounts were earmarked for other persons, and should not form part of PSIs
receipts.

The CTA dismissed the petition on the following grounds: (1) The three-year period of limitation for assessment of taxes in
1984 commenced from the date of filing the final return on January 20, 1985, hence assessment made on December 10,
1987, was within said period. (2) Petitioner could not deny receipt of the 1985 assessment on the same date, December
10, 1987, for as supported by testimony of the BIR personnel, all the assessment letters for the years 1983, 1984, and
1985 were included in one envelope and mailed together. (3) Petitioner's protest letter dated January 2, 1988, was filed on
January 12, 1988, or thirty-three days from December 10, 1987, hence, the request for reinvestigation was filed out of
time.

Petitioner appealed to the Court of Appeals, which affirmed the decision of the CTA. Hence, the present petition, wherein
petitioner raises the following issues:

"I. WHETHER THE COURT OF TAX APPEALS HAS JURISDICTION TO ACT ON THE PETITION FOR
REVIEW FILED BEFORE IT.

II. WHETHER THE ASSESSMENTS AGAINST THE PETITIONER FOR DEFICIENCY PERCENTAGE
TAX FOR TAXABLE YEARS 1983 AND 1984 WERE MADE AFTER THE LAPSE OF THE
PRESCRIPTIVE PERIOD.

III. WHETHER THE PERIOD FOR THE COLLECTION OF TAXES FOR TAXABLE YEARS 1983,1984,
AND 1985 HAS ALREADY PRESCRIBED.

IV. WHETHER THE ASSESSMENTS ARE CORRECT."[4]

As to the first issue, petitioner maintains that the assessments only became final on November 9, 1990, when the CIR
denied the request for reconsideration. Consequently, the CTA had jurisdiction over the appeal filed by the petitioner on
December 5, 1990. Furthermore, the CTA resolved that the assessments became final after thirty days from receipt of
demand letters by the petitioner, without the latter interposing a reconsideration. x law

The pertinent provision of the National Internal Revenue Code of 1977 (NIRC 1977), concerning the period within which to
file a protest before the CIR, reads:

"Section 270. Protesting of assessment. --When the Commissioner of Internal Revenue or his duly
authorized representative finds that proper taxes should be assessed, he shall first notify the taxpayer of
his findings. Within a period to be prescribed by implementing regulations, the taxpayer shall be required
to respond to said notice. If the taxpayer fails to respond, the Commissioner shall issue an assessment
based on his findings.

Such assessment may be protested administratively by filing a request for reconsideration or


reinvestigation in such form and manner as may be prescribed by the implementing regulations within
thirty (30) days from receipt of the assessment; otherwise, the assessment shall become final, and
unappealable.

If the protest is denied in whole or in part, the individual, association or corporation adversely affected by
the decision on the protest may appeal to the Court of Tax Appeals within thirty (30) days from receipt of
the said decision; otherwise, the decision shall become final, executory and demandable."

We note that indeed on December 10, 1987, petitioner received the BIR's assessment notices. On January 12, 1988,
petitioner protested the 1983 and 1984 assessments and requested for a reinvestigation. From December 10, 1987 to
January 12, 1988, thirty-three days had lapsed. Thereafter petitioner may no longer dispute the correctness of the
assessments. Hence, in our view, the CTA correctly dismissed the appeal for lack of jurisdiction.

On the second issue, petitioner argues that the government's right to assess and collect the 1983, 1984 and 1985 taxes
had already prescribed. Relying on Batas Parnbansa (BP) Blg. 700, which reduced the period of limitation for assessment
and collection of internal revenue taxes from five to three years, petitioner asserts that the government was barred from
reviewing the 1983 tax starting December 10, 1987, the expiry date of the three-year limit. Petitioner insists that the
reckoning period of prescription should start from the date when the quarterly percentage taxes were paid and not when
the Final Annual Percentage Tax Return for the year was filed. Moreover, he denies having received the 1985 tax
assessment.

Petitioner's contentions lack merit. Sections one and three of BP 700, "An Act Amending Sections 318 and 319 of the
National Internal Revenue Code, which reduced the period of limitation for assessment and collection of internal revenue
taxes from five to three years," provides: Sc

"Sec. 1, Section 318 of the National Internal Revenue Code, as amended, is hereby amended to read as
follows:
Sec. 318. Period of limitation upon assessment and collection. --Except as provided in
the succeeding sections, internal revenue taxes shall be assessed within three years
after the last day prescribed by law for the filing of the return, and no proceeding in court
without assessment for the collection of such taxes shall be begun after the expiration of
such period: Provided, That in a case where a return is filed beyond the period prescribed
by law, the three-year period shall be counted from the day the return was filed. For the
purposes of this section, a return filed before the last day prescribed by law for the filing
thereof shall be considered as filed on such last day.

xxx

"Sec. 3. The period of limitation herein prescribed shall apply to assessments of internal revenue taxes
beginning taxable year 1984."

B.P. 700 was approved on April 5, 1984. The three-year prescriptive period for assessment and collection of revenue
taxes applied to taxes paid beginning 1984. Clearly, the tax assessment made on December 10, 1987, for the year 1983
was still covered by the five-year statutory prescriptive period. This rule was emphasized in Revenue Memorandum
Circular (RMC) No. 33-84, published on November 12, 1984, which defined the salient features of the application of BP
700, to wit:

"B. Effectivity of Prescriptive Periods of Assessment and Collection

1......Assessment made on or after April 5, 1984 (date, of approval of BP 700) will still be governed by the
original five-year period if the taxes assessed thereby cover taxable years prior to January 1,
1984. (emphasis supplied) Scmis

Corollarily, assessments made before April 5, 1984 shall still be governed by the original five-year period.

However, assessments made on or April 5, 1984 covering taxable years beginning January 1, 1984 shall
be under the new three-year period."

Should the three-year limitation be reckoned at the time of the quarterly payment of contractor's tax or at the due date of
the final annual tax?

Section 2 of Revenue Regulation No.6-81, states:

"Sec. 2. Percentage tax. --In general, unless otherwise specifically provided in the Tax Code, every
person conducting business on which a percentage tax is imposed under Chapter II Title V of the Tax
Code must render quarterly declaration on cumulative basis of the amount of his sales, receipts or
earnings or gross value of output actually removed from the factory or near warehouse, compute and pay
the tax due thereon.

(a) Quarterly Percentage Return.--

For each of the first three quarters of the taxable year, the tax so
computed shall be decreased by the amount of tax previously paid and
by the sum of the tax credits allowed under this Title for the preceding
current quarters. The tax due shall be paid not later than twenty (20)
days following the close of each of the first three quarters of the taxable
year.

(b) Final Annual Percentage Tax Return --

On or before the twentieth day of the second month following the close of
the taxable year, a final percentage tax return shall be filed under BIR
Form No. __ covering the entire taxable year. If the sum of the total
quarterly percentage tax payments made for the first three quarters and
total tax credit allowable for the taxable year are not equal to the total tax
due on the entire gross sales, receipts or earnings or gross value of the
output for that taxable year, the taxpayer shall either:

(1) Pay the tax still due; or Mis sc

(2) Credit to the extent allowable under this Title, the amount of excess
tax credits shown in the final adjustment return against the quarterly
percentage tax liabilities for the succeeding taxable quarters."

Only recently in G.R. No.115712, Commission of Internal Revenue vs. Court of Appeals, February 25, 1999, we held, that
the three-year prescriptive period of tax assessment of contractors tax should be computed at the time of the filing of the
"final annual percentage tax return,"[5] when it can be finally ascertained if the taxpayer still has an unpaid tax, and not
from the tentative quarterly payments.
Turning now to petitioner's denial that he received the 1985 assessment, we agree with the factual findings of the CTA that
the assessment letter may be presumed to have been received by petitioner. The CTA found as follows: Mis spped

"The 1985 assessment which petitioner denied as having been received was negated when the
respondent introduced documentary evidence showing that it was mailed by registered mail. It was further
buttressed by the testimony of witness Mr. Arnold C. Larroza, Chief Administrative Branch Mailing
Section, Rev. Region No. 4B-1, Quezon City that the 1983, 1984 and 1985 assessments were placed in
one envelope when it was mailed by registered mail. Presumably, it was received in the regular course of
the mail. ... The facts to be proved to raise this presumption are (a) that the letter was properly addressed
with postage prepaid; and (b) that it was mailed. Once these facts are proved, the presumption is that the
letter was received by the addressee as soon as it could have been transmitted to him in the ordinary
course of the mails. Such being the case, this Court cannot be made to believe that the 1985 assessment
which incidentally has a substantially greater amount involved, was not received by the petitioner. Hence,
the same assessment is also considered final and unappealable for failure of the petitioner to protest the
same within the reglementary period provided by law." [6]

In reviewing administrative decisions, the reviewing court cannot re-examine the factual basis and sufficiency of the
evidence.[7] The findings of fact must be respected, so long as they are supported by substantial evidence. [8]

As a subsidiary defense, petitioner interposes the third issue claiming that since the CIR failed, until now, to commence
the collection of the 1983, 1984, and 1985 deficiency tax, the right to collect had, likewise, prescribed. Petitioner urges us
to consider that for the government's failure to institute collection remedies either by judicial action or by distraint and levy,
the right to collect the same has prescribed pursuant to Section 219 of the NIRC. Note, however, that Section 271 of the
1986 Tax Code provides for the suspension of running of the statute of limitation of tax collection, as follows: Spped

"Sec. 271. Suspension of running of statute. -- The running of the statute of limitations provided in
Sections 268 and 269 on the making of assessment and the beginning of distraint or levy or a proceeding
in court for collection, in respect of any deficiency, shall be suspended for the period during which the
Commissioner is prohibited from making the assessment or beginning distraint or levy or a
proceeding in court and for sixty days thereafter; when the taxpayer request for a reinvestigation
which is granted by the Commissioner; when the taxpayer cannot be located in the address given by him
in the return filed upon which a tax is being assessed or collected: Provided, That, if the taxpayer informs
the Commissioner of any change in address, the running of the statute of limitation will not be suspended;
when the warrant of distraint and levy is duly served upon the taxpayer, his authorized representative, or
a member of his household with sufficient discretion, and no property could be located; and when the
taxpayer is out of the Philippines." (Emphasis supplied.)

In the instant case, PSI filed a petition before the CTA to prevent the collection of the assessed deficiency tax. When the
CTA dismissed the case, petitioner elevated the case before us, hoping for a review in its favor. The actions taken by the
petitioner before the CTA and now before us, suspended the running of the statute of limitation. In the old case
of Republic of thePhilippines vs. Ker and Company, Ltd.,[9] we held:

"Under Section 333 (renumbered to 271 during the instant case) of the Tax Code the running of the
prescriptive period to collect deficiency taxes shall be suspended for the period during which the
Commissioner of Internal Revenue is prohibited from beginning a distraint and levy or instituting a
proceeding in court, and for sixty days thereafter. In the case at bar, the pendency of the taxpayer's
appeal in the Court of Tax Appeals and in the Supreme Court had the effect of temporarily staying the
hands of the said Commissioner. If the taxpayer's stand that the pendency of the appeal did not stop the
running of the period because the Court of Tax Appeals did not have jurisdiction over the case of taxes is
upheld, taxpayers would be encouraged to delay the payment of taxes in the hope of ultimately avoiding
the same. Under the circumstances, the running of the prescriptive period was suspended." [10] Jo spped

Finally, petitioner contends that the assessments made by the respondent CIR were erroneous because they included in
the gross receipts subject to the contractor's tax the salaries of the security guards and the employer's share in the SSS,
SIF and Medicare. Petitioner claims that it did not benefit from those amounts earmarked for other persons or institutions,
hence, they must not be taxable.

Contractors tax on gross receipts imposed on business agents including private detective watchman agencies, [11] was a
tax on the sale of services or labor, imposed on the exercise of a privilege. [12] The term "gross receipts" means all
amounts received by the prime or principal contractor as the total price, undiminished by the amount paid to the
subcontractor under a subcontract arrangement.[13] Hence, gross receipts could not be diminished by employer's SSS, SIF
and Medicare contributions.[14] Furthermore, it has been consistently ruled by the BIR that the salaries paid to security
guards should form part of the gross receipts, subject to tax, to wit:

"...This Office has consistently ruled that salaries of security guards form part of the taxable gross receipts
of a security agency for purposes of the 4% [formerly 3%] contractors tax under Section 205 of the Tax
Code, as amended. The reason is that the salaries of the security guards are actually the liability of the
agency and that the guards are considered their employees; hence, for percentage tax purposes, the
salaries of the security guards are includible in its gross receipts. (BIR Ruling No.271-81 citing BIR Ruling
No. 69-002)"[15]
These rulings were made by the CIR in the exercise of his power to "make judgments or opinions in connection with the
implementation of the provisions of the internal revenue code." The opinions and rulings of officials of the government
called upon to execute or implement administrative laws, command respect and weight. [16] We see no compelling reason
in this case to rule otherwise. Spped jo

WHEREFORE, the assailed decision of the Court of Appeals, in CA- G.R. SP 31825, is AFFIRMED. Costs against
petitioner.

SO ORDERED.

i. Remedies from a denial of the protest


Appeal to the Court of Tax Appeals (RA 1125, as amended by RA9282)
Fishwealth Canning Corporation v. CTR, G.R. No. 179343, 21 January 2010
FISHWEALTH CANNING G.R. No. 179343
CORPORATION,
Petitioner, Present:

PUNO, C.J., Chairperson,

CARPIO MORALES,
LEONARDO-DE CASTRO,
BERSAMIN, and
- versus - VILLARAMA, JR., JJ.


Promulgated:
January 21, 2010
COMMISSIONER OF INTERNAL
REVENUE,
Respondent.
x--------------------------------------------------x

DECISION

CARPIO MORALES, J.:


The Commissioner of Internal Revenue (respondent), by Letter of Authority dated May 16, 2000,[1] ordered the examination of
the internal revenue taxes for the taxable year 1999 of Fishwealth Canning Corp. (petitioner). The investigation disclosed that
petitioner was liable in the amount of P2,395,826.88 representing income tax, value added tax (VAT), withholding tax deficiencies and
other miscellaneous deficiencies. Petitioner eventually settled these obligations on August 30, 2000.[2]

On August 25, 2000, respondent reinvestigated petitioners books of accounts and other records of internal revenue taxes covering the
same period for the purpose of which it issued a subpoena duces tecum requiring petitioner to submit its records and books of
accounts. Petitioner requested the cancellation of the subpoena on the ground that the same set of documents had previously been
examined.

As petitioner did not heed the subpoena, respondent thereafter filed a criminal complaint against petitioner for violation of
Sections 5 (c) and 266 of the 1997 Internal Revenue Code, which complaint was dismissed for insufficiency of evidence.[3]

Respondent sent, on August 6, 2003, petitioner a Final Assessment Notice of income tax and VAT
deficiencies totaling P67,597,336.75 for the taxable year 1999,[4] which assessment petitioner contested by letter of September 23,
2003.[5]

Respondent thereafter issued a Final Decision on Disputed Assessment dated August 2, 2005, which petitioner received
on August 4, 2005, denying its letter of protest, apprising it of its income tax and VAT liabilities in the amounts of P15,396,905.24
and P63,688,434.40 [sic], respectively, for the taxable year 1999,[6] and requesting the immediate payment thereof, inclusive of
penalties incident to delinquency. Respondent added that if petitioner disagreed, it may appeal to the Court of Tax Appeals (CTA)
within thirty (30) days from date of receipt hereof, otherwise our said deficiency income and value-added taxes assessments shall
become final, executory, and demandable.[7]

Instead of appealing to the CTA, petitioner filed, on September 1, 2005, a Letter of Reconsideration dated August 31, 2005.[8]

By a Preliminary Collection Letter dated September 6, 2005, respondent demanded payment of petitioners tax liabilities,
[9]
drawing petitioner to file on October 20, 2005 a Petition for Review[10] before the CTA.

In his Answer,[11] respondent argued, among other things, that the petition was filed out of time which argument the First
Division of the CTA upheld and accordingly dismissed the petition.[12]

Petitioner filed a Motion for Reconsideration[13] which was denied.[14] The Resolution denying its motion for reconsideration
was received by petitioner on October 31, 2006.[15]

On November 21, 2006, petitioner filed a petition for review before the CTA En Banc [16] which, by Decision[17] of July 5, 2007,
held that the petition before the First Division, as well as that before it, was filed out of time.

Hence, the present petition,[18] petitioner arguing that the CTA En Banc erred in holding that the petition it filed before the
CTA First Division as well as that filed before it (CTA En Banc) was filed out of time.

The petition is bereft of merit.

Section 228 of the 1997 Tax Code provides that an assessment

x x x may be protested administratively by filing a request for reconsideration or reinvestigation within thirty
(30) days from receipt of the assessment in such form and manner as may be prescribed by implementing rules
and regulations. Within sixty (60) days from filing of the protest, all relevant supporting documents shall have
been submitted; otherwise, the assessment shall become final.

If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days
from submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the
Court of Tax Appeals within thirty (30) days from receipt of the said decision, or from the lapse of the one
hundred eighty (180)-day period; otherwise, the decision shall become final, executory and
demandable. (underscoring supplied)

In the case at bar, petitioners administrative protest was denied by Final Decision on Disputed Assessment dated August 2,
2005 issued by respondent and which petitioner received on August 4, 2005. Under the above-quoted Section 228 of the 1997 Tax
Code, petitioner had 30 days to appeal respondents denial of its protest to the CTA.

Since petitioner received the denial of its administrative protest on August 4, 2005, it had until September 3, 2005 to file a
petition for review before the CTA Division. It filed one, however, on October 20, 2005, hence, it was filed out of time. For a motion
for reconsideration of the denial of the administrative protest does not toll the 30-day period to appeal to the CTA.

On petitioners final contention that it has a meritorious case in view of the dismissal of the above-mentioned criminal case
filed against it for violation of the 1997 Internal Revenue Code, [19] the same fails. For the criminal complaint was instituted not to
demand payment, but to penalize the taxpayer for violation of the Tax Code.[20]
WHEREFORE, the petition is DISMISSED.

Appeal to the CTA en bane should be preceded by a Motion for Reconsideration


(Commissioner of Customs v. Marina Sales, Inc., G.R. 183868, 22 November 2010
Note: although a customs case, the ptrinciples are applicable)
COMMISSIONER OFCUSTOMS, vs. G.R. No. 183868
MARINA SALES, INC.,

In this petition for review on certiorari[1] under Rule 45, the Commissioner of Customs (Commissioner), represented by the Office of
the Solicitor General (OSG), assails the April 11, 2008 Resolution [2] of the Court of Tax Appeals En Banc (CTA-En Banc), in C.T.A.
E.B. No. 333, dismissing his petition for review for his failure to file a motion for reconsideration before the Court of Tax Appeals
Division (CTA-Division).
Respondent Marina Sales, Inc. (Marina) is engaged in the manufacture of Sunquick juice concentrates. It was appointed by
CO-RO Food A/S of Denmark, maker of Sunquick Juice Concentrates, to be its manufacturing arm in the Philippines. As
such, Marina usually imports raw materials into the country for the purpose. In the past, the Bureau of Customs (BOC) assessed said
type of importations under Tariff Heading H.S. 2106.90 10 with a 1% import duty rate.[3]

On March 6, 2003, Marinas importation, labeled as Import Entry No. C-33771-03, arrived at the Manila International Container
Port (MICP) on board the vessel APL Iris V-111.Said Import Entry No. C-33771-03 consisted of a 1 x 20 container STC with a total of
80 drums: (a) 56 drums of 225 kilograms Sunquick Orange Concentrate; and (b) 24 drums of 225 kilograms of Sunquick Lemon
Concentrate.[4] It was supported by the following documents: (a) Bill of Lading No. APLU 800452452 dated February 2, 2003;[5] and
(b) CO-RO Food A/S of Denmark Invoice No. 1619409 dated January 27, 2003.[6]

Marina computed and paid the duties under Tariff Harmonized System Heading H.S. 2106.90 10 at 1% import duty rate.

This time, however, the BOC examiners contested the tariff classification of Marinas Import Entry No. C-33771-03 under Tariff
Heading H.S. 2106.90 10. The BOC examiners recommended to the Collector of Customs, acting as Chairman of the Valuation and
Classification Review Committee (VCRC) of the BOC, to reclassify Marinas importation as Tariff Heading H.S. 2106.90 50 (covering
composite concentrates for simple dilution with water to make beverages) with a corresponding 7% import duty rate.
The withheld importation being necessary to its business operations, Marina requested the District Collector of the BOC to release
Import Entry No. C-33771-03 under its Tentative Release System. [7] Marina undertook to pay the reclassified rate of duty should it be
finally determined that such reclassification was correct. The District Collector granted the request.

On April 15, 2003, the VCRC directed Marina to appear in a deliberation on May 15, 2003 and to explain why its shipment under
Import Entry No. C-33771-03 should not be classified under Tariff Heading H.S. 2106.90 50 with import duty rate of 7%. [8]

On May 15, 2003, Marina, through its Product Manager Rowena T. Solidum and Customs Broker Juvenal A. Llaneza, attended the
VCRC deliberation and submitted its explanation, [9] dated May 13, 2003, along with samples of the importation under Import Entry
No. C-33771-03.
On May 21, 2003, another importation of Marina arrived at the MICP designated as Import Entry No. C-67560-03. It
consisted of another 1 x 20 container STC with a total of 80 drums: (a) 55 drums of 225 kilograms of Sunquick Orange Concentrate;
(b) 1 drum of 225 kilograms of Sunquick Tropical Fruit Concentrate; (c) 17 drums of 225 kilograms of Sunquick Lemon Concentrate;
(d) 3 drums of 225 kilograms of Sunquick Ice Lemon Concentrate; and (e) 4 drums of 225 kilograms Sunquick Peach Orange
Concentrate. The said importation was accompanied by the following documents: (a) Bill of Lading No. KKLUCPH060291
dated April 17, 2003;[10] and (b) CO-RO Foods A/S Denmark Invoice No. 1619746 dated April 15, 2003.[11]

Again, the BOC examiners disputed the tariff classification of Import Entry No. C-67560-03 and recommended to the VCRC that the
importation be classified at Tariff Heading H.S. 2106.90 50 with the corresponding 7% duty rate.

In order for Import Entry No. C-67560-03 to be released, Marina once again signed an undertaking under the Tentative Release
System.[12]
In a letter dated July 7, 2003, the VCRC scheduled another deliberation requiring Marina to explain why Import Entry No. C-67560-
03 should not be classified under Tariff Heading H.S. 2106.90 50 at the import duty rate of 7%.[13]

On July 17, 2003, Marina again attended the VCRC deliberation and submitted its explanation [14] dated July 17, 2003 together with
samples in support of its claim that the imported goods under Import Entry No. C-67560-03 should not be reclassified under Tariff
Heading H.S. 2106.90 50.

Thereafter, the classification cases for Import Entry No. C-33771-03 and Import Entry No. C-67560-03 were consolidated.

On September 11, 2003, as reflected in its 1 st Indorsement, the VCRC reclassified Import Entry No. C-33771-03 and Import
Entry No. C-67560-03 under Tariff Heading H.S. 2106.90 50 at 7% import duty rate.[15]

On October 7, 2003, Marina appealed before the Commissioner challenging VCRCs reclassification.[16]

In its 1st Indorsement of November 13, 2003,[17] the VCRC modified its earlier ruling and classified Marinas Import Entry No.
C-33771-03 and Import Entry No. C-67560-03 under Tariff Heading H.S. 2009 19 00 at 7% duty rate, H.S. 2009.80 00 at 7% duty rate
and H.S. 2009.90 00 at 10% duty rate.

Apparently not in conformity, Marina interposed a petition for review before the CTA on February 3, 2004, which was
docketed as CTA Case No. 6859.

On October 31, 2007, the CTA Second Division ruled in favor of Marina[18] holding that its classification under Tariff Heading H.S.
2106.90 10 was the most appropriate and descriptive of the disputed importations. [19] It opined that Marinas importations were raw
materials used for the manufacture of its Sunquick products, not ready-to-drink juice concentrates as argued by the Commissioner.
[20]
Thus, the decretal portion of the CTA - Second Division reads:

WHEREFORE, finding merit in petitioners Petition for Review, the same is hereby
GRANTED. Accordingly, the Resolution/Decision dated November 13, 2003 of the Valuation and
Classification Review Committee of the Bureau of Customs is hereby SET ASIDE and petitioners
importation covered by Import Entry Nos. C-33771-03 and C-67560-03 are reclassified under Tariff
Harmonized System Heading H.S. 2106.90 10 with an import duty rate of 1%.

SO ORDERED.

The Commissioner disagreed and elevated the case to the CTA-En Banc via a petition for review.[21]

In its Resolution of April 11, 2008, the CTA En Banc dismissed the petition. The pertinent portions of the decision including
the fallo read:
A careful scrutiny of the record of this case showed that petitioner failed to file before the Second
Division the required Motion for Reconsideration before elevating his case to the CTA En Banc.

Section 1, Rule 8 of the Revised Rules of the Court of Tax Appeals provided for the following rule,
to wit:

RULE 8
PROCEDURE IN CIVIL CASES

SECTION 1. Review of Cases in the Court en banc.- In cases falling under the
exclusive appellate jurisdiction of the Court en banc, the petition for review of a decision
or resolution of the Court in Division must be preceded by the filing of a timely motion for
reconsideration or new trial with the Division.

In statutory construction, the use of the word must indicates that the requirement is
mandatory. Furthermore, the word must connote an imperative act or operates to simply impose a duty
which may be enforced. It is true the word must is sometimes construed as may permissive but this is only
when the context requires it. Where the context plainly shows the provision to be mandatory, the word
must is a command and cannot be construed as permissive, but must be given the signification which it
imparts.

It is worthy to note that the Supreme Court ruled that a Motion for Reconsideration is mandatory
as a precondition to the filing of a Petition for Review under Rule 43 of the Rules of Court.

WHEREFORE, applying by analogy the above ruling of the Supreme Court and taking into
consideration the mandatory provision provided by Section 1 of Rule 8 of the Revised Rules of the Court
of Tax Appeals and considering further that petitioner did not file a Motion for Reconsideration with the
Second Division before elevating the case to the Court En Banc, which eventually deprived the Second
Division of an opportunity to amend, modify, reverse or correct its mistake or error, if there be,
petitioners Petition for Review is hereby DISMISSED.

SO ORDERED.[22]

The Commissioner sought reconsideration of the disputed decision, but the CTA En Banc issued a denial in its July 14,
2008 Resolution.[23]

Hence, this petition.

In his Memorandum,[24] the Commissioner submits the following issues for resolution:

A.

WHETHER THE DISMISSAL BY THE COURT OF TAX APPEALS EN BANC OF


PETITIONERS PETITION BASED ON MERE TECHNICALITY WILL RESULT IN INJUSTICE
AND UNFAIRNESS TO PETITIONER.

B.

WHETHER THE CHALLENGED DECISION OF THE COURT OF TAX APPEALS SECOND


DIVISION HOLDING THAT RESPONDENTS IMPORTATION ARE COVERED BY IMPORT
ENTRY NOS. C-33771-03 AND C-67560-03 ARE CLASSIFIED UNDER TARIFF
HARMONIZED SYSTEM HEADING H.S. 2106.90 10 WITH AN IMPORT DUTY RATE OF
ONE PERCENT (1%) IS NOT CORRECT.[25]

The Commissioner argues that the dismissal of his petition before the CTA-En Banc is inconsistent with the principle of the
liberal application of the rules of procedure. [26] He points out that due to the dismissal of the petition, the government would only be
collecting 1% import duty rate from Marina instead of 7%.[27] This, if sanctioned, would result in grave injustice and unfairness to the
government.[28]

The Commissioner also contends that the testimony of Marinas expert witness, Aurora Kimura, pertaining to Sunquick
Lemon compound shows that it could be classified as heavy syrup [29] falling under the category of H.S. 2190.90 50 with a 7% import
duty rate.[30]

The Court finds no merit in the petition.

On the procedure, the Court agrees with the CTA En Banc that the Commissioner failed to comply with the mandatory
provisions of Rule 8, Section 1 of the Revised Rules of the Court of Tax Appeals [31] requiring that the petition for review of a decision
or resolution of the Court in Division must be preceded by the filing of a timely motion for reconsideration or new trial with the
Division. The word "must" clearly indicates the mandatory -- not merely directory -- nature of a requirement.[32]

The rules are clear. Before the CTA En Banc could take cognizance of the petition for review concerning a case falling under
its exclusive appellate jurisdiction, the litigant must sufficiently show that it sought prior reconsideration or moved for a new trial with
the concerned CTA division. Procedural rules are not to be trifled with or be excused simply because their non-compliance may have
resulted in prejudicing a partys substantive rights. [33] Rules are meant to be followed. They may be relaxed only for very exigent and
persuasive reasons to relieve a litigant of an injustice not commensurate to his careless non-observance of the prescribed rules. [34]

At any rate, even if the Court accords liberality, the position of the Commissioner has no merit. After examining the records
of the case, the Court is of the view that the import duty rate of 1%, as determined by the CTA Second Division, is correct.

The table shows the different classification of Tariff import duties relevant to the case at bar:
TARIFF HEADING IMPORT COVERAGE
DUTY RATE
H.S. 2106.90 10 1% Covers flavouring materials, nes., of kind used in food
and drink industries; other food preparations to be
used as raw material in preparing composite
concentrates for making beverages
H.S. 2106.90 50 7% Covers composite concentrate for simple dilution with
water to make beverages
H.S. 2009. 19 00 7% Covers orange juice, not frozen
H.S. 2009.80 00 7% Covers juice of any other single fruit or vegetable
H.S. 2009.90 00 10% Covers mixtures of juices

The Commissioner insists that Marinas two importations should be classified under Tariff Heading H.S. 2106.90 50 with an
import duty rate of 7% because the concentrates are ready for consumption by mere dilution with water.

The Court is not persuaded.

As extensively discussed by the CTA Second Division, to fit into the category listed under the Tariff Harmonized System
Headings calling for a higher import duty rate of 7%, the imported articles must not lose its original character. In this case, however,
the laboratory analysis of Marinas samples yielded a different result. [35] The report supported Marinas position that the subject
importations are not yet ready for human consumption. Moreover, Marinas plant manager, Rebecca Maronilla, testified that the juice
compounds could not be taken in their raw form because they are highly concentrated and must be mixed with other additives before
they could be marketed as Sunquick juice products. If taken in their unprocessed form, the concentrates without the mixed additives
would produce a sour taste.[36] In other words, the concentrates, to be consumable, must have to lose their original character. To quote
the CTA Second Division:
Verily, to fall under the assailed Tariff Harmonized System Headings, petitioners (herein
respondent) articles of importation, as fruit juices/mixtures, should not have lost its original character, in
spite of the addition of certain standardizing agents/constituents. Contrary thereto, We find the subject
importations categorized as non-alcoholic composite concentrates to have apparently lost their original
character due to the addition of ingredients in such quantity that the concentrated fruit juice mixture only
comprises a small percentage of the entire compound.

This was clearly explained by the VCRC in its subsequent Resolution/Decision (1 st Indorsement)
issued on February 17, 2005 pertaining to subsequent similar importations of petitioner, effectively
correcting its findings in the assailed Resolution/Decision dated November 13, 2003 concerning the
same party-importer, issues and articles of importation,[37] to wit:

SUB-GROUP OBSERVATIONS/FINDINGS:

The classification issue was divided into two regimes. The era under the old Harmonized
Commodity Description and Coding System, while the other is the latest revised edition, the
Asean Harmonized Tariff Nomenclature.

The previous committee resolution was promulgated technically not on the merit of the case but
failure on the part of the importer to submit their position paper/arguments within the
prescriptive period given by the committee.

Importer submitted samples of subject shipment for laboratory analysis to Philippine Customs
laboratory to validate the veracity of product information given by the supplier and to determine
the correct tariff classification.

Xxx xxx xxx

Based on the report of the Laboratory Analysis, compound is made up to water 57.9%, Invert
Sugar 34.34%, Citric Acid 2.94%, Vitamin C (Ascorbic Acid) 105 mg.
Since the item is compound which is composed of water, sugar, concentrated juice, flavourings,
citric acid, stabilizer, preservatives, vitamins C and colouring to produce beverage ready to
drink. Consequently the concentrated citrus juice has lost its original character due to the fact that it
comprises only 12% of the total compound.[38]

Items (fruit juices) classifiable under HS 2009 are fruit juices generally obtained by pressing
fresh, healthy and ripe fruit. Per item 4 of the Explanatory Notes to the Harmonized Commodity
Description and Coding System apparently subject article has lost its original character as
concentrated fruit juice drink to the compounding ingredients which reduces the fruit juices to
12% of the total compound.

In view of the foregoing subject article is classifiable under Tariff Heading H.S. 2106.90 10 at 1%
for entries filed under the old regime. For those filed under the new regime tariff heading AHTN
2106.90 51 at 1% where the item are specifically provided.

RESOLUTION: To apply sub-group recommendation which is to adopt H.S. 2106.90 10 at 1% for


entries filed under the old regime and for those filed under the new regime, AHTN 2106.90 51 at 1%
where the item are specifically provided.[39]

To manufacture is to make or fabricate raw materials by hand, art or machinery, and work into forms convenient for use.
[40]
Stated differently, it is to transform by any process into another form suitable for its intended use. Marina, as the manufacturing
arm of CO-RO Food A/S of Denmark, transforms said juice compounds, being raw materials, into a substance suitable for human
consumption. This is evident from the Commissioners Report [41] of Executive Clerk of Court II, CTA, Jesus P. Inocando, Jr., who
conducted an ocular inspection of Marinas manufacturing plant in Taguig City. Pertinent excerpts of the Commissioners Report are
herein reproduced:

On our ocular inspection of the manufacturing plant of petitioner, Ms. Solidum and Mr. Domingo
showed us the sample of the imported compounds (raw materials), showed to us the step by step
manufacturing process of petitioner and even showed us the bottling and packaging of the finished
product.

Per observation of the undersigned, the imported compounds (raw materials) are very sticky, the
plant is clean and that the personnel of petitioner in the plant strictly following the manufacturing process
as presented in Annex A and Annex B of this report.

Upon questioning by the counsel for respondent, Mr. Domingo said that while the imported
compounds (raw materials) can be mixed with water and may be drinkable, he is not sure if the same is
suitable for human consumption. None of us dared to taste the sample of imported compounds (raw
materials) diluted in water. The imported compounds (raw materials) mixed with water produces bubbles
on top of the mixture, not like the one that has gone through the manufacturing process. Counsel for
respondent requested for the marking of Label of Sunquick Lemon (840 ml.), [Annex C], as Exhibit 1 for
the respondent.[42]

Contrary to the Commissioners assertions, empirical evidence shows that the subject importations would have to undergo a
laborious method, as shown by its manufacturing flowchart [43] and manufacturing process,[44] to achieve their marketable juice
consistency. Accordingly, the 1% tariff import duty rate under Tariff Heading H.S. 2106.90 10 was correctly applied to the subject
importations.

In any case, the VCRC in its 1 st Indorsement[45] of February 17, 2005 (a subsequent proceeding involving the same type of
importation) rectified the disputed tariff reclassification rate. Thus, in Marinas succeeding importations, the VCRC already adopted
the 1% import duty rate as paid by Marina in the past.

WHEREFORE, the petition is DENIED.

2. Compromise

After Payment
1. Refund (Section 229, NIRC)
a. Must be strictly construed against the taxpayer; Taxpayer must show the legal and
factual basis for the tax refund Case: Citibank, NA v. Court of Appeals, GR No.
107434, 10 October 1997, 280 SCRA 459; FEBTC v. CIR, GR No. 138919, 02 May
2006; Commissioner of Internal Revenue v. Far East Bank e Trust Co., G.R. No.
173854 dated March 16, 2010
FAR EAST BANK AND G.R. No. 138919
TRUST COMPANY as
Trustee of Various Retirement Present:
Funds,
Petitioner, QUISUMBING, J.,
Chairperson,
CARPIO,
- versus - CARPIO MORALES,
TINGA, and
VELASCO, JR., JJ.
COMMISSIONER OF INTERNAL
REVENUE and THE COURT OF
APPEALS, Promulgated:
Respondents.
May 2, 2006

x-------------------------------------------------------------------------x

DECISION

TINGA, J.:

The present petition evokes some degree of natural sympathy for the petitioner, as it seeks the refund of taxes wrongfully paid on the

income earned by several retirement funds of private employees held by petitioner in their behalf. The steps undertaken by petitioner

to seek the refund were woefully error-laden, yet their claims still received due solicitation from this Court. But in the end, the errors

committed are just too multiple as well as consequential, and the claim for refund not sufficiently proven. Impulses may suggest that

we reverse and grant, but logic and the law dictate that the Court affirm the assailed rulings of the Court of Appeals and the Court of

Tax Appeals.

Before us is a Petition for Review on Certiorari filed by petitioner Far East Bank & Trust Company, assailing the Resolutions of the

Court of Appeals Fifth Division dated 12 January 1999 and 3 June 1999.[1] The Resolution of 12 January 1999 dismissed outright, on

procedural grounds, a petition for review filed by petitioner questioning a Decision of the Court of Tax Appeals dated 11 September

1998.[2]

While the petition before us primarily seeks the review of the procedural grounds on which the petition before the Court of Appeals

was denied, it stems from a claim for refund lodged by petitioner against the Commissioner of Internal Revenue (CIR) on taxes on

interest income withheld and paid to the CIR for the four (4) quarters of 1993, arising from investments derived from money market

placements, bank deposits, deposit substitute instruments and government securities made by petitioner as the trustee of various

retirement funds.

Petitioner is the trustee of various retirement plans established by several companies for its employees. As trustee of the retirement

plans, petitioner was authorized to hold, manage, invest and reinvest the assets of these plans. [3] Petitioner utilized such authority to

invest these retirement funds in various money market placements, bank deposits, deposit substitute instruments and government

securities. These investments necessarily earned interest income. Petitioners claim for refund centers on the tax withheld by the

various withholding agents, and paid to the CIR for the four (4) quarters of 1993, on the aforementioned interest income. It is alleged

that the total final withholding tax on interest income paid for that year amounted to P6,049,971.83.[4]

On four dates, 12 May 1993, 16 August 1993, 31 January 1994, and 29 April 1994, petitioner filed its written claim for refund with the

Bureau of Internal Revenue (BIR) for the first, second, third and fourth quarters of 1993, respectively. Petitioner cited this Courts

precedent setting decision in Commissioner of Internal Revenue v. Court of Appeals,[5]promulgated on 23 March 1992, said case
holding that employees trusts are exempted by specific mandate of law from income taxation. Nonetheless, the claims for refund were

denied.

By this time, petitioner already had a pending petition before the Court of Tax Appeals (CTA), docketed as CTA Case No. 4848, and

apparently involving the same legal issue but a previous taxable period. Hoping to comply with the two (2)-year period within which

to file an action for refund under Section 230 of the then Tax Code, petitioner filed a Motion to Admit Supplemental Petition [6] in CTA

Case No. 4848 on 28 April 1995, seeking to include in that case the tax refund claimed for the year 1993. However, the CTA denied

the admission of the Supplemental Petition in a Resolution dated 25 August 1995.[7] The CTA reasoned then that CTA Case No. 4848

had already been pending for more than two and a half (2 ) years, and the admission of the supplemental petition, with a substantial

enlargement of petitioners original claim for refund, would further delay the proceedings, causing as it would, an effective change in

the cause of action. Nonetheless, the CTA advised that petitioner could instead file a separate petition for review for the refund of the

withholding taxes paid in 1993.[8]

Petitioner decided to follow the CTAs advice, and on 9 October 1995, it filed another petition for review with the CTA, docketed as

CTA Case No. 5292, concerning its claim for refund for the year 1993. The CIR posed various defenses, among them, that the claim

for refund had already prescribed.[9] Trial ensued.

On 11 September 1998, the CTA promulgated its decision in CTA Case No. 5292, denying the claim for refund for the year 1993.

While the CTA noted that the income from employees trust funds were exempt from income taxes, the claims for refund had already

prescribed insofar as they covered the first, second and third quarters of 1993, as well as from the period of 1 October to 8 October

1993. The CTA so ruled considering that the petition before it was filed only on 9 October 1995, and thus, only those claims that arose

after 9 October 1993 could be considered in light of the two (2)-year prescriptive period for the filing of a judicial claim for refund

from the date of payment of the tax, as provided in Section 230 of the Tax Code.[10]

As to the claim for refund covering the period 9 October 1993 up to 31 December 1993, the CTA likewise ruled that such could not be

granted, the evidence being insufficient to establish the fact that the money or assets of the funds were indeed used or placed in money

market placements, bank deposits, other deposit substitute instruments and government securities, more particularly treasury bills. The

CTA noted that petitioner merely submitted as its evidence copies of the following documents: the list of the various funds; the

schedule of taxes withheld on a quarterly basis in 1993; the written claims for refund; the BIR Rulings on the various Retirement

Plans; the trust agreements of the various retirement plans; and certifications of the Accounting Department of petitioner, Citibank,

and the Bangko Sentral ng Pilipinas as to the taxes that they respectively withheld. [11]

The CTA faulted petitioner for failing to submit such necessary documentary proof of transactions, such as confirmation

receipts and purchase orders that would ordinarily show the fact of purchase of treasury bills or money market placements by the

various funds, together with their individual bank account numbers. These various documents which petitioner failed to submit were

characterized as the best evidence on the participation of the funds, and without them, there is no way for this Court to verify the

actual involvement of the funds in the alleged investment in treasury bills and money market placements. [12] The CTA also held as

insufficient for such purposes the certifications issued by Citibank, BSP, and petitioners own Accounting Department, considering that
the aggregate amount of the final withholding taxes to which they attest totalled more than P40,000,000.00, in comparison to the

present claims of only around P6,000,000.00. The CTA thus concluded that such certifications included non-tax exempt or otherwise

taxable transactions, the sums of which were conglomerated with the amount that may have actually been refundable.

Petitioner filed a Motion for Reconsideration and/or New Trial, which the CTA denied in a Resolution dated 4 December

1998.[13] Petitioner then filed a Petition for Review under Rule 43 with the Court of Appeals. However, this petition was denied

outright by the appellate court in its Resolution dated 12 January 1999. The Court of Appeals held that petitioner had failed to observe

the requirement, under Section 2, Rule 42 of the 1997 Rules of Civil Procedure that the petition should be accompanied by other

material portions of the record as would support the allegations of the petition. The Court of Appeals particularly mentioned the

following documents omitted by the petitioner in its petition: the Supplemental Petition, the CTA Resolution denying the admission of

the Supplemental Petition, the new Petition filed with the CTA, and the Motion for Reconsideration and/or New Trial. [14]

Petitioner moved for reconsideration of the adverse decision of the Court of Appeals, attaching to its motion the required

certified copies of the cited documents. Nonetheless, the Court of Appeals denied the motion for reconsideration through a Resolution

dated 3 June 1999, holding that the belated compliance did not cure the defect of the petition. Moreover, the Court of Appeals also

noted that it had taken a closer look at the petition and on that basis concluded that the CTA Decision contained no reversible error.[15]

Hence, the present petition, which we deny.

Petitioner argues that it was error on the part of the Court of Appeals to have dismissed its petition on a mere technicality.
[16]
Yet the dismissal engaged in by the Court of Appeals on procedural grounds is wholly sanctioned by the relevant provisions of the

Rules of Court. Section 6 of Rule 43, 1997 Rules of Civil Procedure, then governing the procedure of appeals from decisions of the

CTA to the Court of Appeals, [17] explicitly provides that the petition for review be accompanied by certified true copies of such

material portions of the record referred to [in the petition] and other supporting papers. Under Section 7, Rule 43, the failure to attach

such documents which should accompany the petition is sufficient ground for the dismissal of the petition.

It should be remembered that it is only when the petition has been given due course, after a prima facie finding that the CTA

had committed errors of fact or law that would warrant reversal [18], that the case record would be transmitted from the court of origin

to the Court of Appeals. [19] Clearly, upon the filing of the petition, the appellate court would have no documentary basis to discern

whether the required prima facie standard has been met except the petition itself and the documents that accompany it. While the

submissions in the petition may refer to other documents in the record, or may even quote at length from those documents, the Court

of Appeals would have no way to ascertain the veracity of the submissions unless the certified true copies of these documents are

attached to the petition itself.

Thus, the requirement that certified true copies of such portions of the record referred to in the petition be attached is not a

mere technicality that can be overlooked with ease, but an essential requisite for the determination of prima facie basis for giving due

course to the petition. Thus, it does not constitute error in law when the Court of Appeals dismissed the petition on such ground.

Moreover, while the court a quo is capacitated to give cognizance to the belated compliance attempted by petitioner, acquiescence to

such belated compliance is a matter of sound discretion on the part of the lower court, and one not ordinarily disturbed by the Court.
Even assuming that the procedural errors may be overlooked, we still agree with the Court of Appeals in holding in the

Resolution of 3 June 1999 that the CTA committed no reversible error in its assailed decision.

We hold, as the CTA did, that the exemption from income tax of income from employees trusts still stands. The Court had

first recognized such exemption in the aforementioned CIR v. Court of Appeals[20] case, arising as it did from the enactment of

Republic Act No. 4917 which granted exemption from income tax to employees trusts. [21] The same exemption was provided in

Republic Act No. 8424, the Tax Reform Act of 1997, and may now be found under Section 60(B) of the present National Internal

Revenue Code. Admittedly, such interest income of the petitioner for 1993 was not subject to income tax.

Still, petitioner did pay the income tax it was not liable for when it withheld such tax on interest income for the year 1993.

Such taxes were erroneously assessed or collected, and thus, Section 230 of the National Internal Revenue Code then in effect comes

into full application. The provision reads:

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 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.
(emphasis supplied)

The CTA noted that since the petition for review was only filed on 9 October 1995, petitioner could no longer claim the

refund of such tax withheld for the period of January to 8 October 1995, the two (2)-year prescriptive period having elapsed. Petitioner

submits that the two (2)-year prescriptive period should be reckoned from the date of its filing of the Supplemental Petition on 28

April 1995, not from the filing of its new petition for review after the Supplemental Petition was denied. [22] Even granting that this

should be the case, such argument would still preclude the refund of taxes wrongfully paid from January to 27 April 1993, the two (2)-

year prescriptive period for those taxes paid then having already become operative.

Yet could the two (2)-year prescriptive period for the refund of erroneously paid taxes be deemed tolled by the filing of the

Supplemental Petition? Petitioner argues that Section 230 of the then Tax Code does not specify the form in which the judicial claim

should be made. That may be so, but it does not follow that the two (2)-year period may be suspended by the filing of just any judicial

claim with any court. For example, the prescriptive period to claim for the refund of corporate income tax paid by a Makati-based

corporation cannot be suspended by the filing of a complaint with the Municipal Circuit Trial Court of Sorsogon. At the very least,

such judicial claim should be filed with a court which would properly have jurisdiction over the action for the refund.

In this case, there is no doubt that the CTA has jurisdiction over actions seeking the refund of income taxes erroneously paid.

But it should be borne in mind that petitioner initially sought to bring its claim for refund for the taxes paid in 1993 through a

supplemental petition in another case pending before the CTA, and not through an original action. The admission of supplemental

pleadings, including supplemental complaints, does not arise as a matter of right on the petitioner, but remains in the sound discretion

of the court, which is well within its right to deny the admission of the pleading. Section 6, Rule 10 of the 1997 Rules of Civil

Procedure, governing supplemental pleadings, is clear that the court only may admit the supplemental pleading, and is thus not obliged

to do so.
It is only upon the admission by the court of the supplemental complaint that it may be deem to augment the original

complaint. Until such time, the court acquires no jurisdiction over such new claims as may be raised in the supplemental complaint.

Assuming that the CTA erred in refusing to admit the Supplemental Petition, such action is now beyond the review of this Court, the

order denying the same having long lapsed into finality, and it appearing that petitioner did not attempt to elevate such denial for

judicial review with the proper appellate court.

We thus cannot treat the Supplemental Petition as having any judicial effect. It cannot even be deemed as having been filed,

the CTA refusing to admit the same. Moreover, the CTA could not have acquired jurisdiction over the causes of action stated in the

Supplemental Petition by virtue of the same pleading owing to that courts non-admission of that complaint. The CTA acquired

jurisdiction over the claim for refund for taxes paid by petitioner in 1993 only upon the filing of the new Petition for Review on 9

October 1995.

Yet, let us assume again, this time, that the filing of the Supplemental Petition could have tolled the two (2)-year prescriptive

period insofar as the 1993 taxes paid after 28 April 1993 were concerned. There may even be cause to entertain this assumption,

considering that this two (2)-year prescriptive period is not jurisdictional and may be suspended under exceptional circumstances.
[23]
Yet a closer look at the case does not indicate the presence of such exceptional circumstances, but instead affirm that the petition is

still bereft of merit.

The CTA evinced palpable discomfort over the sufficiency of the evidence presented by petitioner to establish its claim for

refund. It noted as follows:

As regards the third issue, this Court is convinced that the evidence of the petitioner for the remaining
portion of the claim for the fourth quarter of 1993 is insufficient to establish the fact that the money or assets of the
funds were indeed used or placed in money market placements, bank deposits, other deposit substitute instruments
and government securities, more particularly treasury bills.

To prove its case, petitioner merely submitted copies of the following documents, namely:

Exhibit

1. List of the various funds A


2. Schedule of taxes withheld on B
a quarterly basis in 1993
3. Written claims for refund C-C4
D-D4
E-E4
F-F4
4. BIR Rulings on the various G-Y
Retirement Plans at bar
5. Trust agreements of the Z-RR
various Retirement Plans
6. Certifications of the Accounting SS-UU49,
Department of petitioner, Citibank, inclusive
and Bangko Sentral ng Pilipinas
on the taxes they respectively withheld

It is to be noted from the above listed exhibits that documentary proof of transactions, such as confirmation
receipts and purchase orders which would ordinarily show the fact of purchase of treasury bills or money market
placements by the various funds, together with their individual bank account numbers, were not submitted in
evidence by the petitioner. They represent the best evidence on the participation of the funds and without them, there
is no way for this Court to verify the actual involvement of the funds in the alleged investment in the treasury bills
and money market placements.[24]

Clarifications are in order. The cited passage may seem to implicitly assume that only such income earned by the employees

trusts from money market placements, bank deposits, other deposit substitute instruments and government securities are exempted
from income taxation. This is contrary to the provisions in Republic Act No. 4917, which then stood as the governing provision on

income tax exemption of employees trusts:

SECTION 1. Any provision of law to the contrary notwithstanding, the retirement benefits received by
official and employees of private firms, whether individual or corporate, in accordance with a reasonable private
benefit plan maintained by the employer shall be exempt from all taxes and shall not be liable to attachment, levy or
seizure by or under any legal or equitable process whatsoever except to pay a debt of the official or employee
concerned to the private benefit plan or that arising from liability imposed in a criminal action; xxx

The tax exemption enjoyed by employees trusts was absolute, irrespective of the nature of the tax. There was no need for the

petitioner to particularly show that the tax withheld was derived from interest income from money market placements, bank deposits,

other deposit substitute instruments and government securities, since the source of the interest income does not have any effect on the

exemption enjoyed by employees trusts.

What has to be established though, as a matter of evidence, is that the amount sought to be refunded to petitioner actually

corresponds to the tax withheld on the interest income earned from the exempt employees trusts. The need to be determinate on this

point especially militates, considering that petitioner, in the ordinary course of its banking business, earns interest income not only

from its investments of employees trusts, but on a whole range of accounts which do not enjoy the same broad exemption as

employees trusts.

It clearly bothered the CTA that the submitted certifications from Citibank, the BSP, and petitioners own Accounting

Department attest only to the total amount of final withholding taxes remitted to the BIR. Evidently, the sum includes not only such

taxes withheld from the interest income of the exempt employees trusts, but also from other transactions between petitioner and the

BSP or Citibank which are not similarly exempt from taxation. For these certifications to hold value, there is particular need for them

to segregate such taxes withheld from the interest income of employees trusts, and those withheld from other income sources.

Otherwise, these certifications are ineffectual to establish the present claim for refund.

The weak evidentiary value of these certifications proved especially fatal, as no other documentary evidence was submitted

to establish that the withholding agents actually withheld interest income earned from the employees trusts administered by petitioner.

The other evidence submitted by petitioner merely establishes the fact that it administered various named employees trusts, the

particular trust agreements between petitioner and these trusts, its requests for refund from the BIR and their consequent denials.

Petitioner did submit a schedule of taxes withheld on a quarterly basis for the year 1993, but this document was apparently prepared

by petitioner itself, and its self-serving nature precludes from according it any authoritative value.

We agree with the CIR that petitioner should have instead submitted documentary proof of transactions, such as confirmation

receipts and purchase orders, as the best evidence on the participation of the funds from these employees trusts. The appreciation of

facts made by the CTA, which exercises particular expertise on the subject of tax, generally binds this Court. [25] It may not be so, as the

CIR contends, that the proper purpose for presenting such documents is to establish that the funds were actually invested in treasury

bills and money market placements, since the character of the investments does not detract from the fact that all income earned by the

employees trusts is exempt from taxation. Instead, these documents are vital insofar as they establish the extent of the investments

made by petitioner from the employees trusts, as distinguished from those made from other account sources, and correspondingly, the

amount of taxes withheld from the interest income derived from these employees trusts alone.
Petitioner argues that the testimony of its witnesses establishes that it would be next to impossible to single out the particular

transactions involving exempt employees trusts, in view of the manner of lumping all the data in the reporting procedures of the

withholding agents, particularly concerning treasury bills. While that may be so, a necessary consequence of the special exemption

enjoyed alone by employees trusts would be a necessary segregation in the accounting of such income, interest or otherwise, earned

from those trusts from that earned by the other clients of petitioner. The Court has no desire to impose unnecessarily pernickety

documentary requirements in obtaining a valid tax refund. Yet it cannot be escaped that the taxpayer needs to establish not only that

the refund is justified under the law, but also the correct amount that should be refunded. If the latter requisite cannot be ascertained

with particularity, there is cause to deny the refund, or allow it only to the extent of the sum that is actually proven as due. Tax refunds

partake the nature of tax exemptions and are thus construed strictissimi juris against the person or entity claiming the exemption.
[26]
The burden in proving the claim for refund necessarily falls on the taxpayer, and petitioner in this case failed to discharge the

necessary burden of proof.

One argument remains. It can be dispensed with briefly. Petitioner argues that the CTA should have granted its motion for a

new trial, which was premised on the claim that certain documents had been misplaced during the relocation of petitioners

headquarters, and were located only after the case was submitted for resolution. [27] Section 1, Rule 37 of the 1997 Rules of Civil

Procedure does allow for a new trial on the ground that newly discovered evidence, which [movant] could not, with reasonable

diligence, have discovered and produced at the trial, and which if presented would probably alter the result. However, as the CTA

pointed out in its 4 December 1998 Resolution, the case was submitted for resolution with the CTA only in May of 1998, or more than

two (2) years since the alleged transfer of headquarters by the petitioner. The CTA also noted that during that time, petitioner made no

visible attempt to retrieve the documents or at the very least, inform this Court of such problem. [28] These observations sufficiently

rebut the claim that the alleged newly discovered evidence could not have been located with reasonable diligence.

It is tragic that the ultimate loss to be borne by the tardy claim for the refund would be not by the petitioner-bank, but the

hundreds of private employees whose retirement funds were reposed in petitioners trust. However, the damage was sustained due to

multiple levels of incompetence on the part of the petitioner which this Court cannot simply give sanction to. Many of the so-called

procedural hurdles could have been overlooked, even by this Court, but in the end, the claim for tax refund was simply not proven

with the particularity demanded of an action seeking to siphon off the nations lifeblood.

WHEREFORE, the petition is DENIED. Costs against petitioner.

G.R. No. 107434 October 10, 1997

CITIBANK, N.A., petitioner,


vs.
COURT OF APPEALS and COMMISSIONER OF INTERNAL REVENUE, respondents.

PANGANIBAN, J.:

The law requires a lessee to withhold and remit to the Bureau of Internal Revenue (BIR) five percent (5%) of the rental
due the lessor, by way of advance payment of the latter's income tax liability. Is the lessor entitled to a refund of such
withheld amount after it is determined that the lessor was not, in fact, liable for any income tax at all because its annual
operation resulted in a net loss as shown in its income tax return filed at the end of the taxable year?

This is the question raised in this petition for review on certiorari of the Court of Appeals 1 Decision 2 promulgated on May
27, 1992 and Resolution 3 promulgated on October 27, 1992 in CA-G.R. No. SP-26555, reversing the decision of the Court
of Tax Appeals which allowed the tax refund.
The Facts

The facts, as found by Respondent Court, are undisputed. 4

From the pleadings and supporting papers on hand, it can be gathered that Citibank N.A. Philippine
Branch (CITIBANK) is a foreign corporation doing business in the Philippines. In 1979 and 1980, its
tenants withheld and paid to the Bureau of Internal Revenue the following taxes on rents due to Citibank,
pursuant to Section 1(c) of the Expanded Withholding Tax Regulations (BIR Revenue Regulations No. 13-
78, as amended), to wit:

1979

First quarter P60,690.97

Second quarter 69,897.08

Third quarter 69,160.89

Fourth quarter 70,160.56


P270,160.56

1980

First quarter P78,370.22

Second quarter 69,049.37

Third quarter 79,139.60

Fourth quarter 72,270.10


P298,829.29

On April 15, 1980, Citibank filed its corporate income tax returns for the year ended December 31, 1979
(Exh. "E:), showing a net loss of P74,854,916.00 and its tax credits totalled P6,257,780.00, even without
including the amounts withheld on rental income under the Expanded Withholding Tax System, the same
not having been utilized or applied for the reason that the year's operation resulted in a loss. (Exh. & "E-1
& E-2"). The taxes thus withheld by the tenants from rentals paid to Citibank in 1979 were not included as
tax credits although a rental income amounting to P7,796,811.00 was included in its income declared for
the year ended December 31, 1979 (Exhs. "E-3" & "E-4").

For the year ended December 31, 1980, Citibank's corporate income tax returns (Exh. "EC"), filed on April
15, 1981, showed a net loss of P77,071,790.00 for income tax purposes. Its available tax credit
(refundable) at the end of 1980 amounting to P11,532,855.00 (Exh. "BC-1" & "BC-2") was not utilized or
applied. The said available tax credits did not include the amounts withheld by Citibank's tenants from
rental payments in 1980 but the rental payments for that year were declared as part of its gross income
included in its annual income tax returns (Exh. "BC-3").

On October 31, 1981, Citibank submitted its claim for refund of the aforesaid amounts of P270,160.56
and P298,829, respectively, or a total of P568,989.85; and on October 12, 1981 filed a petition for review
with the Court of Tax Appeals concerning subject claim for tax refund, docketed as CTA Case No. 3378. 5

On August 30, 1981, the Court of Tax Appeals adjudged Citibank's entitlement to the tax refund sought
for, representing the 5% tax withheld and paid on Citibank's rental income for 1979 and 1980. . . .

In its decision 6 granting a refund to petitioner, 7 the Court of Tax Appeals rejected Respondent Commissioner's argument
that the claim was not seasonably filed:

WHEREFORE, respondent is hereby ordered to grant the refund of the amount sought by the petitioner.
No costs.

Not satisfied, the Commissioner appealed to the Court of Appeals. In due course, Respondent Court issued the assailed
Decision and Resolution, ruling that the five percent tax withheld by tenants from the rental income of Citibank for the
years 1979 and 1980 was in accordance with Section 1(c) of the Expanded Withholding Tax Regulations (BIR Revenue
Regulation No. 13-78, as amended) and did not involve illegally or erroneously collected taxes. The dispositive portion of
the Decision reads: 8
WHEREFORE, the appealed judgment of August 30, 1991, adjudging Citibank, N.A., Philippine Branch,
entitled to a tax refund/credit in the amount of P569,989.85, representing the 5% withheld tax on
Citibank's rental income for the taxable years 1979 and 1980 is hereby REVERSED. No pronouncement
as to costs.

Respondent Court denied the motion for reconsideration of the petitioner-bank in the assailed Resolution, the dispositive
portion of which reads: 9

WHEREFORE, for want of merit, the motion for reconsideration, dated June 19, 1992, of respondent
Citibank, N.A. is hereby DENIED.

SO ORDERED.

Hence, this petition under Rule 45 of the Rules of Court.

The Issues

The appellate court ruled that it was not enough for petitioner to show its lack of income tax liability against which the five
percent withholding tax could be credited. Petitioner should have also shown that the withholding tax was illegally or
erroneously collected and remitted by the tenants. On the other hand, petitioner counters that Respondent Court failed to
grasp "two fundamental concepts in the present income tax system, namely: (1) the yearly computation of the corporate
income tax and (2) the nature of the creditable withholding tax."

In the main, petitioner thus raises the following issues: (1) For creditable withholding tax to be refundable, when should
the illegality or error in its assessment or collection be reckoned: at the time of withholding or at the end of the taxable
year? (2) Where the income tax returns show that no income tax is payable to the government, is a creditable withholding
tax, as contradistinguished from a final tax, refundable (or creditable) at the end of the taxable year?

The Court's Ruling

The petition is meritorious.

First Issue: Determination of the Illegality or Error in Assessment or Collection

Tax refunds are allowed under Section 230 of the National Internal Revenue Code:

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 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.

Petitioner maintains that it is entitled to a refund of the five percent creditable withholding tax in 1979 and 1980,
since its operations resulted in a net loss and thus did not have any income tax liability for such years.
Respondent Court refused to allow the claim for refund for the reason that the taxes were "not illegally or
erroneously collected:" 10

It is decisively clear that the instant claim for tax refund under scrutiny does not involve illegally or
erroneously collected taxes. It involves the 5% tax withheld by tenants from the rental income of Citibank
for the years 1979 and 1980, in accordance with Section 1(c) of the Expanded Withholding Tax
Regulations (BIR Revenue Regulation No. 13-78 as amended) . . .

It is thus evident that the tenants or lessee of Citibank were required by law to withhold and pay to BIR
5% of their rental and, therefore, such withholding taxes were not illegally or erroneously collected. It was
the burden of Citibank to prove that the taxes it asked to be refunded were illegally or erroneously
collected; an onus probandi Citibank utterly failed to discharge.

We disagree with the Court of Appeals. In several cases, we have already ruled that income taxes remitted partially on a
periodic or quarterly basis should be credited or refunded to the taxpayer on the basis of the taxpayer's final adjusted
returns, nor on such periodic or quarterly basis. 11 For instance, in the recent case of Commissioner of Internal Revenue
vs. Philippine American Life Insurance Co., 12 the Court held:
. . . When applied to taxpayers filing income tax returns on a quarterly basis, the date of payment
mentioned in Section 292 (now Section 230) must be deemed to be qualified by Sections 68 and 69 of the
present Tax Code . . .

It may be observed that although quarterly taxes due are required to be paid within 60 days from the
close of each quarter, the fact that the amount shall be deducted from the tax due for the succeeding
quarter shows that until a final adjustment return shall have been filed, the taxes paid in the preceding
quarters are merely partial taxes due from a corporation. Neither amount can serve as the final figure to
quantify what is due the government nor what should be refunded to the corporation.

This interpretation may be gleaned from the last paragraph of Section 69 of the Tax Code which provides
that the refundable amount, in case a refund is due a corporation, is that amount which is shown on its
final adjustment return and not on its quarterly returns.

xxx xxx xxx

Clearly the prescriptive period of two years should commence to run only from the time that the refund is
ascertained, which can only be determined after a final adjustment return is accomplished. Private
respondent being a corporation, Section 292 (now Section 230) cannot serve as the sole basis for
determining the two-year prescriptive period for refunds. . . .

In the present case, there is no question that the taxes were withheld in accordance with Section 1(c), Rev. Reg. No. 13-
78. In that sense, it can be said that they were withheld legally by the tenants. However, the annual income tax returns of
petitioner-bank for tax years 1979 and 1980 undisputedly reflected the net losses it suffered. The question arises: whether
the taxes withheld remained legal and correct at the end of each taxable year. We hold in the negative.

The withholding tax system was devised for two main reasons: first, to provide the taxpayer a convenient manner to meet
his probable income tax liability; and second, to ensure the collection of the income tax which could otherwise be lost or
substantially reduced through failure to file the corresponding returns. 13 To these, a third reason may be added: to
improve the government's cash flow. Under Section 53 a-f of the tax code which was in effect at the time this case
ripened, withholding of tax at source was mandated in cases of: (a) tax free covenant bonds, (b) payments of interest,
dividends, rents, royalties, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other
fixed or determinable annual, periodical, or casual gains, profits and income, and capital gains of non-resident aliens and
foreign corporations; (c) dividends from a domestic corporation and royalties received by resident individuals and
corporation; (d) certain dividends; (e) interest on bank deposit; and (f) other items of income payable to resident
individuals or corporations. Section 53-f was amended by Presidential Decree No. 1351, delegating to the Secretary of
Finance the power to require the withholding of a tax, as follows:

Sec. 1. Section 53 (f) of the National Internal Revenue Code of 1997 is hereby amended to read as
follows:

(f) The Secretary of Finance may, upon recommendation of the Commissioner of Internal Revenue,
require also the withholding of a tax on the same items of income payable to persons (natural or juridical)
residing in the Philippines by the same persons mentioned in paragraph (b) (1) of this Section at the rate
of not less than 2-1/2% but not more than 35% thereof which shall be credited against the income tax
liability of the taxpayer for the taxable year.

Pursuant to said P.D. No. 1351 and in accordance with Section 4 in relation to Section 326 14 of the National Internal
Revenue Code, the Commissioner promulgated on September 7, 1978, Revenue Regulations No. 13-78 to implement the
withholding of creditable income taxes from certain types of income. Rev. Reg. No. 13-78 requires that a certain
percentage of income be deducted and withheld by a payor, who is constituted as the withholding agent, and paid to the
revenue district officer or BIR collection agent. Section 1 of this revenue regulation provides:

Sec. 1. Income payments subject to withholding tax and rates prescribed therein. Except as herein
otherwise provided, there shall be withheld a creditable income tax at the rates herein specified for each
class of payee from the following items of income payments to persons residing in the Philippines:

(a) xxx xxx xxx

(b) xxx xxx xxx

(c) Rentals. When the gross rental or other payment required to be made as a condition to the
continued use or possession of property, whether real or personal, to which the payor or obligor has not
taken or is not taking title or in which he has no equity, exceeds five hundred pesos (P500.00) five per
centum (5%).

xxx xxx xxx

Under this system, income is viewed as a flow 15 and is measured over a period of time known as an "accounting period."
An accounting period covers twelve months, subdivided into four equal segments known as "quarters." Income realized
within the taxpayer's annual accounting period (fiscal or calendar year) becomes the basis for the computation of the
gross income and the tax liability. 16

The same basic principles apply under the prevailing tax laws. Under the present tax code, the types of income subject to
withholding tax in Section 53, now Section 50, is simplified into three categories: (a) withholding of final tax on certain
incomes; (b) withholding of creditable tax at source; and (c) tax free covenant bonds.

Accordingly, the withheld amounts equivalent to five percent of the gross rental are remitted to the BIR and are considered
creditable withholding taxes under Section 53-f, i.e., creditable against income tax liability for that year. The taxes
withheld, as ruled in Gibbs vs. Commissioner of Internal Revenue, 17 are in the nature of payment by a taxpayer in order
to extinguish his possible tax obligation. They are installments on the annual tax which may be due at the end of the
taxable year. 18

In this case, petitioner's lessees withheld and remitted to the BIR the amounts now claimed as tax refunds. That they were
withheld and remitted pursuant to Rev. Reg. No. 13-78 does not derogate from the fact that they were merely partial
payments of probable taxes. Like the corporate quarterly income tax, creditable withholding taxes are subject to
adjustment upon determination of the correct income tax liability after the filing of the corporate income tax return, as at
the end of the taxable year. This final determination of the corporate income tax liability is provided in Section 69, NIRC:

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 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.

The taxes thus withheld and remitted are provisional in nature. 19 We repeat: five per cent 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., 20 this Court ruled that the payments of quarterly income taxes
(per Section 68, NIRC) should 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. 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 aforesaid revenue regulation,
became untenable and took on the nature of erroneously collected taxes at the end of the taxable year.

Second Issue: Onus of Disputing a Claim for Refund

In general, there is no disagreement that a claimant has the burden of proof to establish the factual basis of his or her
claim for tax credit or refund. 21 Tax refunds, like tax exemptions, are construed strictly against the taxpayer. The
mechanics of a tax refunds provided in Rev. Reg. No. 13-78:

Sec. 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.

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, detailed proof of the truthfulness of each and every item in the income tax return is
nor required. That function is lodged in the commissioner of internal revenue by the NIRC which requires the
commissioner to assess internal revenue taxes within three years after the last day prescribed by law for the filing of the
return. 22 In San Carlos Milling Co., Inc. vs. Commissioner of Internal Revenue, 23 the Court held that the internal revenue
branch of government must investigate and confirm the claims for tax refund or credit before taxpayers may avail
themselves of this option. 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. 24 In fact, even without petitioner's tax claim, the commissioner can proceed to
examine the books, records of the petitioner-bank, or any data which may be relevant or material in accordance with
Section 16 of the present NIRC.
In the case in hand, Respondent Commissioner examined petitioner's income tax returns and presumably found no false
declaration in them, because he did not allege any such false declaration before Respondent Court and the Court of Tax
Appeals (CTA). In the CTA, Respondent Commissioner's refusal to refund was based on the argument that the claim filed
on October 31, 1981 was time-barred. It bears stressing that this issue was not raised in the appeal before us. The issue
of operational losses was not raised until the appeal before Respondent Court was filed on February 5, 1992. By such
time, at least a decade had already passed since the pertinent books and accounting records of petitioner-bank were
closed. Section 235 of the Tax Code requires the preservation of the books of account and records only "for a period
beginning from the last entry in each book until the last day prescribed by Section 203." Section 203 provides that internal
revenue taxes shall be assessed within three years after the last day prescribed by law for the filing of the return, and no
proceeding in Court without an assessment for the collection of such taxes shall begin after the expiration of such period.
To expect petitioner to have its book and records on hand during the appeal was obviously unreasonable and violative of
Section 235 in relation to Section 203 of the Tax Code.

In addition, the Tax Code has placed several safety measures to prevent falsification of income tax returns which the
Court recognized in Commissioner vs. TMX Sales, Inc.: 25

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 alleged irregularity in the declared operational losses is a matter which must be proven by competent
evidence. In resisting the claims of petitioner, Respondent Commissioner set up the defense of the legality of the
collection of the creditable withholding tax as well as prescription, instead of presenting an assessment of the proper tax
liability of the petitioner. This fact leads us to the conclusion that the income tax returns were accepted as accurate and
regular by the BIR.

After this case was filed, the Commissioner clarified on June 27, 1994, the onus probandi of a taxpayer claiming refund of
overpaid withholding taxes, inter alia, in Revenue Regulation No. 12-94, Section 10:

Sec. 10. Claim for Tax Credit or Refund.

(a) 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 has been
declared as part of the gross income and 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
amount of tax withheld therefrom.

(b) Excess Credits. A taxpayer's excess expanded withholding tax credits for the taxable
quarter/taxable year shall automatically be allowed as a credit for purposes of filing his income tax return
for the taxable quarter/taxable year immediately succeeding the taxable quarter/taxable year in which the
aforesaid excess credit arose, provided, however, he submits with his income tax return a copy of his
income tax return for the aforesaid previous taxable period showing the amount of his aforementioned
excess withholding tax credits.

If the taxpayer, in lieu of the aforesaid automatic application of his excess credit, wants a cash refund or a
tax credit certificate for use in payment of his other national internal tax liabilities, he shall make a written
request therefor. Upon filing of his request, the taxpayer's income tax return showing the excess
expanded withholding tax credits shall be examined. The excess expanded withholding tax, if any, shall
determined and refunded/credited to the taxpayer-applicant. The refunded/credit shall be made within a
period of sixty (60) days from date of the taxpayer's request provided, however, that the taxpayer-
applicant submitted for audit all his pertinent accounting records and that the aforesaid records
established the veracity of his claim for a refund/credit of his excess expanded withholding tax credits.

Prior to Rev. Reg. 12-94, the requisites for a refund were: (1) the income tax return for the previous year must show that
income payment (rental in this case) was reported as part of the gross income; and (2) the withholding tax statement of
the withholding tax agent must show that payment of the creditable withholding tax was made. However, even without this
regulation, the commissioner may inspect the books of the taxpayer and reassess a taxpayer for deficiency tax payments
under Sections 7, NICR. We stress that what was required under Rev. Reg. 12-94 was only a submission of records but
the verification of the tax return remained the function of the commissioner.
Worth emphasizing are these uncontested facts: (1) the amounts withheld were actually remitted to the BIR and (2) the
final adjusted returns which the BIR did not question showed that, for 1979 and 1980, no income taxes from
petitioner were due. Hence, under the principle of solutio indebiti provided in Art. 2154, Civil Code, 26the BIR received
something when "there [was] no right to demand it," and thus "the obligation to return arises." 27 Heavily militating against
Respondent Commissioner is the ancient principle that no one, not even the state, shall enrich oneself at the expense of
another. Indeed, simple justice requires the speedy refund of the wrongly held taxes.

WHEREFORE, the assailed Decision is hereby REVERSED and the decision of the Court of Tax Appeals is
REINSTATED. No costs.

SO ORDERED.

COMMISSIONER OF INTERNAL G.R. No. 173854


REVENUE,
Petitioner, Present:

CARPIO, J., Chairperson,


- versus - BRION,
DEL CASTILLO,
ABAD, and
FAR EAST BANK & TRUST PEREZ, JJ.
COMPANY (NOW BANK OF
THE PHILIPPINE ISLANDS), Promulgated:
Respondent. March 15, 2010
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

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 Decision[1] of the Court of Appeals (CA) in CA-G.R. SP No. 56773
which reversed and set aside the October 4, 1999 Decision[2] of the Court of Tax Appeals (CTA) in CTA Case No. 5487. Also assailed is the July 19,
2006 Resolution[3] 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),[5] for the taxable year ending December 31, 1994. The
return for the CBU consolidated the respondents 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 69[7] of the old National Internal Revenue Code (NIRC),
the amount of P12,682,864.00 was carried over and applied against respondents 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 years (1994) excess
income tax credit 12,682,864
Additional prior years excess
income 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 petitioners 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 respondents CBU for the year ended December 31,
1994 together with attachments

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

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

D Corporate Annual Income Tax Return covering income of respondents 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, 1996[9]

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 respondents 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 counsels
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.

WHEREFORE, in view of the foregoing, [respondents] 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 respondents 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 respondents gross income. It noted that
in respondents 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 CTAs 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] Banks 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 of P13,645,109.00 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]
Banks 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] Banks
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] Banks 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 [respondents] 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 [respondents]
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.

xxxx

[Respondent] Banks various documentary evidence showing that it had satisfied all requirements under the Tax Code vis--vis the
Bureau of Internal Revenues 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 formers 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 respondents 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 respondents 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]

Respondents 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 Income[18] 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 taxpayers 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, respondents 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
respondents 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.

b. Grounds for filing a claim for refund (See Section 229, See also: Engtek Phils v. CIR,
Procedure in filing a claim for refund
CIR v. Acosta, GR No. 154068, 3 August 2007
G.R. No. 154068 August 3, 2007

COMMISSIONER OF INTERNAL REVENUE, petitioner,


vs.
ROSEMARIE ACOSTA, as represented by Virgilio A. Abogado, respondent.

DECISION

QUISUMBING, J.:

Assailed in this petition for review are the Decision1 and Resolution2 dated February 13, 2002 and May 29, 2002,
respectively, of the Court of Appeals in CA-G.R. SP No. 55572 which had reversed the Resolution 3 dated August 4, 1999
of the Court of Tax Appeals in C.T.A. Case No. 5828 and ordered the latter to resolve respondents petition for review.

The facts are as follows:

Respondent is an employee of Intel Manufacturing Phils., Inc. (Intel). For the period January 1, 1996 to December 31,
1996, respondent was assigned in a foreign country. During that period, Intel withheld the taxes due on respondents
compensation income and remitted to the Bureau of Internal Revenue (BIR) the amount of P308,084.56.

On March 21, 1997, respondent and her husband filed with the BIR their Joint Individual Income Tax Return for the year
1996. Later, on June 17, 1997, respondent, through her representative, filed an amended return and a Non-Resident
Citizen Income Tax Return, and paid the BIR P17,693.37 plus interests in the amount of P14,455.76. On October 8, 1997,
she filed another amended return indicating an overpayment of P358,274.63.

Claiming that the income taxes withheld and paid by Intel and respondent resulted in an overpayment
of P340,918.92,4 respondent filed on April 15, 1999 a petition for review docketed as C.T.A. Case No. 5828 with the Court
of Tax Appeals (CTA). The Commissioner of Internal Revenue (CIR) moved to dismiss the petition for failure of respondent
to file the mandatory written claim for refund before the CIR.

In its Resolution dated August 4, 1999, the CTA dismissed respondents petition. For one, the CTA ruled that respondent
failed to file a written claim for refund with the CIR, a condition precedent to the filing of a petition for review before the
CTA.5 Second, the CTA noted that respondents omission, inadvertently or otherwise, to allege in her petition the date of
filing the final adjustment return, deprived the court of its jurisdiction over the subject matter of the case. 6 The decretal
portion of the CTAs resolution states:
WHEREFORE, in view of all the foregoing, Respondents Motion to Dismiss is GRANTED. Accordingly[,] the
Petition for Review is hereby DISMISSED.

SO ORDERED.7

Upon review, the Court of Appeals reversed the CTA and directed the latter to resolve respondents petition for review.
Applying Section 204(c)8 of the 1997 National Internal Revenue Code (NIRC), the Court of Appeals ruled that
respondents filing of an amended return indicating an overpayment was sufficient compliance with the requirement of a
written claim for refund.9 The decretal portion of the Court of Appeals decision reads:

WHEREFORE, finding the petition to be meritorious, this Court GRANTS it due course and REVERSES the
appealed Resolutions and DIRECTS the Court of Tax Appeal[s] to resolve the petition for review on the merits.

SO ORDERED.10

Petitioner sought reconsideration, but it was denied. Hence, the instant petition raising the following questions of law:

I.

WHETHER OR NOT THE 1997 TAX REFORM ACT CAN BE APPLIED RETROACTIVELY.

II.

WHETHER OR NOT THE CTA HAS JURISDICTION TO TAKE [COGNIZANCE] OF RESPONDENTS PETITION
FOR REVIEW.11

While the main concern in this controversy is the CTAs jurisdiction, we must first resolve two issues. First, does the
amended return filed by respondent indicating an overpayment constitute the written claim for refund required by law,
thereby vesting the CTA with jurisdiction over this case? Second, can the 1997 NIRC be applied retroactively?

Petitioner avers that an amended return showing an overpayment does not constitute the written claim for refund required
under Section 23012 of the 1993 NIRC13 (old Tax Code). He claims that an actual written claim for refund is necessary
before a suit for its recovery may proceed in any court.

On the other hand, respondent contends that the filing of an amended return indicating an overpayment of P358,274.63
constitutes a written claim for refund pursuant to the clear proviso stated in the last sentence of Section 204(c) of the 1997
NIRC (new Tax Code), to wit:

xxxx

Provided, however, That a return filed showing an overpayment shall be considered as a written claim for credit
or refund.

xxxx

Along the same vein, respondent invokes the liberal application of technicalities in tax refund cases, conformably with our
ruling in BPI-Family Savings Bank, Inc. v. Court of Appeals.14 We are, however, unable to agree with respondents
submission on this score.

The applicable law on refund of taxes pertaining to the 1996 compensation income is Section 230 of the old Tax Code,
which was the law then in effect, and not Section 204(c) of the new Tax Code, which was effective starting only on
January 1, 1998.

Noteworthy, the requirements under Section 230 for refund claims are as follows:

1. A written claim for refund or tax credit must be filed by the taxpayer with the Commissioner;

2. The claim for refund must be a categorical demand for reimbursement;

3. The claim for refund or tax credit must be filed, or the suit or proceeding therefor must be commenced in
court within two (2) years from date of payment of the tax or penalty regardless of any supervening
cause.15 (Emphasis ours.)

In our view, the law is clear. A claimant must first file a written claim for refund, categorically demanding recovery of
overpaid taxes with the CIR, before resorting to an action in court. This obviously is intended, first, to afford the CIR an
opportunity to correct the action of subordinate officers; and second, to notify the government that such taxes have been
questioned, and the notice should then be borne in mind in estimating the revenue available for expenditure. 16

Thus, on the first issue, we rule against respondents contention. Entrenched in our jurisprudence is the principle that tax
refunds are in the nature of tax exemptions which are construed strictissimi juris against the taxpayer and liberally in favor
of the government. As tax refunds involve a return of revenue from the government, the claimant must show indubitably
the specific provision of law from which her right arises; it cannot be allowed to exist upon a mere vague implication or
inference17 nor can it be extended beyond the ordinary and reasonable intendment of the language actually used by the
legislature in granting the refund.18 To repeat, strict compliance with the conditions imposed for the return of revenue
collected is a doctrine consistently applied in this jurisdiction. 19

Under the circumstances of this case, we cannot agree that the amended return filed by respondent constitutes the written
claim for refund required by the old Tax Code, the law prevailing at that time. Neither can we apply the liberal
interpretation of the law based on our pronouncement in the case of BPI-Family Savings Bank, Inc. v. Court of Appeals, as
the taxpayer therein filed a written claim for refund aside from presenting other evidence to prove its claim, unlike this
case before us.

On the second issue, petitioner argues that the 1997 NIRC cannot be applied retroactively as the instant case involved
refund of taxes withheld on a 1996 income. Respondent, however, points out that when the petition was filed with the CTA
on April 15, 1999, the 1997 NIRC was already in effect, hence, Section 204(c) should apply, despite the fact that the
refund being sought pertains to a 1996 income tax. Note that the issue on the retroactivity of Section 204(c) of the 1997
NIRC arose because the last paragraph of Section 204(c) was not found in Section 230 of the old Code. After a thorough
consideration of this matter, we find that we cannot give retroactive application to Section 204(c) abovecited. We have to
stress that tax laws are prospective in operation, unless the language of the statute clearly provides otherwise. 20

Moreover, it should be emphasized that a party seeking an administrative remedy must not merely initiate the prescribed
administrative procedure to obtain relief, but also pursue it to its appropriate conclusion before seeking judicial
intervention in order to give the administrative agency an opportunity to decide the matter itself correctly and prevent
unnecessary and premature resort to court action.21 This the respondent did not follow through. Additionally, it could not
escape notice that at the time respondent filed her amended return, the 1997 NIRC was not yet in effect. Hence,
respondent had no reason at that time to think that the filing of an amended return would constitute the written claim for
refund required by applicable law.

Furthermore, as the CTA stressed, even the date of filing of the Final Adjustment Return was omitted, inadvertently or
otherwise, by respondent in her petition for review. This omission was fatal to respondents claim, for it deprived the CTA
of its jurisdiction over the subject matter of the case.

Finally, we cannot agree with the Court of Appeals finding that the nature of the instant case calls for the application of
remedial laws. Revenue statutes are substantive laws and in no sense must their application be equated with that of
remedial laws. As well said in a prior case, revenue laws are not intended to be liberally construed. 22 Considering that
taxes are the lifeblood of the government and in Holmess memorable metaphor, the price we pay for civilization, tax laws
must be faithfully and strictly implemented.

WHEREFORE, the petition is GRANTED. Both the assailed Decision and Resolution dated February 13, 2002 and May
29, 2002, respectively, of the Court of Appeals in CA-G.R. SP No. 55572 are REVERSED and SET ASIDE. The
Resolution dated August 4, 1999 of the Court of Tax Appeals in C.T.A. Case No. 5828 is hereby REINSTATED.

No pronouncement as to costs.

SO ORDERED

d. Period within which to file a claim for refund


General rule is two years from the date of payment Cases: ACCRA
Investments Corporation v. Court of Appeals, GR No. 96322, 20 December
1991; CIR v. TMX Sales, 15 January 1992; CIR v. PhilAm Life, 29 May 1995; CIR
v. CA and BPI, GR No. 117254, 21 January 1999; CIR v. PNB, GR No. 161997,
25 October 2005 (exception to the 2-year period); CIR v. Primetown Property
Group, GR No. 162155, 28 August 2007).
Commissioner of Internal Revenue vs. San Roque Power Corporation/Taganito
Mining Corporation vs. Commissioner of Internal Revenue/Philex Mining Corporation
vs. Commissioner of Internal Revenue, G.R. No. 187485/G.R. No. 196113/G.R. No.
197156. February 12, 2013
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:

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 of Commissioner 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 basis for 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 in Commission 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.

G.R. No. 105208 May 29, 1995

COMMISSIONER OF INTERNAL REVENUE, petitioner,


vs.
THE PHILIPPINE AMERICAN LIFE INSURANCE CO., THE COURT OF TAX APPEALS and THE COURT OF
APPEALS, respondents.

ROMERO, J.:

This is a petition for review on certiorari filed by petitioner, Commissioner of Internal Revenue, of the Decision 1dated
March 26, 1992 of the Court of Appeals in CA-GR No. 26598, entitled "Commissioner of Internal Revenue v. The
Philippine American Life Insurance Co. & the Court of Tax Appeals" affirming the decision of respondent Court of Tax
Appeals which ordered the refund to the Philippine American Life Insurance Co. (Philamlife) of the amount of
P3,643,015.00 representing excess corporate income taxes for the first and second quarters of 1983.

Private respondent filed a case before the Court of Tax Appeals (CTA) docketed as CTA Case No. 4018 entitled "The
Philippine American Life Insurance Company versus Commissioner of Internal Revenue."

On September 16, 1991, the CTA rendered a decision in the above-entitled case, the dispositive portion of which states:

WHEREFORE, petitioner's claim for refund for P3,246,141.00 and P396,874.00 representing excess
corporated income tax payments for the first and second quarters of 1983, respectively, or a total of
P3,643,015.00 is hereby GRANTED. Accordingly, respondent Commissioner of Internal Revenue, is
hereby ordered to refund to petitioner Philippine American Life Insurance Company the total amount of
P3,643,015.00.

With respect to petitioner's claim for refund of P215,742.00 representing 1983 withholding taxes on rental
income the same is hereby DENIED for failure to present proof of actual-withholding and payment with
the Bureau of Internal Revenue. No costs.

The facts, uncontroverted by petitioner, are:

On May 30, 1983, private respondent Philamlife paid to the Bureau of Internal Revenue (BIR) its first quarterly corporate
income tax for Calendar Year (CY) 1983 amounting to P3,246,141.00.

On August 29, 1983, it paid P396,874.00 for the Second Quarter of 1983.

For the Third Quarter of 1983, private respondent declared a net taxable income of P2,515,671.00 and a tax due of
P708,464.00. After crediting the amount of P3,899,525.00 it declared a refundable amount of P3,158,061.00.

For its Fourth and final quarter ending December 31, private respondent suffered a loss and thereby had no income tax
liability. In the return for that quarter, it declared a refund of P3,991,841.00 representing the first and second quarterly
payments: P215,742.00 as withholding taxes on rental income for 1983 and P133,084.00 representing 1982 income tax
refund applied as 1983 tax credit.

In 1984, private respondent again suffered a loss and declared no income tax liability. However, it applied as tax credit for
1984, the amount of P3,991,841.00 representing its 1982 and 1983 overpaid income taxes and the amount of
P250,867.00 as withholding tax on rental income for 1984.

On September 26, 1984, private respondent filed a claim for its 1982 income tax refund of P133,084.00. On November
22, 1984, it filed a petition for review with the Court of Tax Appeals (C.T.A. Case No. 3868) with respect to its 1982 claim
for refund of P133,084.00.

On December 16, 1985, it filed another claim for refund with petitioners appellate division in the aggregate amount of
P4,109,624.00, computed as follows:
1982 income tax refundable

applied as tax credit P 133,084

1983 income tax refundable

applied as tax credit P 3,858,757

1984 tax credit on rental P 250,867

T o t a l P 4,242,708

Less: 1983 claim for

refund already

filed with the

BIR and the CTA

(Case No. 3868) P 133,084

Net Amount Refundable P 4,109,624

===========

On January 2, 1986, private respondent filed a petition for review with the CTA, docketed as CTA Case No. 4018
regarding its 1983 and 1984 claims for refund in the above-stated amount.

Later, it amended its petition by limiting its claim for refund to only P3,858,757.00 computed as follows:

Calendar Year

Ending 12-31-83

Date Paid O.R. No. Amount Paid

First Quarter 5/30/83 B2269337 P3,246,141.00


Second Quarter 8/29/83 B1938178 396,874.00

1983 Withholding Tax on rental income 215,742.00

1983 Income Tax Refundable P3,858,757.00

The issue in this case is the reckoning date of the two-year prescriptive period provided in Section 230 of the National
Internal Revenue Code (formerly Section 292) which states that:

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 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.

Forfeiture of refund. A refund check or warrant issued in accordance with the pertinent provisions of
this Code which shall remain unclaimed or uncashed within five (5) years from the date the said warrant
or check was mailed or delivered shall be forfeited in favor of the government and the amount thereof
shall revert to the General Fund.

Petitioner poses the following question: In a case such as this, where a corporate taxpayer remits/pays to the BIR tax
withheld on income for the first quarter but whose business operations actually resulted in a loss for that year, as reflected
in the Corporate Final Adjustment Return subsequently filed with the BIR, should not the running of the prescriptive period
commence from the remittance/payment at the end of the first quarter of the tax withheld instead of from the filing of the
Final Adjustment Return?

In support of its contention, petitioner cites the case of Pacific Procon Ltd. v. Court of Tax Appeals, et a1. 2 wherein the
CTA denied therein petitioner's claim for refund after it construed Section 292 (now Section 230) of the NIRC to be
mandatory and "not subject to any qualification," hence it applies regardless of the conditions under which payment may
have been made. The Tax Court ruled:

Under Section 292 (formerly Section 306) of the National Internal Revenue Code, a claim for refund of a
tax alleged to have been erroneously or illegally collected shall be filed with the Commissioner of Internal
Revenue within two years from the date of payment of the tax, and that no suit or proceeding for refund
shall be begun after the expiration of the said two-year period (Citation omitted). As a matter of fact, the
said section further provides that: . . . 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 the date of payment of the tax or penalty
regardless of any supervening cause that may arise after payment.

Petitioner states that the phrase "regardless of supervening cause that may arise after payment" is an amendatory phrase
under the said Section 292 which did not appear in Section 306 of the old Tax Code before it was amended by
Presidential Decree No. 69, which became effective January 1, 1973. Petitioner argues that the incorporation of the said
phrase did away with any other interpretation and, therefore, the reckoning period of prescription under Section 292 (now
section 230) is from the date of payment of tax regardless of financial loss (the "supervening cause"). Thus, the claim for
refund of the amounts of P3,246,141.00 and P396,874.00 paid on May 30, 1983 and August 29, 1983, respectively, has
prescribed.

We find petitioner's contentions to be unmeritorious.

It is true that in the Pacific Procon case, we held that the right to bring an action for refund had prescribed, the tax having
been found to have been paid at the end of the first quarter when the withholding tax corresponding thereto was remitted
to the Bureau of Internal Revenue, not at the time of filing of the Final Adjustment Return in April of the following year.
However, this case was overturned by the Court in Commissioner of Internal Revenue v. TMX Sales Incorporated and the
Court of Tax Appeals, 3 wherein we said:

. . . 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) stipulates that the two-year prescriptive period to claim refunds should be counted from
date of payment of the tax sought to be refunded. When applied to tax payers filing income tax returns on a quarterly
basis, the date of payment mentioned in Section 292 (now Section 230) must be deemed to be qualified by Sections 68
and 69 of the present Tax Code which respectively provide:

Sec. 68 Declaration of Quarterly Income Tax. Every corporation shall file in duplicate a quarterly
summary declaration of its gross income and deductions on a cumulative basis for 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.

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 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.

It may be observed that although quarterly taxes due are required to be paid within sixty days from the close of each
quarter, the fact that the amount shall be deducted from the tax due for the succeeding quarter shows that until a final
adjustment return shall have been filed, the taxes paid in the preceding quarters are merely partial taxes due from a
corporation. Neither amount can serve as the final figure to quantity what is due the government nor what should be
refunded to the corporation.

This interpretation may be gleaned from the last paragraph of Section 69 of the Tax Code which provides that the
refundable amount, in case a refund is due a corporation, is that amount which is shown on its final adjustment return and
not on its quarterly returns.

Therefore, when private respondent paid P3,246,141.00 on May 30, 1983, it would not have been able to ascertain on
that date, that the said amount was refundable. The same applies with cogency to the payment of P396,874.00 on August
29, 1983.

Clearly, the prescriptive period of two years should commence to run only from the time that the refund is ascertained,
which can only be determined after a final adjustment return is accomplished. In the present case, this date is April 16,
1984, and two years from this date would be April 16, 1986. The record shows that the claim for refund was filed on
December 10, 1985 and the petition for review was brought before the CTA on January 2, 1986. Both dates are within the
two-year reglementary period. Private respondent being a corporation, Section 292 (now Section 230) cannot serve as the
sole basis for determining the two-year prescriptive period for refunds. As we have earlier said in the TMX Sales case,
Sections 68, 69, and 70 on Quarterly Corporate Income Tax Payment and Section 321 should be considered in
conjunction with it.

Moreover, even if the two-year period had already lapsed, the same is not jurisdictional 4 and may be suspended for
reasons of equity and other special circumstances. 5

Petitioner also raises the issue of whether or not private respondent has satisfactorily shown by competent evidence that
it is entitled to the amount sought to be refunded. This being a question of fact, this Court is bound by the findings of the
Court of Tax Appeals which has clearly established the propriety of private respondent's claim for refund for excess 1983
quarterly income tax payments. On the other hand, petitioner Commissioner of Internal Revenue has failed to present any
documentary or testimonial evidence in support of his case. Instead, he opted to postpone the hearings several times and
later chose to submit the case for decision on the basis of the records and pleadings of instant case.

To repeat, we find that private respondent has presented sufficient evidence in support of its claim for refund, whereas
petitioner has failed to controvert the same adequately.
WHEREFORE, the instant petition is DISMISSED and the decision of the Court of Appeals is hereby AFFIRMED in toto.
No costs.

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. COURT OF APPEALS, COURT OF TAX APPEALS, and
BANK OF THE PHILIPPINE ISLANDS as LIQUIDATOR OF PARAMOUNT ACCEPTANCE
CORPORATION, respondents.

DECISION

MENDOZA, J.:

This is a petition for review on certiorari of the decision, dated September 19, 1994, of the Court of Appeals affirming the
decision of the Court of Tax Appeals which ordered petitioner to refund P65,259.00 as overpaid income tax.

The facts are stated in the following portion of the decision of the CTA which the Court of Appeals quoted with approval:

Petitioner, Bank of the Philippine Islands (BPI for short) is a bank and trust corporation duly organized and existing under Philippine
laws. It acts as the liquidator of Paramount Acceptance Corporation after its dissolution on March 31, 1986.

On April 2, 1986, Paramount Acceptance Corporation (Paramount for brevity) filed its Corporate Annual Income Tax Return, for
calendar year ending December 31, 1985, declaring a Net Income of P3,324,802.00 (Exh. A). The income tax due thereon
is P1,153,681.00. However, Paramount paid the BIR its quarterly income tax, to wit:

Qtr. CR/ROR Date Bank Amount Exh.

1st 6817293 5-30-85 DBP P308,779.00 C

2nd 5613316 8-29-85 DBP 626,000.00 C-1

3rd 77204711 1-29-85 DBP 284,161.00 C-2

TOTAL P1,218,940.00

After deducting Paramounts total quarterly income tax payments of P1,218,940.00 from its income tax of P1,153,681.00, the return
showed a refundable amount of P65,259.00. The appropriate box in the return was marked with a cross (x) indicating To be
refunded the amount of P65,259.00.

n April 14, 1988, petitioner BPI, as liquidator of Paramount, through counsel filed a letter dated April 12, 1988 reiterating its claim for
refund of P65,259.00 as overpaid income tax for the calendar year 1985.The following day or on April 15, 1988, BPI filed the instant
petition with this Court in order to toll the running of the prescriptive period for filing a claim for refund of overpaid income taxes.

The question is whether the two-year period of prescription for filing a claim for refund, as provided in 230 of the National
Internal Revenue Code, is to be counted from April 2, 1986 when the corporate income tax return was actually filed or from April 15,
1986 when, according to 70(b) of the NIRC, the final adjustment return could still be filed without incurring any penalty. The
aforesaid 230 of the NIRC[1] provides that such period must be counted from the date of payment of the tax. But, given the facts as
stated above, when was the corporate income tax paid in this case?

The Court of Tax Appeals rendered a decision considering the two-year period of prescription to have commenced to run from
April 15, 1986, the last day for filing the corporate income tax return, and, since the claim for refund was filed on April 14, 1988 and
the action was brought on April 15, 1988, it held that prescription had not set in. Accordingly, the CTA ordered as follows:

WHEREFORE, the respondent [petitioner herein] is hereby ordered to REFUND in favor of petitioner, the sum of P65,259.00,
representing overpaid income tax of Paramount Acceptance Corporation for the calendar year 1985.

No pronouncement as to costs.

SO ORDERED.[2]

On appeal, its decision was affirmed by the Court of Appeals. Said the appellate court:[3]

We agree with the respondent courts ruling that the date of payment of the tax as prescribed under the Tax Code is the date when the
corporate income tax return is required to be filed. . . .

The Supreme Court has laid down the rule regarding the computation of the prescriptive period that the two-year period should be
computed from the time of filing of the Adjustment Returns or Annual Income Tax Return and final payment of income tax; 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 (Commissioner of Internal Revenue vs. TMX Sales Inc., 205 SCRA 184). 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 (Commissioner of Internal Revenue vs. Asia Australia Express Ltd., G.R. No. 85956). The date of payment from which to
reckon the two-year period, in the case of a corporation whose taxable year is on a calendar basis, is the 15 th day of the fourth month
(April 15th) following the close of the fiscal year, and the filing of the final adjustment return on April 15th, following the close of the
preceding taxable year, is such date of payment (ACCRA Investments Corp. vs. Court of Appeals, 204 SCRA 957).

In this case, BPI filed its final adjustment return on April 2, 1986. No taxes were paid then because the returns showed that the
quarterly taxes already paid exceeded the income tax due by P65,259.00. As correctly put by BPI, it is only on April 15 that the
previous years income tax becomes due and payable and the taxpayer is still free to make amendments or adjustments on its return,
without penalty, until April 15, 1986 (See Section 80, N.I.R.C.). Thus the final payment of income tax should be deemed to be on
April 15, 1986, when the previous years income tax became due and payable and when the quarterly corporate income taxes may be
considered paid. Accordingly the administrative claim and court proceeding for tax refund were timely filed.

Petitioner disagrees with the foregoing decision of the Court of Appeals. He contends that the two-year prescriptive period
should be computed from April 2, 1984, when the final adjustment return was actually filed, because that is the time of payment of the
tax within the meaning of 230 of the NIRC.

We agree.

The conclusions reached by the appellate court are contrary to the very rulings cited by it. In Commissioner of Internal Revenue
v. TMX Sales, Inc.,[4] this Court, in rejecting the contention that the period of prescription should be counted from the date of payment
of the quarterly tax, held:

. . . [T]he filing of a quarterly income tax return 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.

On the other hand, in ACCRA Investments Corporation v. Court of Appeals, [5] where the question was whether the two-year
period of prescription should be reckoned from the end of the taxable year (in that case December 31, 1981), we explained why the
period should be counted from the filing of the final adjustment return, thus:[6]

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 of Commissioner 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.

....

It bears emphasis at this point that the rationale in computing the two-year prescriptive period with respect to the petitioner
corporations 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 ACCRAINs case was
when its tax liability, if any, fell due upon its filing of its final adjustment return on April 15, 1982.

Finally, in Commissioner of Internal Revenue v. Philippine American Life Insurance Co., [7] we held:

Clearly, the prescriptive period of two years should commence to run only from the time that the refund is ascertained, which can only
be determined after a final adjustment return is accomplished. In the present case, this date is April 16, 1984, and two years from this
date would be April 16, 1986. The record shows that the claim for refund was filed on December 10, 1985 and the petition for review
was brought before the CTA on January 2, 1986. Both dates are within the two-year reglementary period. Private respondent being a
corporation, Section 292 [now Section 230] cannot serve as the sole basis for determining the two-year prescriptive period for
refunds. As we have earlier stated in the TMX Sales case, Sections 68, 69, and 70 on Quarterly Corporate Income Tax Payment and
Section 321 should be construed in conjunction with it.

Sec. 49(a) of the NIRC provides that

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. . . .

On the other hand, 70(b) of the same Code provides that

70 (b) Time of filing the income returnThe 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.
Thus, it can be deduced from the foregoing that, in the context of 230, which provides for a two-year period of prescription
counted from the date of payment of the tax for actions for refund of corporate income tax, the two-year period should be computed
from the time of actual filing of the Adjustment Return or Annual Income Tax Return. This is so because at that point, it can already be
determined whether there has been an overpayment by the taxpayer. Moreover, under 49(a) of the NIRC, payment is made at the time
the return is filed.

In the case at bar, Paramount filed its corporate annual income tax return on April 2, 1986. However, private respondent BPI, as
liquidator of Paramount, filed a written claim for refund only on April 14, 1988 and a petition for refund only on April 15, 1988. Both
claim and action for refund were thus barred by prescription.

The foregoing conclusion makes it unnecessary for us to pass on the other issues raised in this case by petitioner.

WHEREFORE, the decision of the Court of Appeals is REVERSED and the petition for refund filed by private respondent is
DISMISSED on the ground that it is barred by prescription.

OMMISSIONER OF INTERNAL REVENUE, G.R. No. 161997


- versus -
PHILIPPINE NATIONAL BANK, October 25, 2005

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, 2003 [1] of the Court of
Appeals (CA) in CA-G.R. SP No. 76488 and its Resolution dated January 26, 2004[2] denying petitioners
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 Cashiers Check No. 109435 for P180,000,000.00. The check represented PNBs advance income

tax payment for the banks 1991 operations and was remitted in response to then President Corazon C.

Aquinos 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, 1991 [4] 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.
[5]
Inclusive 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 PNBs prior years 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, PNBs 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 banks 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 BIRs 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 banks 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 PNBs 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 banks future gross receipts tax liability.[12]

Replying, the BIR Commissioner denied PNBs 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 PNBs aforementioned petition on ground of

prescription under the 1977 National Internal Revenue Code (NIRC) [14]. To this motion, PNB interposed an

opposition, citing Commissioner of Internal Revenue vs. Philippine American Life Insurance Co. [15]

In its Resolution of October 10, 2002,[16] the CTA granted the Commissioners motion to dismiss and,

accordingly, denied PNBs 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)

PNBs 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 PNBs 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 petitioners 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
Aquinos 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. PNBs 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 PNBs 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 Commissioners present recourse on the following substantive submissions:


1. A prior tax assessment before respondent PNB can apply for tax credit is unnecessary;
2. PNBs 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. PNBs 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 PNBs letters of April 19, 29, and May 14, 1991 [26] 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 CTAs and the BIRs refusal to grant PNBs 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 CTAs and

BIRs 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 petitioners ruling, as seconded by the CTA, the CA stated that PNBs 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, PNBs 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

letter[30] 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 Appeals[31], 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 respondents 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 PNBs claim for tax

credit to utilize the same for future tax liabilities. We quote with approval the CAs 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 that such 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, PNBs 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. 10-77[33] 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 PNBs

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 respondents 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 PNBs intention to apply the entire amount to its future tax

obligations.

In Commissioner vs. Phi-am Life[35], 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

jurisdictional[36] 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 Revenue [38], 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, ones 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 and Commissioner 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 PNBs 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 respondents right to recover

the same is already time-barred. The CTA upheld the position of petitioner. The CA ruled otherwise. We find

the CAs 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 petitioners 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 PNBs 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,

petitioners pose about respondent PNB never having made a written claim for refund only serves to

buttress the latters 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 PNBs 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 respondents 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, respondents 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 PNBs 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 PNBs 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 petitioners urging for the dismissal of respondents 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.

COMMISSIONER OF INTERNAL G.R. No. 162155


REVENUE and ARTURO V.
PARCERO in his official
capacity as Revenue District
Officer of Revenue District
No. 049 (Makati),
Petitioners, Present:

PUNO, C.J., Chairperson,


SANDOVAL-GUTIERREZ,
- v e r s u s - CORONA,
AZCUNA and
GARCIA, JJ.

PRIMETOWN PROPERTY
GROUP, INC.,
Respondent. Promulgated:
August 28, 2007

x-----------------------------------------x

DECISION

CORONA, J.:
This petition for review on certiorari [1] seeks to set aside the August 1, 2003 decision [2] of the Court of Appeals (CA) in CA-G.R. SP

No. 64782 and its February 9, 2004 resolution denying reconsideration.[3]

On March 11, 1999, Gilbert Yap, vice chair of respondent Primetown Property Group, Inc., applied for the refund or credit of income

tax respondent paid in 1997. In Yap's letter to petitioner revenue district officer Arturo V. Parcero of Revenue District No. 049

(Makati) of the Bureau of Internal Revenue (BIR), [4] he explained that the increase in the cost of labor and materials and difficulty in

obtaining financing for projects and collecting receivables caused the real estate industry to slowdown. [5] As a consequence, while

business was good during the first quarter of 1997, respondent suffered losses amounting to P71,879,228 that year.[6]

According to Yap, because respondent suffered losses, it was not liable for income taxes. [7] Nevertheless, respondent paid its quarterly

corporate income tax and remitted creditable withholding tax from real estate sales to the BIR in the total amount of P26,318,398.32.

[8]
Therefore, respondent was entitled to tax refund or tax credit.[9]

On May 13, 1999, revenue officer Elizabeth Y. Santos required respondent to submit additional documents to support its claim.

[10]
Respondent complied but its claim was not acted upon. Thus, on April 14, 2000, it filed a petition for review [11] in the Court of Tax

Appeals (CTA).

On December 15, 2000, the CTA dismissed the petition as it was filed beyond the two-year prescriptive period for filing a judicial

claim for tax refund or tax credit.[12] It invoked Section 229 of the National Internal Revenue Code (NIRC):

Sec. 229. Recovery of Taxes 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 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)

The CTA found that respondent filed its final adjusted return on April 14, 1998. Thus, its right to claim a refund or credit commenced

on that date.[13]

The tax court applied Article 13 of the Civil Code which states:

Art. 13. When the law speaks of years, months, days or nights, it shall be understood that years are of three
hundred sixty-five days each; months, of thirty days; days, of twenty-four hours, and nights from sunset to sunrise.

If the months are designated by their name, they shall be computed by the number of days which they respectively
have.

In computing a period, the first day shall be excluded, and the last included. (emphasis supplied)

Thus, according to the CTA, the two-year prescriptive period under Section 229 of the NIRC for the filing of judicial claims was

equivalent to 730 days. Because the year 2000 was a leap year, respondent's petition, which was filed 731 days [14] after respondent

filed its final adjusted return, was filed beyond the reglementary period.[15]
Respondent moved for reconsideration but it was denied.[16] Hence, it filed an appeal in the CA.[17]

On August 1, 2003, the CA reversed and set aside the decision of the CTA. [18] It ruled that Article 13 of the Civil Code did not

distinguish between a regular year and a leap year. According to the CA:

The rule that a year has 365 days applies, notwithstanding the fact that a particular year is a leap year.[19]

In other words, even if the year 2000 was a leap year, the periods covered by April 15, 1998 to April 14, 1999 and April 15, 1999 to

April 14, 2000 should still be counted as 365 days each or a total of 730 days. A statute which is clear and explicit shall be neither

interpreted nor construed.[20]

Petitioners moved for reconsideration but it was denied.[21] Thus, this appeal.

Petitioners contend that tax refunds, being in the nature of an exemption, should be strictly construed against claimants. [22] Section 229

of the NIRC should be strictly appliedagainst respondent inasmuch as it has been consistently held that the prescriptive period (for the

filing of tax refunds and tax credits) begins to run on the day claimants file their final adjusted returns. [23] Hence, the claim should have

been filed on or before April 13, 2000 or within 730 days, reckoned from the time respondent filed its final adjusted return.

The conclusion of the CA that respondent filed its petition for review in the CTA within the two-year prescriptive period provided in

Section 229 of the NIRC is correct. Its basis, however, is not.

The rule is that the two-year prescriptive period is reckoned from the filing of the final adjusted return. [24] But how should the two-year

prescriptive period be computed?

As already quoted, Article 13 of the Civil Code provides that when the law speaks of a year, it is understood to be equivalent to 365

days. In National Marketing Corporation v. Tecson,[25] we ruled that a year is equivalent to 365 days regardless of whether it is a

regular year or a leap year.[26]

However, in 1987, EO[27] 292 or the Administrative Code of 1987 was enacted. Section 31, Chapter VIII, Book I thereof provides:

Sec. 31. Legal Periods. Year shall be understood to be twelve calendar months; month of thirty days, unless it
refers to a specific calendar month in which case it shall be computed according to the number of days the specific
month contains; day, to a day of twenty-four hours and; night from sunrise to sunset. (emphasis supplied)

A calendar month is a month designated in the calendar without regard to the number of days it may contain. [28] It is the period of time

running from the beginning of a certain numbered day up to, but not including, the corresponding numbered day of the next month,

and if there is not a sufficient number of days in the next month, then up to and including the last day of that month. [29] To illustrate,

one calendar month from December 31, 2007 will be from January 1, 2008 to January 31, 2008; one calendar month from January 31,

2008 will be from February 1, 2008 until February 29, 2008.[30]


A law may be repealed expressly (by a categorical declaration that the law is revoked and abrogated by another) or impliedly (when

the provisions of a more recent law cannot be reasonably reconciled with the previous one). [31] Section 27, Book VII (Final Provisions)

of the Administrative Code of 1987 states:

Sec. 27. Repealing clause. All laws, decrees, orders, rules and regulation, or portions thereof, inconsistent with this
Code are hereby repealed or modified accordingly.

A repealing clause like Sec. 27 above is not an express repealing clause because it fails to identify or designate the laws to be

abolished.[32] Thus, the provision above only impliedly repealed all laws inconsistent with the Administrative Code of 1987.

Implied repeals, however, are not favored. An implied repeal must have been clearly and unmistakably intended by the legislature. The

test is whether the subsequent law encompasses entirely the subject matter of the former law and they cannot be logically or

reasonably reconciled.[33]

Both Article 13 of the Civil Code and Section 31, Chapter VIII, Book I of the Administrative Code of 1987 deal with the same subject

matter the computation of legal periods. Under the Civil Code, a year is equivalent to 365 days whether it be a regular year or a leap

year. Under the Administrative Code of 1987, however, a year is composed of 12 calendar months. Needless to state, under the

Administrative Code of 1987, the number of days is irrelevant.

There obviously exists a manifest incompatibility in the manner of computing legal periods under the Civil Code and the

Administrative Code of 1987. For this reason, we hold that Section 31, Chapter VIII, Book I of the Administrative Code of 1987,

being the more recent law, governs the computation of legal periods. Lex posteriori derogat priori.

Applying Section 31, Chapter VIII, Book I of the Administrative Code of 1987 to this case, the two-year prescriptive period (reckoned

from the time respondent filed its final adjusted return[34] on April 14, 1998) consisted of 24 calendar months, computed as follows:

Year 1 1st calendar April 15, 1998 to May 14, 1998


month
2nd calendar May 15, 1998 to June 14, 1998
month
3rd calendar June 15, 1998 to July 14, 1998
month
4th calendar July 15, 1998 to August 14, 1998
month
5th calendar August 15, 1998 to September 14, 1998
month
6th calendar September 15, 1998 to October 14, 1998
month
7th calendar October 15, 1998 to November 14, 1998
month
8th calendar November 15, 1998 to December 14, 1998
month
9th calendar December 15, 1998 to January 14, 1999
month
10th calendar January 15, 1999 to February 14, 1999
month
11th calendar February 15, 1999 to March 14, 1999
month
12th calendar March 15, 1999 to April 14, 1999
month
Year 2 13th calendar April 15, 1999 to May 14, 1999
month
14th calendar May 15, 1999 to June 14, 1999
month
15th calendar June 15, 1999 to July 14, 1999
month
16th calendar July 15, 1999 to August 14, 1999
month
17th calendar August 15, 1999 to September 14, 1999
month
18th calendar September 15, 1999 to October 14, 1999
month
19th calendar October 15, 1999 to November 14, 1999
month
20th calendar November 15, 1999 to December 14, 1999
month
21st calendar December 15, 1999 to January 14, 2000
month
22nd calendar January 15, 2000 to February 14, 2000
month
23rd calendar February 15, 2000 to March 14, 2000
month
24th calendar March 15, 2000 to April 14, 2000
month

We therefore hold that respondent's petition (filed on April 14, 2000) was filed on the last day of the 24 th calendar month from the day

respondent filed its final adjusted return. Hence, it was filed within the reglementary period.

Accordingly, the petition is hereby DENIED. The case is REMANDED to the Court of Tax Appeals which is ordered to expeditiously

proceed to hear C.T.A. Case No. 6113 entitled Primetown Property Group, Inc. v. Commissioner of Internal Revenue and Arturo V.

Parcero.

G.R. No. 187485 October 8, 2013

COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs.SAN ROQUE POWER CORPORATION, Respondent.

G.R. No. 196113

TAGANITO MINING CORPORATION, Petitioner,


vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

x-----------------------x

G.R. No. 197156

PHILEX MINING CORPORATION, Petitioner,


vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

RESOLUTION

CARPIO, J.:

This Resolution resolves the Motion for Reconsideration and the Supplemental Motion for Reconsideration filed by San
Roque Power Corporation (San Roque) in G.R. No. 187485, the Comment to the Motion for Reconsideration filed by the
Commissioner of Internal Revenue (CIR) in G.R. No. 187485, the Motion for Reconsideration filed by the CIR in G.R.No.
196113, and the Comment to the Motion for Reconsideration filed by Taganito Mining Corporation (Taganito) in G.R. No.
196113.

San Roque prays that the rule established in our 12 February 2013 Decision be given only a prospective effect, arguing
that "the manner by which the Bureau of Internal Revenue (BIR) and the Court of Tax Appeals(CTA) actually treated the
120 + 30 day periods constitutes an operative fact the effects and consequences of which cannot be erased or undone." 1

The CIR, on the other hand, asserts that Taganito Mining Corporation's (Taganito) judicial claim for tax credit or refund
was prematurely filed before the CTA and should be disallowed because BIR Ruling No. DA-489-03 was issued by a
Deputy Commissioner, not by the Commissioner of Internal Revenue.
We deny both motions.

The Doctrine of Operative Fact

The general rule is that a void law or administrative act cannot be the source of legal rights or duties. Article 7 of the Civil
Code enunciates this general rule, as well as its exception: "Laws are repealed only by subsequent ones, and their
violation or non-observance shall not be excused by disuse, or custom or practice to the contrary. When the courts
declared a law to be inconsistent with the Constitution, the former shall be void and the latter shall govern. Administrative
or executive acts, orders and regulations shall be valid only when they are not contrary to the laws or the Constitution."

The doctrine of operative fact is an exception to the general rule, such that a judicial declaration of invalidity may not
necessarily obliterate all the effects and consequences of a void act prior to such declaration. 2 In Serrano de Agbayani v.
Philippine National Bank,3 the application of the doctrine of operative fact was discussed as follows:

The decision now on appeal reflects the orthodox view that an unconstitutional act, for that matter an executive order or a
municipal ordinance likewise suffering from that infirmity, cannot be the source of any legal rights or duties. Nor can it
justify any official act taken under it. Its repugnancy to the fundamental law once judicially declared results in its being to
all intents and purposes a mere scrap of paper. As the new Civil Code puts it: "When the courts declare a law to be
inconsistent with the Constitution, the former shall be void and the latter shall govern. Administrative or executive acts,
orders and regulations shall be valid only when they are not contrary to the laws of the Constitution." It is understandable
why it should be so, the Constitution being supreme and paramount. Any legislative or executive act contrary to its terms
cannot survive.

Such a view has support in logic and possesses the merit of simplicity. It may not however be sufficiently realistic. It does
not admit of doubt that prior to the declaration of nullity such challenged legislative or executive act must have been in
force and had to be complied with. This is so as until after the judiciary, in an appropriate case, declares its invalidity, it is
entitled to obedience and respect. Parties may have acted under it and may have changed their positions. What could be
more fitting than that in a subsequent litigation regard be had to what has been done while such legislative or executive
act was in operation and presumed to be valid in all respects. It is now accepted as a doctrine that prior to its being
nullified, its existence as a fact must be reckoned with. This is merely to reflect awareness that precisely because the
judiciary is the governmental organ which has the final say on whether or not a legislative or executive measure is valid, a
period of time may have elapsed before it can exercise the power of judicial review that may lead to a declaration of
nullity. It would be to deprive the law of its quality of fairness and justice then, if there be no recognition of what had
transpired prior to such adjudication.

In the language of an American Supreme Court decision: "The actual existence of a statute, prior to such a determination
of unconstitutionality, is an operative fact and may have consequences which cannot justly be ignored. The past cannot
always be erased by a new judicial declaration. The effect of the subsequent ruling as to invalidity may have to be
considered in various aspects, with respect to particular relations, individual and corporate, and particular conduct, private
and official." This language has been quoted with approval in a resolution in Araneta v. Hill and the decision in Manila
Motor Co., Inc. v. Flores. An even more recent instance is the opinion of Justice Zaldivar speaking for the Court in
Fernandez v. Cuerva and Co. (Boldfacing and italicization supplied)

Clearly, for the operative fact doctrine to apply, there must be a "legislative or executive measure," meaning a law or
executive issuance, that is invalidated by the court. From the passage of such law or promulgation of such executive
issuance until its invalidation by the court, the effects of the law or executive issuance, when relied upon by the public in
good faith, may have to be recognized as valid. In the present case, however, there is no such law or executive issuance
that has been invalidated by the Court except BIR Ruling No. DA-489-03.

To justify the application of the doctrine of operative fact as an exemption, San Roque asserts that "the BIR and the CTA
in actual practice did not observe and did not require refund seekers to comply with the120+30 day periods." 4 This is
glaring error because an administrative practice is neither a law nor an executive issuance. Moreover, in the present case,
there is even no such administrative practice by the BIR as claimed by San Roque.

In BIR Ruling No. DA-489-03 dated 10 December 2003, the Department of Finances One-Stop Shop Inter-Agency Tax
Credit and Duty Drawback Center (DOF-OSS) asked the BIR to rule on the propriety of the actions taken by Lazi Bay
Resources Development, Inc. (LBRDI). LBRDI filed an administrative claim for refund for alleged input VAT for the four
quarters of 1998. Before the lapse of 120 days from the filing of its administrative claim, LBRDI also filed a judicial claim
with the CTA on 28March 2000 as well as a supplemental judicial claim on 29 September 2000.In its Memorandum dated
13 August 2002 before the BIR, the DOF-OSS pointed out that LBRDI is "not yet on the right forum in violation of the
provision of Section 112(D) of the NIRC" when it sought judicial relief before the CTA. Section 112(D) provides for the
120+30 day periods for claiming tax refunds.

The DOF-OSS itself alerted the BIR that LBRDI did not follow the120+30 day periods. In BIR Ruling No. DA-489-03,
Deputy Commissioner Jose Mario C. Buag ruled that "a taxpayer-claimant need not wait for the lapse of the 120-day
period before it could seek judicial relief with the CTA by way of Petition for Review." Deputy Commissioner Buag, citing
the 7February 2002 decision of the Court of Appeals (CA) in Commissioner of Internal Revenue v. Hitachi Computer
Products (Asia) Corporation5 (Hitachi), stated that the claim for refund with the Commissioner could be pending
simultaneously with a suit for refund filed before the CTA.
Before the issuance of BIR Ruling No. DA-489-03 on 10 December 2003, there was no administrative practice by the BIR
that supported simultaneous filing of claims. Prior to BIR Ruling No. DA-489-03, the BIR considered the 120+30 day
periods mandatory and jurisdictional.

Thus, prior to BIR Ruling No. DA-489-03, the BIRs actual administrative practice was to contest simultaneous filing of
claims at the administrative and judicial levels, until the CA declared in Hitachi that the BIRs position was wrong. The CAs
Hitachi decision is the basis of BIR Ruling No. DA-489-03 dated 10 December 2003 allowing simultaneous filing. From
then on taxpayers could rely in good faith on BIR Ruling No. DA-489-03 even though it was erroneous as this Court
subsequently decided in Aichi that the 120+30 day periods were mandatory and jurisdictional.

We reiterate our pronouncements in our Decision as follows:

At the time San Roque filed its petition for review with the CTA, the 120+30 day mandatory periods were already in the
law. Section112(C) expressly grants the Commissioner 120 days within which to decide the taxpayers claim. The law is
clear, plain, and unequivocal: "x x x the Commissioner shall grant a refund or issue the tax credit certificate for creditable
input taxes within one hundred twenty (120) days from the date of submission of complete documents." Following the
verbalegis doctrine, this law must be applied exactly as worded since it is clear, plain, and unequivocal. The taxpayer
cannot simply file a petition with the CTA without waiting for the Commissioners decision within the 120-daymandatory
and jurisdictional period. The CTA will have no jurisdiction because there will be no "decision" or "deemed a denial"
decision of the Commissioner for the CTA to review. In San Roques case, it filed its petition with the CTA a mere 13 days
after it filed its administrative claim with the Commissioner. Indisputably, San Roque knowingly violated the mandatory
120-day period, and it cannot blame anyone but itself.

Section 112(C) also expressly grants the taxpayer a 30-day period to appeal to the CTA the decision or inaction of the
Commissioner x x x.

xxxx

To repeat, a claim for tax refund or credit, like a claim for tax exemption, is construed strictly against the
taxpayer.1wphi1 One of the conditions for a judicial claim of refund or credit under the VAT System is compliance with
the 120+30 day mandatory and jurisdictional periods. Thus, strict compliance with the 120+30 day periods is necessary
for such a claim to prosper, whether before, during, or after the effectivity of the Atlas doctrine, except for the period from
the issuance of BIR Ruling No. DA-489-03 on 10 December 2003 to 6 October 2010 when the Aichi doctrine was adopted,
which again reinstated the 120+30 day periods as mandatory and jurisdictional. 6

San Roques argument must, therefore, fail. The doctrine of operative fact is an argument for the application of equity and
fair play. In the present case, we applied the doctrine of operative fact when we recognized simultaneous filing during the
period between 10 December 2003, when BIR Ruling No. DA-489-03 was issued, and 6 October 2010, when this Court
promulgated Aichi declaring the 120+30 day periods mandatory and jurisdictional, thus reversing BIR Ruling No. DA-489-
03.

The doctrine of operative fact is in fact incorporated in Section 246 of the Tax Code, which provides:

SEC. 246. Non-Retroactivity of Rulings. - Any revocation, modification or reversal of any of the rules and regulations
promulgated in accordance with the preceding Sections or any of the rulings or circulars promulgated by the
Commissioner shall not be given retroactive application if the revocation, modification or reversal will be prejudicial to the
taxpayers, except in the following cases:

(a) Where the taxpayer deliberately misstates or omits material facts from his return or any document required of
him by the Bureau of Internal Revenue;

(b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the
facts on which the ruling is based; or

(c) Where the taxpayer acted in bad faith. (Emphasis supplied)

Under Section 246, taxpayers may rely upon a rule or ruling issued by the Commissioner from the time the rule or ruling is
issued up to its reversal by the Commissioner or this Court. The reversal is not given retroactive effect. This, in essence,
is the doctrine of operative fact. There must, however, be a rule or ruling issued by the Commissioner that is relied upon
by the taxpayer in good faith. A mere administrative practice, not formalized into a rule or ruling, will not suffice because
such a mere administrative practice may not be uniformly and consistently applied. An administrative practice, if not
formalized as a rule or ruling, will not be known to the general public and can be availed of only by those within formal
contacts with the government agency.

Since the law has already prescribed in Section 246 of the Tax Code how the doctrine of operative fact should be applied,
there can be no invocation of the doctrine of operative fact other than what the law has specifically provided in Section
246. In the present case, the rule or ruling subject of the operative fact doctrine is BIR Ruling No. DA-489-03 dated 10
December 2003. Prior to this date, there is no such rule or ruling calling for the application of the operative fact doctrine in
Section 246. Section246, being an exemption to statutory taxation, must be applied strictly against the taxpayer claiming
such exemption.
San Roque insists that this Court should not decide the present case in violation of the rulings of the CTA; otherwise, there
will be adverse effects on the national economy. In effect, San Roques doomsday scenario is a protest against this
Courts power of appellate review. San Roque cites cases decided by the CTA to underscore that the CTA did not treat the
120+30 day periods as mandatory and jurisdictional. However, CTA or CA rulings are not the executive issuances covered
by Section 246 of the Tax Code, which adopts the operative fact doctrine. CTA or CA decisions are specific rulings
applicable only to the parties to the case and not to the general public. CTA or CA decisions, unlike those of this Court, do
not form part of the law of the land. Decisions of lower courts do not have any value as precedents. Obviously, decisions
of lower courts are not binding on this Court. To hold that CTA or CA decisions, even if reversed by this Court, should still
prevail is to turn upside down our legal system and hierarchy of courts, with adverse effects far worse than the dubious
doomsday scenario San Roque has conjured.

San Roque cited cases7 in its Supplemental Motion for Reconsideration to support its position that retroactive application
of the doctrine in the present case will violate San Roques right to equal protection of the law. However, San Roque itself
admits that the cited cases never mentioned the issue of premature or simultaneous filing, nor of compliance with the
120+30 day period requirement. We reiterate that "any issue, whether raised or not by the parties, but not passed upon by
the Court, does not have any value as precedent." 8 Therefore, the cases cited by San Roque to bolster its claim against
the application of the 120+30 day period requirement do not have any value as precedents in the present case.

Authority of the Commissioner


to Delegate Power

In asking this Court to disallow Taganitos claim for tax refund or credit, the CIR repudiates the validity of the issuance of
its own BIR Ruling No. DA-489-03. "Taganito cannot rely on the pronouncements in BIR Ruling No. DA-489-03, being a
mere issuance of a Deputy Commissioner."9

Although Section 4 of the 1997 Tax Code provides that the "power to interpret the provisions of this Code and other tax
laws shall be under the exclusive and original jurisdiction of the Commissioner, subject to review by the Secretary of
Finance," Section 7 of the same Code does not prohibit the delegation of such power. Thus, "the Commissioner may
delegate the powers vested in him under the pertinent provisions of this Code to any or such subordinate officials with the
rank equivalent to a division chief or higher, subject to such limitations and restrictions as may be imposed under rules
and regulations to be promulgated by the Secretary of Finance, upon recommendation of the Commissioner."

WHEREFORE, we DENY with FINALITY the Motions for Reconsideration filed by San Roque Power Corporation in G.R.
No. 187485,and the Commissioner of Internal Revenue in G.R. No. 196113.

SO ORDERED.

In case of amended returns


In case of taxpayers contemplating dissolution Case: BPI v. CIR, 28 August
2001; See also: Sections 52(c) and 56(a)
In case of VAT Refund (Please see topic on VAT)

[G.R. No. 144653. August 28, 2001]

BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, respondent.

DECISION

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
courts 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 1, 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 net 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 amount of P2,320,138.34,
representing that years tax credit of P174,065.77 and the previous years excess credit of P2,146,072.57.

As FBTCs 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 petitioners 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 petitioners
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 petitioners motion for reconsideration.[6] Hence this petition.

The sole issue in this case is whether petitioners claim is barred by prescription. The resolution of this question requires a
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 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 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 not
yet prescribed because the two-year prescriptive period commenced to run only after it had filed FBTCs 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
possible involuntary dissolution by the Securities and Exchange Commission, render a correct return to the Commissioner 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
petitioners 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 rule on the issue of prescription, it is noteworthy to point out that based on the financial statements of FBTC and
the independent auditors opinion (Exhs. 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. This 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 to 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 granted 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 petitioners 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.

SO ORDERED.

e. Who has the personality to file a claim for refund?


1. CIR v. Proctor and Gamble, GR No. 66838, 2 December 1991**
3. Silkair v. CIR, GR Nos. 171383 & 172379, 14 November 2008
4. CIR v. Smart Communications, GR No. 179045-46, 25 August 2010***
5. Exxonmobil Petroleum and Chemical Holdings v. CIR, GR No. 180909, 19
January 2011
6. Silkair (Singapore) Pte., Ltd. v. Commissioner on Internal Revenue, G.R. No.
166482, 25 January 2012***
G.R. No. L-66838 December 2, 1991

COMMISSIONER OF INTERNAL REVENUE, petitioner,


vs.
PROCTER & GAMBLE PHILIPPINE MANUFACTURING CORPORATION and THE COURT OF TAX
APPEALS, respondents.

T.A. Tejada & C.N. Lim for private respondent.

RESOLUTION

FELICIANO, J.:p

For the taxable year 1974 ending on 30 June 1974, and the taxable year 1975 ending 30 June 1975, private respondent
Procter and Gamble Philippine Manufacturing Corporation ("P&G-Phil.") declared dividends payable to its parent company
and sole stockholder, Procter and Gamble Co., Inc. (USA) ("P&G-USA"), amounting to P24,164,946.30, from which
dividends the amount of P8,457,731.21 representing the thirty-five percent (35%) withholding tax at source was deducted.

On 5 January 1977, private respondent P&G-Phil. filed with petitioner Commissioner of Internal Revenue a claim for
refund or tax credit in the amount of P4,832,989.26 claiming, among other things, that pursuant to Section 24 (b) (1) of the
National Internal Revenue Code ("NITC"), 1 as amended by Presidential Decree No. 369, the applicable rate of
withholding tax on the dividends remitted was only fifteen percent (15%) (and not thirty-five percent [35%]) of the
dividends.

There being no responsive action on the part of the Commissioner, P&G-Phil., on 13 July 1977, filed a petition for review
with public respondent Court of Tax Appeals ("CTA") docketed as CTA Case No. 2883. On 31 January 1984, the CTA
rendered a decision ordering petitioner Commissioner to refund or grant the tax credit in the amount of P4,832,989.00.

On appeal by the Commissioner, the Court through its Second Division reversed the decision of the CTA and held that:

(a) P&G-USA, and not private respondent P&G-Phil., was the proper party to claim the
refund or tax credit here involved;

(b) there is nothing in Section 902 or other provisions of the US Tax Code that allows a
credit against the US tax due from P&G-USA of taxes deemed to have been paid in the
Philippines equivalent to twenty percent (20%) which represents the difference between
the regular tax of thirty-five percent (35%) on corporations and the tax of fifteen percent
(15%) on dividends; and
(c) private respondent P&G-Phil. failed to meet certain conditions necessary in order that
"the dividends received by its non-resident parent company in the US (P&G-USA) may be
subject to the preferential tax rate of 15% instead of 35%."

These holdings were questioned in P&G-Phil.'s Motion for Re-consideration and we will deal with them seriatim in this
Resolution resolving that Motion.

1. There are certain preliminary aspects of the question of the capacity of P&G-Phil. to bring the present claim for refund
or tax credit, which need to be examined. This question was raised for the first time on appeal, i.e., in the proceedings
before this Court on the Petition for Review filed by the Commissioner of Internal Revenue. The question was not raised
by the Commissioner on the administrative level, and neither was it raised by him before the CTA.

We believe that the Bureau of Internal Revenue ("BIR") should not be allowed to defeat an otherwise valid claim for refund
by raising this question of alleged incapacity for the first time on appeal before this Court. This is clearly a matter of
procedure. Petitioner does not pretend that P&G-Phil., should it succeed in the claim for refund, is likely to run away, as it
were, with the refund instead of transmitting such refund or tax credit to its parent and sole stockholder. It is commonplace
that in the absence of explicit statutory provisions to the contrary, the government must follow the same rules of procedure
which bind private parties. It is, for instance, clear that the government is held to compliance with the provisions of Circular
No. 1-88 of this Court in exactly the same way that private litigants are held to such compliance, save only in respect of
the matter of filing fees from which the Republic of the Philippines is exempt by the Rules of Court.

More importantly, there arises here a question of fairness should the BIR, unlike any other litigant, be allowed to raise for
the first time on appeal questions which had not been litigated either in the lower court or on the administrative level. For,
if petitioner had at the earliest possible opportunity, i.e., at the administrative level, demanded that P&G-Phil. produce an
express authorization from its parent corporation to bring the claim for refund, then P&G-Phil. would have been able
forthwith to secure and produce such authorization before filing the action in the instant case. The action here was
commenced just before expiration of the two (2)-year prescriptive period.

2. The question of the capacity of P&G-Phil. to bring the claim for refund has substantive dimensions as well which, as will
be seen below, also ultimately relate to fairness.

Under Section 306 of the NIRC, a claim for refund or tax credit filed with the Commissioner of Internal Revenue is
essential for maintenance of a suit for recovery of taxes allegedly erroneously or illegally assessed or collected:

Sec. 306. 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 the tax or penalty regardless of any supervening cause that may arise after payment: .
. . (Emphasis supplied)

Section 309 (3) of the NIRC, in turn, provides:

Sec. 309. Authority of Commissioner to Take Compromises and to Refund Taxes.The


Commissioner may:

xxx xxx xxx

(3) credit or refund taxes erroneously or illegally received, . . . 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. (As amended by P.D. No. 69)
(Emphasis supplied)

Since the claim for refund was filed by P&G-Phil., the question which arises is: is P&G-Phil. a "taxpayer" under Section
309 (3) of the NIRC? The term "taxpayer" is defined in our NIRC as referring to "any person subject to tax imposed by the
Title [on Tax on Income]." 2 It thus becomes important to note that under Section 53 (c) 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 3 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." 4 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, 5 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. 6 (Emphasis supplied)

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, is 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.

We believe that, even now, there is nothing to preclude the BIR from requiring P&G-Phil. to show some written or telexed
confirmation by P&G-USA of the subsidiary's authority to claim the refund or tax credit and to remit the proceeds of the
refund., or to apply the tax credit to some Philippine tax obligation of, P&G-USA, before actual payment of the refund or
issuance of a tax credit certificate. What appears to be vitiated by basic unfairness is petitioner's position that, although
P&G-Phil. is directly and personally liable to the Government for the taxes and any deficiency assessments to be
collected, the Government is not legally liable for a refund simply because it did not demand a written confirmation of
P&G-Phil.'s implied authority from the very beginning. A sovereign government should act honorably and fairly at all times,
even vis-a-vis taxpayers.

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, NIRC, and as impliedly authorized to file the claim for refund and the suit to recover such
claim.

II

1. We turn to the principal substantive question before us: the applicability to the dividend remittances by P&G-Phil. to
P&G-USA of the fifteen percent (15%) tax rate provided for in the following portion of Section 24 (b) (1) of the NIRC:

(b) Tax on foreign corporations.

(1) Non-resident corporation. A foreign corporation not engaged in trade and business
in the Philippines, . . ., shall pay a tax equal to 35% of the gross income receipt during its
taxable year from all sources within the Philippines, as . . . dividends . . . Provided, still
further, that on dividends received from a domestic corporation liable to tax under this
Chapter, the tax shall be 15% of the dividends, which shall be collected and paid as
provided in Section 53 (d) of this Code, subject to the condition that the country in which
the non-resident foreign corporation, is domiciled shall allow a credit against the tax due
from the non-resident foreign corporation, taxes deemed to have been paid in the
Philippines equivalent to 20% which represents the difference between the regular tax
(35%) on corporations and the tax (15%) on dividends as provided in this Section . . .

The ordinary thirty-five percent (35%) tax rate applicable to dividend remittances to non-resident corporate stockholders of
a Philippine corporation, goes down to fifteen percent (15%) if the country of domicile of the foreign stockholder
corporation "shall allow" such foreign corporation a tax credit for "taxes deemed paid in the Philippines," applicable
against the tax payable to the domiciliary country by the foreign stockholder corporation. In other words, in the instant
case, the reduced fifteen percent (15%) dividend tax rate is applicable if the USA "shall allow" to P&G-USA a tax credit for
"taxes deemed paid in the Philippines" applicable against the US taxes of P&G-USA. The NIRC specifies that such tax
credit for "taxes deemed paid in the Philippines" must, as a minimum, reach an amount equivalent to twenty (20)
percentage points which represents the difference between the regular thirty-five percent (35%) dividend tax rate and the
preferred fifteen percent (15%) dividend tax rate.

It is important to note that Section 24 (b) (1), NIRC, does not require that the US must give a "deemed paid" tax credit for
the dividend tax (20 percentage points) waived by the Philippines in making applicable the preferred divided tax rate of
fifteen percent (15%). In other words, our NIRC does not require that the US tax law deem the parent-corporation to have
paid the twenty (20) percentage points of dividend tax waived by the Philippines. The NIRC only requires that the US
"shall allow" P&G-USA a "deemed paid" tax credit in an amount equivalent to the twenty (20) percentage points waived by
the Philippines.
2. The question arises: Did the US law comply with the above requirement? The relevant provisions of the US Intemal
Revenue Code ("Tax Code") are the following:

Sec. 901 Taxes of foreign countries and possessions of United States.

(a) Allowance of credit. If the taxpayer chooses to have the benefits of this subpart, the
tax imposed by this chapter shall, subject to the applicable limitation of section 904, be
credited with the amounts provided in the applicable paragraph of subsection (b) plus, in
the case of a corporation, the taxes deemed to have been paid under sections 902 and
960. Such choice for any taxable year may be made or changed at any time before the
expiration of the period prescribed for making a claim for credit or refund of the tax
imposed by this chapter for such taxable year. The credit shall not be allowed against the
tax imposed by section 531 (relating to the tax on accumulated earnings), against the
additional tax imposed for the taxable year under section 1333 (relating to war loss
recoveries) or under section 1351 (relating to recoveries of foreign expropriation losses),
or against the personal holding company tax imposed by section 541.

(b) Amount allowed. Subject to the applicable limitation of section 904, the following
amounts shall be allowed as the credit under subsection (a):

(a) Citizens and domestic corporations. In the case of a citizen of the


United States and of a domestic corporation, the amount of any
income, war profits, and excess profits taxes paid or accrued during the
taxable year to any foreign country or to any possession of the United
States; and

xxx xxx xxx

Sec. 902. Credit for corporate stockholders in foreign corporation.

(A) Treatment of Taxes Paid by Foreign Corporation. For purposes of this subject, a
domestic corporation which owns at least 10 percent of the voting stock of a foreign
corporation from which it receives dividends in any taxable year shall

xxx xxx xxx

(2) to the extent such dividends are paid by such foreign corporation out
of accumulated profits [as defined in subsection (c) (1) (b)] of a year for
which such foreign corporation is a less developed country
corporation, be deemed to have paid the same proportion of any
income, war profits, or excess profits taxes paid or deemed to be paid by
such foreign corporation to any foreign country or to any possession of
the United States on or with respect to such accumulated profits, which
the amount of such dividends bears to the amount of such accumulated
profits.

xxx xxx xxx

(c) Applicable Rules

(1) Accumulated profits defined. For purposes of this section, the term "accumulated
profits" means with respect to any foreign corporation,

(A) for purposes of subsections (a) (1) and (b) (1), the amount of its
gains, profits, or income computed without reduction by the amount of
the income, war profits, and excess profits taxes imposed on or with
respect to such profits or income by any foreign country. . . .; and

(B) for purposes of subsections (a) (2) and (b) (2), the amount of
its gains, profits, or income in excess of the income, war profits, and
excess profits taxes imposed on or with respect to such profits
or income.

The Secretary or his delegate shall have full power to determine from the accumulated
profits of what year or years such dividends were paid, treating dividends paid in the first
20 days of any year as having been paid from the accumulated profits of the preceding
year or years (unless to his satisfaction shows otherwise), and in other respects treating
dividends as having been paid from the most recently accumulated gains, profits, or
earning. . . . (Emphasis supplied)

Close examination of the above quoted provisions of the US Tax Code 7 shows the following:
a. US law (Section 901, Tax Code) grants P&G-USA a tax credit for the amount of the
dividend tax actually paid (i.e., withheld) from the dividend remittances to P&G-USA;

b. US law (Section 902, US Tax Code) grants to P&G-USA a "deemed paid' tax
credit 8 for a proportionate part of the corporate income tax actually paid to the
Philippines by P&G-Phil.

The parent-corporation P&G-USA is "deemed to have paid" a portion of the Philippine corporate income tax although that
tax was actually paid by its Philippine subsidiary, P&G-Phil., not by P&G-USA. This "deemed paid" concept merely reflects
economic reality, since the Philippine corporate income tax was in fact paid and deducted from revenues earned in the
Philippines, thus reducing the amount remittable as dividends to P&G-USA. In other words, US tax law treats the
Philippine corporate income tax as if it came out of the pocket, as it were, of P&G-USA as a part of the economic cost of
carrying on business operations in the Philippines through the medium of P&G-Phil. and here earning profits. What
is, under US law, deemed paid by P&G- USA are not "phantom taxes" but instead Philippine corporate income taxes
actually paid here by P&G-Phil., which are very real indeed.

It is also useful to note that both (i) the tax credit for the Philippine dividend tax actually withheld, and (ii) the tax credit for
the Philippine corporate income tax actually paid by P&G Phil. but "deemed paid" by P&G-USA, are tax credits available
or applicable against the US corporate income tax of P&G-USA. These tax credits are allowed because of the US
congressional desire to avoid or reduce double taxation of the same income stream. 9

In order to determine whether US tax law complies with the requirements for applicability of the reduced or preferential
fifteen percent (15%) dividend tax rate under Section 24 (b) (1), NIRC, it is necessary:

a. to determine the amount of the 20 percentage points dividend tax waived by the
Philippine government under Section 24 (b) (1), NIRC, and which hence goes to P&G-
USA;

b. to determine the amount of the "deemed paid" tax credit which US tax law must allow
to P&G-USA; and

c. to ascertain that the amount of the "deemed paid" tax credit allowed by US law is at
least equal to the amount of the dividend tax waived by the Philippine Government.

Amount (a), i.e., the amount of the dividend tax waived by the Philippine government is arithmetically determined in the
following manner:

P100.00 Pretax net corporate income earned by P&G-Phil.


x 35% Regular Philippine corporate income tax rate

P35.00 Paid to the BIR by P&G-Phil. as Philippine
corporate income tax.

P100.00
-35.00

P65.00 Available for remittance as dividends to P&G-USA

P65.00 Dividends remittable to P&G-USA


x 35% Regular Philippine dividend tax rate under Section 24
(b) (1), NIRC
P22.75 Regular dividend tax

P65.00 Dividends remittable to P&G-USA


x 15% Reduced dividend tax rate under Section 24 (b) (1), NIRC

P9.75 Reduced dividend tax

P22.75 Regular dividend tax under Section 24 (b) (1), NIRC


-9.75 Reduced dividend tax under Section 24 (b) (1), NIRC

P13.00 Amount of dividend tax waived by Philippine
===== government under Section 24 (b) (1), NIRC.

Thus, amount (a) above is P13.00 for every P100.00 of pre-tax net income earned by P&G-Phil. Amount (a) is also
the minimum amount of the "deemed paid" tax credit that US tax law shall allow if P&G-USA is to qualify for the reduced
or preferential dividend tax rate under Section 24 (b) (1), NIRC.

Amount (b) above, i.e., the amount of the "deemed paid" tax credit which US tax law allows under Section 902, Tax Code,
may be computed arithmetically as follows:
P65.00 Dividends remittable to P&G-USA
- 9.75 Dividend tax withheld at the reduced (15%) rate

P55.25 Dividends actually remitted to P&G-USA

P35.00 Philippine corporate income tax paid by P&G-Phil.


to the BIR

Dividends actually
remitted by P&G-Phil.
to P&G-USA P55.25
= x P35.00 = P29.75 10
Amount of accumulated P65.00 ======
profits earned by
P&G-Phil. in excess
of income tax

Thus, for every P55.25 of dividends actually remitted (after withholding at the rate of 15%) by P&G-Phil. to its US parent
P&G-USA, a tax credit of P29.75 is allowed by Section 902 US Tax Code for Philippine corporate income tax "deemed
paid" by the parent but actually paid by the wholly-owned subsidiary.

Since P29.75 is much higher than P13.00 (the amount of dividend tax waived by the Philippine government), Section 902,
US Tax Code, specifically and clearly complies with the requirements of Section 24 (b) (1), NIRC.

3. It is important to note also that the foregoing reading of Sections 901 and 902 of the US Tax Code is identical with the
reading of the BIR of Sections 901 and 902 of the US Tax Code is identical with the reading of the BIR of Sections 901
and 902 as shown by administrative rulings issued by the BIR.

The first Ruling was issued in 1976, i.e., BIR Ruling No. 76004, rendered by then Acting Commissioner of Intemal
Revenue Efren I. Plana, later Associate Justice of this Court, the relevant portion of which stated:

However, after a restudy of the decision in the American Chicle Company case and the provisions of
Section 901 and 902 of the U.S. Internal Revenue Code, we find merit in your contention that our
computation of the credit which the U.S. tax law allows in such cases is erroneous as the amount of tax
"deemed paid" to the Philippine government for purposes of credit against the U.S. tax by the recipient of
dividends includes a portion of the amount of income tax paid by the corporation declaring the dividend in
addition to the tax withheld from the dividend remitted. In other words, the U.S. government will allow a
credit to the U.S. corporation or recipient of the dividend, in addition to the amount of tax actually
withheld, a portion of the income tax paid by the corporation declaring the dividend. Thus, if a Philippine
corporation wholly owned by a U.S. corporation has a net income of P100,000, it will pay P25,000
Philippine income tax thereon in accordance with Section 24(a) of the Tax Code. The net income, after
income tax, which is P75,000, will then be declared as dividend to the U.S. corporation at 15% tax, or
P11,250, will be withheld therefrom. Under the aforementioned sections of the U.S. Internal Revenue
Code, U.S. corporation receiving the dividend can utilize as credit against its U.S. tax payable on said
dividends the amount of P30,000 composed of:

(1) The tax "deemed paid" or indirectly paid on the dividend arrived at as
follows:

P75,000 x P25,000 = P18,750



100,000 **

(2) The amount of 15% of


P75,000 withheld = 11,250

P30,000

The amount of P18,750 deemed paid and to be credited against the U.S. tax on the dividends received by
the U.S. corporation from a Philippine subsidiary is clearly more than 20% requirement of Presidential
Decree No. 369 as 20% of P75,000.00 the dividends to be remitted under the above example, amounts to
P15,000.00 only.

In the light of the foregoing, BIR Ruling No. 75-005 dated September 10, 1975 is hereby amended in the
sense that the dividends to be remitted by your client to its parent company shall be subject to the
withholding tax at the rate of 15% only.

This ruling shall have force and effect only for as long as the present pertinent provisions of the U.S.
Federal Tax Code, which are the bases of the ruling, are not revoked, amended and modified, the effect of
which will reduce the percentage of tax deemed paid and creditable against the U.S. tax on dividends
remitted by a foreign corporation to a U.S. corporation. (Emphasis supplied)
The 1976 Ruling was reiterated in, e.g., BIR Ruling dated 22 July 1981 addressed to Basic Foods Corporation and BIR
Ruling dated 20 October 1987 addressed to Castillo, Laman, Tan and Associates. In other words, the 1976 Ruling of Hon.
Efren I. Plana was reiterated by the BIR even as the case at bar was pending before the CTA and this Court.

4. We should not overlook the fact that the concept of "deemed paid" tax credit, which is embodied in Section 902, US Tax
Code, is exactly the same "deemed paid" tax credit found in our NIRC and which Philippine tax law allows to Philippine
corporations which have operations abroad (say, in the United States) and which, therefore, pay income taxes to the US
government.

Section 30 (c) (3) and (8), NIRC, provides:

(d) Sec. 30. Deductions from Gross Income.In computing net income, there shall be
allowed as deductions . . .

(c) Taxes. . . .

xxx xxx xxx

(3) Credits against tax for taxes of foreign countries. If the taxpayer
signifies in his return his desire to have the benefits of this paragraphs,
the tax imposed by this Title shall be credited with . . .

(a) Citizen and Domestic Corporation. In the case of a citizen of the


Philippines and of domestic corporation, the amount of net income, war
profits or excess profits, taxes paid or accrued during the taxable year to
any foreign country. (Emphasis supplied)

Under Section 30 (c) (3) (a), NIRC, above, the BIR must give a tax credit to a Philippine corporation for taxes actually paid
by it to the US governmente.g., for taxes collected by the US government on dividend remittances to the Philippine
corporation. This Section of the NIRC is the equivalent of Section 901 of the US Tax Code.

Section 30 (c) (8), NIRC, is practically identical with Section 902 of the US Tax Code, and provides as follows:

(8) Taxes of foreign subsidiary. For the purposes of this subsection a domestic corporation which owns
a majority of the voting stock of a foreign corporation from which it receives dividends in any taxable year
shall be deemed to have paid the same proportion of any income, war-profits, or excess-profits taxes paid
by such foreign corporation to any foreign country, upon or with respect to the accumulated profits of
such foreign corporation from which such dividends were paid, which the amount of such dividends bears
to the amount of such accumulated profits: Provided, That the amount of tax deemed to have been paid
under this subsection shall in no case exceed the same proportion of the tax against which credit is taken
which the amount of such dividends bears to the amount of the entire net income of the domestic
corporation in which such dividends are included. The term "accumulated profits" when used in this
subsection reference to a foreign corporation, means the amount of its gains, profits, or income in excess
of the income, war-profits, and excess-profits taxes imposed upon or with respect to such profits
or income; and the Commissioner of Internal Revenue shall have full power to determine from the
accumulated profits of what year or years such dividends were paid; treating dividends paid in the first
sixty days of any year as having been paid from the accumulated profits of the preceding year or years
(unless to his satisfaction shown otherwise), and in other respects treating dividends as having been paid
from the most recently accumulated gains, profits, or earnings. In the case of a foreign corporation, the
income, war-profits, and excess-profits taxes of which are determined on the basis of an accounting
period of less than one year, the word "year" as used in this subsection shall be construed to mean such
accounting period. (Emphasis supplied)

Under the above quoted Section 30 (c) (8), NIRC, the BIR must give a tax credit to a Philippine parent corporation
for taxes "deemed paid" by it, that is, e.g., for taxes paid to the US by the US subsidiary of a Philippine-parent
corporation. The Philippine parent or corporate stockholder is "deemed" under our NIRC to have paid a
proportionate part of the US corporate income tax paid by its US subsidiary, although such US tax was actually
paid by the subsidiary and not by the Philippine parent.

Clearly, the "deemed paid" tax credit which, under Section 24 (b) (1), NIRC, must be allowed by US law to P&G-USA, is
the same "deemed paid" tax credit that Philippine law allows to a Philippine corporation with a wholly- or majority-owned
subsidiary in (for instance) the US. The "deemed paid" tax credit allowed in Section 902, US Tax Code, is no more a credit
for "phantom taxes" than is the "deemed paid" tax credit granted in Section 30 (c) (8), NIRC.

III

1. The Second Division of the Court, in holding that the applicable dividend tax rate in the instant case was the regular
thirty-five percent (35%) rate rather than the reduced rate of fifteen percent (15%), held that P&G-Phil. had failed to prove
that its parent, P&G-USA, had in fact been given by the US tax authorities a "deemed paid" tax credit in the amount
required by Section 24 (b) (1), NIRC.
We believe, in the first place, that we must distinguish between the legal question before this Court from questions of
administrative implementation arising after the legal question has been answered. The basic legal issue is of course, this:
which is the applicable dividend tax rate in the instant case: the regular thirty-five percent (35%) rate or the reduced fifteen
percent (15%) rate? The question of whether or not P&G-USA is in fact given by the US tax authorities a "deemed paid"
tax credit in the required amount, relates to the administrative implementation of the applicable reduced tax rate.

In the second place, Section 24 (b) (1), NIRC, does not in fact require that the "deemed paid" tax credit shall have actually
been granted before the applicable dividend tax rate goes down from thirty-five percent (35%) to fifteen percent (15%). As
noted several times earlier, Section 24 (b) (1), NIRC, merely requires, in the case at bar, that the USA "shall allow a credit
against the
tax due from [P&G-USA for] taxes deemed to have been paid in the Philippines . . ." There is neither statutory provision
nor revenue regulation issued by the Secretary of Finance requiring the actual grant of the "deemed paid" tax credit by the
US Internal Revenue Service to P&G-USA before the preferential fifteen percent (15%) dividend rate becomes applicable.
Section 24 (b) (1), NIRC, does not create a tax exemption nor does it provide a tax credit; it is a provision which specifies
when a particular (reduced) tax rate is legally applicable.

In the third place, the position originally taken by the Second Division results in a severe practical problem of
administrative circularity. The Second Division in effect held that the reduced dividend tax rate is not applicable until the
US tax credit for "deemed paid" taxes is actually given in the required minimum amount by the US Internal Revenue
Service to P&G-USA. But, the US "deemed paid" tax credit cannot be given by the US tax authorities unless dividends
have actually been remitted to the US, which means that the Philippine dividend tax, at the rate here applicable, was
actually imposed and collected. 11 It is this practical or operating circularity that is in fact avoided by our BIR when it
issues rulings that the tax laws of particular foreign jurisdictions (e.g., Republic of
Vanuatu 12 Hongkong, 13 Denmark, 14 etc.) comply with the requirements set out in Section 24 (b) (1), NIRC, for
applicability of the fifteen percent (15%) tax rate. Once such a ruling is rendered, the Philippine subsidiary begins to
withhold at the reduced dividend tax rate.

A requirement relating to administrative implementation is not properly imposed as a condition for the applicability, as a
matter of law, of a particular tax rate. Upon the other hand, upon the determination or recognition of the applicability of the
reduced tax rate, there is nothing to prevent the BIR from issuing implementing regulations that would require P&G Phil.,
or any Philippine corporation similarly situated, to certify to the BIR the amount of the "deemed paid" tax credit actually
subsequently granted by the US tax authorities to P&G-USA or a US parent corporation for the taxable year involved.
Since the US tax laws can and do change, such implementing regulations could also provide that failure of P&G-Phil. to
submit such certification within a certain period of time, would result in the imposition of a deficiency assessment for the
twenty (20) percentage points differential. The task of this Court is to settle which tax rate is applicable, considering the
state of US law at a given time. We should leave details relating to administrative implementation where they properly
belong with the BIR.

2. An interpretation of a tax statute that produces a revenue flow for the government is not, for that reason alone,
necessarily the correct reading of the statute. There are many tax statutes or provisions which are designed, not to trigger
off an instant surge of revenues, but rather to achieve longer-term and broader-gauge fiscal and economic objectives. The
task of our Court is to give effect to the legislative design and objectives as they are written into the statute even if, as in
the case at bar, some revenues have to be foregone in that process.

The economic objectives sought to be achieved by the Philippine Government by reducing the thirty-five percent (35%)
dividend rate to fifteen percent (15%) are set out in the preambular clauses of P.D. No. 369 which amended Section 24 (b)
(1), NIRC, into its present form:

WHEREAS, it is imperative to adopt measures responsive to the requirements of a developing


economy foremost of which is the financing of economic development programs;

WHEREAS, nonresident foreign corporations with investments in the Philippines are taxed on their
earnings from dividends at the rate of 35%;

WHEREAS, in order to encourage more capital investment for large projects an appropriate tax need be
imposed on dividends received by non-resident foreign corporations in the same manner as the tax
imposed on interest on foreign loans;

xxx xxx xxx

(Emphasis supplied)

More simply put, Section 24 (b) (1), NIRC, seeks to promote the in-flow of foreign equity investment in the Philippines by
reducing the tax cost of earning profits here and thereby increasing the net dividends remittable to the investor. The
foreign investor, however, would not benefit from the reduction of the Philippine dividend tax rate unless its home country
gives it some relief from double taxation (i.e., second-tier taxation) (the home country would simply have more "post-R.P.
tax" income to subject to its own taxing power) by allowing the investor additional tax credits which would be applicable
against the tax payable to such home country. Accordingly, Section 24 (b) (1), NIRC, requires the home or domiciliary
country to give the investor corporation a "deemed paid" tax credit at least equal in amount to the twenty (20) percentage
points of dividend tax foregone by the Philippines, in the assumption that a positive incentive effect would thereby be felt
by the investor.
The net effect upon the foreign investor may be shown arithmetically in the following manner:

P65.00 Dividends remittable to P&G-USA (please


see page 392 above
- 9.75 Reduced R.P. dividend tax withheld by P&G-Phil.

P55.25 Dividends actually remitted to P&G-USA

P55.25
x 46% Maximum US corporate income tax rate

P25.415US corporate tax payable by P&G-USA
without tax credits

P25.415
- 9.75 US tax credit for RP dividend tax withheld by P&G-Phil.
at 15% (Section 901, US Tax Code)

P15.66 US corporate income tax payable after Section 901
tax credit.

P55.25
- 15.66

P39.59 Amount received by P&G-USA net of R.P. and U.S.
===== taxes without "deemed paid" tax credit.

P25.415
- 29.75 "Deemed paid" tax credit under Section 902 US
Tax Code (please see page 18 above)

- 0 - US corporate income tax payable on dividends


====== remitted by P&G-Phil. to P&G-USA after
Section 902 tax credit.

P55.25 Amount received by P&G-USA net of RP and US


====== taxes after Section 902 tax credit.

It will be seen that the "deemed paid" tax credit allowed by Section 902, US Tax Code, could offset the US corporate
income tax payable on the dividends remitted by P&G-Phil. The result, in fine, could be that P&G-USA would after US tax
credits, still wind up with P55.25, the full amount of the dividends remitted to P&G-USA net of Philippine taxes. In the
calculation of the Philippine Government, this should encourage additional investment or re-investment in the Philippines
by P&G-USA.

3. It remains only to note that under the Philippines-United States Convention "With Respect to Taxes on Income," 15 the
Philippines, by a treaty commitment, reduced the regular rate of dividend tax to a maximum of twenty percent (20%) of the
gross amount of dividends paid to US parent corporations:

Art 11. Dividends

xxx xxx xxx

(2) The rate of tax imposed by one of the Contracting States on dividends derived from
sources within that Contracting State by a resident of the other Contracting State shall
not exceed

(a) 25 percent of the gross amount of the dividend; or

(b) When the recipient is a corporation, 20 percent of the gross amount of the dividend
if during the part of the paying corporation's taxable year which precedes the date of
payment of the dividend and during the whole of its prior taxable year (if any), at least 10
percent of the outstanding shares of the voting stock of the paying corporation was
owned by the recipient corporation.

xxx xxx xxx

(Emphasis supplied)

The Tax Convention, at the same time, established a treaty obligation on the part of the United States that it "shall allow"
to a US parent corporation receiving dividends from its Philippine subsidiary "a [tax] credit for the appropriate amount of
taxes paid or accrued to the Philippines by the Philippine [subsidiary] .16 This is, of course, precisely the "deemed paid"
tax credit provided for in Section 902, US Tax Code, discussed above. Clearly, there is here on the part of the Philippines
a deliberate undertaking to reduce the regular dividend tax rate of twenty percent (20%) is a maximum rate, there is still a
differential or additional reduction of five (5) percentage points which compliance of US law (Section 902) with the
requirements of Section 24 (b) (1), NIRC, makes available in respect of dividends from a Philippine subsidiary.

We conclude that private respondent P&G-Phil, is entitled to the tax refund or tax credit which it seeks.

WHEREFORE, for all the foregoing, the Court Resolved to GRANT private respondent's Motion for Reconsideration dated
11 May 1988, to SET ASIDE the Decision of the and Division of the Court promulgated on 15 April 1988, and in lieu
thereof, to REINSTATE and AFFIRM the Decision of the Court of Tax Appeals in CTA Case No. 2883 dated 31 January
1984 and to DENY the Petition for Review for lack of merit. No pronouncement as to costs.

SILKAIR (SINGAPORE) PTE. G.R. Nos. 171383 & 172379


LTD.,
Petitioner, Present:

CARPIO, J.,
Acting Chairperson,*
- versus - AUSTRIA-MARTINEZ,**
CORONA,
CARPIO MORALES,*** and
LEONARDO-DE CASTRO, JJ.

COMMISSIONER OF INTERNAL Promulgated:


REVENUE,
Respondent. November 14, 2008
x--------------------------------------------------x

DECISION

CARPIO, J.:

The Case

G.R. No. 171383

Silkair (Singapore) Pte. Ltd. (petitioner) filed this Petition for Review [1] to reverse the Court of Tax Appeals Decision [2] dated 20
October 2005 in C.T.A. Case No. 6217 as well as the Resolution dated 3 February 2006 denying the Motion for Reconsideration. In
the assailed decision, the Court of Tax Appeals En Banc denied petitioners claim for refund or issuance of a tax credit certificate
of P4,239,374.81, representing excise taxes paid on petitioners purchase of aviation jet fuel from Petron Corporation (Petron) for the
period from 1 January 1999 to 30 June 1999.

G.R. No. 172379

Petitioner filed this Petition for Review [3] to reverse the Court of Tax Appeals Decision [4] dated 5 January 2006 in C.T.A. Case No.
6308 as well as the Resolution dated 18 April 2006 denying the Motion for Reconsideration. In the assailed decision, the Court of Tax
Appeals En Banc denied petitioners claim for refund or issuance of a tax credit certificate of P4,831,224.70, representing excise taxes
paid on petitioners purchase of aviation jet fuel from Petron for the period from 1 July 1999 to 31 December 1999.

On 2 August 2006, this Court issued a resolution to consolidate both cases since they involve the same parties and the same issue,
whether petitioner is entitled to a refund of the excise taxes paid on its purchases of aviation jet fuel from Petron.

The Facts
Petitioner is a foreign corporation organized under the laws of Singapore with a Philippine representative office in Cebu City. It is
engaged in business as an on-line international carrier, operating the Singapore-Cebu-Singapore, Singapore-Davao-Cebu-Singapore,
and Singapore-Cebu-Davao-Singapore routes.[5]

From 1 January 1999 to 31 December 1999, petitioner purchased aviation jet fuel from Petron for use on petitioners international
flights.[6] Based on the Aviation Delivery Receipts and Invoices presented, P3.67 per liter as excise (specific) tax was added to the
amount paid by petitioner on its purchases of aviation jet fuel. [7] Petitioner, through its sister company Singapore Airlines Ltd.,
paid P4,239,374.81 from 1 January 1999 to 30 June 1999[8] and P4,831,224.70 from 1 July 1999 to 31 December 1999,[9] as excise
taxes for its purchases of the aviation jet fuel from Petron. Petitioner, contending that it is exempt from the payment of excise taxes,
filed a formal claim for refund with the Commissioner of Internal Revenue (respondent).

Petitioner claims that it is exempt from the payment of excise tax under the 1997 National Internal Revenue Code (NIRC), specifically
Section 135, and under Article 4 of the Air Transport Agreement between the Governments of the Republic of the Philippines and the
Republic of Singapore (Air Agreement).[10]

Section 135 of the NIRC provides:

SEC. 135. Petroleum Products Sold to International Carriers and Exempt Entities or Agencies. - Petroleum
products sold to the following are exempt from excise tax:
(a) International carriers of Philippine or foreign registry on their use or consumption outside the
Philippines: Provided, That the petroleum products sold to these international carriers shall be stored in a bonded
storage tank and may be disposed of only in accordance with the rules and regulations to be prescribed by the
Secretary of Finance, upon recommendation of the Commissioner;
(b) Exempt entities or agencies covered by tax treaties, conventions and other international agreements for their use
or consumption: Provided, however, That the country of said foreign international carrier or exempt entities or
agencies exempts from similar taxes petroleum products sold to Philippine carriers, entities or agencies; and

(c) Entities which are by law exempt from direct and indirect taxes.[11]

Article 4 of the Air Agreement provides:

Art. 4
xxx
2. Fuel, lubricants, spare parts, regular equipment and aircraft stores introduced into, or taken on board aircraft in the
territory of one Contracting Party by, or on behalf of, a designated airline of the other Contracting Party and intended
solely for use in the operation of the agreed services shall, with the exception of charges corresponding to the
services performed, be exempt from the same custom duties, inspection fees and other duties or taxes imposed in the
territory of the first Contracting Party, even when these supplies are to be used on the parts of the journey performed
over the territory of the Contracting Party in which they are introduced into or taken on board. The materials referred
to above may be required to be kept under customs supervision and control.[12]

Petitioner contends that in reality, it paid the excise taxes due on the transactions and Petron merely remitted the payment to the
Bureau of Internal Revenue (BIR). Petitioner argues that to adhere to the view that Petron is the legal claimant of the refund will make
petitioners right to recover the erroneously paid taxes dependent solely on Petrons action over which petitioner has no control. If
Petron fails to act or acts belatedly, petitioners claim will be barred, depriving petitioner of its private property.[13]
Petitioner also maintains that to hold that only Petron can legally claim the refund will negate the tax exemption expressly granted to
petitioner under the NIRC and the Air Agreement.[14] Petitioner argues that a tax exemption is a personal privilege of the grantee,
which is petitioner in this case. Petitioner further argues that a tax exemption granted to the buyer cannot be availed of by the seller;
hence, in the present case, Petron as seller cannot legally claim the refund. On the other hand, if only the entity that paid the tax Petron
in this case can claim the refund, then petitioner as the grantee of the tax exemption cannot enjoy its tax exemption. In short, neither
petitioner nor Petron can claim the refund, rendering the tax exemption useless. Petitioner submits that this is contrary to the language
and intent of the NIRC and the Air Agreement.[15]
Petitioner also cites this Courts Resolution in Maceda v. Macaraig, Jr.,[16] quoting the opinion of the Secretary of Justice which states,
thus:

The view which refuses to accord the exemption because the tax is first paid by the seller disregards realities and
gives more importance to form than substance. Equity and law always exalt substance over form.[17]

Petitioner believes that its tax exemption under Section 135 of the NIRC also includes its entitlement to a refund from the BIR in any
case of erroneous payment of excise tax.[18]

Respondent claims that as explained in Philippine Acetylene Co., Inc. v. Commissioner of Internal Revenue,[19] the nature of an indirect
tax allows the tax to be passed on to the purchaser as part of the commoditys purchase price. However, an indirect tax remains a tax on
the seller. Hence, if the buyer happens to be tax exempt, the seller is nonetheless liable for the payment of the tax as the same is a tax
not on the buyer but on the seller.[20]
Respondent insists that in indirect taxation, the manufacturer or seller has the option to shift the burden of the tax to the purchaser. If
and when shifted, the amount added by the manufacturer or seller becomes part of the purchase price of the goods. Thus, the purchaser
does not really pay the tax but only the price of the commodity and the liability for the payment of the indirect tax remains with the
manufacturer or seller.[21] Since the liability for the excise tax payment is imposed by law on Petron as the manufacturer of the
petroleum products, any claim for refund should only be made by Petron as the statutory taxpayer.[22]

The Ruling of the Court of Tax Appeals

G.R. No. 171383

On 20 October 2005, the Court of Tax Appeals En Banc (CTA) ruled that the excise tax imposed on the removal of petroleum products
by the oil companies is an indirect tax. [23]Although the burden to pay an indirect tax can be passed on to the purchaser of the goods, the
liability to pay the indirect tax remains with the manufacturer or seller. [24] When the manufacturer or seller decides to shift the burden
of the indirect tax to the purchaser, the tax becomes a part of the price; therefore, the purchaser does not really pay the tax per se but
only the price of the commodity.[25]
The CTA pointed out that Section 130(A)(2) [26] of the NIRC provides that the liability for the payment of excise taxes is imposed upon
the manufacturer or producer of the petroleum products. Under the law, the manufacturer or producer is the taxpayer. The CTA stated
that it is only the taxpayer that may ask for a refund in case of erroneous payment of taxes. Citing Cebu Portland Cement Co. v.
Collector of Internal Revenue,[27] the CTA ruled that the producer of the goods is the one entitled to claim for a refund of indirect taxes.
[28]
The CTA held that since the liability for the excise taxes was placed on Petron as the manufacturer of the petroleum products and it
was shown in the Excise Tax Returns [29] that the excise taxes were paid by Petron, any claim for refund of the excise taxes should only
be made by Petron as the taxpayer. This is in consonance with the rule on strictissimi juris with respect to tax exemptions. Petitioner
cannot be considered the taxpayer because what was transferred to petitioner was only the burden and not the liability to pay the
excise tax on petroleum products.[30]

The CTA also considered the Aviation Fuel Supply Agreement between petitioner and Petron, which states:

Buyer shall pay any taxes, fees or other charges imposed by any national, local or airport authority on the delivery,
sale, inspection, storage and use of fuel, except for taxes on Sellers income and taxes on raw material. To the extent
allowed, Seller shall show these taxes, fees and other charges as separate items on the invoice for the account of the
Buyer.[31]

However, the CTA held that even with this provision, the liability for the excise tax remained with Petron as manufacturer or producer
of the aviation jet fuel. The shifting of the burden of the excise tax to petitioner did not transform petitioner into a taxpayer. Hence,
Petron is the proper party that can claim for refund of any erroneous excise tax payments.[32]
G.R. No. 172379
The CTA En Banc held that excise taxes on domestic products are paid by the manufacturer or producer before removal of the
products from the place of production. The payment of an excise tax, being an indirect tax, can be shifted to the purchaser of goods but
the statutory liability for such payment is still with the seller or manufacturer.[33] The CTA cited Maceda v. Macaraig, Jr.:[34]
It may be useful to make a distinction, for the purpose of this disposition, between a direct tax and an indirect tax. A
direct tax is a tax for which a taxpayer is directly liable on the transaction or business it is engaged in. Examples are
custom duties and ad valorem taxes paid by the oil companies to the Bureau of Customs for their importation of
crude oil, and the specific and ad valorem taxes they pay to the Bureau of Internal Revenue after converting the
crude oil into petroleum products.

On the other hand, indirect taxes are taxes primarily paid by persons who can shift the burden upon someone else.
For example, the excise tax and ad valorem taxes that the oil companies pay to the Bureau of Internal Revenue upon
removal of petroleum products from its refinery can be shifted to its buyer, like the NPC, by adding them to the cash
and/or selling price.[35]

The CTA further cited Philippine Acetylene Co., Inc. v. Commissioner of Internal Revenue [36] and Contex Corporation v. Hon.
Commissioner of Internal Revenue[37] and concluded that the tax sought to be refunded is an excise tax on petroleum products,
partaking of the nature of an indirect tax.[38]
The CTA further ruled that while it is cognizant of the exempt status of petitioner under the NIRC and the Air Agreement, it is also
aware that the right to claim for refund of taxes erroneously paid lies with the person statutorily liable to pay the tax in accordance
with Section 204 of the NIRC.[39] The CTA also suggested that petitioner should invoke its tax exemption to Petron before buying the
petroleum products.[40] The CTA concluded that the right to claim for the refund of the excise taxes paid on the petroleum products lies
with Petron which paid and remitted the excise taxes to the BIR.

The Issue

Petitioner submits this sole issue for our consideration: whether petitioner is the proper party to claim a refund for the excise taxes
paid.[41]

The Ruling of the Court

The issue presented is not novel. In a similar case involving the same parties, this Court has categorically 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.[42] The Court added that even if Petron Corporation passed on to Silkair the burden
of the tax, the additional amount billed to Silkair for jet fuel is not a tax but part of the price which Silkair had to pay as a purchaser.[43]

An excise tax is an indirect tax where the tax burden


can be shifted to the consumer but the tax liability remains with the
manufacturer or producer.

Section 129 of the NIRC provides that excise taxes refer to taxes imposed on specified goods manufactured or produced in the
Philippines for domestic sale or consumption or for any other disposition and to things imported. The excise taxes are collected from
manufacturers or producers before removal of the domestic products from the place of production. Although excise taxes can be
considered as taxes on production, they are really taxes on property as they are imposed on certain specified goods. [44]

Section 148(g) of the NIRC provides that there shall be collected on aviation jet fuel an excise tax of P3.67 per liter of volume
capacity. Since the tax imposed is based on volume capacity, the tax is referred to as specific tax. [45] However, excise tax, whether
classified as specific or ad valorem tax, is basically an indirect tax imposed on the consumption of a specified list of goods or
products. The tax is directly levied on the manufacturer upon removal of the taxable goods from the place of production but in reality,
the tax is passed on to the end consumer as part of the selling price of the goods sold.[46]
In Commissioner of Internal Revenue v. Philippine Long Distance Company,[47] the Court explained the difference between a direct tax
and an indirect tax:

Based on the possibility of shifting the incidence of taxation, or as to who shall bear the burden of taxation, taxes
may be classified into either direct tax or indirect tax.

In context, direct taxes are those that are exacted from the very person who, it is intended or desired, should pay
them; they are impositions for which a taxpayer is directly liable on the transaction or business he is engaged in.

On the other hand, indirect taxes are those that are demanded, in the first instance, from, or are paid by, one
person in the expectation and intention that he can shift the burden to someone else . Stated elsewise, indirect
taxes are taxes wherein the liability for the payment of the tax falls on one person but the burden thereof can be
shifted or passed on to another person, such as when the tax is imposed upon goods before reaching the
consumer who ultimately pays for it. When the seller passes on the tax to his buyer, he, in effect, shifts the tax
burden, not the liability to pay it, to the purchaser as part of the price of goods sold or services
rendered. (Emphasis supplied)

In Maceda v. Macaraig, Jr., the Court specifically mentioned excise tax as an example of an indirect tax where the tax burden can be
shifted to the buyer:
On the other hand, indirect taxes are taxes primarily paid by persons who can shift the burden upon someone else.
For example, the excise and ad valorem taxes that the oil companies pay to the Bureau of Internal Revenue upon
removal of petroleum products from its refinery can be shifted to its buyer, like the NPC, by adding them to the cash
and/or selling price.[48]

When Petron removes its petroleum products from its refinery in Limay, Bataan, [49] it pays the excise tax due on the petroleum
products thus removed. Petron, as manufacturer or producer, is the person liable for the payment of the excise tax as shown in the
Excise Tax Returns filed with the BIR. Stated otherwise, Petron is the taxpayer that is primarily, directly and legally liable for the
payment of the excise taxes. However, since an excise tax is an indirect tax, Petron can transfer to its customers the amount of the
excise tax paid by treating it as part of the cost of the goods and tacking it on to the selling price.
As correctly observed by the CTA, this Court held in Philippine Acetylene Co., Inc. v. Commissioner of Internal Revenue:

It may indeed be that the economic burden of the tax finally falls on the purchaser; when it does the tax becomes part
of the price which the purchaser must pay.[50]

Even if the consumers or purchasers ultimately pay for the tax, they are not considered the taxpayers. The fact that Petron, on whom
the excise tax is imposed, can shift the tax burden to its purchasers does not make the latter the taxpayers and the former the
withholding agent.
Petitioner, as the purchaser and end-consumer, ultimately bears the tax burden, but this does not transform petitioners status into a
statutory taxpayer.

In the refund of indirect taxes, the statutory taxpayer


is the proper party who can claim the refund.

Section 204(c) of the NIRC provides:

Sec. 204. Authority of the Commissioner to Compromise, Abate, and Refund or Credit Taxes. The Commissioner
may -
xxx
(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.
(Emphasis and underscoring supplied)

The person entitled to claim a tax refund is the statutory taxpayer. Section 22(N) of the NIRC defines a taxpayer as any person subject
to tax. In Commissioner of Internal Revenue v. Procter and Gamble Phil. Mfg. Corp., the Court ruled that:
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 a legal obligation or duty to pay a tax.[51]

The excise tax is due from the manufacturers of the petroleum products and is paid upon removal of the products from their refineries.
Even before the aviation jet fuel is purchased from Petron, the excise tax is already paid by Petron. Petron, being the manufacturer, is
the person subject to tax. In this case, Petron, which paid the excise tax upon removal of the products from its Bataan refinery, is the
person liable for tax. Petitioner is neither a person liable for tax nor a person subject to tax. There is also no legal duty on the part of
petitioner to pay the excise tax; hence, petitioner cannot be considered the taxpayer.
Even if the tax is shifted by Petron to its customers and even if the tax is billed as a separate item in the aviation delivery receipts and
invoices issued to its customers, Petron remains the taxpayer because the excise tax is imposed directly on Petron as the manufacturer.
Hence, Petron, as the statutory taxpayer, is the proper party that can claim the refund of the excise taxes paid to the BIR.

The General Terms & Conditions for Aviation Fuel Supply (Supply Contract) signed between petitioner (buyer) and Petron (seller)
provide:

11.3 If Buyer is entitled to purchase any Fuel sold pursuant to the Agreement free of any taxes, duties or
charges, Buyer shall timely deliver to Seller a valid exemption certificate for such purchase.[52] (Emphasis
supplied)

This provision instructs petitioner to timely submit a valid exemption certificate to Petron in order that Petron will not pass on the
excise tax to petitioner. As correctly suggested by the CTA, petitioner should invoke its tax exemption to Petron before buying the
aviation jet fuel. Petron, however, remains the statutory taxpayer on those excise taxes.

Revenue Regulations No. 3-2008 (RR 3-2008) provides that subject to the subsequent filing of a claim for excise tax credit/refund or
product replenishment, all manufacturers of articles subject to excise tax under Title VI of the NIRC of 1997, as amended, shall pay
the excise tax that is otherwise due on every removal thereof from the place of production that is intended for exportation or
sale/delivery to international carriers or to tax-exempt entities/agencies. [53] The Department of Finance and the BIR recognize the tax
exemption granted to international carriers but they consistently adhere to the view that manufacturers of articles subject to excise tax
are the statutory taxpayers that are liable to pay the tax, thus, the proper party to claim any tax refunds.
WHEREFORE, we DENY the petition. We AFFIRM the assailed Decisions dated 20 October 2005 and 5 January 2006 and the
Resolutions dated 3 February 2006 and 18 April 2006 of the Court of Tax Appeals in C.T.A. Case Nos. 6217 and 6308, respectively.

SO ORDERED.

COMMISSIONER OF INTERNAL REVENUE, G.R. Nos. 179045-46


Petitioner, Present:

CORONA, C. J., Chairperson,


VELASCO, JR.,
- versus - LEONARDO-DE CASTRO,
DEL CASTILLO, and
PEREZ, JJ.

SMART COMMUNICATION, INC., Promulgated:


Respondent. August 25, 2010
x-----------------------------------------------------------x

DECISION

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 Decision [1] dated June 28, 2007 and the
Resolution[2] 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 Services[3] 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 or P7,008,840.43,[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 refund[8] of 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
Review[9] 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 royalties [10] 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 Answer[16] 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 Decision[19] dated February 23, 2006, the Second Division of the CTA upheld respondents right, as a withholding agent, to file the
claim for refund citing the cases ofCommissioner of Internal Revenue v. Wander Philippines, Inc.,[20] Commissioner of Internal Revenue v. Procter &
Gamble Philippine Manufacturing Corporation[21] 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 tax[24] 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 reconsideration[28] but the CTA Second Division denied the motions in a Resolution[29] 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
Resolution[31] dated February 8, 2007.

On June 28, 2007, the CTA En Banc rendered a Decision affirming the partial refund granted to respondent. In sustaining respondents
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 CTA En Banc also concurred with the Second Divisions 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 reconsideration[36] of the Decision. The CTA En Banc, however, found no cogent reason to reverse its Decision, and thus,
denied petitioners motion for reconsideration in a Resolution[37] 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.

Petitioners Arguments

Petitioner contends that the cases relied upon by the CTA in upholding respondents 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.

Respondents 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

xxxx

(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.

xxxx

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 Governments 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.

xxxx

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 latters 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 Revenue [43] 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 respondents 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. [44] These 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 Statethrough a permanent establishment.[46] The 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 Prisms 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, Template
DataBag.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 PHP4[51]

xxxx

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 Clients 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. No one, not even the State, should enrich oneself at the expense of
[53]
another.

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 hereby ORDERED 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.

EXXONMOBIL PETROLEUM AND CHEMICAL G.R. No. 180909


HOLDINGS, INC. PHILIPPINE BRANCH,
Petitioner, Present:

CARPIO, J., Chairperson,


NACHURA,
- versus - PERALTA,
ABAD, and
MENDOZA, JJ.

COMMISSIONER OF INTERNAL REVENUE,


Respondent.
Promulgated:

January 19, 2011

x ---------------------------------------------------------------------------------------- x

DECISION
MENDOZA, J.:

This is a petition for review on certiorari under Rule 45 filed by petitioner Exxonmobil Petroleum and Chemical Holdings,
Inc. - Philippine Branch (Exxon) to set aside the September 7, 2007 Decision [1] of the Court of Tax Appeals En Banc (CTA-En Banc) in
CTA E.B. No. 204, and its November 27, 2007 Resolution[2] denying petitioners motion for reconsideration.

THE FACTS

Petitioner Exxon is a foreign corporation duly organized and existing under the laws of the State of Delaware, United States of
America.[3] It is authorized to do business in the Philippines through its Philippine Branch, with principal office address at the 17/F
The Orient Square, Emerald Avenue, Ortigas Center, Pasig City.[4]

Exxon is engaged in the business of selling petroleum products to domestic and international carriers. [5] In pursuit of its business,
Exxon purchased from Caltex Philippines, Inc. (Caltex) and Petron Corporation (Petron) Jet A-1 fuel and other petroleum products,
the excise taxes on which were paid for and remitted by both Caltex and Petron. [6] Said taxes, however, were passed on to Exxon
which ultimately shouldered the excise taxes on the fuel and petroleum products. [7]

From November 2001 to June 2002, Exxon sold a total of 28,635,841 liters of Jet A-1 fuel to international carriers, free of
excise taxes amounting to Php105,093,536.47.[8] On various dates, it filed administrative claims for refund with the Bureau of Internal
Revenue (BIR) amounting to Php105,093,536.47.[9]

On October 30, 2003, Exxon filed a petition for review with the CTA[10] claiming a refund or tax credit in the amount of
Php105,093,536.47, representing the amount of excise taxes paid on Jet A-1 fuel and other petroleum products it sold to international
carriers from November 2001 to June 2002.[11]

Exxon and the Commissioner of Internal Revenue (CIR) filed their Joint Stipulation of Facts and Issues on June 24, 2004, presenting a
total of fourteen (14) issues for resolution.[12]

During Exxons preparation of evidence, the CIR filed a motion dated January 28, 2005 to first resolve the issue of whether or not
Exxon was the proper party to ask for a refund.[13] Exxon filed its opposition to the motion on March 15, 2005.

On July 27, 2005, the CTA First Division issued a resolution [14] sustaining the CIRs position and dismissing Exxons claim for refund.
Exxon filed a motion for reconsideration, but this was denied on July 27, 2006.[15]

Exxon filed a petition for review [16] with the CTA En Banc assailing the July 27, 2005 Resolution of the CTA First Division which
dismissed the petition for review, and the July 27, 2006 Resolution[17] which affirmed the said ruling.

RULING OF THE COURT OF TAX APPEALS EN BANC

In its Decision dated September 7, 2007, the CTA En Banc dismissed the petition for review and affirmed the two resolutions of the
First Division dated July 27, 2005 and July 27, 2006. Exxon filed a motion for reconsideration, but it was denied on November 27,
2007.

Citing Sections 130 (A)(2)[18] and 204 (C) in relation to Section 135 (a) [19] of the National Internal Revenue Code of 1997
(NIRC), the CTA ruled that in consonance with its ruling in several cases, [20] only the taxpayer or the manufacturer of the petroleum
products sold has the legal personality to claim the refund of excise taxes paid on petroleum products sold to international carriers. [21]

The CTA stated that Section 130(A)(2) makes the manufacturer or producer of the petroleum products directly liable for the
payment of excise taxes.[22] Therefore, it follows that the manufacturer or producer is the taxpayer.[23]
This determination of the identity of the taxpayer designated by law is pivotal as the NIRC provides that it is only the taxpayer who
has the legal personality to ask for a refund in case of erroneous payment of taxes.[24]

Further, the excise tax imposed on manufacturers upon the removal of petroleum products by oil companies is an indirect tax, or a tax
which is primarily paid by persons who can shift the burden upon someone else. [25] The CTA cited the cases of Philippine Acetylene
Co., Inc. v. Commissioner of Internal Revenue,[26] Contex Corporation v. Commissioner of Internal Revenue,[27] and Commissioner of
Internal Revenue v. Philippine Long Distance Telephone Company,[28] and explained that with indirect taxes, although the burden of an
indirect tax can be shifted or passed on to the purchaser of the goods, the liability for the indirect tax remains with the manufacturer.
[29]
Moreover, the manufacturer has the option whether or not to shift the burden of the tax to the purchaser. When shifted, the amount
added by the manufacturer becomes a part of the price, therefore, the purchaser does not really pay the tax per se but only the price of
the commodity.[30]

Going by such logic, the CTA concluded that a refund of erroneously paid or illegally received tax can only be made in favor of the
taxpayer, pursuant to Section 204(C) of the NIRC.[31] As categorically ruled in the Cebu Portland Cement[32] and Contex[33] cases, in the
case of indirect taxes, it is the manufacturer of the goods who is entitled to claim any refund thereof. [34] Therefore, it follows that the
indirect taxes paid by the manufacturers or producers of the goods cannot be refunded to the purchasers of the goods because the
purchasers are not the taxpayers.[35]

The CTA also emphasized that tax refunds are in the nature of tax exemptions and are, thus, regarded as in derogation of sovereign
authority and construed strictissimi jurisagainst the person or entity claiming the exemption.[36]
Finally, the CTA disregarded Exxons argument that in effectively holding that only petroleum products purchased directly
from the manufacturers or producers are exempt from excise taxes, the First Division of [the CTA] sanctioned a universal amendment
of existing bilateral agreements which the Philippines have with other countries, in violation of the basic principle of pacta sunt
servanda.[37] The CTA explained that the findings of fact of the First Division (that when Exxon sold the Jet A-1 fuel to international
carriers, it did so free of tax) negated any violation of the exemption from excise tax of the petroleum products sold to international
carriers. Second, the right of international carriers to invoke the exemption granted under Section 135(a) of the NIRC was neither
affected nor restricted in any way by the ruling of the First Division. At the point of sale, the international carriers were free to invoke
the exemption from excise taxes of the petroleum products sold to them. Lastly, the lawmaking body was presumed to have enacted a
later law with the knowledge of all other laws involving the same subject matter.[38]

THE ISSUES

Petitioner now raises the following issues in its petition for review:

I.
WHETHER THE ASSAILED DECISION AND RESOLUTION ERRONEOUSLY PROHIBITED
PETITIONER, AS THE DISTRIBUTOR AND VENDOR OF PETROLEUM PRODUCTS TO
INTERNATIONAL CARRIERS REGISTERED IN FOREIGN COUNTRIES WHICH HAVE
EXISTING BILATERAL AGREEMENTS WITH THE PHILIPPINES, FROM CLAIMING A
REFUND OF THE EXCISE TAXES PAID THEREON; AND

II.

WHETHER THE ASSAILED DECISIONS ERRED IN AFFIRMING THE DISMISSAL OF


PETITIONERS CLAIM FOR REFUND BASED ON RESPONDENTS MOTION TO RESOLVE
FIRST THE ISSUE OF WHETHER OR NOT THE PETITIONER IS THE PROPER PARTY
THAT MAY ASK FOR A REFUND, SINCE SAID MOTION IS ESSENTIALLY A MOTION TO
DISMISS, WHICH SHOULD HAVE BEEN DENIED OUTRIGHT BY THE COURT OF TAX
APPEALS FOR HAVING BEEN FILED OUT OF TIME.

RULING OF THE COURT

I. On respondents motion to resolve first the issue of whether or not the petitioner is the
proper party that may ask for a refund.
For a logical resolution of the issues, the court will tackle first the issue of whether or not the CTA erred in granting
respondents Motion to Resolve First the Issue of Whether or Not the Petitioner is the Proper Party that may Ask for a Refund. [39] In
said motion, the CIR prayed that the CTA First Division resolve ahead of the other stipulated issues the sole issue of whether petitioner
was the proper party to ask for a refund.[40]

Exxon opines that the CIRs motion is essentially a motion to dismiss filed out of time, [41] as it was filed after petitioner began
presenting evidence[42] more than a year after the filing of the Answer.[43] By praying that Exxon be declared as not the proper party to
ask for a refund, the CIR asked for the dismissal of the petition, as the grant of the Motion to Resolve would bring trial to a close. [44]

Moreover, Exxon states that the motion should have also complied with the three-day notice and ten-day hearing rules
provided in Rule 15 of the Rules of Court. [45] Since the CIR failed to set its motion for any hearing before the filing of the Answer, the
motion should have been considered a mere scrap of paper.[46]

Finally, citing Maruhom v. Commission on Elections and Dimaporo,[47] Exxon argues that a defendant who desires a
preliminary hearing on special and affirmative defenses must file a motion to that effect at the time of filing of his answer.[48]

The CIR, on the other hand, counters that it did not file a motion to dismiss. [49] Instead, the grounds for dismissal of the case
were pleaded as special and affirmative defenses in its Answer filed on December 15, 2003.[50] Therefore, the issue of whether or not
petitioner is the proper party to claim for a tax refund of the excise taxes allegedly passed on by Caltex and Petron was included as one
of the issues in the Joint Stipulation of Facts and Issues dated June 24, 2004 signed by petitioner and respondent.[51]

The CIR now argues that nothing in the Rules requires the preliminary hearing to be held before the filing of an Answer.
[52]
However, a preliminary hearing cannot be held before the filing of the Answer precisely because any ground raised as an
affirmative defense is pleaded in the Answer itself.[53]

Further, the CIR contends that the case cited by petitioner, Maruhom v. Comelec,[54] does not apply here. In the said case, a
motion to dismiss was filed after the filing of the answer. [55] And, the said motion to dismiss was
[56]
found to be a frivolous motion designed to prevent the early termination of the proceedings in the election case therein. Here, the
[57]
Motion to Resolve was filed not to delay the disposition of the case, but rather, to expedite proceedings.

Rule 16, Section 6 of the 1997 Rules of Civil Procedure provides:

SEC. 6. Pleading grounds as affirmative defenses. - If no motion to dismiss has been filed, any of the
grounds for dismissal provided for in this Rule may be pleaded as an affirmative defense in the answer,
and in the discretion of the court, a preliminary hearing may be had thereon as if a motion to dismiss had
been filed.

The dismissal of the complaint under this section shall be without prejudice to the prosecution in
the same or separate action of a counterclaim pleaded in the answer. (Underscoring supplied.)

This case is a clear cut application of the above provision. The CIR did not file a motion to dismiss. Thus, he pleaded the
grounds for dismissal as affirmative defenses in its Answer and thereafter prayed for the conduct of a preliminary hearing to determine
whether petitioner was the proper party to apply for the refund of excise taxes paid.

The determination of this question was the keystone on which the entire case was leaning. If Exxon was not the proper party
to apply for the refund of excise taxes paid, then it would be useless to proceed with the case. It would not make any sense to proceed
to try a case when petitioner had no standing to pursue it.

In the case of California and Hawaiian Sugar Company v. Pioneer Insurance and Surety Corporation,[58] the Court held that:
Considering that there was only one question, which may even be deemed to be the very
touchstone of the whole case, the trial court had no cogent reason to deny the Motion for Preliminary
Hearing. Indeed, it committed grave abuse of discretion when it denied a preliminary hearing on a simple
issue of fact that could have possibly settled the entire case. Verily, where a preliminary hearing appears
to suffice, there is no reason to go on to trial. One reason why dockets of trial courts are clogged is the
unreasonable refusal to use a process or procedure, like a motion to dismiss, which is designed to
abbreviate the resolution of a case.[59] (Underscoring supplied.)

II. On whether petitioner, as the distributor and vendor of petroleum products to


international carriers registered in foreign countries which have existing bilateral
agreements with the Philippines, can claim a refund of the excise taxes paid thereon

This brings us now to the substantive issue of whether Exxon, as the distributor and vendor of petroleum products to international
carriers registered in foreign countries which have existing bilateral agreements with the Philippines, is the proper party to claim a tax
refund for the excise taxes paid by the manufacturers, Caltex and Petron, and passed on to it as part of the purchase price.

Exxon argues that having paid the excise taxes on the petroleum products sold to international carriers, it is a real party in
interest consistent with the rules and jurisprudence.[60]

It reasons out that the subject of the exemption is neither the seller nor the buyer of the petroleum products, but the products
themselves, so long as they are sold to international carriers for use in international flight operations, or to exempt entities covered by
tax treaties, conventions and other international agreements for their use or consumption, among other conditions. [61]

Thus, as the exemption granted under Section 135 attaches to the petroleum products and not to the seller, the exemption will apply
regardless of whether the same were sold by its manufacturer or its distributor for two reasons. [62] First, Section 135 does not require
that to be exempt from excise tax, the products should be sold by the manufacturer or producer. [63] Second, the legislative intent was
precisely to make Section 135 independent from Sections 129 and 130 of the NIRC, [64] stemming from the fact that unlike other
products subject to excise tax, petroleum products of this nature have become subject to preferential tax treatment by virtue of either
specific international agreements or simply of international reciprocity.[65]

Respondent CIR, on the other hand, posits that Exxon is not the proper party to seek a refund of excise taxes paid on the petroleum
products.[66] In so arguing, the CIR states that excise taxes are indirect taxes, the liability for payment of which falls on one person, but
the burden of payment may be shifted to another. [67] Here, the sellers of the petroleum products or Jet A-1 fuel subject to excise tax are
Petron and Caltex, while Exxon was the buyer to whom the burden of paying excise tax was shifted. [68] While the impact or burden of
taxation falls on Exxon, as the tax is shifted to it as part of the purchase price, the persons statutorily liable to pay the tax are Petron
and Caltex.[69] As Exxon is not the taxpayer primarily liable to pay, and not exempted from paying, excise tax, it is not the proper party
to claim for the refund of excise taxes paid.[70]

The excise tax, when passed on to the purchaser, becomes part of the purchase
price.

Excise taxes are imposed under Title VI of the NIRC. They apply to specific goods manufactured or produced in the Philippines for
domestic sale or consumption or for any other disposition, and to those that are imported. [71] In effect, these taxes are imposed when
two conditions concur: first, that the articles subject to tax belong to any of the categories of goods enumerated in Title VI of the
NIRC; and second, that said articles are for domestic sale or consumption, excluding those that are actually exported. [72]

There are, however, certain exemptions to the coverage of excise taxes, such as petroleum products sold to international carriers and
exempt entities or agencies. Section 135 of the NIRC provides:

SEC. 135. Petroleum Products Sold to International Carriers and Exempt Entities or Agencies. - Petroleum
products sold to the following are exempt from excise tax:

(a) International carriers of Philippine or foreign registry on their use or consumption outside the
Philippines: Provided, That the petroleum products sold to these international carriers shall be stored in
a bonded storage tank and may be disposed of only in accordance with the rules and regulations to be
prescribed by the Secretary of Finance, upon recommendation of the Commissioner;

(b) Exempt entities or agencies covered by tax treaties, conventions and other international
agreements for their use of consumption: Provided, however, That the country of said foreign
international carrier or exempt entities or agencies exempts from similar taxes petroleum products sold
to Philippine carriers, entities or agencies; and

(c) Entities which are by law exempt from direct and indirect taxes. (Underscoring supplied.)

Thus, under Section 135, petroleum products sold to international carriers of foreign registry on their use or consumption outside the
Philippines are exempt from excise tax, provided that the petroleum products sold to such international carriers shall be stored in a
bonded storage tank and may be disposed of only in accordance with the rules and regulations to be prescribed by the Secretary of
Finance, upon recommendation of the Commissioner.[73]

The confusion here stems from the fact that excise taxes are of the nature of indirect taxes, the liability for payment of which may fall
on a person other than he who actually bears the burden of the tax.
In Commissioner of Internal Revenue v. Philippine Long Distance Telephone Company,[74] the Court discussed the nature of indirect
taxes as follows:

[I]ndirect taxes are those that are demanded, in the first instance, from, or are paid by, one person to
someone else. Stated elsewise, indirect taxes are taxes wherein the liability for the payment of the tax falls
on one person but the burden thereof can be shifted or passed on to another person, such as when the tax
is imposed upon goods before reaching the consumer who ultimately pays for it. When the seller passes
on the tax to his buyer, he, in effect, shifts the tax burden, not the liability to pay it, to the purchaser, as
part of the goods sold or services rendered.

Accordingly, the party liable for the tax can shift the burden to another, as part of the purchase price of the goods or services. Although
the manufacturer/seller is the one who is statutorily liable for the tax, it is the buyer who actually shoulders or bears the burden of the
tax, albeit not in the nature of a tax, but part of the purchase price or the cost of the goods or services sold.

As petitioner is not the statutory taxpayer, it is not entitled to claim a refund of


excise taxes paid.

The question we are faced with now is, if the party statutorily liable for the tax is different from the party who bears the burden of such
tax, who is entitled to claim a refund of the tax paid?

Sections 129 and 130 of the NIRC provide:

SEC. 129. Goods subject to Excise Taxes. - Excise taxes apply to goods manufactured or produced
in the Philippines for domestic sales or consumption or for any other disposition and to things imported.
The excise tax imposed herein shall be in addition to the value-added tax imposed under Title IV.

For purposes of this Title, excise taxes herein imposed and based on weight or volume capacity or
any other physical unit of measurement shall be referred to as 'specific tax' and an excise tax herein
imposed and based on selling price or other specified value of the good shall be referred to as 'ad valorem
tax.'

SEC. 130. Filing of Return and Payment of Excise Tax on Domestic Products. -

(A) Persons Liable to File a Return, Filing of Return on Removal and Payment of Tax. -

(1) Persons Liable to File a Return. - Every person liable to pay excise tax imposed under this
Title shall file a separate return for each place of production setting forth, among others the description
and quantity or volume of products to be removed, the applicable tax base and the amount of tax due
thereon: Provided, however, That in the case of indigenous petroleum, natural gas or liquefied natural
gas, the excise tax shall be paid by the first buyer, purchaser or transferee for local sale, barter or transfer,
while the excise tax on exported products shall be paid by the owner, lessee, concessionaire or operator of
the mining claim.

Should domestic products be removed from the place of production without the payment of the
tax, the owner or person having possession thereof shall be liable for the tax due thereon.
(2) Time for Filing of Return and Payment of the Tax. - Unless otherwise specifically allowed, the
return shall be filed and the excise tax paid by the manufacturer or producer before removal of
domestic products from place of production: Provided, That the tax excise on locally manufactured
petroleum products and indigenous petroleum/levied under Sections 148 and 151(A)(4), respectively, of
this Title shall be paid within ten (10) days from the date of removal of such products for the period from
January 1, 1998 to June 30, 1998; within five (5) days from the date of removal of such products for the
period from July 1, 1998 to December 31, 1998; and, before removal from the place of production of such
products from January 1, 1999 and thereafter: Provided, further, That the excise tax on nonmetallic
mineral or mineral products, or quarry resources shall be due and payable upon removal of such products
from the locality where mined or extracted, but with respect to the excise tax on locally produced or
extracted metallic mineral or mineral products, the person liable shall file a return and pay the tax within
fifteen (15) days after the end of the calendar quarter when such products were removed subject to such
conditions as may be prescribed by rules and regulations to be promulgated by the Secretary of Finance,
upon recommendation of the Commissioner. For this purpose, the taxpayer shall file a bond in an
amount which approximates the amount of excise tax due on the removals for the said quarter. The
foregoing rules notwithstanding, for imported mineral or mineral products, whether metallic or
nonmetallic, the excise tax due thereon shall be paid before their removal from customs custody.

xxx

(Italics and underscoring supplied.)

As early as the 1960s, this Court has ruled that the proper party to question, or to seek a refund of, an indirect tax, is the statutory
taxpayer, or the person on whom the tax is imposed by law and who paid the same, even if he shifts the burden thereof to another.[75]

In Philippine Acetylene Co., Inc. v. Commissioner of Internal Revenue,[76] the Court held that the sales tax is imposed on the
manufacturer or producer and not on the purchaser, except probably in a very remote and inconsequential sense. [77] Discussing the
passing on of the sales tax to the purchaser, the Court therein cited Justice Oliver Wendell Holmes opinion in Lashs Products v. United
States[78] wherein he said:

The phrase passed the tax on is inaccurate, as obviously the tax is laid and remains on the manufacturer
and on him alone. The purchaser does not really pay the tax. He pays or may pay the seller more for the
goods because of the sellers obligation, but that is all. x x x The price is the sum total paid for the goods.
The amount added because of the tax is paid to get the goods and for nothing else. Therefore it is part of
the price x x x.[79]

Proceeding from this discussion, the Court went on to state:

It may indeed be that the economic burden of the tax finally falls on the purchaser; when it does the tax
becomes a part of the price which the purchaser must pay. It does not matter that an additional amount is
billed as tax to the purchaser. x x x The effect is still the same, namely, that the purchaser does not pay the
tax. He pays or may pay the seller more for the goods because of the sellers obligation, but that is all and
the amount added because of the tax is paid to get the goods and for nothing else.

But the tax burden may not even be shifted to the purchaser at all. A decision to absorb the burden of the
tax is largely a matter of economics. Then it can no longer be contended that a sales tax is a tax on the
purchaser.[80]

The above case was cited in the later case of Cebu Portland Cement Company v. Collector (now Commissioner) of Internal Revenue,
[81]
where the Court ruled that as the sales tax is imposed upon the manufacturer or producer and not on the purchaser, it is petitioner
and not its customers, who may ask for a refund of whatever amount it is entitled for the percentage or sales taxes it paid before the
amendment of section 246 of the Tax Code.[82]
The Philippine Acetylene case was also cited in the first Silkair (Singapore) Pte, Ltd. v. Commissioner of Internal Revenue [83] case,
where the Court held that the proper party to question, or to 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.[84]

In the Silkair cases,[85] petitioner Silkair (Singapore) Pte, Ltd. (Silkair), filed with the BIR a written application for the refund of excise
taxes it claimed to have paid on its purchase of jet fuel from Petron. As the BIR did not act on the application, Silkair filed a Petition
for Review before the CTA.
In both cases, the CIR argued that the excise tax on petroleum products is the direct liability of the manufacturer/producer, and when
added to the cost of the goods sold to the buyer, it is no longer a tax but part of the price which the buyer has to pay to obtain the
article.
In the first Silkair case, the Court ruled:

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. Section 130 (A) (2) of the NIRC provides that "[u]nless otherwise specifically allowed, the return
shall be filed and the excise tax paid by the manufacturer or producer before removal of domestic
products from place of production." Thus, Petron Corporation, not Silkair, is the statutory taxpayer which
is entitled to claim a refund based on Section 135 of the NIRC of 1997 and Article 4(2) of the Air
Transport Agreement between RP and Singapore.

Even if Petron Corporation passed on to Silkair the burden of the tax, the additional amount billed to
Silkair for jet fuel is not a tax but part of the price which Silkair had to pay as a purchaser .[86] (Emphasis
and underscoring supplied.)

Citing the above case, the second Silkair case was promulgated a few months after the first, and stated:

The issue presented is not novel. In a similar case involving the same parties, this Court has categorically
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." The Court added that "even if Petron Corporation passed on to Silkair the burden of the tax, the
additional amount billed to Silkair for jet fuel is not a tax but part of the price which Silkair had to pay as a
purchaser."[87]

The CTA En Banc, thus, held that:

The determination of who is the taxpayer plays a pivotal role in claims for refund because the same law
provides that it is only the taxpayer who has the legal personality to ask for a refund in case of erroneous
payment of taxes. Section 204 (C) of the 1997 NIRC, [provides] in part, as follows:

SEC. 204. Authority of the Commissioner to Compromise, Abate, and Refund or


Credit Taxes. The Commissioner may

xxx xxx xxx

(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 showing
an overpayment shall be considered as a written claim for credit or refund.

xxx xxx xxx

(Emphasis shown supplied by the CTA.)[88]

Therefore, as Exxon is not the party statutorily liable for payment of excise taxes under Section 130, in relation to Section 129 of the
NIRC, it is not the proper party to claim a refund of any taxes erroneously paid.

There is no unilateral amendment of existing bilateral agreements of


the Philippines with other countries.

Exxon also argues that in effectively holding that only petroleum products purchased directly from the manufacturers or producers are
exempt from excise taxes, the CTA En Banc sanctioned a unilateral amendment of existing bilateral agreements which the Philippines
has with other countries, in violation of the basic international law principle of pacta sunt servanda.[89] The Court does not agree.
As correctly held by the CTA En Banc:

One final point, petitioners argument that in effectively holding that only petroleum products purchased
directly from the manufacturers or producers are exempt from excise taxes, the First Division of this
Court sanctioned a unilateral amendment of existing bilateral agreements which the Philippines have
(sic) with other countries, in violation of the basic international principle of pacta sunt servanda is
misplaced. First, the findings of fact of the First Division of this Court that when petitioner sold the Jet A-
1 fuel to international carriers, it did so free of tax negates any violation of the exemption from excise tax
of the petroleum products sold to international carriers insofar as this case is concerned. Secondly, the
right of international carriers to invoke the exemption granted under Section 135 (a) of the 1997 NIRC
has neither been affected nor restricted in any way by the ruling of the First Division of this Court. At the
point of sale, the international carriers are free to invoke the exemption from excise taxes of the
petroleum products sold to them. Lastly, the law-making body is presumed to have enacted a later law
with the knowledge of all other laws involving the same subject matter.[90] (Underscoring supplied.)

WHEREFORE, the petition is DENIED.

f. Is setting-off of taxes against a pending claim for refund allowed? The doctrine of
equitable recoupmentCase: Philex MiningCorp. V. CIR, GR No. 125704, 28 August
1998
G.R. No. 125704 August 28, 1998

PHILEX MINING CORPORATION, petitioner,


vs.
COMMISSIONER OF INTERNAL REVENUE, COURT OF APPEALS, and THE COURT OF TAX
APPEALS, respondents.

ROMERO, J.:

Petitioner Philex Mining Corp. assails the decision of the Court of Appeals promulgated on April 8, 1996 in CA-G.R. SP
No. 36975 1 affirming the Court of Tax Appeals decision in CTA Case No. 4872 dated March 16, 1995 2 ordering it to pay
the amount of P110,677,668.52 as excise tax liability for the period from the 2nd quarter of 1991 to the 2nd quarter of
1992 plus 20% annual interest from August 6, 1994 until fully paid pursuant to Sections 248 and 249 of the Tax Code of
1977.

The facts show that on August 5, 1992, the BIR sent a letter to Philex asking it to settle its tax liabilities for the 2nd, 3rd
and 4th quarter of 1991 as well as the 1st and 2nd quarter of 1992 in the total amount of P123,821.982.52 computed as
follows:

PERIOD COVERED BASIC TAX 25% SURCHARGE INTEREST TOTAL EXCISE

TAX DUE

2nd Qtr., 1991 12,911,124.60 3,227,781.15 3,378,116.16 19,517,021.91

3rd Qtr., 1991 14,994,749.21 3,748,687.30 2,978,409.09 21,721,845.60

4th Qtr., 1991 19,406,480.13 4,851,620.03 2,631,837.72 26,889,937.88

47,312,353.94 11,828,088.48 8,988,362.97 68,128,805.39

1st Qtr., 1992 23,341,849.94 5,835,462.49 1,710,669.82 30,887,982.25

2nd Qtr., 1992 19,671,691.76 4,917,922.94 215,580.18 24,805,194.88

43,013,541.70 10,753,385.43 1,926,250.00 55,693,177.13


3
90,325,895.64 22,581,473.91 10,914,612.97 123,821,982.52

========= ========= ========= =========

In a letter dated August 20, 1992, 4 Philex protested the demand for payment of the tax liabilities stating that it has
pending claims for VAT input credit/refund for the taxes it paid for the years 1989 to 1991 in the amount of
P119,977,037.02 plus interest. Therefore these claims for tax credit/refund should be applied against the tax liabilities,
citing our ruling in Commissioner of Internal Revenue v. Itogon-Suyoc Mines, Inc. 5

In reply, the BIR, in a letter dated September 7, 1992, 6 found no merit in Philex's position. Since these pending claims
have not yet been established or determined with certainty, it follows that no legal compensation can take place. Hence,
the BIR reiterated its demand that Philex settle the amount plus interest within 30 days from the receipt of the letter.

In view of the BIR's denial of the offsetting of Philex's claim for VAT input credit/refund against its excise tax obligation,
Philex raised the issue to the Court of Tax Appeals on November 6, 1992. 7 In the course of the proceedings, the BIR
issued Tax Credit Certificate SN 001795 in the amount of P13,144,313.88 which, applied to the total tax liabilities of Philex
of P123,821,982.52; effectively lowered the latter's tax obligation to P110,677,688.52.

Despite the reduction of its tax liabilities, the CTA still ordered Philex to pay the remaining balance of P110,677,688.52
plus interest, elucidating its reason, to wit:

Thus, for legal compensation to take place, both obligations must be liquidated and demandable.
"Liquidated" debts are those where the exact amount has already been determined (PARAS, Civil Code
of the Philippines, Annotated, Vol. IV, Ninth Edition, p. 259). In the instant case, the claims of the
Petitioner for VAT refund is still pending litigation, and still has to be determined by this Court (C.T.A. Case
No. 4707). A fortiori, the liquidated debt of the Petitioner to the government cannot, therefore, be set-off
against the unliquidated claim which Petitioner conceived to exist in its favor (see Compaia General de
Tabacos vs. French and Unson, No. 14027, November 8, 1918, 39 Phil. 34). 8

Moreover, the Court of Tax Appeals ruled that "taxes cannot be subject to set-off on compensation since claim for taxes is
not a debt or contract." 9 The dispositive portion of the CTA decision 10 provides:

In all the foregoing, this Petition for Review is hereby DENIED for lack of merit and Petitioner is hereby
ORDERED to PAY the Respondent the amount of P110,677,668.52 representing excise tax liability for the
period from the 2nd quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from August 6,
1994 until fully paid pursuant to Section 248 and 249 of the Tax Code, as amended.

Aggrieved with the decision, Philex appealed the case before the Court of Appeals docketed as CA-GR. CV No.
36975. 11 Nonetheless, on April 8, 1996, the Court of Appeals a Affirmed the Court of Tax Appeals observation. The
pertinent portion of which reads: 12

WHEREFORE, the appeal by way of petition for review is hereby DISMISSED and the decision dated
March 16, 1995 is AFFIRMED.

13
Philex filed a motion for reconsideration which was, nevertheless, denied in a Resolution dated July 11, 1996.

However, a few days after the denial of its motion for reconsideration, Philex was able to obtain its VAT input credit/refund
not only for the taxable year 1989 to 1991 but also for 1992 and 1994, computed as follows: 14

Period Covered Tax Credit Date

By Claims For Certificate of

VAT refund/credit Number Issue Amount

1994 (2nd Quarter) 007730 11 July 1996 P25,317,534.01

1994 (4th Quarter) 007731 11 July 1996 P21,791,020.61

1989 007732 11 July 1996 P37,322,799.19

1990-1991 007751 16 July 1996 P84,662,787.46

1992 (1st-3rd Quarter) 007755 23 July 1996 P36,501,147.95

In view of the grant of its VAT input credit/refund, Philex now contends that the same should, ipso jure, off-set its excise
tax liabilities 15 since both had already become "due and demandable, as well as fully liquidated;" 16 hence, legal
compensation can properly take place.
We see no merit in this contention.

In several instances prior to the instant case, we have already made the pronouncement that taxes cannot be subject to
compensation for the simple reason that the government and the taxpayer are not creditors and debtors of each
other. 17 There is a material distinction between a tax and debt. Debts are due to the Government in its corporate capacity,
while taxes are due to the Government in its sovereign capacity. 18 We find no cogent reason to deviate from the
aforementioned distinction.

Prescinding from this premise, in Francia v. Intermediate Appellate Court, 19 we categorically held that taxes cannot be
subject to set-off or compensation, thus:

We have consistently ruled that there can be no off-setting of taxes against the claims that the taxpayer
may have against the government. A person cannot refuse to pay a tax on the ground that the
government owes him an amount equal to or greater than the tax being collected. The collection of a tax
cannot await the results of a lawsuit against the government.

The ruling in Francia has been applied to the subsequent case of Caltex Philippines, Inc. v. Commission on Audit, 20 which
reiterated that:

. . . a taxpayer may not offset taxes due from the claims that he may have against the government. Taxes
cannot be the subject of compensation because the government and taxpayer are not mutually creditors
and debtors of each other and a claim for taxes is not such a debt, demand, contract or judgment as is
allowed to be set-off.

Further, Philex's reliance on our holding in Commissioner of Internal Revenue v. Itogon-Suyoc Mines Inc., wherein we
ruled that a pending refund may be set off against an existing tax liability even though the refund has not yet been
approved by the Commissioner, 21 is no longer without any support in statutory law.

It is important to note, that the premise of our ruling in the aforementioned case was anchored on Section 51 (d) of the
National Revenue Code of 1939. However, when the National Internal Revenue Code of 1977 was enacted, the same
provision upon which the Itogon-Suyoc pronouncement was based was omitted. 22 Accordingly, the doctrine enunciated
in Itogon-Suyoc cannot be invoked by Philex.

Despite the foregoing rulings clearly adverse to Philex's position, it asserts that the imposition of surcharge and interest for
the non-payment of the excise taxes within the time prescribed was unjustified. Philex posits the theory that it had no
obligation to pay the excise tax liabilities within the prescribed period since, after all, it still has pending claims for VAT
input credit/refund with BIR. 23

We fail to see the logic of Philex's claim for this is an outright disregard of the basic principle in tax law that taxes are the
lifeblood of the government and so should be collected without unnecessary hindrance. 24 Evidently, to countenance
Philex's whimsical reason would render ineffective our tax collection system. Too simplistic, it finds no support in law or in
jurisprudence.

To be sure, we cannot allow Philex to refuse the payment of its tax liabilities on the ground that it has a pending tax claim
for refund or credit against the government which has not yet been granted. It must be noted that a distinguishing feature
of a tax is that it is compulsory rather than a matter of bargain. 25 Hence, a tax does not depend upon the consent of the
taxpayer. 26 If any taxpayer can defer the payment of taxes by raising the defense that it still has a pending claim for
refund or credit, this would adversely affect the government revenue system. A taxpayer cannot refuse to pay his taxes
when they fall due simply because he has a claim against the government or that the collection of the tax is contingent on
the result of the lawsuit it filed against the government. 27 Moreover, Philex's theory that would automatically apply its VAT
input credit/refund against its tax liabilities can easily give rise to confusion and abuse, depriving the government of
authority over the manner by which taxpayers credit and offset their tax liabilities.

Corollarily, the fact that Philex has pending claims for VAT input claim/refund with the government is immaterial for the
imposition of charges and penalties prescribed under Section 248 and 249 of the Tax Code of 1977. The payment of the
surcharge is mandatory and the BIR is not vested with any authority to waive the collection thereof. 28 The same cannot be
condoned for flimsy reasons, 29 similar to the one advanced by Philex in justifying its non-payment of its tax liabilities.

Finally, Philex asserts that the BIR violated Section 106 (e) 30 of the National Internal Revenue Code of 1977, which
requires the refund of input taxes within 60 days, 31 when it took five years for the latter to grant its tax claim for VAT input
credit/refund. 32

In this regard, we agree with Philex. While there is no dispute that a claimant has the burden of proof to establish the
factual basis of his or her claim for tax credit or refund, 33 however, once the claimant has submitted all the required
documents it is the function of the BIR to assess these documents with purposeful dispatch. After all, since taxpayers owe
honestly to government it is but just that government render fair service to the taxpayers. 34

In the instant case, the VAT input taxes were paid between 1989 to 1991 but the refund of these erroneously paid taxes
was only granted in 1996. Obviously, had the BIR been more diligent and judicious with their duty, it could have granted
the refund earlier. We need not remind the BIR that simple justice requires the speedy refund of wrongly-held taxes. 35 Fair
dealing and nothing less, is expected by the taxpayer from the BIR in the latter's discharge of its function. As aptly held
in Roxas v. Court of Tax Appeals: 36
The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised
with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally
and uniformly, lest the tax collector kill the "hen that lays the golden egg" And, in order to maintain the
general public's trust and confidence in the Government this power must be used justly and not
treacherously.

Despite our concern with the lethargic manner by which the BIR handled Philex's tax claim, it is a settled rule that in the
performance of governmental function, the State is not bound by the neglect of its agents and officers. Nowhere is this
more true than in the field of taxation. 37 Again, while we understand Philex's predicament, it must be stressed that the
same is not a valid reason for the non-payment of its tax liabilities.

To be sure, this is not to state that the taxpayer is devoid of remedy against public servants or employees, especially BIR
examiners who, in investigating tax claims are seen to drag their feet needlessly. First, if the BIR takes time in acting upon
the taxpayer's claim for refund, the latter can seek judicial remedy before the Court of Tax Appeals in the manner
prescribed by law. 38 Second, if the inaction can be characterized as willful neglect of duty, then recourse under the Civil
Code and the Tax Code can also be availed of.

Art. 27 of the Civil Code provides:

Art. 27. Any person suffering material or moral loss because a public servant or employee refuses or
neglects, without just cause, to perform his official duty may file an action for damages and other relief
against the latter, without prejudice to any disciplinary action that may be taken.

More importantly, Section 269 (c) of the National Internal Revenue Act of 1997 states:

xxx xxx xxx

(c) Wilfully neglecting to give receipts, as by law required for any sum collected in the performance of duty
or wilfully neglecting to perform, any other duties enjoyed by law.

Simply put, both provisions abhor official inaction, willful neglect and unreasonable delay in the performance of official
duties. 39 In no uncertain terms must we stress that every public employee or servant must strive to render service to the
people with utmost diligence and efficiency. Insolence and delay have no place in government service. The BIR, being the
government collecting arm, must and should do no less. It simply cannot be apathetic and laggard in rendering service to
the taxpayer if it wishes to remain true to its mission of hastening the country's development. We take judicial notice of the
taxpayer's generally negative perception towards the BIR; hence, it is up to the latter to prove its detractors wrong.

In sum, while we can never condone the BIR's apparent callousness in performing its duties, still, the same cannot justify
Philex's non-payment of its tax liabilities. The adage "no one should take the law into his own hands" should have guided
Philex's action.

WHEREFORE, in view of the foregoing, the instant petition is hereby DISMISSED. The assailed decision of the Court of
Appeals dated April 8, 1996 is hereby AFFIRMED.

SO ORDERED.

g. Is automatic application of excess tax credits allowed? (Sec. 76) Please see
Calamba Steel v. CIR, GR No. 151857, 28 April 2005; Systra Philippines v. CIR, GR
No. 176290, 21 September2007; CIR v. BPI, GR No. 178490, 07 July 2009
(Irrevocability Rule)***; Philam Asset Management v. CIR, G.R. Nos.
156637/162004, December 14, 2005); Asiaworld Properties Philippine Corporation
v. CIR, GR No. 171766, 29 July 2010; CIR v. Philam Life and Gen. Ins. Co. GR No.
175124, 29 September 2010; CIR v. Mcgeorge Food Industries, GR No. 174157, 20
October 2010; CIR v. PL Management Inernational Philippines, Inc., G.R. No.
160949, April 4, 2011.

[G.R. No. 151857. April 28, 2005]

CALAMBA STEEL CENTER, INC. (formerly JS STEEL CORPORATION), petitioner, vs. COMMISSIONER OF
INTERNAL REVENUE, respondent.

DECISION

PANGANIBAN, J.:

A tax refund may be claimed even beyond the taxable year following that in which the tax credit arises. Hence,
excess income taxes paid in 1995 that have not been applied to or used in 1996 may still be the subject of a tax refund in
1997, provided that the claim for such refund is filed with the internal revenue commissioner within two years after
payment of said taxes. As a caveat, the Court stresses that the recognition of the entitlement to a tax refund does not
necessarily mean the automatic payment of the sum claimed in the final adjustment return of the taxpayer. The amount of
the claim must still be proven in the normal course.

The Case

Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, assailing the January 10, 2002 Decision [2] of
the Court of Appeals (CA) in CA-GR SP No. 58838. The assailed Decision disposed as follows:

IN VIEW OF ALL THE FOREGOING, the instant petition is DISMISSED and the assailed Decision and Resolution
are AFFIRMED. Costs against Petitioner.[3]

The Facts

Quoting the Court of Tax Appeals (CTA), the CA narrated the antecedents as follows:

Petitioner is a domestic corporation engaged in the manufacture of steel blanks for use by manufacturers of automotive, electrical,
electronics in industrial and household appliances.

Petitioner filed an Amended Corporate Annual Income Tax Return on June 4, 1996 declaring a net taxable income of P9,461,597.00,
tax credits of P6,471,246.00 and tax due in the amount of P3,311,559.00.

Petitioner also reported quarterly payments for the second and third quarters of 1995 in the amounts of P2,328,747.26
and P1,082,108.00, respectively.

It is the proposition of the [p]etitioner that for the year 1995, several of its clients withheld taxes from their income payments to
[p]etitioner and remitted the same to the Bureau of Internal Revenue (BIR) in the sum of P3,159,687.00. Petitioner further alleged that
due to its income/loss positions for the three quarters of 1996, it was unable to use the excess tax paid for and in its behalf by the
withholding agents.

Thus, an administrative claim was filed by the [p]etitioner on April 10, 1997 for the refund of P3,159,687.00 representing excess or
unused creditable withholding taxes for the year 1995. The instant petition was subsequently filed on April 18, 1997.

Respondent, in his Answer, averred, among others, that:

1) Petitioner has no cause of action;

2) Petitioner failed to comply with the procedural requirements set out in Section 5 of Revenue Regulations No. [(RR)] 12-94;

3) It is incumbent upon [p]etitioner to prove by competent and sufficient evidence that the tax refund or tax credit being sought is
allowed under the National Internal Revenue Code and its implementing rules and regulations; and

4) Claims for tax refund or tax credit are construed strictly against the taxpayer as they partake the nature of tax exemption.

To buttress its claim, [p]etitioner presented documentary and testimonial evidence. Respondent, on the other hand, presented the
[r]evenue [o]fficer who conducted the examination of [p]etitioners claim and found petitioner liable for deficiency value added tax.
Petitioner also presented rebuttal evidence.

The sole issue submitted for [o]ur determination is whether or not [p]etitioner is entitled to the refund of P3,159,687.00 representing
excess or overpaid income tax for the taxable year 1995.[4]

Ruling of the Court of Appeals

In denying petitioners refund, the CA reasoned out that no evidence other than that presented before the CTA was
adduced to prove that excess tax payments had been made in 1995. From the inception of the case to the formal offer of
its evidence, petitioner did not present its 1996 income tax return to disclose its total income tax liability, thus making it
difficult to determine whether such excess tax payments were utilized in 1996.

Hence, this Petition.[5]

The Issue

Petitioner raises this sole issue for our consideration:

Whether the Court of Appeals gravely erred when, while purportedly requiring petitioner to submit its 1996 annual income tax return
to support its claim for refund, nonetheless ignored the existence of the tax return extant on the record the authenticity of which has
not been denied or its admissibility opposed by the Commissioner of Internal Revenue. [6]

The Courts Ruling


The Petition is partly meritorious.

Sole Issue:

Entitlement to Tax Refund

Section 69 of the National Internal Revenue Code (NIRC) [7] provides:

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 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.

Tax Refund

Allowed by NIRC

A perusal of this provision shows that a taxable corporation is entitled to a tax refund when the sum of the
quarterly income taxes it paid during a taxable year exceeds its total income tax due also for that year. Consequently, the
refundable amount that is shown on its final adjustment return may be credited, at its option, against its quarterly income
tax liabilities for the next taxable year.

Petitioner is a corporation liable to pay income taxes under Section 24 of the NIRC. Hence, it is a taxable
corporation. In 1995, it reported that it had excess income taxes that had been paid for and on its behalf by its withholding
agents; and that, applying the above-quoted Section 69, this excess should be credited against its income tax liabilities for
1996. However, it claimed in 1997 that it should get a refund, because it was still unable to use the excess income
taxes paid in 1995 against its tax liabilities in 1996. Is this possible? Stating the argument otherwise, may excess income
taxes paid in 1995 that could not be applied to taxes due in 1996 be refunded in 1997?

The answer is in the affirmative. Here are the reasons:

Claim of Tax Refund Beyond the

Succeeding Taxable Year

First, a tax refund may be claimed even beyond the taxable year following that in which the tax credit arises.

No provision in our tax law limits the entitlement to such a refund, other than the requirement that the filing of the
administrative claim for it be made by the taxpayer within a two-year prescriptive period. Section 204(3) of the NIRC
states that no refund of taxes shall be allowed unless the taxpayer files in writing with the Commissioner [the] claim for x x
x refund within two years after the payment of the tax.

Applying the aforequoted legal provisions, if the excess income taxes paid in a given taxable year have not been
entirely used by a taxable corporation against its quarterly income tax liabilities for the next taxable year, the unused
amount of the excess may still be refunded, provided that the claim for such a refund is made within two years after
payment of the tax. Petitioner filed its claim in 1997 -- well within the two-year prescriptive period. Thus, its unused tax
credits in 1995 may still be refunded.

Even the phrase succeeding taxable year in the second paragraph of the said Section 69 is a limitation that applies
only to a tax credit, not a tax refund. Petitioner herein does not claim a tax credit, but a tax refund. Therefore, the statutory
limitation does not apply.

Income Payments Merely

Declared Part of Gross Income

Second, to be able to claim a tax refund, a taxpayer only needs to declare the income payments it received as part of
its gross income and to establish the fact of withholding.

Section 5 of RR 12-94[8] states:

xxxxxxxxx
(a) 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 has been declared as part of the gross income and 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
amount of tax withheld therefrom.

(b) Excess Credits. -- A taxpayer's excess expanded withholding tax credits for the taxable quarter/taxable year shall automatically be
allowed as a credit for purposes of filing his income tax return for the taxable quarter/taxable year immediately succeeding the taxable
quarter/taxable year in which the aforesaid excess credit arose, provided, however, he submits with his income tax return a copy of his
income tax return for the aforesaid previous taxable period showing the amount of his aforementioned excess withholding tax credits.

If the taxpayer, in lieu of the aforesaid automatic application of his excess credit, wants a cash refund or a tax credit certificate for use
in payment of his other national internal tax liabilities, he shall make a written request therefor. Upon filing of his request, the
taxpayer's income tax return showing the excess expanded withholding tax credits shall be examined. The excess expanded
withholding tax, if any, shall be determined and refunded/credited to the taxpayer-applicant. The refund/credit shall be made within a
period of sixty (60) days from date of the taxpayer's request provided, however, that the taxpayer-applicant submitted for audit all his
pertinent accounting records and that the aforesaid records established the veracity of his claim for a refund/credit of his excess
expanded withholding tax credits.

That petitioner filed its amended 1995 income tax return in 1996 is uncontested. In addition, the resulting
investigation by the BIR on August 15, 1997, reveals that the income accounts were correctly declared based on the
existing supporting documents.[9] Therefore, there is no need for petitioner to show again the income payments it received
in 1995 as part of its gross income in 1996.

That petitioner filed its 1996 final adjustment return in 1997 is the crux of the controversy. However, as will be
demonstrated shortly, the lack of such a return will not defeat its entitlement to a refund.

Tax Refund Provisions:

Question of Law

Third, it is a cardinal rule that only legal issues may be raised [10] in petitions for review under Rule 45.[11]

The proper interpretation of the provisions on tax refund is a question of law that does not call for an examination of
the probative value of the evidence presented by the parties-litigants. [12] Having been unable to use the excess income
taxes paid in 1995 against its other tax liabilities in 1996, petitioner clearly deserves a refund. It cannot by any sweeping
denial be deprived of what rightfully belongs to it.

The truth or falsity of the contents of or entries in the 1996 final adjustment return, which has not been formally
offered in evidence and examined by respondent, involves, however, a question of fact. This Court is not a trier of facts.
Neither is it a collection agency for the government. Although we rule that petitioner is entitled to a tax refund, the amount
of that refund is a matter for the CTA to determine judiciously based on the records that include its own copy of petitioners
1996 final adjustment return.

Liberal Construction

of Rules

Fourth, ordinary rules of procedure frown upon the submission of final adjustment returns after trial has been
conducted. However, both the CTA law and jurisprudence mandate that the proceedings before the tax court shall not be
governed strictly by technical rules of evidence. [13] As a rule, its findings of fact [14] (as well as that of the CA) are final,
binding and conclusive[15] on the parties and upon this Court; however, as an exception, such findings may be reviewed or
disturbed on appeal[16] when they are not supported by evidence.[17]

Our Rules of Court apply by analogy or in a suppletory [18] character and whenever practicable and convenient [19] and
shall be liberally construed in order to promote their objective of securing a just, speedy and inexpensive disposition of
every action and proceeding.[20] After all, [t]he paramount consideration remains the ascertainment of truth. [21]

In the present case, the 1996 final adjustment return was attached as Annex A to the Reply to Comment filed by
petitioner with the CA.[22] The return shows a negative amount for its taxable income that year. Therefore, it could not have
applied or used the excess tax credits of 1995 against its tax liabilities in 1996.

Judicial Notice

of Attached Return

Fifth, the CA and CTA could have taken judicial notice of the 1996 final adjustment return which had been attached in
CTA Case No. 5799. Judicial notice takes the place of proof and is of equal force. [23]

As a general rule, courts are not authorized to take judicial notice of the contents of records in other cases tried or
pending in the same court, even when those cases were heard or are actually pending before the same judge. However,
this rule admits of exceptions, as when reference to such records is sufficiently made without objection from the opposing
parties:

. . . [I]n the absence of objection, and as a matter of convenience to all parties, a court may properly treat all or any part of the original
record of a case filed in its archives as read into the record of a case pending before it, when, with the knowledge of the opposing
party, reference is made to it for that purpose, by name and number or in some other manner by which it is sufficiently designated; or
when the original record of the former case or any part of it, is actually withdrawn from the archives by the court's direction, at the
request or with the consent of the parties, and admitted as a part of the record of the case then pending.[24]

Prior to rendering its Decision on January 12, 2000, the CTA was already well-aware of the existence of another case
pending before it, involving the same subject matter, parties and causes of action. [25] Because of the close connection of
that case with the matter in controversy, the CTA could have easily taken judicial notice [26] of the contested document
attached in that other case.

Furthermore, there was no objection raised to the inclusion of the said 1996 final adjustment return in petitioners
Reply to Comment before the CA. Despite clear reference to that return, a reference made with the knowledge of
respondent, the latter still failed to controvert petitioners claim. The appellate court should have cast aside strict
technicalities[27] and decided the case on the basis of such uncontested return. Verily, it had the authority to take judicial
notice of its records and of the facts [that] the record establishes. [28]

Section 2 of Rule 129 provides that courts may take judicial notice of matters x x x ought to be known to judges
because of their judicial functions. [29] If the lower courts really believed that petitioner was not entitled to a tax refund, they
could have easily required respondent to ascertain its veracity and accuracy [30] and to prove that petitioner did not suffer
any net loss in 1996.

Contrary to the contention of petitioner, BPI-Family Savings Bank v. CA[31] (on which it rests its entire arguments) is
not on all fours with the facts of this case.

While the petitioner in that case also filed a written claim for a tax refund, and likewise failed to present its 1990
corporate annual income tax return, it nonetheless offered in evidence its top-ranking officials testimony and certification
pertaining to only two taxable years (1989 and 1990). The said return was attached only to its Motion for Reconsideration
before the CTA.

Petitioner in this case offered documentary and testimonial evidence that extended beyond two taxable years,
because the excess credits in the first (1995) taxable year had not been used up during the second (1996) taxable year,
and because the claim for the refund of those credits had been filed during the third (1997) taxable year. Its final
adjustment return was instead attached to its Reply to Comment filed before the CA.

Moreover, in BPI-Family Savings Bank, petitioner was able to show the undisputed fact: that petitioner had suffered
a net loss in 1990 x x x. [32] In the instant case, there is no such undisputed fact as yet. The mere admission into the
records of petitioners 1996 final adjustment return is not a sufficient proof of the truth of the contents of or entries in that
return.

In addition, the BIR in BPI-Family Savings Bank did not controvert the veracity of the return or file an opposition to
the Motion and the return. Despite the fact that the return was ignored by both the CA and the CTA, the latter even
declared in another case (CTA Case No. 4897) that petitioner had suffered a net loss for taxable year 1990. When
attached to the Petition for Review filed before this Court, that Decision was not at all claimed by the BIR to be fraudulent
or nonexistent. The Bureau merely contended that this Court should not take judicial notice of the said Decision.

In this case, however, the BIR has not been given the chance to challenge the veracity of petitioners final adjustment
return. Neither has the CTA decided any other case categorically declaring a net loss for petitioner in taxable year 1996.
After this return was attached to petitioners Reply to Comment before the CA, the appellate court should have required
the filing of other responsive pleadings from respondent, as was necessary and proper for it to rule upon the return.

Admissibility Versus Weight

Indeed, [a]dmissibility x x x is one thing, weight is another. [33] To admit evidence and not to believe it are not
incompatible with each other x x x. [34] Mere allegations by petitioner of the figures in its 1996 final adjustment return are
not a sufficient proof of the amount of its refund entitlement. They do not even constitute evidence [35] adverse to
respondent, against whom they are being presented. [36]

While it seems that the [non-production] of a document which courts almost invariably expect will be produced
unavoidably throws a suspicion over the cause, [37] this is not really the conclusion to be arrived at here. When petitioner
purportedly filed its administrative claim for a tax refund on April 10, 1997, the deadline for filing the 1996 final adjustment
return was not yet over. Hence, it could not have attached this return to its claim.

For reasons unknown even to this Court, petitioner failed to offer such return as evidence during the trial phase of
this case. For its negligence, petitioner cannot be allowed to seek refuge in a liberal application of the [r]ules [38] by giving it
a blanket approval of the total refund it claims. While in certain instances, we allow a relaxation in the application of the
rules, we never intend to forge a weapon for erring litigants to violate the rules with impunity. The liberal interpretation and
application of rules apply only in proper cases of demonstrable merit and under justifiable causes and circumstances. [39]
It would not be proper to allow petitioner to simply prevail and compel a refund in the amount it claims, without
affording the government a reasonable opportunity to contest the formers allegations. [40] Negligence consisting of the
unexplained failure to offer the exhibit should not be rewarded with undeserved leniency. Petitioner still bears the burden
of proving the amount of its claim for tax refund. After all, [t]ax refunds are in the nature of tax exemptions [41] and are to be
construed strictissimi juris against the taxpayer.

Finally, even in the absence of a final adjustment return or any claim for a tax refund, respondent is authorized by law
to examine any book, paper, record or other data that may be relevant or material to such inquiry. [42] Failure to make an
assessment of petitioners proper tax liability or to contest the return could be errors or omissions of administrative officers
that should never be allowed to jeopardize the governments financial position.

Verily, the officers of the Bureau of Internal Revenue should receive the support of the courts when these officers
attempt to perform in a conscientious and lawful manner the duties imposed upon them by law. [43] Only after it is shown
that if something is received when there is no right to demand it, and it was duly delivered through mistake, the obligation
to return it arises.[44]

In brief, we hold that petitioner is entitled to a refund; however, the amount must still be proved in proper proceedings
before the CTA.

WHEREFORE, the Petition is hereby PARTLY GRANTED, and the assailed Decision SET ASIDE. The case
is REMANDED to the Court of Tax Appeals for the proper and immediate determination of the amount to be refunded to
petitioner on the basis of the latters 1996 final adjustment return. No pronouncement as to costs.

SO ORDERED

FIRST DIVISION

SYSTRA PHILIPPINES, INC., G.R. No. 176290


Petitioner,
Present:

PUNO, C.J., Chairperson,


SANDOVAL-GUTIERREZ,
- v e r s u s - CORONA,
AZCUNA and
GARCIA, JJ.

COMMISSIONER OF
INTERNAL REVENUE,
Respondent. Promulgated:
September 21, 2007

x---------------------------------------------------x

R ES OLUTION
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 Courts March 28, 2007 resolution.

On March 9, 2007, petitioner filed a petition for review on certiorari assailing the January 18, 2007 decision [1] 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 petitioners counsel to submit his IBP [2] 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, petitioners 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

Revenue[5] and Raytheon Ebasco Overseas Ltd. Philippine Branch v. Commissioner of Internal Revenue [6] 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 petitioners motions.

A SECOND MOTION FOR


RECONSIDERATION IS
PROHIBITED

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 Courts

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 partys 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 petitioners 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 years excess credits P -
Creditable taxes withheld P4,703,019.00 P4,703,019.00
during the year
Tax Overpayment P4,627,976.00

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, petitioners net tax due of [P397,317]
was applied against the accumulated tax credits of [P5,739,563]. Said reported tax credits comprised of prior years
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 P2,834,568.00

Taxable Income P1,936,851.00

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


Less: Unexpired Excess of Prior Years MCIT
Over Normal Income Tax Rate P 222,475.00 P 397,317.00
Income Tax Still Due
Less: Tax Credits
Prior years excess credits P4,627,976.00
Creditable taxes withheld
during the year 1,111,587.00 P5,739,563.00

Tax Overpayment P5,342,246.00


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 petitioners 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 petitioners 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.

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. 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 governments 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 taxpayers account. Petitioner may claim and carry it over in the succeeding taxable years, creditable against future income tax

liabilities until fully utilized.[23]

WHEREFORE, petitioners 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.
COMMISSIONER OF INTERNAL G.R. No. 178490
REVENUE,
Petitioner, Present:

YNARES-SANTIAGO, J.,
Chairperson,
CHICO-NAZARIO,
- versus - VELASCO, JR.,
NACHURA, and
PERALTA, JJ.

Promulgated:
BANK OF THE PHILIPPINE ISLANDS,
Respondent.
July 7, 2009
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CHICO-NAZARIO, J.:

This is a Petition for Review assailing the Decision [1] 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 of P1,773,236,745.00 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 of P6,190,014.46, on the operations of formers 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 years 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 of P33,947,101.00;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 years 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 Appeals [6] 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:

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
of P185,001.00 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 79[10] of 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 taxpayers 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. 156637[15] 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 ones 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.

xxxx

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 ones 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 taxpayers 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 Years 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.
PHILAM ASSET G.R. Nos. 156637/162004
MANAGEMENT, INC.,
Petitioner, Present:
Panganiban, J.,
Chairman,
Sandoval-Gutierrez
- versus - Corona,
Carpio Morales, and
Garcia, JJ
COMMISSIONER OF Promulgated:
INTERNAL REVENUE,
Respondent. December 14, 2005
x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- x

DECISION

PANGANIBAN, J.:

U
nder 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 Review [1] under Rule 45 of the Rules of Court, seeking

to review and reverse the December 19, 2002 Decision [2] of the Court of Appeals (CA) in CA-GR SP No.

69197 and its January 30, 2004 Decision[3] 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 CTAs 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, PFIs and PBFIs 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 latters 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]etitioners 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]etitioners claim for refund.

Respondent did not act on [p]etitioners claim for refund[;] hence, a Petition for Review was filed with this
Court[6] on November 29, 1999 to toll the running of the two-year prescriptive period. [7]

On October 9, 2001, the CTA rendered a Decision denying petitioners 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 petitioners 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 [petitioners] 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 latters 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 Courts 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]etitioners [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 Courts 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 86[13] in PD 1705.[14]

On November 5, 1985, all prior amendments and those introduced by PD 1994 [15] were codified[16] into the

National Internal Revenue Code (NIRC) of 1985, as a result of which Section 86 was renumbered [17] 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 273[20] renumbered[21] Section 86 of the NIRC[22] as Section 76,[23] which was also

rearranged[24] 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 income [27] 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[28] 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, in Philippine 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 ones 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,

[33]
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.

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

the preceding -- 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 5[34] 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 taxpayers

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 taxpayers 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 petitioners 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 refund to petitioner is certainly fatal.

Fifth, the CTA should have taken judicial notice [40] of the fact of filing and the pendency of petitioners

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 ones 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 taxpayers 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 credit for 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 irrevocable [45] 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 Years 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 years excess credits does not mean falsification by a taxpayer of

its current years 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, 2000[47] cannot be countenanced. It cannot be allowed to avail itself of a tax refund and

a tax credit at 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 CTA [49] does not apply.[50] Money is fungible

property.[51] The amount to be applied against the P80,042 income tax due in the 1998 FAR [52] 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 years excess tax credits will have to be reduced first to answer for any current tax

liabilities before the current years 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

governments 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

Decision REVERSED 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.
ASIAWORLD PROPERTIES PHILIPPINE G.R. No. 171766
CORPORATION,
Petitioner, Present:

CARPIO, Chairperson,
VELASCO, JR.,*
PERALTA,
ABAD, and
- versus - MENDOZA, JJ.

COMMISSIONER OF INTERNAL REVENUE,


Respondent. Promulgated:

July 29, 2010


x--------------------------------------------------x

DECISION

CARPIO, J.:
The Case
This petition for review[1] assails the 24 August 2005 Decision[2] and the 31 January 2006 Resolution[3] 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, Paraaque, 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 Years Excess Credit P7,468,061.00
b. Tax Payments For the 160,000.00
First Three Quarters
c. Creditable Tax Withheld 67,964.00
For the First Three Quarters
d. Creditable Tax Withheld 7,696,025.00
For the Fourth Quarter P6,473,959.00
Total Amount of Overpayment

In its 2001 ITR,[4] petitioner stated that the amount of P7,468,061.00 representing Prior Years 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 of P6,473,959.00.

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 petitioners 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 229 [5] 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 of P18,477,144.00
actually represents petitioners 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 petitioners 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 petitioners 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.
The Court cannot subscribe to petitioners 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 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. Section 76 expressly states that the option shall be considered irrevocable for that taxable periodreferring
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 taxpayers account and
will be carried over and applied against the taxpayers 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.
COMMISSIONER OF INTERNAL REVENUE, G.R. No. 175124
Petitioner,
Present:

CARPIO, J., Chairperson,


PERALTA,
ABAD,
PEREZ,* and
- versus -
MENDOZA, JJ.

THE PHILIPPINE AMERICAN LIFE AND


GENERAL INSURANCE COMPANY,
Respondent.
Promulgated:

September 29, 2010


x--------------------------------------------------x

DECISION

CARPIO, J.:
The Case
This petition for review[1] assails the 26 June 2006 Decision [2] and the 12 October 2006 Resolution[3] of the Court of Appeals in CA-
G.R. SP No. 73427. The Court of Appeals reversed the 4 June 2002 Decision [4] and 2 October 2002 Resolution[5] of the Court of Tax
Appeals (CTA) in CTA Case No. 5978.

The Facts

On 15 April 1998, The Philippine American Life and General Insurance Company (respondent) filed with the Bureau of Internal
Revenue (BIR) its Annual Income Tax Return (ITR) for the taxable year 1997,[6] declaring a net loss of P165,701,508.

On 16 December 1999, respondent filed with the BIR-Appellate Division a claim for refund in the amount of P9,326,979.35,
representing a portion of its accumulated creditable withholding tax. The amount of P9,326,979.35 allegedly represents the creditable
taxes withheld and remitted to the BIR by respondents withholding agents from rentals and real property and dividend income during
the calendar year 1997.
When the BIR-Appellate Division failed to act on respondents claim, respondent filed with the CTA a petition for review on 23
December 1999. Respondent sought a refund in the amount of P9,326,979.35, which allegedly represented a portion of its overpaid
and unapplied creditable taxes for the calendar year 1997. Respondent attached its 1998 ITR [7] to its Memorandum dated 7 January
2002.

In its Decision dated 4 June 2002, the CTA denied respondents claim for refund for lack of merit due to respondents failure to present
its 1998 ITR.

Respondent filed a motion for reconsideration, which the CTA denied in its Resolution dated 2 October 2002. In denying the motion,
the CTA stated:

But even assuming for the sake of argument that we consider the 1998 Annual ITR which petitioner [The Philippine
American Life and General Insurance Company] attached to its memorandum, the same would likewise not render
support to petitioners claim. Petitioner could not deny the fact that the alleged 1997 overpaid tax was indeed carried
forward to the succeeding taxable year. From the face of the 1998 ITR, the amount P19,522,305 to which the 1997
tax refund claim of P9,326,979.35 formed part is indicated as Prior years excess credit. Considering that petitioner
had a tax due of P8,025,705 for the year 1998, petitioners allegation of non-use deserves scant consideration. Equally
noteworthy is the fact that the excess portion of the 1997 tax credit after charging the 1998 tax due now forms part of
the 1998 total overpaid tax which petitioner opted again to carry over to the next taxable year 1999. This further
refutes its claim that the 1997 claimed amount was unutilized.

As a recapitulation, the 1998 Income Tax Return attached to the Memorandum for petitioner is inadmissible in
evidence. It was not presented and identified during the trial nor formally offered as evidence. And as the amount
being claimed had been charged against its tax liabilities for 1998 and 1999, the claim for refund cannot be granted.[8]

Respondent appealed to the Court of Appeals which rendered its Decision dated 26 June 2006, reversing the CTA Decision and
Resolution. The dispositive portion of the Court of Appeals Decision reads:

WHEREFORE, the petition is hereby GRANTED. The assailed Decision and Resolution of the Court of Tax Appeals
in CTA Case No. 5978 dated 4 June 2002 and 2 October 2002 respectively are REVERSED and SET ASIDE and a
new one rendered in favor of the petitioner [The Philippine American Life and General Insurance Company]
ordering the refund of the sum ofP9,326,979.35 representing petitioners overpayment and unapplied creditable
withholding tax for the taxable year 1997 to petitioner.

SO ORDERED.[9]

The Commissioner of Internal Revenue (petitioner) filed a motion for reconsideration, which the Court of Appeals denied in its
Resolution dated 12 October 2006. Hence, this petition for review.

The Ruling of the Court of Appeals

The Court of Appeals ruled that the CTA is not governed strictly by technical rules of evidence. Although respondent may have failed
to strictly comply with the rules of procedure, the Court of Appeals held that respondent has established its claim for refund. The
Court of Appeals stated that the 1998 ITR which respondent attached to its Memorandum filed with the CTA showed that respondent
suffered a net loss in the amount of P165,701,508 and that respondent is entitled to a refund of P9,326,979.35.Furthermore, the 1998
ITR showed that the amount of P9,326,979.35 was not utilized nor used as income tax payment for that taxable year. Thus, the Court
of Appeals concluded that respondent is entitled to a refund of the unused creditable withholding tax.

The Issue

The sole issue in this case is whether respondent is entitled to a refund of its excess income tax credit in the taxable year 1997 even if
it had already opted to carry-over the excess income tax credit against the tax due in the succeeding taxable years.

The Ruling of the Court

We find the petition meritorious.


The resolution of the case involves the application of Section 76 of the National Internal Revenue Code (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)

Petitioner maintains that Section 76 of the NIRC of 1997 clearly states that once a corporate taxpayer opts to carry-over the excess
income tax and apply it as tax credits against the income tax due for the succeeding taxable years, such option is irrevocable and the
corporate taxpayer can no longer apply for either a tax refund or an issuance of a tax credit certificate. [10]

On the other hand, respondent argues that the choice of the taxpayer to carry-over its excess tax credits to the succeeding taxable year
does not necessarily preclude the taxpayer from requesting a tax refund when there was no actual carry-over of the tax credits due to a
net loss suffered by the taxpayer in the succeeding year. Respondent alleges that there was no actual carry-over of its 1997 excess tax
credits because its tax credits accumulated over the years were much more than the ensuing tax liabilities. [11]

The issue presented in this case is identical to the issue already resolved by the Court in the recent case of Asiaworld Properties
Philippine Corporation v. Commissioner of Internal Revenue. [12] In Asiaworld, the issue was 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 the claim
for a refund in the subsequent taxable years for the unused portion of the excess tax credits. Ruling that the exercise of the option to
carry-over precludes a claim for a refund, the Court explained:

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 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.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.

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. 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.
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. The
unutilized excess tax credits will remain in the taxpayers account and will be carried over and applied
against the taxpayers income tax liabilities in the succeeding taxable years until fully utilized. (Emphasis
supplied)

In this case, it is undisputed that respondent indicated in its 1997 ITR its option to carry-over as tax credit for the next year its tax
overpayment. In its 1998 ITR, respondent again indicated its preference to carry-over the excess income tax credit against the tax
liabilities for the succeeding taxable years. Clearly, respondent chose to carry-over and apply the overpaid tax against the income tax
due in the succeeding taxable years. Under Section 76 of the NIRC of 1997, once the taxpayer exercises the option to carry-over and
apply the excess creditable tax against the income tax due for the succeeding taxable years, such option is irrevocable. [13] Thus,
respondent can no longer claim a refund of its excess income tax credit in the taxable year 1997 because it has already opted to carry-
over the excess income tax credit against the tax due in the succeeding taxable years.

WHEREFORE, we GRANT the petition. We SET ASIDE the 26 June 2006 Decision and the 12 October 2006 Resolution of the
Court of Appeals in CA-G.R. SP No. 73427. We REINSTATE the 4 June 2002 Decision and 2 October 2002 Resolution of the Court
of Tax Appeals in CTA Case No. 5978
COMMISSIONER OF INTERNAL G.R. No. 174157
REVENUE,
Petitioner, Present:

CARPIO, J., Chairperson,


- versus - LEONARDO-DE CASTRO,*
BRION,** PERALTA, and
MENDOZA, JJ.

McGEORGE FOOD INDUSTRIES, Promulgated:


INC.,
Respondent. October 20, 2010
x---------------------------------------------------------------------------------------- x

DECISION

CARPIO, J.:

The Case

For review[1] are the rulings[2] of the Court of Appeals affirming a tax refund despite an earlier decision of the corporate taxpayer to
apply its overpayment to future tax liability.
The Facts

On 15 April 1998, more than three months after Republic Act No. 8424 or the Tax Reform Act of 1997 (1997 NIRC) took effect on 1
January 1998, respondent McGeorge Food Industries, Inc. (respondent) filed with the Bureau of Internal Revenue (BIR) its final
adjustment income tax return for the calendar year ending 31 December 1997. The return indicated a tax liability of P5,393,988
against a total payment of P10,130,176 for the first three quarters,[3] resulting in a net overpayment of P4,736,188. Exercising its
option to either seek a refund of this amount or carry it over to the succeeding year as tax credit, respondent chose the latter, indicating
in its 1997 final return that it wished the amount to be applied as credit to next year.[4]

On 15 April 1999, respondent filed its final adjustment return for the calendar year ending 31 December 1998, indicating a tax liability
of P5,799,056. Instead of applying to this amount its unused tax credit carried over from 1997 (P4,736,188), as it was supposed to do,
respondent merely deducted from its tax liability the taxes withheld at source for 1998 (P217,179) and paid the balance of P5,581,877.

On 14 April 2000, respondent simultaneously filed with the BIR and the Court of Tax Appeals (CTA) a claim for refund of its
overpayment in 1997 of P4,736,188. Petitioner Commissioner of Internal Revenue (petitioner) opposed the suit at the CTA, alleging
that the action preempted his own resolution of respondents parallel claim for refund, and, at any rate, respondent has to prove its
entitlement to refund.

The Ruling of the Court of Tax Appeals

The CTA[5] ruled for respondent and ordered petitioner to refund the reduced amount of P4,598,716.98 to account for two tax
payments allegedly withheld at source which respondent failed to substantiate. The CTA held that refund was proper because
respondent complied with the requirements of timely filing of the claim and its substantiation.

Petitioner sought reconsideration, contending that respondent is precluded from seeking a refund for its overpayment in 1997 after
respondent opted to carry-over and apply it to its future tax liability, following Section 76 of the 1997 NIRC which provides that
[o]nce 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. Petitioner claimed that Section 76 applies to respondent
because by the time respondent filed its final adjustment return for 1997 on 15 April 1998, the 1997 NIRC was already in force,
having taken effect on 1 January 1998.
The CTA denied reconsideration,[6] holding that the 1997 NIRC only covers transactions done after 1 January 1998. As the transactions
subject of respondents claim for refund took place before this cut-off date, respondent is covered by Section 69[7] of the former tax
code, Presidential Decree No. 1158 (National Internal Revenue Code of 1977 [1977 NIRC]) which, unlike Section 76 of the 1997
NIRC, does not carry an irrevocability of option clause. Instead, Section 69 of the 1977 NIRC merely provides that [i]n 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.

Petitioner appealed to the Court of Appeals.


The Ruling of the Court of Appeals

The Court of Appeals affirmed the CTA. Upholding the applicability of Section 69 of the 1977 NIRC, the appellate court
reasoned:

[T]he subject claim for refund pertains to the unutilized creditable withheld taxes for the year 1997 and the
transactions which gave rise to the claim for refund occurred in taxable year 1997. Such being the case, the right to
claim for refund or tax credit of these taxes must be governed by the law in effect at the time the excess credits were
earned. Thus, the pertinent law applicable to the case at bar is Section 69 of the old Tax Code x x x. Hence,
respondent corporation aside from opting to carry-over the excess tax to the next succeeding quarter, may likewise
avail of the remedy of refund, because the old Tax Code does not preclude the exercise of one to the exclusion of the
other.[8]

The Court of Appeals likewise sustained the CTAs finding on the timeliness and substantiation of respondents refund claim.

Petitioner sought but was denied reconsideration.[9]

Hence, this petition. Petitioner reiterates his submission that the 1997 NIRC controls this case, precluding respondent from
seeking a refund after it had opted to carry-over and apply its creditable overpayment in 1997 to its 1998 tax liability. On the other
hand, respondent invokes the rulings of the CTA and Court of Appeals applying in its favor Section 69 of the 1977 NIRC which does
not provide for the irrevocability of a taxpayers preference to seek refund or off-set its credit to future liability.
The Issue
The question is whether respondent is entitled to a tax refund for overpayment in 1997 after it opted, but failed, to credit such to its tax
liability in 1998.

The Ruling of the Court

We hold that respondent is not entitled to a refund under Section 76 of the 1997 NIRC, the law in effect at the time respondent made
known to the BIR its preference to carry over and apply its overpayment in 1997 to its tax liability in 1998. In lieu of refund,
respondents overpayment should be applied to its tax liability for the taxable years following 1998 until it is fully credited.
Section 76 of the 1997 NIRC Controls

Section 76 of the 1997 NIRC which provides:

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. (Emphasis supplied)

is, like its predecessor Section 69 of the 1977 NIRC, a tax administration measure crafted to ease tax collection. [10] By requiring
corporate taxpayers to indicate in their final adjustment return whether, in case of overpayment, they wish to have the excess amount
refunded or carried-over and applied to their future tax liability, the provision aims to properly manage claims for refund or tax credit.
[11]
Administratively speaking, Section 76 serves the same purpose as its companion provisions in Title II, Chapter XII of the 1997
NIRC, namely, Section 74 on the declaration of income tax by individuals, Section 75 on the declaration of quarterly corporate income
tax, and Section 77 on the place and time of filing and payment of quarterly corporate income tax they are all tools designed to
promote rational and efficient functioning of the tax system. These provisions should be distinguished from the provisions in Title II,
Chapter IV (Tax on Corporations) and Chapter VII (Allowable Deductions), among others, relating to the question on the intrinsic
taxability of corporate transactions.

Thus treated, Section 76 and its companion provisions in Title II, Chapter XII should be applied following the general rule on
the prospective application of laws[12] such that they operate to govern the conduct of corporate taxpayers the moment the 1997 NIRC
took effect on 1 January 1998. There is no quarrel that at the time respondent filed its final adjustment return for 1997 on 15 April
1998, the deadline under Section 77 (B) of the 1997 NIRC (formerly Section 70(b) of the 1977 NIRC), the 1997 NIRC was already in
force, having gone into effect a few months earlier on 1 January 1998. Accordingly, Section 76 is controlling.

The lower courts grounded their contrary conclusion on the fact that respondents overpayment in 1997 was based on
transactions occurring before 1 January 1998. This analysis suffers from the twin defects of missing the gist of the present controversy
and misconceiving the nature and purpose of Section 76. None of respondents corporate transactions in 1997 is disputed here. Nor can
it be argued that Section 76 determines the taxability of corporate transactions. To sustain the rulings below is to subscribe to the
untenable proposition that, had Congress in the 1997 NIRC moved the deadline for the filing of final adjustment returns from 15 April
to 15 March of each year, taxpayers filing returns after 15 March 1998 can excuse their tardiness by invoking the 1977 NIRC because
the transactions subject of the returns took place before 1 January 1998. A keener appreciation of the nature and purpose of the varied
provisions of the 1997 NIRC cautions against sanctioning this reasoning.
Under Section 76, the Exercise of an Option
is Irrevocable and a Decision to Carry-over and Apply Tax
Overpayment Continues Until the Overpayment
has been Fully Applied to Tax Liabilities

Section 76 of the 1997 NIRC wrought two changes to its predecessor, Section 69 of the 1977 NIRC: first, it mandates that the
taxpayers exercise of its option to either seek refund or crediting is irrevocable; and second, the taxpayers decision to carry-over and
apply its current overpayment to future tax liability continues until the overpayment has been fully applied, no matter how many tax
cycles it takes. We explained in Asiaworld Properties Philippine Corporation v. Commissioner of Internal Revenue:[13]

[S]ection 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 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. 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.
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. 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. The unutilized excess tax
credits will remain in the taxpayers account and will be carried over and applied against the taxpayers income tax
liabilities in the succeeding taxable years until fully utilized.[14] (Boldfacing in the original; italicization supplied)

As respondent opted to carry-over and credit its overpayment in 1997 to its tax liability in 1998, Section 76 makes respondents
exercise of such option irrevocable, barring it from later switching options to [apply] for cash refund. Instead, respondents
overpayment in 1997 will be carried over to the succeeding taxable years until it has been fully applied to respondents tax liabilities.

We are not unaware of our ruling in another case allowing refund for excess tax payment in 1997 despite the taxpayers selection of the
carry-over and credit option, following Section 69 of the 1977 NIRC. [15] However, the issue of the applicability of the 1997 NIRC was
never raised in that case. In the present case, the applicability of Section 76 of the 1997 NIRC over Section 69 of the 1977 NIRC was
squarely raised as the core issue. In two other cases where the applicability of Section 76 of the 1997 NIRC was also squarely raised,
the Court applied the irrevocability of the option clause under Section 76 to deny, as here, claims for refund without prejudice to the
application of the overpayments to the taxpayers liability in the succeeding tax cycles. [16] We held in the leading case of Philam Asset
Management, Inc. v. Commissioner of Internal Revenue:[17]

[S]ection 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 governments favor, because it may be claimed by petitioner as tax credits in the
succeeding taxable years. (Emphasis supplied)
Accordingly, we hold that under Section 76 of the 1997 NIRC, respondents claim for refund is unavailing. However,
respondent is entitled to apply its unused creditable overpayment in 1997 to its tax liability arising after 1998 until such has been fully
applied.

WHEREFORE, we GRANT the petition. We REVERSE the Decision dated 31 January 2006 and the Resolution dated 21 July 2006
of the Court of Appeals.

SO ORDERED.
COMMISSIONER OF INTERNAL G.R. No. 160949
REVENUE,
Petitioner, Present:

CARPIO MORALES, Chairperson,


BRION,
- versus - BERSAMIN,
VILLARAMA, JR., and
SERENO, JJ.

PL MANAGEMENT INTERNATIONAL Promulgated:


PHILIPPINES, INC.,
Respondent. April 4, 2011
x-----------------------------------------------------------------------------------------x

DECISION

BERSAMIN, J.:

How may the respondent taxpayer still recover its unutilized creditable withholding tax for taxable year 1997 after its written
claim for refund was not acted upon by the petitioner, whose inaction was upheld by the Court of Tax Appeals (CTA) on the ground of
the claim for tax refund being already barred by prescription?

Nature of the Case

The inaction of petitioner Commissioner of Internal Revenue (Commissioner) on the respondents written claim for tax refund
or tax credit impelled the latter to commence judicial action for that purpose in the CTA. However, the CTA denied the claim on
December 10, 2001 for being brought beyond two years from the accrual of the claim.

On appeal, the Court of Appeals (CA) reversed the CTAs denial through the decision promulgated in C.A.-G.R. Sp. No.
68461 on November 28, 2002, and directed the petitioner to refund the unutilized creditable withholding tax to the respondent. [1]

Hence, the petitioner appeals.

Antecedents

In 1997, the respondent, a Philippine corporation, earned an income of P24,000,000.00 from its professional services
rendered to UEM-MARA Philippines Corporation (UMPC), from which income UMPC withheld P1,200,000.00 as the respondents
withholding agent.[2]

In its 1997 income tax return (ITR) filed on April 13, 1998, the respondent reported a net loss of P983,037.00, but expressly
signified that it had a creditable withholding tax of P1,200,000.00 for taxable year 1997 to be claimed as tax credit in taxable year
1998.[3]
On April 13, 1999, the respondent submitted its ITR for taxable year 1998, in which it declared a net loss
of P2,772,043.00. Due to its net-loss position, the respondent was unable to claim the P1,200,000.00 as tax credit.

On April 12, 2000, the respondent filed with the petitioner a written claim for the refund of the P1,200,000.00 unutilized
creditable withholding tax for taxable year 1997.[4] However, the petitioner did not act on the claim.

Ruling of the CTA

Due to the petitioners inaction, the respondent filed a petition for review in the CTA (CTA Case No. 6107) on April 14, 2000,
thereby commencing its judicial action.

On December 10, 2001, the CTA denied the respondents claim on the ground of prescription,[5] to wit:

Records reveal that Petitioner filed its Annual Income Tax Return for taxable year 1997 on April 13, 1998
(Exhibit A) and its claim for refund with the BIR on April 12, 2000 (Exhibit D and No. 2 of the Statement of
Admitted Facts and Issues). Several days thereafter, or on April 14, 2000, Petitioner filed an appeal with this Court.

The aforementioned facts clearly show that the judicial claim for refund via this Petition for Review was
already filed beyond the two-year prescriptive period mandated by Sections 204 (C) and 229 of the Tax Code xxx
xxx

As earlier mentioned, Petitioner filed its Annual ITR on April 13, 1998 and filed its judicial claim for refund
only on April 14, 2000 which is beyond the two-year period earlier discussed. The aforequoted Sections 204 (C) and
229 of the Tax Code mandates that both the administrative and judicial claims for refund must be filed within the
two-year period, otherwise the taxpayer's cause of action shall be barred by prescription. Unfortunately, this lapse on
the part of Petitioner proved fatal to its claim.

xxx

WHEREFORE, in view of the foregoing the Petition for Review is hereby DENIED due to prescription.

Ruling of the CA

Aggrieved, the respondent appealed to the CA, assailing the correctness of the CTAs denial of its judicial claim for refund on
the ground of bar by prescription.

As earlier mentioned, the CA promulgated its decision on November 28, 2002, holding that the two-year prescriptive period,
which was not jurisdictional (citing Oral and Dental College v. Court of Tax Appeal [6]and Commissioner of Internal Revenue v.
Philippine American Life Insurance Company[7]), might be suspended for reasons of equity.[8]The CA thus disposed as follows:

WHEREFORE, the petition is partly GRANTED and the assailed CTA Decision partly ANNULLED.
Respondent Commissioner of Internal Revenue is hereby ordered to refund to petitioner PL Management
International Phils., Inc., the amount of P1,200,000.00 representing its unutilized creditable withholding tax in
taxable year 1997.[9]

The CA rejected the petitioners motion for reconsideration.[10]

Issues

In this appeal, the petitioner insists that:


I. THE COURT OF APPEALS ERRED IN HOLDING THAT THE TWO-YEAR PRESCRIPTIVE PERIOD
UNDER SECTION 229 OF THE TAX CODE IS NOT JURISDICTIONAL, THUS THE CLAIM FOR
REFUND OF RESPONDENT IS SUSPENDED FOR REASONS OF EQUITY.

II. THE COURT OF APPEALS ERRED IN HOLDING THAT RESPONDENTS JUDICIAL RIGHT TO
CLAIM FOR REFUND BROUGHT BEFORE THE COURT OF APPEALS ON APRIL 14, 2000 WAS
ONE DAY LATE ONLY.[11]

The petitioner argues that the decision of the CA suspending the running of the two-year period set by Section 229 of the National
Internal Revenue Code of 1997 (NIRC of 1997) on ground of equity was erroneous and had no legal basis; that equity could not
supplant or replace a clear mandate of a law that was still in force and effect; that a claim for a tax refund or tax credit, being in the
nature of a tax exemption to be treated as in derogation of sovereign authority, must be construed in strictissimi juris against the
taxpayer; that the respondents two-year prescriptive period under Section 229 of the NIRC of 1997 commenced to run on April 13,
1998, the date it filed its ITR for taxable year 1997; that by reckoning the period from April 13, 1998, the respondent had only until
April 12, 2000 within which to commence its judicial action for refund with the CTA, the year 2000 being a leap year; that its filing of
the judicial action on April 14, 2000 was already tardy; and that the factual findings of the CTA, being supported by substantial
evidence, should be accorded the highest respect.

In its comment, the respondent counters that it filed its judicial action for refund within the statutory two-year period because the
correct reckoning started from April 15, 1998, the last day for the filing of the ITR for taxable year 1997; that the two-year
prescriptive period was also not jurisdictional and might be relaxed on equitable reasons; and that a disallowance of its claim for
refund would result in the unjust enrichment of the Government at its expense.
Ruling of the Court

We reverse and set aside the decision of the CA to the extent that it orders the petitioner to refund to the respondent
the P1,200,000.00 representing the unutilized creditable withholding tax in taxable year 1997, but permit the respondent to apply that
amount as tax credit in succeeding taxable years until fully exhausted.

Section 76 of the NIRC of 1997 provides:

Section 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 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.
The predecessor provision of Section 76 of the NIRC of 1997 is Section 79 of the NIRC of 1985, which provides:

Section 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.

As can be seen, Congress added a sentence to Section 76 of the NIRC of 1997 in order to lay down the irrevocability rule, to
wit:

xxx 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.

In Philam Asset Management, Inc. v. Commissioner of Internal Revenue, [12] the Court expounds on the two alternative options of a
corporate taxpayer whose total quarterly income tax payments exceed its tax liability, and on how the choice of one option precludes
the other, viz:

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. 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 .
xxx

In Commissioner of Internal Revenue v. Bank of the Philippine Islands, [13] the Court, citing the aforequoted pronouncement in Philam
Asset Management, Inc., points out that Section 76 of the NIRC of 1997 is clear and unequivocal in providing that the carry-over
option, once actually or constructively chosen by a corporate taxpayer, becomes irrevocable. The Court explains:

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, 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.

Inasmuch as the respondent already opted to carry over its unutilized creditable withholding tax of P1,200,000.00 to taxable
year 1998, the carry-over could no longer be converted into a claim for tax refund because of the irrevocability rule provided in
Section 76 of the NIRC of 1997. Thereby, the respondent became barred from claiming the refund.
However, in view of it irrevocable choice, the respondent remained entitled to utilize that amount of P1,200,000.00 as tax
credit in succeeding taxable years until fully exhausted. In this regard, prescription did not bar it from applying the amount as tax
credit considering that there was no prescriptive period for the carrying over of the amount as tax credit in subsequent taxable years. [14]

The foregoing result has rendered unnecessary any discussion of the assigned errors committed by the CA.

WHEREFORE, we reverse and set aside the decision dated November 28, 2002 promulgated in C.A.-G.R. Sp. No. 68461
by the Court of Appeals, and declare that PL Management International Phils., Inc. is not entitled to the refund of the unutilized
creditable withholding tax of P1,200,000.00 on account of the irrevocability rule provided in Section 76 of the National Internal
Revenue Code of 1997.

We rule that PL Management International Phils., Inc. may still use the creditable withholding tax of P1,200,000.00 as tax
credit in succeeding taxable years until fully exhausted.

No pronouncement on costs of suit.

h. Effect of existing tax liability on a pending claim for refund Case: CIR v. CA and
Citytrust, GR No. 106611, 21 July 1994; See also (CIR v. CItytrust Banking
Corporation, 22 August 2006).
i. Period of validity of a tax refund/credit (Sec. 230, NIRC)
i. Returns are not actionable documents for purposes of the rules on civil
procedure and evidence
ii. Nature of a tax credit certificate (Pilipinas Shell Petroleum Corporation v.
CIR, GR No. 172598, 21 December 2007)
j. Refund and Protest are mutually exclusive remedies Case: Vda. De San Agustin v.
VIR, 10 September 2001
k. Is the taxpayer entitled to claim interest on the refunded tax? (Sec. 79 (c) 2, NIRC)