CIR V UST need not make refund of all tax illegally or erroneously collected BUT
Topic: Doctrine of Equitable Recoupment it may set-off against it the tax whose collection is barred by the statute
FACTS
 From January 1, 1948-June 30, 1950, UST paid on its gross receipts
derived from its printing and binding jobs for the public and the different
departments of the University, the aggregate amount of
Php13,590.03, representing the 2% tax on its gross receipts during
the period in question.
 On October 17,1950, UST requested in writing from the respondent
the refund of the sum of Php 8,293.31, on account of the following:
o The amount of Php 359,972.45 for the purposes of accounting
only and does not legally constitute gross receipts subject to
the percentage tax.
o The printing and binding of the annuals THOMASIAN and
VERITAS fall under the exception provided for in Section 191
in relation to Section 183(a) of the Tax Code.
 CIR: UST’s claim for refund in the sum of Php 8,293.3 (representing
business printer’s percentage tax pursuant to Section 191 of the Tax
Code, in relation to Section 183(a)) is denied. The amount of Php
2,452.04, representing deficiency percentage tax and surcharge on
the undeclared receipts derived from the printing and binding of the
subject annuals, is hereby assessed and demanded from UST. The
petitioner is also ordered to pay Php 100 as compromise penalty.
 CTA: Modified the decision of the CIR
a. UST’s claim for refund to the extent of Php 5, 842.27 is DENIED,
the same being BARRED BY PRESCRIPTION.
b. The deficiency tax assessment of Php 2, 451.04 for percentage
taxes and surcharges is RECOGNIZED, but the amount is DEEMED
PAID to the extent of the amount of Php 2, 451.04 which UST
erroneously paid for the period from January 1948 to Jun 1950.
i. Respondent is thus ordered to desist from further collecting
said deficiency assessment.
ISSUE: W/N THE CTA ERRED IN APPLYING THE DOCTRINE OF
EQUITABLE RECOUPMENT IN THE CASE? YES.
 Such doctrine is not binding in this country and the Court refused to
introduce the same in this jurisdiction.
 The doctrine of equitable recoupment means that when a refund of a
tax illegally or erroneously collected or overpaid a TP is barred by the
statute of limitation and a tax is being presently assessed against said
TP, said present tax may be recouped or set-off against the tax, the
refund of which has been barred.
 The same thing would have been true where the government has
failed to collect a tax w/in the period of limitation and said collection is
already barred and the TP has to its credit a tax illegally or erroneously
collected or overpaid whose refund is not yet barred. The Government
of limitations.
 With this doctrine available and enforceable to both parties the tax collector
would be tempted to delay and neglect the collection of taxes w/in the
period set by law confident that when it finally wakes up from it lethargy, it
could still recover that tax if failed to collect by having it set-off or recouped
from any taxw/c it may have illegally collected from the same taxpayer (TP).
o The collector may be tempted to make illegal assessments and
collection and the TP would be helpless. Illegal and unauthorized it
might be, the CIR can always enforce the same by levy and distraint.
The only remedy to the TP is by a court suit.
o The TP may also be tempted to delay and neglect the filing of the
corresponding suit for refund trusting that he can always get a refund
or be credited of the same by refusing to pay a valid assessment and
compel the Gov’t to set-off the same against a tax payment he could
no longer recover.
 Contrary to the CTA’s contention that the application of the doctrine of
equitable recoupment is sanctioned by Sec. 306 and 309 of the Internal
Revenue Code, the court found that:
o The aforementioned sections do not contain any right of a taxpayer to
a set off or credit, where because of the expiration of the period of
prescription, his right to a refund is already barred.
o It is true that under Section 309, the Collector “may” credit or refund
taxes erroneously or illegally received,” but the word “may” clearly
implies discretion.
 The Tax Court reasoned that the same serves as a cushion to the harsh
and iniquitous effects of the statute of limitation. Hence, this serves as a
remedy to set off taxes erroneously collected, which are barred by
prescription.
 SC: Prescription may be rigorous and at times may be a little harsh, but
certainly there could be no oppression, much less iniquity where the same
law is applied equally to the Gov’t and TP.
 HALL V. US (1942): We are not unmindful of the merits of the principle of
recoupment nor of the measure of justice which it permit but there is also a
reason behind limitation statutes. Frequently, records are lost and
memories fade as to the transactions long past. Limitation statutes operate
to terminate what otherwise be almost endless litigation and consequent
confusion.