CTA Case No. 4126 (Decision)

-� RIPOBLIC or TBI PBILIPPI.IB COURT OF TAX APPKALS QOIZOR CITY JARDINE DAVIES INSURANCE BROKERS, INC. , Petitioner, - versus - C.T.A. CASE NO. 4126 COttt'IISSI OllER OF INTERNAL REVENUE, )( - - - - - R- e-sp-on-dent-. )( D E C:: X S X CJ N This is a petition for review seeking a judicial confirmation that petitioner can ;; . ~utomaticall y apply as ta>< credit the amount of P288,663.00, representing the refundable amount shown in its 198~ corporate annual income tax (final adjustment) return, against any income tax liability for 1986 and succeeding years or, in the alternative, a refund or tax credit of said amount. Petitioner is a cbrporation duly organized and existing under and by virtue of Philippine laws. On April 13, 1986, petitioner filed it's 1995 corporate annual income ta>< (final adjustment) return with the Makati-West Revenue District Office (ROO No. 32-A) of the Bureau of Internal Revenue, J reflecting therein an amount subject to ta>< of 4 -, ~ 1 ?.- { .'

DECISION CTA CASE NO. 4126 - 2- P72,356.00 and a tax due of � P18,089.00 (Exhs. A, A-1, A-2 and A-3). On the other hand, petitioner had, as of December 31, 1985, creditable income taxes totalling P306,752.00. (�xhs. A, A-5, A-6, B, C, V, E, F, G, H, I, J, K, L, H, H, O, P, Q, R, S, T, U, V, U, X, Y, z, and AAJ. After petitioner credited said amount of P306,752.00 against the tax due of P18,089.00, its corporate annual income tax (final adjustment) return showed a refundable amount tif P288,663.00. ., On October 3, 1986, petitioner filed with espondent � s Appellate Division a letter of even date requesting for confirmation that it could automatically apply said amount of P288,663.00� representing the refundable amount shown in its 1985 corporate annual income tax (final adjustment) return, against any income tax liability for 1986 and succeeding years� and in the alternative, seeking a refund or tax credit of said amount of P288,663.00. Without waiting for respondent's action on its request for confirmation and/or alternative claim for refund/tax credit, petitioner filed its petition for review in this Coi,U':t on December 29, 1986 seeking the instant relief. 420

DECISION CTA CASE Nl. 4126 - 3- Subsequently, while the case was pending trial before this Court, petitioner automatically applied as tax credit the refundable amount of P288,663.00 shown in its 1985 final adjustment income tax return against its income ta>< 1 iabi 1 i ty for th� first quarter of the taxable year 1987 and, on June 26, 1987, petitioner filed ita supplemental petition for review praying for confirmation of its right to make such automatic tax credit. During the hearing, petitioner adduced evidence to establish its cause of action, while ~"- respondent Commissioner of Internal Revenu9 �~ submitted the case based on the records and pleadings. Although he did not categorically maintain that petitioner's right to the refund has already prescribed, respondent implied so when, in his answer, he alleged that "it is incumbent upon the petitioner to show that it has complied with the provisions of Sections 292 and 295 of the National Internal Revenue Code, as amended." The issues presented for deterft\.ination therefore are as follows& 1. WHETHER OR NOT PETITIONER MAY AUTOMATICALLY APPLY AS TAX CREDIT . THE REFUNDABLE AMOUNT SHOWN IN ITS CORPORATE ANNUAL INCOME . TAX (FINAL ADJUSTMENT) RETURN OF P288,663.00 AGAINST ITS INCOME TAX LIABILITY FOR 1986 AND SUCCEEDING TAXABLE YEARS. 429 .)

DECISION CTA CASE NO. 4126 - 4- 2. ASSUMING ARGUENDO THAT PETITIONER IS NOT ENTITLED TO AN AUTOMATIC TAX CREDIT, WHETHER OR NOT PETITIONER IS ENTITLED TO AN ORDINARY TAX CREDIT OR REFUND PURSUANT TO SECTIONS 79, 243 AND 246 (NOW SECTIONS 69, 230 AND 204) OF THE TAX CODE. � 3. WHETHER OR NOT THE REQUEST FOR CONFIRMATION WITH ALTERNATIVE CLAIM FOR REFUND/TAX CREDIT AND THIS PETITION FOR REVIEW HAVE BEEN FILED WITHIN THE STATUTORY PERIOD. As regards the first issue, the same should be resolved in the negative. In a previous case, San Carlos lfi 11 ing Co., Inc. Acting f.3~11, February 28, 1990, involving a similar issue, 1\' this Court, in interpretin; the pertinent provisions of the Tax Code� and Revenue Regulations No. 10-77 dated October 7, 1977, had already ruled that the corporate taxpayer cannot automatically credit the refundable amount shown in � its final adjustment return against the income tax liability for any of the taxable quarters of the succeeding �' taxable year, without the "imprimatur" or approval of the Commissioner of Internal Revenue. Thusa All that we need to state is that the authorization for a kind of set-off of creditabl~ income tax against future "Sec:tim 79, fonnerly Sec:tim 86 ind now Sec:tim 69 of the Natimal Internal Fevenue Code. 430

DECISION CTA CASE NO. 4126 - 5- tax 1iabi 1i ties conferred the corpor.;ate toucpayer in no wise lessens nor muffles the respondent's power of ascertaining the correctness of any tax return, hence the necessity of his imprimatur. A perusal of the implementing regulations readily provides a feel of the statutory intendment, thus� 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 ag.;ainst the estimated quarterly income tax ) liabilities for the quarters of the succeeding taxable year. The corporation must sianifv in its annual corporate adJustment return its intention whether to request for the refund of the overpaid income tax or cl.;aim for automatic tax credit to be applied against its �income tax 1iabi 1i ties for the quarter of the succeeding t.;axable year, by filling up the appropriate tax on the corporate tax return. BIR Form No. 1702. (S�ction 7, Revenue R�gul at ions No, 10-77, October 3, 1977) (Und�r scoring Ours) The clear and unambiguous consequence of the regulations .;as above !!tressed insofar as the same is brought to bear upon the circumstances obtaining in the c.;ase at bar, limits the petitioner's right to signify .;an intention to opt for either. a refund or automatic tax credit. Any entitlement thereof must prove compliance with terms and conditions peremptorily required by law and rules lest the integrity of collection of the l.;awful dues be placed in the quicksand of self-interest. A ~ortiori respondent must have to examin� the return and determine the tax.

_, DECISION CTA CASE NO. 4126 - 6- Petitioner cannot have the best of both worlds so to speak. We cannot validly infuse cognizance to an automatic crediting effected by the taxpayer in an inofficious panache much less substitute and indulge in an amorphous rule as to leave solely to the petitioner such an expedient arraMgement in denigation of respondent�s primary responsibility in ascertaining the facts necessary in making a correct return and thus suffer the cornerstone of effective assessment and collection to petrify .at the cost of the animating principles tinged with strong issues of p~blic policy that taxes are the lifeblood of government and their prompt and certain avai 1abi 1i ty are an imperious need. (Co��issionttr of Int�rnal R�v�nu� v. Goodrich Int�rnational Rubb�r Co., 22 SCRA 1256; Co��ission�r of Intttrnal Rttv�nu� v � .Pinttda, 21 SCRA 105J Coll�ctor of Intttrnal R�v�nu� v. Yus�co, 2 SCRA 313; cited in Frab�ll� �Fishing Corpo- ration v... Co��ission�r of Custo�s, CTA Case Ho. 3481, August 15, 1983.) Petitioner has overplayed its understanding of the automatic crediting devise which application seemed more than � a clumsy attempt of defusing the peremptory legal sanction charged the respondent Commissioner of Internal Revenue. Petitioner has fumbled into a reversible error. \ The Honorable Court of Appeals, in affirmino said decision of this Court on appeal in San Carlos 22346, Dece�ber 23, 1991, likewise quoted some portions of the foregoing ruling of this Court and held as follows~ 4 32

DECISION CTA CASE NO. 4126 - 7- Sec. 86 (now 64) of the N~tion~l Internal Revenue Code (NIRC) provides� "Sec. 86. Final Adjust- ment Return.- Every corpor~tion liable to ta~ under Section 24 shall file a final adjustment return covering the tota 1 net income for the preceding calendar or fiscal year. If the sum of the quarterly t~K payments made during the said ta~able year is not equal to the total ta~ due on the entire ta~able net income of th~t year the corporation shall either� (a) Pay the e~cesa taK still due� or (b) Be refunded the excess amount p~id, ~� the case may be. In case the corpor~tion is entitled to refund of the excess estimated quarterly income ta~ paid, the refund~ble amount shown on its final �' adjustment return may be credited against the estimated quarterly income taK liabil- ities for the ta~able quarters of the succeeding taKable year." Revenue Regulations No. 10-77 dated October 7, 1977, implements this provision of the NIRC, and provides, that a "SEC. 7. Revenue Regu- lations No. 10-77 Any eKcess of the total quarterly payments over the actual income t~K computed and shown in the adjustment or final corporate income taK return sha11 either (a) be refunded to the corporation, or

DECISION / CTA CASE NO. 4126 �' - 8- (b) �may be credited against the estimated quarterly income tax liabilities for the quarters of the succeeding taxable y�ar. The corporation must signify in its annual corporate adjustment return in its intention whether to request for the refund of the overpaid income tax or c 1aim for automatic tax credit to be applied against its income tax 1 iabi 1i ties for the quarter of the succeeding taxable year, by filling up the appropriate box on the corporate tax return, SIR Form No. 1702." XXX XXX XXX For the effective implementation of Sec. 86 of the NIRC, e s pecially in case of overpayments, Revenue Regulations No. 10-77 requires the taxpayer to signify in its annual corporate return, its intention to opt for, either a refund, or an automatic tax credit. Although the regulation does not expressly s tate the necessity of obtaining the Commissi~ner ' s approval, it is implicit in the regulation itself. Once a taxpayer opts for either a refund, or the automatic tax credit scheme, and signified his option in accordance with the regulation, this does not ipso facto confer on him the right to avail of the same immediately. An investigation, as a matter of procedure, is necessary to enable the Commissioner to determine the correctness of the petitioner ~ s returns, and the tax amount to be credited. ~re-auditing the returns consists merely of an office audit, without necessari 1y examin ihg the books of the taxpayer, and this is only a part of the investigation process. Whether or not a refund is to be made, and whether or not the amount to be refunded is correct, are matters that can only be determined after a complete and proper investigation of the taxpayer's books of ac count and accounting records. xxx."

-�� DECISION CTA CASE NO. 4126 - 9- )()()( )()()( )()()( )()()( )()()( )()()( The case of Asia-Australia E><press, Ltd. v. Commissioner (CTA Case No. 369~) cited by the petitioner is not applicable to the instant case. The issue r.-aised therein was whethe~ the ta>epayer's filing of the refund cl.-aim had already prescribed, and if not, whether the company's availment of the automatic ta>< credit scheme operates as a waiver of its right to claim for a refund. The same is true in the cases of Commissioner v. Itogon-Suyoc Mines, Inc. (28 SCRA 867 [1969] and Commissioner v. ESSO Standard Eastern, Inc. (172 SCRA 364 [1989], also cited by petitioners, considering that both cases involves the imposition of _, interest on a refundable amount, and both cases arose from facts that happened in 1960, wt-)en Revenue Regulations No � ..to-77 was not implemented." Similarly, in Citytrust Banking Corporation 4099, Hay 28, 1991, this Court, citing the San Carlos Hilling cas� (CTA Case Ho. 3911), made this interpretations "><><><. Sec. 86 of the Ta>< Code and Sec � .7 of Rev. Reg. 10-77 merely gives the petitibner the right to signify his intention to opt for a refund or automatic ta>< credit because "the authorization for a kind of set-off of -. creditable income ta~ against future ta>e liabilities conferred th� corporate ta>tpayer in no wiliSe lessens or muffles the respondent's power of ascertaining the correctness of any ta>e return" for "(A)ny entitlement thereof must prove compliance with the terms and conditions peremptori 1y required by law ><><>< A ~ortiori, respondent must have to e>eamine

DECISION CTA CASE NO. 4126 - 10 - the returns and determine the tax xxx" (San Carlos Willing v. Co��ission�r o~ lnt�rnal R�v�nu�, CTA Cas~ Ho. 3811, February 28, 1990). Thus the taxp~yer is not assured that by signifying his intent to have the overpaid t~x credited in the succeeding year, and even if he did credit the same, the amount claimed as refund~ble (or a portion thereof) would indeed be ~llowed aa a tax credit for the succeeding year by the BIR. More so, if the refundable amount for one ye~r was not fully credited in the succeeding year, the excess uncredited ~mount c~n no longer be credited in the following ye~r because the law limits the automatic t~x credit to the 'succeeding ye~r� only." Verily, this Court finda no cogent reason to depart from the above pronouncements of this Court t and the HonorabJe Court of Appeals. assuming �~ On the second issue, however, arguendo that petitioner. cannot autom~tically apply as tax credit the total amount of P288,663.00, ita alternative ordinary claim for refund or tax credit of said amount is justified. For respondent has not submitted any controv~rting evidence ~t all but has merely submitted the c~�e on the b~ais .of the records and the pleadings despite tha evidence adduced by petitioner. In such case, he may thus be considered to have admitted petitioner"� entitlement to the claim for refund. 19891 se~ also Jardin� Fltt�ing (#'hi Is. J, Inc. vs. )

������ - .. :--:r.~--� DECISION CTA CASE NO. 4126 - 11 - 4041 find 4125, OctcJber 31, 1991, Phtltpptn� Co���rctal Inc. vs., � Coaatsston�r lnt�rnal R�v�nu�, qTA Ciise No. 4274, Octobf!r 31, 1191, artd Pas�o R�alty a� D�v�lopa�nt Corporattoa No. 4148, Hiirch 17, 1992,1 Having thus ruled, we will finally tackle question of prescription. Undisputably, 00' December 31, 1985, petitioner's corporate annual income tax (final adjustment) return for the year, ~nded December 31, 1985 was filed, and its request f"'or confirmation with alternative claim for refund/tax credit was filed with the SIR's Appellate Division on October� 3, 1986. And the Petition for Review was filed in this Court � on December 29, 1986. In the case of Asia Australia Expr�s� Ltd v.s. Coaai.s.sion�r o., lnt�rnal lf�v�nu�, CTA Case No, 3695, Septeabf!r ' 29, t988, � .,.,i,.~f!d by th� Supre�e Court in G.R. No. 85956, April �10, � 1989, it was. held that the prescriptive period � commenced to run from the date the taxpayer files its adjusted final corpora~e tax return, or in this case on December 31, 1985. The claim for refund/tax credit having been filed on October 3,

'� DECISION CTA CASE NO. 4126 - 12 - 1986, and the Petition for Review having been filed on December 29, 1986, � both were filed within the prescriptive period of two (2) years. I Ravenua i� heraby ardarad to rafund or grant a tax credit to petitianar the r�fundabla P2BB, 663.00 shown in its � inc:DtMt tax adjust�ant) raturn far 198~. SO ORDERED. Quezon City, Metro Manila, May WE CONCUR1 ............. C . .. ROAOUIN <2~~Q,~ Judge " ERNEBTD D. ACOSTA Presiding Judge ( Acting Associate .Judge CBRTX .. XCATXOK . I hereby certify that this decision was reached after due consultation among the members of the Court of Tax Appeals in accordance with Section 13, Article VIII of the Constitution. <e~o. Dw.A. . ERIIEBTD D. ACOSTA Presiding Judge ~ourt of Tax Appeal� 4 30