CTA Case No. 3839 (Decision)

( / REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY JARDINE DAVIES, INC., C.T.A. CASE NOS. 3839, Petitioner, 4013 and 4124 - versus - COftftiSSIONER OF INTERNAL REVE~UE, Respondent. X- - - - - - - - - - - - X DECISION In these consolidated cases, petitioner seeks judicial confirmation that it can automatically apply as tax credit the cumulative amounts of P819,175.00, P905,033.00 and P1,883,260.00 shown in its 1983, 1984 and 1985 Income Tax Returns, respectively, against its income tax liabilities for the succeeding taxable year(s) or in the alternative a refund or tax credit of the said amounts. As set forth in the pleadings and as established by the evidence, the facts are stated as follows: Petitioner, a domestic corporation existing under and by virtue of Philippine laws, " filed its corporate annual income tax returns for the taxable years 1983; 1984 and 1985 on April 9, 1984, April

.� DECISION - C.T.A. CASE NOS. 3839r 4013 and 4124 -2- 15, 1985 and April 15, 1986, respectively, details of which are shown hereunder: 1983 <CTA Case No. 3839> Net Income<Loss) p (20,876.00) Tax Due Nil Less: a. Previous Year(s)' Quarterly Credits b. Quarterly Payment(s) Nil Balance of Tax Due Nil Less: Tax Credit a. 1983 716,506.00 b. 1982 102,669.00 819,175.00 Total Amount Refundable/Creditable p 819,175.00 1984 <CTA Case No. 4013> Net Income<Loss) P2,953,373.00 Tax Due 1, 023, 681. 00 Less: a. Previous Year(s)' Quarterly Credits b. Quarterly Payment<s> Nil Balance of Tax Due p1, 023, 681. 00 Less: Tax Credit a. 1984 P1,109,539.00 b. 1983 716,506.00 b. 1982 102,669.00 1,928,714.00 Total Amount Refundable/Creditable p 905,033.00 1985 <CTA Case No. 4124> Net Income<Loss) P<649,748.00> Tax Due Nil Less: a. Previous Year<s>' Quarterly Credits b. Quarterly Payment(s) Nil Balance of Tax Due Nil Less: Tax Credit a. 1985 P978,227.00 b. 1984 905.033.00 1. 883, 260. 00 Total Amount Refundable/Creditable P1,883,260.00

DECISION - C.T.A. CASE NOS. 3839p 4013 and 4124 - 3- Petitioner wrote respondent in three di��erent occasions requesting con�irmation or authorization to credit the re�undable amounts against its income tax liabilities �or the succeeding year pursuant to Section 86 o� the Tax Code or in the alternative, grant the re�und or tax credit o� said amounts pursuant to Section 295. Respondent �ailed to act on petitioner's requests thereby prompting petitioner to �ile these petitions on September 4, 1984 - CTA Case No. 3839 (1983 ITR>; December 27, 1985- CTA Case No. 4013 <1984 ITR >; and December 29, 1986 - CTA Case No. 4124 <1985 ITR>. Respondent, in answer to the petitions, alleged among others as special and a��irmative de�enses that: (a> the claims o� petitioner that it had available tax credit does not warrant, ipso �acto, �or con�irmation o� said tax credits; (b) these cases does not involve erroneously or illegally collected taxes; <c> there is no need to �ile the petitions within the two - year period pursuant to Sections 292 and 295 o� the Tax Code because a taxpayer may recover the excess income taxes paid �rom the Bureau o� Internal Revenue within ten (10>

DECISION - C.T.A. CASE HOS. 3839r 4013 and 4124 -4- years from the date of payments under Article 1144 of the New Civil Code; <d> the petitions state no cause of action because they do not allege the date(s) when the taxes were paid; and <e> it is incumbent upon petitioner to show that it has complied with the provisions of Sections 292 and 295 of the Tax Code. While the cases were pending trial, petitioner applied as tax credit the alleged refundable amount of ?1,883,260.00 as shown in its 1985 income tax return against its income tax liability for the taxable year 1986. Put in simplier terms, the main issues presented for resolution are: 1. Whether or not petitioner may apply as tax credit the refundable amounts shown in its 1983, 1984 and 1985 corporate annual income tax returns against ita income tax liabilities for the succeeding taxable year<e>. 2. Assuming arguendo that petitioner cannot credit the refundable amounts against its income tax liabilities for the respective succeeding taxable year(e), whether or not petitioner is entitled to a refund or tax credit in the total amount of ?1,883,260.00 representing excess creditable withholding taxes paid during taxable years 1984 and 1985.

.. DECISION - C.T.A. CASE NOS. 3839r 4013 and 4124 -5- Be�ore we go to the main issues, we shall discuss �irst the other points raised by respondent. Respondent alleged that the petitions involved herein do not cover erroneously or illegally collected tax pursuant to Section 292 o� the Tax Code. This Court has ruled in Citytrust Banking Corporation v. Com�issioner o� Internal Revenuer CTA Case No. 4099r ftay 28r 1991r that: "Although the title o� Sec. 230 o� the Tax Code is 'Recovery o� Tax Erroneously or Illegally Collected', the title alone is not controlling. By the tenor o� Sec. 230, the two - year limit applies to actions to recover - 1. any national internal revenue tax erroneously or illegally assessed or collected; 2 . any penalty claimed to have been collected without authority; or 3. any sum alleged to have been excessive or in any manner wrong�ully collected <See ftuller & Phipps v. Commissioner o~ Internal Revenue, 103 Phils. 145, March 20, 1958). The overpaid income taxes in this case �all under #3 �or although they were legally collected by virtue o� the withholding tax system and the requirement �or quarterly income tax payments, they were nonetheless 'excessive'. <A~~irmed by the Court o~ Appeals in Commr. o~ Internal Revenue v. Citytrust Banking Corp.r CA - G.R. No. SP 26839r July 31r 1992. >" 5

DECISION - C.T.A. CASE HOS. 3839. 4013 and 4124 - 6- On the contention that petitioner need not �ile a petition to preserve its right to re�und or tax credit since it has ten (10) years �rom date o� payments to recover excess income taxes paid pursuant to Article 1144 o� the New Civil Code again this Court in the case o� Citytrust Banking Corp. v. Commissioner o~ Internal Revenue. supra �� said: "At the very least then, the automatic tax credit provision acts like a claim �or re�und �or the year o� overpayment because it serves the same purpose which is to put the BJR on notice that the collection o� the tax is being contested . But settled is the rule that even when a claim �or re�und or tax credit is pending with the Commissioner, when the 2 year period �rom the date o� payment is about to elapse the taxpayer need not await the Commissioner's decision and instead must �ile a petition �or review in this court pursuant to Sec. 230 o� the Tax Code. To opine there�ore that there is no need to �ile a petition �or review to preserve the right to claim �or a re�und or tax credit is to go against the positive mandate o� Sec. 230. x x x. There�ore, the taxpayer should still �ile ~ claim �or a re�und or tax credit and the corresponding petition �or review within the periods required in case o� overpayment o� income tax re�lected in its returns otherwise his right to claim �or a re�und or tax credit will prescribe. xxx. x x x. The Tax Code being a special law, its provisions prevail over those under the Civil Code. And since the overpayments arose out o� the application o� the provisions o� the Tax Code, the provisions o� the same on prescriptive periods should necessarily govern. xxx.

DECISION - C.T.A. CASE NOS. 3839, 4013 and 4124 -7- Then in the most recent case o� Servicevide Specialists, Inc. v . Commissioner o:f Internal Revenue and Court o:f Tax Appeals, CA - G.R. SP No. 25893, February 14, 1992, the Court o� Appeals held: "The ruling was subsequently clari:fied by this Court in a later case, Commissioner o� Internal Revenue vs. In~ula r Lumber Co., Dec. 11, 1967, 21 SCRA 1237. It was there held that Sections 306 and 309 o� the Internal Revenue Code were intended to govern all kinds o� re�unds o� internal revenue taxes those taxes . imposed and collected pursuant to the National Internal Revenue Code. In other words the prescriptive period o� two <2> years therein provided is the one which should govern and not any other prescriptive period, such as that o� ten <10> years provided �or in Article 1144, paragraph (2), o� the Civil Code. xxx xxx. 'In �ine, when the tax sought to be re�unded is illegally or erroneously collected, the period o� prescription starts �rom the date the tax was paid; but when the tax is legally collected, the prescriptive period commences to run �rom the date o� occurrence o� the supervening cause which gave rise to the right o� re�und. The ruling in Muller & Phipps is accordingly modi:fied. '" Respondent �urther contends that the petitions state no cause o� action because they do not allege the date<s> when the taxes were paid. Time and again this Court has ruled that "petitioner is not required to show the date o� payment o:f the tax withheld at source. The rule is a corporate taxpayer pays on a quarterly basis. The �ina�l r � ..-.

DECISION - C.T.A. CASE NOS. 3839. 4013 and 4124 -8- payment is the last quarter payment at the end o� the taxable year or on the 15th day o� the �ourth month �allowing the close o� the calendar or �iscal period. This is the time when it can be �inally ascertained that the taxpayer either made pro�it or su��ered a loss in its operations." (Sun Insurance O��ice Ltd. v. Acting Commr. o� lnterna1 Revenue. CTA Case No. 3205. June 23. 1989~ Ateneo de ftani1a University v. Commr. o� Interna1 Revenue. CTA Case No. 3213. Ju1y 28. 1989; Asia Austra1ia Express Ltd. v. Commr. o� lnterna1 Revenue. CTA Case No. 3976. October 18. 1989; and Paseo Rea1ty & Dev. Corp. v. Commr. o� lnterna1 Revenue. CTA Case No. 4528. Apri1 30. 1993. ) Going now to the main issues, petitioner hinged its argument on Section 86 <now Section 69> o� the National Internal Revenue Code whi c h reads as �allows: �sec. 86. Fina1 Adjustment Return - Every corporation liable to tax under Section 24 shall �ile a �inal adjustment return covering the total net income �or the preceding calendar or �iscal year. I� the sum o� the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable net income o� that year the corporation shall either: ��t ~

DECISION - C.T.A. CASE HOS. 3839r 4013 and 4124 - 9- (a) Pay the excess tax still due; or <b> Be re�unded the excess amount paid, as the case may be. In case the corporation is entitled to a re�und o� the excess estimated quarterly income taxes paid, the re�undable amount shown on its �inal adjustment return may be credited against the estimated quarterly income tax liabilities �or the taxable quarters o� the succeeding taxable year. " Section 7 o� Revenue Regulations No. 10- 77 <Regulations governing the method o� computing corporate quarterly income tax on a cumulative basis), dated October 7, 1977, provides: �sec. 7. Filing of final � or adjust�ent return and final pay�ent of inco�e tax. xxx XXX XXX. Any - excess o� the total quarterly payments over the actual income tax computed and shown in the adjustment or �inal corporate income tax return shall either (a) be re�unded to the corporation, or (b) may � be credited against the estimated quarterly income tax liabilities �or the quarters o� the succeeding taxable year. The corporation must signi�y in its annual corporate adjustment return its intention whether to request �or the re�und o� the overpaid income tax or claim �or automatic tax credit to be applied against its income tax liabilities �or the quarters o� the succeeding taxable year by �illing up the appropriate

�' DECISION - C.T.A. CASE NOS. 3839. 4013 and 4124 - 10 - box on the corporate tax return <BIR Form No. 1702 >. (Emphasis Ours. > XXX XXX X X X. " The Supreme Court, in the latest case oi San Car1os Jti11ing. Co�� Incorporated vs. Commissioner o� Interna1 Revenue and Court o� Appea1s. G. R. No. 103379. November 23. 1993, made this pronouncement: "The respondent Court held that the choice OI a corporate taxpayer �or an automatic tax credit does not ipso �acto confer on it the right to immediately avail of the same. Respondent court went on to emphasize the need for an investigation to ascertain the correctness of the corporate returns and the amount sought to be credited. We agree . It is difficult to see by what process of ratiocination petitioner insists on the literal interpretation of the word "automatic". Such literal interpretation has been discussed and precluded by the respondent court in its decision of 23 December 1991 where, as aforestated, it ruled that '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. � Prior approval by the Commissioner of Internal Revenue of the tax credit under then section 86 (now section 69> of the Tax Code would appear to be the most reasonable interpretation to be given to said section. An opportunity must be given the internal revenue branch of the

DECISION - C.T.A. CASE NOS. 3839p 4013 and 4124 - 11 - government to investigate and con�irm the veracity o� the claims o� the taxpayer. The absolute �reedom that petitioner seeks to automatically credit tax payments against tax liabilities �or a succeeding taxable year, can easily give rise to con�usion and abuse, depriving the government o� authority and control over the manner by which the taxpayers credit and o��set their tax liabilities, not to � mention the resultant loss o� revenue to the government under such a scheme. Petitioner points out that the automatic tax credit scheme under the law re�ers to the amount "shown" in the �inal adjustment return o� the corporate taxpayer and not as determined by the Commissioner, thereby recognizing the computation made by the taxpayer. This contention is not impressed with merit. To reiterate, Section 7 o� Revenue Regulation No. 10-77 provides that 'Ca>ny excess x x x computed and shown x x x shall either <a> be re�unded to the corporation, or Cb> may be credited against the estimated quarterly income tax liabilities x x x.' The above rule is clear. It does not mean that re�erence to the amount 'shown' in the �inal adjustment return prepared by the taxpayer implies that the taxpayer need not seek approval o� the Commissioner prior to its e��ective availment o� the tax credit scheme, it cannot simply credit an amount it deems as correct. Rather, it provides two <2> remedies, that is, the excess may either be re�unded or credited, and, inso�ar as the option a� tax credit is concerned, this right should not be construed as an absolute right which is available to the taxpayer at his sole option. It is our view that tax credit under the cited provision should be construed as an alternative remedy Cto a re�und) subject to the �ul�illment o� certain requirements, i.e., prior 60

DECISION - C.T.A. CASE NOS. 3839. 4013 and 4124 - 12 - veri�ication and approval by the Commissioner o� Internal Revenue. Further, the cited legal provision itsel� employs the word 'may' in the phrase 'may be credited', implying that the availability o� the remedy o� tax ' credit is not absol�ute and mandatory; i t does not con�er an absolute right on the taxpayer to avail o� the tax credit scheme i� it so chooses; neither does it impose a duty on the part o� the government to sit back and allow an important �acet o� tax collection to be at the sole control and discretion o� the taxpayer. XXX XXX X X X. " In the case at bar, petitioner in �act sought respondent's approval to apply the re�undable amount as tax credit against its income tax liabilities �or the succeeding taxable year or in the alternative to treat the request as a claim �or re�und or tax credit pursuant to Sections 292 (now Section 230> and 295 (now Section 204> o� the Tax Code. However, due to respondent's �ailure to act on the request petitioner was constrained to apply the re�undable amounts to its tax liabilities �or the succeeding J year. Subsequently, while these cases were pending trial, respondent's revenue examiner recommended �or a �avorable action on the requests �or con�irmation with the alternative claim �or re�und or tax credit o� P1,883,260.00. [Exhs. I - C and I - C- lJ It seems

DECISION - C.T.A. CASE NOS. 3839p 4013 and 4124 - 13 - that the revenue examiner was convinced that petitioner is indeed entitled to the re�und claimed. Petitioner presented and o��ered in evidence its 1983, 1984, 1985 and 1986 Annual Income Tax Returns, Audited Financial Statements, various Certi�icates o� Tax Withheld at Source, and CB Con�irmation Receipts to prove entitlement to the re�und claimed. While it seems that petitioner is entitled to the alternative claim �or tax re�und or credit, this Court is constrained to DENY the claim �or re�und o� the cumulative amount o� ?1,883,260.00. The records (supplemental petition> will show that the said amount was utilized as an � automatic tax credit in 1986 pursuant to Section 69 (�ormerly Section 86) o� the Tax Code. To permit petitioner to have a re�und or tax credit �or the excess tax credits which it had already applied against its 1986 income tax would, in e��ect, constitute a double re�und in �avor o� the petitioner to the prejudice o� the government. WHEREFOREP this Court �inds the petitions without merit. The alternative claim �or re�und o� ?1,883,260.00, representing overpaid income tax �or the year 1985 is hereby DENIED.

DECISION - C.T.A. CASE NOS. 3839. 4013 and 4124 - 14 - SO ORDERED. Quezon City, Metro Manila, J I ~Ju DE ~R~ A"ON 0. Associate J~""J;;i:- WE CONCUR: q\4WQ.~ ERNESTO D. ACOSTA Presiding ~ GRUBA Associ Judge GERT:CF":CGAT:CCJN I hereby certi�y that this decision was reached a�ter due consultation among the members o� the Court o� Tax Appeals in accordance with Section 13, Article VIII o� the Constitution. Q..~~.c~ ERNESTO D. ACOSTA Presiding Judge Court o� Tax Appeals 63