Tax Case Digest: PB Com v. CIR (1999)

PB Com v. CIR 
G.R. No. 112024  January 28, 1999
QUISUMBING, J.

Lessons Applicable: Lifeblood Theory, Due process of law under the Constitution in Required in Taxation, BIR function, statute > RMC, State not estopped by mistake of its agents, Claim for refund in the nature of tax exemption, remedies of refund and tax credit are alternative

Laws Applicable:

FACTS:

• Petitioner PBCom reported on its annual Income Tax Return for the year 1985 and 1986 a net loss of P 25, 317, 228 and P 14, 129 602 respectively.  But during both year, PBCom's lessees withheld creditable taxes of P 282 795.50 in 1985 and P 234, 077.69 in 1986.
• August 7, 1987: PBCom requested a tax credit for the overpayment of taxes in the 1st and 2nd quarters.
• July 25, 1988: PBCom filed a claim for refund of creditable taxes withheld by lessees.
• Pending the investigation, it filed a Petition for Review before the CTA who denied its request for filing beyond the 2-year reglementary period provided by Sec. 292 and 295 of the NIRC and the claim for 1986 was denied based on the assumption that it was automatically credited for the succeeding year as shown in its 1986 adjusted final corporate annual tax return.  
• PBCom filed a Motion for Reconsideration and then a Petition for Review with the CA which affirmed the CTA's decision. 
• It raised the matter to the SC where it argues that it relief on Rev. Memorandum Circular No. 285 issued April 1, 1985 that provides that the prescriptive period for overpayment is NOT 2 years but 10 years under Art. 114 of the Civil Code

ISSUE:
1. W/N PBCom can rely on RMC No. 785 changing the prescriptive period from 2 to 10 years
2. W/N PBCom can be assumed to assail of tax crediting

HELD: petition is hereby DENIED
1. No.

• Taxes are the lifeblood of the nation.  Due process of law under the Constitution does not require judicial proceedings in tax cases. This must necessarily be so because it is upon taxation that the government chiefly relies to obtain the means to carry on its operations and it is of utmost importance that the modes adopted to enforce the collection of taxes levied should be summary and interfered with as little as possible.  
• From the same perspective, claims for refund or tax credit should be exercised within the time fixed by law because the BIR being an administrative body enforced to collect taxes, its functions should not be unduly delayed or hampered by incidental matters.
• Sec. 230 of the National Internal Revenue Code (NIRC) of 1977 (now Sec. 229, NIRC of 1997) provides for the prescriptive period for filing a court proceeding with the CIR for the recovery of tax erroneously or illegally collected  within 2 years after payment of tax (computed from the time of filing the Adjustment Return and final payment of the tax for the year), before any suit in CTA is commenced.  
• Through the issuance of RMC 7-85, the BIR did NOT simply interpret the law but legislated guidelines contrary to the statute passed by Congress
• RMCs are considered administrative ruling in the same of more specific and less specific and less general interpretations of tax laws issued by the CIR.  It is entitled great respect by the courts. Nevertheless, such interpretation is not conclusive and will be ignored if judicially found to be erroneous.  
• Art. 8 of the Civil Code 26 recognizes judicial decisions, applying or interpreting statutes as part of the legal system of the country. But administrative decisions do not enjoy that level of recognition.  
• Fundamental is the rule that the State cannot be put in estoppel by the mistakes or errors of its officials or agents 
• Non-retroactivity of rulings by the Commissioner of Internal Revenue is not applicable in this case because the nullity of RMC No. 7-85 was declared by respondent courts and not by the Commissioner of Internal Revenue
• Claim for refund is in the nature of a claim for exemption and should be construed in strictissimi juris against the taxpayer. 

2. Yes.

• Sec. 69 of the 1977 NIRC (now Sec. 76 of the 1997 NIRC) provides that any excess of the total quarterly payments over the actual income tax computed 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. 
• Remedies are in the alternative, and the choice of one precludes the other.
• Since credit is opted, can no longer refund.