Jurisprudence: G.R. No. 176165 June 15, 2011

SECOND DIVISION
CIR v. Mirant (2011)
G.R. No. 176165 June 15, 2011
MENDOZA, J.

These are two consolidated petitions for review on certiorari under Rule 45 of the Rules of Court.

In G.R. No. 171742, petitioner Commissioner of Internal Revenue (CIR) seeks the reversal of the January 17, 2006 Decision and March 9, 2006 Resolution of the Court of Tax Appeals (CTA) En Banc in CTA E.B. Case No. 123.

In G.R. No. 176165, petitioner Mirant (Philippines) Operations, Corporation (Mirant) seeks the reversal of the October 26, 2006 Decision and January 5, 2007 Resolution of the CTA En Banc in CTA E.B. Case No. 125.

THE FACTS
Petitioner is empowered to perform the lawful duties of his office including, among others, the duty to act on and approve claims for refund or tax credit as provided by law.

Respondent Mirant is a corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines, with principal office at Bo. Ibabang Pulo, Pagbilao Grande Island, Pagbilao, Quezon.

Mirant also operated under the names Southern Energy Asia-Pacific Operations (Phils.), Inc., CEPA Operations (Philippines) Corporation; CEPA Tileman Project Management Corporation; and Hopewell Tileman Project Management Corporation.

Mirant, duly licensed to do business in the Philippines, is primarily engaged in the design, construction, assembly, commissioning, operation, maintenance, rehabilitation and management of gas turbine and other power generating plants and related facilities using coal, distillate, and other fuel provided by and under contract with the Government of the Republic of the Philippines or any subdivision, instrumentality or agency thereof, or any government-owned or controlled corporations or other entities engaged in the development, supply or distribution of energy.

Mirant entered into Operating and Management Agreements with Mirant Pagbilao Corporation (formerly Southern Energy Quezon, Inc.) and Mirant Sual Corporation (formerly Southern Energy Pangasinan, Inc.) to provide these companies with maintenance and management services in connection with the operation, construction and commissioning of coal-fired power stations situated in Pagbilao, Quezon, and Sual, Pangasinan respectively.

On October 15, 1999, Mirant filed with the Bureau of Internal Revenue (BIR) its income tax return for the fiscal year ending June 30, 1999, declaring a net loss of P235,291,064.00 and unutilized tax credits of ₱32,263,388.00:

Gross Income

	P (64,438,434.00)
Less: Deductions	170,852,630.00
Net Loss	₱(235,291,064.00)
Income Tax Due	₱---
Less: Prior Years Excess Credits	4,714,516.00
Creditable Tax Withheld
First Three Quarters	21,702,771.00
Fourth Quarter	5,846,101.00
Tax Overpayment	₱32,263,388.00

On April 17, 2000, Mirant filed with the BIR an amended income tax return (ITR) for the fiscal year ending June 30, 1999, reporting an increased net loss amount of ₱379,324,340.00 but reporting the same unutilized tax credits of ₱32,263,388.00, which it opted to carry over as a tax credit to the succeeding taxable year, thus:

Gross Income	₱(113,113,036.00)
Less: Deductions	248,211,204.00
Net Loss	₱(379,324,240.00)
Income Tax Due	₱ ---
Less: Prior Years Excess Credits	4,714,516.00
Creditable Tax Withheld
First Three Quarters	21,702,771.00
Fourth Quarter	5,846,101.00
Tax Overpayment	₱32,263,388.00

To synchronize its accounting period with those of its affiliates, Mirant allegedly secured the approval of the BIR to change its accounting period from fiscal year (FY) to calendar year (CY) effective December 31, 1999. Thus, on April 17, 2000, Mirant filed its income tax return for the interim period July 1, 1999 to December 31, 1999, declaring a net loss in the amount of ₱381,874,076.00 and unutilized tax credits of ₱48,626,793.00:

Gross Income

	₱(320,895,462.00)
Less: Deductions	60,978,614.00
Net Loss	₱(381,874,076.00)
Income Tax Due	₱ ---
Less: Prior Years Excess Credits	32,263,388.00
Creditable Tax Withheld
First Three Quarters	16,363,405.00
Fourth Quarter	---
Tax Overpayment	₱48,626,793.00

Mirant indicated the excess amount of ₱48,626,793.00 as To be carried over as tax credit next year/quarter.

On April 10, 2001, it filed with the BIR its income tax return for the calendar year ending December 31, 2000, reflecting a net loss of ₱56,901,850.00 and unutilized tax credits of ₱87,345,116.00, computed as follows:

Gross Income

	P(4,080,541.00)
Less: Deductions	52,821,309.00
Net Loss	₱(56,901,850.00)
Income Tax Due	₱ ---
Less: Prior Years Excess Credits	48,626,793.00
Creditable Tax Withheld
First Three Quarters	25,336,971.00
Fourth Quarter	13,381,352.00
Tax Overpayment	₱87,345,116.00

On September 20, 2001, Mirant wrote the BIR a letter claiming a refund of ₱87,345,116.00 representing overpaid income tax for the FY ending June 30, 1999, the interim period covering July 1, 1999 to December 31, 1999, and CY ending December 31, 2000.

As the two-year prescriptive period for the filing of a judicial claim under Section 229 of the National Internal Revenue Code (NIRC) of 1997 was about to lapse without action on the part of the BIR, Mirant elevated its case to the CTA by way of Petition for Review on October 12, 2001. The case was docketed as CTA Case No. 6340.

The CTA First Division rendered judgment partially granting Mirants claim for refund in the reduced amount of ₱38,620,427.00, representing its duly substantiated unutilized creditable withholding taxes for taxable year 2000 out of the total claim of ₱38,718,323.00 therefor. It appears that the total claim was reduced by ₱97,896.00 for the following reasons: the amount of ₱92,996.00 was deducted because the CTA First Division found that it was not covered by the withholding tax certificate issued by Southern Energy Quezon, Inc. for the period October 1, 2000 to December 31, 2000. Moreover the additional amount of ₱4,900.00 was also deducted because based on the reconciliation schedule for the creditable taxes of ₱745,290.00 withheld by Southern Energy Quezon, Inc. for the period October 1, 2000 to December 31, 2000 on Mirants Philippine peso billings under Invoice No. 0015, the corresponding creditable taxes claimed by Mirant in its 2000 income tax return amounted to ₱750,190.00 which was higher by ₱4,900.00 than that reflected in the certificate.

Additionally, Mirants claim for the refund of its unutilized tax credits for the taxable year 1999 in the total amount of ₱48,626,793.00, was denied as it exercised the carry-over option with regard to the said unutilized tax credits, which is irrevocable pursuant to the provisions of Section 76 of the 1997 NIRC.

The dispositive portion of the assailed May 18, 2005 Decision of the CTA First Division reads:

IN VIEW OF ALL THE FOREGOING, the instant Petition for Review is hereby GRANTED but in a reduced amount of ₱38,620,427.00. Accordingly, respondent is ORDERED TO REFUND, or in the alternative, ISSUE A TAX CREDIT CERTIFICATE in favor of the petitioner in the amount of P38,620,427.00 representing unutilized creditable withholding taxes for taxable year 2000.

Both parties filed their respective motions for partial reconsideration of the above decision, but these were both denied for lack of merit in a Resolution dated September 22, 2005.

Both parties sought redress before the CTA En Banc in two separate petitions for review docketed as CTA EB Case No. 123 and CTA EB Case No. 125, respectively.

According to the CTA, although arising from the same case, CTA Case No. 6340, these two cases were not consolidated because CTA EB Case No. 125 was initially dismissed due to procedural infirmities.

In a Resolution dated April 28, 2006, however, acting on Mirants motion for reconsideration, the CTA En Banc recalled its earlier resolution and reinstated the case.[21] Eventually, the CTA En Banc in separate decisions, denied due course and dismissed the two cases. The CIR and Mirant filed their respective motions for reconsideration but both were denied. Thus, the CIR and Mirant filed their respective petitions for review with this Court, docketed as G.R. No. 171742 and G.R. No. 176165, respectively.

ISSUES

In G.R. No. 171742, the CIR raises the following issue:
WHETHER OR NOT THE COURT OF TAX APPEALS ERRED ON A QUESTION OF LAW IN HOLDING RESPONDENT ENTITLED TO A REFUND OR TAX CREDIT IN THE AMOUNT OF P38,620,427.00.

In G.R. No. 176165, Mirant raises the following issue:

WHETHER OR NOT PETITIONER IS ENTITLED TO A CLAIM FOR ADDITIONAL REFUND OR ISSUANCE OF A TAX CREDIT CERTIFICATE IN THE AMOUNT OF P48,626,793.00 REPRESENTING EXCESS CREDITABLE WITHHOLDING TAXES FOR THE FISCAL YEAR ENDED JUNE 30, 1999 AND THE INTERIM PERIOD FROM JULY 1, 1999 TO DECEMBER 31, 1999.

In essence, the issue is whether Mirant is entitled to a tax refund or to the issuance of a tax credit certificate and, if it is, then what is the amount to which it is entitled.

RULING OF THE COURT

The Court finds the assailed decisions and resolutions of the CTA En Banc in CTA E.B. Case Nos. 123 and 125 to be consistent with law and jurisprudence.

Once exercised, the option to carry over is irrevocable.

Section 76 of the National Internal Revenue Code (Presidential Decree No. 1158, as amended) 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 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. (Underscoring and emphasis supplied.)

The last sentence of Section 76 is clear in its mandate. Once a corporation exercises the option to carry-over and apply the excess quarterly income tax against the tax due for the taxable quarters of the succeeding taxable years, such option is irrevocable for that taxable period. Having chosen to carry-over the excess quarterly income tax, the corporation cannot thereafter choose to apply for a cash refund or for the issuance of a tax credit certificate for the amount representing such overpayment.

In the recent case of Commissioner of Internal Revenue v. PL Management International Philippines, Inc., the Court discussed the irrevocability rule of Section 76 in this wise:

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, 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. Bankof the Philippine Islands, 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. [Underscoring supplied]

In this case, in its amended ITR for the year ended July 30, 1999 and for the interim period ended December 31, 1999,[28] Mirant clearly ticked the box signifying that the overpayment was To be carried over as tax credit next year/quarter. Item 31 of the Annual Income Tax Return Form (BIR Form No. 1702) also clearly indicated If overpayment, mark one box only. (once the choice is made, the same is irrevocable).

Applying the irrevocability rule in Section 76, Mirant having opted to carry over its tax overpayment for the fiscal year ending July 30, 1999 and for the interim period ending December 31, 1999, it is now barred from applying for the refund of the said amount or for the issuance of a tax credit certificate therefor, and for the unutilized tax credits carried over from the fiscal year ended June 30, 1998.

Mirant is entitled to the refund of its unutilized creditable withholding taxes for the taxable year 2000.

It is apt to restate here the time-honored doctrine that the findings and conclusions of the CTA are accorded the highest respect and will not be lightly set aside. The CTA, 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 abusive or improvident exercise of authority. Citing Barcelon, Roxas Securities, Inc. (now known as UBP Securities, Inc.) v. Commissioner of Internal Revenue, this Court in Toshiba Information Equipment (Phils.), Inc. v. Commissioner of Internal Revenue, explicitly pronounced

Jurisprudence has consistently shown that this Court accords the findings of fact by the CTA with the highest respect.  In Sea-Land Service Inc. v. Court of Appeals [G.R. No. 122605, 30 April 2001, 357 SCRA 441, 445-446], this Court recognizes that the Court of Tax Appeals, which by the very nature of its function is dedicated exclusively to the consideration of tax problems, has necessarily developed an expertise on the subject, and its conclusions will not be overturned unless there has been an abuse or improvident exercise of authority.  Such findings can only be disturbed on appeal if they are not supported by substantial evidence or there is a showing of gross error or abuse on the part of the Tax Court.  In the absence of any clear and convincing proof to the contrary, this Court must presume that the CTA rendered a decision which is valid in every respect.

In this case, having studied the applicable law and jurisprudence, the Court agrees with the conclusion of the CTA that Mirant complied with all the requirements for the refund of its unutilized creditable withholding taxes for taxable year 2000.

In Commissioner of Internal Revenue v. Far East Bank & Trust Company (now Bank of the Philippine Islands), the Court enumerated the requisites for claiming a tax credit or a refund of creditable withholding tax:

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.

First, Mirant clearly complied with the two-year period. This requirement is based on Section 229 of the NIRC of 1997 which provides:
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. [Underscoring supplied]

Mirant filed its income tax return for the taxable year ending December 31, 2000 on April 10, 2001. Thus, from such date of filing, petitioner had until April 10, 2003 within which to file its claim for refund or for the issuance of a tax credit certificate in its favor.

Mirant filed its administrative claim with the BIR on September 20, 2001. It thereafter filed its Petition for Review with the CTA on October 12, 2001, or clearly within the prescribed two-year period.

Second, Mirant was also able to establish that the income, upon which the creditable withholding taxes were paid, was declared as part of its gross income in its ITR. As the CTA En Banc concluded:

As regards petitioner CIRs contention that respondent Mirant was not able to establish that the income upon which the creditable withholding taxes were paid was included in respondents Income Tax Returns, a perusal of the records reveals otherwise. The reported creditable taxes withheld of ₱38,718,323.00 were withheld from the services fees of ₱871,127,253.00 received by respondent from its affiliates, the Southern Energy Quezon, Inc. and the Southern Energy Pangasinan, Inc., pursuant to the Operating and Maintenance Service Agreements entered into by respondent Mirant with said entities (Exhibits HH, K, and K-1). The gross income figure of ₱871,127,253.00 is the very same amount declared by respondent in its income tax return for taxable year 2000 (Exhibits O-11 & O-12).

The CIR disagrees but merely alleges without any clear argument or basis that Mirant failed to prove that the income from which its creditable taxes were withheld were duly declared as part of its income in its annual ITR.

Thus, there being no cogent reason presented to reverse the findings and conclusions of the CTA, the Court affirms its finding that the income received was declared as part of the gross income, as shown in Mirants tax return.

Finally, Mirant was also able to establish the fact of withholding of the creditable withholding tax.

The CIR is of the opinion that Mirants non-presentation of the various payors or withholding agents to verify the Certificates of Creditable Tax Withheld at Source (CWTs), the registered books of accounts and the audited financial statements for the various periods covered to corroborate its other allegations, and its failure to offer other evidence to prove and corroborate the propriety of its claim for refund and failure to establish the fact of remittance of the alleged withheld taxes by various payors to the BIR, are all fatal to its claim.

Citing the CTA First Division, Mirant argues that since the CWTs were duly signed and prepared under pain of perjury, the figures appearing therein are presumed to be true and correct. The CWTs were presented and duly identified by its witness, Magdalena Marquez, and further verified by the duly commissioned independent CPA, Ruben R. Rubio, on separate hearing dates, before the CTA First Division. Moreover, these certificates were found by the duly commissioned independent CPA to be faithful reproductions of the originals, as stated in his supplementary report dated March 24, 2003.

The Court agrees with the conclusion of the CTA En Banc:

Contrary to petitioner CIRs contention, the fact of withholding was likewise established through respondents presentation of the Certificates of Creditable Tax Withheld At Source, duly issued to it by Southern Energy Pangasinan, Inc. and Southern Energy Quezon, Inc., for the year 2000 (Exhibits Y, Z, AA to FF). These certificates were found by the duly commissioned independent CPA to be faithful reproductions of the original copies, as per his Supplementary Report dated March 24, 2003 (Exhibit RR).

As to petitioner CIRs contention that the Report of the independent CPA dated February 21, 2003 shows several discrepancies, We sustain the findings of the First Division. On direct examination, Mr. Ruben Rubio, the duly commissioned independent CPA, testified and explained that the discrepancy was merely brought about by: (1) the difference in foreign exchange (forex) rates at the time the certificates were recorded by respondent Mirant and the forex rates used at the time the certificates were issued by its customers; and (2) the timing difference between the point when respondent Mirant recognized or accrued its income and the time when the corresponding creditable tax was withheld by its customers. x x x

x x x

As extensively discussed by the First Division:
The creditable withholding taxes of P40,600,971.79 reflected in the certificates were higher by P1,882,648.79 when compared with the creditable withholding taxes of P38,718,323.00 reported by petitioner in its income tax return for taxable year 2000 (Exhibit O-7). As stated by SGV & Co. in its report dated February 21, 2003 (Exhibit NN), tax credits were claimed by petitioner in its income tax return for taxable year 2000 prior to its receipt of the certificates from the withholding agents. At the time it recognized and accrued its income, petitioner also reported the related creditable withholding taxes, which was prior to the receipt of the certificates from the withholding agents. Hence, the discrepancy of P1,882,648.79 in creditable withholding taxes was mainly brought about by the difference between the foreign exchange (forex) rates used at the time when petitioner recorded its income and the related tax credits and the forex rates used by the withholding agents at the time when income payments were made to petitioner in reporting its tax credits, the same do not have a bearing on petitioners total claim because the resulting increase in the amounts of creditable withholding taxes reflected in the certificates were not declared by the petitioner in its income tax return for the said year. However, for the creditable taxes withheld by Southern Energy Quezon, Inc. for the period October 1, 2000 to December 31, 2000 totalling P7,670,746.00 (which formed part of the creditable withholding taxes of P8,834,280.11 shown in the certificate marked as Exhibit EE), the same were based on forex rates which were lower than those used by petitioner in recognizing the tax credits of P7,763,742.00 for the same transactions. In other words, petitioners claimed unutilized tax credits of P92,996.00 (P7,763,742.00 less P7,670,746.00) were not covered by the withholding tax certificate issued by Southern Energy, Quezon Inc. for the period October 1, 2000 to December 31, 2000 and should therefore be deducted from the total claim of P38,718,323.00 Below is the breakdown of the amount of P92,996.00:

			Creditable Withholding Taxes		Overclaimed Tax Credits
Exhibits	Period Covered	Withholding Agent	Per Certificate (a)	Per ITR (b)	(b) (a)
EE, QQ	10/01/00 12/31/00	Southern Energy Quezon, Inc.	P4,298,892.00	₱4,350,327.00	P51,435.00
			3,371,854.00	3,413,415.00	41,561.00
			P7,670,746.00	P7,763,742.00	P92,996.00

The reconciliation schedule also shows that for the creditable taxes of P745,290.00 withheld by Southern Energy Quezon Inc. for the period October 1, 2000 to December 31, 2000 on petitioners Philippine peso billings under Invoice No. 0015, the corresponding creditable taxes claimed by petitioner in its 2000 income tax return amounted to P750,190.00 which were higher by P4,900.00 than those reflected in the certificate. Accordingly, the amount of P4,900.00 shall be deducted from petitioners total claim.

In fine, this Court finds that of the total unutilized credits of P38,718, 323.00 declared by petitioner in its 2000 income tax return, only the amount of P38,620,427.00 (P38,718,323.00 less P92,996.00) was duly substantiated by withholding tax certificates.

Therefore, as the CTA ruled, Mirant complied with all the legal requirements and it is entitled, as it opted, to a refund of its excess creditable withholding tax for the taxable year 2000 in the amount of ₱38,620,427.00.

The Court finds no abusive or improvident exercise of authority on the part of the CTA. Since there is no showing of gross error or abuse on the part of the CTA, and its findings are supported by substantial evidence, there is no cogent reason to disturb its findings and conclusions.

WHEREFORE, the petitions in G.R. No. 171742 and G.R. No. 176165 are DENIED.

SO ORDERED.

Tax Case Digest: CIR v. Mirant (2011)

SECOND DIVISION
CIR v. Mirant (2011)
G.R. No. 176165 June 15, 2011
MENDOZA, J.

Lessons Applicable: Carry-over, Tax Refund, Prescription Period

Laws Applicable:

FACTS:

• Mirant, duly licensed to do business in the Philippines, is primarily engaged in the design, construction, assembly, commissioning, operation, maintenance, rehabilitation and management of gas turbine and other power generating plants and related facilities using coal, distillate, and other fuel provided by and under contract with the Government of the Republic of the Philippines or any subdivision, instrumentality or agency thereof, or any government-owned or controlled corporations or other entities engaged in the development, supply or distribution of energy.
• Mirant filed its income tax return for the fiscal year ending June 30, 1999, declaring net loss and unutilized tax credits.  
• To synchronize its accounting period with its affiliates, with BIR approval, it change its fiscal period to Dec. 31, 1994 indicating the unutilized tax credit to be carried over as tax credit next year.  
• For its Dec. 2000 taxable year, it again had net loss and unutilized tax credits.
• It then filed a claim for refund for 1999 and 2000.
• But, CTA granted only 2000 reduced based on those reconcilable with creditable taxes withheld by Southern Energy Quezon Inc. since the 1999 tax credit was already opted to be carried over.

Issue: W/N refund for 1999 can be claimed

HELD: NO.

• According to Sec. 76 of NIRC once option to carry-over has been made, such option shall be considered irrevocable for that taxable period.  The 2 options are alternative.  The amount being claimed as carry-over would remain in the account of the taxpayer until utilized.  Unlike the option to refund, it has no prescriptive period.
• The requisites for claiming a tax credit or a refund of creditable withholding tax:
  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 

Tax Case Digest: Panasonic v. CIR (2010)

SECOND DIVISION
Panasonic v. CIR (2010)
G.R. No. 178090 February 8, 2010
ABAD, J.

Lessons Applicable: invoice requirements

Laws Applicable:

FACTS:

• Petitioner Panasonic, a VAT-registered enterprise who believing that its export sales are zero-rated sales, paid input VAT.  
• Since its input VAT is unutilized, it filed a claim for refund on tax credit.
• CTA denied since its invoice was not printed with "zero-rated"

ISSUE: W/N Panasonic qualifies for zero-rated sales and can refund its unutilized input VAT

HELD: petition is DENIED. NO.

• VAT is a tax on consumption, an indirect tax that the provider of goods or services may pass on to his customers. Under the VAT method of taxation, which is invoice-based, an entity can subtract from the VAT charged on its sales or outputs the VAT it paid on its purchases, inputs and imports.  
• Under the 1997 NIRC, if at the end of a taxable quarter the seller charges output taxes equal to the input taxes that his suppliers passed on to him, no payment is required of him. It is when his output taxes exceed his input taxes that he has to pay the excess to the BIR. If the input taxes exceed the output taxes, however, the excess payment shall be carried over to the succeeding quarter or quarters. Should the input taxes result from zero-rated or effectively zero-rated transactions or from the acquisition of capital goods, any excess over the output taxes shall instead be refunded to the taxpayer.
• Under RMC 42-2003, failure to comply with invoicing requirements will result in the disallowance of his claim for refund.  Since Section 4.108-1 of RR 7-95 is effective then, it should comply with word zero-rated for zero-rated sales covered by its receipts or invoices.
• It also became part of 1997 NIRC on November 1, 2005 not diminishing the binding force of the prior enactment.
• The requirement is reasonable and in accord with efficient collection of VAT preventing false claims and help segregate sales.

Jurisprudence: G.R. No. 112024 January 28, 1999

SECOND DIVISION

G.R. No. 112024 January 28, 1999

PHILIPPINE BANK OF COMMUNICATIONS, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, COURT OF TAX APPEALS and COURT OF APPEALS, respondent.

QUISUMBING, J.:

This petition for review assails the Resolution 1 of the Court of Appeals dated September 22, 1993 affirming the Decision and a Resolution of the Court Of Tax Appeals which denied the claims of the petitioner for tax refund and tax credits, and disposing as follows:

IN VIEW OF ALL, THE FOREGOING, the instant petition for review, is DENIED due course. The Decision of the Court of Tax Appeals dated May 20, 1993 and its resolution dated July 20, 1993, are hereby AFFIRMED in toto.

SO ORDERED.

The Court of Tax Appeals earlier ruled as follows:

WHEREFORE, Petitioner's claim for refund/tax credits of overpaid income tax for 1985 in the amount of P5,299,749.95 is hereby denied for having been filed beyond the reglementary period. The 1986 claim for refund amounting to P234,077.69 is likewise denied since petitioner has opted and in all likelihood automatically credited the same to the succeeding year. The petition for review is dismissed for lack of merit.

SO ORDERED.

The facts on record show the antecedent circumstances pertinent to this case.

Petitioner, Philippine Bank of Communications (PBCom), a commercial banking corporation duly organized under Philippine laws, filed its quarterly income tax returns for the first and second quarters of 1985, reported profits, and paid the total income tax of P5,016,954.00. The taxes due were settled by applying PBCom's tax credit memos and accordingly, the Bureau of Internal Revenue (BIR) issued Tax Debit Memo Nos. 0746-85 and 0747-85 for P3,401,701.00 and P1,615,253.00, respectively.

Subsequently, however, PBCom suffered losses so that when it filed its Annual Income Tax Returns for the year-ended December 31, 1986, the petitioner likewise reported a net loss of P14,129,602.00, and thus declared no tax payable for the year.

But during these two years, PBCom earned rental income from leased properties. The lessees withheld and remitted to the BIR withholding creditable taxes of P282,795.50 in 1985 and P234,077.69 in 1986.

On August 7, 1987, petitioner requested the Commissioner of Internal Revenue, among others, for a tax credit of P5,016,954.00 representing the overpayment of taxes in the first and second quarters of 1985.

Thereafter, on July 25, 1988, petitioner filed a claim for refund of creditable taxes withheld by their lessees from property rentals in 1985 for P282,795.50 and in 1986 for P234,077.69.

Pending the investigation of the respondent Commissioner of Internal Revenue, petitioner instituted a Petition for Review on November 18, 1988 before the Court of Tax Appeals (CTA). The petition was docketed as CTA Case No. 4309 entitled: "Philippine Bank of Communications vs. Commissioner of Internal Revenue."

The losses petitioner incurred as per the summary of petitioner's claims for refund and tax credit for 1985 and 1986, filed before the Court of Tax Appeals, are as follows:

1985 1986

——— ———

Net Income (Loss) (P25,317,288.00) (P14,129,602.00)

Tax Due NIL NIL

Quarterly tax.

Payments Made 5,016,954.00 —

Tax Withheld at Source 282,795.50 234,077.69

———————— ———————

Excess Tax Payments P5,299,749.50*    P234,077.69

=============== =============

* CTA's decision reflects PBCom's 1985 tax claim as P5,299,749.95. A forty five centavo difference was noted.

On May 20, 1993, the CTA rendered a decision which, as stated on the outset, denied the request of petitioner for a tax refund or credit in the sum amount of P5,299,749.95, on the ground that it was filed beyond the two-year reglementary period provided for by law. The petitioner's claim for refund in 1986 amounting to P234,077.69 was likewise denied on the assumption that it was automatically credited by PBCom against its tax payment in the succeeding year.

On June 22, 1993, petitioner filed a Motion for Reconsideration of the CTA's decision but the same was denied due course for lack of merit.

Thereafter, PBCom filed a petition for review of said decision and resolution of the CTA with the Court of Appeals. However on September 22, 1993, the Court of Appeals affirmed in toto the CTA's resolution dated July 20, 1993. Hence this petition now before us.

The issues raised by the petitioner are:

I. Whether taxpayer PBCom — which relied in good faith on the formal assurances of BIR in RMC No. 7-85 and did not immediately file with the CTA a petition for review asking for the refund/tax credit of its 1985-86 excess quarterly income tax payments — can be prejudiced by the subsequent BIR rejection, applied retroactivity, of its assurances in RMC No. 7-85 that the prescriptive period for the refund/tax credit of excess quarterly income tax payments is not two years but 10.

II. Whether the Court of Appeals seriously erred in affirming the CTA decision which denied PBCom's claim for the refund of P234,077.69 income tax overpaid in 1986 on the mere speculation, without proof, that there were taxes due in 1987 and that PBCom availed of tax-crediting that year.

Simply stated, the main question is: Whether or not the Court of Appeals erred in denying the plea for tax refund or tax credits on the ground of prescription, despite petitioner's reliance on RMC No. 7-85, changing the prescriptive period of two years to ten years?

Petitioner argues that its claims for refund and tax credits are not yet barred by prescription relying on the applicability of Revenue Memorandum Circular No. 7-85 issued on April 1, 1985. The circular states that overpaid income taxes are not covered by the two-year prescriptive period under the tax Code and that taxpayers may claim refund or tax credits for the excess quarterly income tax with the BIR within ten (10) years under Article 1144 of the Civil Code. The pertinent portions of the circular reads:

REVENUE MEMORANDUM CIRCULAR NO. 7-85

SUBJECT: PROCESSING OF REFUND OR TAX CREDIT OF EXCESS CORPORATE INCOME TAX RESULTING FROM THE FILING OF THE FINAL ADJUSTMENT RETURN.

TO: All Internal Revenue Officers and Others Concerned.

Sec. 85 And 86 Of the National Internal Revenue Code provide:

xxx xxx xxx

The foregoing provisions are implemented by Section 7 of Revenue Regulations Nos. 10-77 which provide;

xxx xxx xxx

It has been observed, however, that because of the excess tax payments, corporations file claims for recovery of overpaid income tax with the Court of Tax Appeals within the two-year period from the date of payment, in accordance with sections 292 and 295 of the National Internal Revenue Code. It is obvious that the filing of the case in court is to preserve the judicial right of the corporation to claim the refund or tax credit.

It should he noted, however, that this is not a case of erroneously or illegally paid tax under the provisions of Sections 292 and 295 of the Tax Code.

In the above provision of the Regulations the corporation may request for the refund of the overpaid income tax or claim for automatic tax credit. To insure prompt action on corporate annual income tax returns showing refundable amounts arising from overpaid quarterly income taxes, this Office has promulgated Revenue Memorandum Order No. 32-76 dated June 11, 1976, containing the procedure in processing said returns. Under these procedures, the returns are merely pre-audited which consist mainly of checking mathematical accuracy of the figures of the return. After which, the refund or tax credit is granted, and, this procedure was adopted to facilitate immediate action on cases like this.

In this regard, therefore, there is no need to file petitions for review in the Court of Tax Appeals in order to preserve the right to claim refund or tax credit the two year period. As already stated, actions hereon by the Bureau are immediate after only a cursory pre-audit of the income tax returns. Moreover, a taxpayer may recover from the Bureau of Internal Revenue excess income tax paid under the provisions of Section 86 of the Tax Code within 10 years from the date of payment considering that it is an obligation created by law (Article 1144 of the Civil Code).  (Emphasis supplied.)

Petitioner argues that the government is barred from asserting a position contrary to its declared circular if it would result to injustice to taxpayers. Citing ABS CBN Broadcasting Corporation vs. Court of Tax Appeals 10 petitioner claims that rulings or circulars promulgated by the Commissioner of Internal Revenue have no retroactive effect if it would be prejudicial to taxpayers, In ABS-CBN case, the Court held that the government is precluded from adopting a position inconsistent with one previously taken where injustice would result therefrom or where there has been a misrepresentation to the taxpayer.

Petitioner contends that Sec. 246 of the National Internal Revenue Code explicitly provides for this rules as follows:

Sec. 246 Non-retroactivity of rulings— Any revocation, modification or reversal of any of the rules and regulations promulgated in accordance with the preceding section 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 in 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;

c). where the taxpayer acted in bad faith.

Respondent Commissioner of Internal Revenue, through Solicitor General, argues that the two-year prescriptive period for filing tax cases in court concerning income tax payments of Corporations is reckoned from the date of filing the Final Adjusted Income Tax Return, which is generally done on April 15 following the close of the calendar year. As precedents, respondent Commissioner cited cases which adhered to this principle, to wit ACCRA Investments Corp. vs. Court of Appeals, et al., and Commissioner of Internal Revenue vs. TMX Sales, Inc., et al.. Respondent Commissioner also states that since the Final Adjusted Income Tax Return of the petitioner for the taxable year 1985 was supposed to be filed on April 15, 1986, the latter had only until April 15, 1988 to seek relief from the court. Further, respondent Commissioner stresses that when the petitioner filed the case before the CTA on November 18, 1988, the same was filed beyond the time fixed by law, and such failure is fatal to petitioner's cause of action.

After a careful study of the records and applicable jurisprudence on the matter, we find that, contrary to the petitioner's contention, the relaxation of revenue regulations by RMC 7-85 is not warranted as it disregards the two-year prescriptive period set by law.

Basic is the principle that "taxes are the lifeblood of the nation." The primary purpose is to generate funds for the State to finance the needs of the citizenry and to advance the common weal. 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 for the recovery of tax erroneously or illegally collected, viz.:

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 proceedings shall 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 rule states that the taxpayer may file a claim for refund or credit with the Commissioner of Internal Revenue, within two (2) years after payment of tax, before any suit in CTA is commenced. The two-year prescriptive period provided, should be computed from the time of filing the Adjustment Return and final payment of the tax for the year.

In Commissioner of Internal Revenue vs. Philippine American Life Insurance Co., this Court explained the application of Sec. 230 of 1977 NIRC, as follows:

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. . . . 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

When the Acting Commissioner of Internal Revenue issued RMC 7-85, changing the prescriptive period of two years to ten years on claims of excess quarterly income tax payments, such circular created a clear inconsistency with the provision of Sec. 230 of 1977 NIRC. In so doing, the BIR did not simply interpret the law; rather it legislated guidelines contrary to the statute passed by Congress.

It bears repeating that Revenue memorandum-circulars are considered administrative rulings (in the sense of more specific and less general interpretations of tax laws) which are issued from time to time by the Commissioner of Internal Revenue. It is widely accepted that the interpretation placed upon a statute by the executive officers, whose duty is to enforce it, is entitled to great respect by the courts. Nevertheless, such interpretation is not conclusive and will be ignored if judicially found to be erroneous. Thus, courts will not countenance administrative issuances that override, instead of remaining consistent and in harmony with the law they seek to apply and implement.

In the case of People vs. Lim, it was held that rules and regulations issued by administrative officials to implement a law cannot go beyond the terms and provisions of the latter.

Appellant contends that Section 2 of FAO No. 37-1 is void because it is not only inconsistent with but is contrary to the provisions and spirit of Act. No 4003 as amended, because whereas the prohibition prescribed in said Fisheries Act was for any single period of time not exceeding five years duration, FAO No 37-1 fixed no period, that is to say, it establishes an absolute ban for all time. This discrepancy between Act No. 4003 and FAO No. 37-1 was probably due to an oversight on the part of Secretary of Agriculture and Natural Resources. Of course, in case of discrepancy, the basic Act prevails, for the reason that the regulation or rule issued to implement a law cannot go beyond the terms and provisions of the
latter. . . . In this connection, the attention of the technical men in the offices of Department Heads who draft rules and regulation is called to the importance and necessity of closely following the terms and provisions of the law which they intended to implement, this to avoid any possible misunderstanding or confusion as in the present case.

Further, fundamental is the rule that the State cannot be put in estoppel by the mistakes or errors of its officials or agents. As pointed out by the respondent courts, the nullification of RMC No. 7-85 issued by the Acting Commissioner of Internal Revenue is an administrative interpretation which is not in harmony with Sec. 230 of 1977 NIRC. for being contrary to the express provision of a statute. Hence, his interpretation could not be given weight for to do so would, in effect, amend the statute.

It is likewise argued that the Commissioner of Internal Revenue, after promulgating RMC No. 7-85, is estopped by the principle of non-retroactively of BIR rulings. Again We do not agree. The Memorandum Circular, stating that a taxpayer may recover the excess income tax paid within 10 years from date of payment because this is an obligation created by law, was issued by the Acting Commissioner of Internal Revenue. On the other hand, the decision, stating that the taxpayer should still file a claim for a refund or tax credit and corresponding petition fro review within the
two-year prescription period, and that the lengthening of the period of limitation on refund from two to ten years would be adverse to public policy and run counter to the positive mandate of Sec. 230, NIRC, - was the ruling and judicial interpretation of the Court of Tax Appeals. Estoppel has no application in the case at bar because it was not the Commissioner of Internal Revenue who denied petitioner's claim of refund or tax credit. Rather, it was the Court of Tax Appeals who denied (albeit correctly) the claim and in effect, ruled that the RMC No. 7-85 issued by the Commissioner of Internal Revenue is an administrative interpretation which is out of harmony with or contrary to the express provision of a statute (specifically Sec. 230, NIRC), hence, cannot be given weight for to do so would in effect amend the statute.

Art. 8 of the Civil Code 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. A memorandum-circular of a bureau head could not operate to vest a taxpayer with shield against judicial action. For there are no vested rights to speak of respecting a wrong construction of the law by the administrative officials and such wrong interpretation could not place the Government in estoppel to correct or overrule the same. Moreover, the 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. Lastly, it must be noted that, as repeatedly held by this Court, a claim for refund is in the nature of a claim for exemption and should be construed in strictissimi juris against the taxpayer.

On the second issue, the petitioner alleges that the Court of Appeals seriously erred in affirming CTA's decision denying its claim for refund of P234,077.69 (tax overpaid in 1986), based on mere speculation, without proof, that PBCom availed of the automatic tax credit in 1987.

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.

The corporation must signify in its annual corporate adjustment return (by marking the option box provided in the BIR form) its intention, whether to request for a refund or claim for an automatic tax credit for the succeeding taxable year. To ease the administration of tax collection, these remedies are in the alternative, and the choice of one precludes the other.

As stated by respondent Court of Appeals:

Finally, as to the claimed refund of income tax over-paid in 1986 — the Court of Tax Appeals, after examining the adjusted final corporate annual income tax return for taxable year 1986, found out that petitioner opted to apply for automatic tax credit. This was the basis used (vis-avis the fact that the 1987 annual corporate tax return was not offered by the petitioner as evidence) by the CTA in concluding that petitioner had indeed availed of and applied the automatic tax credit to the succeeding year, hence it can no longer ask for refund, as to [sic] the two remedies of refund and tax credit are alternative.

That the petitioner opted for an automatic tax credit in accordance with Sec. 69 of the 1977 NIRC, as specified in its 1986 Final Adjusted Income Tax Return, is a finding of fact which we must respect. Moreover, the 1987 annual corporate tax return of the petitioner was not offered as evidence to contovert said fact. Thus, we are bound by the findings of fact by respondent courts, there being no showing of gross error or abuse on their part to disturb our reliance thereon.

WHEREFORE, the, petition is hereby DENIED, The decision of the Court of Appeals appealed from is AFFIRMED, with COSTS against the petitioner.

SO ORDERED.

Bellosillo, Puno, Mendoza, and Buena, JJ., concur.

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.