BIR Ruling No. 006-09

April 1, 2009 BIR RULING NO. 006-09 J.M. Ortiz & Co., Inc. FCC Bldg., Suite 101, 119 Rada St., Legaspi Village Makati City/ 431 Tamarind Drive Ayala, Alabang Attention: Mr. Justo M. Ortiz President Gentlemen : This refers to your letter dated August 23, 2006, received by this Office on November 13, 2006 by way of 2nd Indorsement dated October 27, 2006 from the Assistant Commissioner, Assessment Service, requesting reconsideration of the BIR's opinion of the claim of J.M. ORTIZ & CO., Inc. ("JMOC" for brevity) for tax credit/refund for the years 1994 and 1995. Documents submitted disclose that on August 21, 1998, JMOC with Taxpayer Identification No. 600-000-555-031, filed with the Revenue District Office No. 81, Cebu City-North, a claim for tax refund/credit involving the aggregate amount of P1,621,904.00 representing excess creditable withholding taxes for the taxable years 1994 to 1997, detailed as follows: YEAR AMOUNT CLAIMED 1994 P305,196.00 1995 333,548.00 1996 455,773.00 1997 527,387.00 TOTAL P1,621,904.00 =========== that after investigations, the Office of the Assistant Commissioner of Assessment Service issued on June 29, 2004 Tax Credit Certificate (TCC) No. 2002-0002192 covering the amount of P715,054.79; that the claim for 1994-1995 had been referred to this Office for legal opinion considering that upon initial evaluation of Revenue District Office No. 81-Cebu City: "1. The claim for refund of the excess withholding tax for the years 1994 and 1995 were found to be beyond the prescriptive period of two (2) years as required under Section 204 (3) of the old National Internal Revenue Code. It is noted that in the 1994 IT, which was filed on April 17, 1995, that the taxpayer opted to carry over the excess payments to 1995 ITR. The same was true with the 1995 ITR, that was filed in 1996 to which it made no option but the excess payment subsequently forwarded to 1996 ITR. It was evident that the total amount of excess credits from 1994 to 1996 were forwarded until the time the taxpayer decided to request for a refund on its excess creditable withholding tax as marked in the taxpayer's 2001 amended return filed on August 21, 1998. Using these filing dates as our reckoning dates, the 1994 and 1995 excess credits are beyond the prescriptive period at the time it requested and amended its 1997 income tax return. cTESIa xxx xxx xxx" Based on the above-quoted findings, the 1994 and 1995 claims were denied for lack of legal basis. However, in its letter dated January 8, 2004, JMOC argued that the amounts claimed for 1994 and 1995 were duly indicated in its income tax returns during the years in question and hence, did not prescribe. The Office of the Assistant Commissioner, Legal Service upheld the denial of the disputed claims pertaining to the taxable years 1994 and 1995 on the ground of prescription. Hence, this request for reconsideration. In reply, please be informed that the applicable provisions of law are Sections 204 (3) and 230 of the 1977 Tax Code, as amended, to wit: SEC. 204. Authority of the Commissioner to compromise, abate, and refund/credit taxes. The Commissioner may (3) Credit refund taxes erroneously or illegally received, penalties imposed without authority, refund the value of internal revenue stamps when they are returned in goods condition by the purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two year after the payment of the tax or penalty. 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 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 proceeding shall be 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) 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. (Commissioner of Internal Revenue vs. Philippine American Life Insurance Co., et al., G.R. No. 105208 [May 29, 1995]) From the foregoing, it is expressly mandated that both the claim for refund with the Bureau of Internal Revenue and the subsequent appeal to the Court of Tax Appeals must be filed within the two year period. These two requirements are mandatory and non-compliance therewith would be fatal to the action for refund or tax credit ( Johnston Lumber Co., Inc. vs. CTA, 101 Phil. 151; Guagua Electric Light Co., Inc. vs. Collector, L-14421, April 29, 1961). (Itogon Suyoc Mines, Inc. vs. Commissioner of Internal Revenue, C.T.A. Case No. 4658 [February 20, 1995]) In the instant case, while JMOC's income tax returns for the years 1994 and 1995 were respectively filed on April 17, 1995 and April 30, 1996, its claim for refund for excess withholding for the said periods was only filed on August 21, 1998. Clearly, more than two (2) years have elapsed from the filing of said returns up to the actual filing of the claim for refund. Accordingly, the same is already barred by prescription. Based on the foregoing, this Office hereby affirms the earlier opinion of the Assistant Commissioner, Legal Service that the claim of J.M. Ortiz & Co. Inc. for refund of its excess withholding tax for the taxable years 1994 and 1995 has already prescribed. The request for reconsideration is denied. EAcIST Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Commissioner of Internal Revenue