"Y" Electric Power

September 14, 1961 BIR RULING NO. 359-61 MEMORANDUM FOR The Revenue Operations Executive (Assessment) SUBJECT : Y Electric Power 2406 M. de la Cruz St. corner Dolores St. Pasay City Attached is the docket (consisting of 24 pages) bearing on the franchise tax case of the "Y" Electric Power, (hereinafter referred to as the Taxpayer for brevity) Pasay City, with the following comment on the legal issue involved. cdll Issue The only issue presented in this case is whether or not the Government can still recover the amount of P1,990.95, representing the franchise tax erroneously refunded to the Taxpayer under Treasury Warrant No. 4570525 dated June 20, 1956. Comment There is no question that this bureau committed an error in refunding the above-stated amount to the taxpayer on June 20, 1956. However, it is now settled in jurisprudence that the Government is not estopped by the neglect or omission of its officers or agents. "Where Commissioner refunded money to taxpayer because of erroneous conclusion in construction of statute, government was not barred by equitable estoppel or otherwise from maintaining suit to recover money refunded." (U.S. v. Heilbroner, Vol. 20 AFTR p. 867; See also U.S. v. Orson et al, Vol. 23 AFTR p. 614; and St. Louis Union Trust Co. v. United States, Vol. 17 AFTR p. 556.) Under the provisions of Section 308 of the Tax Code, this bureau can institute a civil action for the recovery of taxes , including of course the taxes erroneously refunded, but there appears no specific provision in the same Code as to the prescriptive period within which the Government may file or institute judicial action for recovery of tax erroneously refunded. Our course, therefore, is to consult the provisions of the New Civil Code of the Philippines. llcd Under Article 2155, in relation to Article 2154, of the New Civil Code, it is substantially provided that where payment has been made by reason of a mistake in the construction or application of a doubtful or difficult question of law, the obligation on the part of the recipient to return it arises. In other words, there exists a quasi-contract relationship (Between the Government and Taxpayer), as a result of the erroneous refund, known as solutio indebiti , defined by Manresa as follows: Solutio indebiti is "a tie or juridical relation which, by virtue of a payment of what is not due, made through mistake, is created between the person who paid and the one who received the payment, compelling the latter, in consequence thereof, to return what he has received". (p. 750, Vol. III, Civil Code Annotated" by Padilla.) The civil action, therefore, upon a quasi-contract must be commenced within six (6) years (Art. 1142, par. 2. N.C.C.) from the day the action could have been brought (Art. 1150, N.C.C.). Applying the foregoing provisions of law in the instant case, our right of action to recover the amount (P1,990.95) erroneously refunded to the taxpayer commenced on the day following June 20, 1956, the date Treasury Warrant No. 4570525 was issued. Computing the prescriptive period of 6 years from June 20, 1956, this bureau can still collect or recover the amount refunded until June 19, 1962. The prescriptive period of 6 years heretofore explained should not be confused with the prescriptive periods prescribed in Sections 331 and 332 of the Tax Code. LibLex Premises considered, the docket of this case is hereby returned for immediate appropriate action. (SGD.) MELECIO R. DOMINGO Commissioner of Internal Revenue