Fluor Daniel, Inc. Philippines v. Commissioner of Internal Revenue

FORMER FIFTH DIVISION [CA-G.R. No. 79596. July 14, 2005.] FLUOR DANIEL, INC. PHILIPPINES , petitioner , vs .COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N VIDALLON-MAGTOLIS , J p : This petition was originally filed with this Court on October 16, 2003. On February 9, 2005, the same was forwarded to the Court of Tax Appeals (CTA) for further proceedings, pursuant to Section 11 of Republic Act No. 9282, amending Section 18 of Republic Act No. 1125. However, in a resolution dated April 4, 2005, the CTA En Banc referred back this case to our Former Fifth Division for the reason that the case had been filed with the Court of Appeals on April 23, 2004 before the effectivity of R.A. No. 9282. Hence, we are again taking cognizance thereof. The changes in the reportorial requirements and payment schedules of corporate income taxes from annual to quarterly have created problems, especially on the matter of tax refunds. 1 In this case, the Court is called upon to resolve the question of whether alleged excess taxes paid by a corporation during a taxable year should be refunded or credited against its tax liabilities for the succeeding year. 2 The petitioner, Fluor Daniel, Inc.,is a corporation duly organized and existing under the laws of the Philippines and is primarily engaged in the construction and design engineering business. On February 15, 2000, the petitioner filed its annual income tax return (ITR) for the taxable fiscal year ending October 31, 1999 3 showing overpayment of income tax in the amount of P17,894,655.00. The petitioner opted to carry-over the aforesaid amounts as tax credit for the next taxable fiscal year computed as follows: Gross Income from Operation P273,660,115.00 Add: Non-Operating & Other Income 30,695,857.00 Total Gross Income P304,355,972.00 Less: Deductions 287,144,277.00 Taxable Income P17,211,695.00 ============ Minimum Corporate Income Tax P6,087,119.00 Prior Year's Excess Credit P795,410.00 Tax Payments for the First Three Quarters 20,761,139.00 Creditable Tax Withheld for the First Three Quarter 1,133,901.00 Creditable Tax Withheld for the Fourth Quarter 1,291,324.00 Total Tax Credits/Payments P23,981.774.00 Tax Payable/(Overpayment) P(17,894,655.00) ============= On February 15, 2001, the petitioner filed its annual ITR 4 for taxable fiscal year ending October 31, 2000 showing overpayment of income tax in the amount of P16,776,328.00 computed as follows: SCHIcT Revenues P185,245,536.00 Less: Cost of Sale 136,237,749.00 Gross Income from Operation P49,007,787.00 Add: Non-Operating & Other Income 36,160,578.00 Total Gross Income P85,168,365.00 Less: Deductions 211,086,290.00 Taxable Income P(125,917,925.00) Minimum Corporate Income Tax P1,703,367.00 Prior Year's Excess Credit P17,894,655.00 Creditable Tax Withheld for the First Three Quarters 232,060.00 Creditable Tax Withheld for the Fourth Quarter 352.980.00 Total Tax Credits/Payments P18,479,695.00 Tax Payable/(Overpayment) P(16,776,328.00) The petitioner, opted to be issued a tax credit certificate for the said amount of income tax overpayment by marking with an "x" the appropriate box in the return. However, on April 18, 2001, the petitioner filed an amended annual ITR 5 for taxable fiscal year ending October 31, 2000, showing instead an overpayment of income tax in the amount of P16,513,519.00, after adjusting its revenues and deductions. The decrease in overpayment was mainly due to the increase of petitioner's Minimum Corporate Income Tax (MCIT) from P1,703,367.00 to P1,966,176.00 for the fiscal year. The overpayment of income tax in the amount of P16,513,519.00 was computed as follows: Revenues P231,556,920.00 Less: Cost of Sales 170,297,187.00 Gross Income from Operation P61,259,733.00 Add: Non-Operating & Other Income 37,049,079.00 Total Gross Income P98,308,812.00 Less: Deductions 263,504,988.00 Taxable Income P(165,196,176.00) ============== Minimum Corporate Income Tax P1,966,176.00 Prior Year's Excess Credit P17,894,655.00 Creditable Tax Withheld for the First Three Quarters 232,060.00 Creditable Tax Withheld for the Fourth Quarter 352.980.00 Total Tax Credits/Payments P18,479,695.00 Tax Payable/(Overpayment) P(16,513,519.00) ============= Petitioner opted to be issued a tax credit certificate for the said amount of income tax overpayment by marking with an "x" the appropriate box in the return. On May 25, 2001, the petitioner filed with the respondent a claim for refund/issuance of tax credit certificate for the amount of P16,513,519.00 representing its income tax overpayment and unutilized creditable withholding tax as shown in its amended ITR for the taxable fiscal year ending October 31, 2000, pursuant to Sections 76 and 204 (C) of the 1997 Tax Code. Since the respondent failed to act on the said claim, the petitioner filed on July 16, 2001 the instant petition. Only the petitioner presented its evidence. The respondent, on the other hand, waived its right to present its evidence. On May 16, 2003, the CTA rendered the assailed decision, 6 the dispositive portion of which reads: "WHEREFORE, petitioner's 1999 claim for issuance of a tax credit certificate representing its alleged overpaid income tax in the amount of P15,935,126.62 is DENIED but its year 2000 claim for issuance of a tax credit certificate is hereby GRANTED in the amount of P585,039.85. "SO ORDERED." 7 The petitioner's motion for reconsideration of the aforesaid decision was likewise denied in a resolution dated September 11, 2003. 8 Hence, this petition. ASSIGNMENT OF ERROR The petitioner imputes a single error to the CTA, to wit: THE CTA ERRED IN DENYING THE PETITIONER'S 1999 CLAIM FOR ISSUANCE OF A TAX CREDIT CERTIFICATE FOR ITS OVERPAID INCOME TAX IN THE AMOUNT OF P15,935,126.62. THE COURT'S RULING The resolution of the issue herein hinges on the interpretation of Section 76 of Republic Act No. 8424 9 Which 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 ." The petitioner alleges that the irrevocability of the "option to carry-over" the excess tax credit is qualified by the phrase "for the taxable period" which means that the option to carry over applies only to the immediately succeeding taxable year. There is therefore no prohibition in seeking a refund or the issuance of a tax credit certificate following the lapse of the taxable year to which it was carried over. Thus, after the fiscal year ending October 31, 2000, the petitioner allegedly has the option to file a claim for refund or issuance of a tax credit certificate for the income tax overpayment shown in its annual income tax return for taxable fiscal year 2000, which in the instant case allegedly included the unutilized portion of the 1999 excess income tax credits it carried over to taxable fiscal year 2000. We do not agree. The aforequoted Section 76 of R.A. No. 8424 emphasizes that it is imperative to indicate in the tax return or the final adjustment return whether a tax credit or refund is sought by making the taxpayer's choice irrevocable. 10 As it is, the taxpayer is allowed three (3) options if the sum of its quarterly tax payments made during the taxable year is not equal to the total tax due for that year: (a) pay the balance of the tax still due; (b) carry-over the excess credit; or (c) be credited or refunded the amount paid. If the taxpayer has paid excess quarterly income taxes, it may be entitled to a tax credit or refund as shown in its final adjustment return which may be carried over and applied against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years. However once the taxpayer has exercised the option to carry-over and to apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years, such option is irrevocable for that taxable period and no application for cash refund or issuance of a tax credit certificate shall be allowed. 11 It must be stressed that the corporation was given this option to carry over the excess tax credit to prevent it from claiming twice the excess quarterly taxes paid: one as automatic credit against taxes for the taxable quarters of the succeeding years for which no tax credit certificate (TCC) has been issued; another as a tax credit for which a TCC will be issued or convert such tax credit into a claim for cash refund. 12 Thus, once the option was exercised for that taxable period when the excess income tax payment was incurred, such option is irrevocable, and the taxpayer (petitioner herein) is precluded from availing of the other options i.e.,to claim for refund or to be issued a tax credit certificate. This is precisely why 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. 13 The taxpayer's election, signified by the ticking of boxes in Item 10 of BIR Form No. 1702, is not a mere technical exercise. It aids in the proper management of claims for refund or tax credit by leading tax authorities to the direction they should take in addressing the claim. 14 The petitioner's annual income tax return for fiscal year ending October 1999 shows that it opted to carry over and apply as tax credit its excess quarterly income tax against the estimated quarterly income tax liabilities for the taxable quarters of 2000. 15 Such being the case, the petitioner cannot now be allowed to claim for cash refund or to be issued a tax credit certificate therefor. We do not also subscribe to the petitioner's argument that considering that it recently became a Board of Investment (BOI) registered service enterprise, it enjoys a six-year income tax holiday commencing from its actual date of registration as such with the BOI on August 28, 2000, and therefore cannot validly continue to carry-over its income tax overpayment for the fiscal years 1999 send 2000 to the succeeding taxable years. 16 As correctly pointed out by the tax court, Section 76 of the 1997 Tax Code does not limit the number of taxable years within which a taxpayer may apply its excess income tax payments for the chosen taxable year. The law itself allows the application of any excess income tax payments against the estimated quarterly income tax liabilities for the taxable quarters of the " succeeding taxable years " or until such is fully utilized. It should be remembered that taxation is a destructive power which interferes with the personal and property rights of the people and takes from them a portion of their property for the support of the government. And since taxes are what we pay for civilized society, or are the lifeblood of the nation, the law frowns against exemptions from taxation and statutes granting tax exemptions are thus construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority. 17 A claim of refund or exemption from tax payments must be clearly shown and be based on language in the law too plain to be mistaken. 18 Elsewise stated, taxation is the rule, exemption therefrom is the exception. 19 WHEREFORE, the petition is DENIED for lack of merit. The challenged decision of the Court of Tax Appeals is hereby AFFIRMED. SO ORDERED. Delos Santos and Brion, JJ., concur. Footnotes 1. The Provision on the filing of corporate returns was first amended by P.D. 1158-A (June 3, 1977), which required the filing of quarterly income tax returns. The amendment was incorporated in the National Internal Revenue Code of 1977. P.D. 1705 (August 1, 1980) and P.D. 1773 (January 16, 1981) further amended the provision. The amendment was incorporated in subsequent tax codes up to the present Tax Reform Act of 1997. 2. Paseo Realty & Development Corporation vs. Court of Appeals ,440 SCRA 235, 237. 3. Rollo ,p. 67. 4. Id .at p. 66. 5. Id .at p. 65. 6. Id .at p. 7. 7. Id. at p. 15. 8. Id. at p. 16. 9. Tax Reform Act of 1997. 10. Paseo Realty & Development Corporation vs. Court of Appeals ,440 SCRA 235, 249-250. 11. Id. at pp. 250-251. 12. Hector De Leon, The National Internal Revenue Code Annotated, 2000 ed.,p. 430. 13. Section 7, Revenue Regulation No. 10-77 of the Bureau of Internal Revenue which implemented Section 75 & 76 of the 1997 Tax Code, which reads: Section 7. Filing of final or adjustment return and final payment of income tax. A final or an adjustment return on B.I.R. Form No. 1702 covering the total taxable income of the corporation for the preceding calendar or fiscal year shall be filed on or before the 15th day of the fourth month following the close of the calendar or fiscal year. the return shall include all the items of gross income and deductions for the taxable year. The amount of income tax to be paid shall be the balance of the total income tax shown on the final or adjustment return after deducting therefrom the total quarterly income taxes paid during the preceding first three quarters of the same calendar or fiscal year. Any excess of the total quarterly payments over the actual income tax computed and shown 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 its intention whether to request for refund of the overpaid income tax or claim for automatic tax credit to be applied against its income tax liabilities for the quarters of the succeeding taxable year by filling up the appropriate box on the corporate tax return .(Underscoring Ours) 14. Paseo Realty & Development Corporation, supra at p. 249. 15. Rollo ,p. 66. 16. Id. at p. 35. 17. Paseo Realty & Development Corporation, supra at p. 251. 18. Ibid .,Please see also Philippine Long Distance Telephone Company, Inc. vs. City of Davao , 399 SCRA 442, 453. 19. Paseo Realty & Development Corporation, supra.