Smithline Beecham Research Limited Philippine Branch v. Commissioner of Internal Revenue

SIXTH DIVISION [CA-G.R. SP CASE NO. 50041. November 26, 1999.] SMITHLINE BEECHAM RESEARCH LIMITED PHILIPPINE BRANCH , petitioner , vs . THE COMMISSIONER OF INTERNAL REVENUE AND THE COURT OF TAX APPEALS , respondents . D E C I S I O N BRAWNER , J p : The is a Petition for Review of the decision of the Court of Tax Appeals (CTA) dated September 15, 1998 denying Petitioner's claim for refund. The CTA held that the claim for refund of overpaid income tax in the amount of P3,499,681, resulting from an excess of creditable withholding taxes for the calendar year ended December 31, 1994 was already barred by prescription. This is due to the petitioner's failure to file its Petition for Review in the CTA within the two-year period as required by Section 230 of the National Internal Revenue Code (NIRC). The relevant dispositive portion of the CTA decision reads as follows: "Wherefore, in view of the foregoing, . . . (t)he claim for refund of petitioner for the calendar year 1994 is hereby denied for being filed out of time . . . SO ORDERED". The antecedent facts are as follows: Petitioner is a corporation duly registered in the Securities and Exchange Commission. On April 11, 1995, it filed with the Bureau of Internal Revenue its Corporate Annual Income Tax Return for the calendar year 1994, declaring a net loss in the amount of P169,542,241. In the same year, however, petitioner reported a creditable withholding tax in the amount of P3,499,681. The amount of P3,499,681, representing the creditable withholding taxes from petitioner was not carried forward to the succeeding calendar year inasmuch as petitioner suffered a net taxable loss in 1994. As a result, Petitioner is entitled to a refund of P3,499,681. based on Section 69 of the National Internal Revenue Code (NIRC) in relation to Section 230 thereof, as amended. 1 On October 22, 1996, petitioner filed with the Bureau of Internal Revenue an application for the refund of the amount of P3,499,681, as unutilized creditable withholding tax paid in accordance with Section 230 of the NIRC. 2 On April 14, 1997, Petitioner filed its Petition for Review with the Court of Tax Appeals (CTA) without awaiting the result of its claim. This is to toll the running of the prescriptive period under Section 230 of the NIRC. On September, 15, 1998, the CTA promulgated its decision denying the claim for refund for calendar year 1994 on the ground of prescription. The CTA stated that ". . . the claim for refund of overpaid income tax arising from the excess payment of withholding tax at source should be filed both with the Commissioner of Internal Revenue and with this Court within the two-year period from the date of payment of the tax as provided under Section 230 of the Tax Code. A verification of the judicial claim for refund of petitioner for the calendar year 1994 disclosed that the petitioner only filed the instant action on April 14, 1997 whereas the date of payment of the tax was on April 11, 1995, the date when the annual income tax return of petitioner was filed. Therefore, the 1994 claim for refund in the amount of P3,499,681 has already prescribed for being filed beyond the two-year period provided by law. On October 5, 1998, the Petitioner filed its Motion for Reconsideration which the CTA denied on November 25, 1998. prcd Hence, this Petition for Review. The issue in the case at bar is whether the Petitioner's claim for refund is barred by prescription. Its resolution is dependent on the precise definition of the phrase "from the date of payment" stated in Section 230 of the NIRC. The particular question is whether the reckoning date of the two-year period is on April 15, the last day required by law for the filing of the final adjustment return or April 11, the actual date the final adjustment return was filed by the Petitioner. The Petitioner alleges that the Court of Tax Appeals erred in considering that the start of the two year period should be reckoned from April 11, 1995, the date when Petitioner filed its final adjustment return for the taxable year 1994. The Petitioner contends that the two-year period should be reckoned from April 15, 1995, the last day within which the Petitioner was allowed to file his final adjustment return. Since it filed the CTA Petition for Review on April 14, 1997, Petitioner was well within the two-year prescriptive period. To support its contention that the date of payment is counted from April 15, the Petitioner cited the case of ACCRA Investment Corporation v . the Honorable Court of Appeals, Commissioner of Internal Revenue and the Court of Tax Appeals, G.R . No . 96322, December 20, 1991 (hereinafter referred to as ACCRAIN) in which the Supreme Court interpreted the phrase "from the date of payment." The Court ruled: "The respondent appellate court citing the case of Gibbs v. Commissioner of Internal Revenue (155 SCRA 318 [1965]), construed the phrase "from the date of payment" as to be reckoned from the "end of the tax year" when the petitioner corporation was deemed to have paid its tax liabilities in question under the withholding tax system (CA Decision, pp. 4-5; Rollo, pp. 28-29). "The respondent appellate court in this case has misapplied jurisprudential law. In the Gibbs case; supra , cited by the Court of Appeals, we have clearly stated that: "Payment is a mode of extinguishing obligations (Art. 1231, Civil Code) and it means not only the delivery of money, but also the performance, in any other manner, of an obligation ( id ., 1231). A taxpayer, resident or non-resident, does so not really to deposit an amount to the Commissioner of Internal Revenue, but, in truth, to perform and extinguish his tax obligation for the year concerned. In other words, he is paying his tax liabilities for that year. Consequently, a taxpayer whose income is withheld at source will be deemed to have paid his tax liability when the same falls due at the end of the tax year . It is from this latter date then, or when the tax liability falls due , that the two-year prescriptive period under Section 306 (now part of Section 230) of the Revenue Code starts to run with respect to payments effected through the withholding tax system . . . (at p. 325, Emphasis supplied). "The aforequoted ruling represents two alternative reckoning dates, i.e., (1) the end of the tax year; and (2) when the tax liability falls due. In the instant case, it is undisputed that the petitioner corporation's withholding agents had paid the corresponding taxes withheld at source to the Bureau of Internal Revenue from February to December 1981. In having applied the first alternative date "the end of the tax year" in order to determine whether or not the petitioner corporation's claim for refund had been seasonably filed, the respondent appellate court failed to appreciate properly the attending circumstances of this case. "The petitioner corporation is not claiming for a refund of overpaid withholding taxes, per se. It is asking for the recovery of the sum of P82,751.91, the refundable or creditable amount determined upon the petitioner corporation's filing of its final adjustment return on or before April 15, 1982 when its tax liability for the year 1981 fell due . . ." 3 Petitioner contends that, as a corporation like ACCRAIN, its tax liability for the taxable year 1994 falls due on April 15, 1995. Thus, it is from this date when the two year prescriptive period under Section 230 started to run. When the petitioner filed its claim for refund on April 14, 1997, it was filed a day ahead of the April 15, 1997 deadline and not three days late as ruled by the CTA. Thus, the claim was within the two-year period. The petitioner also argues that when the NIRC makes reference to "payment" of the tax, "it logically and necessarily refers to the due dat e (emphasis supplied) of the filing of the required tax return. In view of Section 203". 4 "Under Section 203, which is the statute of limitations in respect to the BIR's right to assess and collect taxes, the BIR has only three (3) years within which to assess the proper taxes, reckoned from the last day prescribed by law for the filing of the return . (emphasis ours) Where the return is filed after the said due date, then the three year period is counted from the precise day the return was filed." By analogy, the Petitioner contends that Section 230 should be read in the same manner as Section 203. " . . . a (final adjustment) return filed before the last day or due date for the filing thereof shall be considered as filed on such last day . (Emphasis supplied)" 5 The Petitioner supports this argument by stating that: ". . . the assessment and collection of taxes is a remedy afforded by law to the BIR. Correspondingly, where the BIR erred in the exercise of said remedy, the taxpayer is equally afforded the remedy of a tax refund or credit. . . . these remedies are intended to place both the BIR and the taxpayer on equal footing, such that neither party is unduly disadvantaged in terms of rights available. . . ." 6 As such, the Petitioner concludes that when it filed its final adjustment return on April 11, 1995, the return should be considered filed not on April 11, 1995 but on April 15, 1995. The right to claim a tax refund or tax credit for overpaid income tax starts to accrue, not on the date that the petitioner actually filed the final adjustment return, but on the last day the petitioner was required by law to file the said return. The petition is without merit. The issue as to when the prescriptive period provided in Section 230 of the NIRC commences to run has long been settled in several cases decided by the Supreme Court. In the case of Commissioner of Internal Revenue v . Asia Australia Express Ltd . G.R . No . L-85956 , Resolution, dated April 10, 1989 , the Supreme Court ruled that "the two-year prescriptive period within which to claim a refund commences to run at the earliest, on the date of the filing of the adjusted final tax return. In Commissioner of Internal Revenue v . Philamlife, GR No . 105208 May 29, 1995 , the Supreme Court ruled that the two-year prescriptive period to claim for a refund commences to run only from the time the refund is ascertained, which can only be determined after a final adjustment return is accomplished. In fact, in the most recent case of Commissioner of Internal Revenue vs . Court of Appeals, et al . GR No . 117254 , January 21, 1999 , the Supreme Court held: "Thus it can be deducted from the foregoing that, in the context of Section 230, which provides for a two-year period of prescription counted from the date of payment of the tax for actions for refund of corporate income tax, the two year period should be computed from the time of actual filing of the Adjustment Return or Annual Income Tax Return. This is so because at that point, it can already be determined whether there has been an overpayment by the taxpayer. Moreover, under Section 49(a) (now Section 56(a)) of the NIRC, payment is made at the time the return is filed. The question is whether the two-year period of prescription for filing a claim for refund, as provided in Section 230 of the NIRC, is to be counted from April 2, 1986 when the corporate income tax return was actually filed or from April 15,1986 when according to Section 70(b) of the NIRC, the final adjustment return could still be filed without incurring any penalty. In the case at bar, Paramount filed its corporate annual income tax return on April 2, 1986. However, private respondent BPI, as liquidator of Paramount, filed a written claim for refund only on April 14, 1988 and a petition for refund only on April 15, 1988. Both claim and action for refund were thus barred by prescription (Emphasis supplied). LexLib Thus, contrary to the contention of the Petitioner that the reckoning date is April 15, jurisprudence is unmistakably clear that the reckoning point is the date of actual filing which may be on or before the 15th of April. In fact, the Petitioner cannot rely on ACCRAIN v. CA, supra , to support its case. The final adjustment return in ACCRAIN was actually filed on April 15, 1982 which is coincidentally the last day for filing of the final adjustment return as required by the NIRC. Unlike ACCRAIN, the Petitioner filed its final adjustment return on April 11, 1995. The Supreme Court in the abovementioned cases did not state that the reckoning date, regardless of the actual filing of the final adjustment return, is on the 15th of April. The two-year prescriptive period starts to run from the time the taxpayer actually filed its final adjustment return which can be on or before the 15th day of April or of the month following the close of the fiscal year covering the entire taxable income of the preceding calendar or fiscal year. The date April 15 is stated in the decision to set the final day or deadline for filing the income tax return as required by law. It was not intended to be the only period within which the two-year period shall be counted unless the final return was in fact filed on that last day, as in the case of ACCRAIN, supra . LexLib In ACCRA Investments Corporation vs . Court of Appeals, GR No . 96322 December 20, 1991 , and Commissioner of Internal Revenue vs . TMX Sales, Inc ., GR No . 83730 January 15, 1992 the Supreme Court held that the rationale in computing the two-year prescriptive period with respect to the petitioner corporation's claim for refund from the time it filed its final adjustment return is the fact that it is only then that the corporation could ascertain whether it made profits or incurred losses in its business operations. Thus, it is clear that when the Petitioner filed its Corporate Annual Income Tax Return on April 11, 1995, Petitioner had already ascertained the results of its business operations for the year 1994. Hence, it is from this date, April 11, 1995, that the two-year prescriptive period shall commence to run. Petitioner had until April 11, 1997 to file a judicial claim for refund pursuant to Section 230. However, the Petition for Review in the CTA was filed only on April 14, 1997 . This is already beyond the two-year prescriptive period for claiming a refund. The two-year period commenced to run on April 11, 1995, the date when petitioner filed its final adjustment return for the taxable year 1994. The foregoing conclusion makes it unnecessary for us to pass on the other contentions raised in this case by the Petitioner. WHEREFORE, the decision of the Court of Tax Appeals denying Petitioner's claim for tax refund in the amount of P3,499,681, is AFFIRMED. SO ORDERED. Sandoval-Guiterrez and Villarama , Jr ., JJ ., concur. Footnotes 1. Section 69 "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 the 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." 2. Section 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 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 (Emphasis supplied). 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. 3. Rollo , p. 14 4. Rollo , p. 15 5. ibid . 6. ibid .