San Carlos Milling Co., Inc. v. Commissioner of Internal Revenue

FIFTEENTH DIVISION [CA-G.R. SP No. 22346. December 23, 1991.] (C.T.A. Case No. 3811) SAN CARLOS MILLING CO., INC. , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS , respondents . D E C I S I O N YNARES-SANTIAGO , J p : By this petition for review, the petitioner seeks to appeal the Decision, dated February 28, 1990, of the Court of Tax Appeals in CTA Case No. 3811 entitled "San Carlos Milling Co., Inc. vs. Commissioner of Internal Revenue, and the resolution, dated June 25, 1990, denying reconsideration of said decision. The facts of this case are summarized in the decision of the Court of Tax Appeals, to wit: "Petitioner domestic corporation had for the taxable year 1982 a total income tax overpayment of P781,393.00 reflected as a creditable income tax in its annual final adjustment return. The application of the amount for the 1983 tax liabilities remained unutilized in view of petitioner's net loss for the year and still yet had a creditable income tax of P4,470.00 representing the 3% of 15% withholding tax on storage credits. Accordingly the final adjustment income tax return for the taxable year 1983 reflected the amount of P781,393.00 carried over as tax credit and P4,470.00 creditable income tax. In a May 17, 1984 letter to the respondent, petitioner signified its intention to apply the total creditable amount of P785,863.00 against its 1984 tax dues consistent with the provision of Section 86, ibid, coupled with a comforting alternative request for a refund or tax credit of the same. Respondent disallowed the proffered automatic credit but treated the request as an ordinary claim for refund/tax credit under Section 292 in relation to Section 295 of the Tax Code and accordingly subjected the same for verification/investigation. No sooner than the respondent could act on the claim, petitioner filed a petition for review on July 18, 1984. And before this Court could formally supplemental petition on March 11, 1986, after having unilaterally effected a set-off of its creditable income tax vis a vis income tax liabilities, earlier denied by the respondent." On February 28, 1990, the Court of Tax Appeals rendered Judgment and dismissed the petition accordingly. A motion for reconsideration was filed by petitioner corporation, which the court, in a resolution dated June 25, 1990, denied without prejudice, however, to any administrative claim for tax refund of tax credit petitioner may resort to. Assailing this CTA resolution, as well as its decision, San Carlos Milling Co., Inc. filed the instant petition. The issues presented to this Court for resolution are: "WHETHER OR NOT PETITIONER IS ENTITLED TO CONFIRMATION THAT IT MAY AUTOMATICALLY APPLY AS TAX CREDIT THE AMOUNT OF P785,863.00, REPRESENTING INCOME TAX OVERPAYMENT REFLECTED IN ITS 1983 INCOME TAX RETURN AGAINST ITS INCOME TAX LIABILITIES FOR 1984. ASSUMING THAT PETITIONER MAY NOT AVAIL OF SUCH AUTOMATIC TAX CREDIT, WHETHER OR NOT PETITIONER IS ENTITLED TO A TAX CREDIT OR REFUND OF THE P785,863.00 INCOME TAX OVERPAYMENT." Sec. 86 (now 64) of the National Internal Revenue Code (NIRC)provides: "SEC. 86. 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 refund of the excess estimated quarterly income tax 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." Revenue Regulations No. 10-77 dated October 7, 1977, implements this provision of the NIRC, and provides that: "SEC. 7. Revenue Regulations No. 10-77 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 to the refund of the overpaid income tax or claim for automatic tax credit to be applied against its income tax liabilities for the quarter of the succeeding taxable year, by filling up the appropriate box on the corporate tax return, BIR Form No. 1702." All corporation subject to income tax, are required to file quarterly income tax returns, on a cumulative basis for the preceding quarters, upon which payment of their income tax has been made. In addition to the quarterly income tax returns, corporations are required to file a final or adjustment return on or before the fifteenth day of April. In the final return, if the sum of the quarterly tax payments is less than the tax due on the entire taxable net income, the corporation shall pay the deficiency, or if it had made overpayments, it shall be refunded whatever excess amount it had paid. A corporation entitled to a refund may credit it against its estimated quarterly income tax liabilities for the succeeding taxable year. For the effective implementation of Sec. 86 of the NIRC, especially in case of overpayments, Revenue Regulations No. 10-77 requires the taxpayer to signify in its annual corporate return, its intention to opt for, either a refund, or an automatic tax credit, Although the regulation does not expressly state the necessity of obtaining the Commissioner's approval, it is implicit in the regulation itself. Once a taxpayer opts for either a refund, or the automatic tax credit scheme, and signified his option in accordance with the regulation, this does not ipso facto confer on him the right to avail of the same immediately. An investigation, as a matter of procedure, is necessary to enable the Commissioner to determine the correctness of the petitioner's returns, and the tax amount to be credited. Pre-auditing the returns consists merely of an office audit, without necessarily examining the books of the taxpayer, and this is only a part of the investigation process. Whether or not a refund is to be made, and whether or not the amount to be refunded is correct, are matters that can only be determined after a complete and proper investigation of the taxpayer's books of account and accounting records. This requirement was stated in respondent. Commissioner's Answer to petitioner's claim for refund, viz . "June 18, 1984 "Jardine Davies Inc. 222 Buendia Avenue Makati, Metro Manila Attention: Mr. J.C. Castaed a Tax Manager Gentlemen : With reference to your letter dated May 17, 1984, requesting in behalf of SAN CARLOS MILLING CO., INC., an automatic application of overpaid income tax for 1982-1983 against any income tax liability for 1984 or beyond, please be informed that this Office considers this Claim as an ordinary claim for refund or tax credit under Section 292 in relation to Section 295 of the Tax Code. We have referred said claim to the Chief, Agriculture and Natural resources Division of this Bureau for investigation, report and recommendation. Any inquiry on the status of the claim should be directly to said revenue official. Very truly yours, RUBEN A. ANCHETA Acting Commissioner By: (Sgd.) EULOGIO H. NATIVIDAD Chief, Appellate Division" As correctly ruled by respondent Court of Tax Appeals: "All that we need to state is that the authorization for a kind of a set-off of creditable income tax against future tax liabilities conferred the corporate taxpayer in no wise lessens nor muffles the respondent's power of ascertaining the correctness of any tax return, hence the necessity of his imprimatur. A perusal of the implementing regulations readily provides a feel of the statutory intendment thus: xxx xxx xxx The clear and unambiguous consequence of the regulations as above stressed insofar as the same is brought to bear upon the circumstances obtaining in the case at bar, limits the petitioner' right to signify an intention to opt for either a refund or automatic tax credit. Any entitlement thereof must prove compliance with terms and conditions peremptorily required by law and rules lest the integrity of collection of the lawful dues be placed in the quicksand of self interest. A fortiori respondent must have to examine the return and determine the tax. Petitioner cannot have the best of both worlds so to speak". The case of Asia-Australia Express, Ltd. v. Commissioner (CTA Case No. 3695) cited by the petitioner is not applicable to the instant case. The issue raised therein was whether the taxpayer's filing of the refund therein was whether the taxpayer's filing of the refund claim had already prescribed, and if not, whether the company's availment of the automatic tax credit scheme operates as a waiver of its right to claim for a refund. The same is true in the case of Commissioner v. Itogon-Suyoc Mines, Inc. (28 SCRA 867 [1969], and Commissioner v. ESSO Standard Eastern, Inc. (172 SCRA 364 [1989], also cited by petitioners, considering that both cases involves the imposition of interest on a refundable amount, and both cases arose from facts that happened in 1960, when Revenue Regulations No. 10-77 was not implemented. Anent the second issue, the denial of petitioner's claim for automatic tax credit is without prejudice to its availment of the administrative remedy for refund, since the Commissioner of Internal Revenue had already taken cognizance of the petitioner's claim by treating the notice for automatic deduction as one for refund. The evidence on record shows that petitioner filed its notice in May 1984 which the Commissioner answered in June 1984; petitioner filed this petition for review with the Court of Tax Appeals in July 1984; that no grace period was give the Commissioner to investigate petitioner's claim. Although it is a well-settled rule that once a claim for refund has been filed with the Commissioner of Internal Revenue, the taxpayer need not await the latter's action thereon, and can thus two file his petition with the Court of Tax Appeals within two years from payment, pursuant to Sec. 292 (now Sec. 230), this rule finds no application in the instant case, because there was no inaction on the part of the Commissioner of Internal Revenue. In fact, in its letter to petitioner in June 1984, petitioner was directed to coordinate with the Chief of the Agriculture and Natural Resources Division of the Bureau, for investigation. WHEREFORE, in view of the foregoing considerations, the petition is hereby DISMISSED, without pronouncement as to costs. SO ORDERED. Pronove , Jr . and Lapea Jr., JJ., concur.