Commissioner of Internal Revenue v. Court of Tax Appeals

SPECIAL SEVENTH DIVISION [CA-G.R. SP No. 25054. October 28, 1991.] (C.T.A. Case No. 3200) COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . HON. COURT OF TAX APPEALS, and WESTINGHOUSE INTERNATIONAL PROJECT CO. , respondents . D E C I S I O N LUNA , J p : This is an appeal by the Office of the Solicitor General from the decision of the Court of Tax Appeals dated April 12, 1991, the dispositive portion of which reads: "WHEREFORE, the petition is granted. Respondent Commissioner of Internal Revenue is hereby ordered to grant a refund to petitioner Westinghouse International Projects Co. in the amount of P3,415,822.00, representing overpaid income tax for 1984." The petitioner submitted the case based on the records and pleadings and presented no controverting evidence. Thus, the facts, as stated in the Court of Tax Appeals decision, are as follows: "This case involves a claim for refund of alleged overpaid income tax for the taxable year ending December 31, 1984, amounting to P3,415,822.00. "Petitioner is a foreign corporation licensed to do business in the Philippines and had been authorized by the Board of Investments to enter into agreements with Westinghouse Electric, S.A., with respect to contracts entered into by the latter with the National Power Corporation in connection with the Nuclear Power Plant Project in Bataan. For the first two quarters of 1984, petitioner paid the following income tax: Quarter Taxable Net Income Tax Due Tax Paid 1. First P14,706.646 P5,137.326 P5,137.326 Quarter 2. Second Quarter 43,522.302 15,222.805 10,085.479 Total Paid P15,222.805 "For the third quarter, however, petitioner paid no income tax since its operation resulted in a loss. Petitioner filed its final income tax return on April 11, 1985 showing a net income of P33,762,810.00. Consequently, petitioner claims it overpaid its income tax for the taxable year, ending December 1984, by P3,145,822.00, and thereby filed a claim for refund with the respondent on August 15, 1986 and this petition for review on August 22, 1986." The sole issue raised by petitioner is: "WHETHER OR NOT THE CLAIM FOR REFUND WITH RESPECT TO THE AMOUNT OF P5,137,326.00 FROM THE FIRST QUARTER INCOME TAX PAYMENT IS ALREADY BARRED BY PRESCRIPTION PURSUANT TO SECTION 292 OF THE 1977 TAX CODE (NOW SECTION 230)." The Solicitor General, in support of the position that the claim for refund had prescribed, cited Pacific Procon Limited vs. Court of Tax Appeals, et al., G.R. No. 68013, wherein the Second Division of the Supreme Court, in a Resolution adopted on November 27, 1984, resolved to deny for lack of merit the petition for review by the Pacific Procon Limited from the decision of the Court of Tax Appeals in Case No. 3200 rendered on January 25, 1984, pertinent portion of which reads: "Under Section 292 (formerly Section 306) of the National Internal Revenue Code, a claim for refund of a tax alleged to have been erroneously or illegally collected shall be filed with the Commissioner of Internal Revenue within two years from the date of payment of the tax, and that no suit or proceeding for refund shall begin after the expiration of the said two-year period. (Sec. 292, National Internal Revenue Code; Collector of Internal Revenue vs. Court of Tax Appeals and Hume Pipe & Asbestos Co., Inc. L-11497, January 28, 1961, 1 SCRA 87-93; Guaga Electric Light Plant Co., Inc. vs. The Collector of Internal Revenue & The Hon. Court of Tax Appeals, L-14421, April 29, 1961, 1 SCRA 1221-1226.) As a matter of fact, the said section further provides that: . . . "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." The first case cited by the CTA is Collector of Internal Revenue vs. Court of Tax Appeals and Hume Pile & Asbestos Co., Inc., 1 SCRA 87-93, decided on January 28, 1961, holding that: "Upon the facts stated heretofore, the Company's petition for refund was filed on June 12, 1956, the payment of the first installment due on the assessment made by the petitioner was effected on August 14, 1954, while that of the second and last installment was made on November 11 of the same year. Upon the other hand, the Company filed the petition for review in the Court of Tax Appeals on August 14, 1956. At that time the herein petitioner had under consideration for more than two months the petition for refund filed by the Company but, for unknown reasons, the same had remained undecided. If the two-year period for the filing of an appropriate action under the provisions of Section 306 of the National Internal Revenue Code to recover from the Collector of Internal Revenue any amount paid under an erroneous or illegal assessment is to be computed from the date when the first installment was paid, it is clear that the Company file the petition for review with the Court of Tax Appeals exactly on the last day of said period of two years, viz, August 14, 1956. The Company, therefore, had no alternative but to file suit, for otherwise any action it had for refund would have prescribed." The second case cited by the Court of Tax Appeals is Guagua Electric Light Plant Co., Inc. vs. The Collector of Internal Revenue and the Hon. Court of Tax Appeals , 1 SCRA 1221-1226, decided on April 29, 1961, holding that: "In any event, pursuant to section 306 of the Tax Code, no suit or proceeding for refund or credit of any national internal revenue tax erroneously or illegally assessed or collected shall be begun after the expiration of two (2) years from the date of payment. This provision, which is mandatory, is not subject to any qualification, and, hence, it applies regardless of the conditions under which the payment has been made." The Court of Tax Appeals, however, in the decision under review, cited Commissioner of Internal Revenue vs. Asia Australia Express Ltd., represented by Soriamont Steamship Agencies, Inc., and Court of Tax Appeals, wherein the First Division of the Supreme Court, in a resolution dated April 10, 1989, found ". . . no reversible error in the decision of the Court of Tax Appeals which ordered the petitioner to refund or credit to the private respondent the amount of P60,380.49, representing overpaid income taxes for fiscal years 1981 and 1982". In ordering the refund, the Supreme Court held: ". . . Its ruling that the private respondent's right to claim the refund of excess income taxes (paid by it in quarterly installments) for 1981 and 1982, had not yet prescribed is supported by Our decisions in Collector of Internal Revenue vs. Prieto, 2 SCRA 1007 and Commissioner of Internal Revenue vs. Palanca, Jr., 18 SCRA 496, where We ruled that "when a tax is paid in installments, the prescriptive period of two years provided in Section 306 (now Section 292) of the National Internal Revenue Code should be counted from the date of the final payment." The "final payment" is the last quarter payment at the end of the fiscal year when it is finally ascertainable that the taxpayer either made profits or suffered losses in its business operations." It is observed that in that 1989 resolution, the First Division of the Supreme Court cited two decisions. One is Collector of Internal Revenue vs. Prieto, et al., L-11976, 2 SCRA 1007, 1015-1017, decided on August 29, 1961, holding that when a tax is paid in installments, the prescriptive period of two years provided under Section 306 of the National Internal Revenue Code should be counted from the date of the final payment. Thus: "With respect to petitioner's contention that the claim for refund had already prescribed when filed, it should be observed that the estate and inheritance taxes in this case were assessed and reassessed by petitioner five different times in the following manner: Estate tax Inh. tax "First Ass. P447,491.04 P494,224.40 Second Ass. 798,840.04 1,095,394.19 Third Ass. 681,692.02 897,154.50 Fourth Ass. 659,924.74 355,402.31 Last Ass. 613,674.04 777,129.62 "As stated heretofore, when petitioner made his final assessment under the third assessment notice P681,692.02 had already been paid in full. Consequently, when the aforesaid last assessment reduced the estate tax to P613,674.04, there was a resulting overpayment of the estate tax in the sum of P68,018.02 which petitioner credited to the unpaid inheritance taxes due from the heirs. From February 18, 1953, therefore, there was no longer any question of payment or overpayment of the estate tax which explains the fact that respondents claim refund of inheritance tax only. "On the other hand, according to the stipulation of facts, the three respondents had made the following payments on account of their inheritance taxes after February 12, 1953: "Petitioners Amount Date Paid Receipt Antonio Prieto P30,000.00 March 11, 1953 39389 V-2 Benito Prieto & Mauro Prieto 10,000.00 Sept. 1, 1953 42393 V-2 10,000.00 Jan. 16, 1954 42902 V-2 20,000.00 June 9, 1954 48923 V-2 30,592.50 Dec. 9, 1954 49260 V-2 30,592.50 Dec. 9, 1954 49261 V-2 "Inasmuch as, according to petitioner himself, the claim for refund was filed or made or February 14, 1955, it is obvious that the same was filed within the period of two years provided by law. The following considerations made by the Court of Tax Appeals on this matter sufficiently disposes of it: "In connection with the statute of limitations as to the inheritance tax, the evidence show, that considering the amount involved, the entire tax liability of the petitioner for both estate tax and inheritance tax were settled thru periodical payments or installments, approved by respondent until the total amount was satisfied. In fact, the last payment of the inheritance tax pertaining to Antonio Prieto was made on March 11, 1953 and as regards Benito Prieto and Mauro Prieto on December 9, 1954 (par. 20, Stipulation of Facts). On January 12, 1955 petitioners filed their claim for refund of the taxes allegedly overpaid and on January 14, 1955 respondent rendered his decision thereon from which petitioners interposed the present appeal. "The defunct Board of Tax Appeals in the case of RCA Communications, Inc. vs. David (B.T.A. Case No. 116, Resolution, June 18, 1953) held that when the tax is paid in installments, the prescriptive period of two years provided in section 306 of the Revenue Code should be counted from the date of the final payment . We agree with this view as being reasonable and which appears to be the uniform doctrine in American jurisdiction. This rule proceeds from the theory that, in contemplation of tax laws, there is no payment until the whole or entire tax liability is completely paid. Thus, a payment of a part or portion thereof, can not operate to start the commencement of the statute of limitations. In this regard the word "tax" or words "the tax" in statutory provisions comparable to section 306 of our Revenue Code have been uniformly held to refer to the entire tax and not a portion thereof (Clark vs. U. S. 69 F. 2d 748; A.S. Kriedner Co. vs. U.S. 30 F Supp. 724; Hills vs. U.S. 50 F 2d 302, 55 F 2d 1001), and the vocables "payment of tax: within statutes requiring refund claim, refer to the date when all the tax was paid, not when a portion was paid (Braun vs. U.S. 8 F Supp. 860, 863). Hence, applying the foregoing of the inheritance tax on January 12, 1955 and the filing of the instant petition for review on February 14, 1955 were well within the two-year period counted from March 11, 1953 and December 9, 1954 when the final payment of the tax liability was made. We are therefore of the opinion and so hold that the present action was filed seasonably within the purview of section 306 of the Tax Code." The other case cited is Commissioner of Internal Revenue vs. Carlos Palanca , L-16626, 18 SCRA 496,502504, decided on October 29, 1966, wherein the Supreme Court, reiterating the doctrine enunciated in Collector of Internal Revenue vs. Prieto, et al., supra , held that since the account was paid in installments, the computation of the two-year period under Section 306 of National Internal Revenue Code should be from the date of the last installment. Thus: "The petitioner also invokes prescription, at least with respect to the sum of P17,112.21, under Section 306 of the Tax Code. He claims that for the calendar year 1955, respondent Palanca paid his income tax as follows: Taxes withheld by La Tondea, Inc. from Mr. Palanca's wages P/13,172.41 Payment under Income Tax Receipt No. 677395 dated May 11, 1956 3,939.89 Payment under Income Tax Receipt No. 742334 dated August 14, 1956 3,939.89 P21,952.01 Therefore, the petitioner contends, the amounts paid by claimant Palanca under his withheld tax and under Receipt No. 677395 dated May 11, 1956 may no longer be refunded since the claim therefor was filed in court only on August 13, 1958, or beyond two years of their payment. "We find the petitioner's contention on prescription untenable. "In the first place, the 30-day period under Section 11 of Republic Act 1125 did not even commence to run in this incident. It should be recalled that while the herein petitioner originally assessed the respondent-claimant for alleged gift tax liabilities, the said assessment was subsequently abandoned and in its lieu, anew one was prepared and served on the respondent-taxpayer. In this new assessment, the petitioner charged the said respondent with an entirely new liability and for a substantially different amount form the first. While initially the petitioner assessed the respondent for donee's gift tax in the amount of P170,002.74, in the subsequent assessment the latter was asked to pay P191,591.62 for delinquent estate and inheritance tax. Considering that it is the interest paid on this latter-assessed estate and inheritance tax that respondent Palanca is claiming refund for, then the thirty-day period under the abovementioned section of Republic Act 1125 should be computed from the receipt of the final denial by the Bureau of Internal Revenue of the said claim. As has earlier been recited, respondent Palanca's claim in this incident was filed with the Court of Tax Appeals even before it has been denied by the herein petitioner denied the claim subject of the said case only on July 24, 1959. "In the second place, the claim at bar refers to the alleged overpayment by respondent Palanca of his 1955 income tax. Inasmuch as the said account was paid by him by installment, then the computation of the two-year prescriptive period, under Section 306 of the National Internal Revenue Code, should be from the date of the last installment. (Antonio Prieto, et al. vs. Collector of Internal Revenue, G.R. No. L-11976, August 29, 1961) Respondent Palanca paid the last installment on his 1955 income tax account on August 14, 1956. His claim for refund of the alleged overpayment on it was filed with the court on August 13, 1958. It was, therefore, still timely instituted." Viewed in the light of the decisions of the Supreme Court, We find and so hold that the latest resolution of the Supreme Court dated April 10, 1989 should be controlling. Judicial pronouncements should be construed in relation to the facts and issues (Pelaez vs. Auditor General L-2385, December 4, 1965). Of the decisions cited by the CTA, as expressively pronounced insofar as the words counted "from date of payment", on the one hand, as against the words "counted from the date of the final payment", on the other hand, when applied to the case under consideration, the latter expression appears to be the most appropriate, for, as also expressed, the words "final payment is the last quarter payment at the end of the fiscal year when it is finally ascertainable that the taxpayer either made profits or suffered losses in its business operations." The foregoing latter expressions, originally decreed by the Supreme Court on August 29, 1961, was restated on October 29, 1966, and again reiterated on April 10, 1989. The April 10, 1989 resolution, being the latest expression and the more recent decision of the Supreme Court on the matter, prudence dictates that all lower courts are bound to follow and should apply it in the disposition of cases before them. Section 306, now Section 292 of the National Internal Revenue Code, the law cited by both parties and Court of Tax Appeals, a statute which establishes the taxpayers remedies to recover taxes unjustly collected by the Government, should be construed liberally in the interest for abatement and refund of taxes (3 Sutherland, Stat. Const., pp. 304, 305). This could be the reason why, in the case of Collector of Internal Revenue vs. Prieto, supra , the Supreme Court adopted the uniform doctrine in American Jurisdiction, that a "view . . . reasonable . . . in contemplation of tax laws, there is no payment until the whole or entire tax liability is completely paid. Thus, a payment of a part or portion thereof, can not operate to start the commencement of the statute of limitations." WHEREFORE, the decision of the Court of Tax Appeals dated April 12, 1991 is hereby AFFIRMED. SO ORDERED. Magsino and Rasul, JJ . , concur.