Commissioner of Internal Revenue v. Philippine American Life Insurance Co.

FIRST DIVISION [CA-G.R. SP No. 26598. March 26, 1992.] (C.T.A. Case No. 4018) COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . THE PHILIPPINE AMERICAN LIFE INSURANCE CO., and THE COURT OF TAX APPEALS , respondents . D E C I S I O N CAMPOS , JR ., J p : When a corporate income taxpayer files a claim for refund before the Bureau of Internal Revenue (BIR) for alleged erroneously or illegally collected taxes, and subsequently a petition for review with the Court of Tax Appeals for alleged inaction by, or denial of the BIR with respect to the claim filed, from what date is the two-year prescriptive period provided for by law reckoned? This is the primary question posed before Us in this Petition for Review. On September 16, 1991, the Court of Tax Appeals rendered a decision in CTA Case No. 4018 entitled "The Philippine American Life Insurance Company, petitioner, versus Commissioner of Internal Revenue, respondent" the dispositive portion of which is herein below reproduced: "WHEREFORE, petitioner's claim for refund of P3,246,141.00 representing excess corporated income tax payments for the first and second quarters of 1983, respectively, or a total of P3,643,015.00 is hereby GRANTED. Accordingly, respondent Commissioner of Internal Revenue, is hereby ordered to refund to petitioner Philippine American Life Insurance Company the total amount of P3,643.015.00. With respect to petitioner's claim for refund of P215,742.00 representing 1983 withholding taxes on rental income the same is hereby DENIED for failure to present proof of actual withholding and payment with the Bureau of Internal Revenue. No. costs. SO ORDERED. Quezon City, Metro Manila September 16, 1991." (Rollo, pp. 115-116). Aggrieved by the above decision, therein respondent and herein petitioner appealed to US by way of this petition for review. The facts as found by the Court of Tax Appeals from which it based its decision, and which facts were not controverted by petitioner, are as follows: "Petitioner is a corporation organized and existing under Philippine laws, . . . "On May 30, 1983, petitioner paid with the Bureau of Internal Revenue its first quarterly corporate income tax for the calendar year 1983 amounting to P3,246,141.00 (Exhibits A, B and C). For the second quarter of 1983, it paid the Bureau P396,874.00 on August 29, 1983 (Exhibits D, E and F). For the third quarter of 1983, petitioner declared a net taxable income of P2,515,671.00 and a tax due thereon of P708,464.00. After crediting the amount of P3,866,525.00 it declared a refundable amount of P3,158,061.00 (Exhibit G). "For its fourth and final quarter ending December 31, 1983, petitioner suffered a loss and thereby had no income tax liability. An income tax refund totaling P3,991,841.00 as indicated in the return represented the first and second quarterly income tax payments of P3,246,141.00 and P396,874.00, respectively; P215,742.00 as withholding taxes on rental income for 1983 and the 1982 income tax refund applied as a tax credit for 1983 amounting to P133,084.00 (Exhibit H). "In 1984, petitioner again suffered a loss and declared no income tax liability. However, petitioner applied as a tax credit for 1984, the amount of P3,991,841.00, representing its 1983 and 1982 overpaid income tax and P250,867.00 as withholding tax on rental income for 1984, or a total of P4,242,708.00 corporate income tax refundable for 1984 (Exhibit I). "On September 26, 1984, petitioner filed a claim for refund with respondent's Appellate Division for its 1982 income tax refund of P133,084.00. Two months later or on November 22, 1984, petitioner filed with this Court a petition for review (C.T.A. Case No. 3868) with respect to its 1982 claim for refund of P133,084.00. "On December 16, 1985, petitioner filed another claim for refund with respondent's Appellate Division in the aggregate amount of P4,109,624.00 computed as follows (Exhibits J and J-1): 1982 income tax refundable applied as tax credit P133,084.00 1983 income tax refundable applied as tax credit P3,858,757.00 1984 tax credit on rental income P250,867.00 Total P4,242,708.00 Less: 1982 claim for refund already filed with the BIR and the CTA (Case No. 3868) P133,084.00 Net Amount Refundable P4,109,624.00 =========== "Without waiting for respondent's decision, petitioner filed the instant petition for review on January 2, 1986 regarding its 1983 and 1984 claims for refund amounting to P4,109,624.00. "After an answer has been filed by respondent, petitioner manifested that it filed with the Bureau an amended 1984 corporate income tax return on April 15, 1986,. An additional tax credit of P2,467,125.00 equivalent to taxes withheld on interest income for 1984 was added to its 1984 income tax return. With this amendment, the total income tax refund allegedly due for 1984 amounted to P6,709,833.00 (P4,242,708.00 plus P2,467,125.00) [Exhibit K]. Likewise, on the same date (April 15, 1986), petitioner filed its 1985 income tax return crediting its prior year's excess tax credit of P2,717,992.00 representing 1984 withholding taxes on rental income of P250,867.00 and 1984 withholding tax on interest income of P2,467,125.00 (1985 ITR, p. 42, CTA rec.). The amendment of petitioner's 1984 corporate income tax return and the application of it's (sic) 1984 withholding taxes on rental and interest income as a tax credit in its 1985 income tax return triggered petitioner to file a motion to admit amended petition for review on May 30, 1986. Petitioner sought the amendment of its petition for review in order to conform to the evidence presented changing its original cause of action. Without any objection from respondent the Court granted petitioner's motion. "The amended petition now limits petitioner's claim for refund to P3,858,757.00 representing overpaid income tax for the year 1983 carried over to its 1984 income tax return, computed as follows: Calendar Year Ending 12-31-83 Date Paid C.R. No. Amount Paid First Quarter 5-30-83 B2269337 P3,246,141.00 Second Quarter 8-29-83 B1938178 396,874.00 1983 Withholding Taxes on rental income 215,742.00 1983 Income Tax Refundable P3,858,757.00" =========== (Rollo, pp. 104-108). Petitioner, anchors his contention that private respondent's claim for refund was time barred on the 1984 case of Pacific Procon versus Commissioner of Internal Revenue, (CTA Case No. 3200, January 25, 1984). In said case, the CTA denied therein petitioner's claim for refund after it construed 292 (now Section 230) of the National Internal Revenue Code to be mandatory and " not subject to any qualification, hence, it applies regardless of the conditions under which payment may have been made." (Emphasis supplied). The Tax Court ruled: "Under Section 292 (formerly Section 306) of the National InternalRevenueCode, 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 be begun after the expiration of the said two-year period (Citation omitted). As a matter of fact, the said section further provides that: . . . In any case, no such suite 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." Herein petitioner holds that the phrase "regardless of supervening cause that may arise after payment" is an amendatory phrase under Section 292 (now Section 230) which did not appear under Section 306 of the old Tax Code before it was amended by Presidential Decree No. 69, effective January 1, 1973. He further contends that the incorporation of the phrase did away with any other interpretation but that the reckoning period of prescription under Section 292 (now Section 230) is from date of payment of the tax. Finally, he stated that the alleged incurrence of the loss may be considered as the supervening cause that arose after payment. We find no merit in petitioner's contentions. The Pacific Procon Limited doctrine is no longer the prevailing authority on the question of when a corporate taxpayer may claim refund for alleged erroneously or illegally collected taxes. This case was categorically and unequivocally overturned by the Supreme Court in an en banc decision in Commissioner of Internal Revenue vs. TMX Sales Incorporated and the Court of Tax Appeals, (G.R. No. 83736, January 13, 1992). Significant in the TMX Case was the High Tribunal's explanation of the interrelationship of certain provisions of the Tax Code with respect to the issue at hand in order to give life to legislative intent. While it may appear that Section 292 (now Section 230) is the controlling provision with regard to claims for refund for erroneously or illegally collected taxes, going merely by its title would lead to an absurd decision, as may be seen from the Pacific Procon Limited . The Supreme Court said in the TMX decision: ". . . in resolving the instant case, it is necessary that we consider not only Section 292 (now Section 230) of the National InternalRevenueCode but also the other provisions of the TaxCode, particularly Sections 84, 85 (now both incorporated as Section 68), Section 86 (now Section 70) and Section 87 (now Section 69) on Quarterly Corporate Income Tax Payment and Section 321 (now Section 232) on keeping of books of accounts. All these provisions of the TaxCode should be harmonized with each other." As previously mentioned, Section 292 (now Section 230) stipulates that the two-year prescriptive period to claim refund should be counted from date of payment of the tax sought to be refunded. When applied to tax-payers filing income tax returns on a quarterly basis, the date of payment mentioned in Section 292 (now Section 230) must be deemed to be qualified by Sections 68 and 69 of the present Tax Code. Section 68 provides: Section 68. Declaration of Quarterly Income Tax . Every corporation shall file in duplicate a quarterly summary declaration of its gross income and deductions on cumulative basis for the proceeding quarter or quarters upon which the income tax as provided in Title II of this Code shall be levied, collected and paid. The Tax so computed shall be decreased by the amount of tax previously paid or assessed during the preceding quarters and shall be paid not later than sixty (60) days from the close of each of the first three (3) quarters of the taxable year, whether calendar or fiscal year. Moreover, Section 69 states: 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 that year the corporation shall either: (a) Pay the excess 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. An observation may be deducted from the above provisions of the Tax Code. Although quarterly taxes due are required to be paid within sixty days from the close of each quarter the fact that the amount paid for a preceding quarter shall be deducted from the tax due for the succeeding quarter clearly shows that until a final adjustment return shall have been filed, the taxes paid in the preceding quarters are but partial taxes due a corporation. Neither amount can be the final figure to quantify what is due the government nor what should be refunded to the corporation. This observation finds support in the last paragraph of Section 69 of the present Tax Code when it provides that the refundable amount in case a refund is warranted which a corporation is entitled to claim or to apply as tax credit, is that amount which is shown on its final adjustment return, and not on its quarterly returns. When private respondent paid P3,246,141.00 May 30, 1983, it could not have been able to ascertain, on that date, that the said amount was refundable. The same is true when P396,874.00 was paid on August 29, 1983. The two-year prescriptive period could not have commenced on May 30, 1983 with respect to the P3,242,141.00 and on August 29, 1983 in the case of P396,874.00. Thus the prescriptive period of two years should commence to run only from that time that refund is certain. And this can only be determined after a final adjustment return in accomplished, in this case, on April 16, 1984. Two years from this date would be April 16, 1986. Both December 16, 1985, the date the claim for refund was filed, and January 2, 1986 the date the petition for review was brought before the CTA, are well within the two-year reglementary period. Section 292 (now Section 230) cannot suffice as a basis for determining the two-year prescriptive period for refund in the case of corporations. However, with all due respect to the reasoning of the Supreme Court in the TMX Case, We do not agree that the quarterly income tax should be considered mere installments of the annual tax due and treated as advances or portions of the annual income tax due. An installment presupposes that the tax due has already been ascertained. When a corporation pays it quarterly income tax due, it does so not by reason of a pre-computation or an already-existing income tax payable. Rather, it does so by virtue of the mode of declaring its income. Nothing, but the quarterly income tax, is due. This is in contract to an individual taxpayer who is allowed under Section 67 of the present Tax Code to pay his tax due in installments. In his case, inasmuch as what he is supposed to pay this year was his tax due the previous year, there is nothing more to adjust and thus his installment payments are really portions of the income tax due. The cases of Antonio Prieto and Carlos Palanca mentioned in the TMX Case pertain to individual taxpayer and not to corporate ones, which is the case at bar. Herein petitioner made mention that the inclusion of the phrased "regardless of any supervening cause that may arise after payment" in Section 292 (now Section 230) foreclosed any other interpretation of the commencement of the two-year prescriptive period except that it starts to run on the date the payment is made. He further considered the incurrence of a loss as supervening event implying that eve in case of a loss, when payment was previously made, no refund is available. We need no belabor Ourselves to explain the weakness of this argument. The second issue posed by petitioner is whether or not private respondent has sufficiently shown by competent evidence its entitlement to the refund claimed. We believe that the base allegations of petitioner are not convincing enough to warrant a reversal, in his favor, of the findings of the CTA. Instead, We quote with approval its holding in this regard: "Petitioner has overcome the burden of proof insofar as the excess 1983 quarterly corporate income tax payments of P3,246,141.00 for the first quarter and P396,874.00 for the second quarter are concerned. Its presentation of various documentary evidence such as its income tax returns (Exhibits A, D, G, H, H-1 to H-7, I, I-1 to I-7, and K); the corresponding confirmation receipts and payment orders for income taxes paid for the first and second quarters of 1983 (Exhibits B, C, E, and F); and voluminous invoices and vouchers showing its expenses paid and incurred for the year 1983 subject matter of this case (Exhibits M to Z, and AA to AY, inclusive) have all established the propriety of its claim for refund for excess 1983 quarterly income tax payments. "When it was respondent's turn to present evidence, he failed to present any documentary or testimonial evidence in support of his case. Instead he opted to postpone the hearings for several times and later chose to submit the case for decision on the basis of the records and the pleadings of this case. "Respondent has not issued any deficiency assessment nor disputed the correctness of petitioner's 1983 income tax return to date. Although respondent forwarded the BIR records relative to the above-entitled case, the same was not timely filed. It was only after the Court has ordered the submission of the case for decision due to respondent's failure to file the BIR records did he subsequently as an afterthought submit the records to the court (see Order of the Court dated July 21, 1990). Even then the memorandum report of his revenue intelligence officers and special investigator merely states that a proposed assessment will be finalized only after hearing taxpayer's side of the case (see Memorandum letter dated January 12, 1990, p. 6, BIR rec.)." (Rollo, pp. 112-113). There is therefore no cogent reason to been away from the ruling in the TMX Case that the two-year prescriptive period provided in Section 230 of the present Tax Code should be computed from the time of filing the Adjustment Return or Annual Income Tax Return and final payment of income tax. WHEREFORE, IN VIEW OF THE FOREGOING, the petition for review is hereby DISMISSED. The decision of the Court of Tax Appeals dated September 16, 1991 is AFFIRMED. No pronouncement as to costs. IT IS SO ORDERED. Marigomen and Vailoces , JJ ., concur.