Commissioner of Internal Revenue v. Standard Chartered Bank (Philippine Branch)

[CA-G.R. SP No. 27671. September 30, 1992.] (C.T.A. Case No. 4272) COMMISSIONER OF INTERNAL REVENUE , petitioner-plaintiff , vs . STANDARD CHARTERED BANK (PHILIPPINE BRANCH) and THE COURT OF TAX APPEALS , respondents-defendants . D E C I S I O N SEMPIO DIY , J p : In the instant petition, the Commissioner of Internal Revenue seeks the review of the decision of the Court of Tax Appeals in C.T.A. Cases No. 4272 ordering him to refund to private respondent Standard Chartered Bank (Phil. Branch), a foreign corporation duly licensed to engage in the banking business in the Philippines, the sum of P4,577,153.00 as excess payment of income tax, and to issue a tax certificate for that amount to the latter. The facts of the case are correctly summarized in the decision of the respondent courts as follows: "For the calendar year ended December 31, 1986 petitioner paid his income tax in the sum of P6,348,571.00 QUARTER AMOUNT EXHIBIT First P1,641,241 F, F-1, J, K-1 Second 4,046,136 F, F-1, J, K-1 Third 661,173 F, F-1, J, K-1 (Petition for Review, par. 2, p. 1 CTA records, Admitted Answer, par. 2, p. 18, CTA rec.). Petitioner's income tax liability for the calendar year 1986 amounted only to P4,807,282.00. Petitioner alleged to have overpaid its 1986 income tax liability to the total amount of P4,577,453.00 (Petition for Review, par. 3, p. 2.; Admitted Answer, par. 2, p. 18, CTA rec.). The excess amount of P4,577,453.00 representing overpaid income taxes was not utilized or applied in petitioner's quarterly income tax liabilities for the taxable quarters of the succeeding taxable year 1987. Petitioner incurred no loss for the said year. (Petition for review, par. 4, p. 2; Admitted Answer, par. 2 p. 18, CTA rec. ). On February 29, 1988, petitioner filed with respondent a written request for the refund and/or tax credit in the amount of P4,577,153.00, representing overpaid income tax payment for calendar year 1986 (Annex "A", Petition for Review, pp. 4-6, Admitted, Answer, par. 4, p. 18, CTA rec.). On November 4, 1988, the Makati Regional Office, thru Director Perfecto T. Domingo made a favorable endorsement of petitioner's claim for the refund of P4,577,608.00 (Exh. "G", p. 53, CTA rec.), which was not acted upon by respondent. Petitioner without waiting for respondent's action in its claim for refund filed the instant petition for review on May 27, 1988." (pp. 34-45, Rollo) After trial, the respondent court rendered the decision subject of this petition for review, wherein petitioner Commissioner of Internal Revenue raises the following issues: WHETHER OR NOT PRIVATE RESPONDENT IS ENTITLED TO TAX REFUND/CREDIT OF P4,577,608.00 ALLEGEDLY REPRESENTING OVERPAID INCOME TAX ON EXCESS TAX CREDIT AS AT DECEMBER 31, 1986. WHETHER OR NOT PRIVATE RESPONDENTS CLAIM HAS PRESCRIBED. (p. 27, Rollo) Anent the first issue, it is petitioner's contention that the respondent court erred in interpreting Section 69 of the Tax Code in matters of refund taxes paid, claiming that tax refund pertains only to taxes erroneously or illegally collected which he urges is not the case here. Section 69 of the Tax Code provides: "Final adjustment of 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 sun 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; and (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 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 quarters of the succeeding taxable year."(Emphasis supplied) Implementing the above provision of law is Revenue Memorandum Circular No. 7-85 dated April 1, 1985 relating to the processing of corporate tax refunds, which provides among other things as follows: "In the above provision of the Regulations (Section 7 of the Revenue Regulations No. 1077), the corporation may request for the refund of the overpaid income tax or claim for automatic credit . To insure prompt action on corporate annual income tax return showing refundable amounts arising from overpaid quarterly income taxes , the office has promulgated Revenue Memorandum Order No. 32-76 dated June 11, 1976, containing the procedures in processing said returns. Under these procedures, the returns are merely pre-audited which consist mainly of checking mathematical accuracy of the figures in the return. After which, the refund or tax credit is granted; and, this procedure was adopted to facilitate immediate action on cases like this ." (Emphasis supplied) Now, the aforecited Section 69 of the Tax Code should be read and interpreted together with Section 292 of the same Code which reads: "No suit of 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 excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner of Internal Revenue; . . ." From the above provisions of law and implementing rule, there is no doubt that private respondent is entitled in the refund of its overpaid income tax for the taxable year 1986, as found by the respondent court, and which recommendation was even earlier made by petitioner's Regional Director Perfecto T. Domingo but which recommendation was not acted upon by petitioner (pp. 39-40, Rollo). Of course, private respondent, under Sec. 69 of the Tax Code, could have claimed for automatic tax credit of its excess tax payment for the year 1986 the following year, but it did not do so and opted to demand for the refund of said excess tax payment instead. But petitioner would make an issue of the correct interpretation of the phrase "erroneously or illegally assessed or collected" as the taxes subject of refund under Sec. 292 of the Code also aforequoted, insisting that it is only where there is an erroneous or illegal assessment or collection of tax that tax refund is allowed under said provision, and that as there had been no erroneous or illegal assessment or collection of taxes in the instant case, no tax refund can be allowed the private respondent. Such strained and restrictive interpretation of said provision of the Tax Code is, however, clearly unwarranted and erroneous, for as we have already stated before, Sec. 292 of the Tax Code should be read and applied together with Sec. 69 thereof which expressly provides that excess taxes paid by a corporation may be refunded in the latter. Besides, Sec. 292 allows tax refunds for "any sum alleged to have been excessive", which obviously refers to the payment of excess tax by the taxpayer, and the facts of this case indeed show that there was excess payment of income tax on the part of private respondent for the taxable year 1986. Petitioner also relies on CTA Case No. 3486 entitled "China Banking Cor. v. Commissioner of Internal Revenue" (wherein the Supreme Court denied the petition for certiorari filed by the taxpayer bank from the decision of the CTA), but as aptly held by the respondent court in its assailed decision herein, said earlier decision is not applicable to this case because the capital gains tax paid in that case by the petitioner bank was legally and lawfully due and payable to the government, so that although paid by the mortgagee bank who is not the party required by the law to pay the same, said bank cannot ask for a refund thereof from the government as obviously, it should ask reimbursement from the mortgagor, the partly required by law to pay the same. Going next to the second ground invoked by petitioner in support of the present petition, i.e., that private respondent's action for tax refund is already barred by prescription, again we find no merit in this contention. On this point, the second paragraph of Sec. 292 of the Tax Code provides: "In any case, no such suit or proceeding for tax refund 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; . . ." which again should be read together with Sec. 295 of the Code providing that" "(3) . . . No credit or refund of taxes or penalties shall be allowed unless the taxpayer filed in writing with the Commissioner a claim for credit or refund within two years after payment of the tax or penalty." Interpreting the foregoing prescriptive period provided by the Code for claiming tax refunds, the Supreme Court in Commissioner of Internal Revenue v. Palanca, 18 SCRA 496, held: "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 this alleged overpayment on it was filed with the court on August 13, 1958. It was, therefore, still timely instituted." (Emphasis supplied) Indeed, in the earlier case of Collector of Internal Revenue v. Prieto, 2 SCRA 1007, the Supreme Court had already affirmed a ruling of respondent CTA that the prescriptive period of two years for the filing of claims for tax refunds starts to run from the date of the payment of the last installment thereon. We quote the CTA ruling affirmed by the High Court in said case: " The defunct Board of Tax Appeals in the case of PCA Communications, Inc. vs. David (C.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 in the uniform doctrine in American jurisdiction. This rule proceeds from the theory 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. . . ." (Emphasis supplied) Applying the above provisions of law and jurisprudence, we see no error in the following findings of the respondent court on the issue of prescription in this case: "On the issue of prescription, respondent's allegation in his answer that petitioner's claim has already prescribed with respect to tax payments made prior to May 27, 1986, pursuant to Section 272 of the TaxCode, in relation to Section 295 of the Code, is without merit. We agree with the petitioner that '. . . the two year prescriptive period is counted only from the date the final return showing the overpayment is filed which was on April 15, 1987 (Please see Exhibit "A-2") and not in the dates the quarterly payment were made. Accordingly, petitioner filed an administrative claim and instituted a judicial suit for the refund of P4,577,453 on May 25, 1988 and May 27, 1988, respectively, which are well within the 2 year period counted from the filing of petitioner's 1986 return on April 15, 1987 as held in the case of Asia Australia Express, Ltd., v. Commissioner of Internal Revenue, CTA Case No. 3695, September 29, 1988 (Affirmed on appeal by the Supreme Court G.R. No. 85956, April 10, 1989). This Honorable Court ruled therein that: "The apparent contentious quibble on the computation of the 2-years prescriptive period under Section 292 of the TaxCode had been squarely resolved in earlier decisions of the Supreme Court which lend settling eloquence to the precise issue in the case at bar. Thus ruled, inter alia, 'When a tax paid in installments, the prescriptive period of two years provided in Section 306 (now Sec. 292) of the Revenue Code should be counted from the date of the final or last installment. . . . 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 of portion thereof, cannot operate to start the commencement of the statute of limitations. In this regard, the word "tax" in statutory provisions comparable to Section 306 of the Revenue Code have been uniformly held to refer to the entire tax and not a portion thereof (Clark v. U.S., 69 E. 2d 748; A.S. Kriednner Co., vs. U.S., 30 E. supp. 724; Hills v. U.S., 50 E. 2d 302, 55 E. 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 v. U.S., 8 E. supp. 869, 836; Collector of Internal Revenue v. Prieto, 2 SCRA 1007; Commissioner of Internal Revenue v. Palanca 18 SCRA 496." (pp. 42-44, Rollo) WHEREFORE, the appealed decision of the respondent Court of Tax Appeals in this case is hereby AFFIRMED. SO ORDERED. Francisco and Galvez, JJ ., concur.