Commissioner of Internal Revenue v. Paseo Realty & Development Corp.

[CA-G.R. SP No. 27903. June 9, 1994.] (C.T.A. Case No. 4148) COMMISSIONER OF INTERNAL REVENUE , petitioner , vs .PASEO REALTY AND DEVELOPMENT CORPORATION and THE COURT OF TAX APPEALS , respondents . D E C I S I O N GUINGONA , J p : We have before Us a motion for reconsideration of this Court's decision which gave due course to the instant petition and reversed the decision of the Court of Tax Appeals without prejudice to the institution of such action as may be appropriate for the protection of the interests of private respondent after the Commissioner of Internal Revenue shall have rendered his decision anent the said private respondent's application for tax refund/credit. A petition for review had been filed with this Court vis-a-vis the decision of the Court of Tax Appeals rendered on April 3, 1992 in C.T.A. Case No. 4148 entitled "Paseo Realty and Development Corporation vs. Commissioner of Internal Revenue",the dispositive portion of which decision of the Court of Tax Appeals reads as follows: "WHEREFORE, respondent Commissioner of Internal Revenue is hereby ordered to grant a tax refund/credit to petitioner, Paseo Realty & Development Corporation, the sum of P181,039.00, representing overpaid income tax." (C.T.A. Decision, pp. 3-4) This Court hereby adopts the following statement of facts contained in the challenged decision of the Court of Tax Appeals: This is a claim for refund of the tax withheld by petitioner Paseo Realty & Development Corporation in the amount of P181,039.00 representing the excess quarterly tax credit and withholding tax for the year 1984. xxx xxx xxx For the year 1984, petitioner's income tax return reflected an excess credit for quarterly corporate taxes paid in previous quarter in the sum of P105,837.00 (Annex "A",Petition for Review, p. 3, CTA rec.). In the same year, petitioner's client withheld and paid to respondent the amount of P92,750.00 from rental payments of the petitioner. Since the amount of quarterly tax credit available and the withholding tax on rentals exceeds the total tax liability for the taxable year 1984, petitioner's 1984 tax returns reflected a refundable tax amount of P181,039.00. Petitioner in a letter dated April 10, 1987, requested for the refund or credit of the amount of P181,039.00, representing the excess quarterly tax credit and withholding tax for the calendar year ended December 31, 1984 (Exh. B, Petition for Review, p. 4, CTA rec.). Respondent Commissioner of Internal Revenue however, did not act on said claim for tax refund and or tax credit. Petitioner, in order to forestall the running of the two (2) year prescriptive period, filed the instant petition for review on April 15, 1987. Petitioner strongly claims that since its quarterly income taxes for the year 1984 and the 5% withholding tax on its rental income exceeded its income tax liability for the said year, then it has a refundable tax in the sum of P181,039.00. Respondent Commissioner of Internal Revenue has not presented any evidence to rebut or contradict petitioner's evidence consisting of its income tax returns and withholding tax certificates and its claim for refund dated April 10, 1987 (Annex B, Petition for Review, CTA rec.).Instead, counsel for respondent submitted this case for decision based on the pleadings. Since once who prays for judgment on the pleadings without offering proof as to the truth of his allegations must be understood to have admitted the truth of all the material and relevant allegations of the opposing party, and rest his motion for judgment on these allegations taken together with such of his own as admitted (Buerman v. Casas, 10. 386; Evangelista v. de la Rosa, 76 Phil. 115),respondent may not be considered to question seriously petitioner's entitlement to its claim for refund. This is more true when the evidence of petitioner more than sufficiently establishes its claim for the refund. (C.T.A. Decision, pp. 1-3-Emphasis supplied) The herein petitioner has submitted for the consideration of this Court the following reasons warranting review: Private respondent's evidence did not fully establish its right to tax refund and the claim sought to be refunded does not involve illegally or erroneously collected taxes. (Petition, p. 4) In support of its position, the petitioner posits thus: Assuming arguendo , that private respondent actually overpaid its 1984 income tax, the filing of the instant petition for tax refund/credit is evidently premature considering that under Section 86 of the 1977 Tax Code petitioner has ten (10) years from date of payment, pursuant to Article 1144 of the Civil Code within which to institute the corresponding action for the recovery thereof. Hence, the proper remedy for the private respondent is to pursue its claim with the petitioner in the administrative level and not through the instant petition for review. In fine, the instant case is not a case of erroneously and illegally paid tax under the provisions of Sections 292 and 295 of the Tax Code. Likewise, relevant thereto are the provisions of Revenue Memorandum Circular No. 7-85 which reads: Sections 85 and 86 of the National Internal Revenue Code provides: "Sec. 85. * Declaration of Corporate Quarterly Income Tax . Every corporation shall file in duplicate a quarterly summary declaration of its gross income and deductions on a cumulative basis for the preceding 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." "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 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 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. The foregoing provisions are implemented by Section 7 of Revenue Regulations No. 10-77 which provides: xxx xxx xxx It has been observed, however, that because of the excess tax payments, corporation file claims for recovery of overpaid income tax with the Court of Tax Appeals within the two-year period from the date of payment, in accordance with Sections 292 and 295 of the National Internal Revenue Code. It is obvious that the filing of the case in court is to preserve the judicial right of the corporation to claim refund or tax credit. It should be noted, however, that this is not a case of erroneously or illegally paid tax under the provisions of Sections 292 and 295 of the Tax Code. In this regard, therefore, there is no need to file petitions for review in the Court of Tax Appeals in order to preserve the right to claim refund or tax credit within the two-year period. As already stated, actions hereon by the Bureau are immediate after only a cursory pre-audit of the income tax returns. Moreover, a taxpayer may recover from the Bureau of Internal Revenue excess income tax paid under the provisions of Section 86 of the Tax Code within 10 years from the date of payment considering that it is an obligation created by law (Article 1144 of the Civil Code). . . ." In other words, private respondent is under obligation to pay the tax in question to petitioner by virtue of the above-quoted provision. Therefore, there is no erroneous or illegal collection of tax to speak of. (Petition, pp. 5-9-Emphasis supplied.) The salient issue in the case at bar is whether or not the provision of Section 230 of the National Internal Revenue Code (Tax Code for short) would be applicable to the instant case as far as tax refund/tax credit is concerned. The said Section 230 (previously 292) of the Tax Code provides as follows: "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 excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner of Internal Revenue; but such suit or proceeding may be maintained, whether or not such tax, penalty or sum has been paid under protests or duress. 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: Provided, however, That the Commissioner may, even without a written claim therefore, 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 mad." (Emphasis supplied) Traversing the petitioner's contention, the private respondent argues as follows in its motion for reconsideration: "2. Two recent decisions of the Supreme Court, ACCRA Investments Corp. v. Court of Appeals, et al., 204 SCRA 957 (1991) and Commissioner v. TMX Sales, Inc., et al., 205 SCRA 184 (1992) have settled conclusively that the refund of excess corporate income tax payments shown in the Final Adjustment Return is governed by Sec. 230 of the Tax Code, and that the two-year prescriptive period provided therein is counted from the filing of the Final Adjustment Return, which is generally on April 15 following the close of the calendar year. xxx xxx xxx 1. Sec. 230 applies also to legally collected taxes such as the excess creditable income taxes and excess quarterly corporate income tax payments. xxx xxx xxx As this Honorable Court explained in Service-wide Specialists, Inc.,supra, speaking through Mr. Justice Quirino Abad Santos: The first issue for resolution is what does the phrase "illegally or erroneously collected" cover. This case was first brought to fore in a case entitled CIR vs. Insular Lumber Co., 21 SCRA 1239 (Dec. 11, 1967). Here Insular Lumber sought to refund specific tax paid by the seller of its refined and manufactured oils. The claim for refund was predicated on the following proviso found in Sec. 5, RA 1435: "...Provided, however, That whenever any oils mentioned above are used by miners or forest concessionaires in their operations, twenty-five per centum of the specific tax paid thereon shall be refunded by the Collector of Internal Revenue upon submission of proof of actual use of oils and under similar conditions enumerated in subparagraphs one and two of section one hundred forty-two of the Internal Revenue Code: .." The appellant Commissioner of Internal Revenue claims that the two (2) year period within which to file a claim for refund had prescribed pursuant to then sec. 306 (now sec. 230) and sec. 309 of the Tax Code, the former reading as follows: "Sec. 306. 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 any penalty claimed to have been collected without authority or 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; 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 begun after the expiration of two years from the date of payment of the tax or penalty." On the other hand, appellee Insular Lumber subscribed to the view that Sections 306 and 309 apply to refund of taxes erroneously or illegally collected; and that since in this case the collection of the tax was not erroneous or illegal, said sections should not be applied. Appellee Insular Lumber relied on the case of Muller & Phipps (Manila) Ltd. vs. Collector of Internal Revenue, 103 Phil. 145. The Supreme Court ruled that "Secs. 306 and 309 of the Tax Code were intended to govern all kinds of refunds of internal revenue taxes those taxes imposed and collected pursuant to the National Internal Revenue Code. Section 306, which is mandatory, is not subject to qualification and, hence, it applies regardless of the conditions under which payment has been made. And to hold that the instant claim for refund of a specific tax, an internal revenue tax imposed in Section 142 of the National Internal Revenue Code, is beyond the scope of Sections 306 and 309 is to thwart the aforesaid intention and spirit underlying said provisions. In a subsequent case of CIR vs. Napocor, 31 SCRA 112 (Jan. 30, 1970), however, it would seem from the ruling of the Supreme Court that Sec. 306 (now Sec. 230) of the Tax Code applied only to taxes illegally or erroneously collected. In this case Phil. Engineers Syndicate, Inc. paid on May 5, 1955 the advance sales tax of P 2,582.96 for its importation of equipment. The equipment turned out to be owned by Napocor which claimed to be the real importer of the equipment. Napocor, after being denied the refund of the same pursuant to a law which gives it exemption from the payment of said taxes, filed an action with the CTA on July 11, 1958. The CIR countered that the same had already prescribed pursuant to Sec. 306 of the Tax Code. But the Supreme Court ruled that: "It is clear in the provisions of Section 306 of the National Internal Revenue Code that the suit for the recovery of taxes which must be filed within two years from the date of payment refers to taxes that have been erroneously or illegally assessed or collected. In applying the provisions of that section, therefore, it must be shown that the tax was erroneously or illegally collected, and that the tax was paid, or considered paid, as of a certain date, or considered, as of a certain date in order to determine when the prescriptive period of two years had commenced to run." This was however clarified in the subsequent case of CIR vs. Central Azucarera Don Pedro, 49 SCRA 474 (Feb. 28, 1973). In this case, the respondent paid compensating tax for its importation of equipment. But the respondent was later granted exemption to pay these taxes pursuant to Sec. 2 of RA No. 3127 which exemption is retroactive. Hence, respondent filed its claim for refund of the compensating tax paid on July 22, 1965, or more than two (2) years after it was paid and therefore had prescribed under Sec. 309. The Supreme Court clarified the doctrine laid down in Muller & Phipps (Manila), Ltd. vs. Coll. of Int. Revenue, 103 Phil. 145 (March 20, 1958) which was the basis of the CTA in declaring in this case that Sec. 306 of the Tax Code applies to taxes erroneously or illegally or in any manner wrongfully collected or penalties collected without authority. The Supreme Court said: "The case of Muller & Phipps, supra , was relied upon by the Court of Tax Appeals in reversing the action of the herein petitioner. In that case advance sales taxes were paid on imported raw materials upon their withdrawal from customs custody. Subsequently, since not all of said materials could be used, the importer shipped back a portion of them to its supplier in the United States and then filed a claim for the refund of the corresponding amount of advance sales tax which it had paid. The Collector of Internal Revenue denied the claim and the importer went to the Court of Tax Appeals. The petition for review, however, was filed beyond the two-year prescriptive period fixed in Section 306 of the tax Code and the Court of Tax Appeals dismissed the same upon motion of the Collector. The case was thereafter brought before this Court for review on appeal, and We held that "the prescriptive period of two (2) years from payment fixed by Section 306 of the Tax Code, cannot apply to the present case, on the ground that the advance sales tax in question was not erroneously or illegally collected but that although it was legitimately due when paid the taxpayer subsequently became entitled to a partial refund by reason of a supervening circumstance, namely, the re-exportation of the imported materials. The ruling was subsequently clarified by this Court in a later case, Commissioner of Internal Revenue vs. Insular Lumber Co., Dec. 11, 1967, 21 SCRA 1237. It was there held that Sections 306 and 309 of the Internal Revenue Code were intended to govern all kinds of refunds of internal revenue taxes those taxes imposed and collected pursuant to the National Internal Revenue Code. In other words, the prescriptive period of two (2) years therein provided is the one which should govern and not any other prescriptive period, such as that of ten (10) years provided for in Article 1144, paragraph (2), of the Civil Code. But at the same time this Court ruled: 'since in those cases the tax sought to be refunded was collected legally, the running of the two-year prescriptive period provided for in Section 306 should commence, not from the date the tax was paid, but from the happening of the supervening cause which entitled the taxpayer to a tax refund. And the claim for refund should be filed with the Commissioner of Internal Revenue, and the subsequent appeal to the Court of Tax Appeals must be instituted within the said two-year period' Clarifying the point further, this Court added: "In fine, when the tax sought to be refunded is illegally or erroneously collected, the period of prescription starts from the date the tax was paid; but when the tax is legally collected, the prescriptive period commences to run from the date of occurrence of the supervening cause which give rise to the right refund. The ruling of Muller & Phipps is accordingly modified.'" From the foregoing there is therefore no doubt that Sec. 306 (now Sec. 230) of the Tax Code providing for a two (2) year prescriptive period governs all kinds of refunds of internal revenue taxes. The purpose of which is evidently to settle at the earliest possible time claims for refunds of taxpayers because: "Taxes are the lifeblood of the nation. Their primary purpose is to generate funds for the state to finance the needs of the citizenry and to advance the common wealth." (See Napocor vs. Province of Albay, 186 SCRA 198) Moreover, Sec. 306 and its amendment, Sec. 230, quoted hereunder, cover not only taxes erroneously or illegally assessed or collected but also "of any sum alleged to have been excessive." The taxes paid and sought to be refunded by Servicewide in this case, as will be explained later in the resolution of the second issue, falls under the latter phrase. The next point of inquiry is when does this two-year prescriptive period start running. Sec. 230 of the NIRC, which amended Sec. 306 of the Tax Code reads: "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 excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner of Internal Revenue, 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 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; 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." xxx xxx xxx The immediately aforequoted provision of law is clear that the two year prescriptive period commences to run from the date of payment of the tax regardless of any supervening cause that may arise after payment. Therefore the ruling of the Supreme Court in the aforequoted cases, only insofar as to its declaration the prescriptive period commences to run from the date of occurrence of the supervening cause which gave rise to the right of refund, is not anymore applicable. (Servicewide Specialists, Inc.,supra, pp. 2-7) xxx xxx xxx If there is still any lingering doubt in the mind of the Honorable Court whether Sec. 230 of the Tax Code on refund of erroneously or illegally collected taxes applies also to taxes correctly and legally collected, such as excess the quarterly corporate income taxes or creditable income taxes withheld at source, two recent decisions of the Supreme Court have settled the issue. In ACCRA Investments Corp., supra, the Third Division of the Supreme Court ruled that creditable income taxes withheld during a certain year, which becomes refundable because the taxpayer did not have any income tax liability for that year, are refundable under Sec. 230 of the Tax Code, subject to the two-year prescriptive period therein provided, which starts to run when the taxpayer files its income tax return. ACCRA Investments Corp. involved creditable income taxes withheld. Less than a month later, the Supreme Court en banc, ruled that Sec. 230 applies also to refund or credit of excess corporate quarterly income tax payments, and that the two-year prescriptive period starts to run from the filing of the Final Adjustment Return on April 15. (Motion for Reconsideration, pp. 1-7). In Our questioned decision, We expressed the view that the corporate income tax payments of the private respondent not having been erroneously or illegally made (pursuant to the afore-cited rule in Revenue Memorandum Circular No. 7-85), the provision of Section 230 of the Tax Code, which appears to allow the institution of an action before the Court of Tax Appeals (even if no decision had as yet been rendered by the Commissioner of Internal Revenue), would be inapplicable in the instant case. We further stated that such action therefore is premature. There having been no decision as yet rendered by the Commissioner of Internal Revenue, it may be aptly be said that there exists no controversy for the Court of Tax Appeals to settle or adjudicate. Ineluctably, Our afore-cited view runs counter to existing jurisprudence relative to the application of Section 230 of the Tax Code as regard corporate taxes paid/collected in excess. The aforementioned Section 230 applies, contrary to the contention of the Honorable Commissioner of Internal Revenue (which contention We had earlier sustained), to all excess payments whether illegally or erroneously collected or not. Thus, under the said section of the Tax Code, respondent's petition with the Court of Tax Appeals for refund was not premature. Since the prescriptive period of two (2) years therein provided is the one which should govern and not any other prescriptive period, respondent need not have to wait for the commissioner's response to the request for refund; otherwise the said prescriptive period to claim for refund might already lapse. On the other hand, as found by the Court of Tax Appeals, respondents are entitled to a refund of excess payment of corporate tax for the taxable year 1984 in the amount of P181,039.00. As petitioner Commissioner of Internal Revenue prayed for a judgment on the pleadings, he is deemed to have admitted the truth of all the material and relevant allegations of respondent's petition for review filed with the Court of Tax Appeals. Petitioner cannot now be heard to say that respondent has not duly substantiated its claim for a tax refund. PREMISES CONSIDERED, the questioned decision of this Court is reconsidered and another one is hereby rendered DISMISSING the instant petition for lack of merit. SO ORDERED. Lantin and Elbinias, JJ .,concur. Footnotes * Should be Section 68 as re-numbered and re-arranged by E.O. 273. ** Should be Section 69 as re-numbered and re-arranged by E.O. 273.