Paseo Realty and Development Corp. v. Court of Tax Appeals

[CA-G.R. SP No. 32890. April 25, 1994.] (C.T.A. Case No. 4528) PASEO REALTY AND DEVELOPMENT CORPORATION , petitioner , vs . HON. COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE , respondents . D E C I S I O N GONZAGA-REYES , J p : Petitioner seeks a review of the decision of respondent Court of Tax Appeals in C.T.A. Case No. 4528, denying its claim for refund of overpaid creditable withholding tax for the calendar year ending December 31, 1988 in the amount P59,510.00. Petitioner Paseo Realty and Development Corporation is a domestic corporation engaged in the real estate business as lessor of real properties. On April 14, 1989, petitioner filed with the Bureau of Internal Revenue its Income Tax Return for 1988 showing tax due of P28,127.00. The same return showed a prior year (1987) excess credit of P81,403.00 and a current year (1988) creditable taxes withheld source of P92,750.00, amounting to a total credit of P174,153.00. Deducting the 1988 income tax due of P28,127.00, there remained as refundable the sum of P146,026.00. Petitioner indicated in the same return that it wanted P81,403.00 (excess credit for 1987) to the refunded and P64,623.00 to be applied as tax credit for 1989. For calendar year 1989, petitioner computed its income tax liability to be P27,653.00. In its return filed on April 15, 1990, petitioner charged this liability of P27,653.00 to its credit of P146.026.00 thus reducing its total credit to P118,373.00. On April 16, 1990, petitioner filed a petition with respondent Court claiming a refund of P25,623.00, thus reducing its credit to P92,750.00, (which was actually the creditable taxes withheld at source for year 1988). At the end of calendar year 1990, petitioner ascertained that it would have an income tax liability for 1990 of P33,240.00. In its tax return for calendar year 1990, it deducted its income tax due of P33,240.00 from its tax credit of P92,750.00 leaving a credit balance of P59,570.00, which is now the subject of this claim for refund in C.T.A. Case No. 4728. As posed in the decision sought to be reviewed, the sole issue raised in the petition is whether or not petitioner is entitled to the refund of P59,570.00 as excess creditable withholding tax paid for the year 1988. The respondent court held that the petitioner was entitled to a refund of the amount of only P36,970.00 representing excess creditable withholding taxes paid for the year 1988. It stated: "By declaring that the amount of P81,403.00 is to be refunded and the amount of P64,623.00 is to be applied as tax credit to the succeeding taxable year (1989), petitioner should not have applied as a tax credit the whole refundable amount of P146,026.00 to the succeeding year. Instead, only the amount of P64,623.00 should have been applied as credit in its 1989 Income Tax Return. Since its 1989 income tax liability was only P27,653.00 the remainder amounting to P36,970.00, not having been utilized, is the amount that can be claimed for refund. The balance of P36,970.00 cannot be applied to its 1990 income tax liability. This is bolstered by Section 69 of the National Internal Revenue Code which provide in part; 'In came 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 year . (Emphasis supplied.)' If the remaining balance of P36,970.00, representing excess creditable taxes paid in 1988, were to be applied to the 1990 income tax liability that would mean application for two successive years, that it, 1989 and 1990. To allow the application of excess taxes paid for two successive years would run counter to the specific provision of law above-mentioned. Consequently, petitioner is only entitled to the refund of P36,790.00, representing overpaid creditable withholding tax for 1988, and not P59,510.00 as claimed in this petition." In this petition, petitioner claims that it was error for the court a quo to cite Section 69 of the National Internal Revenue Code, which applies to excess quarterly income tax payments, and not to this case which involves excess creditable taxes withheld. Petitioner contends that there is no law or regulation which holds that the "amount refundable" is limited to the "current" tax credits of the immediately preceding year, or which prohibits unutilized tax credit from being applied to tax liabilities because these credits arose more than a year before. It is argued that the "restrictive interpretation" adopted by the lower court goes against the very method of computing tax credits in the corporate income tax return, which allows the "first in, first out method" in applying its income tax credits, i.e. the oldest credit would be applied first. Thus, petitioner points out: ". . . As of April 15, 1989 , its total credits came to P174,153.00, against which it applied its income tax liability for 1988 of P28,127.00. Thus it had a credit balance or 'amount refundable' of P146.026.00, which it broke into two amounts; P81,403.00 'to be refunded' and P64,623.00 'to be applied as tax credit in succeeding taxable year.' On April 15, 1990 , petitioner had an income tax liability of P27,653.00 for 1989. It charged or applied this income tax liability of P27,658.00 to its prior year's excess credi t of P146,026.00, leaving a balance thereon of P118,373.00; since there might be a question of prescription setting in on that portion of amount representing 1987 credits (which respondent may claim to have prescribed by April 16, 1990), petitioner filed a claim for refund and petition for review on April 16, 1990 for P25,623.00, docketed as C.T.A. Case No. 4439. Thus what was left of petitioner's credits at this point in time April 16, 1990 was P92,750.00, which could be considered under the 'first in, first out' method as the current year's creditable taxes withheld in 1988 and therefore would not prescribe until December 31, 1990, even under the most restrictive application of the two-year prescription on refunds. To this credit balance of P2,750.00 petitioner on April 15, 1991 applied its 1990 income tax liability of P33,240.00, thus leaving a credit balance of P59,510.00. And this P59,510.00 is the very amount petitioner claimed in C.T.A. Case No. 4528. How the respondent court still failed to grasp this simple mathematical presentation on a first in, first out method is difficult to fathom. In fact, petitioner in a motion for reconsideration (Annex D of this petition) took pains to correlate all its refund cases resolved or pending before the lower court, to show unmistakably that petitioner was claiming only what was clearly due to it after applying its income tax liabilities to its tax credits, as follows: 1984 & prior years P181,039.00 CTA Case No. 4148 1985 credit P92,750.00 Less: 1985 inc. tax 18,790.00 Amount refundable P 73,960.00 CTA Case No. 4254 1986 credit P 92,750.00 Less: 1986 inc. tax 47,401.00 Amount refundable 45,349.00 credited to 1967 Add: 1987 tax credit 92,750.00 Total P138,099.00 Less: 1987 inc. tax 56,696.00 Amount refundable P81,403.00 as of 4-15-83 Less: 1988 inc. tax 28,127.00 used 4-15-88 1989 inc. tax 27,653.00 used 4-15-88 Amount refundable P25,623.00 CTA Case No. 4439 filed 4-16-90 1988 tax credit P92,730.00 Less: 1990 inc. tax 33,240.00 Amount refundable P59,510.00 CTA Case No. 4528 filed 1-2-91 1989 tax credit P54,104.00 CTA Case No. 4693 filed 12-27-91 As the foregoing chronological presumption shows, petitioner simply claimed its credits on a first in, first out basis, which is what the income tax return calls for. And to avoid any confusion on these items, petitioner even obtained a joint trial of C.T.A. Cases No. 4254, 4439 and this case No. 4528. If the lower court, after the joint trial, had rendered one consolidated decision on petitioner's income tax liabilities for 1985 to 1988, the unfortunate confusion in the lower court, which prompted the instant petition, would have been avoided." Respondent Commissioner of Internal Revenue contends, in the Comment, that petitioner is not entitled to the refund of P59,570.00 nor to the reduced amount of P36,970.00 as alleged excess creditable withholding tax for the year 1988. He claims that on the basis of Section 69 of the Tax Code, petitioner has two options, either to claim a refund of its excess creditable taxes for 1988 or to apply the same as tax credit against its estimated quarterly income tax liabilities for the taxable quarterly income tax liabilities for the taxable quarters of the succeeding taxable year of 1989. Respondent Commissioner argues as follows: "In the instant case, as shown in petitioner's 1988 Corporate Annual Income Tax Return, the latter divided the refundable amount of P146,026.00 as reflected in its 1988 return and opted to claim the refund of a portion amounting to P81,403.00 and applied as tax credit for the succeeding taxable year (1989) the amount of P64,623.00. Notwithstanding, however, of the declaration made by petitioner in its 1988 income tax return, petitioner applied as tax credit the full amount of P146,026.00 and not the amount of P64,623.00 nor its creditable withholding tax of P92,750.00 for 1988 to the succeeding taxable year of 1989. It must be noted that the amount of P146,026.00 constitutes and includes petitioner's prior year (1987) creditable tax of P81,403.00 and its 1988 creditable withholding tax of P92,750.00. Then, again, it was ascertained that the balance from P146,026.00 of P118,373.00 was already deemed included in the refundable amount reflected in petitioner's 1989 Corporate Income Tax Return of P172,477.00 which amount was applied by the petitioner as creditable tax for the succeeding year of 1990. Thus, when petitioner credited the full amount of P146,026.00 against its 1989 tax liability, the alleged balance of P118,373.00 which the latter credited for the year 1990, petitioner is deemed to have abandoned its claim for refund of the alleged amount of P59,510.00 for 1988. To grant any further refund to petitioner will obviously prejudice the Government as it is tantamount to petitioner being granted with me than one tax credit for the same excess estimated quarterly income taxes paid." Refuting petitioner's contention that there is no law which provides that a credit for a certain year cannot be applied to more than year's income tax liability, respondent cites the provision of Section 69 that the refundable amount shall be credited against the estimated quarterly income tax liabilities for taxable quarters of "the succeeding taxable year". To hold otherwise would defeat the 2-year prescriptive period for filing a refund of erroneously or illegally collected taxes including that of excess creditable withholding tax as mandated by Section 230 of the Tax Code, which bars the filing of any said of proceeding for refund 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. We find merit in this petition. Illustrating mathematically its various claims for refund for prior years, petitioner states that it has religiously complied with the proper application of its tax credits by either (a) applying the oldest credits to the tax liabilities as they incurred, or (b) claiming them as a refund in a CTA case, and therefore no longer available for tax credit in subsequent years. It is petitioner's position that unused tax credits will appear in the returns as a "prior year's excess credit" even if all or a part of it may have arisen as a credit several years earlier (see Motion for reconsideration, Court of tax Appeals, pars. 4 & 6). This is consistent with its theory that "there is no law which provides that a credit for a certain year cannot be applied to more than one year's income tax liability". Petitioner does not dispute that claims for refund of excess creditable withholding taxes are subject to a prescriptive period of two years pursuant to Section 230 of the Code. Petitioner acknowledges this when it filed a claim for refund and petition for review in April 1990, docketed as C.T.A. Case No. 4439, to avoid prescription from setting in on the 1987 portion of the prior year's excess tax credit for tax year 1989 of P146,026.00. Respondents also do not dispute the applicability of the principle of "first in, first out" basis for computing tax credits. However, the fact that the petitioner has consistently followed the "first in, first out" basis for computing its tax credits does not, to Our mind, prevent the application of the prescriptive period, put differently, the utilization of prior year's tax credits should be subject to the rule that claims for recovery of refundable or creditable tax payments are barred after the two-year prescriptive period. Otherwise, the unrestricted application at the option of the tax-payer of unutilized prior tax credits to succeeding years could defeat the 2 year prescriptive period for filing a refund of excess creditable taxes because the tax credit for a given year could be carried over to subsequent years as "prior year's excess credit" and included in the amount refundable", despite the fact that the claim for refund itself is already time-barred. However, it is clear that petitioner made successive claims for refund in its tax returns as follows: P81,403.00 for 1988, P25,623.00 for 1989 and P59,510.00 for 1990. The last-mentioned claim is the subject of this case, CTA Case No. 4528. It appears that there are two other cases, CTA Cases No. 4254 and 4439 which were jointly tried with this CTA Case No. 4528. We agree with petitioner that had there been one consolidated decision on petitioner's income tax liabilities, confusion would have been avoided. Thus, the respondent court arrived at the amount of P36,970.00 as the refundable amount because in the April 15, 1989 return, petitioner indicated that it wanted P81,403.00 "refunded" and the balance of P64,623.00 "to be applied as tax credit to succeeding taxable year," and petitioner's income tax liability for 1989 (which became due on April 15, 1990) came to P27,653.00. It held that only the difference of P36,970.00 may be refunded. However, if does not appear that the claim for refund of P81,403.00 was already granted. If it was deemed abandoned as contended by the respondent Commissioner, with the filing of a tax credit of P146,026.00 and not only for P64,623.00 in 1990, then the total tax credit for the tax returns for 1989 was correctly indicated as P146,026.00. It would appear from petitioner's submission as follows: ". . . since it has already applied to its prior year's excess credit of P81,403.00 (which petitioner wanted refunded when it filed its 1988 Income Tax Return on April 14, 1989) the income tax liability for 1988 of P28,127.00 and the income tax liability for 1989 of P27,653.00, leaving a balance refundable of P25,623.00 subject of C.T.A. Case No. 4439, the P92,750.00 (P64,623.00 plus P28,127.00, since this second amount was already applied to the amount refundable of P81,403.00) should be the refundable amount. But since the taxpayer again used part of it to satisfy its income tax liability of P33,240.00 for 1990, the amount refundable was P59,510.00, which is the amount prayed for in the claim for refund and also in the petitioner (sic) for review." that the present claim for refund already consolidates its claims for refund for 1988, 1989, and 1990, when it filed a claim for refund of P59,510.00 in this case (CTA Case No. 4528). Hence the present claim should be resolved together with the previous claims. We do not agree with the respondent court's conclusion limiting the refund to the overpaid creditable withholding tax for 1988. The argument that on the basis of Section 69 of the Tax Code, the refundable amount shall be credited against the estimated quarterly income tax liabilities for the taxable quarters of "the succeeding taxable year", and that said provision eschews application of tax credits beyond the succeeding year fails to take into account the rule that the prescriptive period for claiming refund is two years counted from the date of filing of the adjusted final tax return (ACCRA) Investments Corp. vs. Court of Appeals, 204 SCRA 957.) Accordingly, it is the opinion of this Court that the three cases involving successive claims for refund which were jointly tried, and which apparently gave rise to the instant claim for refund of P59,510.00, should be resolved in a consolidated decision, taking into account the observations made by the court above. WHEREFORE, the case is remanded to the court a quo for further proceedings. SO ORDERED. Montenegro and Vasquez, Jr ., JJ ., concur.