Far East Bank and Trust Company v. Court of Tax Appeals

FOURTH DIVISION [CA-G.R. SP NO. 42406. October 11, 2010.] FAR EAST BANK AND TRUST COMPANY (NOW BANK OF THE PHILIPPINE ISLANDS)/FEB INVESTMENTS, INC. , petitioner , vs . COURT OF TAX APPEALS AND COMMISSIONER OF INTERNAL REVENUE , respondents . DECISION DIAMANTE, F.N. , J p : This case was originally raffled to then Justice Demetrio G. Demetria when the petition was filed in 1996. No action on the petition was taken by Justice Demetria until his separation from the Court in 2002. Unfortunately, the case could not be re-raffled to another Justice as the records of this case could no longer be located. The records were reconstituted only in 2009 at the behest of petitioner Far East Bank. The case was raffled to this ponente only on February 24, 2010 as part of his initial caseload. Before Us on petition for review under Rule 43 of the 1997 Rules of Civil Procedure is the February 7, 1996 Decision 1 of the Court of Tax Appeals (CTA) in CTA Case No. 4895 partially granting the claim for refund of petitioner Far East Bank and Trust Company. Likewise assailed is the October 16, 1996 Resolution 2 of the same Court denying petitioner's motion for reconsideration therefrom. The material antecedents: Petitioner Far East Bank and Trust Company (now Bank of the Philippine Islands)/FEB Investments, Inc., a domestic banking corporation duly organized and existing under and by virtue of the laws of the Philippines, filed its 1990 annual income tax return on April 15, 1991 reflecting an operating loss in the amount of P45,453,440.00. It thus reported zero income tax liability, with refundable income tax payment in the amount of P486,338.00. This refundable tax payment was due to petitioner's accumulated creditable withholding taxes for that year. ITEcAD Petitioner sought to apply this overpayment as tax credit for the succeeding taxable year by marking the appropriate box in the lower right portion of the return. Out of the total credit of P486,338.00, petitioner applied the sum of P128,525.00 to cover its income tax liability for the year 1991. Its refundable credit was thus reduced to P357,813.00. On April 2, 1992, petitioner filed a letter-claim with public respondent Commissioner of Internal Revenue for the refund of the remaining amount of P357,813.00 representing excess income tax payment for the year 1990. Public respondent's inaction on the refund prompted the petitioner to file a petition for review with the Court of Tax Appeals on December 29, 1992 pursuant to Section 230 of the Tax Code. In its comment to the petition, public respondent argued that petitioner failed to state any cause of action under Section 204 of the Tax Code. The commissioner emphasized that tax refunds are construed strictly against the taxpayer as they are in the nature of tax exemption and that the taxpayer has the burden to show that the taxes paid were erroneously or illegally collected. The Commissioner further stated that petitioner's claim for refund is still under investigation. On February 7, 1996, the CTA rendered a Decision partially granting the claim for refund. It directed the BIR to refund to petitioner the amount of P61,846.78 representing overpaid income tax for the calendar year ending December 31, 1990. The CTA, however, disallowed the refund of the amount of P295,966.22 on the ground of prescription. The CTA held: " WHEREFORE , in view of the foregoing, the instant petition for review is hereby granted. Respondent is hereby ordered to refund in favor of petitioner the sum of P61,846.78 representing overpaid income tax for the calendar year ended December 31, 1990. SO ORDERED ." The denial of the refund in the amount of P295,966.22 is grounded on the fact that petitioner included in the computation withholding taxes for the year 1989 which could no longer be claimed because of the two-year prescriptive period imposed by the Tax Code. Not satisfied, petitioner sought partial reconsideration, this time arguing that since the CTA disallowed the application of its 1989 creditable withholding taxes against its income tax liability in 1991, it should be allowed to claim for a refund. The motion was, however, denied by the CTA in its October 16, 1996 Resolution. DAEcIS Hence, this petition, grounded on the following assignment of errors: I PETITIONER IS NOT BARRED FROM PURSUING THE INSTANT CLAIM FOR REFUND II THE INSTANT CLAIM CANNOT BE DENIED ON GROUND OF PRESCRIPTION Petitioner argued, firstly , that under Section 69 of the Tax Code, a taxpayer who has paid more than its tax liability in any calendar year may avail either of the remedy of claiming automatic credit in its income tax return for the next succeeding year or, claim for refund. When, after availing of the first remedy, there exists an excess, the taxpayer is not precluded from claiming for the refund of the excess payment. Secondly , petitioner insisted that the two-year prescriptive period for claiming refund has not set in considering that while the amount being recovered covered tax due for the year 1989, it came to know of the excess payment only in 1990 when it received the certificate of withholding from the Manila Electric Company and could, therefore, use the tax credit only for the year 1990. Thirdly , petitioner disagreed with public respondent's interpretation of Section 25 (E) (5) of the Tax Code to the effect that the taxes involved in this case are withholding taxes on interest on foreign loans which are not considered as creditable withholding taxes but final taxes. Petitioner instead surmises that while the transactions previously involved foreign loans, the same have already been assigned to petitioner FEBII, a domestic corporation. Hence, Section 25 could no longer be invoked inasmuch as the said provision applies only to foreign corporations. This notwithstanding, petitioner argues that the nature of the withholding taxes involved in this case as being "final" and not creditable is an issue that was never raised in the BIR Answer and to consider the same in the resolution of its partial motion for reconsideration will work undue prejudice. Lastly , petitioner contended that the issue of prescription should not have been considered by the appellate tax court considering that it was never raised as a defense in the Answer. Such omission results in the waiver of prescription as a defense, or otherwise as a relevant issue in this action. SECIcT We find no merit in the petition. It is without dispute that a claim for recovery of tax erroneously or illegally collected should be made within two (2) years, as provided under Section 230 of the Tax Code (the Tax Code of 1977, the applicable law at the time the case was filed), to wit: " Sec. 230 . 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; 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 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." (Emphasis ours) If the taxpayer is a corporation, the two-year prescriptive period begins to run from the time the income tax return for the calendar year becomes due, usually the 15th of April of each year. Following this rule, petitioner's claim for refund of its excess tax payment for the year 1989 begins to run from April 15, 1990, the date when its income tax return for 1989 became due. In this case, petitioner sought to recover excess tax payment for the calendar year 1989 and credit the same to its tax liability for the year 1991. This was disallowed by the BIR, following the rule laid down by Section 69 of the Tax Code allowing a taxpayer to credit its excess tax payment only to the immediately succeeding taxable year. Hence, according to the BIR, petitioner could only credit its 1989 excess payment to its tax due for the year 1990. But the controversy did not end there. Insisting entitlement to the amount of P295,966.22 as overpaid income tax, petitioner sought to recover the amount by filing a claim for refund with the BIR on April 2, 1992. The BIR failed to act on the claim, prompting the petitioner to file the refund with the CTA on December 29, 1992. We agree with the CTA's ruling that petitioner's right to refund has already prescribed. HcTIDC First. Sec. 69 of the 1977 NIRC (now Sec. 76 of the 1997 NIRC) provides that any excess of the total quarterly payments over the actual income tax computed in the adjustment or final corporate income tax return, shall either (a) be refunded to the corporation, or (b) may be credited against the estimated quarterly income tax liabilities for the quarters of the succeeding taxable year. 3 The corporation must signify in its annual corporate adjustment return (by marking the option box provided in the BIR form) its intention, whether to request for a refund or claim for an automatic tax credit for the succeeding taxable year. To case the administration of tax collection, these remedies are in the alternative, and the choice of one precludes the other. 4 Thus, 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 year. The carrying forward of any excess or overpaid income tax for a given taxable year is limited to the succeeding taxable year only . HAaDcS This is the same Rule enunciated in the case of AB Leasing and Finance Corporation vs. Commissioner of Internal Revenue 5 where the Supreme Court declared that "[T]he carrying forward of any excess or overpaid income tax for a given taxable year then is limited to the succeeding taxable year only. " Since the said case involved a claim for refund of overpaid taxes for 1993, the High Court ruled that petitioner could only have applied the 1993 excess tax credits to its 1994 income tax liabilities. To further carry-over to 1995 the 1993 excess tax credits is violative of Sections 69 of the NIRC. This is precisely the remedy availed of by petitioner which the CTA allowed, but only to the extent of P61,846.78, the amount representing overpaid income tax for the calendar year ending December 31, 1990 to its tax liability for the year 1991. The CTA, applying the above-quoted provision, disallowed the crediting of the excess payment of P295,966.22 to petitioner's tax due in 1991 inasmuch as the said amount should have been credited to 1990 which is the "immediately succeeding year" contemplated by the Tax Code. The question now is if the amount could no longer be credited, can petitioner recover the same by way of refund? We believe that it can, provided that petitioner complies with the requirements of Section 230 of the Tax Code, that is, that the claim for refund should be made within two years from the time the tax became due. The same principle is established in the case of Calamba Steel Center, Inc. (formerly JS Steel Corporation) vs. Commissioner of Internal Revenue 6 where the Supreme Court held that: acCTSE "A tax refund may be claimed even beyond the taxable year following that in which the tax credit arises. Hence, excess income taxes paid in 1995 that have not been applied to or used in 1996 may still be the subject of a tax refund in 1997, provided that the claim for such refund is filed with the internal revenue commissioner within two years after payment of said taxes. As a caveat, the Court stresses that the recognition of the entitlement to a tax refund does not necessarily mean the automatic payment of the sum claimed in the final adjustment return of the taxpayer. The amount of the claim must still be proven in the normal course." No provision in our tax law limits the entitlement to such a refund, other than the requirement that the filing of the administrative claim for it be made by the taxpayer within the two-year prescriptive period. Section 204 (3) of the NIRC states that no refund of taxes "shall be allowed unless the taxpayer files in writing with the Commissioner [the] claim for . . . refund within two years after the payment of the tax." Applying the aforequoted legal provisions, if the excess income taxes paid in a given taxable year have not been entirely used by a taxable corporation against its quarterly income tax liabilities for the next taxable year , the unused amount of the excess may still be refunded, provided that the claim for such a refund is made within two years after payment of the tax. In this case however, petitioner's two-year prescriptive period commenced to run on April 15, 1990. Consequently, the two-year period of prescription ended on April 15, 1992. Petitioner filed a claim for refund with the BIR on April 2, 1992, admittedly well within the two-year prescriptive period imposed by Section 230. Petitioner, however, made a judicial claim for refund only on December 29, 1989, clearly beyond the two-year prescriptive period provided under Section 230 of the Tax Code. The rule requires that both claim for refund with the BIR and the petition for review with the CTA should be filed within the two-year prescriptive period stated under Section 230 of the Tax Code. This is the clear import of the second paragraph of Section 230 of the Tax Code, to wit: "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." TcaAID The Supreme Court has repeatedly held that the claim for refund with the Bureau of Internal Revenue and the subsequent appeal to the Court of Tax Appeals must be filed within the two-year period. "If, however, the Collector takes time in deciding the claim, and the period of two years is about to end, the suit or proceeding must be started in the Court of Tax Appeals before the end of the two-year period without awaiting the decision of the Collector. 7 In the case of Atlas Consolidated Mining and Development Corporation vs. Commissioner of Internal Revenue, 8 the Supreme Court held: EAcTDH "In case the application for refund/credit of input VAT was denied or remained unacted upon by the BIR, and before the lapse of the two-year prescriptive period , the taxpayer-applicant may already file a Petition for Review before the CTA." (Emphasis ours) As petitioner's claim for tax refund before the Court of Tax Appeals was filed only on December 29, 1992, clearly beyond the two-year prescriptive period provided under Section 230 of the 1977 NIRC, the claim for refund is barred by prescription. Once again, We reiterate the rule that statutes granting tax exemptions are construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority. Tax refunds are in the nature of such exemptions. Accordingly, the claimants of those refunds bear the burden of proving the factual basis of their claims; and of showing, by words too plain to be mistaken, that the legislature intended to exempt them. 9 The foregoing conclusion makes it unnecessary for us to pass on the other issues raised in this case by petitioner. WHEREFORE , the instant petition is hereby DENIED for lack of merit. SO ORDERED . Guevara-Salonga and Castillo, JJ., concur. Footnotes 1. Rollo , p. 17. 2. Rollo , p. 26. 3. Philippine Bank of Communications vs. Commissioner of Internal Revenue, Court of Tax Appeals and Court of Appeals, G.R. No. 112024, January 28, 1999. 4. Id. 5. 405 SCRA 380, 388, July 8, 2003. 6. G.R. No. 151857, April 28, 2005. 7. Commissioner of Internal Revenue vs. Victorias Milling Co., Inc. and The Court of Tax Appeals, G.R. No. L-24108, January 3, 1968. 8. G.R. Nos. 141104 & 148763, June 8, 2007. 9. Commissioner of Internal Revenue vs. Seagate Technology (Philippines), G.R. No. 153866, February 11, 2005.