Commissioner of Internal Revenue v. Mc George Food Industries, Inc.

TENTH DIVISION [CA-G.R. SP No. 67767. January 31, 2006.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . MC GEORGE FOOD INDUSTRIES, INC. , respondent . D E C I S I O N AREVALO-ZENAROSA , M., J p : Before Us is an appeal 1 under Rule 43 of the Rules of Court from the Decision 2 of the Court of Tax Appeals dated September 3, 2001, in CTA Case No. 6084, entitled " Mc George Food Industries, Inc. vs. Commissioner of Internal Revenue ," the dispositive portion of which reads: 1uptax06 "WHEREFORE, in view of the foregoing, the instant Petition for Review is PARTIALLY GRANTED. Respondent is hereby ORDERED TO REFUND in favor of the petitioner, the reduced amount of FOUR MILLION FIVE HUNDRED NINETY EIGHTH THOUSAND SEVEN HUNDRED SIXTEEN & 98/100 PESOS (P4,598,716.98) representing the excess and unutilized creditable withholding tax for the calendar year ended December 1997. SO ORDERED." and from the Resolution 3 dated October 30, 2001 denying petitioner's motion for reconsideration. The facts of the case are as follow: Respondent is a corporation duly organized and existing under and by virtue of Philippine laws, with principal office at the 17th Floor, Citibank Centre, Paseo de Roxas, makati City. It is primarily engaged in the restaurant and fast food business. On April 15, 1998 , respondent filed its Corporate Annual Income Tax Return for the calendar year ended December 1997 reflecting the amount of Four Million Seven Hundred Thirty-Six Thousand One Hundred Eighty-Eight Pesos (P4,736,188.00) as excess and/or unutilized creditable income tax, which is computed as follows: Gross Income P1,709,619,235.00 Less: Deductions 1,694,207,841.00 Taxable Income P 15,411,394.00 Tax Due P 5,393,988.00 Less: Tax Credits/Payment 10,130,176.00 Refundable Amount P4,736,188.00 The Ten Million One Hundred Thirty Thousand One Hundred Seventy-Six Pesos (P10,130,176.00) represents the aggregate tax credit/payment which is consist of the quarterly income tax payments made by respondent corporation for the first and second quarters of the year amounting to Two Million Six Hundred Thirty-Six Thousand Eight Hundred Twenty-Four Pesos and Twenty-Four Centavos (P2,636,824.24) and Seven Million Two Hundred Sixty-One Thousand Five Hundred Eighty-Eight Pesos and Seventy-Five Centavos (P7,261,588.75) , respectively. The balance represents creditable income taxes withheld during taxable year 1997 amounting to Two Hundred Thirty-One Thousand Seven Hundred Sixty-Three Pesos (P231,763.00) . 4 In its 1997 Annual Income Tax Return, respondent corporation indicated its intention to carry over and apply the unutilized creditable income tax of Four Million Seven Hundred Thirty-Six Thousand One Hundred Eighty-Eight Pesos (P4,736,188.00) as tax credit for the succeeding calendar year 1998. SHCaDA On April 15, 1999 , respondent corporation file its Corporate Annual Income Tax Return for calendar year 1998 which showed among others, a Minimum Corporate Income Tax (MCIT) due of Five Million Seven Hundred Ninety-Nine Thousand Fifty-Six Pesos (P5,799,056.00) and a total tax credit payment of Four Million Nine Hundred Fifty-Three Thousand Three Hundred Sixty-Seven Pesos (P4,953,367.00) , the breakdown of which are as follows: Prior Year's Excess Credits P4,736,188.00 Add: Tax Credits/Payments for the 1st 3 Quarters P67,274.00 Tax Withheld per BIR Form No. 2307 for the First three Quarters 149,905.00 217,179.00 Total Tax Credit Payment P4,953,367.00 Of the above-stated figures of Four Million Nine Hundred Fifty-Three Thousand Three Hundred Sixty-Seven Pesos (P4,953,367.00), only the amounts of Sixty-Seven Thousand Two Hundred Seventy-Four Pesos (P67,274.00) and One Hundred Forty-Nine Thousand Nine Hundred five (P149,905.00) , were actually credited against the Five Million Seven Hundred Ninety-Nine Thousand Fifty-Six Pesos (P5,799,056.00) MCIT liability for the year 1998. The amount of Four Million Seven Hundred Thirty-Six Thousand One Hundred Eighty-Eight Pesos (P4,736,188.00) representing the excess tax credits carried over from the previous year (1997) was not taken into account in computing the income tax payable for the year 1998. Hence it still unutilized. On April 14, 2000 , respondent corporation filed with a Bureau of Internal Revenue an administrative claim for refund of Four Million Seven Hundred Thirty-Six Thousand One Hundred Eighty-Eight Pesos (P4,736,188.00) representing overpaid income taxes for the calendar year 1997. On that same date, respondent corporation filed a Petition for Review with the Court of Tax Appeals (CTA) . On September 3, 2001, CTA rendered a decision in favor of respondent corporation, the dispositive portion of which reads: "WHEREFORE, in view of the foregoing, the instant Petition for Review is PARTIALLY GRANTED. Respondent is hereby ORDERED TO REFUND in favor of the petitioner, the reduced amount of FOUR MILLION FIVE HUNDRED NINETY EIGHTH THOUSAND SEVEN HUNDRED SIXTEEN & 98/100 PESOS (P4,598,716.98) representing the excess and unutilized creditable withholding tax for the calendar year ended December 1997. SO ORDERED." On September 21, 2001, petitioner filed a motion for reconsideration which was denied by CTA. Hence, this petition. Petitioner avers that since respondent corporation opted to carry over and apply its 1997 excess credits against its 1998 and 1999 tax liabilities, such option to carry over is now irrevocable. Hence, its alleged 1997 unutilized/excess tax credits can no longer be claimed as refund nor can application for the issuance of a tax credit certificate be allowed. Petitioner cites its legal basis, Section 76 5 of the Tax Reform Act of 1997 . 6 It avers that respondent corporation's allegation that it has an unutilized creditable withholding tax credits for the year 1997 in the amount of Four Million Seven Hundred Thirty-Six Thousand One Hundred Eighty-Eight Pesos (P4,736,188.00) does not ipso facto warrant the credit. Respondent corporation has the burden of proving that it is indeed entitled to the credit sought as it is a well-settled rule that claims for tax refunds/tax credit warrant the credit and that the same should be construed in strictissimi juris against the tax payer. 7 This is due to the fact that claims for refund/credit partake the nature of an exemption from tax. Thus, it is incumbent upon the respondent corporation to prove that it is indeed entitled to the refund/credit sought. Failure on the part of the respondent corporation to the same is fatal to its claims for tax credit. AHcDEI The sole issue to be resolved in this case is whether or not respondent corporation is entitled to the refund of Four Million Seven Hundred Thirty-Six Thousand One Hundred Eighty-Eight Pesos (P4,736,188.00) representing the overpaid quarterly income tax and unutilized creditable withholding tax at source for the calendar year 1997 . We rule to affirm the decision of the CTA . Section 69 8 of the Old Tax Code , otherwise known as the National Internal Revenue Code of 1977 9 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 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." ( Emphasis Supplied ) The applicable provision in claims for refund involving unutilized creditable taxes for the year 1997 is Section 69 of the old Tax Code . This is because the 1997 Tax Reform Act took effect on January 1, 1998. As a matter of fact, Section 8 10 of Title XIV of the Tax Reform Act of 1997 categorically provides that it shall take effect on January 1, 1998. It follows that all transactions previous to January 1, 1998 are still governed by the old Tax Code. Hence, petitioner's contention that since the Tax Reform Act of 1997 was already effective when petitioner filed its 1997 Income Tax Return on April 15, 1998, then the Tax Reform Act of 1997 is applicable, has no basis. It is clear from the Tax Reform Act of 1997 itself that it would only take effect on January 1, 1998, and, hence, no retroactive application can be had, if the law is silent on the matter. Therefore, the subject claim for refund pertains to the unutilized creditable withheld taxes for the year 1997 and the transaction which gave rise to the claim for refund occurred in taxable year 1997. Such being the case, the right to claim for refund or tax credit of these taxes must be governed by the law in effect at the time said excess credits were earned. Thus, the pertinent law applicable to the case at bar is Section 69 of the old Tax Code considering that the amount of income involved as well as the excess covered taxable year 1997. Hence, respondent corporation aside from opting to carry-over the excess tax to the next succeeding quarter, may likewise avail of the remedy of refund, because the old Tax Code does not preclude the exercise of one to the exclusion of the other. IcHAaS Furthermore, the three (3) basic requisites for the grant of refund of overpaid quarterly income payments and unutilized creditable tax at source are complied in this case, to wit: 1. That the claim for refund was filed within two (2) years as prescribed under Section 230 11 of the Tax Code; 2. That the income upon which the taxes were withheld were included in the return of the recipients, 12 3. That the fact of withholding is established by a copy of a statement 13 duly issued by the payor (withholding agent) to the payee showing the amount paid and the amount of tax withheld therefrom. 14 Section 230 15 of the Old Tax Code provides: "SECTION 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 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. . . . Forfeiture of refund. A refund check or warrant issued in accordance with the pertinent provisions of this Code which shall remain unclaimed or uncashed within five (5) years from the date the said warrant or check was mailed or delivered shall be forfeited in favor of the government and the amount thereof shall revert to the General Fund." (Emphasis Supplied) Section 230 of the National Internal Revenue Code precludes any suit or proceeding from being maintained in any court for the recovery of any national internal revenue tax 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 said to have been excessive or in any manner wrongfully collected unless (a) a written claim for the refund or credit thereof has been duly filed with the Commissioner and (b) the suit or proceeding shall have been instituted within two years from the date of payment of the tax or penalty regardless of any supervening cause that might arise after such payment . The two-year period is a limitation of action not only in submitting the written claim for the refund of the tax to the Commissioner but likewise in filing the case or appeal with the CTA. We believe that respondent corporation has complied with the abovementioned requisites. Records show that respondent corporation filed a claim for refund with the BIR on April 14, 2000 and with the CTA also on the same date. While it is remarkable at the outset that the dates of filing of both the administrative and judicial claim for refund is one and the same, it is important that both dates should be within the two-year prescriptive period mandated by Section 230 of the Tax Code . Clearly, the prescriptive period of two years should commence to run only from the time that the refund is ascertained, which can only be determined after a final adjustment return is accomplished. 16 In the instant case, respondent corporation filed its Corporate Annual Income Tax Return on April 15, 1998 . Clearly, April 14, 2000 falls well within the two-year period provided by law. DaTISc Moreover, while it is true that respondent corporation initially intended to carry over the 1997 excess/unutilized tax credits to the succeeding year, it is also significant to note that respondent corporation was not able to utilize the same, as reflected in its 1998 Corporate Annual Income Tax Return. For taxable year 1998, respondent corporation declared in its annual income return a MCIT liability of Five Million Seven Hundred Ninety-Nine Thousand Fifty-Six Pesos (P5,799,056.00). After applying the total tax credit of Four Million Nine Hundred Fifty-Three Thousand Three Hundred Sixty-Seven Pesos (P4,953,367.00) 17 against the MCIT, respondent corporation still had an income tax liability in the amount of Eight Hundred Forty-Five Thousand Six Hundred Eighty-Nine Pesos (P845,689.00) , the computation of which as follows: Minimum Corporate Income Tax of 1998 P5,799,056.00 Less: Total Tax Credit Payment 4,953,367.00 Income Tax Liability for 1998 P845,367.00 Hence, the income tax payable for the year 1998 should have been Eight Hundred Forty-Five Thousand Six Hundred Eighty-Nine Pesos (P845,689.00). However, instead of paying the said amount, petitioner still paid the amount of Five Million Five Hundred Eighty-One Thousand Eight Hundred Seventy-Seven Pesos (P5,581,877.00) . The difference between the amount paid (P5,581,877.00) and the MCIT due of Five Million Seven Hundred Ninety-Nine Thousand Fifty-Six Pesos (P5,799,056.00) is Two Hundred Seventeen Thousand One Hundred Seventy-Nine Pesos (P217,179.00) . 18 This Two Hundred Seventeen Thousand One Hundred Seventy-Nine Pesos (P217,179.00) is the sum of the withholding tax credits for the year 1998. It is significant to note that the amount of Four Million Seven Hundred Thirty-Six Thousand One Hundred Eighty-Eight Pesos (P4,736,188.00) representing excess tax credits carried over from the year 1997 was not taken into account in computing the income tax payable for the year 1998. Hence, the amount of excess/unutilized creditable taxes as of the end of taxable year 1997 was not utilized against the income tax payable of petitioner for the taxable year 1998. Neither was the amount carried over to the subsequent taxable year 1999. WHEREFORE, premises considered, the instant appeal is hereby DISMISSED. ACCORDINGLY, the Decision of the Court of Tax Appeals dated September 3, 2001, and the Resolution dated October 30, 2001, are hereby AFFIRMED. SO ORDERED. Reyes, Jr. and Carandang, JJ., concur. Footnotes Rollo received on April 18, 2005. 1. Rollo , pp. 7-20. 2. Annex A, Rollo , pp. 21-32. 3. Annex B, Rollo , pp. 33-36. 4. Total Tax Credit P10,130,176.00 Less: First Quarter Payment P2,636,824.24 Second Quarter Payment 7,261,588.75 9,898,412.99 Creditable Income Taxes Withheld P231,763.01 5. SECTION 76. Fiscal Adjustment Return. Every corporation liable to tax under Section 27 shall file a final adjustment return covering the total taxable 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 income of that year, the corporation shall either: (A) Pay the balance of tax still due; or (B) Carry-over the excess credit; or (C) Be credited or refunded with the excess amount paid, as the case may be. In case the corporation is entitled to a tax credit or refund of the excess estimated quarterly income taxes paid, the excess amount shown on its final adjustment return may be carried over and credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years. Once the option to carry-over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for cash refund or issuance of a tax credit certificate shall be allowed therefor. 6. REPUBLIC ACT NO. 8424, AN ACT AMENDING THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, AND FOR OTHER PURPOSES, which took effect on January 1, 1998. 7. Commissioner of Internal Revenue vs. Ledesma , G.R. No. L-135509, January 30, 1979, 31 SCRA 95. 8. Now Section 76. 9. PRESIDENTIAL DECREE NO. 1158, A DECREE TO CONSOLIDATE AND CODIFY ALL THE INTERNAL REVENUE LAWS OF THE PHILIPPINES, which took effect on June 3, 1977. 10. SECTION 8. Effectivity. This Act shall take effect on January 1, 1998. 11. Now Section 229. 12. Revenue Regulation No. 12-94, "Section 10. Claim for Tax Credit or Refund. 13. BIR Form-1743.1. 14. Section 10, Revenue Regulation 6-85. 15. Now Section 229. 16. Commissioner of Internal Revenue v. Philippine American Life Insurance Co ., 244 SCRA 446; COMMISSIONER OF INTERNAL REVENUE vs. COURT OF APPEALS, G.R. No. 117254, January 21, 1999. 17. Prior Year's Excess Credits P4,736,188.00 Add: Tax Credits/Payments for the 1st 3 Quarters P67,274.00 Tax Withheld First Three Quarters 149,905.00 217,179.00 Total Tax Credit Payment P4,953,367.00 18. Minimum Corporate Income Tax of 1998 P5,799,056.00 Less: Amount Actually Paid 5,581,877.00 Sum of Withholding Tax Credit of 1998 P217,179.00