Philippine Bank of Communications v. Commissioner of Internal Revenue

FOURTEENTH DIVISION [CA-G.R. SP No. 67996. July 29, 2004.] PHILIPPINE BANK OF COMMUNICATIONS , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N TAGLE , J p : This is a Petition for Review under Rule 43 of the Rules of Court, seeking the reversal of the Resolution 1 promulgated on May 22, 2001 by the Court of Tax Appeals in CTA Case No. 6230, the dispositive portion of which reads: "WHEREFORE, in the light of the foregoing, the Motion to Dismiss filed by Respondent is hereby GRANTED. The instant Petition for Review is hereby DISMISSED on the ground of prescription. SO ORDERED." as well as its Resolution 2 promulgated on November 12, 2001, denying the motion for reconsideration of the above-stated resolution. The antecedent facts of the case are as follows: Philippine Bank of Communications ("PBCOM" for brevity) is a banking corporation organized and existing under Philippine laws. On January 22, 1999 or three (3) days before the payment of Gross Receipts Tax ("GRT"), PBCOM paid to the Bureau of Internal Revenue (BIR) the amounts of P10,129,103 . 07 and P26,169,620 . 69 representing the Regular Banking Unit's (RBU) Revaluation Gain from Foreign Currency and Foreign Currency Denominated Unit (FCDU) Income from Foreign Exchange Transactions , respectively, for the last quarter of 1998 (said amounts hereafter referred to as the "GRT"). PBCOM, after having discovered its erroneous payment in April, 1999 in the course of an internal audit conducted in connection with the reorganization of certain departments of the bank, referred the matter to its counsel for legal action. Thus, on January 16, 2001, PBCOM, through its counsel, filed a claim for tax refund or credit in the aggregate amount of P36,295,723.96 representing GRT it erroneously paid to the BIR. 3 As the claim for refund or credit with the BIR was not acted upon, PBCOM filed a Petition for Review 4 before the Court of Tax Appeals (CTA) on January 25, 2001 against the Commissioner of Internal Revenue, which was docketed as CTA CASE NO. 6230, on the ground that the Revaluating Gain on Foreign Currency (Regular Banking Unit) and the Income on Foreign Exchange Transactions (Foreign Currency Denominated Unit) are not subject to GRT. 5 On February 28, 2001, the Commissioner of Internal Revenue filed a Motion to Dismiss 6 on the ground that the claim for refund was filed beyond the prescriptive period of two (2) years. PBCOM, thus, filed an Opposition 7 thereto on April 6, 2001 and stated the following arguments, to wit: I. THE PETITION FOR REVIEW SHOULD BE DEEMED FILED WITHIN THE PRESCRIPTIVE PERIOD OF TWO (2) YEARS AND ITS FILING SHOULD BE DEEMED SUBSTANTIAL COMPLIANCE WITH THE LAW. TcDIEH II. DELAY IN THE FILING CAN BE EXCUSED ON THE GROUNDS OF EQUITY AND SUBSTANTIAL JUSTICE. III. EVEN IF THE TWO-YEAR PERIOD HAD ALREADY LAPSED, THE SAME IS NOT JURISDICTIONAL AND MAY BE SUSPENDED FOR REASONS OF EQUITY. THE HARSH EFFECT OF AN ABSURD PROCEDURE SHOULD BE TEMPERED BY JUDICIAL RESTRAINT IN THE STRICT APPLICATION OF THE PRESCRIPTIVE PERIOD. STATUTES SHOULD RECEIVE A SENSIBLE CONSTRUCTION, SUCH AS WILL GIVE EFFECT TO THE LEGISLATIVE INTENTION AND SO AS TO AVOID AN UNJUST OR AN ABSURD CONCLUSION. IV. CLAIMS FOR REFUND INVOLVE THE PRINCIPLE OF SOLUTIO INDEBITI OR UNJUST ENRICHMENT, HENCE, THERE ARE COMPELLING REASONS TO WARRANT THE SETTING ASIDE OF TECHNICALITIES TO ALLOW PETITIONER TO PROVE THE MERIT OF ITS CLAIM BASED ON EVIDENCE, IN ORDER TO SERVE THE ENDS OF JUSTICE. GOVERNMENT IS NOT EXEMPT FROM THE APPLICATION OF THE PRINCIPLE OF UNJUST ENRICHMENT. V. STRICT INTERPRETATION AND ADHERENCE TO TECHNICALITIES SHOULD BE TEMPERED BY THE REQUIREMENT OF SUBSTANTIAL JUSTICE AND EQUITY. VI. THE COURT OF TAX APPEALS IS VESTED WITH BROAD POWERS AND DISCRETION IN THE EXERCISE OF ITS EQUITY JURISDICTION TO RENDER SUBSTANTIAL JUSTICE AND SET ASIDE THE TECHNICALITIES PARTICULARLY IN THE CASE OF CLAIMS FOR TAX REFUND. THE COURTS HAVE WIDE LATITUDE IN THE EXERCISE OF ITS EQUITY JURISDICTION TO RATIONALIZE AN ABSURD LEGAL PROCEDURE TO PREVENT INJUSTICE ARISING FROM TECHNICALITIES SPAWNED BY A BADLY CRAFTED LAW. COURTS SHOULD EXERCISE JUDICIAL RESTRAINT IN APPLYING THE PRESCRIPTIVE PERIOD. VII. PETITIONER'S CLAIM IS HIGHLY MERITORIOUS WHICH CAN ONLY BE RESOLVED IN AN APPROPRIATE TRIAL ON THE MERITS BASE ON EVIDENCE, NOT ON THE BASIS OF TECHNICALITY. VIII. THERE IS A PATENT ABSURDITY AND INCONSISTENCY IN THE RULES FOR FILING CLAIMS FOR REFUND AND FILING OF PETITION FOR REVIEW UNDER THE TAX CODE AND THE PROCEDURE UNDER THE LAW CREATING THE CTA WHICH JUSTIFIES A LIBERAL APPLICATION OF THE PRESCRIPTIVE PERIOD. On May 22, 2001, the Court of Tax Appeals issued a Resolution 8 against petitioner, granting the Motion to Dismiss filed by respondent and dismissing the Petition for Review on the ground of prescription. Citing Section 229 9 of the Tax Code, the CTA ruled that since the gross receipts tax subject of this claim for refund was paid on January 22, 1999, petitioner had only 2 years from date of payment of the tax or until January 22, 2001 within which to file a suit to recover its alleged erroneously paid (GRT) tax. CTA did not agree with petitioner in its allegation that a different rule would be tantamount to penalizing a taxpayer who pays his taxes promptly or ahead of the prescribed deadline, while favoring a taxpayer who waits for the very last day to pay his taxes. While the CTA agreed with the petitioner that the two-year is not jurisdictional and the same may be suspended for reasons of equity and other special circumstances, it ruled that the "Opposition" of the petitioner showed no circumstance which may warrant the suspension of the two year period, unlike what is obtaining in the case of Panay Electric Co., Inc. vs. Collector of Internal Revenue, et al .. 10 Aggrieved with the aforesaid Resolution, petitioner filed a Motion for Reconsideration 11 on June 21, 2001, which was however denied by the CTA in its Resolution promulgated on November 12, 2001. Dissatisfied with the foregoing Resolutions, petitioner filed before Us this Petition for Review 12 raising the following errors committed by the Court of Tax Appeals, to wit: "A. THE CTA GRAVELY ERRED IN LITERALLY APPLYING THE 2-YEAR PRESCRIPTIVE PERIOD UNDER SEC. 229 IN THIS CASE RESULTING IN INJUSTICE AND ABSURDITY. B. THE CTA GRAVELY ERRED IN HOLDING THAT THE ERRONEOUS PAYMENT OF THE TAX NOT LEGALLY DUE WAS DETERMINED OR ASCERTAINED AT THE TIME OF PAYMENT. C. THE CTA GRAVELY ERRED IN FAILING TO CONSIDER THE CIRCUMSTANCES OF THIS CASE WHICH JUSTIFY THE SUSPENSION OF THE 2-YEAR PRESCRIPTIVE PERIOD AND THE RESOLUTION OF THE PETITION FOR REFUND ON THE MERITS. 13 " On the first assigned error, petitioner contends that respondent's literal application of Section 229 of the NIRC will result to injustice and absurdity. Citing the case of Commissioner of Internal Revenue vs. TMX Sales, Inc . 14 , petitioner pleads for the liberal application of Section 229 of the NIRC. According to petitioner, it raised highly meritorious and strong grounds in its petition which will indubitably show its right to the refund of the erroneously paid tax. SCEDaT It narrated that its claim for refund involves two (2) kinds of transactions. The first transaction involves its inventory gain or paper gain on the foreign exchange holdings. Following the generally accepted accounting principles and for purposes of financial accounting as mandated by the Bangko Sentral ng Pilipinas (BSP), petitioner records at the end of each quarter the difference between the cost to the bank of its foreign exchange holdings and their market value , based on the prevailing exchange rate vis-a-vis the particular foreign currency held by it. Such difference is booked either as a loss or a gain , depending on whether the cost exceeds the market value or vice versa. But due to an error of its accounting personnel, the paper or theoretical gain (revaluation gain) was erroneously included among the receipts or revenues subject to the GRT. The second transaction involves the so-called Foreign Currency Deposit Unit ("FCDU") Transactions. Under PD 1035, commercial banks are authorized to set up what is known as FCDU to expand their foreign currency lending separate from the foreign currency transactions conducted by its regular banking department. Petitioner argued that its erroneous payment in this case was the result of confusion in the interpretation of the amendments to the Tax Code under PD 1773 regarding the exemption from taxation of FCDU transactions. As regards the second assigned error, petitioner opines that the two-year prescriptive period should be reckoned from the time the taxpayer "ascertains" the overpayment or erroneous payment of tax. It pointed out that in the case of Commissioner of Internal Revenue vs. Phil. American Life Ins., Co ., CTA and CA 15 it was held that the two-year period should commence to run from the time that the refund is ascertained, which can only be determined after a final adjustment return is accomplished. Thus, it argued that the 2-year prescriptive rule from date of payment of the tax is not absolute, as it should be computed from the time the right to refund or erroneous payment is determined or ascertained. With respect to the third assigned error, petitioner postulated that even if the two-year period had lapsed, the same is not jurisdictional and may be suspended for reasons of equity and other special circumstances. It averred that in this case there are factual and legal circumstances that would merit the suspension of the two-year prescriptive period. First: petitioner only discovered its erroneous payment in April of 1999; Second: petitioner could not yet be aware that the tax was not due at the time of payment. Hence, it paid the tax in good faith on the mistaken belief that the tax was legally due; Third: it paid the tax three (3) days prior to the last day prescribed by law; Fourth: the government would be unjustly enriching itself at its expense under the principle of solutio indebiti , Fifth: it would serve the demands of substantial justice; and Sixth: allowing the petition to be heard on the merits will not prejudice or cause any material injury to the government. The contentions of the petitioner are bereft of merit. It is elementary in statutory construction that when the provision of the law is clear and unambiguous, leaving no occasion for the court to seek legislative intent, the law must be taken as it is, devoid of judicial addition or subtraction. 16 Applying this statutory rule in the case at bench, there is no room for further interpretation of Sec. 229 of the NIRC which reads: SECTION 229. 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 penalty claimed to have been collected without authority, or of any sum alleged to have been excessively 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 filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arose 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 which payment was made, such payment appears clearly to have been erroneously paid. From the foregoing, it is crystal clear that in cases of recovery of erroneously paid or illegally collected tax, both the claim for refund and the filing of the suit should be made before the expiration of two (2) years from the date of payment regardless of any supervening cause that may arise after payment. We cannot give any other interpretation to said statute as it is already clear and unambiguous. The Supreme Court in the case of Commissioner of Internal Revenue vs. Court of Appeals, Court of Tax Appeals and Bank of Phil. Islands, 17 held that in the context of Sec. 230 (now Sec. 229) of the NIRC which provides for a two-year period of prescription counted "from date of payment of the tax" for actions for refund of corporate income tax, the two-year period should be computed from the time of actual filing of the final adjustment return or annual income tax return since at that point, it can already be determined whether there has been an overpayment by the taxpayer and moreover, under Sec . 49 (a) of the NIRC, payment is made at the time of filing of the return . To quote: Section 49. Payment and assessment of income tax for individuals and corporations . (a) Payment of tax (1) In general. The total amount of tax imposed by this Title shall be paid by the person subject thereto at the time the return is filed . . . . On the other hand, 70(b) of the same Code provides that (b) Time of filing the income return The corporate quarterly declaration shall be filed within sixty (60) days following the close of each of the first three quarters of the taxable year. The final adjustment return shall be filed on or before the 15th day of the 4th month following the close of the fiscal year, as the case may be. dctai Thus, it can be deduced from the foregoing that, in the context of 230, which provides for a two-year period of prescription counted "from the date of payment of the tax" for actions for refund of corporate income tax, the two-year period should be computed from the time of actual filing of the Adjustment Return or Annual Income Tax Return. This is so because at that point, it can already be determined whether there has been an overpayment by the taxpayer. Moreover, under (a) of the NIRC, payment is made at the time the return is filed . Ineluctably, therefore, the two-year prescriptive period is still reckoned from date of filing the return and payment of the tax. The three (3) cases 18 cited by the petitioner only reinforces the view that the 2 year prescription should run from date of payment of the tax. The Supreme Court in the case of Commissioner of Internal Revenue vs. TMX Sales, Inc ., overturned the conclusion reached by the CTA and CA which states that the period of prescription should be counted from the date of payment of the quarterly tax, in this wise: The filing of a quarterly income tax return required in Section 85 [now Section 68] and implement per BIR Form 1702-Q and payment of quarterly income tax should only be considered mere installments of the annual tax due . These quarterly tax payments which are computed based on the cumulative figures of gross receipts and deductions in order to arrive at a net taxable income, should be treated as advances or portions of the annual income tax due, to be adjusted at the end of the calendar or fiscal year. This is reinforced by Section 87 [now Section 69] which provides for the filing of adjustment returns and final payment of income tax. Consequently, the two-year prescriptive period provided in Section 292 [now Section 230 of the Tax Code] should be computed from the time of filing the Adjustment Return or Annual Income Tax Return and final payment of income tax . As regards the case of ACCRA Investments Corporation vs. Court of Appeals , the Supreme Court in explaining why the 2 year prescriptive period should be counted from the filing of the final adjustment return, declared: Clearly, there is in need to file a return first before a claim for refund can prosper inasmuch as the respondent Commissioner by his own rules and regulations mandates that the corporate taxpayer opting to ask for a refund must show in its final adjustment return the income it received from all sources and the amount of withholding taxes remitted by its withholding agents to the Bureau of Internal Revenue. The petitioner corporation filed its final adjustment return for its 1981 taxable year on April 15, 1982. In our Resolution dated April 10, 1989 in the case of Commissioner of Internal Revenue vs. Asia Australia Express, Ltd (G . R . No . 85956), we ruled that the two-year prescriptive period within which to claim a refund commences to run, at the earliest, on the date of the filing of the adjusted final tax return . Hence, the petitioner corporation had until April 15, 1984 within which to file its claim for refund. It bears emphasis at this point that the rationale in computing the two-year prescriptive period with respect to the petitioner corporation's claim for refund from the time it filed its final adjustment return is the fact that it was only then that ACCRAIN could ascertain whether it made profits or incurred losses in its business operations. The "date of payment," therefore, in ACCRAIN's case was when its tax liability, if any, fell due upon its filing of its final adjustment return on April 15, 1982 . In the other case cited, that of Commissioner of Internal Revenue vs. Philippine American Life Insurance Corporation , the High Court expounded that: 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 . In the present case, this date is April 16, 1984, and two years from this date would be April 16, 1986. The record shows that the claim for refund was filed on December 10, 1985 and the petition for review was brought before the CTA on January 2, 1986 . Both dates are within the two-year reglementary period . Private respondent being a corporation, Section 292 [now Section 230] cannot serve as the sole basis for determining the two-year prescriptive period for refunds. As we have earlier stated in the TMX Sales case, Sections 68, 69, and 70 on Quarterly Corporate Income Tax Payment and Section 321 should be construed in conjunction with it . The rationale in computing the two-year prescriptive period from the time the taxpayer filed its final adjustment return is the fact that it is only then that the taxpayer could ascertain whether it made profits or incurred losses in its business operations. The two-year prescriptive period in Section 229 of the NIRC was taken in conjunction with Sections 68, 69 and 70 on Quarterly Corporate Income Tax Payment of the Tax Code and Section 321. The foregoing pronouncements of the High Court did not affect the literal import of the words stated in Section 229 of the Tax Code that "in any case no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment." While the cases mentioned above involve corporate income tax, nevertheless said rulings can be applied by analogy to gross receipts tax. For, herein petitioner can already determine or ascertain whether there has been an error at the moment of payment of the gross receipts tax. Accordingly, petitioner should have filed the suit within two (2) years from the time of payment of the tax to claim a refund or credit of its allegedly erroneously paid tax. As held in the case of Insular Lumber Co. vs. Court of Appeals , 19 where the tax sought to be refunded was illegally or erroneously collected, the running of the 2-year prescriptive period provided for in Sec. 306 of the NIRC starts from the date the tax was paid; but when the tax is legally collected, the two (2) year prescriptive period commences to run from the date of the occurrence of the supervening cause which gave rise to the right of refund. DCcHAa We agree with petitioner that even if the two-year period had lapsed, the same is not jurisdictional and may be suspended for reasons of equity and special circumstances. 20 However, in the case at bench, We find no equitable consideration advanced by petitioner which could be the basis for the suspension of the rule on prescription. As it is, it would appear that the only accepted exemption is the one cited in the case of Panay Elec. Co., vs. Collector of Internal Revenue, et al ., 103 Phil. 819. In that case, the Supreme Court ruled that the delay in the filing of the written claim on the part of Panay was not entirely attributable to the taxpayer's fault because it relied on its agreement with the Collector that they should await for the result of the case of Phil. Railway vs. Collector of Internal Revenue , then pending in the Supreme Court, in order that they may act correctly. On moral and equitable grounds, therefore, it was ruled thereat that petitioner is entitled to refund from the date of the claim for refund . Said the Supreme Court in the Panay case: "While petitioner was to blame in part for supposedly sleeping on its right and in not filing the claim for refund and the suit to enforce said refund on time, there is evidence to the effect that if petitioner did not file its suit for refund earlier, it was because of an agreement with an agent of the Collector that they should await the result of the case of Philippine Railway vs . Collector of Internal Revenue, then pending in this Court in order that the parties may act correctly . On moral and equitable grounds, therefore, petitioner is entitled to refund from the date of the claim for refund. Moreover, under Section 309 of the Tax Code, the Collector of Internal Revenue is authorized to credit or refund taxes erroneously or illegally received, for a period of two years from the date of the claim for refund. In the case at bar, the Collector not only offered to credit but took steps to credit petitioner with overpayment for a period of two years from the date of the claim for refund. In so doing, he waived the prescriptive period of two years from the date of the actual filing of the suit." Herein, petitioner did not advance any plausible reason why it failed to file its claim within the 2-year period from date of payment of the gross receipts tax. This Court, thus, cannot simply suspend the rules without sufficient justification. From the foregoing, it is evident that both the filing of the claim and the suit for refund of erroneously paid tax should be made before the lapse of the two-year prescriptive period from the date of payment of tax. Even if the Commissioner 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. This is the ruling in the case of Insular Lumber Co . vs . Court of Appeals 21 : This Court has consistently adhered to the rule that the claim for refund should first 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. If, however, the Commissioner 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 Commissioner . WHEREFORE, the instant petition is hereby DENIED. The Resolutions dated on May 22, 2001 and November 12, 2001 of the Court of Tax Appeals, in CTA Case No. 6230, are hereby AFFIRMED. No pronouncement as to costs. SO ORDERED. Bello, Jr. and Maambong, JJ . , concur. Footnotes 1. Rollo , pp. 111-117. 2. Ibid , pp. 161-164. 3. Id ., pp. 66-70. 4. Id ., pp. 49-57. 5. Id ., p. 51. 6. Id ., pp. 71-77. 7. Id ., pp. 79-101. 8. Id ., pp. 111-117. 9. Sec. 229 of the Revenue Code, as amended, provides: . . . "In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment . . . ." 10. 244 SCRA 446. 11. Rollo , pp. 118-143. 12. Petition for Certiorari , Id ., pp. 9-48. 13. Id ., p. 19. 14. 205 SCRA 184. 15. 244 SCRA 446, (May, 1995). 16. Acting Commissioner of Customs vs. Manila Electric Company , 77 SCRA 473. 17. 301 SCRA 435, 441 (January, 1999). 18. Commissioner of Internal Revenue vs. TMX Sales, Inc ., 205 SCRA 184; ACCRA Investments Corp., 204 SCRA 95; Commissioner of Internal Revenue vs. Philam Life Insurance Co ., 244 SCRA 446. 19. 104 SCRA 710, 720-721. 20. Commissioner of Internal Revenue vs. Philam Life Insurance, Co ., Supra ., citing Panay Elec . Co . , vs . Collector of Internal Revenue, et al ., 103 Phil. 819. 21. 104 SCRA 710.