PL Management International, Phils., Inc. v. Commissioner of Internal Revenue

SEVENTH DIVISION [CA-G.R. SP No. 68461. November 28, 2002.] PL MANAGEMENT INTERNATIONAL, PHILS., INC. , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N REYES , R.T. , J p : ASSAILED in this petition for review is the Decision 1 of the Court of Tax Appeals (CTA) denying, on the ground of prescription, petitioner corporation's claim for refund of the amount of P1,200,000.00 representing its unutilized creditable withholding tax in taxable year 1997. The Facts Petitioner PL Management International, Phils., Inc. is a corporation duly organized under Philippine laws. In 1997, petitioner corporation earned an income of P24,000,000.00 from the professional services it had rendered to UEM-MARA Philippines Corporation ("UMPC"). From the said P24,000,000.00 professional fees. UMPC, as petitioner's withholding agent, withheld the amount of P1,200,000.00. 2 On April 13, 1998, petitioner filed its 1997 Income Tax Return reporting a net loss of P983,037.00. In the said return, it likewise declared that in taxable year 1997 it had paid a creditable withholding tax in the amount of P1,200,000.00 and that it would claim the said amount as tax credit in the succeeding taxable year. 3 On April 13, 1999, petitioner submitted its 1998 Income Tax Return declaring a net loss of P2,772,043.00. 4 Because of its net loss position, it unable to claim the amount of P1,200,000.00 as tax credit. On April 12, 2000, petitioner filed with respondent Commissioner of Internal Revenue a written claim for refund of the amount of P1,200,000.00 representing its unutilized creditable withholding tax in taxable year 1997. On April 14, 2000, alleging that respondent Commissioner failed to act on its claim for refund, petitioner filed a petition for review with the Court of Tax Appeals (CTA). CTA Disposition On December 10, 2001, the CTA rendered a Decision 5 denying petitioner's claim for refund on the ground of prescription. It ratiocinated: "Records reveal that Petitioner filed its Annual Income Tax Return for taxable year 1997 on April 13, 1998 (Exhibit "A") and its claim for refund with the BIR on April 12, 2000 (Exhibit "D" and No. 2 of the Statement of Admitted Facts and Issues). Several days, thereafter, or on April 14, 2000, Petitioner filed an appeal with this Court. "The aforementioned facts clearly show that the judicial claim for refund via this Petition for Review was already filed beyond the two-year prescriptive period mandated by Sections 204(c) and 229 of the Tax Code, quoted hereunder, thus: "'SEC. 204. Authority of the Commissioner to compromise, abate, and refund/credit taxes . The Commissioner may xxx xxx xxx "'(C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in this discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty; provided, however, that a return filed showing an overpayment shall be considered as a written claim for credit or refund . xxx xxx xxx "'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 collected, or of any 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 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 "As earlier mentioned, Petitioner filed its Annual ITR on April 13, 1998 and filed its judicial claim for refund only on April 14, 2000 which is beyond the two-year period earlier discussed. The aforequoted Sections 204(c) and 229 of the Tax Code mandates that both the administrative and judicial claims for refund must be filed within the two-year period , otherwise the taxpayer's cause of action shall be barred by prescription. Unfortunately, this lapse on the part of Petitioner proved fatal to its claim." xxx xxx xxx "WHEREFORE, in view of the foregoing, the Petition for Review is hereby DENIED due to prescription." 6 Issues Petitioner has come up to this Court asserting that the CTA erred I. . . . IN NOT RULING THAT PETITIONER'S PETITION FOR REFUND OF OVERPAID CREDITABLE WITHHOLDING TAX WAS FILED WITHIN THE TWO-YEAR PRESCRIPTIVE PERIOD PROVIDED UNDER SEC. 229 OF THE NATIONAL INTERNAL REVENUE CODE OF 1997 (TAX CODE). II. . . . IN NOT HOLDING THAT PETITIONER IS ENTITLED TO THE REFUND OF THE OVERPAID CREDITABLE WITHHOLDING TAX IN THE AMOUNT OF P1,200,000.00. 7 Our Ruling The petition is partly meritorious. The Two-Year Prescriptive Period To Claim Refunds Under Section 229 Of The Tax Code Is Reckoned From The Date Of The Actual Filing Of The Annual Income Tax Return Petitioner posits that its judicial claim for refund before the Court of Tax Appeals (CTA) was filed within the two-year prescriptive period provided under Section 229 of the Tax Code. It contends that the two-year prescriptive period should be counted from the last day for the filing of the annual income tax return, not from the date of its actual filing. We are unconvinced. The two-year prescriptive period to claim refunds under Section 229 of the Tax Code is reckoned from the date of the actual filing of the annual income tax return. 8 The underlying reason is that it is only upon the actual filing of the annual income tax return when the adjusted return for the taxable year is filed and when the taxpayer could ascertain whether a tax is still due or a refund can be claimed based on the adjusted or audited figures. 9 In the case at bench, petitioner filed its income tax return for taxable year 1997 on April 13, 1998 . Two years from this date would be April 13, 2000. Record shows, however, that petitioner's judicial claim for refund was brought before the CTA only on April 14, 2000 , or one (1) day late or beyond the two-year period. The Two-Year Prescriptive Period, However, Is Not Jurisdictional And May Be Suspended For Reasons of Equity However, even if the two-year prescriptive period had already lapsed when petitioner filed its claim for refund, We are not inclined to uphold the denial by the CTA of petitioner's claim on the ground of prescription. The two-year period is not jurisdictional 10 and may be suspended for reasons of equity, 11 as in the instant case. Petitioner Is Clearly Entitled To The Refund Of The Amount of P1,200,000 Representing Its Unutilized Creditable Withholding Tax in Taxable Year 1997 It is beyond cavil that petitioner is entitled to the refund of its unutilized creditable withholding tax in the amount of P1,200,000.00. Creditable taxes withheld at source are mere partial payments of probable taxes subject to adjustment at the end of the year. They are provisional in nature. In other words, if the taxpayer incurred losses, the creditable taxes withheld become refundable. 12 As per its 1997 income tax return, 13 petitioner was in a net loss position in 1997. Accordingly, it incurred no tax liabilities for the period. Since UMPC, petitioner's withholding agent, had already withheld the amount of P1,200,000.00 from its payment to petitioner, the latter opted to claim the said amount as tax credit in the succeeding taxable year. However, in 1998 petitioner again incurred a net loss. 14 Clearly, the creditable tax withheld by UMPC during the taxable year 1997 in the amount of P1,200,000.00 remained unutilized and, therefore, refundable. WHEREFORE, the petition is partly GRANTED and the assailed CTA Decision partly ANNULLED. Respondent Commissioner of Internal Revenue is hereby ordered to refund to petitioner PL Management International, Phils., Inc. the amount of P1,200,000.00 representing its unutilized creditable withholding tax in taxable year 1997. SO ORDERED. Salazar-Fernando and Sundiam, JJ., concur. Footnotes 1. Dated December 10, 2001 in C.T.A. Case No. 6107, Annex "A", Rollo , pp. 20-27. 2. Annex "C", Rollo , p. 43. 3. Annex "B", Ibid ., pp. 28-29. 4. Annex "D", Ibid ., pp. 44-45. 5. Rollo , pp. 20-27. 6. Rollo , pp. 24-27. 7. Ibid ., p. 5. 8. Commissioner of Internal Revenue vs. Court of Appeals , 301 SCRA 435 (1999); ACCRA Investment Corp. vs. Court of Appeals , 204 SCRA 957 (1991). 9. ACCRA Investment Corp., vs. CA , supra . 10. Oral & Dental College vs. Court of Tax Appeals , 102 Phil. 912; CIR vs. Philippine American Life Insurance Co., 244 SCRA 446 (1995). 11. Panay Electric Co., vs. Collector , 103 Phi. 819. 12. Citibank, N.A. vs. Court of Appeals , 280 SCRA 459 (1997); Anscor Hagedorn Securities vs. CIR , CTA Case No. 5801, July 21, 2000. 13. Rollo , pp. 28-29. 14. Ibid ., pp. 44-45.