Commissioner of Internal Revenue v. Citicorp Capital Philippines, Inc.

THIRD DIVISION [CA-G.R. SP No. 68554. April 12, 2002.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . CITICORP CAPITAL PHILIPPINES, INC. , respondent . D E C I S I O N DE LOS SANTOS , J p : Petitioner, by way of petition for review seeks to stay and reverse the Decision (Annex "A") dated August 9, 2001 of the Court of Tax Appeals ("CTA") in C.T.A. Case No. 6058, as well as its Resolution (Annex "B") dated November 5, 2001 denying petitioner's motion for reconsideration of its Decision. The CTA had granted herein respondent's petition for refund or issuance of a tax credit certificate in the amount of P5,931,098.00 representing overpaid income tax and unutilized creditable withholding tax for 1997. The essential factual background hereof is summarized in the CTA's Decision, the relevant portion of which reads as follows: "Petitioner is a domestic corporation engaged in the business of underwriting securities as an investment house with principal office at 8741 Paseo de Roxas, Makati City. On May 9, 1997, Petitioner filed its Quarterly Income Tax Return for the first quarter of 1997, reflecting a taxable income of P14,448,965.40 and paid the tax due thereon amounting to P5,057,137.90 (Exhibit "A"). For the succeeding quarters of 1997, however, Petitioner incurred losses from its foreign exchange transactions, resulting to a net loss position at the end of the year. On April 15, 1998, Petitioner filed its Annual Income Tax Return for the taxable year 1997 reporting a net loss of P97,237,756.00 and a refundable amount of P5,057,138.00, representing the income tax paid on the first quarter of 1997 (Exhibits "D", "D-2"). Petitioner opted to apply the refundable amounts as credit against the income tax due on the following year 1998 and indicated such choice by marking with an 'x' the appropriate box in the return (Exhibit "D-1"). During the taxable year 1997, Petitioner derived income which were subjected to expanded withholding tax as follows: Income Payment Subject to Expanded Exhibit Withholding Tax Amount Tax Withheld G Payment to Customs, Real Estate and Commercial Brokers Withholding Agent: Equitable Banking Corporation P119,984.70 P5,999.24 H Professional/Talent Fees 2,446,372.60 Withholding Agent: Citicorp 2,462,354.07 Securities Int'l. (RP), Inc. 1,114,568.40 670,517.86 I Professional/Talent Fees 1,134,165.20 Withholding Agent: Citicorp 1,537,776.20 Securities Int'l. (RP), Inc. 1,276,924.40 197,443.29 P10,092,145.57 P873,960.39 =========== ========= Realizing that it failed to report the creditable tax withheld in its Annual Corporate Income Tax Return for 1997, Petitioner filed an Amended Corporate Annual Income Tax Return for the year 1997 on June 19, 1998 (Exhibit "E"), this time reporting a refundable amount of P5,931,098.00 representing overpaid income tax of P5,057,137.90 and unutilized creditable withholding tax in the amount of P873,960.39, which it opted to carry over to the succeeding taxable year 1998. EDCcaS Petitioner, however, failed to carry over the amount of P5,931,098.00 to the succeeding taxable year of 1998 as it ended up again in a net loss position on that year (Exhibit "J"). Thus, on February 10, 2000, Petitioner filed with the Bureau of Internal Revenue (BIR) RDO No. 50, a letter-claim for the refund of its unutilized tax credit in the amount of P5,931,098.00 (Exhibit "F"). As there was no action on the part of herein Respondent, (Petitioner in this case), and the two-year prescriptive period was about to expire, the instant Petition (respondent's Petition for Review with the CTA dated March 14, 2000) was filed on April 11, 2000, anchored on Sections 76 and 204 (c) of the Tax Code . . ." ( Rollo , pp. 22-24) Petitioner now contends that: (1) THE TAX COURT ERRED IN GIVING CREDENCE AND PROBATIVE VALUE (TO) THE AMENDED 1999 INCOME TAX RETURN WHICH WAS FILED ONLY ON OCTOBER 30, 2001, LONG AFTER THE INSTANT PETITION AND THE ADMINISTRATIVE CLAIM FOR REFUND WERE FILED. (2) THE TAX COURT ERRED IN HOLDING THAT SECTION 76 OF THE 1997 TAX CODE IS NOT APPLICABLE IN THE CASE AT BAR. (p. 15, Rollo ). Firstly, petitioner Commissioner of Internal Revenue argues that at the time the respondent filed its petition for refund or tax credit certificate on April 11, 2000, it had already signified its intention in the 1999 annual tax return, filed on March 30, 2000, to apply its excess income tax and unutilized creditable withholding tax for 1997 as tax credits in the succeeding years. It was therefore in bad faith in amending its 1999 Annual Income Tax Return on October 30, 2000, long after trial had commenced and it had almost completed its evidence, for the sole purpose of showing that it did not anymore carry over, pursuant to Section 76 of the 1997 Tax Code, to 1999 the amount of P5,931,098.00 it was seeking by way of refund or tax credit certificate. Under Section 204, a petition for refund must be filed within two years from the date the payment of the tax was due. In the instant case, the taxes were deemed paid on April 15, 1998. It will also be noted that respondent filed a letter-claim on February 10, 2000 (Petition, p. 6). Petitioner insists that under Sec. 6 of the 1997 Tax Code, when a claim for refund has been filed which claim becomes thereby subject of examination and investigation by the Commissioner of Internal Revenue, the annual return can no longer be amended. It was therefore error for the CTA to have given credence and probative value to the amended 1999 return. Section 6(A) provides: "SEC. 6. Power of the Commissioner to Make Assessments and Prescribe Additional Requirement for Tax Administration and Enforcement . (A) Examination of Returns and Determination of Tax Due . After a return has been filed as required under the provisions of this Code, the Commissioner or his duly authorized representative may authorize the examination of any taxpayer and the assessment of the correct amount of tax: Provided, however, that failure to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer. The tax or any deficiency tax so assessed shall be paid upon notice and demand from the Commissioner or from his duly authorized representative. Any return, statement or declaration filed in any office authorized to receive the same shall not be withdrawn: Provided , that within three (3) years from the date of such filing, the same may be modified, changed, or amended: Provided, further, that no notice for audit or investigation of such return, statement or declaration has, in the meantime, been actually served upon the taxpayer ." . . . (Emphasis supplied) Secondly, petitioner contends that Section 76 of the Tax Code provides that once a corporation has opted "to carry over its excess tax credits to the succeeding years, the option becomes irrevocable and no application for cash refund or issuance of a tax credit certificate shall be allowed." After respondent opted to carry over its excess tax credits for 1997 and 1998 against its 1999 tax liability, such option became irrevocable and could be cured by mere amendment of the 1999 tax return. Section 76 of the 1997 Tax Code provides: "Sec. 76. Final Adjustment Return . Every corporation liable to pay tax under Section 27 shall file a final adjustment return covering the total taxable income for the preceding calendar or fiscal year. It 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 in 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 ." (Emphasis supplied) Even granting that the law applicable was Section 69 of the old Tax Code of 1977, the same provides that "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) Indeed the basic rule is that the automatic carry-over of an excess income tax payment should only be made for the succeeding year ( Paseo Realty and Dev't. Corp. vs. CIR, CTA Case No. 455528, April 30, 1993; Belle Corporation vs. CIR, CTA Case No. 6070, April 10, 2001 ). " To allow the application of excess taxes paid for two successive years would run counter to the specific provision of law above-mentioned." The petition is devoid of merit. Section 16 of the 1977 Tax Code clearly authorizes the filing of an amended return: "Sec. 16. Power of the Commissioner to make assessment . (a) Examination of returns and determination of tax . After a return is filed as required under the provisions of this Code, the Commissioner shall examine it and assess the correct amount of tax. The tax or deficiency tax so assessed shall be paid upon notice or demand from the Commissioner. Any return, statement or declaration filed in any office authorized to receive the same shall not be withdrawn. Provided, that the same may be modified or change by filing an amended return, statement, or declaration. xxx xxx xxx The CTA rightly noted that "the law allows a taxpayer to amend his return even after the filing of his claims for refund, both in the administrative and judicial levels, there being no provision prohibiting the amendment of a return once a claim for refund has been filed. . . ." Indeed, Section 16(a) of the 1977 Tax Code is substantially re-enacted as Section 6(A) of the 1997 Tax Code quoted earlier. Respondent's amendment of its 1999 income tax return ("ITR") which it filed on March 30, 2000 is allowed under Section 6(A) of the 1997 Tax Code. It is prohibited only if made beyond the three-year period allowed by law to modify, change or amend the annual return, and provided further that "that no notice for audit or investigation of such return, statement or declaration has, in the meantime, been actually served upon the taxpayer." There is also no proof that a notice for audit or investigation of the 1999 ITR has already been served upon the respondent at the time it filed the 1999 Amended ITR on October 30, 2001. The amended return seeks to correct any misstatement or error in the original return. Hence, it would be absurd and unreasonable for petitioner to deny respondent's legal right to amend its 1999 ITR. This right to file an amended return has always been recognized. As observed by the Tax Court in Smith Kline & French Overseas Co. (Philippine Branch) vs. Commissioner of Internal Revenue, C.T.A. Case No. 2591, March 21, 1980 , and affirmed by the Supreme Court in Commissioner of Internal Revenue vs. Court of Tax Appeals and Smith Kline & French Overseas Co., (Philippine Branch), 127 SCRA 9). "It is absurd and unreasonable because it completely would deny to a taxpayer an opportunity to correct an obvious error that causes it damage or prejudice. This has never been the intention of the law. In fact, it is a well accepted practice among corporate taxpayers to file "tentative" tax returns and financial statements just to beat the tax filing deadline, where the statements are not yet completed as of the due date. A final or amended return is later filed. This is to afford such taxpayers the opportunity to correct whatever errors may have been committed in rushing the statements and returns is an attempt to beat the deadline. In fact, even without indicating that the returns and statements filed are tentative, a taxpayer can always amend such returns and statements in order to correct whatever error may have been committed or in order to reflect the true and correct figures." From the series of events giving rise to the instant petition, it may be said that respondent's filing of an amended 1999 tax return was made pursuant to its desire to correct an inadvertent error. As we have already seen, respondent company filed a letter-claim for refund or issuance of a tax credit certificate on February 10, 2000, while it filed its 1999 ITR on March 30, 2000. Clearly then, in view of the claim for refund/tax credit certificate, the inclusion of the amount sought as part of the previous year's credit in the 1999 ITR was an honest error which it was duty-bound to correct. The case before us pertains to respondent's claim for refund or issuance of tax credit certificate for overpaid income tax for the year 1997, while the 1997 National Internal Revenue Code took effect only on January 01, 1998. Respondent's claim is therefore governed by Section 69 of the 1977 Tax Code and not by Section 76 of the 1997 Tax Code. We agree with the CTA's Resolution that ". . . Clearly, the amendment introduced by Section 76 of the Tax Reform Act of 1997 on irrevocable options does not apply, . . ." (Resolution, p. 3, emphasis ours). We know that laws are generally of prospective application, although taxes may indeed be imposed retroactively, but only if so expressed by the ( Hydro Resources vs. Court of Appeals, 192 SCRA 604 ). As therefore shown in the Amended 1999 ITR, respondent declared only the amount of P955,442 as "prior years' excess tax credit" in the taxable year 1999 (Exhibit "E-1"), representing excess tax credits for 1998, deleting the 1997 excess income tax payment which is now the subject of the instant case. The CTA ruled correctly when it held that: EAcCHI ". . . Petitioner (Citicorp) has shown that it did not utilize the amount sought to be refunded by presenting in evidence not only its 1998 but also its 1999 Annual Income Tax Return . Petitioner's 1998 Income Tax Return showed that while the amount of P5,931,097 appeared as Prior Year's Excess Credits', the same was not applied against any tax liability of Petitioner for it ended up in a loss position. On the other hand, the 1999 Income Tax Return of Petitioner showed that the amount sought to be refunded was no longer carried over." ( Annex "A", petition, p. 30, Rollo ) It is well-settled that the findings of fact of the Tax Court is entitled to great respect. "[T]he findings of facts of a special court (CTA) exercising particular expertise on the subject of tax, generally binds the Supreme Court." ( Commissioner of Internal Revenue vs. Court of Appeals , 301 SCRA 152). Moreover, even assuming that the 1997 Tax Code applies, under Section 76 thereof, the option to carry-over and apply the excess income tax against income tax due for the taxable quarters of the succeeding years, once made shall be irrevocable only in the succeeding taxable year . We quote below the pertinent portion of Section 76 of the 1997 Tax Code: ". . . In case the corporation is entitled to a tax credit or refund of the excess estimated quarterly income taxes paid, the excess amount shown in 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." The phrase "for that taxable period" qualifies the irrevocability of the option to carry-over the excess income tax. Respondent opted to carry-over and apply its excess income tax payment to taxable year 1998. This option was irrevocable only in taxable year 1998. Thus, after 1998, Respondent could opt to ask for refund or issuance of tax credit for the said excess payment since the same was not applied against Respondent's income tax liability in 1998. To rule otherwise would be grossly unpaid. A corporation which has, after years of incurring losses and accumulating excess tax payments, subsequently made profits in its operations for the next several years, would not be allowed to recover its tax payments erroneously made. The options given a taxpayer with respect to the excess income tax payment (a) to be refunded; (b) to be issued a tax credit certificate; and (c) to be carried over as tax credit in the following year/quarter would be rendered nugatory. Thus, even assuming arguendo that Section 76 of the 1997 Tax Code is applicable, Respondent is not already bared from filing the instant claim on February 10, 2000 as the option to carry-over its 1997 tax to taxable year 1998 is irrevocable only during taxable year 1998. The right of a taxpayer to recover from the BIR any excess income tax paid is well-recognized, and clearly provided for under Section 69 of the 1977 NIRC, now Section 76 of the 1997 NIRC. As held by the CTA: ". . . To be entitled to a refund of excess or unutilized creditable withholding tax, the following requirements have to be met: 1. That the claim for refund was filed within the two (2) year period prescribed under Section 230 of the National Internal Revenue Code; 2. That the income upon which the taxes were withheld were included in the return of the recipient; and 3. That the fact of withholding is established by a copy of a statement [BIR Form 2307 (formerly Form 1743-750)] duly issued by the payor (withholding agent) to the payee, showing the amount paid and the amount of tax withheld therefrom. . . The aforementioned requirements were affirmed by the Supreme Court in the case entitled Citibank N.A. vs. Court of Appeals and Commissioner of Internal Revenue , 280 SCRA 459. As to the first requirement, we find Petitioner's (herein respondent's) claim for refund, both in the administrative and judicial level, as timely filed. The Corporate Annual Income Tax Return of Petitioner (herein respondent) for the taxable year ended December 31, 1997 was filed on April 15, 1998 (Exhibit "D"). Verily, the claim for refund was filed with the BIR on February 10, 2000 as well as the instant petition for review filed on April 11, 2000 fall within the two-year prescriptive period. Petitioner's (herein respondent's) annual income tax return for the taxable year ending December 31, 1997 also showed that part of its gross income (loss) of P(58,696,747.00) (Section A of Exhibit E) came from underwriting commission of P7,428,386.00 and management and professional fees of P9,972,165.00 from which amounts the total creditable tax of P873,960.39 was withheld [(Schedule 2 of Section C) Exhibit E]. And to prove the fact of withholding, Petitioner (herein respondent) submitted certificates of creditable tax withheld at source (Exhibits G to I) issued by its withholding agents specified earlier. From the above, it is evident that Petitioner (respondent herein) has shown compliance with the requirements set forth." (Exh. "A" petition; p. 28, Rollo ) Pursuant, therefore, to the fundamental principle of solutio indebiti provided under Article 2154 of the Civil Code , the BIR received something when "there [was] no right to receive it," and thus "the obligation to return arises" ( Ramie Textile, in Citibank, N.A. vs. Court of Appeals, Inc. vs. Mathay, 89 SCRA 586, as cited 280 SCRA 459). WHEREFORE, premises considered, the instant petition for review is DISMISSED for lack of merit. SO ORDERED. DAEaTS Guerero and Cosico, JJ . , concur.