Philam Asset Management, Inc. v. Commissioner of Internal Revenue

FOURTH DIVISION [CA-G.R. SP No. 70882. January 30, 2004.] PHILAM ASSET MANAGEMENT, INC. , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N ASUNCION , EJ ., J p : Before Us is a Petition for Review assailing the May 2, 2002 Decision of the Court of Tax Appeals (CTA) denying the petition filed by Philam Asset Management Inc. (Philam) for the refund of the latter's unapplied creditable withholding tax on income for the taxable year 1998 in the amount of Four Hundred Fifty-Nine Thousand Seven Hundred Fifty-Six and Seven Centavos (P459,756.07). The antecedent facts are as follows: On April 13, 1999, Philam filed its Annual Income Tax Return with the Bureau of Internal Revenue (BIR) for the taxable year 1998 declaring a net loss of P1,504,951.00. Thus, there was no tax due against Philam for the taxable year 1998. Likewise, Philam had an unapplied creditable withholding tax in the amount of P459,756.07, which amount had been previously withheld in that year by petitioner's withholding agents namely Philam Fund, Inc. (PFI), Philam Bond Fund, Inc. (PBFI) and Philam Strategic Growth Fund, Inc. (PSGFI). In the next succeeding year, Philam had a tax due in the amount of P80,042.00, and a creditable withholding tax in the amount of P915,995.00. Philam likewise declared in its 1999 tax return the amount of P459,756.07, which represents its prior excess credit for taxable year 1998. Thereafter, on November 14, 2000, Philam filed with the Revenue District Office No. 50, Revenue Region No. 8, a written administrative claim for refund with respect to the unapplied creditable withholding tax of P459,756.07. According to Philam the amount of P80,042.00, representing the tax due for the taxable year 1999 has been credited from its P915,995.00 creditable withholding tax for taxable year 1999, thus leaving its 1998 creditable withholding tax in the amount of P459,756.07 still unapplied. The claim for refund yielded no action on the part of the BIR. Philam then filed a Petition for Review before the CTA on December 26, 2000, asserting that it is entitled for the refund of the P459,756.07 since said amount has not been applied against its tax liabilities in the taxable year 1998. On May 2, 2002, the CTA rendered the now assailed decision denying Philam's Petition for Review. Hence, the instant petition. Petitioner Philam contends that the CTA erred: a) in holding that when the taxpayer accomplishes its Annual Income Tax Return, the mere act of the taxpayer in filling up the blank for the prior year's excess tax credit constitutes an exercise of the option to carry-over the said excess to the succeeding year; b) in applying Section 76 of the National Internal Revenue Code of 1997 to the instant case; and c) in not holding that the instant case is one of unjust enrichment on the part of the government. The petition is without merit. The sole issue in this petition is whether or not petitioner Philam is entitled to a refund of its creditable withholding tax in the taxable year 1998 in the amount of P459,756.07. We hold that petitioner is not entitled to the said refund. Section 76 of the National Internal Revenue Code of 1997 provides: "SEC. 76. Final 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 as irrevocable for that taxable period and no application for cash refund or issuance of a tax credit certificate shall be allowed therefor." Pursuant to the above section, in case of excess tax credits, the taxpayer has the option to either carry-over to the next taxable year for income tax the said excess tax credits, or to have such excess credits refunded. If the taxpayer opted to carry-over the amount, such option shall be irrevocable. Petitioner Philam asserts that no such option to carry-over the excess credits has been exercised by it. Petitioner stressed that it did not mark the appropriate box for such option to carry-over as provided in the income tax return form. Hence, no option having been made, petitioner may still pursue a tax refund of the said amount. We disagree. As held in the case of Commissioner of Internal Revenue vs. Tokyo Shipping Co., Ltd. , 244 SCRA 332, "[A] claim for refund is in the nature of a claim for exemption and should be construed strictissimi juris against the taxpayer." In the instant case, the option to carry-over the excess tax credits is shown to have been made by the taxpayer. Although Petitioner Philam did not indicate his option to carry-over is excess credits by marking the appropriate box in its 1998 Annual Income Tax Return, the subsequent acts of Philam, nevertheless demonstrate such option. It is to be noted that in the succeeding income tax filed by Philam, the latter declared the excess credits of P459,756.07 as an unapplied withholding tax credit. Philam even added the said amount to the current excess withholding tax credits for the taxable year 1999. From the acts of Philam, it can be sufficiently inferred that the latter wished the unapplied tax credit of P459,756.07 to be carried over and applied in its tax liabilities for the next succeeding years. It is likewise provided in Section 10(b) of Revised Regulations No. 12-94 , that: "(b) Excess Credits . A taxpayer's excess expanded withholding tax credits for the taxable quarter/taxable year shall automatically be allowed as a credit for purposes of filing his income tax return for the taxable quarter/taxable year immediately succeeding the taxable quarter/taxable year in which the aforesaid excess credit arose, provided, however, he submits with his income tax return a copy of his income tax return for the aforesaid previous taxable period showing the amount of his aforementioned excess withholding tax credits. If the taxpayer in lieu of the aforesaid automatic application of his excess credit, wants a cash refund or a tax credit certificate for use in payment of his other national internal revenue liabilities, he shall make a written request therefor. . . ' Thus, based from the foregoing regulation, the failure to make the option to claim the tax credit for refund would therefore result to the automatic carry-over of such excess credits to the succeeding taxable year. Furthermore, in the guidelines and instructions provided at the back of the BIR Form No. 1702, which is the Annual Income Tax Return form for Corporations and Partnerships states that: "Tax Refund/Credit An excess of the total tax credits/payments over the actual income tax due computed in the final adjusted return may be refunded or issued with the Tax Credit Certificate to the taxpayer or credited against his estimated income tax liabilities for the quarters of the succeeding taxable years. The taxpayer shall exercise his option by marking with an "x" the appropriate box, which option shall be considered as irrevocable for that taxable period. Thus once the taxpayer opted to carry-over and apply the excess income tax against income tax due for the succeeding taxable year, no application for cash refund or issuance of a tax credit certificate shall be allowed. In case the taxpayer fails to signify his choice, the excess payment shall be automatically carried-over to the next taxable period." Consequently, the carry-over of the excess credits of P459,756.07 into the succeeding taxable year was proper. Also, the allegation that the tax due for taxable year 1999 was deducted only from the withholding tax credits of that year, is erroneous. A review of the tax return filed by petitioner shows that the tax credits for taxable year 1998 (P459,756.00) as well as that of 1999 (P915,995.00) were summed together for a total tax credit of P1,375,751.00, and from where the tax due of P80,042.00 has been deducted to yield an alleged total tax credit of P1,295,709.00. Clearly therefore, the tax due was deducted from the accumulated tax credits of the taxable years of 1998 and 1999. Finally, contrary to petitioner's contention, the failure to grant the refund does not result to an unjust enrichment in favor of the government. This is because the denial of the refund will not mean a forfeiture of the amount in favor of the government. As provided in the second paragraph of Section 76 of the National Internal Revenue Code of 1997 , "[I]n 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." Hence, notwithstanding such denial of the refund, the taxpayer may still utilize the excess tax credits. The amount would thus remain in the account of the taxpayer to be credited and applied for the latter's tax liabilities of the succeeding taxable years. WHEREFORE, premises considered, the petition is DENIED. The May 2, 2002 Decision of the Court of Tax Appeals, is hereby AFFIRMED. SO ORDERED. Jacinto and Bersamin, JJ . , concur.