Bank of the Philippine Islands v. Commissioner of Internal Revenue

SECOND DIVISION [CA-G.R. SP No. 77655. April 29, 2005.] BANK OF THE PHILIPPINE ISLANDS , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N REYES , B., J p : This petition for review pursuant to Rule 43 of the Revised Rules of Court assails the Decision dated March 12, 2003 of the Court of Tax Appeals, which denied the claim for tax refund of the petitioner in the amount of Thirty Three Million Nine Hundred Forty Seven Thousand One Hundred One pesos (P33,947,101.00), and the Resolution dated June 3, 2003 of the same Court, which denied the motion for reconsideration of the petitioner. The facts of the case as narrated by the court of Tax Appeals in its assailed decision, are as follows and are not disputed: "Petitioner is a domestic corporation duly organized and existing under the laws of the Republic of the Philippines, with principal office address at BPT Building, Ayala Avenue corner Paseo de Roxas, Makati. On April 15, 1999, the petitioner filed with the Bureau of Internal Revenue (BIR) its corporate income tax return for the taxable year ended December 31, 1998, showing a taxable income of P1,773,236,745.00 with the corresponding total tax due for the period in the amount of P602,900,493.00 and prior year's excess tax credits of P59,424,222.00 (Exhibits A & 3). Petitioner likewise filed its quarterly income tax returns for 1998, showing income payments as follows: Quarter Covered Date Quarterly Income Tax Paid Exhibit 1st Quarter 06-01-98 P378,564,898.34 B 2nd Quarter 08-31-98 184,982,572.12 C 3rd Quarter 11-27-98 -0- TOTAL P563,547,470.46 ============== In the course of its business operations for the year 1998, petitioner received income payments from various third persons which were subjected to expanded withholding taxes totaling P7,685,887.90, hereunder detailed, thus: Quarter Covered Amount of Taxes Withheld Exhibit 1st Quarter P2,678,299.00 B 2nd Quarter 2,738,141.81 C 4th Quarter 2,269,447.00 A TOTAL P7,685,887.90 ============== For the same taxable year, as a result of the business operations of its New York Branch, petitioner paid taxes to the United States government in the sum of US$151,467.00 or Philippine peso equivalent of 6,190m014.46 (Exhibits E-1, F-1, G-1 & H-1). EHaCTA It is the position of the petitioner that for the taxable year 1998, it incurred an overpayment of income taxes in the amount of P33,947,101.00 computed as follows: Total Income Taxes Due P602,900,493.00 Less: Tax Credits/Payments Prior year's excess tax credits P59,424,222.00 Quarterly payments 563,547,470.46 Creditable Taxes Withheld 7,685,887.90 Foreign tax credit 6,190,014.00 Subtotal 636,847,594.00 Net Tax Payable/(Refundable) P33,947,101.00 ============= Petitioner opted to carry over the said amount of P33,947,101.00 to the succeeding taxable year (Exhibit A-2). For the taxable year 1999, petitioner declared a net loss of P615,742,102.00. It also reflected the prior year's excess tax credits in the amount of P33,947,101.00 and the current year's tax credit in the sum of P12,975,750.00 or total tax credits amounting to P46,922,851.00, which petitioner opted to carry over as tax credit to the following year. For the year 2000, petitioner declared a nil taxable income, prior year's excess tax credits in the sum of P46,922,851.00 and current year's tax credits in the amount of P25,207,939.00. In its return, petitioner did not indicate its choice of either carry over or claim for refund/tax credit certificate. On April 3, 2001, petitioner filed with respondent an administrative claim for refund in the amount of P33,947,101.00 representing its excess income and creditable withholding taxes for the taxable year 1998." (pp. 21-23, Rollo) The public respondent denied petitioner's claim for tax refund. hence it filed a petition for review with the Court of Tax Appeals. However, in the assailed decision dated march 12, 2003, the Court of Tax Appeals also denied the claim for refund of the petitioner. Salient portions of said decision reads: "A close scrutiny of the 1988 annual income tax return of the petitioner reveals that it opted to carry over its excess tax credits, the amount subject of this claim, to the succeeding taxable year by placing an 'x' mark in the corresponding box of said return (Exhibits A-2 & 3-a). For the year 1999, petitioner again manifested its intention to carry over to the succeeding taxable period the subject claim together with the current excess tax credits (Exhibits J). Still unable to apply its prior year's excess credits in the year 2000 (Exhibit K). This court already categorically ruled in a number of cases that once the option to carry-over and apply the excess quarterly income tax against the income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable and no application for cash refund or issuance of a tax credit certificate shall be allowed therefor (Pilipinas Hino, Inc. Vs. Commissioner of Internal Revenue, CTA Case No. 6074, dated April 19, 2002; Philam Asset Management, Inc. Vs. Commissioner of Internal Revenue, CTA Case No. 6210, dated May 2, 2002; The Philippine Bank, Inc.) Vs. Commissioner of Internal Revenue, CTA Resolution, CTA Case No. 6280, August 16, 2001). Since petitioner already exercised the irrevocable option to carry over its excess tax credits for the year 1998 to the succeeding years 199 and 2000, it is, therefore, no longer entitled to claim for a refund or issuance of a tax credit certificate. Accordingly, we find it no longer necessary to resolve the remaining issues. IN VIEW OF ALL THE FOREGOING, the instant petition for review is hereby DENIED for lack of merit. SO ORDERED." (pp. 28-29, Rollo) Dissatisfied, the petitioner filed a motion for reconsideration of the said decision. But the Court of Tax Appeals once again denied the same in a Resolution dated June 3, 2003, the dispositive portion of which reads: There being no new matters or issues raised by the petitioner which have not been passed upon by this court in the assailed decision, its Motion for Reconsideration filed on March 28, 2003 is hereby DENIED for lack of merit. SO ORDERED." (p. 31, Rollo) Dissatisfied, the petitioner filed a motion for reconsideration of the said decision. But the Court of Tax Appeals once again denied the same in a Resolution dated June 3, 2003, the dispositive portion of which reads: "There being no new matters or issued raised by the petitioner which have not been passed upon by this court in the assailed decision, its Motion for Reconsideration filed on March 28, 2003 is hereby DENIED for lack of merit. SO ORDERED." (p. 31, Rollo) Hence, this instant petition, asseverating that the Court of Tax Appeals erred in its legal interpretation of Section 76 of the National Internal Revenue Code (NIRC) in ruling that the petitioner is legally barred from pursuing a claim for tax refund/tax credit because it had opted to carry-over its unutilized tax credits for 1998. EDATSC It is not disputed that the petitioner indeed incurred an overpayment of income taxes in the amount of P33,947,101.00 for the taxable year 1998, a net operating loss for taxable year 1999 and a nil taxable income for 2000. The controversy, however, lies in the sustainability of the claim for tax refund of the petitioner after it exercised the option to carry-over its excess tax credits for the year 1998 to the succeeding taxable years 1999 and 2000. In denying the claim for tax refund of the petitioner, the Court of Tax Appeals ratiocinated that by opting to carry-over its excess tax credits for the year 1998 to the succeeding years 1999 and 2000, the petitioner is deemed barred from filing a claim for refund of its excess tax credits in view of the "irrevocability rule" provided in Section 76 of the NIRC, to wit: "Section 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 liabilities for the taxable quarters of the succeeding taxable income 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). On the other hand, the petitioner argues that for the "irrevocability rule" under the abovequoted provision applies, it is necessary that the carry-over of excess tax credits should have been actually carried over and applied against the income tax due for the taxable quarters of the succeeding taxable years. Since no excess tax credits was actually carried over and applied against the tax due of the petitioner for the taxable years 1999 and 2000 as the petitioner suffered a loss for the said years, the petitioner could not be deemed barred from claiming for refund of what is justly due it. On January 15, 2004, the public respondent filed its Comment reiterating the finding and conclusion of the Court of Tax Appeals. After a meticulous study of the instant case, We are inclined to reverse and set aside the ruling of the Tax Court. While it is true that the conclusion reached by the Court of Tax Appeals which, is a highly specialized body dedicated exclusively to the consideration of tax problems and has necessarily developed an expertise on the subject, is entitled to utmost respect and will not be set aside lightly, however, should it appear that it is the product of an abuse or improvident exercise of authority, or premised on a misapprehension of facts, a reversal or modification thereof is warranted. The latter situation obtains in the case at bar. As clearly seen from the abovequoted provision, the taxpayer is allowed three (3) options if the sum of its quarterly tax payments made during the taxable year is not equal to the total tax due for that year: (a) pay the balance of the tax still due; (b) carry-over the excess credit; or (c) be credited or refunded the amount paid. If the taxpayer has paid excess quarterly income taxes, it may be entitled to a tax credit or refund as shown in its final adjustment return which may be carried over and applied against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding tables years. However, once the taxpayer has exercised the option to carry-over and to apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years, such option is irrevocable for that taxable period and no application for cash refund or issuance of a tax credit certificate shall be allowed (Paseo Realty & Development Corp. vs. Court of Appeals, (G.R. No. 119286. October 13, 2004) True, the petitioner opted to carry-over the amount of P33,947,101.00 excess tax credits for the taxable year 1998 against its tax due for the taxable year 1999 by placing an "x" mark in the corresponding box of its 1998 income tax return. However, in 1999, the petitioner incurred no income tax due against which its excess tax credits for 1998 could be carried over and applied since it suffered a net operating loss. Consequently, the excess tax credits remained unutilized by the petitioner. cTAaDC In 2000, the petitioner declared a nil taxable income. Thus, once again, the petitioner did not incur any tax liability against which the excess tax credits could be carried over and applied. As such, there is no way by which the petitioner could utilize its excess tax credits, which is justly due it, except to ask for a refund thereof. Notwithstanding its previous election to carry-over its excess creditable tax to the taxable years 1999 and 2000, the petitioner is not deemed barred from claiming for refund of its excess creditable tax. For it must be stressed that there was no actual carrying-over of the excess creditable tax that occurred or was realized. To rule otherwise would amount to unjust and illicit enrichment on the part of the government. Thus, in the case of BPI-Family Savings Bank, Inc. vs. Court of Appeals (330 SCRA 507) the Supreme Court ruled that if a taxpayer suffered a net loss in a subsequent year, incurring no liability to which a previous year's tax credit could be applied, there is no reason for the Bureau of Internal Revenue to withhold the tax refund which rightfully belongs to the taxpayer. Further, even if We construe and interpret Section 76 of the NIRC strictly and literally, still, the "irrevocability rule" does not operate to bar the petitioner from asking for a tax refund. The phrase "for that taxable period" in the "irrevocability rule" in the questioned provision qualifies the irrevocability of the option to carry-over the excess creditable tax exercised by the taxpayer. Meaning to say, the taxpayer cannot alter his option to carry-over the excess creditable tax with that of a claim for refund only during the entire taxable period for which he exercised his option. But once such taxable period lapses, the irrevocability of the option to carry-over also expires. As such, for the next taxable period, the taxpayer can opt to claim for tax refund. This is especially true if no actual carrying-over of the excess creditable tax transpired due to a loss in the taxable year to which the excess creditable tax is to be carried-over. Verily, the petitioner's option to carry over its excess creditable tax is deemed irrevocable only for the taxable year for which it exercised its option, or until the end of taxable year 1999. But since in its 1999 income tax return, the petitioner still opted to carry-over its excess creditable tax, such option remained irrevocable until the end of taxable year 2000. After that, since the assailed excess creditable tax remained unutilized and the petitioner did not choose any mode of recovery of said creditable tax in its 2000 income tax return, the petitioner is at liberty to claim for tax refund within two (2) years from the filing of its 2000 Final Adjustment Return. Considering that the petitioner filed its claim for refund on April 3, 2001, or within the two-year prescriptive period imposed by Section 204 of the NIRC, such claim for refund should be sustained. Corollary, while it is well-settled that tax refunds are in the nature of tax exemptions and thus, should be construed strictissimi juris against the person or entity claiming the exemption in his favor and he must be able to justify his claim by the clearest grant of organic or statute law, the factual and legal circumstances engirding the instant case more than justify the sustainability of the petitioners claim for refund. To repeat, the petitioner incurred an overpayment of income taxes in the amount of P33,947,101.00 for the taxable year 1998, a net operating loss for taxable year 1999 and a nil taxable income for 2000, accordingly, it incurred not tax liability for taxable years 1999 and 2000 to which the tax credit could be applied. Undoubtedly, the petitioner is entitled for refund. On a last note, it must be stressed that, "If the State expects its taxpayers to observe fairness and honesty in paying their taxes, so must it apply the same standard against itself in refunding excess payments. When it is undisputed that a taxpayer is entitled to a refund, the State should not invoke technicalities to keep money belonging to it. No one, not even the State, should enrich oneself at the expense of another ( BPI-Family Savings Bank, Inc. vs. Court of Appeals, supra ). EScHDA WHEREFORE, premises considered, the instant petition is hereby GRANTED. Accordingly, the assailed Decision dated march 12, 2003 and Resolution dated June 3, 2003 are hereby REVERSED and SET ASIDE. SO ORDERED. Jacinto and Asuncion-Vicente, JJ., concur.