Philippine Airlines, Inc. v. Commissioner of Internal Revenue

FOURTH DIVISION [CA-G.R. SP No. 80957. March 28, 2005.] PHILIPPINE AIRLINES, INC. , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE, MR. RENE BAEZ , respondent . D E C I S I O N TRIA TIRONA , J p : In this Petition for review under Rule 43 of the Revised Rules of Court, petitioner PHILIPPINE AIRLINES INCORPORATED assails the Decision dated August 28, 2003 and the Resolution dated November, 4, 2003 rendered by the public respondent COURT OF TAX APPEALS denying petitioner's claim for refund. The relevant facts are as follows: On September 3, 1999, petitioner filed its amended Annual Income Tax Return for the fiscal year ending March 31, 1999, reflecting net loss from operations in the amount of P9,685,862,278.00, no income tax liability but with a refundable amount of P1,028,248.00. In the said amended return, petitioner indicated its intention to refund the unutilized excess tax credit for the year. ECSHID Believing that it is entitled to a refund of its unapplied creditable withholding taxes, petitioner, on April 11, 2000, filed with the Commissioner's Office of the Bureau of Internal Revenue (hereinafter called respondent Bureau) an administrative claim for refund in the amount of P903,600.00 consisting of unutilized tax credits of P588,347.00 allegedly reported in its 1999 Annual Income Tax Return, and an additional creditable withholding tax at source in the amount of P315,253.00 which petitioner professed was not included in the return because the corresponding certificates were recovered much later. The inaction of the respondent Bureau on the aforesaid application for refund compelled the petitioner to file a petition for review on August 31, 2001 in order to toll the running of the two-year prescriptive period under Section 229 of the National Internal Revenue Code of 1997. On August 28, 2003, the respondent court denied petitioner's claim for refund mainly on the ground that the two-year prescriptive period to claim for refund shall be reckoned from the date of the filing of the original final adjustment return as required under Section 229 of the Tax Code and not from the date of the filing of the amended return. With the non-presentation of the document for the original return, there was no way to determine whether the claim was timely filed. The respondent court further ruled: "And even assuming that the 1999 original return was filed on July 15, 1999 which is the last day for filing of the final adjustment return for fiscal year ending March 31, 1999 pursuant to Section 77 (B) of the Tax Code, still the present judicial action is barred by prescription. It should be noted that the last day to file the judicial action as required by Section 229 of the Tax Code is on July 16, 2001 (July 14, 2001 being a Saturday and year 2000 is a leap year). Unfortunately, the petition for review was filed only on August 31, 2001." The respondent court also stressed the importance of presenting the original return because under Section 76 of the Tax Code 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 thus, if petitioner has originally chosen the option 'to be carried over as tax credit next year' it will be precluded from claiming for the refund of the same excess payment. Petitioner filed a motion for reconsideration insisting that the September 3, 1999 income tax return is their original final adjustment return considering that it was only on August 6, 1999 that the independent accounting firm of SGV & Company completed its examination of petitioner's financial statements. Petitioner further pointed out that the respondent Bureau in the Joint Stipulation of Facts had already admitted that its September 3, 1999 amended return was its final adjustment return. 1 On November 4, 2003, the assailed Resolution was rendered. The respondent court ruled that the final adjustment return pursuant to Section 77(B) of the Tax Code, is the one required to be filed on or before the fifteenth (15th) day of April, or on or before the fifteenth (15th) day of the fourth (4th) month following the close of the fiscal year, as the case may be, and under Section 232 of the Code, the 105 days granted by the law is enough time for the independent accounting firm to complete its audit of the taxpayer's books. The provision of Section 77 (B) according to the respondent court is mandatory and may not be deferred just because the independent examination of the petitioner's books is not yet completed. To rule otherwise, would be prejudicial to the government. Hence, the present petition. 2 The Court of Tax Appeals is a highly specialized body specifically created for the purpose of reviewing tax cases. As a matter of principle, the conclusion reached by the Court of Tax Appeals which is, by the very nature of its functions, dedicated exclusively to the study and consideration of tax problems, will not be set aside unless there has been an abuse or improvident exercise of authority. 3 Section 229 of the National Internal Revenue Code of 1997 provides for the prescriptive period for filing a court proceeding for the recovery of tax erroneously or illegally collected viz. : "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 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" (underlining supplied). The aforementioned provision of the law provides for a two-year prescriptive period to file a suit for refund of a tax erroneously or illegally paid, counted from the tune the tax was paid. However, it was ruled that the aforesaid provision should not be read in isolation but in conjunction with other important provision of the Tax Code. 4 Considering that the herein petitioner is a corporation, Section 229 should be read in relation to Sections 76 and 77 of the Tax Code. 5 The instant petition speaks of relation of Section 229 with Section 76 and 77(B) of the Tax Code. A corporation such as the petitioner is required to file a final adjustment return covering the total taxable income for the preceding calendar or fiscal year. 6 These final adjustment return shall be filed on or before the fifteenth (15th) day of April, or on or before the fifteenth (15th) day of the fourth (4th) month following the close of the fiscal year as the case may be. 7 The law uses the phrase "shall" to enforce this mandatory requirement. Hence, Section 229 in relation to Sections 76 and 77 stipulates that the two-year prescriptive period to claim refunds should be counted from the filing of the Annual Income Tax Return required to be filed on the 15th day of the fourth month following the close of the taxable year. It is undisputed that the respondent court dismissed the action on the ground that the petitioner failed to present the Annual Income Tax Return as mandated by the aforesaid provisions of the Tax Code. It is the contention of the petitioner that the income tax return they filed on September 3, 1999 is their final adjustment return considering that the Certified Public Accountant Sycip, Gorres, Velayo & Company completed its audit report only on August 6,1999. 8 We are not swayed. First, claims for refund or tax credit should be exercised within the time fixed by law because the BIR being an administrative body enforced to collect taxes, its function should not be unduly delayed or hampered by incidental matters. 9 Second, the petitioner has a remedy in case there will be delay in the submission of their Annual Income Tax Return. The petitioner could have asked for an extension of time to file its income tax return under Section 53 of the Tax Code which provides: 10 "Section 53. Extension of Time to File Returns . The Commissioner may, in meritorious cases, grant a reasonable extension of time for filing returns of income (or final and adjustment returns in case of corporations), subject to the provisions of Section 56 of this Code." From the foregoing circumstances, we do not find that the respondent court erred in ruling that the claim for refund was already barred by statute of limitations. It bears to stress that tax refunds are in the nature of tax exemptions. As such they are regarded as in derogation of sovereign authority and to be construed strictissimi juris against the person or entity claiming exemption. The burden of proof is upon him who claims the exemptions in his favor and he must be able to justify his claim by the clearest grant of the organic or statute law. 11 The petitioner failed in its burden. WHEREFORE, the instant petition for review is hereby DISMISSED. SO ORDERED. Vidallon-Magtolis and Reyes, Jr., JJ., concur. Footnotes 1. Rollo , pp. 145-151. 2. Petitioner filed an Amended Petition for Review on April 19, 2004, Rollo , pp. 122-133. 3. Commissioner of Internal Revenue vs. Court of Appeals , 303 SCRA 614. 4. Commissioner of Internal Revenue vs. TMX Sales, Inc. , 205 SCRA 184. 5. Commissioner of Internal Revenue vs. Philippine American Life Insurance Co. , 244 SCRA 446, ACCRA Investments Corporation vs. Court of Appeals , 204 SCRA 957. 6. Section 76, Tax Code. 7. Section 77(B), Tax Code. 8. Rollo , p. 128 & 129. 9. Philippine Bank of Communications vs. Commissioner of Internal Revenue , 302 SCRA 241. 10. Bank of the Philippine Islands vs. Commissioner of Internal Revenue, 363 SCRA 840. 11. Commissioner of Internal Revenue vs. S.C. Johnson and Son Inc. , 309 SCRA 87.