Myline Cordial

Philippine Bank of Communications vs. Commissioner of Internal Revenue
G.R. No. 112024, January 28, 1999

FACTS:
Philippine Bank of Communications (PBCom), settled its total income tax returns for the first and second quarters of 1985 by applying its tax credit memos. However, it incurred losses so it declared no tax payable for the year when it filed its year-end Annual Income Tax Returns. Nevertheless in 1985 and 1986, PBCom earned rental income from leased properties in which the lessees withheld and remitted to the BIR withholding creditable taxes
On August 7, 1987, petitioner requested the CIR for a tax credit for the overpayment of taxes in the first and second quarters of 1985. Thereafter, on July 25, 1988, petitioner filed a claim for refund of creditable taxes withheld by their lessees from property rentals in 1985 and 1986. Pending the investigation, petitioner filed a petition for review with the CTA which denied the claims of the petitioner for tax refund and tax credits for 1985 for filing beyond the two-year reglementary period. CTA also denied the claim for refund for 1986 on the speculation that petitioner had automatically credited against its tax payment in the succeeding year. CA affirmed CTA’s decision. Hence, this petition for review.

Petitioner’s argument: that its claims for refund and tax credits are not yet barred by prescription relying on the applicability of Revenue Memorandum Circular No. 7-85 issued on April 1, 1985. The circular states that overpaid income taxes are not covered by the two-year prescriptive period under the tax Code and that taxpayers may claim refund or tax credits for the excess quarterly income tax with the BIR within ten (10) years under Article 1144 of the Civil Code.

ISSUES:
1. Whether or not the prescription for the claim of tax refund or tax credit is covered by Revenue Memorandum Circular No. 7-85 and not by the two-year prescriptive period under the tax Code.
2. Whether or not CA erred in affirming CTA’s decision denying its claim for refund of tax overpaid in 1986, based on mere speculation, without proof, that PBCom availed of the automatic tax credit in 1987.

RULING:
1. It is the Tax Code which provides for the prescription for claims for refund or tax credit. RMC 7-85 changed the prescriptive period of two years to ten years on claims of excess quarterly income tax payments. This circular is inconsistent with the provision of Sec 230, NIRC of 1977. The BIR, in issuing said circular did not simply interpret the law; rather it legislated guidelines contrary to the statute passed by Congress. Rules and regulations issued by the administrative officials to implement a law cannot go beyond the terms and provisions of the latter. Since RMC 7-85 issued by the BIR is an administrative interpretation which is contrary to the provision of the statte, it cannot be given weight and the State cannot be put in estoppel by the mistakes or errors of its officials or agents.

2. Sec. 69 of the 1977 NIRC 29 (now Sec. 76 of the 1997 NIRC) provides that any excess of the total quarterly payments over the actual income tax computed in the adjustment or final corporate income tax return, shall either(a) be refunded to the corporation, or (b) may be credited against the estimated quarterly income tax liabilities for the quarters of the succeeding taxable year.
The corporation must signify in its annual corporate adjustment return (by marking the option box provided in the BIR form) its intention, whether to request for a refund or claim for an automatic tax credit for the succeeding taxable year. To ease the administration of tax collection, these remedies are in the alternative, and the choice of one precludes the other.
The CTA examined the adjusted final corporate annual income tax return for taxable year 1986 and found out that petitioner opted to apply for automatic tax credit. This was the basis used together with the fact that the 1987 annual corporate tax return was not offered by the petitioner as evidence by the CTA in concluding that petitioner had indeed availed of and applied the automatic tax credit to the succeeding year, hence it can no longer ask for refund, as the two remedies of refund and tax credit are alternative.

NOTES:
Basic is the principle that taxes are the lifeblood of the nation. The primary purpose is to generate funds for the State to finance the needs of the citizenry and to advance the common weal. Due process of law under the Constitution does not require judicial proceedings in tax cases. This must necessarily be so because it is upon taxation that the government chiefly relies to obtain the means to carry on its operations and it is of utmost importance that the modes adopted to enforce the collection of taxes levied should be summary and interfered with as little as possible.

Full Text: PBCom vs. CIR GR 112024. Jan. 28, 1999