TAXATION I

CASE DIGESTS

TABLE OF CONTENTS

La Sallian Educational Innovators Foundation (De La Salle University – College of St. Benilde) vs. Commissioner of Internal Revenue . 2
University of the Philippines vs. City Treasurer of Quezon City ............................................................................................................. 7
Commissioner of Internal Revenue vs. Philippine National Bank........................................................................................................... 9
University Physicians Services Inc. – Management, Inc. vs. Commissioner of Internal Revenue ......................................................... 11
Rhombus Energy, Inc. vs. Commissioner of Internal Revenue ............................................................................................................. 16

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LA SALLIAN EDUCATION AL INNOVATORS
FOUNDATION (DE LA SALLE UNIVERSITY –
COLLEGE OF ST. BENILDE) VS. COMMISSIONER
OF INTERNAL REVENUE
FACTS
Petitioner La Sallian Educational Innovators Foundation, Inc.
(De La Salle University-College of St. Benilde Foundation)/for
brevity) is a non-stock, non-profit domestic corporation duly
organized and existing under the laws of the Philippines.
On June 17, 2005, respondent issued two (2) Assessment
Notices for fiscal year ending May 31, 2002. The notices have
demand letters against petitioner for deficiency
a. Income tax — Pl22,414,52 l.70,
b. Value-added tax (VAT) — 2,752,228.54
On the same date, a separate demand letter was also sent by
respondent to petitioner for a compromise penalty in
deficiency VAT in the amount of P25,000.00.
Petitioner Foundation filed a Protest or Request for
Reconsideration to respondent. In view of respondent's
inaction thereto, petitioner Foundation filed a Petition for
Review before the Special First Division of the CT A Division. It
was sent through registered mail on April 17, 2006, the last day
of filing the appeal.p However, petitioner was only able to pay
the docket and other legal fees nine days after or on April 26,
2006.
Petitioner Foundation executed an Agreement Form with the
Bureau of Internal Revenue (BIR) on April 21, 2006, and paid
the deficiency VAT liability of P601,487.70 on May 9, 2006.
However, respondent alleged that the petitioner Foundation
has already lost its tax-exempt status, making it liable to
deficiency income tax. The Details of Discrepancies issued by
the BIR enumerated the following findings, to wit:
a. The foundation may be a non-stock entity but it is
definitely a profit-oriented organization wherein
majority of its revenue-operating activities are
generating huge amount of profit amounting to P643
million that earned from expensive tuition fees
collected from its students, mostly belong to upper
class family.
b. The foundation's Cash in Bank in the amount of P775
million comprise of investing activities and has
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significant movement in relation to its charitable
purposes, which mean that the foundation is not
giving sufficient donations which is the main reason
for its qualification for exemption. During the school
year the foundations has a total cash receipts of
approximately 1.222 Billion out of which only 77
Million goes to the revolving fund.
c. Based on the Cash Flow of the foundation activities
the taxpayer has used 70% of foundation's earning
goes to the administrative purposes and
improvement of the school to increase number of its
enrollees and increase further its profit and not to
further its charitable purposes.
On the other hand, petitioner Foundation consistently argued
that it enjoys a tax-exempt status from all taxes as a non-stock,
non-profit educational institution as expressly provided under
Paragraph 4, Section 4, Article XIV of the 1987 Constitution,
which reads:
(3) All revenues and assets of non-stock, non-profit
educational institutions used actually, directly and exclusively
for educational purposes shall be exempt from taxes and
duties. x x x.
Moreover, petitioner Foundation denied the respondent's
allegations that it engaged in disproportionate profit-earning
activities contrary to its educational purpose. Contrary to the
allegations, it explained that the sum of P643,279,148.00 is not
profit, but merely the gross receipts from school-year 2002.
Furthermore, petitioner Foundation's claim that all the said
income is actually, directly and exclusively used or earmarked
for promoting its educational purpose and not a single centavo
inure to the benefit of any of the Foundation's members,
tn1stees and officers.18 The Independent Certified Public
Accountant, Mr. Edwin Ramos, also testified and explained
that the administrative expenses of the Foundation would
necessarily be lower than 27.35%.
Ruling of CTA Division in favor of petitioner Foundation and
cancelling Assessment Notice.
a. There’s nothing in the Foundation's books that will
show that it operated for profit or that any of its
income inured to the benefit of its members or
trustees.
b. It found that petitioner Foundation maintained its
tax-exempt status under Section 4, Article XIV of the
1987 Constitution,
 c. The Final Assessment Notices issued by respondent
against petitioner Foundation are not valid for failing
to state their legal and factual basis hence, all other
issues raised are moot and academic.
Dissatisfied with CT A Division's decision, respondent filed a
Motion for Reconsideration which petitioner Foundation
opposed by filing an Opposition to Motion for
Reconsideration.
The CTA Division resolved it by promulgating a Resolution
enying respondent's motion for reconsideration for lack of
merit. In the body of the resolution, the CTA Division agreed
with petitioner Foundation that respondent's motion for
reconsideration merely raised the same arguments which have
been sufficiently addressed and passed by the CTA Division in
the assailed decision. Thereafter, respondent filed a petition
for review before the CTA En Banc.
Ruling of the CT A En Banc
Granting respondent's petition for review and reversing the
decision of the CT A Division.
The CTA En Banc ruled that the:
a. CTA Division should not have given due course to
petitioner Foundation's petition for review.
b. Payment of docket fees and other legal fees within
the thirty (30)-day reglementary period to appeal is
mandatory and jurisdictional. The late payment of
docket fees prevented the CTA Division from
acquiring jurisdiction.
o Petitioner Foundation's appeal was allegedly not
perfected because the payment of the docket
fees was made only on April 26, 2006 or nine (9)
days after April 17, 2006, the last day for filing the
appeal. As a result, the assailed assessment has
allegedly become final and executory.
c. Even assuming that the CTA Division had jurisdiction
over the petition, the latter allegedly erred in
cancelling the assessment notice because the
presumption of its correctness has not been
overturned. The CTA En Banc emphasized that
petitioner Foundation's tax exempt status has been
impliedly revoked due to its excessive profit-earning
activities.
Aggrieved, petitioner Foundation filed its Motion for
Reconsideration.
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ISSUE
1. WHETHER THE PETITIONER FOUNDATION HAS LOST
ITS TAX-EXEMPT STATUS UNDER THE 1987
CONSTITUTION. NO.
2. WHETHER THE CTA EN BANC COMMITTED A
REVERSIBLE ERROR WHEN IT REVERSED AND SET
ASIDE THE DECISION OF THE CTA DIVISION. YES.
RULING
Evidently, petitioner Foundation, being a non-stock, non-profit
educational institution, is not liable to the payment of VAT
deficiency assessment, and the CT A En Banc erred in find1[ng
otherwise and m reversing the CT A Division.
FIRST ISSUE
The 1987 Constitution expressly exempt all revenues and
assets of non-stock, non-profit educational institutions from
taxes provided that they are actually, directly and exclusively
used for educational purposes, to wit:
(3) All revenues and assets of non-stock, non-profit
educational institutions used actually, directly, and
exclusively for educational purposes shall be exempt
from taxes and duties.
This constitutional exemption is reiterated in Section 30 (H) of
the 1997 Tax Code, as amended, which provides as follows:
Sec. 30. Exemptions from Tax on Corporations. -The following
organizations shall not be taxed under this Title in respect to
income received by them as such: xx xx
(H) A non-stock and non-profit educational institution
Clearly, non-stock, non-profit educational institutions are not
required to pay taxes on all their revenues and assets if they
are used actually, directly and exclusively for educational
purposes.
According to the BIR, petitioner Foundation has failed to
comply with the constitutional requirements for being a profit-
oriented educational institution. Hence, it is no longer a tax-
exempt entity, and is subject to a 10% income tax rate as a
taxable proprietary educational institution.
The Court disagrees.
Based on jurisprudence and tax rulings, a taxpayer shall be
granted with this tax exemption after proving that:
 1. it falls under the classification of non-stock, non-
profit educational institution; and
2. the income it seeks to be exempted from taxation is
used actually, directly and exclusively for educational
purposes.
FIRST REQUIREMENT: There is no contest as both the parties
have stipulated that petitioner Foundation is a non-stock, non-
profit educational institution.
a. Nonetheless, the Petitioner Foundation's primary and
secondary purposes in its Amended Articles of
Incorporation clearly provide that it is a non-stock,
non-profit educational entity
b. Moreover, petitioner Foundation has no capital
divided into shares.47 No part of its income can be
distributed as dividends to its members, tn1stees and
officers.48 The members of the Board of Trustees do
not receive any compensation for the performance of
their duties, including attendance in meetings.
c. It is also important to mention that in BIR Ruling No.
176-88 dated August 23, 1988, the BIR already
declared that petitioner Foundation is a non-stock,
non-profit educational institution that is exempt from
certain taxes.
d. As pointed out by respondent, petitioner Foundation
did not secure a new BIR Ruling on its claim for
exemption after the Tax Code has been amended.
However, this Court finds such fact insignificant. The
application for a new BIR Ruling is unnecessary
considering that the BIR Ruling was never revoked,
and the primary purpose of petitioner Foundation
remained the same. Notably, respondent also failed
to mention any legal basis that will require petitioner
Foundation to secure a new BIR Ruling to confirm its
tax exempt status.
SECOND REQUIREMENT: Allegation of BIR that petitioner is a
not non-stock, non-profit educational institution due to its
alleged enormous profits:
a. by generating massive profits in the amount of
P643,000,000.00 from tuition fees, and
b. having cash worth P775,000,000 in its bank.
SC: These allegations were completely unsupported by facts
and evidence. Based on the evidence presented,
a. the P643,000,000.00 is not profit as it is just the gross
receipt from school year 2002. Unfortunately,
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respondent easily overlooked petitioner Foundation's
administrative and non-administrative expenses
amounting to P582,903,965.00.mThus, the income of
petitioner Foundation is only P60,375,183.00 or
9.38% of its operating receipts. This is way below the
average gross profit margin rate of 20% for most
business enterprises.
b. the alleged P775,000,000 cash is in reality a part of its
Cash and Cash Equivalents account. The amount of
P575, 700,000.00 (or 74.02%) therein constitutes
Funds Held in Trust to finance capital improvements,
scholarship, faculty development, retirement and
for other restricted uses. The rest of the account
consists of highly liquidated debt instruments
purchased with a short term maturity. Clearly, there
is nothing in the petitioner Foundation's books that
will indicate that it is driven by profit or that its
income is used for anything but in pursuit of its
primary purpose.
This Court has ruled that a non-profit institution will not be
considered profit driven simply because of generating profits.
Explained in Jesus Sacred Heart College v. Collector of lnternal
Revenue:
To hold that an educational Institution is subject to income tax
whenever it is so administered as to reasonably assure that it
will not incur in deficit, is to nullify and defeat the
aforementioned exemption. Indeed, the effect, in general, of
the interpretation advocated by appellant would be to deny
the exemption whenever there is net income, contrary to the
tenor of said section 27(e) which positively exempts from
taxation those corporations or associations which, otherwise,
would be subject thereto, because of the existence of said net
income.
Needless to say, every responsible organization
must be so run as to, at least insure its existence, by
operating within the limits of its own resources,
especially its regular income. In other words, it
should always strive, whenever possible, to have a
surplus.
It is evident that all of petitioner Foundation's income is
actually, directly and exclusively used or earmarked for
promoting its educational purpose. To reiterate, respondent
never argued that the income of petitioner Foundation was
used in any manner other than for promoting its purpose as a
non-stock, non-profit educational institution. In fact, there is
not even a single argument or evidence presented to cast a
doubt in the proper usage of petitioner Foundation's income.
The Constitution would show that Article XIV, Section 4 (3)
does not require that the revenues and income must have also
been earned from educational activities or activities related to
the purposes of an educational institution. The phrase "all
revenues" is unqualified by any reference to the source of
revenues. Thus, so long as the revenues and income are used
actually, directly and exclusively for educational purposes,
then said revenues and income shall be exempt from taxes and
duties.
In the instant case, petitioner Foundation firmly and
adequately argued that none of its income inured to the
benefit of any officer or entity.
Instead, its income has been actually, exclusively and directly
used for performing its purpose as an educational institution.
Undoubtedly, petitioner Foundation has also proven this
second requisite. Thus, the tax-exempt status of petitioner
Foundation under the 1987 Constitution is clear.
SECOND ISSUE
It can be recalled that the questioned CTA En Banc decision
only ruled on the procedural aspect of the case on the ground
that it is jurisdictional and determinative of the validity of the
whole process. The late payment of docket fees allegedly
divested the CTA Division of jurisdiction or authority to take
cognizance of the petition for review filed before it. As a result,
the decision of the CTA Division was rendered without
jurisdiction, and is totally null and void. Thus, the impugned tax
deficiency assessment has become final and executory, and its
correctness cannot be disputed anymore. The Supreme Court
cannot agree.
The tax exemption expressly granted by the 1987 Constitution,
the supreme law of the land, cannot be set aside by any
statute, especially by a mere technicality in procedure.
The payment of docket fee and other legal fees within the
thirty (30)-day reglementary period to appeal a tax assessment
to the CTA is mandatory and jurisdictional, however the
Supreme Court will not hesitate to exercise its equity
jurisdiction and allow a liberal interpretation of the rules of
procedure if a rigid application will defeat substantial justice.
Instances when the Supreme Court may relax the strict
application of the rules of procedure in the exercise of its
equity jurisdiction:
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If a rigid application of the rules of procedure will tend to
obstruct rather than serve the broader interests of justice and
depending on the prevailing circumstances of the case, such as
where strong considerations of substantive justice are
manifest in the petition.
Heirs of Amada Zaulda v. Zaulda
The law abhors technicalities that impede the cause of justice.
The court's primary duty is to render or dispense justice. "It is
a more prudent course of action for the court to excuse a
technical lapse and afford the parties a review of the case on
appeal rather than dispose of the case on technicality and
cause a grave injustice to the parties, giving a false
impression of speedy disposal of cases while actually
resulting in more delay, if not miscarriage of justice." xx x
What should guide judicial action is the principle that a party-
litigant should be given the fullest opportunity to establish
the merits of his complaint or defense rather than for him to
lose life, liberty, honor, or property on technicalities. The
rules of procedure should be viewed as mere tools designed
to facilitate the attainment of justice. Their strict and rigid
application, which would result in technicalities that tend to
frustrate rather than promote substantial justice, must always
be eschewed. At this juncture, the Court reminds all members
of the bench and bar of the admonition in the often-cited case
of Alonso v. Villamar.
Otherwise stated, procedural rules are important tools
designed to facilitate the dispensation of justice, but legal
technicalities may be excused when strict adherence thereto
will impede the achievement of justice it seeks to serve.
In the present case, petitioner Foundation timely opposed the
tax deficiency assessments against it by filing a Protest or
Request for Reconsideration, the proper remedy, before the
BIR. Due to respondent's inaction, it filed a petition for review,
also the proper remedy, within the reglementary period
required by law. In addition, it completely paid the required
docket and legal fees in the amount of P861,178.34.
The procedural controversy arose:
The payment of the required docket and legal fees was done
nine (9) days after the last day for filing the petition for review.
The petitioner Foundation's petition for review was filed
through a registered mail on April 17, 2006, the last day of
filing. It was not able to pay the docket and legal fees on the
day of filing because the CTA received the petition and made a
computation of the required fees only on April 26, 2006 or nine
(9) days after.
The question now is: should the late payment of the docket
fees divest the CT A Division of jurisdiction over petitioner
Foundation's petition for review making the VAT deficiency
assessment against a tax-exempt entity final and executory?
This Court answers in the negative.
GR: The general rule is that a petition for review is perfected
by timely filing it and paying the requisite docket fees and
other lawful fees.
XPN:
Mactan Cebu International Airport Authority v. Mangubat:
The Supreme Court ruled that where the party immediately
paid the required fees showing willingness to abide by the
rules, and in view of the significance of the issues raised in the
case, the same calls for judicial leniency.
The exceptions are:
1. most persuasive and weighty reasons;
2. to relieve a litigant from an injustice not
commensurate with his failure to comply with the
prescribed procedure;
3. good faith of the defaulting party by immediately
paying within a reasonable time from the time of the
default;
4. the existence of special or compelling circumstances;
5. the merits of the case;
6. a cause not entirely attributable to the fault or
negligence of the party favored by the suspension of
the rules;
7. a lack of any showing that the review sought is merely
frivolous and dilatory;
8. the other party will not be unjustly prejudiced
thereby;
9. fraud, accident, mistake or excusable negligence
without appellant's fault;
10. peculiar legal and equitable circumstances attendant
to each case;
11. in the name of substantial justice and fair play;
12. importance of the issues involved; and
13. exercise of sound discretion by the judge guided by all
the attendant circumstances. Concomitant to a liberal
interpretation of the rules of procedure should be an
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effort on the part of the party invoking liberality to
adequately explain his failure to abide by the rules.
Anyone seeking exemption from the application of the Rule
has the burden of proving that exceptionally meritorious
instances exist which warrant such departure.
In the instant case, petitioner Foundation:
a. Was able to establish that it is a tax exempt entity
under the 1987 Constitution.
b. It has timely filed its Protest to the tax deficiency
assessment.
c. It was also able to actually pay the full amount of the
required docket and legal fees in the amount of
P861,178.34, but it was nine (9) days late. Evidently,
petitioner Foundation immediately paid the docket
and l gal fees upon the CTA's assessment of the
proper amount which showed petitioner's good faith.
Taking into account the importance of the issues raised before
the CTA Division, and what petitioner stands to lose, the CTA
En Banc should have considered the merits of said petition. By
ruling for the denial of the said petition solely based on
technicalities, the CTA En Banc absolutely foreclosed the
resolution of the issues raised therein. Definitely, justice would
have been better served if the CT A En Banc allowed the
resolution of the issues that were raised in the petition.
Consequently, the CTA Division acquired jurisdiction to
examine the assailed VAT deficiency assessment, and the latter
did not become final and executory.
Other cases provided by the Supreme Court:
A. Tanenglian v. Lorenzo, et al — this Court gave due
course to the appeal which was not only made
through a wrong mode but was even filed beyond the
reglementary period. This Court recognized the
broader interest of justice and reasoned that: Our
judicial system and the courts have always tried to
maintain a healthy balance between the strict
enforcement of procedural laws and the guarantee
that every litigant be given the full opportunity for the
just and proper disposition of his cause. x xx.
B. Sebastian v. Morales — we ruled that rules of
procedure must be faithfully followed except only
when, for persuasive reasons, they may be relaxed to
relieve a litigant of an injustice not commensurate
with his failure to comply with the prescribed
 procedure, thus: It is a far better and more prudent
cause of action for the court to excuse a technical
lapse and afford the parties a review of the case to
attain the ends of justice, rather than dispose of the
case on technicality and cause grave injustice to the
parties, giving a false impression of speedy disposal of
cases while actually resulting in more delay, if not a
miscarriage of justice.
Finally, it is crucial to be reminded that the constitutionally
mandated tax privilege granted to non-stock non-profit
educational institutions plays an important role in promoting
quality and affordable education in the country. In the
consolidated cases of Commissioner of Internal Revenue v. De
La Salle University Inc.:
We find that the text demonstrates the policy of the
1987 Constitution, discernible from the records of the
1986 Constitutional Commission to provide broader
tax privilege to non-stock, non-profit educational
institutions as recognition of their role in assisting the
State provide a public good. The tax exemption was
seen as beneficial to students who may otherwise be
charged unreasonable tuition fees if not for the tax
exemption extended to all revenues and assets of
non-stock, non-profit educational institutions.
UNIVERSITY OF THE PHILIPPINES VS. CITY
TREASURER OF QUEZON CITY
FACTS
Both UP and the City Treasurer admitted that UP is the
registered owner of a parcel of land covered by TCT No. RT-
107350 (192689). UP entered into a contract of lease with
Ayala Land Inc. (ALI) over the subject land on 27 October 2006.
UP filed the present case before this Court within 60 days from
receipt of the 11 July 2014 Final Notice of Delinquency.
September 29, 2014 SC Resolution: Required the City
Treasurer to file a Comment and issued a Temporary
Restraining Order to enjoin the City Treasurer, his agents or
representatives, from enforcing the Final Notice of
Delinquency and proceeding with the sale of subject land at a
public auction.
July 20, 2015 SC Resolution: Requiring the City Treasurer to
show cause why he/she should not be disciplinarily dealt with
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or held in contempt for failure to file Comment before the
period expired.
March 7, 2016 SC Resolution: Imposing upon the City Treasurer
a fine of Pl,000.00—increased to P2,000.00—for failure to file
Comment, and required compliance within ten days from
notice.
August 18, 2016: Urgent Motion for Extension of Time with
Manifestation from Ms. Guevarra, Acting Assistant City
Treasurer of Quezon City. On 29 September 2016, Ms.
Guevarra, as Officer in Charge of the City Treasurer's Office,
filed her Comment.
November 28, 2016, SC issued a Resolution that noted Ms.
Guevarra's Comment, and required UP to file a reply. UP,
through the OSG, filed its Reply 14 on 20 February 2017.
ISSUE
Whether petitioner University of the Philippines is liable for
real property tax imposed on the subject property leased to
Ayala Land, Inc.
RULING
NO. October 27, 2006, the Contract of Lease (with
Development Obligations) between UP and ALI was executed.
As to real property taxes, the contract between UP and ALI
stated:
12.2 REAL ESTATE TAXES ON LAND
Should real estate taxes be levied on the LEASED PREMISES,
the LESSOR shall assume the payment of the real estate taxes
on the land, while the LESSEE shall assume the payment of real
property taxes on the improvements introduced on the
LEASED PREMISES.
April 29, 2008, Republic Act No. 9500, or the UP Charter of
2008, was signed into law. Republic Act No. 9500 addressed
UP's real property and income derived therefrom in Sections
22 and 25(a).
A letter addressed to the UP President from Mr. Rodolfo M.
Ordanes, Officer In Charge, City Assessor), informed UP of the
City Assessor's service of a Notice of Assessment to ALI which
had Sections 205 and 234 of the Local Government Code as its
bases. The notice stated that the land subject of the lease
agreement with UP was reclassified and assessed for taxation
purposes with an assessed value of P499,500,000.00 effective
2009.
August 23, 2012, the City Treasurer issued a Statement of
Delinquency to UP North Property Holdings, Inc. for the period
2009-2011 and the first three quarters of 2012 in the total
amount of P78,970,950.00 which included the tax due and
penalty.
Mr. Salvador M. Castillo, Officer-In-Charge of BLGF-DOF, sent
a letter to Quezon City Mayor Herbert M. Bautista concluding
that ALI, as the lessee, is the legally accountable party for the
unpaid real property taxes due covering the "government-
owned UP property."
September 24, 2013, the City Treasurer issued a Statement of
Delinquency to UP North Property Holdings, Inc. The City
Treasurer demanded payment of real property tax on the
subject land in the amount of P102,747,150.00 for the years
2009-2012 and the first three quarters of 2013.
May 27, 2014, the City Treasurer issued a Notice of
Delinquency to UP (without any prior issuance of a Notice of
Assessment) for the years 2009-2013 and the first quarter of
2014 in the total amount of P106,992,900.00 including the tax
due and penalty. UP President Alfredo E. Pascual wrote then
City Treasurer Edgar T. Villanueva to address the Statement of
Delinquency.
July 11, 2014, the City Treasurer issued a Final Notice of
Delinquency to UP for the years 2009-2013 and the first three
quarters of 2014 in the total amount of Pll7,182,700.00
including the tax due and penalty.
UP is a chartered academic institution with specific legislated
tax exemptions coming from the Local Government Code, as
well as from its legislative charter, Republic Act No. 9500.
One source of UP's exemption from tax comes from its
character as a government instrumentality.
Section 133(0) of the Local Government Code states that,
unless otherwise provided by the Code, the exercise of taxing
powers of the local government units shall not extend to levy
of taxes, fees or charges of any kind on government
instrumentalities.
However, Sections 205 and 234 of the Local Government
Code also provides that when beneficial use of a real property
owned by a government instrumentality is granted to a taxable
person, then the taxable person is not exempted from paying
real property tax on such property. This is the doctrine used
by the City Assessor and the City Treasurer in the present set
of facts. The City Assessor and the City Treasurer concluded
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that ALI is liable for the real property tax on the land that it
leased from UP.
Republic Act No. 9500, however, gave a specific tax
exemption to UP which covers the land subject of the present
case. The City Assessor and the City Treasurer overlooked this
specific exemption awarded to UP.
Republic Act No. 9500, which took effect in 2008, was not yet
enacted when UP and ALI entered into their lease contract in
2006, but it was already operative when the City Treasurer
issued the Statement of Delinquency and Final Notice of
Delinquency to UP in 2014; when the City Assessor issued a
Notice of Assessment to ALI in 2012; a Statement of
Delinquency to UP North Property Holdings, Inc. in 2012 and
2013.
The enactment and passage of Republic Act No. 9500 in 2008
superseded Sections 205(d) and 234(a) of the Local
Government Code. Thus, there is a need to determine whether
UP's property is used for educational purposes or in support
thereof before the property may be subjected to real property
tax.
The Contract of Lease between UP and ALI shows that there is
an intent to develop "a prestigious and dynamic science and
technology park, where research and technology-based
collaborative projects between technology and the academe
thrive, thereby becoming a catalyst for the development of the
information technology and information technology-enabled
service." The development of the subject land is clearly for an
educational purpose, or at the very least, in support of an
educational purpose.
Republic Act No. 9500 granted extensive tax exemptions to UP.
Section 25(a) provided that all of UP's "revenues and assets
used for educational purposes or in support thereof shall be
exempt from all taxes and duties."
This tax exemption, however, applies only to "assets of the
University of the Philippines," referring to assets owned by
UP. Under the Contract of Lease between UP and ALI, all
improvement on the leased land "shall be owned by, and shall
be for the account of the LESSEE ALI" during the term of the
lease. The improvements are not "assets" owned by UP.
WHEREFORE, the petition is GRANTED. We DECLARE the
University of the Philippines EXEMPT from real property tax
imposed by the City Treasurer of Quezon City on the parcel of
land, which is currently leased to Ayala Land, Inc.
COMMISSIONER OF INTE RNAL REVENUE VS.
PHILIPPINE NATIONAL BANK
FACTS
On April 17, 2006, PNB electronically filed its Annual Income
Tax Return (ITR) for taxable year 2005. The following day, it
manually filed the same with the required attachments
thereto. Through letters with attachments dated February 12,
2007, June 22, 2007, and March 10, 2008, which were received
by the CIR on February 22, 2007, June 25, 2007, and March 13,
2008, respectively, PNB filed its claim for refund or issuance of
tax credit certificate of its excess CWT in the amount of
P74,598,430.47. Due to the CIR's inaction to the said claim,
PNB filed a petition for review for its claim on April 11, 2008
before the CTA.
On September 30, 2011, the CTA Third Division rendered a
Decision, finding PNB 's evidence to be insufficient to support
its claim for refund or the issuance of a tax credit certificate.
Specifically, the CTA Third Division pointed out that the
presentation of PNB 's Annual ITR for 2006 is not enough to
prove that it did not carry over the claimed excess or unutilized
CWT to the subsequent quarters of 2006, ruling that the
presentation of the succeeding Quarterly ITRs is vital to its
claim for refund.
PNB filed a motion for reconsideration but the same was
denied in a Resolution dated December 29, 2011.
PNB then appealed to the CTA En Banc, raising the sole issue
of whether or not the presentation of the 2006 Quarterly ITRs
is indispensable to PNB 's claim for refund of its excess or
unutilized CWT for 2005. By a vote of 4-4-1 in its June 5, 2013
Decision, the CTA denied the appeal.
CTA En Banc Ruling
Undaunted, PNB filed a Motion for Reconsideration dated June
28, 2013. On February 4, 2014, the CTA En Banc rendered the
assailed Amended Decision, granting PNB's motion for
reconsideration. The CTA En Banc ruled that there is nothing in
our tax laws that requires the presentation of the Quarterly
ITRs for succeeding years to establish entitlement to the
refund of excess or unutilized CWT.
Further, this time, the CTA En Banc recognized that the
Supreme Court had, in several occasions, already passed upon
this issue. It cited the cases of Philam Asset Management, Inc.
v. Commissioner of Internal Revenue, State Land Investment
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Corporation v. Commissioner of Internal Revenue, and
Commissioner of Internal Revenue v. PERF Realty Corporation,
wherein this Court ruled that the presentation of ITRs for the
succeeding taxable years is not an essential requisite in proving
a claim for refund of excess or unutilized CWT. The Court
elucidated that the presentation or non-presentation of the
said document is not fatal to the refund claim as it is the duty
of the CIR to verify whether or not the taxpayer carried over
its excess CWT to the succeeding year.
The CTA En Banc also found that PNB complied with all the
requisites for the filing of such claim. First, there is no dispute
that PNB filed its claim within the two-year prescriptive period.
Second, that the income related to the P74,026,451.67 CWT
formed part of PNB's taxable income for the years 1999 to
2006 were evidenced by the documents presented by PNB,
which were evaluated by the Independent Certified Public
Accountant (ICPA), to wit: original accounting tickets or input
sheets; original deeds of absolute/conditional sale; general
ledgers for the years 1999 to 2006; audited financial
statements; and ITRs for the years 1999 to 2006. Third, PNB
presented. Certificates of Creditable Tax Withheld at Source
duly issued to it by various withholding agents for the year
2005, which were examined by the Court-commissioned ICPA,
SGV & Co., through its partner, Ms. Mary Ann C. Capuchino, to
establish the fact of withholding. The ICPA noted, however,
that out of the P74,598,430.47 CWT claimed for refund, only
the amount of P74,026,451.67 was properly supported by
original Certificates of Creditable Tax Withheld at Source
issued in the name of PNB and dated within the calendar year
2005. In all, the CTA held that PNB was able to sufficiently
prove its claim for refund, albeit for the reduced amount of
P74,026,451.67.
Insisting that the presentation of the Quarterly ITRs for the
succeeding taxable year is incumbent upon claimants of CWT
refund to prove its entitlement thereto, the CIR filed a motion
for reconsideration, which was denied by the CTAEn Banc.
Hence, this petition.
CIR’s Contention
In the main, the CIR maintains that the presentation of the
Quarterly ITRs for 2006 is indispensable to PNB 's refund claim
to prove its entitlement thereto. The CIR argues in this wise:
under Section 76 of the National Internal Revenue Code
(NIRC), the taxpayer has the option to either carry over the
excess CWT to the succeeding taxable quarters or to claim for
a refund of, or tax credit for such excess amount paid; once the
taxpayer opted for the carry over, the same shall be
irrevocable and it will not be entitled to a refund anymore; the
Quarterly ITRs would establish whether or not such carry over
happened; hence, such Quarterly ITRs are indispensable for
the refund claim.
The CIR further argues that, assuming the presentation of the
Quarterly ITRs is not necessary, PNB 's claim for refund must
still be denied because the Certificates of Creditable Taxes
Withheld presented were not properly identified. Specifically,
the CIR avers that the authenticity of such document should
have been proved by identification of a person who saw the
same executed or by evidence of the genuineness of the
signature or handwriting of the maker.
In fine, the CIR asserts that the PNB failed to discharge its
burden to prove entitlement to the claimed refund.
ISSUE
1. Whether or not the PNB proved its entitlement to the
refund. (Yes)
2. Whether the presentation of the Quarterly ITRs of the
succeeding quarters of a taxable year is indispensable
for such claim. (No)
RULING
In the more recent case of Winebrenner & Inigo Insurance
Brokers, Inc. v. Commissioner of Internal Revenue, consistent
with the settled jurisprudence on the matter, the Court
specifically ruled that the presentation of the claimant's
quarterly returns is not a requirement to prove entitlement to
the refund. Notably, said case applies squarely to the instant
petition. This Court is not in disagreement with the CIR in
recognizing that the burden of proof to establish entitlement
to a refund is on the claimant. However, the SC cannot
subscribe to the CIR's contention that the presentation of the
Quarterly ITRs is indispensable to the claimant's case.
The CTA correctly ruled that there is nothing under the NIRC
that requires the submission of the Quarterly ITRs of the
succeeding taxable year in a claim for refund. Even the BIR's
own regulations do not provide for such requirement.
As consistently held by this Court, once the minimum statutory
requirements have been complied with, the claimant should
be considered to have successfully discharged its burden to
prove its entitlement to the refund. After the claimant has
successfully established a prima facie right to the refund by
complying with the requirements laid down by law, the burden
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is shifted to the opposing party, i.e., the BIR, to disprove such
claim.
Once the claimant has successfully established that its claim
was filed within the two-year prescriptive period; that the
income related to the claimed CWT formed part of the return
during the taxable year when the refund is claimed for; and the
fact of withholding of said taxes, it shall be deemed to be
entitled to its claimed CWT refund. If the CIR, as the one
mandated to examine and decide matters of taxes and
refunds, finds otherwise, it is then incumbent upon it to prove
the propriety of denying the claim before the court.
Specifically, if the BIR asserts that the claimant is not entitled
to the refund as the claimed CWT were already carried over to
the succeeding taxable quarters, it is up to the BIR to prove
such assertion.
It bears stressing that the power to decide matters concerning
refunds of internal revenue taxes, among others, is vested in
the CIR. It has the duty to ascertain the veracity of such claims
and should not just wait and hope for the burden to fall on the
claimant when the issue reaches the court.
In Commissioner of Internal Revenue v. PERF Realty
Corporation, the Court ruled that it is the duty of the CIR to
verify whether or not the claimant had carried over its excess
CWT. The CTA's jurisdiction is appellate, meaning it merely has
the authority to review the CIR's decisions on such matters. In
the exercise of its authority to review, the CTA cannot dictate
what particular evidence the parties must present to prove
their respective cases. The means of ascertainment of a fact is
best left to the party that alleges the same. The court's power
is limited only to the appreciation of that means pursuant to
the prevailing rules of evidence. Thus, this Court finds no basis
to rule for the indispensability presenting the Quarterly ITRs
for a CWT refund or tax credit claim.
The Court explained that an Annual ITR contains the total
taxable income earned for the four quarters of the taxable
year, as well as deductions and tax credits previously reported
or carried over in the Quarterly ITRs for the subject period. The
Annual ITR or Final Adjustment Return for the taxable year
subsequent to the year when the CWT forms part, perforce,
can sufficiently reveal whether a carry over to the succeeding
quarters was made even if the claimant has previously chosen
the option of refund of, or tax credit for the claimed CWT.
Thus, despite PNB 's failure to present at the onset1 its
Quarterly ITRs for 2006, its Annual ITR for 2006 is apt and
sufficient to show that no CWT carry over was made in 2006.
Authenticity and due execution of the Certificates of Creditable
Taxes Withheld
The same should be given scant consideration. Foremost, said
argument is belatedly raised before this Court. These
documents were admitted at the initial stage of the
proceedings before the CTA Third Division and records show
that no such objection was made during the formal offer of
said documents. Moreover, these Certificates of Final Tax
Withheld, complete in relevant details, were declared under
the penalty of perjury. As such, they may be taken at face
value. Besides, resolving this issue would necessitate a re-
examination of evidence on record, which is not within the
purview of a review under Rule 45 of the Rules of Court.
Further, it is well settled that factual findings of the CTA when
supported by substantial evidence, will not be disturbed on
appeal. Due to the nature of its functions, the tax court
dedicates itself to the study and consideration of tax problems
and necessarily develops expertise thereon. Unless there has
been an abuse of discretion on its part, the Court accords the
highest respect to the factual findings of the CTA.
In all, having established that PNB complied with the minimum
statutory requirements above-enumerated, and that the
submission of its Quarterly ITRs are not indispensable to its
claim, we find no reversible error on the part of the CTA En
Banc in ruling that PNB is entitled to the claimed refund or tax
credit.
UNIVERSITY PHYSICIAN S SERVICES INC. –
MANAGEMENT, INC. VS. COMMISSIONER OF
INTERNAL REVENUE
DOCTRINE:
When a corporation overpays its income tax liability as
adjusted at the close of the taxable year, it has two options:
1. to be refunded or issued a tax credit certificate, or
2. to carry over such overpayment to the succeeding
taxable quarters to be applied as tax credit against
income tax due.
o Once the carry-over option is taken, it becomes
irrevocable such that the taxpayer cannot later
on change its mind in order to claim a cash refund
or the issuance of a tax credit certificate of the
very same amount of overpayment or excess
income tax credit.
FACTS
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Petitioner UPSI-MI is a corporation incorporated and existing
under and by virtue of laws of the Philippines,
Respondent on the other hand, is the duly appointed
Commissioner of Internal Revenue, with power, among
others, act upon claims for refund or tax credit of overpaid
internal revenue taxes. The petitioner filed its Annual Income
Tax Return(ITR) for the year ended December 31, 2006 with
the Revenue District of the Bureau of Internal Revenue (BIR),
reflecting an income tax overpayment of P5,159,341.00.
Subsequently, on November 14, 2007, petitioner filed an
Annual ITR for the short period fiscal year ended March 31,
2007, reflecting the income tax overpayment of P5,159,341
from the previous period as "Prior Year’s Excess Credit".
On the same date, petitioner filed an amended Annual ITR
for the short period fiscal year ended March 31, 2007,
reflecting the removal of the amount of the instant claim
in the ''Prior Year's Excess Credit". Thus, the amount
thereof was changed from ₱5,159,341 to ₱2,231,507.
On October 10, 2008, petitioner filed with the respondent's
office, a claim for refund and/or issuance of a Tax Credit
Certificate (TCC) in the amount of ₱2,927.834.00,
representing the alleged excess and unutilized creditable
withholding taxes for 2006.
In view of the fact that respondent has not acted upon
the foregoing claim for refund/tax credit, petitioner filed
with a Petition for Review on April 14, 2009 before the
Court in Division.
The Ruling of the CTA Division
The CTA Division denied the petition for review for lack of
merit. It reasoned that:
• UPSI-MI effectively exercised the carryover option
under Section 76 of the National Internal Revenue
Code (NIRC) of 1997.
On motion for reconsideration, UPSI-MI argued that the
irrevocability rule under Section 76 of the NIRC is not
applicable for the reason:
• that it did not carry over to the succeeding taxable
period (2007) the 2006 excess income tax credit
(P5,159,341.00).
• that the subject excess tax credits were
inadvertently included in its original 2007 ITR, and
 such mistake was rectified in the amended 2007
ITR.
Thus, UPSI-MI insisted that what should control is its
election of the option "To be issued a Tax Credit
Certificate" in its 2006 ITR.
The CTA Division ruled that UPSI-MI's alleged inadvertent
inclusion of the 2006 excess tax credit in the 2007 original
ITR belies its own allegation that it did not carry over the
said amount to the succeeding taxable period!
• The amendment of the 2007 ITR cannot undo
UPSI-MI's actual exercise of the carry-over option
in the original 2007 ITR, for to do so would be
against the irrevocability rule.
Aggrieved, UPSI-MI appealed before the CTA En Banc.
The Ruling of the CTA En Banc
It ruled that UPSI-MI is barred by Section 76 of the NIRC
from claiming a refund of its excess tax credits for the
taxable year 2006.
The barring effect applies after UPSI-MI carried over its
excess tax credits to the succeeding quarters of 2007,
even if such carry-over was allegedly done inadvertently.
The court emphasized that the prevailing law and
jurisprudence admit of no exception or qualification to the
irrevocability rule.
Thus, the CTA En Banc affirmed the assailed decision and
resolution of the CTA Division.
Unsatisfied with the decision of the CTA En Banc, UPSI-MI
appealed before this Court.
Notably, the said decision was met by a dissent from
Justice Esperanza R. Pabon-Victorino. Invoking Philam Asset
Management, Inc. v. Commissioner (Philam), she wrote that:
A contextual appreciation of the ruling [Philam]
would tell us that any of the two alternatives once
chosen is irrevocable - be it for refund or carry
over. The controlling factor for the operation of
the irrevocability rule is that the taxpayer chose
an option; and once it had already done so, it
could no longer make another one.
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UPSI-MI proposes that the options of refund on one hand
and carry-over on the other hand are both irrevocable by
nature. Relying again on the dissent of Justice Pabon-
Victorino.
TO HAVE A CLEAR VIEW:
UPSI-MI’s excess and unutilized creditable withholding taxes
for the following years amounted to (tax credit:
1. 31 December 2005 — ₱2,331, 102.00
2. 31 December 2006 — ₱2,927,834.00
Per its 2006 Annual Income Tax Return (ITR), UPSI-MI's
income tax due amounted to ₱99,105.00. UPSI-MI applied
its "Prior Year's Excess Credits" of ₱2,331,102.00 as tax
credit against such 2006 Income Tax due, leaving a balance
of ₱2,231,507.00 (₱99,105.00 minus ₱2,331,102.00) of still
unutilized excess creditable tax. Meanwhile, the creditable
taxes withheld for the year 2006 (₱2,927,834.00) remained
intact and unutilized. In said 2006 Annual ITR, UPSI-MI
chose the option "To be issued a tax credit certificate"
with respect to the amount ₱2,927,834.00, representing
unutilized excess creditable taxes for the taxable year
ending 31 December 2006.
In 2007, UPSI-MI changed its taxable period from calendar
year to fiscal year ending on the last day of March. Thus,
it filed on 14 November 2007 an Annual ITR covering the
short period from January 1 to March 31 of 2007. In the
original 2007 Annual ITR, UPSI-MI opted to carry over as
"Prior Year's Excess Credits" the total amount of
₱5,159,341.00 which included the 2006 unutilized creditable
withholding tax of ₱2,927,834.00. UPSI-MI amended the
return by excluding the sum of ₱2,927,834.00 under the
line "Prior Year's Excess Credits" which amount is the
subject of the refund claim.
ISSUE
Whether UPSI-MI may still be entitled to the refund of its
2006 excess tax credits in the amount of ₱2,927,834.00
when it thereafter filed its income tax return (for the short
period ending 31 March 2007) indicating the option of
carryover.
RULING
NO. The irrevocability is limited only to the option of carry-
over such that a taxpayer is still free to change its choice
after electing a refund of its excess tax credit. But once it
opts to carry over such excess creditable tax, after electing
refund or issuance of tax credit certificate, the carry-over
option becomes irrevocable. Accordingly, the previous
choice of a claim for refund, even if subsequently pursued,
may no longer be granted. The law
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 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.
Under the cited law, there are two options available to
the corporation whenever it overpays its income tax for
the taxable year:
A. to carry over and apply the overpayment as tax
credit against the estimated quarterly income tax
liabilities of the succeeding taxable years (also
known as automatic tax credit) until fully utilized
(meaning, there is no prescriptive period); and
B. to apply for a cash refund or issuance of a tax
credit certificate within the prescribed period.
o Such overpayment of income tax is usually
occasioned by the over-withholding of taxes
on the income payments to the corporate
taxpayer.
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A perfunctory reading of the law unmistakably discloses
that the irrevocable option referred to is the carry-over
option only.
In other words, the law does not prevent a taxpayer who
originally opted for a refund or tax credit certificate from
shifting to the carryover of the excess creditable taxes to
the taxable quarters of the succeeding taxable years.
However, in case the taxpayer decides to shift its option
to carryover, it may no longer revert to its original choice
due to the irrevocability rule. As Section 76 unequivocally
provides, once the option to carry over has been made,
it shall be irrevocable.
Furthermore, the provision seems to suggest that there
are no qualifications or conditions attached to the rule
on irrevocability.
Section 228 of the NIRC recognizes such freedom of a
taxpayer to change its option from refund to carry-over.
This law affords the government a remedy (assessment) in
case a taxpayer, who had previously claimed (successfully)
a refund or tax credit certificate (TCC) of excess creditable
withholding tax, subsequently applies such amount as
automatic tax credit.
SEC. 228. Protesting of Assessment. - When the
Commissioner or his duly authorized representative finds
that proper taxes should be assessed, he shall first notify
the taxpayer of his f indings: Provided, however, That a
pre-assessment notice shall not be required in the
following cases:
a. When the finding for any deficiency tax is the
result of mathematical error in the computation of
the tax as appearing on the face of the return; or
b. When a discrepancy has been determined
between the tax withheld and the amount actually
remitted by the withholding agent; or
c. When a taxpayer who opted to claim a refund
or tax credit of excess creditable withholding tax
for a taxable period was determined to have
carried over and automatically applied the same
amount claimed against the estimated tax
liabilities for the taxable quarter or quarters of
the succeeding taxable year; or
 d. When the excise tax due on exciseable articles has
not been paid; or
e. When the article locally purchased or imported by
an exempt person, such as, but not limited to,
vehicles, capital equipment, machineries and spare
parts, has been sold, traded or transferred to non-
exempt persons.
The taxpayers shall be informed in writing of the law and
the facts on which the assessment is made; otherwise, the
assessment shall be void.
The provision contemplates three scenarios:
1. Deficiency in the payment or remittance of tax to
the government (paragraphs [a], [b] and [d]);
2. Overclaim of refund or tax credit (paragraph [ c
]); and
3. Unwarranted claim of tax exemption (paragraph
[e]).
In each case, the government is deprived of the rightful
amount of tax due to it. The law assures recovery of the
amount through the issuance of an assessment against the
erring taxpayer. However, the usual two-stage process in
making an assessment is not strictly followed. Accordingly,
the government may immediately proceed to the issuance
of a final assessment notice (FAN), thus dispensing with
the preliminary assessment (PAN), for the reason that the
discrepancy or deficiency is so glaring or reasonably within
the taxpayer's knowledge such that a preliminary notice to
the taxpayer, through the issuance of a PAN, would be a
superfluity.
EXPLAINING PARAGRAPH C:
• It contemplates a double recovery by the taxpayer
of an overpaid income tax that arose from an
overwithholding of creditable taxes. The
refundable amount is the excess and unutilized
creditable withholding tax.
o That the taxpayer had previously asked for and
successfully recovered from the BIR its excess
creditable withholding tax through refund or
tax credit certificate;
o If the government had already granted the
refund, but the taxpayer is determined to
have automatically applied the excess
creditable withholding tax against its
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estimated quarterly tax liabilities in the
succeeding taxable year(s), the taxpayer would
undeservedly recover twice the same amount
of excess creditable withholding tax. There
appears, therefore, no other viable remedial
recourse on the part of the government
except to assess the taxpayer for the double
recovery. In this instance, and in accordance
with the above rule, the government can right
away issue a FAN.
NON-APPLICABILITY OF ASSESSMENT AS A REMEDY:
An administrative claim for refund or issuance of TCC is
still pending but the taxpayer had in the meantime
automatically carried over the excess creditable tax, it
would appear not only wholly unjustified but also
tantamount to adopting an unsound policy if the
government should resort to the remedy of assessment.
Reasons:
1. On the premise that the carry-over is to be
sustained, there should be no more reason for the
government to make an assessment for the sum
(equivalent to the excess creditable withholding
tax) that has been justifiably returned already to
the taxpayer (through automatic tax credit) and for
which the government has no right to retain in
the first place. In this instance, all that the
government needs to do is to deny the refund
claim.
2. On the premise that the carry-over is to be
disallowed due to the pending application for
refund, it would be more complicated and
circuitous if the government were to grant first
the refund claim and then later assess the taxpayer
for the claim of automatic tax credit that was
previously disallowed. Such procedure is highly
inefficient and expensive on the part of the
government due to the costs entailed by an
assessment. It unduly hampers, instead of eases,
tax administration and unnecessarily exhausts the
government's time and resources. It defeats, rather
than promotes, administrative feasibility. Such
could not have been intended by our lawmakers.
Congress is deemed to have enacted a valid,
sensible, and just law.
Applying Section 288 to the case:
The application for refund or tax credit is still pending
before the BIR, but the taxpayer had in the meantime
automatically carried over its excess creditable tax in the
taxable quarters of the succeeding taxable year(s), the only
judicious course of action that the BIR may take is to
deny the pending claim for refund.
Otherwise, to insist on giving due course to the refund
claim only because it was the first option taken, and
consequently disallowing the automatic tax credit, is to
encourage inefficiency or to suppress administrative
feasibility, as previously explained.
AKA: imbuing upon the choice of refund or tax credit
certificate the character of irrevocability would bring about
an irrational situation that Congress did not intend to
remedy by means of an assessment through the issuance
of a FAN without a prior PAN, as provided in paragraph
(c) of Section 228. It should be remembered that Congress'
declared national policy in passing the NIRC of 1997 is to
rationalize the internal revenue tax system of the
Philippines, including tax administration.14 The foregoing
simply shows that the lawmakers never intended to make
the choice of refund or tax credit certificate irrevocable.
Sections 76 and 228, paragraph (c), unmistakably evince
such intention.
Philam and PL Management cases did not categorically
declare the option of refund or TCC irrevocable.
The Court in those case said: that "the options xxx are
alternative and the choice of one precludes the other."
This statement also appears as the basis of Justice Fabon-
Victorino’s stance in her dissent to the majority opinion in
the assailed decision.
The Supreme Court do not agree.
The cases cited in the petition did not make an express
declaration that the option of cash refund or TCC, once
made, is irrevocable.
In Philam case: it involved two cases wherein the taxpayer
failed to signify its option in the Final Adjustment Return
(FAR).
• In the first case — the Court ruled that such
failure did not mean the outright barring of the
request for a refund should one still choose this
option later on. Thy taxpayer did in fact file on 11
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Gambito | Miquiabas | Sarip
September 1998 an administrative claim for
refund of its 1997 excess creditable taxes. We
sustained the refund claim in this case. It was
different in the second case because the taxpayer
filled out the portion "Prior Year's Excess Credits"
in its subsequent FAR. The court considered the
taxpayer to have constructively chosen the carry-
over option. It was in this context that the court
determined the taxpayer to be bound by its initial
choice (of automatic tax credit), so that it is
precluded from asking for a refund of the excess
CWT. It must be so because the carry-over option
is irrevocable, and it cannot be allowed to recover
twice for its overpayment of tax. Unlike the second
case, there was no flip-flopping of choices in the
first one. The taxpayer did not indicate in its 1997
FAR the choice of carryover. Neither did it apply
automatic tax credit in subsequent income tax
returns so as to be considered as having
constructively chosen the carry-over option. When
it later on asked for a refund of its 1997 excess
CWT, the taxpayer was expressing its option for
the first time. It must be emphasized that the
Court sustained the application for refund but
without expressly declaring that such choice was
irrevocable.
In either case, it is clear that the taxpayer cannot avail of
both refund and automatic tax credit at the same time.
Thus, as Philam declared: "One cannot get a tax refund
and a tax credit at the same time for the same excess
income taxes paid." This is the import of the Court's
pronouncement that the options under Section 76 are
alternative in nature.
The current rule specifically addresses the problematic
situation when a taxpayer, after claiming cash refund or
applying for the issuance of tax credit, and during the
pendency of such claim or application, automatically carries
over the same excess creditable tax and applies it against
the estimated quarterly income tax liabilities of the
succeeding year. Thus, the rule not only eases tax
administration but also obviates double recovery of the
excess creditable tax.
Applying the foregoing precepts to the given case, UPSI-
MI is barred from recovering its excess creditable tax
through refund or TCC.
It is undisputed that despite its initial option to refund its
2006 excess creditable tax, UPSI-MI subsequently indicated
in its 2007 shortperiod FAR that it carried over the 2006
excess creditable tax and applied the same against its 2007
income tax due. The CTA was correct in considering UPSI-
MI to have constructively chosen the option of carry-over,
for which reason, the irrevocability rule forbade it to revert
to its initial choice.
It does not matter that UPSI-Ml had not actually benefited
from the carry-over on the ground that it did not have a
tax due in its 2007 short period. Neither may it insist that
the insertion of the carry-over in the 2007 FAR was by
mere mistake or inadvertence. As we previously laid down,
the irrevocability rule admits of no qualifications or
conditions.
In sum, the petitioner is clearly mistaken in its view that
the irrevocability rule also applies to the option of refund
or tax credit certificate. In view of the court's finding that
it constructively chose the option of can-y-over, it is already
barred from recovering its 2006 excess creditable tax
through refund or TCC even if it was its initial choice.
However, the petitioner remains entitled to the benefit of
carry-over and thus may apply the 2006 overpaid income
tax as tax credit in succeeding taxable years until fully
exhausted. This is because, unlike the remedy of refund or
tax credit certificate, the option of carry-over under Section
76 is not subject to any prescriptive period.
RHOMBUS ENERGY, INC. VS. COMMISSIONER OF
INTERNAL REVENUE
FACTS
From October 1998 to July 2007, respondent (Rhombus) was
registered with and was under the jurisdiction of Revenue
Region No. 8, Revenue District Office (RDO) No. 50 (South
Makati) of the BIR with Taxpayer Identification No. 005-650-
790-000. However, due to respondent’s change of address, the
latter filed an application for change of home RDO. Thus, on
July 18, 2007, respondent was transferred to the jurisdiction of
RDO No. 47, with Certificate of Registration No.
OCN9RC0000211342.
In the Annual Income Tax Return (ITR) for taxable year 2005,
respondent indicated that its excess creditable withholding tax
(CWT) for the year 2005 was "To be refunded".
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Respondent filed its Quarterly Income Tax Return for the first
quarter (May 29, 2006), second quarter (August 25, 2006), and
third quarter (November 27, 2006) of taxable year 2006
showing prior year’s (2005) excess credit of P1,500,653.00.
On December 29, 2006, respondent filed with the Revenue
Region No. 8 an administrative claim for refund of its alleged
excess/unutilized CWT for the year 2005 in the amount of
P1,500,653.00. On April 2, 2007, respondent filed its Annual
Income Tax Return for taxable year 2006 showing prior year's
excess credits of P0.00. Pending petitioner's action on
respondent's claim for refund, respondent filed the instant
Petition for Review.
In its Answer, the CIR alleged: respondent failed to
demonstrate that the tax was erroneously or illegally
collected; taxes paid and collected are presumed to have
been made in accordance with laws and regulations, hence,
not refundable; it is incumbent upon respondent to show that
it has complied with the provisions of Section 204(C), in
relation to Section 229 of the Tax Code, as amended, upon
which its claim for refund was premised; in an action for tax
refund the burden is upon the taxpayer to prove that he is
entitled thereto, and failure to discharge said burden is fatal
to the claim; and claims for refund are construed strictly
against the claimant, as the same partake of the nature of
exemption from taxation.
CTA First Division granted the Petition for Review. CIR filed the
instant Petition for Review.
CTA En Banc reversed and set aside the decision of the CTA
First Division. Section 76 is clear and unequivocal. Once the
carry-over option is taken, actually or constructively, it
becomes irrevocable. It mentioned no exception or
qualification to the irrevocability rule.
Hence, the controlling factor for the operation of the
irrevocability rule is that the taxpayer chose an option; and
once it had already done so, it could no longer make another
one. Consequently, after the taxpayer opts to carry-over its
excess tax credit to the following taxable period, the question
of whether or not it actually gets to apply said tax credit is
irrelevant. Section 76 of the NIRC of 1997 is explicit in stating
that once the option to carry over has been made no
application for tax refund or issuance of a tax credit certificate
shall be allowed therefor.
In the instant case, petitioner opted to carry-over its unutilized
creditable withholding tax of P1,500,653.00 for taxable year
2005 to the first, second and third quarters of taxable year
2006 when it had actually carried-over said excess creditable
withholding tax to the first, second and third quarters in its
Quarterly Income Tax Returns for taxable year 2006, said
option to carryover becomes irrevocable. Rhombus appealed
to the Supreme Court.
ISSUE
Whether or not the taxpayer is barred by the irrevocability rule
in claiming for the refund of its excess and/or unutilized
creditable withholding tax.
RULING
NO. The appeal is meritorious.
Irrevocability Rule Section 76 of the National Internal
Revenue Code: Every corporation liable to tax under Section
27 shall file a final adjustment return covering the total taxable
income for the preceding calendar of 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 the 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
years 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 CTA First Division duly noted the exercise of the option by
Rhombus in the following manner:
The evidence on record shows that petitioner clearly
signified its intention to be refunded of its excess
creditable tax withheld for calendar year 2005 in its
Annual ITR for the said year. Petitioner under Line 31
of the said ITR marked "x" on the box "To be
refunded". Moreover, petitioner's 2006 and 2007
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Annual ITRs do not have any entries in Line 28 "Prior
Year's Excess Credits" which only prove that
petitioner did not carry-over its 2005
excess/unutilized creditable withholding tax to the
succeeding taxable years or quarters. The CTA En
Banc thereby misappreciated the fact that Rhombus
had already exercised the option for its unutilized
creditable withholding tax for the year 2005 to be
refunded when it filed its annual ITR for the taxable
year ending December 31, 2005.
Requisites for entitlement to the refund as listed in Republic
v. Team (Phils.) Energy Corporation:
1. That the claim for refund was filed within the two-
year reglementary period pursuant to Section 229 of
the NIRC;
2. When it is shown on the ITR that the income payment
received is being declared part of the taxpayer's gross
income; and
3. When the fact of withholding is established by a copy
of the withholding tax statement, duly issued by the
payor to the payee, showing the amount paid and
income tax withheld from that amount.
The CTA First Division rendered the following findings:
1. 1st requisite: Petitioner filed its Annual ITR for the year
2005 on April 17, 2006. Clearly, petitioner's
administrative claim filed on December 29, 2006 and
judicial claim via the instant Petition for Review filed
on December 07, 2007, were within the twoyear
prescriptive limit.
2. 2nd requisite: Petitioner presented Certificates of
Creditable Tax Withheld at Source issued by its sole
customer Distileria Bago, Inc.
3. 3rd requisite: Petitioner presented the pertinent
documents required
The members of the CTA First Division were in the best position
as trial judges to examine the documents submitted in relation
thereto and to make the proper findings thereon. Given their
expertise on the matter, we accord weight and respect to their
finding that Rhombus had satisfied the requirements for its
claim for refund of its excess creditable withholding taxes for
the year 2005. WHEREFORE, the Court REVERSES and SETS
ASIDE the decision promulgated by the Court of Tax Appeals
En Banc and REINSTATES the decision rendered by the Court of
Tax Appeals, First Division.