DIGESTS
Income Tax
Irrevocability Rule
Historical background of Section 76 of the NIRC of 1997.
The provision on the final adjustment return (FAR) was originally found in Section 69 of PD No. 1158, otherwise known as the “National Internal Revenue Code of 1977.” On August 1, 1980, this provision was restated as Section 86 in PD 1705.
On November 5, 1985, all prior amendments and those introduced by PD 1994 were codified into the NIRC of 1985, as a result of which Section 86 was renumbered as Section 79.
On July 31, 1986, Section 24 of Executive Order (EO) No. 37 changed all “net income” phrases appearing in Title II of the NIRC of 1977 to “taxable income.” Section 79 of the NIRC of 1985, however, was not amended.
On July 25, 1987, EO 273 renumbered Section 86 of the NIRC as Section 76, which was also rearranged to fall under Chapter 10 of Title II of the NIRC. Section 79, which had earlier been renumbered by PD 1994, remained unchanged.
Thus, Section 69 of the NIRC of 1977 was renumbered as Section 86 under PD 1705; later, as Section 79 under PD 1994; then, as Section 76 under EO 273. Finally, after being renumbered and reduced to the chaff of a grain, Section 69 was repealed by EO 37.
Subsequently, Section 69 reappeared in the NIRC (or Tax Code) of 1997 as Section 76.
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Interpretation of Section 76 of the NIRC of 1997
As clearly Section 76 of the NIRC of 1997, 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 taxable 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.
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The carry-over option under Section 76 is permissive. A corporation that is entitled to a tax refund or a tax credit for excess payment of quarterly income taxes may carry over and credit the excess income taxes paid in a given taxable year against the estimated income tax liabilities of the succeeding quarters. Once chosen, the carry-over option shall be considered irrevocable for that taxable period, and no application for a tax refund or issuance of a tax credit certificate shall then be allowed.
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Section 79 of the NIRC of 1985 was reproduced as Section 76 of the NIRC of 1997, with the addition of one important sentence, which laid down the irrevocability rule.
The Court categorically declared in Philam that: “Section 76 remains 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.”
The last sentence of Section 76 of the NIRC of 1997 reads: “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 tax refund or issuance of a tax credit certificate shall be allowed therefor.” The phrase “for that taxable period” merely identifies the excess income tax, subject of the option, by referring to the taxable period when it was acquired by the taxpayer. In the present case, the excess income tax credit, which BPI opted to carry over, was acquired by the said bank during the taxable year 1998. The option of BPI to carry over its 1998 excess income tax credit is irrevocable; it cannot later on opt to apply for a refund of the very same 1998 excess income tax credit.
The Court of Appeals mistakenly understood the phrase “for that taxable period” as a prescriptive period for the irrevocability rule. This would mean that since the tax credit in this case was acquired in 1998, and BPI opted to carry it over to 1999, then the irrevocability of the option to carry over expired by the end of 1999, leaving BPI free to again take another option as regards its 1998 excess income tax credit. This construal effectively renders nugatory the irrevocability rule. The evident intent of the legislature, in adding the last sentence to Section 76 of the NIRC of 1997, is to keep the taxpayer from flip-flopping on its options, and avoid confusion and complication as regards said taxpayer’s excess tax credit. The interpretation of the Court of Appeals only delays the flip-flopping to the end of each succeeding taxable period.
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Section 76 of the NIRC of 1997 clearly states: “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 therefore.” Section 76 expressly states that “the option shall be considered irrevocable for that taxable period“ – referring to the period comprising the “succeeding taxable years.” Section 76 further states that “no application for cash refund or issuance of a tax credit certificate shall be allowed therefore“ – referring to “that taxable period” comprising the “succeeding taxable years.”
Section 76 of the NIRC of 1997 is different from the old provision, Section 69 of the 1977 NIRC.
Under this old provision, the option to carry-over the excess or overpaid income tax for a given taxable year is limited to the immediately succeeding taxable year only. In contrast, under Section 76 of the NIRC of 1997, the application of the option to carry-over the excess creditable tax is not limited only to the immediately following taxable year but extends to the next succeeding taxable years. The clear intent in the amendment under Section 76 is to make the option, once exercised, irrevocable for the “succeeding taxable years.”
Thus, once the taxpayer opts to carry-over the excess income tax against the taxes due for the succeeding taxable years, such option is irrevocable for the whole amount of the excess income tax, thus, prohibiting the taxpayer from applying for a refund for that same excess income tax in the next succeeding taxable years. The unutilized excess tax credits will remain in the taxpayer’s account and will be carried over and applied against the taxpayer’s income tax liabilities in the succeeding taxable years until fully utilized.
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Section 76 of the 1997 NIRC wrought two changes to its predecessor, Section 69 of the 1977 NIRC: first, it mandates that the taxpayer’s exercise of its option to either seek refund or crediting is irrevocable; and second, the taxpayer’s decision to carry-over and apply its current overpayment to future tax liability continues until the overpayment has been fully applied, no matter how many tax cycles it takes.
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Section 69 of the old NIRC allows unutilized tax credits to be refunded as long as the claim is filed within the prescriptive period. This, however, no longer holds true under Section 76 of the 1997 NIRC as the option to carry-over excess income tax payments to the succeeding taxable year is now irrevocable.
Under Section 69 of the old NIRC, in case of overpayment of income taxes, a corporation may either file a claim for refund or carry-over the excess payments to the succeeding taxable year. Availment of one remedy, however, precludes the other.
Although these remedies are mutually exclusive, we have in several cases allowed corporations, which have previously availed of the tax credit option, to file a claim for refund of their unutilized excess income tax payments.
This rule, however, no longer applies.
Under the new law, in case of overpayment of income taxes, the remedies are still the same; and the availment of one remedy still precludes the other. But unlike Section 69 of the old NIRC, the carry-over of excess income tax payments is no longer limited to the succeeding taxable year. Unutilized excess income tax payments may now be carried over to the succeeding taxable years until fully utilized. In addition, the option to carry-over excess income tax payments is now irrevocable. Hence, unutilized excess income tax payments may no longer be refunded.
To repeat, under the new law, once the option to carry-over excess income tax payments to the succeeding years has been made, it becomes irrevocable. Thus, applications for refund of the unutilized excess income tax payments may no longer be allowed.
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Section 76 provides that a taxpayer has the option to file a claim for refund or to carry-over its excess income tax payments. The option to carry-over, however, is irrevocable. Thus, once a taxpayer opted to carry-over its excess income tax payments, it can no longer seek refund of the unutilized excess income tax payments. The taxpayer, however, may apply the unutilized excess income tax payments as a tax credit to the succeeding taxable years until such has been fully applied pursuant to Section 76 of the NIRC.
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The last sentence of Section 76 is clear in its mandate. Once a corporation exercises the option to carry-over and apply the excess quarterly income tax against the tax due for the taxable quarters of the succeeding taxable years, such option is irrevocable for that taxable period. Having chosen to carry-over the excess quarterly income tax, the corporation cannot thereafter choose to apply for a cash refund or for the issuance of a tax credit certificate for the amount representing such overpayment.
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From Section 76 of the NIRC of 1997, it is clear that once a corporation exercises the option to carry-over, such option is irrevocable “for that taxable period. Having chosen to carry-over the excess quarterly income tax, the corporation cannot thereafter choose to apply for a cash refund or for the issuance of a tax credit certificate for the amount representing such overpayment.
To avoid confusion, this Court has properly explained the phrase “for that taxable period” in Commissioner of Internal Revenue v. Bank of the Philippine Islands. In said case, the Court held that the phrase merely identifies the excess income tax, subject of the option, by referring to the “taxable period when it was acquired by the taxpayer.”
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Section 76 of the NIRC outlines the mechanisms and remedies that a corporate taxpayer may opt to exercise.
The two options are alternative and not cumulative in nature, that is, the choice of one precludes the other. The logic behind the rule, according to Philam Asset Management, Inc. v. Commissioner of Internal Revenue, is to ease tax administration, particularly the self-assessment and collection aspects. In Philam Asset Management, Inc., the Court expounds on the two alternative options of a corporate taxpayer on how the choice of one option precludes the other.
In Commissioner of Internal Revenue v. Bank of the Philippine Islands, the Court, citing the pronouncement in Philam Asset Management, Inc., points out that Section 76 of the NIRC of 1997 is clear and unequivocal in providing that the carry-over option, once actually or constructively chosen by a corporate taxpayer, becomes irrevocable.
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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. 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.
The irrevocability rule admits of no qualifications or conditions.
Unlike the remedy of refund or tax credit certificate, the option of carry-over under Section 76 is not subject to any prescriptive period.
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The applicabiltity of Section 76 of the NIRC of 1997 began on 1 January 1998.
Section 76 of the 1997 NIRC is, like its predecessor Section 69 of the 1977 NIRC, a tax administration measure crafted to ease tax collection. By requiring corporate taxpayers to indicate in their final adjustment return whether, in case of overpayment, they wish to have the excess amount refunded or carried-over and applied to their future tax liability, the provision aims to properly manage claims for refund or tax credit. Administratively speaking, Section 76 serves the same purpose as its companion provisions in Title II, Chapter XII of the 1997 NIRC, namely, Section 74 on the declaration of income tax by individuals, Section 75 on the declaration of quarterly corporate income tax, and Section 77 on the place and time of filing and payment of quarterly corporate income tax – they are all tools designed to promote rational and efficient functioning of the tax system. These provisions should be distinguished from the provisions in Title II, Chapter IV (Tax on Corporations) and Chapter VII (Allowable Deductions), among others, relating to the question on the intrinsic taxability of corporate transactions.
Thus treated, Section 76 and its companion provisions in Title II, Chapter XII should be applied following the general rule on the prospective application of laws such that they operate to govern the conduct of corporate taxpayers the moment the 1997 NIRC took effect on 1 January 1998. There is no quarrel that at the time respondent filed its final adjustment return for 1997 on 15 April 1998, the deadline under Section 77 (B) of the 1997 NIRC (formerly Section 70(b) of the 1977 NIRC), the 1997 NIRC was already in force, having gone into effect a few months earlier on 1 January 1998. Accordingly, Section 76 is controlling.
The lower courts grounded their contrary conclusion on the fact that respondent’s overpayment in 1997 was based on transactions occurring before 1 January 1998. This analysis suffers from the twin defects of missing the gist of the present controversy and misconceiving the nature and purpose of Section 76. None of respondent’s corporate transactions in 1997 is disputed here. Nor can it be argued that Section 76 determines the taxability of corporate transactions. To sustain the rulings below is to subscribe to the untenable proposition that, had Congress in the 1997 NIRC moved the deadline for the filing of final adjustment returns from 15 April to 15 March of each year, taxpayers filing returns after 15 March 1998 can excuse their tardiness by invoking the 1977 NIRC because the transactions subject of the returns took place before 1 January 1998. A keener appreciation of the nature and purpose of the varied provisions of the 1997 NIRC cautions against sanctioning this reasoning.
We are not unaware of our ruling in another case allowing refund for excess tax payment in 1997 despite the taxpayer’s selection of the carry-over and credit option, following Section 69 of the 1977 NIRC. However, the issue of the applicability of the 1997 NIRC was never raised in that case. In the present case, the applicability of Section 76 of the 1997 NIRC over Section 69 of the 1977 NIRC was squarely raised as the core issue. In two other cases where the applicability of Section 76 of the 1997 NIRC was also squarely raised, the Court applied the irrevocability of the option clause under Section 76 to deny, as here, claims for refund without prejudice to the application of the overpayments to the taxpayers’ liability in the succeeding tax cycles.
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The choice of one precludes the other; but failure to indicate a choice will not bar a refund claim.
Under Section 76 of the NIRC, a taxable corporation with excess quarterly income tax payments may apply for either a tax refund or a tax credit, but not both. The choice of one precludes the other. Failure to indicate a choice, however, will not bar a valid request for a refund, should this option be chosen by the taxpayer later on.
Differently numbered in 1977 but similarly worded 20 years later (1997), Section 76 offers two options to a taxable corporation whose total quarterly income tax payments in a given taxable year exceeds its total income tax due. These options are (1) filing for a tax refund or (2) availing of a tax credit.
The first option is relatively simple. Any tax on income that is paid in excess of the amount due the government may be refunded, provided that a taxpayer properly applies for the refund.
The second option works by applying the refundable amount, as shown on the FAR of a given taxable year, against the estimated quarterly income tax liabilities of the succeeding taxable year.
These two options under Section 76 are alternative in nature. The choice of one precludes the other. Indeed, in Philippine Bank of Communications v. Commissioner of Internal Revenue, the Court ruled that a corporation must signify its intention — whether to request a tax refund or claim a tax credit — by marking the corresponding option box provided in the FAR. While a taxpayer is required to mark its choice in the form provided by the BIR, this requirement is only for the purpose of facilitating tax collection.
One cannot get a tax refund and a tax credit at the same time for the same excess income taxes paid. Failure to signify one’s intention in the FAR does not mean outright barring of a valid request for a refund, should one still choose this option later on. A tax credit should be construed merely as an alternative remedy to a tax refund under Section 76, subject to prior verification and approval by respondent.
The reason for requiring that a choice be made in the FAR upon its filing is to ease tax administration, particularly the self-assessment and collection aspects. A taxpayer that makes a choice expresses certainty or preference and thus demonstrates clear diligence. Conversely, a taxpayer that makes no choice expresses uncertainty or lack of preference and hence shows simple negligence or plain oversight.
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While the Court, in Philam, was firm in its position that the choice of option as regards the excess income tax shall be irrevocable, it was less rigid in the determination of which option the taxpayer actually chose. It did not limit itself to the indication by the taxpayer of its option in the ITR.
Thus, failure of the taxpayer to make an appropriate marking of its option in the ITR does not automatically mean that the taxpayer has opted for a tax credit.
Philam reveals a meticulous consideration by the Court of the evidence submitted by the parties and the circumstances surrounding the taxpayer’s option to carry over or claim for refund. When circumstances show that a choice has been made by the taxpayer to carry over the excess income tax as credit, it should be respected;but when indubitable circumstances clearly show that another choice – a tax refund – is in order, it should be granted. “Technicalities and legalisms, however exalted, should not be misused by the government to keep money not belonging to it and thereby enrich itself at the expense of its law-abiding citizens.”
Therefore, as to which option the taxpayer chose is generally a matter of evidence. It is axiomatic that a claimant has the burden of proof to establish the factual basis of his or her claim for tax credit or refund. Tax refunds, like tax exemptions, are construed strictly against the taxpayer.
The irrevocability rule stresses and fortifies the nature of the remedies or options as alternative, not cumulative.
A corporation entitled to a tax credit or refund of the excess estimated quarterly income taxes paid has two options: (1) to carry over the excess credit or (2) to apply for the issuance of a tax credit certificate or to claim a cash refund. If the option to carry over the excess credit is exercised, the same shall be irrevocable for that taxable period.
In exercising its option, the corporation must signify in its annual corporate adjustment return (by marking the option box provided in the BIR form) its intention either to carry over the excess credit or to claim a refund. To facilitate tax collection, these remedies are in the alternative and the choice of one precludes the other.
This is known as the irrevocability rule and is embodied in the last sentence of Section 76 of the Tax Code. The phrase “such option shall be considered irrevocable for that taxable period” means that the option to carry over the excess tax credits of a particular taxable year can no longer be revoked.
The rule prevents a taxpayer from claiming twice the excess quarterly taxes paid: (1) as automatic credit against taxes for the taxable quarters of the succeeding years for which no tax credit certificate has been issued and (2) as a tax credit either for which a tax credit certificate will be issued or which will be claimed for cash refund.
In this case, it was in the year 2000 that petitioner derived excess tax credits and exercised the irrevocable option to carry them over as tax credits for the next taxable year. Under Section 76 of the Tax Code, a claim for refund of such excess credits can no longer be made. The excess credits will only be applied “against income tax due for the taxable quarters of the succeeding taxable years.”
The legislative intent to make the option irrevocable becomes clearer when Section 76 is viewed in comparison to Section 69 of the (old) 1977 Tax Code.
Under Section 69 of the 1977 Tax Code, there was no irrevocability rule. Instead of claiming a refund, the excess tax credits could be “credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable year,” that is, the immediately following year only. In contrast, Section 76 of the present Tax Code formulates an irrevocability rule which stresses and fortifies the nature of the remedies or options as alternative, not cumulative. It also provides that the excess tax credits “may be carried over and credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years” until fully utilized.
Since petitioner elected to carry over its excess credits for the year 2000 in the amount of P4,627,976 as tax credits for the following year, it could no longer claim a refund. Again, at the risk of being repetitive, once the carry over option was made, actually or constructively, it became forever irrevocable regardless of whether the excess tax credits were actually or fully utilized. Nevertheless, as held in Philam Asset Management, Inc., the amount will not be forfeited in favor of the government but will remain in the taxpayer’s account. Petitioner may claim and carry it over in the succeeding taxable years, creditable against future income tax liabilities until fully utilized.
(N.B.: For the last sentence of the foregoing paragraph, the SC has this footnote:
“Where, however, the corporation permanently ceases its operations before full utilization of the tax credits it opted to carry over, it may then be allowed to claim the refund of the remaining tax credits. In such a case, the remaining tax credits can no longer be carried over and the irrevocability rule ceases to apply. Cessante ratione legis, cessat ipse lex.”)
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When subsequent acts reveal that the taxpayer effectively chose the carry-over option.
The subsequent acts of petitioner reveal that it has effectively chosen the carry-over option.
First, the fact that it filled out the portion “Prior Year’s Excess Credits” in its 1999 FAR means that it categorically availed itself of the carry-over option. In fact, the line that precedes that phrase in the BIR form clearly states “Less: Tax Credits/Payments.” The contention that it merely filled out that portion because it was a requirement — and that to have done otherwise would have been tantamount to falsifying the FAR — is a long shot.
The FAR is the most reliable firsthand evidence of corporate acts pertaining to income taxes. In it are found the itemization and summary of additions to and deductions from income taxes due. These entries are not without rhyme or reason. They are required, because they facilitate the tax administration process.
Failure to indicate the amount of “prior year’s excess credits” does not mean falsification by a taxpayer of its current year’s FAR. On the contrary, if an application for a tax refund has been — or will be — filed, then that portion of the BIR form should necessarily be blank, even if the FAR of the previous taxable year already shows an overpayment in taxes.
Second, the resulting redundancy in the claim of petitioner for a refund of its 1998 excess tax credits on November 14, 2000 cannot be countenanced. It cannot be allowed to avail itself of a tax refund and a tax credit at the same time for the same excess income taxes paid. Besides, disallowing it from getting a tax refund of those excess tax credits will not enervate the two-year prescriptive period under the Tax Code. That period will apply if the carry-over option has not been chosen.
Besides, “tax refunds x x x are construed strictly against the taxpayer.” Petitioner has failed to meet the burden of proof required in order to establish the factual basis of its claim for a tax refund.
Third, the “first-in first-out” (FIFO) principle enunciated by the CTA does not apply. Money is fungible property. The amount to be applied against the P80,042 income tax due in the 1998 FAR of petitioner may be taken from its excess credits in 1997 or from those withheld in 1998 or from both. Whichever of these the amount will be taken from will not make a difference.
Even if the FIFO principle were to be applied, the tax credits would have to be in consonance with the usual and normal course of events. In fact, the FAR is cumulative in nature. Following a natural sequence, the prior year’s excess tax credits will have to be reduced first to answer for any current tax liabilities before the current year’s withheld amounts can be applied. Otherwise, there will be no sense in requiring a taxpayer to fill out the line items in the FAR to segregate its sources of tax credits.
Whether the FIFO principle is applied or not, Section 76 remains clear and unequivocal. Once the carry-over option is taken, actually or constructively, it becomes irrevocable. Petitioner has chosen that option for its 1998 creditable withholding taxes. Thus, it is no longer entitled to a tax refund of P459,756.07, which corresponds to its 1998 excess tax credit. Nonetheless, the amount will not be forfeited in the government’s favor, because it may be claimed by petitioner as tax credits in the succeeding taxable years
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The presentation of the ITR or FAR or the quaterly ITRs of the succeeding year is not required.
Requiring that the ITR or the FAR of the succeeding year be presented to the BIR in requesting a tax refund has no basis in law and jurisprudence.
First, Section 76 of the Tax Code does not mandate it. The law merely requires the filing of the FAR for the preceding– not the succeeding — taxable year. Indeed, any refundable amount indicated in the FAR of the preceding taxable year may be credited against the estimated income tax liabilities for the taxable quarters of the succeeding taxable year. However, nowhere is there even a tinge of a hint in any of the provisions of the Tax Code that the FAR of the taxable year following the period to which the tax credits are originally being applied should also be presented to the BIR.
Second, Section 5 of RR 12-94, amending Section 10(a) of RR 6-85, merely provides that claims for the refund of income taxes deducted and withheld from income payments shall be given due course only (1) when it is shown on the ITR that the income payment received is being declared part of the taxpayer’s gross income; and (2) 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 the income tax withheld from that amount.
Undisputedly, the records do not show that the income payments received by petitioner have not been declared as part of its gross income, or that the fact of withholding has not been established. According to the CTA, “[p]etitioner substantially complied with the x x x requirements” of RR 12-94 “[t]hat the fact of withholding is established by a copy of a statement duly issued by the payor (withholding agent) to the payee, showing the amount paid and the amount of tax withheld therefrom; and x x x [t]hat the income upon which the taxes were withheld were included in the return of the recipient.”
The established procedure is that a taxpayer that wants a cash refund shall make a written request for it, and the ITR showing the excess expanded withholding tax credits shall then be examined by the BIR. For the grant of refund, RRs 12-94 and 6-85 state that all pertinent accounting records should be submitted by the taxpayer. These records, however, actually refer only to (1) the withholding tax statements; (2) the ITR of the present quarter to which the excess withholding tax credits are being applied; and (3) the ITR of the quarter for the previous taxable year in which the excess credits arose. To stress, these regulations implementing the law do not require the proffer of the FAR for the taxable year following the period to which the tax credits are being applied.
Third, there is no automatic grant of a tax refund. As a matter of procedure, the BIR should be given the opportunity “to investigate and confirm the veracity” of a taxpayer’s claim, before it grants the refund. Exercising the option for a tax refund or a tax credit does not ipso facto confer upon a taxpayer the right to an immediate availment of the choice made. Neither does it impose a duty on the government to allow tax collection to be at the sole control of a taxpayer.
Fourth, the BIR ought to have on file its own copies of petitioner’s FAR for the succeeding year, on the basis of which it could rebut the assertion that there was a subsequent credit of the excess income tax payments for the previous year. Its failure to present this vital document to support its contention against the grant of a tax refund to petitioner is certainly fatal.
Fifth, the CTA should have taken judicial notice of the fact of filing and the pendency of petitioner’s subsequent claim for a refund of excess creditable taxes withheld for 1998. The existence of the claim ought to be known by reason of its judicial functions. Furthermore, it is decisive to and will easily resolve the material issue in this case. If only judicial notice were taken earlier, the fact that there was no carry-over of the excess creditable taxes withheld for 1997 would have already been crystal clear.
Sixth, the Tax Code allows the refund of taxes to a taxpayer that claims it in writing within two years after payment of the taxes erroneously received by the BIR. Despite the failure of petitioner to make the appropriate marking in the BIR form, the filing of its written claim effectively serves as an expression of its choice to request a tax refund, instead of a tax credit. To assert that any future claim for a tax refund will be instantly hindered by a failure to signify one’s intention in the FAR is to render nugatory the clear provision that allows for a two-year prescriptive period.
In fact, in BPI-Family Savings Bank v. CA, this Court even ordered the refund of a taxpayer’s excess creditable taxes, despite the express declaration in the FAR to apply the excess to the succeeding year. When circumstances show that a choice of tax credit has been made, it should be respected. But when indubitable circumstances clearly show that another choice — a tax refund — is in order, it should be granted. “Technicalities and legalisms, however exalted, should not be misused by the government to keep money not belonging to it and thereby enrich itself at the expense of its law-abiding citizens.”
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We are likewise unmoved by the assertion of the petitioner that the respondent should have submitted the quarterly returns of the respondent to show that it did not carry-over the excess withholding tax to the succeeding quarter. When the respondent was able to establish prima facie its right to the refund by testimonial and object evidence, the petitioner should have presented rebuttal evidence to shift the burden of evidence back to the respondent. Indeed, the petitioner ought to have its own copies of the respondent’s quarterly returns on file, on the basis of which it could rebut the respondent’s claim that it did not carry over its unutilized and excess creditable withholding taxes for the immediately succeeding quarters. The BIR’s failure to present such vital document during the trial in order to bolster the petitioner’s contention against the respondent’s claim for the tax refund was fatal.
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Proving that no carry-over has been made does not absolutely require the presentation of the quarterly ITRs.
In Philam, the petitioner therein sought for recognition of its right to the claimed refund of unutilized CWT. The CIR opposed the claim, on the grounds similar to the case at hand, that no proof was provided showing the non-carry over of excess CWT to the subsequent quarters of the subject year. In a categorical manner, the Court ruled that the presentation of the quarterly ITRs was not necessary.
Besides, even if a contrary ruling would be issued by this Court in the case at bar, PNB cannot be prejudiced for relying on the prevailing rule that presentation of succeeding ITRs is not necessary. It is noteworthy that PNB attempted to file its 2006 Quarterly ITRs through a Motion to Reopen (To Allow [PNB’s] Additional Evidence dated March 16, 2010, which was actually granted by the CTA Third Division in its Resolution dated May 5, 2010. Relying, however, upon Philam, and other pertinent jurisprudence also relied upon by the CTA En Banc in its assailed Amended Decision, PNB realized that the presentation of its 2006 Quarterly ITRs is not necessary. Hence, it filed a Motion to Withdraw its previous motion to submit its 2006 Quarterly ITRs. Said withdrawal was also granted by the CTA Third Division in the same Resolution dated May 5, 2010.
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The instant petition presents no novel issue. In the more recent case of Winebrenner & Iñigo 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 and we find no good reason to deviate from its tenets as it remains to be a good law.
To be sure, 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. This is why in every case for such claims, the Court has always ruled that the claimant should positively show compliance with the statutory requirements provided under the NIRC and the relevant BIR rules and regulations. We, however, 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.
Verily, 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 is shifted to the opposing party, i.e., the BIR, to disprove such claim. To rule otherwise would be to unduly burden the claimant with additional requirements which has no statutory nor jurisprudential basis.
Thus, 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.
In the case of Republic v. Team Energy (Phils.) Corporation, the Court even stressed on the fact that the BIR ought to have its own copies, originals at that, of the claimant’s quarterly returns on file, on the basis of which it could have easily rebut the claim that the excess or unutilized CWT sought for refund were carried over to the immediately succeeding taxable quarters. The Court even went further to emphatically rule in the said case that the failure to present such document during the trial is fatal against the BIR’s case rather than the claimant’s.
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.
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Clarification on the Philam case, regarding the presentation of quarterly ITR(s) as being not indispensable.
It has been submitted that Philam cannot be cited as a precedent to hold that the presentation of the quarterly income tax return is not indispensable as it appears that the quarterly returns for the succeeding year were presented when the petitioner therein filed an administrative claim for the refund of its excess taxes withheld in 1997.
It appears however that there is misunderstanding in the ruling of the Court in Philam. That factual distinction does not negate the proposition that subsequent quarterly ITRs are not indispensable. The logic in not requiring quarterly ITRs of the succeeding taxable years to be presented remains true to this day. What Section 76 requires, just like in all civil cases, is to prove the prima facie entitlement to a claim, including the fact of not having carried over the excess credits to the subsequent quarters or taxable year. It does not say that to prove such a fact, succeeding quarterly ITRs are absolutely needed.
This simply underscores the rule that any document, other than quarterly ITRs may be used to establish that indeed the non-carry over clause has been complied with, provided that such is competent, relevant and part of the records. The Court is thus not prepared to make a pronouncement as to the indispensability of the quarterly ITRs in a claim for refund for no court can limit a party to the means of proving a fact for as long as they are consistent with the rules of evidence and fair play. 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. To stress, what the NIRC merely requires is to sufficiently prove the existence of the non-carry over of excess CWT in a claim for refund.
The implementing rules similarly support this conclusion, particularly Section 2.58.3 of Revenue Regulation No. 2-98 thereof.
Evident from the above (referrring to the said Section 2.58.3) is the absence of any categorical pronouncement of requiring the presentation of the succeeding quarterly ITRs in order to prove the fact of non-carrying over. To say the least, the Court rules that as to the means of proving it, it has no power to unduly restrict it.
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The presentation of the annual ITR for the succeeding year will suffice.
In this case, it confounds the Court why the CTA did not recognize and discuss in detail the sufficiency of the annual ITR for 2004, which was submitted by the petitioner.
Petitioner claims that the requirement of proof showing the non-carry over has been established in said document.
Indeed, an annual ITR contains the total taxable income earned for the four (4) quarters of a taxable year, as well as deductions and tax credits previously reported or carried over in the quarterly income tax returns for the subject period. A quick look at the Annual ITR reveals this fact.
It goes without saying that the annual ITR (including any other proof that may be sufficient to the Court) can sufficiently reveal whether carry over has been made in subsequent quarters even if the petitioner has chosen the option of tax credit or refund in the immediately 2003 annual ITR.
Section 76 of the NIRC requires a corporation to file a Final Adjustment Return (or Annual ITR) covering the total taxable income for the preceding calendar or fiscal year. The total taxable income contains the combined income for the four quarters of the taxable year, as well as the deductions and excess tax credits carried over in the quarterly income tax returns for the same period.
If the excess tax credits of the preceding year were deducted, whether in whole or in part, from the estimated income tax liabilities of any of the taxable quarters of the succeeding taxable year, the total amount of the tax credits deducted for the entire taxable year should appear in the Annual ITR under the item “Prior Year’s Excess Credits.” Otherwise, or if the tax credits were carried over to the succeeding quarters and the corporation did not report it in the annual ITR, there would be a discrepancy in the amounts of combined income and tax credits carried over for all quarters and the corporation would end up shouldering a bigger tax payable. It must be remembered that taxes computed in the quarterly returns are mere estimates. It is the annual ITR which shows the aggregate amounts of income, deductions, and credits for all quarters of the taxable year. It is the final adjustment return which shows whether a corporation incurred a loss or gained a profit during the taxable quarter. Thus, the presentation of the annual ITR would suffice in proving that prior year’s excess credits were not utilized for the taxable year in order to make a final determination of the total tax due.
In this case, petitioner reported an overpayment in the amount of P7,194,213.00 in its annual ITR for the year ended December 2003.
For the overpayment, petitioner chose the option “To be issued a Tax Credit Certificate.” In its Annual ITR for the year ended December 2004, petitioner did not report the Creditable Tax Withheld for the 4th quarter of 2003 in the amount of P4,073,954.00 as prior year’s excess credits.
Verily, the absence of any amount written in the Prior Year excess Credit – Tax Withheld portion of petitioner’s 2004 annual ITR clearly shows that no prior excess credits were carried over in the first four quarters of 2004. And since petitioner was able to sufficiently prove that excess tax credits in 2003 were not carried over to taxable year 2004 by leaving the item “Prior Year’s Excess Credits” as blank in its 2004 annual ITR, then petitioner is entitled to a refund. Unfortunately, the CTA, in denying entirely the claim, merely relied on the absence of the quarterly ITRs despite being able to verify the truthfulness of the declaration that no carry over was indeed effected by simply looking at the 2004 annual ITR.
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In Winebrenner, 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.
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The applicability of the State Land, PERF and Mirant cases, regarding the presentation of quarterly ITR(s) as being not indispensable.
At this point, worth mentioning is the fact that subsequent cases affirm the proposition as correctly pointed out by petitioner. State Land, PERF and Mirant reiterated the rule that the presentation of the quarterly ITRs of the subsequent year is not mandatory on the part of the claimant to prove its claims.
There are some who challenges the applicability of PERF in the case at bar. It is said that PERF is not in point because the Annual ITR for the succeeding year had actually been attached to PERF’s motion for reconsideration with the CTA and had formed part of the records of the case.
Clearly, if the Annual ITR has been recognized by this Court in PERF, why then would the submitted 2004 Annual ITR in this case be insufficient despite the absence of the quarterly ITRs? Why then would this Court require more than what is enough and deny a claim even if the minimum burden has been overcome? At best, the existence of quarterly ITRs would have the effect of strengthening a proven fact. And as such, may only be considered corroborative evidence, obviously not indispensable in character. PERF simply affirms that quarterly ITRs are not indispensable, provided that there is sufficient proof that carrying over excess CWT was not effected.
Stateland and Mirant are equally challenged. In all these cases however, the factual distinctions only serve to bolster the proposition that succeeding quarterly ITRs are not indispensable. Implicit from all these cases is the Court’s recognition that proving carry-over is an evidentiary matter and that the submission of quarterly ITRs is but a means to prove the fact of one’s entitlement to a refund and not a condition sine qua non for the success of refund. True, it would have been better, easier and more efficient for the CTA and the CIR to have as basis the quarterly ITRs, but it is not the only way considering further that in this case, the Annual ITR for 2004 is sufficient. Courts are here to painstakingly weigh evidence so that justice and equity in the end will prevail.
It must be emphasized that once the requirements laid down by the NIRC have been met, a claimant should be considered successful in discharging its burden of proving its right to refund. Thereafter, the burden of going forward with the evidence, as distinct from the general burden of proof, shifts to the opposing party, that is, the CIR. It is then the turn of the CIR to disprove the claim by presenting contrary evidence which could include the pertinent ITRs easily obtainable from its own files.
All along, the CIR espouses the view that it must be given ample opportunity to investigate the veracity of the claims. Thus, the Court asks: In the process of investigation at the administrative level to determine the right of the petitioner to the claimed amount, did the CIR, with all its resources even attempt to verify the quarterly ITRs it had in its files? Certainly, it did not as the application was met by the inaction of the CIR. And if desirous in its effort to clearly verify petitioner’s claim, it should have had the time, resources and the liberty to do so. Yet, nothing was produced during trial to destroy the prima facie right of the petitioner by counterchecking the claims with the quarterly ITRs the CIR has on its file. To the Court, it seems that the CIR languished on its duties to ascertain the veracity of the claims and just hoped that the burden would fall on the petitioner’s head once the issue reaches the courts.
This mindset ignores the rule that the CIR has the equally important responsibility of contradicting petitioner’s claim by presenting proof readily on hand once the burden of evidence shifts to its side. Claims for refund are civil in nature and as such, petitioner, as claimant, though having a heavy burden of showing entitlement, need only prove preponderance of evidence in order to recover excess credit in cold cash. To review, “[P]reponderance of evidence is [defined as] the weight, credit, and value of the aggregate evidence on either side and is usually considered to be synonymous with the term ‘greater weight of the evidence’ or ‘greater weight of the credible evidence.’ It is evidence which is more convincing to the court as worthy of belief than that which is offered in opposition thereto.
The CIR must then be reminded that in Philam the CIR’s “failure to present [the quarterly ITRs and AFR] to support its contention against the grant of a tax refund to [a claimant] is certainly fatal.” PERF reinforces this with a sweeping statement holding that the verification process is not incumbent on PERF [or any claimant for that matter]; [but] is the duty of the CIR to verify whether xxx excess income taxes [have been carried over].
And should there be a possibility that a claimant may have violated the irrevocability rule and thereafter claim twice from its credits, no one is to be blamed but the CIR for not discharging its burden of evidence to destroy a claimant’s right to a refund. At any rate, a claimant who defrauds the government cannot escape liability be it criminal or civil in nature.
Verily, with the petitioner having complied with the requirements for refund, and without the CIR showing contrary evidence other than its bare assertion of the absence of the quarterly ITRs, copies of which are easily verifiable by its very own records, the burden of proof of establishing the propriety of the claim for refund has been sufficiently discharged. Hence, the grant of refund is proper.
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The irrevocability rule applies exclusively to the carry-over option.
We cannot subscribe to the suggestion that the irrevocability rule enshrined in Section 76 of the NIRC applies to either of the options of refund or carry-over. Our reading of the law assumes the interpretation that 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.
Under [Section 76], there are two options available to the corporation whenever it overpays its income tax for the taxable year: (1) 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 (2) to apply for a cash refund or issuance of a tax credit certificate within the prescribed period. Such overpayment of income tax is usually occasioned by the over-withholding of taxes on the income payments to the corporate taxpayer.
The irrevocability rule is provided in the last sentence of Section 76. A perfunctory reading of the law unmistakably discloses that the irrevocable option referred to is the carry-over option only. There appears nothing therein from which to infer that the other choice, i.e., cash refund or tax credit certificate, is also irrevocable. If the intention of the lawmakers was to make such option of cash refund or tax credit certificate also irrevocable, then they would have clearly provided so.
In other words, the law does not prevent a taxpayer who originally opted for a refund or tax credit certificate from shifting to the carry-over 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 carry-over, 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.
Law and jurisprudence unequivocally support the view that only the option of carry-over is irrevocable.
Aside from the uncompromising last sentence of Section 76, 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 in case a taxpayer, who had previously claimed a refund or tax credit certificate (TCC) of excess creditable withholding tax, subsequently applies such amount as automatic tax credit.
[Section 228] 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 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.
Pertinently, paragraph (c) contemplates a double recovery by the taxpayer of an overpaid income tax that arose from an over-withholding of creditable taxes. The refundable amount is the excess and unutilized creditable withholding tax.
This paragraph envisages that the taxpayer had previously asked for and successfully recovered from the BIR its excess creditable withholding tax through refund or tax credit certificate; it could not be viewed any other way. If the government had already granted the refund, but the taxpayer is determined to have automatically applied the excess creditable withholding tax against its 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.
If, on the other hand, 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.
First, 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.
Second, 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.
Thus, in order to place a sensible meaning to paragraph (c) of Section 228, it should be interpreted as contemplating only that situation when an application for refund or tax credit certificate had already been previously granted. Issuing an assessment against the taxpayer who benefited twice because of the application of automatic tax credit is a wholly acceptable remedy for the government.
Going back to the case wherein 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. 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. Otherwise put, 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.
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.
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The Philam and PL Management cases did not categorically declare the option of refund or TCC irrevocable.
The petitioner hinges its claim of irrevocability of the option of refund on the statement of this Court in Philam and PL Management that “the options xxx are alternative and the choice of one precludes the other.” This also appears as the basis of Justice Fabon-Victorino’s stance in her dissent to the majority opinion in the assailed decision.
We 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. Neither should this be inferred from the statement of the Court that the options are alternative and that the choice of one precludes the other. Such statement must be understood in the light of the factual milieu obtaining in the cases.
Philam involved two cases wherein the taxpayer failed to signify its option in the Final Adjustment Return (FAR).
In the first case (G.R. No. 156637), 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. The taxpayer did in fact file on 11 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 (G.R. No. 162004) 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 carry-over. 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.
In declaring that “the choice of one (option) precludes the other,” the Court in Philam cited Philippine Bank of Communications v. Commissioner of Internal Revenue (PBCom), a case decided under the aegis of the old NIRC of 1977 under which the irrevocability rule had not yet been established. It was in PBCom that the Court stated for the first time that “the choice of one precludes the other.” However, a closer perusal of PBCom reveals that the taxpayer had opted for an automatic tax credit. Thus, it was precluded from availing of the other remedy of refund; otherwise, it would recover twice the same excess creditable tax. Again, nowhere is it even suggested that the choice of refund is irrevocable. For one thing, it was not the choice taken by the taxpayer. For another, the irrevocability rule had not yet been provided.
As in PBCom, the Court also said in PL Management that the choice of one (option) precludes the other. Similarly, the taxpayer in PL Management initially signified in the FAR its choice of automatic tax credit. But unlike in PBCom, PL Management was decided under the NIRC of 1997 when the irrevocability rule was already applicable. Thus, although PL Management was unable to actually apply its excess creditable tax in the next succeeding taxable quarters due to lack of income tax liability, its subsequent application for TCC was rightfully denied by the Court. The reason is the irrevocability of its choice of carry-over.
In other words, previous incarnations of the words “the options are alternative… the choice of one precludes the other” did not lay down a doctrinal rule that the option of refund or tax credit certificate is irrevocable.
Again, we need not belabor the point that insisting upon the irrevocability of the option for refund, even though the taxpayer subsequently changed its mind by resorting to automatic tax credit, is not only contrary to the apparent intention of the lawmakers but is also clearly violative of the principle of administrative feasibility.
Prior to the NIRC of 1997, the alternative options of refund and carry-over of excess creditable tax had already been firmly established. However, the irrevocability rule was not yet in place. As we explained in PL Management, Congress added the last sentence of Section 76 in order to lay down the irrevocability rule. More recently, in Republic v. Team (Phils.) Energy Corp., we said that the rationale of the rule is to avoid confusion and complication that could be brought about by the flip-flopping on the options.
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.
Further, nothing in the contents of BIR 1702 expressly declares that the option of refund or TCC is irrevocable. Even on the assumption that the irrevocability also applies to the option of refund, such would be an interpretation of the BIR that, as already demonstrated in the foregoing discussion, is contrary to the intent of the law. It must be stressed that such erroneous interpretation is not binding on the court.
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