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G.R. No.

106611 July 21, 1994

The Solicitor General for petitioner.
Palaez, Adriano & Gregorio for private respondent.

The judicial proceedings over the present controversy commenced with CTA Case No. 4099, wherein the Court of Ta Appeals ordered herein
petitioner Commissioner of !nternal "evenue to grant a refund to herein private respondent Citytrust #an$ing Corporation %Citytrust& in the amount of
'(),)(4,*0+.(4, representing its overpaid income taes for (9,4 and (9,*, -ut denied its claim for the alleged refunda-le amount reflected in its
(9,) income ta return on the ground of prescription.
That judgment of the ta court was affirmed -y respondent Court of Appeals in its judgment in
CA./.". 0'
No. 1+,)9.
The case was then elevated to us in the present petition for review on certiorari wherein the latter judgment is impugned and sought to
-e nullified and2or set aside.
!t appears that in a letter dated August 1+, (9,+, herein private respondent corporation filed a claim for refund with the #ureau of !nternal "evenue
%#!"& in the amount of '(9,93(,34*.00 representing the alleged aggregate of the ecess of its carried.over total 4uarterly payments over the actual
income ta due, plus carried.over withholding ta payments on government securities and rental income, as computed in its final income ta return
for the calendar year ending 5ecem-er )(, (9,*.
Two days later, or on August 1,, (9,+, in order to interrupt the running of the prescriptive period, Citytrust filed a petition with the Court of Ta
Appeals, doc$eted therein as CTA Case No. 4099, claiming the refund of its income ta overpayments for the years (9,), (9,4 and (9,* in the total
amount of '(9,93(,34*.00.
!n the answer filed -y the 6ffice of the 0olicitor /eneral, for and in -ehalf of therein respondent commissioner, it was asserted that the mere
averment that Citytrust incurred a net loss in (9,* does not ipso facto merit a refund7 that the amounts of '+,+((,11).00, '(,9*9,*(4.00 and
'1,,1),.00 claimed -y Citytrust as (9,) income ta overpayment, taes withheld on proceeds of government securities investments, as well as on
rental income, respectively, are not properly documented7 that assuming arguendo that petitioner is entitled to refund, the right to claim the same has
with respect to income ta payments prior to August 1,, (9,4, pursuant to 0ections 191 and 19* of the National !nternal "evenue Code of (933, as
amended, since the petition was filed only on August 1,, (9,+.
6n 8e-ruary 10, (99(, the case was su-mitted for decision -ased solely on the pleadings and evidence su-mitted -y herein private respondent
Citytrust. 9erein petitioner could not present any evidence -y reason of the repeated failure of the Ta Credit2"efund 5ivision of the #!" to transmit
the records of the case, as well as the investigation report thereon, to the 0olicitor /eneral.
9owever, on :une 14, (99(, herein petitioner filed with the ta court a manifestation and motion praying for the suspension of the proceedings in the
said case on the ground that the claim of Citytrust for ta refund in the amount of '(9,93(,34*.00 was already -eing processed -y the Ta
Credit2"efund 5ivision of the #!", and that said -ureau was only awaiting the su-mission -y Citytrust of the re4uired confirmation receipts which
would show whether or not the aforestated amount was actually paid and remitted to the #!".
Citytrust filed an opposition thereto, contending that since the Court of Ta Appeals already ac4uired jurisdiction over the case, it could no longer -e
divested of the same7 and, further, that the proceedings therein could not -e suspended -y the mere fact that the claim for refund was -eing
administratively processed, especially where the case had already -een su-mitted for decision.
!t also argued that the #!" had already conducted an audit, citing therefor ;hi-its <, <.(, <.1 and <.) adduced in the case, which clearly showed
that there was an overpayment of income taes and for which a ta credit or refund was due to Citytrust. The 8oregoing ehi-its are allegedly
conclusive proof of and an admission -y herein petitioner that there had -een an overpayment of income taes.
The ta court denied the motion to suspend proceedings on the ground that the case had already -een su-mitted for decision since 8e-ruary 10,
Thereafter, said court rendered its decision in the case, the decretal portion of which declares=
>9;";86";, in view of the foregoing, petitioner is entitled to a refund -ut only for the overpaid taes incurred in (9,4 and
(9,*. The refunda-le amount as shown in its (9,) income ta return is here-y denied on the ground of prescription. "espondent
is here-y ordered to grant a refund to petitioner Citytrust #an$ing Corp. in the amount of '(),)(4,*0+.(4 representing the
overpaid income taes for (9,4 and (9,*, recomputed as follows=
(9,4 !ncome ta due ' 4,3(*,*)).00
?ess= (9,4 @uarterly payments ' (+,1(4,*99.00A
(9,4 Ta Credits B
>2T on int. on govCt. sec. (,91(,14*.)3A
>2T on rental inc. 1+,+04.)0A (,,(+1,44,.+3
Ta 6verpayment %(),44+,9(*.+3&
?ess= 8C5D paya-le (*0,1*1.00
Amount refunda-le for (9,4 ' %(),19+,++).+3&
(9,* !ncome ta due %loss& ' B 0 B
?ess= >2T on rentals )+,3(+.43A
Ta 6verpayment %)+,3(+.43&A
?ess= 8C5D paya-le (,,,34.00
Amount "efunda-le for (9,* ' %(3,,41.43&
A Note=
These credits are smaller than the claimed amount -ecause only the a-ove figures are well supported -y the
various ehi-its presented during the hearing.
No pronouncement as to costs.
06 6"5;";5.
The order for refund was -ased on the following findings of the Court of Ta Appeals= %(& the fact of withholding has -een esta-lished -y the
statements and certificates of withholding taes accomplished -y herein private respondentCs withholding agents, the authenticity of which were
neither disputed nor controverted -y herein petitioner7 %1& no evidence was presented which could effectively dispute the correctness of the income
ta return filed -y herein respondent corporation and other material facts stated therein7 %)& no deficiency assessment was issued -y herein
petitioner7 and %4& there was an audit report su-mitted -y the #!" Assessment #ranch, recommending the refund of overpaid taes for the years
concerned %;hi-its < to <.)&, which enjoys the presumption of regularity in the performance of official duty.
A motion for the reconsideration of said decision was initially filed -y the 0olicitor /eneral on the sole ground that the statements and certificates of
taes allegedly withheld are not conclusive evidence of actual payment and remittance of the taes withheld to the #!".
A supplemental motion for
reconsideration was thereafter filed, wherein it was contended for the first time that herein private respondent had outstanding unpaid deficiency
income taes. 'etitioner alleged that through an memorandum of the Ta Credit2"efund 5ivision, dated August ,, (99(, he came to $now
only lately that Citytrust had outstanding ta lia-ilities for (9,4 in the amount of '*+,*,,,340.9( representing deficiency income and -usiness taes
covered -y 5emand2Assessment Notice No. 8A0.(.,4.00)19(.00)19+.
6ppositions to -oth the -asic and supplemental motions for reconsideration were filed -y private respondent Citytrust.
Thereafter, the Court of Ta
Appeals issued a resolution denying -oth motions for the reason that 0ection *1 %-& of the Ta Code, as implemented -y "evenue "egulation
+.,*, only re4uires that the claim for ta credit or refund must show that the income received was declared as part of the gross income, and that the
fact of withholding was duly esta-lished. Eoreover, with regard to the argument raised in the supplemental motion for reconsideration anent the
deficiency ta assessment against herein petitioner, the ta court ruled that since that matter was not raised in the pleadings, the same cannot -e
considered, invo$ing therefor the salutary purpose of the omni-us motion rule which is to o-viate multiplicity of motions and to discourage dilatory
As indicated at the outset, a petition for review was filed -y herein petitioner with respondent Court of Appeals which in due course promulgated its
decision affirming the judgment of the Court of Ta Appeals. 'etitioner eventually elevated the case to this Court, maintaining that said respondent
court erred in affirming the grant of the claim for refund of Citytrust, considering that, firstly, said private respondent failed to prove and su-stantiate
its claim for such refund7 and, secondly, the -ureauCs findings of deficiency income and -usiness ta lia-ilities against private respondent for the year
(9,4 -ars such payment.
After a careful review of the records, we find that under the peculiar circumstances of this case, the ends of su-stantial justice and pu-lic interest
would -e -etter su-served -y the remand of this case to the Court of Ta Appeals for further proceedings.
!t is the sense of this Court that the #!", represented herein -y petitioner Commissioner of !nternal "evenue, was denied its day in court -y reason
of the mista$es and2or negligence of its officials and employees. !t can readily -e gleaned from the records that when it was herein petitionerCs turn to
present evidence, several postponements were sought -y its counsel, the 0olicitor /eneral, due to the unavaila-ility of the necessary records which
were not transmitted -y the "efund Audit 5ivision of the #!" to said counsel, as well as the investigation report made -y the #an$s28inancing and
!nsurance 5ivision of the said -ureau2 despite repeated re4uests.
!t was under such a predicament and in deference to the ta court that ultimately,
said records -eing still unavaila-le, herein petitionerCs counsel was constrained to su-mit the case for decision on 8e-ruary 10, (99( without
presenting any evidence.
8or that matter, the #!" officials and2or employees concerned also failed to heed the order of the Court of Ta Appeals to remand the records to it
pursuant to 0ection 1, "ule 3 of the "ules of the Court of Ta Appeals which provides that the Commissioner of !nternal "evenue and the
Commissioner of Customs shall certify and forward to the Court of Ta Appeals, within ten days after filing his answer, all the records of the case in
his possession, with the pages duly num-ered, and if the records are in separate folders, then the folders shall also -e num-ered.
The aforestated impassF came a-out due to the fact that, despite the filing of the aforementioned initiatory petition in CTA Case No. 4099 with the
Court of Ta Appeals, the Ta "efund 5ivision of the #!" still continued to act administratively on the claim for refund previously filed therein, instead
of forwarding the records of the case to the Court of Ta Appeals as ordered.
!t is a long and firmly settled rule of law that the /overnment is not -ound -y the errors committed -y its agents.
!n the performance of its
governmental functions, the 0tate cannot -e estopped -y the neglect of its agent and officers. Although the /overnment may generally -e estopped
through the affirmative acts of pu-lic officers acting within their authority, their neglect or omission of pu-lic duties as eemplified in this case will not
and should not produce that effect.
Nowhere is the aforestated rule more true than in the field of taation.
!t is aiomatic that the /overnment cannot and must not -e estopped
particularly in matters involving taes. Taes are the life-lood of the nation through which the government agencies continue to operate and with
which the 0tate effects its functions for the welfare of its constituents.
The errors of certain administrative officers should never -e allowed to
jeopardiGe the /overnmentCs financial position,
especially in the case at -ar where the amount involves millions of pesos the collection whereof, if
justified, stands to -e prejudiced just -ecause of -ureaucratic lethargy.
8urther, it is also worth nothing that the Court of Ta Appeals erred in denying petitionerCs supplemental motion for reconsideration alleging -ringing
to said courtCs attention the eistence of the deficiency income and -usiness ta assessment against Citytrust. The fact of such deficiency
assessment is intimately related to and inetrica-ly intertwined with the right of respondent -an$ to claim for a ta refund for the same year. To
award such refund despite the eistence of that deficiency assessment is an a-surdity and a polarity in conceptual effects. 9erein private respondent
cannot -e entitled to refund and at the same time -e lia-le for a ta deficiency assessment for the same year.
The grant of a refund is founded on the assumption that the ta return is valid, that is, the facts stated therein are true and correct. The deficiency
assessment, although not yet final, created a dou-t as to and constitutes a challenge against the truth and accuracy of the facts stated in said return
which, -y itself and without un4uestiona-le evidence, cannot -e the -asis for the grant of the refund.
0ection ,1, Chapter !H of the National !nternal "evenue Code of (933, which was the applica-le law when the claim of Citytrust was filed, provides
that I%w&hen an assessment is made in case of any list, statement, or return, which in the opinion of the Commissioner of !nternal "evenue was false
or fraudulent or contained any understatement or undervaluation, no ta collected under such assessment shall -e recovered -y any suits unless it is
proved that the said list, statement, or return was not false nor fraudulent and did not contain any understatement or undervaluation7 -ut this
provision shall not apply to statements or returns made or to -e made in good faith regarding annual depreciation of oil or gas wells and mines.I
Eoreover, to grant the refund without determination of the proper assessment and the ta due would inevita-ly result in multiplicity of proceedings or
suits. !f the deficiency assessment should su-se4uently -e upheld, the /overnment will -e forced to institute anew a proceeding for the recovery of
erroneously refunded taes which recourse must -e filed within the prescriptive period of ten years after discovery of the falsity, fraud or omission in
the false or fraudulent return involved.
This would necessarily re4uire and entail additional efforts and epenses on the part of the /overnment,
impose a -urden on and a drain of government funds, and impede or delay the collection of much.needed revenue for governmental operations.
Thus, to avoid multiplicity of suits and unnecessary difficulties or epenses, it is -oth logically necessary and legally appropriate that the issue of the
deficiency ta assessment against Citytrust -e resolved jointly with its claim for ta refund, to determine once and for all in a single proceeding the
true and correct amount of ta due or refunda-le.
!n fact, as the Court of Ta Appeals itself has heretofore conceded,
it would -e only just and fair that the tapayer and the /overnment ali$e -e
given e4ual opportunities to avail of remedies under the law to defeat each otherCs claim and to determine all matters of dispute -etween them in one
single case. !t is important to note that in determining whether or not petitioner is entitled to the refund of the amount paid, it would necessary to
determine how much the /overnment is entitled to collect as taes. This would necessarily include the determination of the correct lia-ility of the
tapayer and, certainly, a determination of this case would constitute res judicata on -oth parties as to all the matters su-ject thereof or necessarily
involved therein.
The Court cannot end this adjudication without o-serving that what caused the /overnment to lose its case in the ta court may hopefully -e
ascri-ed merely to the ennui or ineptitude of officialdom, and not to syndicated intent or corruption. The evidential cul-de-sac in which the 0olicitor
/eneral found himself once again gives su-stance to the pu-lic perception and suspicion that it is another prover-ial tip in the ice-erg of venality in a
government -ureau which is pejoratively rated over the years. >hat is so distressing, aside from the financial losses to the /overnment, is the
erosion of trust in a vital institution wherein the reputations of so many honest and dedicated wor$ers are -esmirched -y the acts or omissions of a
few. 9ence, the li-eral view we have here ta$en pro hac vice, which may give some degree of assurance that this Court will unhesitatingly react to
any -ane in the government service, with a replication of such response -eing li$ewise epected -y the people from the eecutive authorities.
>9;";86";, the judgment of respondent Court of Appeals in CA./.". 0' No. 1+,)9 is here-y 0;T A0!5; and the case at -ar is ";EAN5;5 to
the Court of Ta Appeals for further proceedings and appropriate action, more particularly, the reception of evidence for petitioner and the
corresponding disposition of CTA Case No. 4099 not otherwise inconsistent with our adjudgment herein.
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