Meralco vs. CIR (December 6, 2010) PDF

SECOND DIVISION
[C.T.A. CASE NO. 7242. December 6, 2010.]
MANILA ELECTRIC COMPANY, petitioner, vs. COMMISSIONER

OF INTERNAL REVENUE, respondent.
DECISION
MINDARO-GRULLA, J : p
This is an Amended Petition for Review (Ad Cautelam) 1(1) filed on November
22, 2005 by Manila Electric Company (MERALCO), as petitioner, against the
Commissioner of Internal Revenue (CIR) as respondent, for the Court in Division,
pursuant to Rule 4, Section 3 (a) (2), in relation to Rule 8, Section 4 (a), of the
Revised Rules of the Court of Tax Appeals (RRCTA).
The said Amended Petition is an appeal from respondent CIR's inaction/denial

on MERALCO's claim for a tax refund or credit of excess income tax payments for
the taxable years 1994-1998 and 2000 in the total amount of P5,796,342,792.71, 2(2)
broken down as follows:
Taxable Original Tax Adjusted Income Adjusted Income
Year Payments Disallowed Tax Payments Tax Due Excess Income
with CWTs 3(3) CWTs 4(4) with CWTs 5(5) Tax Payments 6(6)
1994 P1,847,186,617 P1,847,186,617 P1,149,772,719.52 P697,413,897.48
1995 P2,112,659,180 P2,112,659,180 P1,369,237,724.71 P743,421,455.29
1996 P2,601,323,036 P15,544 P2,601,307,492 P1,584,311,872.82 P1,016,995,619.18
1997 P2,591,310,020 P54,568.24 P2,591,255,451.76 P1,496,450,692.45 P1,094,804,759.31
1998 P2,361,775,866 P18,214 P2,361,757,652 P1,233,907,225.60 P1,127,850,426.40
2000 P1,558,159,055 P2,687,466.29 P1,555,471,588.71 P439,614,953.66 P1,115,856,635.05
Copyright 1994-2015 CD Technologies Asia, Inc. Taxation 2014 1

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Total P13,072,413,774 P2,775,792.53 P13,069,637,981.47 P7,273,295,188.76 P5,796,342,792.71
============= =========== =============== =============== ===============
The original claim for a tax refund or credit of excess income tax payments for
the taxable years 1994-1998 and 2000-2001 amounted to P7,107,534,282.00.
Thereafter, respondent CIR partly granted MERALCO's claim for the taxable year
2001 to the extent of P894,473,932.58. Hence, the original claim in the sum of
P7,107,534,282.00 less MERALCO's claim for the taxable year 2001 in the amount
of P1,071,546,018.00 is equal to the original amended claim for a tax refund or credit
of excess income tax payments for the taxable years 1994-1998 and 2000 amounted
to P6,035,988,264.00.
MERALCO's claim for a tax refund or credit is due to the alleged overpayment
of income taxes arising from the Decision of the Supreme Court in the consolidated
cases of Republic of the Philippines, et al. vs. Manila Electric Company, G.R. No.
141314 and Lawyers Against Monopoly, etc. vs. Manila Electric Company, G.R. No.
141369, which became final and executory on May 5, 2003, mandating MERALCO
to refund the amount equivalent to P0.167 per kilowatt-hour of over billed electric
charges to its customers for their electric consumption made from February 1994 up
to December 2003. The dispositive portion of which reads as follows: CEIHcT
"WHEREFORE, in view of the foregoing, the instant petitions are

GRANTED and the decision of the Court of Appeals in C.A. G.R. SP No.
46888 is REVERSED. Respondent MERALCO is authorized to adopt a rate
adjustment in the amount of P0.017 per kilowatthour, effective with respect to
MERALCO's billing cycles beginning 1994. Further, in accordance with the
decision of the ERB dated February 16, 1998, the excess average amount of
P0.167 per kilowatthour starting with MERALCO's billing cycles beginning
February 1994 is ordered to be refunded to MERALCO's customers or
correspondingly credited in their favor for future consumption.
SO ORDERED."
Petitioner MERALCO is a domestic corporation duly organized and existing

under the laws of the Republic of the Philippines, with principal office address at
Lopez Building, Ortigas Avenue, Pasig City, and engaged in the business of
distributing and supplying electric power within its franchise area. MERALCO is a
registered taxpayer with TIN 000-101-528-000 and Certificate of Registration No.
OCN8RC00000 16119 issued by the Bureau of Internal Revenue on January 29,
1996.
Respondent CIR is the officer duly authorized by law to assess and collect all
national internal revenue taxes, fees, and charges, including the power to decide
refunds of internal revenue taxes, fees or other charges, with office address at the BIR
National Office Building, Agham Road, Diliman, Quezon City.
On December 23, 1993, MERALCO filed with the then Energy Regulatory
Board (now Energy Regulatory Commission) an application for the revision of its rate
schedules, docketed as ERB Case No. 93-118. On January 28, 1994, an Order
granting a provisional increase of P0.184 per kwh, subject to the condition that after
hearing and evaluation, should MERALCO be entitled to a lesser increase in rates, all
excess collected by MERALCO shall be refunded to its customers or credited in their
future consumption. 7(7)
Thus, MERALCO paid the income tax due on its taxable income based on
gross electric revenue computed at an average basic distribution rate of P2.996 per
kwh (i.e., existing average rate of P2.812 per kwh plus provisional increase of
P0.184).
On February 16, 1998, the Energy Regulatory Board rendered a Decision

granting only a rate increase of P0.17 per kwh and ordering MERALCO to refund or
credit to its customers the average amount of P0.167 per kwh beginning February
1994.
MERALCO appealed the Decision of the Energy Regulatory Board to the

Court of Appeals which ruled in its favor.
However, the Supreme Court reversed the Court of Appeals' Decision and
upheld the previous Decision of the Energy Regulatory Board. 8(8)
On May 5, 2003, the Supreme Court's Decision became final and executory,
after denying with finality MERALCO's Motion for Reconsideration therefrom. As a
result, Meralco's gross electric revenue during the taxable years 1994-1998 and
2000-2001, taxable income and income tax liability were reduced, thereby resulting to
excess income tax payments as follows:
YEAR ORIGINAL REDUCED INCOME TAX INCOME TAX EXCESS
TAXABLE TAXABLE ORIGINALLY ACTUALLY INCOME TAX
INCOME INCOME PAID PAID
1994 P5,277,676,049 P3,073,619,745 P1,847,186,617 P1,075,766,911 P771,419,706

1995 6,036,169,086 3,447,481,566 2,112,659,180 1,206,618,548 906,040,632
1996 7,432,351,531 4,526,289,260 2,601,323,036 1,584,201,241 1,017,121,795
1997 7,403,742,914 4,275,202,476 2,591,310,020 1,496,320,866 1,094,989,154
1998 6,946,399,606 3,629,126,440 2,361,775,866 1,233,902,990 1,127,872,876
2000 4,869,247,048 1,373,796,730 1,558,159,055 439,614,954 1,118,544,101
2001 4,012,193,155 387,079,475 1,283,901,810 212,355,792 1,071,546,018
–––––––––––––– –––––––––––––– –––––––––––––– ––––––––––––– –––––––––––––
TOTAL P41,977,779,389 P20,712,595,692 P14,356,315,584 P7,248,781,302 P7,107,534,282
============= ============= ============= ============ ============
On November 27, 2003, MERALCO filed a claim for tax refund or credit of
excess income tax payments with respondent CIR. ECISAD
On May 4, 2005, due to inaction, MERALCO appealed to this Court and filed
a "Petition for Review (Ad Cautelam)" and principally anchored its claim for a tax
refund or credit of excess income tax payments under the principle of solutio indebiti
within the prescriptive period of six (6) years, pursuant to Art. 1145 of the New Civil
Code or within two (2) years, as provided in Section 229 of the 1997 Tax Code.
On July 6, 2005, respondent CIR in his Answer 9(9) raised the special and
affirmative defenses, as follows:
"xxx xxx xxx.
7.) This Honorable Court is without jurisdiction to entertain the

instant petition. Petitioner hinges its cause of action on alternative provisions of
law. One of these is the ordinary claim for refund under the 1997 National
Internal Revenue Code (the "Tax Code"), particularly, Section 229 thereof, or
the provision on recovery of taxes erroneously or illegally collected. Section
229 of the "Tax Code" emphatically states that "In any case, no such suit or
proceeding [Recovery of Tax Erroneously or Illegally Collected] shall be filed
after the expiration of two (2) years from the date of payment of the tax or
penalty regardless of any supervening cause that may arise after payment . . .
"The taxable years involved in this case are taxable years 1994, 1995, 1996,
1997, 1998 and 2000. The income tax returns for the said periods have been
filed, and taxes due reflected thereon were paid, at dates which are, concededly,
well-beyond the 2-year period granted by law within which recovery of alleged
erroneously paid or collected taxes can be had. Thus, being that the law itself
which petitioner invokes makes it crystal-clear that the petitioner is barred from
even filing the instant petition for review, this Honorable Court should dismiss
the instant petition.
8.) Indubitably, petitioner's assertion that the two (2) year period
should be reckoned from the time the Supreme Court decision came out cannot

be sustained. The Tax Code categorically states that the 2 year period should be
reckoned from the date of payment of the tax or penalty. Petitioner's assertion is
a reductio ad absurdum argument, which has no legal foundation.
9.) Petitioner likewise invokes Article 2154 of the Civil Code, of

solutio indebiti which states that "if something is received when there is no right
to demand it, and it was unduly delivered through mistake, the obligation to
return it arises". Under Article 1145 (2) of the same Code, a cause of action
arising from solutio indebiti should be brought within six (6) years from the
time of payment. . . . .
10.) However, petitioner has no cause of action under the provision of

solutio indebiti. There was a perfect legal right on the part of the respondent to
demand the payment of these taxes during the taxable years where refund is
being claimed. More important(ly), there was no delivery through mistake on
the part of petitioner. It knew at the time it paid that the income taxes it was
paying were actually due. Petitioner cannot feign ignorance. As early as
February 1998, when the ERB decision came out ordering petitioner to refund
Php.167 to its consumers, petitioner already knew that it should not be charging
the consumers with the extra amount, and was thus not liable for the income
taxes on this excessive collection. At that point in time petitioner had an option.
Either it restituted its consumers and continued with the status quo ante or
continued charging the inofficious exaction while waiting for a court resolution.
Petitioner knowingly exercises(d) its option to seek judicial recourse and
continued charging the consumers with the higher rate, and paying the income
taxes due thereon. Petitioner, thus, cannot be taken as one who was mistaken in
payment. Thus, solutio indebiti does not apply.
11.) Moreover, equity belongs to those who come to court with clean
hands. Petitioner had the opportunity to claim for refund as early as 1998 when
the Energy Regulatory Board (ERB) issued its Decision ordering herein
petitioner to refund Php.167 per kilowatthour to its consumers. At that point in
time, petitioner should have ceased burdening the Filipino people, and refunded
the excess amounts it collected. Instead, petitioner chose to go through the court
processes. It exercised an option available to it, mindful of all its consequences,
and continued charging its consumers with the already declared undue exaction.
To reiterate, at that time, petitioner not only refused to comply with the ERB
order of refund, it obstinately continued the collection of excessive electricity
rates. For petitioner now to turn around and state that it had no opportunity to
claim for refund of the allegedly excessive income taxes it paid, before the
Supreme Court decision came out, is a falsity. The truth is that when petitioner
chose to appeal the decision, it had already considered all the permutations of
such decision. It had already foreseen that certain remedies will be lost to it,
among which, is the right to claim for refund of income taxes it paid pertaining
to the Php.167 refundable to consumers. Petitioner's whimper for equity should
be muted by calling into mind the thunderous wails of the Filipino people's
protest against the undue exactions when the ERB order was disregarded. SacTCA
12.) The inequity of the petition is further exposed when it is

considered that petitioner is praying for the entire amount of alleged
erroneously collected income taxes it paid from 1994-1998, and 2000-2001,
when it had not even showed proof that it had paid all of the amounts it should
refund to consumers. As the party claiming for refund, it is incumbent upon the
petitioner to show that every cent it had been ordered to return has been duly
returned before the taxes alleged to have been overpaid, pertaining to such
amounts, can be claimed as refund.
13.) This Honorable Court should not be lulled into the attempts of the
petition to cite seemingly parallel cases. The general pronouncements of the
Supreme Court in the cited cases are all inapplicable to petitioner's case. The
factual milieu of the instant situation is worlds apart from any of those cited
cases in the petition.
14.) Furthermore, in action for refund, the burden of proof is on the

taxpayer to establish its right to refund. Failure to sustain the burden is fatal to
the claim for refund/credit. This is so because exemptions from taxation are
highly disfavored in law, and he who claims exemption must be able to justify
his claim by the clearest grant of organic or statutory law. An exemption from
common burden cannot be permitted to exist upon vague implications (Asiatic
Petroleum Co. {PI} v. Llanes, 49 Phil. 466 cited in Collector of Internal
Revenue v. Manila Jockey Club, Inc., 98 Phil. 670).
15.) The government will not be unduly enriched by keeping the

income taxes petitioner paid. The said amounts have already been presumably
spent for the welfare of the Filipino people. These are the same people who had
been extremely prejudiced by petitioner's undue exaction. The high cost of
power during that time had already affected the government due to reduced
income taxes paid to the government. Moreover, the impact of the undue
exaction had closed innumerable businesses and had prevented the coming of
investors. An analysis of the results of petitioner's exercise of discretion to
disregard the ERB order cannot be made on simple addition and subtraction.
But it is indubitable that petitioner's desire for profit has also taken its toll on
the government's revenue generation efforts during those years, and even these
days."
Thereafter, in a letter dated September 21, 2005 (which was received on

October 3, 2005), respondent CIR partially granted MERALCO's claim for a tax
refund or credit for the taxable year 2001 to the extent of P894,473,932.58 but denied
the claim with respect to the taxable years 1994-1998 and 2000 due to prescription.
On November 22, 2005, MERALCO filed the instant Amended Petition for
Review (Ad Cautelam).
In the course of the proceedings, the parties submitted their "JOINT

STIPULATION OF FACTS AND ISSUES" stating, among others, the issues for
resolution.
Respondent CIR filed a "Supplemental Answer" and averred that a task force
was created by the Large Taxpayers Service and upon audit, it found out that there
were several discrepancies resulting to overstatement on MERALCO's claim for
refund.
By way of a Reply, MERALCO maintains that it did not overstate its claim for
refund.
Nonetheless, the parties filed a "SUPPLEMENTAL JOINT STIPULATION

OF FACTS AND ISSUES" thereby integrating respondent CIR's Decision dated
September 31, *(10) 2005, significantly changing some of their previously agreed
facts and issues.
During trial, MERALCO presented two (2) witnesses, namely: Atty. Jose
Ronald V. Valles (tsn., August 14, 2006, pp. 5-10), and Mr. Gener R. Montemayor
(tsn., November 12, 2007, pp. 4-12; tsn., February 20, 2008, pp. 4-10; tsn., March 31,
2008, pp. 4-9; tsn., May 12, 2008, pp. 5-13; and tsn., July 30, 2008, pp. 4-8). DCcTHa
Likewise, respondent CIR presented two (2) witnesses, namely: Mr. Hercules
M. Catapia (tsn., April 27, 2009) and Mr. Oscar A. Sable (tsn., June 8, 2009, pp.
9-15).
After trial, the parties were directed to file their Memoranda.
On January 25, 2010, the case was deemed submitted for decision.
Instead of the issues previously agreed upon, the parties have stipulated and
agreed on the issues 10(11) to be resolved by this Court, as follows:
"1. Whether or not petitioner's right to recover its excess income tax
payments in the total amount of P5,796,342,792.71 for the taxable years
1994-1998 and 2000 has prescribed;
2. Whether or not petitioner has charged to expense or to loss or offset

against reported revenues in its Income Tax Returns (ITRs) for the
taxable years 2003-2005 the amounts refunded or credited to customers
arising from the Supreme Court Decision in G.R. Nos. 141314 and
141369; and
3. Whether or not petitioner's right to recover its excess income tax

payments for the taxable years 1994-1998 and 2000 is subject to the
condition that refund or credit to future consumption due the customers
concerned in the average amount of P0.167 per kilowatthour has been
actually given or credited to them by the petitioner."
We find the Petition meritorious.
We discuss the issues in seriatim.
1. As to the first issue —
"Whether or not petitioner's right to recover its excess income tax payments in
the total amount of P5,796,342,792.71 for the taxable years 1994-1998 and
2000 has prescribed"
Section 229 of the 1997 National Internal Revenue Code, as amended, provides that
taxpayers seeking a refund of any national internal revenue tax hereafter alleged to
have been:
(1) erroneously or illegally assessed or collected, or
(2) of any penalty claimed to have been collected without authority, or
(3) of any sum alleged to have been excessive or in any manner

wrongfully collected.
must file within two (2) years from the date of payment of the tax or penalty
regardless of any supervening cause that may arise after payment. 11(12)
However, under the New Civil Code, Article 22 12(13) and Article 2154 13(14) in
relation to Article 1145 14(15) thereof provide that claims or an action based upon a
quasi-contract shall be commenced within six (6) years thereafter under the principle
of solutio indebiti, which apparently provides for a more lenient rule.

Thus, the question that arises is whether a taxpayer suing for a refund of taxes
collected under the Tax Code may proceed as a claim for refund and anchor its claim
under Article 22 and Article 2154 in relation to Article 1145 of the New Civil Code,
citing the principle of solutio indebiti as justification and basis as to its prescription,
when the same has already prescribed under the Tax Code. The answer is in the
negative. aSAHCE
But we rule pro hac vice that MERALCO's right to recover its excess income
tax payments for the taxable years 1994-1998 and 2000 has not prescribed.
MERALCO is entitled to its claim for a tax refund or credit for the taxable years
1994-1998 and 2000 due to the special circumstance in the instant case, pursuant to
section 229 of the 1997 NIRC. The two (2)-year prescriptive period should
commence to run on May 5, 2003, the date the Supreme Court's Decision in G.R.
Nos. 141314 and 141369 became final and executory. It is only at that time that the
right to claim for a tax refund or credit becomes determinable and the basis for the
excessive or erroneous payment arises.
In G.R. Nos. 141314 & 141369, the Supreme Court, in its desire to be an
infallible advocate of truth for the protection of the general populace, ordered
MERALCO to refund the amount it overcharged the public when it found out that
MERALCO used a higher rate in billing the public, which evidently resulted into
excessive income tax payments. It is therefore apparent that MERALCO cannot be
faulted for seeking a claim for refund for the tax excessively paid to and collected by
respondent CIR.
MERALCO contends that it would be absurd to reckon the running of the

prescriptive period whether it be two (2) years or six (6) years, from the date of
payment of the tax — that is, on or before 15 April, for the years 1995-1999 and
2000- when the excess payments and the right to recover the same came about only
on 5 May 2003 which is the date the Decision of the Supreme Court in G.R. Nos.
141314 & 141369 became final and executory.
Hence, MERALCO maintains that based on the special circumstance of the

aforementioned cases and this petition, equity and fairness dictate that the filing of the
original petition (May 4, 2005) and the amended petition (November 22, 2005) before
this Court are well within the prescriptive period of two (2) years or six (6) years.
In sum, MERALCO states that its claim is within the prescriptive period
because the prescriptive period for the recovery of erroneously or illegally collected
tax under the principle of solutio indebiti is six (6) years, pursuant to Article 1145 of
the New Civil Code. MERALCO states further that the counting of this period should
be reckoned from May 5, 2003 when the Supreme Court Decision became final and
executory since it was only then that MERALCO's right of action for the recovery of
excess income tax payments accrued. Suffice it to say that the existence of any excess
income tax payments arising from the mandated refund could be determined only
after the finality of the Supreme Court Decision. Thus, MERALCO invokes the
application of Section 229 of the NIRC of 1997 and at the same time, anchors its
claim for refund under the principle of solutio indebiti.
MERALCO, citing the cases of CIR vs. Philippine American Life Insurance
Co., CIR vs. PNB, 16(17) and Ramie Textiles, Inc. vs. Mathay, Sr., 17(18) seeks the
15(16)
same treatment given in the above-mentioned cases due to the special circumstance in
the instant case, such that "it would seem unedifying for the government, that
knowing it has no right at all to collect or to receive money for alleged taxes paid by
mistake, it would be reluctant to return the same".
Respondent CIR maintains that MERALCO's claim for a tax refund or credit
was filed beyond the two (2)-year prescriptive period pursuant to Section 229 of the
NIRC of 1997. A tax refund, being in the nature of an exemption, should be construed
strictissimi juris against the taxpayer.
Suffice it to say that in the recent case of Commissioner of Internal Revenue

vs. Aichi Forging Company of Asia, Inc. 18(19) the Supreme Court stated that — ITcCaS
"A taxpayer is entitled to a refund either by authority of a statute

expressly granting such right, privilege, or incentive in his favor, or under the
principle of solutio indebiti requiring the return of taxes erroneously or illegally
collected. In both cases, a taxpayer must prove not only his entitlement to a
refund but also his compliance with the procedural due process as
non-observance of the prescriptive periods within which to file the
administrative and the judicial claims would result in the denial of his claim."
Between the New Civil Code, on one hand, which is a general law and the
NIRC of 1997, which is special law governing national internal revenue taxes,
effective January 1, 1998, the latter prevails. It has always been the rule that on a
specific matter, the special law shall prevail over the general law, which, shall be
resorted only, to supply deficiencies in the former.
Also, where there are two (2) statutes, the latter a special law and the former a
general law — it shall be construed to mean that the terms of the general law is broad
enough to include the matter provided for in the special law. The fact that one is
special and the other is general creates a presumption that the special is to be
considered as remaining an exception to the general, one as a general law of the land,
the other as the law of a particular case. It is a canon in statutory construction that a
later statute, general in its terms and not expressly repealing a prior special statute,
will ordinarily not affect the special provisions of such earlier statute. 19(20)
The income tax which MERALCO seeks to refund falls under the National
Internal Revenue Code, hence, it is only befitting to conclude that the Tax Code
governs the period of limitation and not the Civil Code.
Evidently, the provisions of the National Internal Revenue Code shall

necessarily govern the instant case.
But it is noteworthy to emphasize that MERALCO would have not invoked the
special jurisdiction of this Court, which is dedicated exclusively for the resolution of
tax problems, if the ground for which such claim is made does not involve a tax
refund but rather an ordinary claim of solutio indebiti.
Also, it is not difficult to understand as to why the law provides for a shorter
period of limitation in case of a claim for refund of national internal revenue taxes, as
opposed to a claim based on solutio indebiti. If the period is longer as to the claim for
refund of national internal revenue taxes, the same would certainly impede the
effective administration of the revenue laws. Thus, the prescriptive period as to the
claim for a tax refund or credit, as provided in the Tax Code, is geared towards
achieving an effective tax collection system so as not to paralyze the operations of our
government.
The case of United States vs. Clintwood Elkhorn Mining Co. et al., decided by
the U.S. Supreme Court 20(21) through Chief Justice Robert, is instructional and
maintains the consistent interpretation of tax laws, the pertinent portion of which
reads as follows:
"Indeed, we all but decided the question presented over six decades ago
in United States v. A. S. Kreider Co., 313 U.S. 443 (1941). Section 1113(a) of
the Revenue Act of 1926, like the refund claim provision in §7422(a) of the
current Code, prescribed that "[n]o suit or proceeding shall be maintained in
any court for the recovery of any internal-revenue tax alleged to have been
erroneously or illegally assessed or collected, or of any penalty claimed to
have been collected without authority, or of any sum alleged to have been
excessive or in any manner wrongfully collected until a claim for refund or
credit has been duly filed with the Commissioner of Internal Revenue,"
and established a time limit for bringing suit once the claim-filing
requirement had been met. 44 Stat. 116. Like the companies here, A. S.
Kreider had failed to file a tax-refund action within that limitations period. See
313 U.S., at 446. And, like the companies here, A. S. Kreider argued that it was
instead subject only to the longer 6 year statute of limitations under the Tucker
Act. Id., at 447.
We rejected the claim, holding that the Tucker Act limitations

period "was intended merely to place an outside limit on the period within
which all suits must be initiated" under that Act, and that "Congress left it
open to provide less liberally for particular actions which, because of special
considerations, required different treatment." Ibid. We held that the
limitations period in§1113(a) was "precisely that type of provision,"
finding that Congress created a shorter statute of limitations for tax claims
because "suits against the United States for the recovery of taxes impeded
effective administration of the revenue laws." Ibid. If such suits were
allowed to be brought subject only to the 6-year limitations period in the
Tucker Act, we explained, §1113(a) would have "no meaning whatever."
Id., at 448. So too here. The refund scheme in the current Code would have "no
meaning whatever" if taxpayers failing to comply with it were nonetheless
allowed to bring suit subject only to the Tucker Act's longer time bar."
(Emphasis Supplied) TDcHCa
Considering that our "Tax Code", being a law of American origin, the
above-mentioned decision pertaining to the period of limitation has a peculiar and
persuasive force in the Philippines. 21(22)
In the consolidated cases of Republic vs. Manila Electric Company and LAMP
vs. Manila Electric Company, 22(23) the Supreme Court had the occasion to state that:
"While our tax laws were patterned and of foreign origin, American
decisions and authorities are not per se controlling in this jurisdiction. At best,
they are persuasive for no court holds a patent on correct decisions. Our laws
must be construed in accordance with the intention of our own lawmakers and
such intent may be deduced from the language of each law and the context of
other local legislation related thereto. More importantly, they must be construed
to serve our own public interest which is the be-all and the end-all of all our
laws. And it need not be stressed that our public interest is distinct and different
from others."
In this jurisdiction, it is quite evident that a shorter statute of limitation to a

claim for a tax refund under the Tax Code which is two (2) years best serves our

public interest, as opposed to a claim based on solutio indebiti which is six (6) years.
It is a necessary consequence in order to have an efficient tax collection system so as
not to hamper the operations of our government considering that taxes are the
lifeblood of the nation through which the government agencies continue to operate
and with which the State effect its functions for the welfare of its constituents. 23(24)
Thus, in the examination of Section 229 of the Tax Code and the jurisprudence
thereon, the conclusion is inevitable.
The Tax Code provides that all suits or proceedings shall be filed before the
expiration of two (2) years from the date of payment of the tax or penalty regardless
of any supervening cause that may arise after payment. This means that the two-year
prescriptive period is reckoned from the filing of the final adjusted return. 24(25)
At first glance, it would appear that prescription has set in as the claim for
refund for the taxable years 1994 to 1998 and 2000, both in the administrative level
(November 27, 2003) and judicial level (May 4, 2005) were both filed beyond the
two-year reglementary period from the filing of the final adjusted return.
However, the special circumstance in the instant case demands that it be given
a different treatment. While MERALCO diligently filed its final adjustment return
and paid the income tax thereon, it is beyond cavil that neither the right to claim for
refund can be determined nor there was basis for MERALCO to know that the
income tax payments for the taxable years 1994-1998 and 2000 were erroneous and
excessive. Such fact arose only when the Supreme Court's Decision in G.R. Nos.
141314 and 141369 25(26) became final and executory on May 5, 2003.
MERALCO aptly relied in the case of CIR vs. Philippine American Life
Insurance Co., 26(27) where the Supreme Court ruled that "The prescriptive period of
two (2) years should commence to run only from the time that the refund is
ascertained, which can only be determined after a final adjustment return is
accomplished, regardless of any supervening cause that may arise thereafter." This is
so because at that point, it can already be determined whether there has been an
overpayment by the taxpayer. 27(28)
In the instant case, it is clear that MERALCO's right to claim for a tax refund
for the taxable years 1994-1998 and 2000 cannot yet be ascertained or determined at
the filing of the final adjustment return. Hence, the two (2)-year period should not yet
commence to run. cCAIDS

We are aware that equity is available only in the absence of law and not as its
replacement. 28(29) Indisputably, at the time MERALCO filed its final adjustment
return and paid the income tax thereon, the amount being claimed for refund cannot
be said to be "excessively and wrongfully collected". It was only on May 5, 2003, that
the income tax payments for the taxable years 1994-1998 and 2000 being claimed for
refund were determined as "excessively and wrongfully collected".
Equity as the complement of legal jurisdiction seeks to reach and do complete

justice where courts of law, through the inflexibility of their rules and want of power
to adopt their judgments to the special circumstances of cases, are incompetent to do.
29(30) To reckon the running of the prescriptive period from the filing of the final
adjustment return and payment of the tax thereon for the taxable years 1994-1998 and
2000 when the excess payments and the right to recover the same came about only on
5 May 2003, would be iniquitous. The law on prescription being a remedial measure
should be interpreted in a way conducive to bringing about the beneficent purpose of
balancing the taxpayer and the government's interest. That is, if the circumstances
warrant, the interpretation on the law on prescription may be relaxed for equitable
reason.
The instant case is one of the special circumstances where the two (2)-year
prescriptive period may be suspended. In the case of CIR vs. Philippine American Life
Insurance Co., 30(31) the Supreme Court, held that —
"Moreover, even if the two-year period had already lapsed, the

same is not jurisdictional and may be suspended for reasons of equity and
other special circumstances." (Emphasis Supplied)
As the Supreme Court renders justice to the general populace when it ordered
MERALCO in G.R. Nos. 141314 & 141369, to refund the amount it overcharged the
public when it found out that MERALCO used a higher rate in billing the public, it is
only but equitable that the excessive income taxes collected by respondent CIR
thereon be returned to MERALCO. Otherwise, taxpayers would be reluctant in
paying their taxes. Considering the government's vigilance in collecting taxes, at
least, the same standard shall be given to the taxpayers in refunding excess income
tax payments. This is in accordance with the consistent pronouncement of the
Supreme Court that:
". . . 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. If the State expects its
taxpayers to observe fairness and honesty in paying their taxes, so must it apply
the same standard against itself in paying their taxes, so must it apply the same
standard against itself in refunding excess payments of such taxes. Indeed, the
State must lead by its own example of honor, dignity and uprightness." 31(32)
Indeed, the government has no right to retain what does not belong to it. No
one, not even the State, should enrich oneself at the expense of another, 32(33)
especially given the unmistakable bias of our tax laws in severely penalizing
delinquent taxpayers with surcharges and interests. While taxes are the lifeblood of
the government, this Court must likewise be sensitive of its responsibility to apply the
principles of justice, equity and fairness as its guide in interpreting the period of
limitation which is remedial in nature.
Despite the continued, if not sometimes fatal, increase of monthly electric bills
for consumers, clearly, substantial justice, equity and fair play are on the side of
MERALCO. Technicalities and legalisms, however exalted, should not be misused by
the government to keep money not belonging to it, thereby enriching itself at the
expense of its law-abiding citizens. 33(34) EICDSA
In the case of Commissioner of Internal Revenue vs. Mirant Pagbilao

Corporation (Formerly Southern Energy Quezon, Inc.), 34(35) the Supreme Court
held that:
"Verily, a claim for tax refund may be based on a statute granting tax
exemption, or, as Commissioner of Internal Revenue v. Fortune Tobacco
Corporation would have it, the result of legislative grace. In such case, the
claim is to be construed strictissimi juris against the taxpayer, meaning that the
claim cannot be made to rest on vague inference. Where the rule of strict
interpretation against the taxpayer is applicable as the claim for refund partakes
of the nature of an exemption, the claimant must show that he clearly falls under
the exempting statute. On the other hand, a tax refund may be, as usually it is,
predicated on tax refund provisions allowing a refund of erroneous or excess
payment of tax. The return of what was erroneously paid is founded on the
principle of solutio indebiti, a basic postulate that no one should unjustly
enrich himself at the expense of another. The caveat against unjust
enrichment covers the government. And as decisional law teaches, a claim for
tax refund proper, as here, necessitates only the preponderance-of-evidence
threshold like in any ordinary civil case." (Emphasis supplied)
Consequently, we will apply the foregoing elementary principles in our

evaluation of the evidence presented.

2. As regards the second issue —
"Whether or not petitioner has charged to expense or to loss or offset against

reported revenues in its Income Tax Returns (ITRs) for the taxable years
2003-2005 the amounts refunded or credited to customers arising from the
Supreme Court Decision in G.R. Nos. 141314 and 141369"
MERALCO alleges that it did not charge to expense or to loss or offset against
reported revenues in its Income Tax Returns (ITRs) for the taxable years 2003-2005
the amounts refunded or credited to customers arising from the Supreme Court's
Decision in G.R. Nos. 141314 and 141369.
The Notes to Financial Statements, attached to MERALCO's Audited

Financial Statements 35(36) for the years ended December 31, 2003 and 2002, stated:
". . . The loss arising from the SC decision amounted to P28,728 million, which
represents the amount of refund to its customers of P0.167 per kwh for billing
cycles from February 1994 to December 31, 2002. The Company's 2002
financial statements have been restated to reflect the loss arising from the SC
decision. Refunds covering the periods February 1994 to December 31, 2001,
amounting to P23,817 million, net of tax effect for 1999 of P1,126 million (see
Note 23), were accounted for as an extraordinary loss in the 2002 statement of
income. Refunds covering the period January 1, 2002 to December 31, 2002,
amounting to P3,785 million were reflected as a reversal of 2002 revenues. The
related tax effect of P1,133 million is reflected as a reduction in the provision
for income tax (see Note 23). The Company's revenues for the first five months
of 2003 were adjusted to reflect a rollback of its distribution rates totalling
approximately P1,595 million."
Based from the foregoing, the amounts to be refunded to or credited against

future consumption of MERALCO's customers pursuant to the Supreme Court
Decision in G.R. Nos. 141314 and 141369 totalled P30,323 million, broken down as
follows: aEACcS
Amount of Refund
Period Covered (in millions)
Feb. 1994 to December 31, 2001 P24,943
Jan. 1, 2002 to Dec. 31, 2002 3,785
Jan. 1 to May 2003 1,595
–––––––
P30,323

======
A scrutiny of MERALCO's Statement of Income (as restated) for the year

ended December 31, 2002 shows that MERALCO treated the refundable amount
covering the period of February 1994 to December 31, 2001 as an extraordinary loss
but in the amount of P23,817 million, net of tax effect for 1999 of P1,126 million.
Likewise, MERALCO reflected the refundable amount of P3,785 million as reduction
from the revenues of P121,606 36(37) million originally reported by MERALCO,
resulting in a reduced revenue amount of P117,821 million for the said year. The
related tax effect of P1,133 million was shown as a reduction from the provision for
income tax.
However, in its Amended Annual Income Tax Return for the taxable year
2002, MERALCO did not charge to expense or loss nor deduct against its
37(38)
revenues for the year 2002 any of the refundable amounts of P23,817 million and
P3,785 million covering the periods February 1994 to December 31, 2001 and
January 1, 2002 to December 31, 2002, respectively. This can be clearly seen from
MERALCO's Reconciliation of Net Income Per Books Against Taxable Income for
the taxable year 2002, wherein MERALCO's net taxable income per return in the
amount of P1,166,760,574.00 was based on MERALCO's net loss per books in the
amount of P2,015,232,945.00. It must be noted that the net loss per books of
P2,015,232,945.00 was the amount reported by MERALCO before it reflected the
refundable amounts of P23,817 million and P3,785 million as extraordinary loss and
revenue reversal for the year 2002, respectively.
In its Statement of Income for the year ended December 31, 2003, MERALCO
reflected the refundable amount of P1,595 million as reduction of its revenues for the
months of January to May 2003. With regard to the refundable amounts covering the
periods February 1994 to December 31, 2001 and January 1, 2002 to December 31,
2002, MERALCO reflected the same in its Balance Sheet as of December 31, 2003
under the "Unappropriated Retained Earnings" account as "Prior period adjustments
arising from customers refund" in the amount of P26,469 million 38(39) net of the tax
effect for 1999 and 2002 in the respective amounts of P1,126 million and P1,133
million. In other words, in arriving at its net income per books of P907 million for the
year ended December 31, 2003, MERALCO deducted from its revenues only the
refundable amount of P1,595 million pertaining to the months of January to May
2003.
Inasmuch as it was the net income per books in the amount of P907 million
which was reconciled with the net income per Annual Income Tax Return for the year
ended December 31, 2003 and none of the reconciling items pertain to the amounts to
be refunded/credited to MERALCO's customers, it may be safely concluded that
MERALCO did not charge to expense/loss nor deduct against its revenues for the said
year the amounts to be refunded or credited to its customers pertaining to the period
February 1994 to December 31, 2002.
As for the taxable years 2004 and 2005, MERALCO's Audited Financial
Statements 39(40) and Annual Income Tax Returns 40(41) for the said years also proved
that it did not charge to expense or loss nor deduct against its revenues for the said
years the amounts it has refunded/credited to its customers pursuant to the Supreme
Court's Decision in G.R. Nos. 141314 and 141369.
Based on its liability account for Customers Refund as reflected in its Audited
Balance Sheets 41(42) as of the years ended December 31, 2002, 2003, 2004 and 2005,
MERALCO refunded a total amount of P10,566 million as of December 31, 2005
which was charged to the said account and not to any expense/revenue account for the
said years, as summarized below:
2002 2003 2004 2005

(AMOUNTS IN MILLIONS)
Balance, January 1 P - P28,728 P25,608 P20,551

Add: Set up of Refund 28,728 1,595 - -
Subtotal P28,728 P30,323 P25,608 P20,551
Less: Refunded - 4,715 5,057 794
Balance, December 31 P28,728 P25,608 P20,551 P19,757
Present Value Effect (4,234)
Balance as shown in Balance Sheet, Dec. 31 (Nominal) P28,728 P25,608 P20,551 P15,523
––––––– ––––––– ––––––– –––––––
Breakdown of AP-Customers Refund as shown in B/S

Current P22,594 P6,919 P5,409 P3,787
Non-Current 6,134 18,689 15,142 11,736
Total P28,728 P25,608 P20,551 P15,523
––––––– ––––––– ––––––– –––––––
Total Refunded to customers to date P - P4,715 P9,772 P10,566

Balance, December 31 (Real) 28,728 25,608 20,551 19,757
––––––– ––––––– ––––––– ––––––
Total P28,728 P30,323 P30,323 30,323
======= ======= ======= ======

However, while MERALCO's Audited Balance Sheets show that MERALCO
has refunded/credited to its customers a total amount of P10,566 million as of
December 31, 2005, such amount does not reconcile with the figure of P10,565
million 42(43) shown in the Manifestation 43(44) dated September 25, 2006, which
MERALCO filed with the Energy Regulatory Commission (ERC) on October 2,
2006. Apparently, there were discrepancies on the amounts actually refunded by
MERALCO to the prejudice of the consuming public but this does not negate the
findings of this Court that MERALCO did not charge to expense/loss nor deduct
against its revenues for the said years the amounts to be refunded or credited to its
customers pertaining to the period from February 1994 to December 31, 2002. ITCcAD
3. As to the third issue stipulated upon by the parties —
"Whether or not petitioner's right to recover its excess income tax payments for
the taxable years 1994-1998 and 2000 is subject to the condition that refund or
credit to future consumption due the customers concerned in the average
amount of P0.167 per kilowatthour has been actually given or credited to them
by the petitioner."
MERALCO posits that the Supreme Court's mandated refund is separate and distinct
from the present claim for a tax refund or credit considering that the legal basis and
requirements for the Supreme Court's mandated refund are different from the legal
basis and requirements for the present claim for a tax refund or credit. MERALCO
further argues that the Supreme Court's mandated refund is not dependent on the
present claim for a tax refund or credit, or vice-versa.
Hence, MERALCO asserts that it's right to recover its excess income tax
payments for the taxable years 1994-1998 and 2000 cannot be subjected to the
condition that the refund or credit to future consumption due the customers concerned
in the average amount of P0.167 per kilowatthour, has been actually given or credited
to them by MERALCO.
We disagree.
It is true that neither is the Supreme Court's mandated refund dependent on the
instant claim for a tax refund or credit, vice-versa, nor do the legal basis and
requirements for the Supreme Court's mandated refund be the same as the instant
claim for a tax refund or credit. If it were not due to the special circumstance in the
instant case, specifically the finality of the Supreme Court's Decision in G.R. Nos.
141314 and 141369, MERALCO would not be entitled to the claim for a tax refund

for the taxable years 1994-1998 and 2000. Thus, due to equity consideration, the two
(2)-year prescriptive period under the 1997 National Internal Revenue Code is
reckoned from the finality of the Supreme Court's Decision in G.R. Nos. 141314 and
141369.
MERALCO's claim for a tax refund was not granted or denied by respondent
CIR on the condition that MERALCO should have credited to bill or refunded to
customers the Supreme Court's mandated refund by MERALCO. It cannot be said
that MERALCO's right to recover its excess income tax payments was subject to the
condition that the tax refund or credit to future consumption due the customers
concerned in the average amount of P0.167 per kilowatthour, has been actually given
or credited to them by MERALCO.
While the above-mentioned Decision of respondent CIR was bereft of any

legal justification to the conditional release/issuance of a Tax Credit Certificate
(TCC) covering the granted tax refund, we find the same or that the "releases or
issuances of the TCC be proportionate to the amount actually disbursed", to be
just and equitable not only for the MERALCO and the government but also the
general public considering that there were discrepancies in the amount to be given
and actually given or actually received by MERALCO's customers. This is supported
by our findings and as pointed out by respondent CIR in its assailed Decision.
The pertinent portion of respondent CIR's Decision dated September 21, 2005,
partially granting MERALCO's claim for a tax refund which is alleged to be subject
to a condition, reads as follows:
"In view of the foregoing, the Bureau has no recourse but to DENY your
claim for tax credit for taxable years 1994 to 1998 and 2000 in the net amount
of P5,796,342,792.71 because of prescription. The related refund dockets for
these cases are now with the Legal Service for reference with your current
pending appeal with the Court of Tax Appeals (CTA).
On the other hand, your request for refund/issuance of tax credit

certificate (TCC) for taxable year 2001 in the net amount of P894,473,932.58 is
hereby GRANTED since it was filed within the two-year prescriptive period
but subject to the condition that credit to bill or refund to customers has actually
been credited or given to the latter.
Based on the above premise, the initial TCC to be issued to your

company is "P343,746,332.29" as presented in the 2001 refund docket based on
the projected estimated refund disbursement to customers belonging to Phases

1, 2, and 3 in the amount of P11.648 billion submitted to the ERC. However,
based on the Refund Summary Report as of August 31, 2005 that you submitted
to this Office and the ERC, only P10,754,002,740.00 of the total
P11,633,786,741.00 refund processed for Phases 1 to 3 were actually disbursed
to date. Consequently, by applying the formula of the amount of refund actually
disbursed per Refund Summary Report submitted over base amount of total
refund P30.307 billion multiplied by the net amount of refund granted for 2001,
the amount of TCC to be initially issued to your company in proportion to the
amount of refund actually disbursed should only be P317,391,200.77. SDHCac
Finally, as a condition in the processing of the succeeding

releases/issuance of TCC for refund granted in 2001 but to be given in 2005 to
2010 per refund schedule, you are required to submit to the Large Taxpayers
Service within thirty (30) days after the end of every year of the refund schedule
the Refund Summary Report for each year as submitted to ERC from where the
actual TCC to be issued for a particular year shall be based."
Moreover, this Court is not only a Court of law but also a Court of equity. In
the case of Gonzalez vs. Rizal Commercial Banking Corporation, 44(45) the Supreme
Court held that:
"Courts in this jurisdiction are not only courts of law but also of equity, and
therefore cannot unqualifiedly apply a provision of law so as to cause clear
injustice which the framers of the law could not have intended to so deliberately
cause. In Carceller v. Court of Appeals, this Court had occasion to stress:
'Courts of law, being also courts of equity, may not countenance

such grossly unfair results without doing violence to its solemn
obligation to administer fair and equal justice for all.'"
In the exercise of this Court's jurisdiction also as a court of equity, it is only

but fair to allow MERALCO to recover its excess income tax payments for the
taxable years 1994-1998 and 2000, which would have prescribed if not for the special
circumstance in the instant case, in proportion to or that the refund or credit to future
consumption due the customers concerned in the average amount of P0.167 per
kilowatthour should have been actually given or credited to them by MERALCO. It
would be the height of injustice if MERALCO can recover all the excess income tax
payments when it did not refund all to the customers what MERALCO is mandated to
refund from which the excess income tax payments would arise.
The reason for the exercise of this Court's jurisdiction also as a court of equity
in the instant case is to prevent unjust enrichment and to ensure restitution. 45(46) If
MERALCO did not overcharge its consumers, the Supreme Court's Decision in G.R.
Nos. 141314 and 141369 would not have been rendered, and MERALCO would not
have made excessive income tax payments. Justice is done if MERALCO was in
good faith and if it had fully disbursed the amount it overcharged from its customers
from which the excessive income tax payments would arise and which would be the
basis of this claim for a tax refund.
To reiterate, we find that the "releases or issuances of the Tax Credit

Certificate (TCC) be (in) proportion to the amount actually disbursed or given
to MERALCO's customers", to be just and equitable.
In fine, MERALCO admits and accepts the Audit Findings and Resolution
46(47) of respondent CIR as embodied in their "SUPPLEMENTAL JOINT
STIPULATION OF FACTS AND ISSUES". Specifically MERALCO accepts the
mathematical computations of respondent CIR except on the conclusions that the
same has prescribed and subject to the condition that the credit to bill or refund to
customers in the average amount of P0.167 per kilowatthour has actually been
credited or given to customers. 47(48)
The pertinent portion and end result of respondent CIR's computation read as
follows:
Recommended Recommended Total amount of
amount for TCC — amount for TCC — refund per audit
for denial to be Granted
1994 P697,413,897.48 -0- P697,413,897.48
1995 743,421,455.29 -0- 743,421,455.29
1996 1,016,995,619.18 -0- 1,016,995,619.18
1997 1,094,804,759.31 -0- 1,094,804,759.31
1998 1,127,850,426.4 -0- 1,127,850,426.4
2000 1,115,856,635.05 -0- 1,115,856,635.05
2001 -0- P894,473,932.57 894,473,932.57
––––––––––––––– –––––––––––––– –––––––––––––––
GRAND P5,796,342,792.71 P894,473,932.57 P6,690,816,725.28
TOTAL ============== ============= =============
Evidently, based on the joint stipulation and admission of facts and issues and
from respondent CIR's decision dated September 21, 2005, 48(49) there were excessive
collections for the taxable years 1994-1998 and 2000-2001.
Further, an examination of the records shows that MERALCO did not charge
to expense or to loss or offset against reported revenues in its Income Tax Returns
(ITRs) for the taxable years 2003-2005 the amounts refunded or credited to customers
arising from the Supreme Court's Decision in G.R. Nos. 141314 and 141369. CcSEIH
According to jurisprudence, claimant has the burden of proof to establish the

factual basis of his or her claim for a tax refund or credit. Tax refunds, like tax
exemptions, are construed strictly against the taxpayer. In the instant case,
MERALCO was able to present sufficient evidence to prove its claim for a tax refund.
WHEREFORE, premises considered, the Amended Petition for Review is

GRANTED, as follows:
1. Respondent's denial due to prescription of MERALCO's claim for a tax

refund or credit for the taxable years 1994-1998 and 2000 is REVERSED and SET
ASIDE;
2. Respondent is ORDERED TO REFUND or TO ISSUE A TAX

CREDIT CERTIFICATE in favor of MERALCO in the amount of
P5,796,342,792.71, corresponding to the claim for a tax refund or credit for the
taxable years 1994-1998 and 2000, subject to and in proportion that the refund or
credit to future consumption due to the customers concerned in the average amount of
P0.167 per kilowatthour arising from the Supreme Court's Decision in G.R. Nos.
141314 and 141369, has been actually given or credited to them by MERALCO.
SO ORDERED.
(SGD.) CIELITO N. MINDARO-GRULLA

Associate Justice
Caesar A. Casanova, J., concurs.
Juanito C. Castañeda, Jr., J., with dissenting opinion.
Separate Opinions
CASTAÑEDA, JR., J., dissenting opinion:

With all due respect to my esteemed colleagues, I register my dissent to the
majority opinion and vote for the DISMISSAL of MERALCO's "Amended Petition
for Review." This is based on the following grounds:
1. The relief available to Meralco pursuant to NIRC of 1997 is to

claim repayments as deduction from income in the year the
obligation to pay or accrue arises.
2. In the claim-of-right doctrine, a taxpayer who previously claimed

as income the amount he subsequently repays, is to claim it as
deduction from income in the year of repayment.
3. Claims for refund should be exercised within the prescriptive

period fixed by law regardless of any supervening cause as
emphatically provided under Section 229 of NIRC of 1997.
a. Section 229 of NIRC of 1997 is a mandatory provision and

is not subject to any qualification;
b. P.D. No. 69 originally added the phrase "regardless of any

supervening cause;" and TcSICH
c. Rationale behind the two (2)-year prescriptive period rests

on the basic principle that "taxes are the lifeblood of the
nation." The availability of funds from the collection of
taxes cannot forever be left subject to the contingency of
refund, otherwise, fiscal adequacy cannot be achieved.
4. The instant case cannot be considered a special circumstance

worthy of the relaxation of the two (2)-year prescriptive period.
5. Entrenched in our jurisprudence is the principle that tax refunds

are in the nature of tax exemptions which are construed strictissimi
juris against the taxpayer and liberally in favor the government.
Meralco failed to discharge the burden of proving its entitlement to
tax refunds.
1. The relief available to Meralco

pursuant to NIRC of 1997 is to
claim repayments as deduction
from income in the year the
obligation to pay or accrue
arises.
Accounting methods for tax purposes comprise a set of rules for determining
when and how to report income and deductions. In accrual method, amounts of
income accrue where the right to receive them become fixed, where there is created
an enforceable liability. Similarly, liabilities are accrued when fixed and determinable
in amount, without regard to indeterminacy merely of time of payment. 1(50) Under
Sections 44 and 45 of the National Internal Revenue Code (NIRC) of 1997, the period
of recognition of income and allowance of deduction is provided as follows:
SEC. 44. Period in which Items of Gross Income Included. — The amount
of all items of gross income shall be included in the gross income for the
taxable year in which received by the taxpayer, unless, under methods of
accounting permitted under Section 43, any such amounts are to be properly
accounted for as of a different period. . . .
SEC. 45. Period for which Deductions and Credits Taken. — The
deductions provided for in this Title shall be taken for the taxable year in which
"paid or accrued" or "paid or incurred", dependent upon the method of
accounting upon the basis of which the net income is computed, unless in order
to clearly reflect the income, the deductions should be taken as of a different
period. . . .
The aforequoted provisions dictate that once a taxpayer receives items of gross
income, the same shall be recognized as income in the taxable year of receipt unless
the taxpayer is using another method of accounting allowed by law. Correspondingly,
deductions are allowed from the time the obligation to pay or accrue arises.
In the instant case, when Meralco received the provisional increase imposed
upon its consumers, it unqualifiedly asserted its right over the amount and voluntarily
reported the same as income. The provisional increase was undeniably treated as
income thereby forming part of Meralco's taxable income in the year of receipt.
Consequently, it is only proper that the subsequent repayments of the portion

of provisional increase considered as overcharges be treated as deduction from its
income in the year the obligation to pay or accrue arises. Meralco may claim the
repayments as deduction as long as it meets the statutory test of deductibility under
Section 34 of the NIRC of 1997 which allows deductions from gross income "all
ordinary and necessary expenses paid or incurred during the taxable year in carrying
on any trade or business." The conditions for the deductibility of a business expense

are (1) the expense must be ordinary and necessary; (2) it must be paid or incurred
within the taxable year; (3) it must be paid or incurred in carrying on a trade or
business; 2(51) and (4) must be supported by evidence or records, otherwise, the same
will be disallowed. 3(52) The term "ordinary" does not require that the payments be
habitual or normal in the sense that the same taxpayer will have to make them often;
the payment may be unique or non-recurring to the particular taxpayer affected. 4(53) It
should be noted that there is no hard and fast rule in the determination of what is
ordinary and necessary business expense. The right to a deduction depends in each
case on the particular facts and the relation of the payment to the type of business in
which the taxpayer is engaged. The intention of the taxpayer often may be the
controlling fact in making the determination. 5(54) AHCaED
Thus, the relief available to Meralco is to claim repayments as deduction from

income in the year the obligation to repay arises.
2. In the claim-of-right doctrine, a

taxpayer who previously
claimed as income the amount
he subsequently repays, is to
claim it as deduction from
income in the year of
repayment.
In the claim-of-right doctrine, if a taxpayer receives money or other property

and treats it as its own under the claim of right that the payments are made absolutely
and not contingently, such amounts are included in the taxpayer's income, even
though the right to the income has not been perfected at that time. It does not matter
that the taxpayer's title to the property is in dispute and that the property may later be
recovered from the taxpayer. 6(55)
In American jurisprudence, the claim-of-right doctrine was applied in several

cases involving public utilities. In the case of Brooklyn Union Gas Co. v. Comm., 62
F2d 505 (CCA2 1933), 7(56) a taxpayer, a utility company, in the course of rate
dispute, had certain funds made available to it by an interlocutory order of court,
subject to the taxpayer's posting of a security bond or securities of equal value. The
taxpayer preferred not to take the funds on such conditions, and instead took them at
the conclusion of litigation two years later. The taxpayer realized income in the earlier
year under the claim-of-right rule, because the taxpayer had the power to secure the
release of the funds, that is, there remained no effective restriction upon the taxpayer's

dominion over them.
Under this doctrine, if the taxpayer who has included amounts in income
pursuant to the claim-of-right doctrine subsequently repays those amounts, the
taxpayer may be entitled to a deduction in the year of repayment. 8(57) However,
to be entitled to a deduction, the taxpayer must meet the requirements of a
statutory provision entitling him or her to a deduction. 9(58) For instance, it
must qualify as a trade or business expense . . ., 10(59) or as a loss. 11(60)
In the case of S. Lowenstein & Son, Inc. v. Comm., 21 TC 648, affd 222 F2d
919 (CA6 1955), 12(61) it was ruled that the taxpayer's renunciation in a
subsequent year of income received under claim of right does not defeat the
earlier inclusion, but enables only the deduction in that subsequent year.
Evidently, these American cases have persuasive effect in our jurisdiction,

because Philippine income tax law is patterned after its US counterpart. 13(62) In fact,
in our jurisprudence particularly in the case of Melchor J. Javier, Jr. vs. Ruben B.
Ancheta, in his capacity as Commissioner of Internal Revenue, 14(63) the Court of Tax
Appeals (CTA) ruled that gains are taxable in the year during which they are realized.
This statutory policy is invoked in the interest of orderly administration. Collection of
the revenue cannot be delayed, nor should the Government be compelled to decide
when a possessor's claims are without legal warrant. Hence, the amount credited to
Javier, Jr. which he presumed to be a gift but turned out to be an error was subjected
to tax.
In this case, the claim-of-right doctrine finds application to Meralco when it

recognized a bona fide claim over the amounts received out of its overcharged rate.
Consistent with the recognition of income and deduction under the NIRC of 1997,
Meralco's remedy is to claim the repayments as deduction from its income instead of
filing a refund considering that this is not a case of an erroneously paid tax.
Even assuming, there is no other relief available to Meralco except to file a

refund of its overpaid taxes, Section 229 of the NIRC of 1997 will apply. Existing
jurisprudence will show that Section 229 applies not only to erroneously paid taxes
but also to overpaid taxes citing the cases of Collector of Internal Revenue vs. Prieto
15(64) and Accra Investments Corporation vs. Court of Appeals, 16(65) where the
Supreme Court used the two (2)-year prescriptive period even when the issue
involved was overpayment of taxes. EHSTDA
Nonetheless, if we are to apply Section 229 to the present case, the claim
would still fail on account of prescription. Section 229 is very emphatic on the
requirement that the claim for refund must be filed within two (2) years from the date
of payment in all cases in view of the use of the phrase "regardless of any
supervening cause" 17(66) that may arise after payment.
3. Claims for refund should be

exercised within the prescriptive
period fixed by law regardless of
any supervening cause.
The law is clear. Under Section 229 of the NIRC of 1997, a taxpayer may file a
claim for refund with the Commissioner of Internal Revenue within two (2) years
from the date of payment of tax regardless of any supervening cause that may
arise after payment, before any suit in the CTA is commenced. This provision,
which is, mandatory, is not subject to any qualification, and, hence, it applies
regardless of the conditions under which the payment has been made. 18(67) The said
provision categorically states:
SEC. 229. Recovery of Tax Erroneously or Illegally Collected. — No suit or

proceeding shall be maintained in any court for the recovery of any national
internal revenue tax hereafter alleged to have been erroneously or illegally
assessed or collected, or of any penalty claimed to have been collected without
authority, or of any sum alleged to have been excessively or in any manner
wrongfully collected until a claim for refund or credit has been duly filed with
the Commissioner; but such suit or proceeding may be maintained, whether or
not such tax, penalty, or sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of
two (2) years from the date of payment of the tax or penalty regardless of
any supervening cause that may arise after payment: Provided, however,
That the Commissioner may, even without a written claim therefore, refund or
credit any tax, where on the face of the return upon which payment was made,
such payment appears clearly to have been erroneously paid. (emphasis ours)
Applying the above provision to the instant case, prescription has already set
in, both in the administrative level (November 27, 2003) and judicial level (May 4,
2005) for the taxable years 1994-1998 and 2000. As expressly stated by law, the two
(2)-year prescriptive period has already lapsed reckoned from the date of payment of
the tax without consideration to any supervening cause that may arise after payment.
The words of Section 229 clearly, plainly, and explicitly state that the two

(2)-year prescriptive period is not affected by any supervening cause, hence, the
phrase "regardless of any supervening cause." This phrase was originally added by
P.D. No. 69 dated November 24, 1972 and was retained in both the 1977 and 1997
NIRC. The intent of the law is unmistakable, to establish as a condition sine qua non
that all claims and actions for refund of any tax or penalty shall be filed within two
years from the date of payment of such tax or penalty, "even if the taxpayer had no
cause for refund as the tax or penalty, was legally collected, and even if after the
lapse of the two (2)-year period, a supervening cause should arise which would
entitle the taxpayer to refund." 19(68)
As explained by former Commissioner of Internal Revenue Jose Arañas in his

book entitled Annotations and Jurisprudence on the National Internal Revenue Code
of 1977, 20(69) by this amendment, the doctrine enunciated by the Supreme Court in
the case entitled "Com. vs. Insular Lumber Co. and CTA, L-24221, December 11,
1967" (Insular case) finds no more application. In this case the Supreme Court held
that —
"Where the tax sought to be refunded is illegally or erroneously

collected, the period of prescriptions starts from the date the tax was paid; but
when the tax is legally collected, the prescriptive period commences to run from
the date of occurrence of the supervening cause which gave rise to right of
refund." SaTAED
This is the same conclusion reached by Associate Justice Japar B. Dimaampao

in his book Tax Principles and Remedies 21(70) where he clarified that the ruling in
Insular case which provided that if the tax sought to be recovered was paid legally but
becomes refundable upon the happening of a supervening cause, the reckoning of the
two (2)-year period commences from the happening of the supervening cause, no
longer finds application under the present law. The two (2)-year period is always to
be reckoned from the date of the payment regardless of any supervening cause. 22(71)
Based on the foregoing, We cannot sustain Meralco's argument that the two
(2)-year prescriptive should commence to run only from the time the refund is
ascertained, that is, from the time the Supreme Court's Decision in G.R. Nos. 141314
and 141369 became final and executory. This view has long been abrogated by P.D.
No. 69 with the inclusion of the phrase "regardless of any supervening cause."
Furthermore, it must be stressed that the rationale behind the two (2)-year
prescriptive period rests on the basic principle that "taxes are the lifeblood of the
nation." The availability of funds from the collection of taxes cannot forever be
left subject to the contingency of refund brought about by certain acts which are
solely within the exclusive control of the private contracting parties, otherwise,
fiscal adequacy cannot be achieved. 23(72) In addition, claims for refund or tax credit
should be exercised within the time fixed by law because the BIR being an
administrative body enforced to collect taxes, its functions should not be unduly
delayed or hampered by incidental matters. 24(73)
It also bears stressing that the first and fundamental duty of the Court is to
apply the law. When the law is clear and free from any doubt or ambiguity, there is no
room for construction or interpretation. As has been our consistent ruling, where the
law speaks in clear and categorical language, there is no occasion for interpretation;
there is only room for application, 25(74) it must be taken to mean exactly what it says
and the court has no choice but to see to it that its mandate is obeyed. 26(75)
4. The instant case cannot be

considered a special
circumstance worthy of the
relaxation of the two-(2) year
prescriptive period.
Meralco's reliance on the case of Commissioner of Internal Revenue vs. The

Philippine American Life Insurance Co. 27(76) (Philam case) cannot be sustained as it
was not on all fours with the instant case. The issue involved in Philam case was the
reckoning point of the two (2)-year prescriptive period for the recovery of taxes when
the law requires the filing of a final adjustment return on a specified date after the end
of the taxable year. It was held that the action for refund was filed within the
prescriptive period. Furthermore, the cases cited in Philam case such as Oral &
Dental College vs. Court of Tax Appeals 28(77) and Panay Elec. Co., Inc. vs. Coll. of
Int. Rev. and Court of Appeals 29(78) are also not applicable in this case. In the
aforementioned cases, the taxpayers paid the taxes in faithful compliance of the law
and without assuming any risk resulting from its actions.
However, in the instant case, Meralco already claimed a right over an income
knowing fully well the uncertainty and possible reversal of its case before the
Supreme Court. When it took the risk of imposing higher rates to its consumers, it
also assumed the risk of paying excess income taxes. Hence, it becomes Meralco's
duty to be vigilant and be more circumspect in dealing with the prescriptive period for
refund. Moreover, the cause for its refund is an act of its own doing which cannot be
considered a special circumstance.

5. Meralco failed to discharge the burden
of proving its entitlement to tax
refunds.
Tax refunds are in the nature of tax exemptions. As such, they are regarded as
in derogation of sovereign authority and to be construed strictissimi juris against the
person or entity claiming the exemption. 30(79) Thus, the burden of proof is upon him
who claims the exemption in his favor and he must be able to justify his claim by the
clearest grant of organic or statute law and cannot be permitted to exist upon vague
implications. 31(80) Since tax refunds partake of the nature of tax exemptions, which
are construed strictissimi juris against the taxpayer, evidence in support of a claim
must likewise be strictissimi scrutinized and duly proven. 32(81) SACEca
Assuming without conceding, Meralco's claim has not yet prescribed, the
instant case would still fail due to insufficiency of evidence to determine the amount
repaid to Meralco's consumers. The determination of the amount repaid is necessary
in granting this tax refund otherwise the government would be in a position of
refunding an income tax, the tax base of which is still within the coffers of Meralco
and may or may not be repaid to its consumers. Thus, until and unless repayment can
be ascertained, Meralco's overcharges are still considered income under the claim of
right doctrine.
In view of the foregoing, Meralco's Amended Petition for Review should be

dismissed.
Footnotes
1. Rollo, pp. 479-493.
2. Supplemental Joint Stipulation of Facts and Issues, Rollo, pp. 623-624.
3. Supplemental Joint Stipulation of Facts and Issues, Annexes "O", "P", "Q", "R", "S"
& "S-1".
4. Supplemental Joint Stipulation of Facts and Issues, citing CIR's Decision dated
September 21, 2005, Annex "A".
5. Original Tax Payments with CWTs less Disallowed CWTs.
September 21, 2005, Annex "A" — Recommended amount for TCC — for denial due
to prescription.
7. Joint Stipulation of Facts and Issues, Rollo, p. 533.
8. Republic of the Philippines, represented by the Energy Regulatory Board vs. Manila
Electric Company, G.R. No. 141314 and Lawyers Against Monopoly and Poverty
(LAMP), et al. vs. Manila Electric Company, G.R. No. 141369, November 15, 2002.
9. Rollo, pp. 457-463.
10. Supplemental Joint Stipulation of Facts and Issues, Rollo, p. 633.
11. Sec. 229. Recovery of Tax Erroneously or Illegally Collected. — No suit or
proceeding shall be maintained in any court for the recovery of any national internal
revenue tax hereafter alleged to have been erroneously or illegally assessed or
collected, or of any penalty claimed to have been collected without authority, or of
any sum alleged to have been excessively or in any manner wrongfully collected,
until a claim for refund or credit has been duly filed with the Commissioner; but such
suit or proceeding may be maintained, whether or not such tax, penalty, or sum has
been paid under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of two
(2) years from the date of payment of the tax or penalty regardless of any supervening
cause that may arise after payment: Provided, however, That the Commissioner may,
even without a written claim therefor, refund or credit any tax, where on the face of
the return upon which payment was made, such payment appears clearly to have been
erroneously paid.
12. Art. 22. Every person who through an act of performance by another, or any other
means, acquires or comes into possession of something at the expense of the latter
without just or legal ground, shall return the same to him.
13. Art. 2154. If something is received when there is no right to demand it, and it was
unduly delivered through mistake, the obligation to return arises.
14. Art. 1145. The following actions must be commenced within six years:
(1) Upon an oral contract;
(2) Upon a quasi-contract.
15. 244 SCRA 447, 453(1995).
16. G.R. No. 161997, October 25, 2005, 474 SCRA 303 (2005).
17. 89 SCRA 586 (1979).
18. G.R. No. 184823, October 6, 2010.
19. Commissioner of Internal Revenue vs. PAL, G.R. No. 180066, July 7, 2009.
20. No. 07-308, Argued March 24, 2008, decided April 15, 2008, 553 U.S. 1 (2008).
21. Commissioner of Internal Revenue vs. Juliane Baier-Nickel, as represented by
Marina Q. Guzman (Attorney-in-fact), G.R. No. 153793, August 29, 2006, 500
SCRA 87 (2006).
23. Dayrit, et al. vs. Cruz, L-39910, September 21, 1988, 165 SCRA 571.
24. Commissioner of Internal Revenue and Arturo V. Parcero in his official capacity as
Revenue District Officer of Revenue District No. 049 (Makati) vs. Primetown
Property Group, Inc., G.R. No. 162155, August 28, 2007; Philippine Bank of
Communications vs. Commissioner of Internal Revenue, Court of Tax Appeals and
Court of Appeals, G.R. No. 112024, January 28, 1999.

25. Supra, note 6.
26. 244 SCRA 447, 453 (1995).
27. CIR vs. Court of Appeals, et al., G.R. No. 117254, January 21, 1999.
28. Aguila vs. Court of First Instance of Batangas, Branch 1, 160 SCRA 352.
29. Tamio vs. Ticson, G.R. No. 154895, November 18, 2004; citing Air Manila vs. CIR,
83 SCRA 579, 589, June 9, 1978.
30. 244 SCRA 447, 453 (1995).
31. Philippine Phosphate Fertilizer Corporation vs. Commissioner of Internal Revenue,
G.R. No. 141973, June 28, 2005, 461 SCRA 369 (2005), p. 390, citing BPI-Family
Savings Bank, Inc. vs. Court of Appeals, G.R. No. 122480, April 12, 2000, 330 SCRA
507, 509-510.
32. Commissioner of Internal Revenue vs. Smart Communications, Inc., G.R. Nos.
179045-46, August 25, 2010.
33. State Land Investment Corporation vs. Commissioner of Internal Revenue, G.R. No.
171956, January 18, 2008, 542 SCRA 114 (2008).
34. G.R. No. 172129, September 12, 2008, 565 SCRA 154 (2008).
35. Exhibit "Y", Notes to Financial Statements, page 3, paragraph 4.
36. Exhibit "W", Statement of Income for the year ended December 31, 2002.
37. Exhibit "V".
38. Exhibit "Y", Statement of Changes in Stockholders' Equity, page 3.
39. Exhibits "N" and "P".
40. Exhibits "O" and "JJJ".
41. Exhibits "Y", "N" and "P".
42. Exhibit "EE", Annex "C".
43. Exhibit "EE".
44. G.R. No. 156294, November 29, 2006, 508 SCRA 459 (2006).
45. David Reyes (Substituted by Victoria R. Fabella) vs. Jose Lim, Chuy Cheng Keng and
Harrison Lumber, Inc., G.R. No. 134241, August 11, 2003.
46. Supplemental Joint Stipulation of Facts and Issues.
47. Ibid.
48. Ibid.
CASTAÑEDA, JR., J., dissenting opinion:
1. Commissioner of Internal Revenue vs. Isabela Cultural Corporation, G.R. No.
172231, February 12, 2007, 515 SCRA 556.
2. Atlas Consolidated Mining & Dev. Corp. vs. Commissioner of Internal Revenue, G.R.
No. L-26911, January 27, 1981, 102 SCRA 246.
3. Ibid., page 253.
4. Ibid., page 254.
5. Ibid., citing Eaton vs. Comm., 81 F. (2d) 332 (CCA 9th, 1936) as cited in Mertens,
Law of Federal Income Taxation, Volume IV, p. 315.
6. Merten's The Law of Federal Income Taxation, Section 12A.145, Volume 2, (1995)
citing Safety Tube Corp. v. Comm., 8 TC 757 (1947), affd 168 F2d 787 (CCA6 1948);

Westover Co. v. Smyth, 43 AFTR 1283 (ND Cal 1951), citing Mertens text; Johns v.
Comm., TC Memo 1956-119; Mensik v. Comm., 37 TC 703 (1962), affd 328 F2d 147
(CA7 1964); Marquardt Corp. v. Comm., 39 TC 443 (1962).
7. As cited in Merten's The Law of Federal Income Taxation, Section 12A.152, Volume
2, (1995).
8. Supra, note 6, Section 12A.146 citing Gaddis v. US., 330 F Supp 741 (D Miss 1971).
9. Supra, note 6, Section 12A.146 citing E.g., IRC Section 162 (a). See Grandview
Mines v. Comm., 32 TC 759 (1959), affd 282 F2d 700 (CA9 1060); Berger v. Comm.,
37 TC 1026 (1962). See also Equitable Life Ins. Co. of Iowa v. U.S., 340 F2d 9 (CA8
1965); National Life & Accident Ins. Co. v. U.S., 244 F Supp 135 (MD Tenn 1965),
citing Mertens text, affd 385 F2d 832 (CA6 1967) (deductions under life insurance
companies' provisions of the Code).
10. Ibid., citing Oswald v. Comm., 49 TC 645 (1968).
11. Ibid., citing Comm. v. Switlik, 184 F2d 299 (CA3 1950); O'Meara v. Comm., 8 TC
622 (1947).
12. As cited in Merten's The Law of Federal Income Taxation, Section 12A.161-162,
Volume 2, (1995).
13. Commissioner of Internal Revenue vs. Solidbank Corporation, G.R. No. 148191,
November 25, 2003, 416 SCRA 436, 453.
14. C.T.A. Case No. 3393, July 27, 1983, citing Rutkin vs. United States, 343 US 131,
137; 96 L. Ed. 835, 839 and National City Bank vs. Helvering [CA 2d] 98 F 2d 93,
96.
15. No. L-11976, August 29, 1961, 2 SCRA 1007.
16. G.R. No. 96322, December 20, 1991, 204 SCRA 957.
17. Aban, Benjamin B., Law of Basic Taxation in the Philippines, revised edition, page
328.
18. Guagua Electric Light Plant Co., Inc. vs. CIR CTA, G.R. No. L-14421, April 29,
1961, 1 SCRA 1221, 1225.
19. Atlanta Land Corporation vs. Commissioner of Internal Revenue, C.T.A. EB No. 79,
May 23, 2006, C.T.A. Case No. 6987 citing Arañas, Annotations and Jurisprudence
on the National Internal Revenue Code of 1977, As Amended, Sixth Edition, p. 571.
In a Resolution dated June 18, 2007, the Supreme Court affirmed the CTA and held
that petitioner Atlanta Land Corporation failed to sufficiently show that the CTA
committed any reversible error in the challenged decision as to warrant the exercise
of the court's discretionary appellate jurisdiction.
20. Fourth edition, 1978, page 549.
21. Second edition, 2005, page 191.
22. Supra, note 21.
23. Supra, note 19.
24. Philippine Bank of Communications vs. Commissioner of Internal Revenue, G.R. No.
112024, January 28, 1999, 302 SCRA 241, 250.
25. Abello vs. Commissioner of Internal Revenue, G.R. No. 120721, February 23, 2005,

452 SCRA 162 citing the cases of Cebu Portland Cement Co. v. Municipality of
Naga, 24 SCRA 708 [1968], Rizal Commercial Banking Corporation vs.
Intermediate Appellate Court, G.R. No. 74851, December 9, 1999, 320 SCRA 279,
289.
26. Ibid., citing Chartered Bank Employees Association v. Ople, 138 SCRA 273 [1985];
Luzon Surety Co., Inc. v. De Garcia, 30 SCRA 111 [1969]; Quijano v. Development
Bank of the Philippines, 35 SCRA 270 [1970].
27. G.R. No. 105208, May 29, 1995.
28. 102 Phil. 912.
29. No. L-10574, May 28, 1958, 103 Phil. 819.
30. Commissioner of Internal Revenue vs. S.C. Johnson and Son, Inc., G.R. No. 127105,
June 25, 1999, 309 SCRA 87, 108 citing Commissioner of Internal Revenue vs. Tokyo
Shipping Co., Ltd., 244 SCRA 332; Province of Tarlac vs. Alcantara, 216 SCRA
790, Magsaysay Lines, Inc. vs. Court of Appeals, 260 SCRA 513, Wonder
Mechanical Engineering Corporation vs. CTA, 64 SCRA 555.
31. Supra, note 30.
32. Commissioner of Internal Revenue vs. Far East Bank & Trust Co., G.R. No. 173854,
March 15, 2010, citing Atlas Consolidated Mining and Development Corporation v.
Commissioner of Internal Revenue, G.R. No. 159490, February 18, 2008, 546 SCRA
150, 163.

Endnotes
1 (Popup - Popup)
1. Rollo, pp. 479-493.
2 (Popup - Popup)
2. Supplemental Joint Stipulation of Facts and Issues, Rollo, pp. 623-624.
3 (Popup - Popup)
3. Supplemental Joint Stipulation of Facts and Issues, Annexes "O", "P", "Q", "R", "S"
& "S-1".
4 (Popup - Popup)
September 21, 2005, Annex "A".
5 (Popup - Popup)
5. Original Tax Payments with CWTs less Disallowed CWTs.
6 (Popup - Popup)
September 21, 2005, Annex "A" — Recommended amount for TCC — for denial due
to prescription.
7 (Popup - Popup)
7. Joint Stipulation of Facts and Issues, Rollo, p. 533.
8 (Popup - Popup)

9 (Popup - Popup)
9. Rollo, pp. 457-463.
10 (Popup - Popup)
* Note from the Publisher: Copied verbatim from the official copy.
11 (Popup - Popup)
10. Supplemental Joint Stipulation of Facts and Issues, Rollo, p. 633.
12 (Popup - Popup)
11. Sec. 229. Recovery of Tax Erroneously or Illegally Collected. — No suit or
proceeding shall be maintained in any court for the recovery of any national internal
revenue tax hereafter alleged to have been erroneously or illegally assessed or
collected, or of any penalty claimed to have been collected without authority, or of
any sum alleged to have been excessively or in any manner wrongfully collected,
until a claim for refund or credit has been duly filed with the Commissioner; but such
suit or proceeding may be maintained, whether or not such tax, penalty, or sum has
been paid under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of two
(2) years from the date of payment of the tax or penalty regardless of any supervening
cause that may arise after payment: Provided, however, That the Commissioner may,
even without a written claim therefor, refund or credit any tax, where on the face of
the return upon which payment was made, such payment appears clearly to have been
erroneously paid.
13 (Popup - Popup)
12. Art. 22. Every person who through an act of performance by another, or any other
means, acquires or comes into possession of something at the expense of the latter
without just or legal ground, shall return the same to him.
14 (Popup - Popup)

13. Art. 2154. If something is received when there is no right to demand it, and it was
unduly delivered through mistake, the obligation to return arises.
15 (Popup - Popup)
14. Art. 1145. The following actions must be commenced within six years:
(1) Upon an oral contract;
(2) Upon a quasi-contract.
16 (Popup - Popup)
15. 244 SCRA 447, 453(1995).
17 (Popup - Popup)
16. G.R. No. 161997, October 25, 2005, 474 SCRA 303 (2005).
18 (Popup - Popup)
17. 89 SCRA 586 (1979).
19 (Popup - Popup)
18. G.R. No. 184823, October 6, 2010.
20 (Popup - Popup)
19. Commissioner of Infernal Revenue vs. PAL, G.R. No. 180066, July 7, 2009.
21 (Popup - Popup)
20. No. 07-308, Argued March 24, 2008, decided April 15, 2008, 553 U.S. 1 (2008).
22 (Popup - Popup)
21. Commissioner of Internal Revenue vs. Juliane Baier-Nickel, as represented by
Marina Q. Guzman (Attorney-in-fact), G.R. No. 153793, August 29, 2006, 500
SCRA 87 (2006).
23 (Popup - Popup)
24 (Popup - Popup)
23. Dayrit, et al. vs. Cruz, L-39910, September 21, 1988, 165 SCRA 571.
25 (Popup - Popup)
24. Commissioner of Internal Revenue and Arturo V. Parcero in his official capacity as
Revenue District Officer of Revenue District No. 049 (Makati) vs. Primetown
Property Group, Inc., G.R. No. 162155, August 28, 2007; Philippine Bank of
Communications vs. Commissioner of Internal Revenue, Court of Tax Appeals and
Court of Appeals, G.R. No. 112024, January 28, 1999.
26 (Popup - Popup)
25. Supra, note 6.
27 (Popup - Popup)
26. 244 SCRA 447, 453 (1995).
28 (Popup - Popup)
27. CIR vs. Court of Appeals, et al., G.R. No. 117254, January 21, 1999.
29 (Popup - Popup)
28. Aguila vs. Court of First Instance of Batangas, Branch 1, 160 SCRA 352.

30 (Popup - Popup)
29. Tamio vs. Ticson, G.R. No. 154895, November 18, 2004; citing Air Manila vs. CIR,
83 SCRA 579, 589, June 9, 1978.
31 (Popup - Popup)
30. 244 SCRA 447, 453 (1995).
32 (Popup - Popup)
31. Philippine Phosphate Fertilizer Corporation vs. Commissioner of Internal Revenue,
G.R. No. 141973, June 28, 2005, 461 SCRA 369 (2005), p. 390, citing BPI-Family
Savings Bank, Inc. vs. Court of Appeals, G.R. No. 122480, April 12, 2000, 330
SCRA 507, 509-510.
33 (Popup - Popup)
32. Commissioner of Internal Revenue vs. Smart Communications, Inc., G.R. Nos.
179045-46, August 25, 2010.
34 (Popup - Popup)
33. State Land Investment Corporation vs. Commissioner of Internal Revenue, G.R. No.
171956, January 18, 2008, 542 SCRA 114 (2008).
35 (Popup - Popup)
34. G.R. No. 172129, September 12, 2008, 565 SCRA 154 (2008).
36 (Popup - Popup)
35. Exhibit "Y", Notes to Financial Statements, page 3, paragraph 4.
37 (Popup - Popup)
36. Exhibit "W", Statement of Income for the year ended December 31, 2002.

38 (Popup - Popup)
37. Exhibit "V".
39 (Popup - Popup)
38. Exhibit "Y", Statement of Changes in Stockholders' Equity, page 3.
40 (Popup - Popup)
39. Exhibits "N" and "P".
41 (Popup - Popup)
40. Exhibits "O" and "JJJ".
42 (Popup - Popup)
41. Exhibits "Y", "N" and "P".
43 (Popup - Popup)
42. Exhibit "EE", Annex "C".
44 (Popup - Popup)
43. Exhibit "EE".
45 (Popup - Popup)
44. G.R. No. 156294, November 29, 2006, 508 SCRA 459 (2006).
46 (Popup - Popup)
45. David Reyes (Substituted by Victoria R. Fabella) vs. Jose Lim, Chuy Cheng Keng
and Harrison Lumber, Inc., G.R. No. 134241, August 11, 2003.
47 (Popup - Popup)
46. Supplemental Joint Stipulation of Facts and Issues.
48 (Popup - Popup)
47. Ibid.
49 (Popup - Popup)
48. Ibid.
50 (Popup - Popup)
1. Commissioner of Internal Revenue vs. Isabela Cultural Corporation, G.R. No.
172231, February 12, 2007, 515 SCRA 556.
51 (Popup - Popup)
2. Atlas Consolidated Mining & Dev. Corp. vs. Commissioner of Internal Revenue,
G.R. No. L-26911, January 27, 1981, 102 SCRA 246.
52 (Popup - Popup)
3. Ibid., page 253.
53 (Popup - Popup)
4. Ibid., page 254.
54 (Popup - Popup)
5. Ibid., citing Eaton vs. Comm., 81 F. (2d) 332 (CCA 9th, 1936) as cited in Mertens,
Law of Federal Income Taxation, Volume IV, p. 315.

55 (Popup - Popup)
6. Merten's The Law of Federal Income Taxation, Section 12A.145, Volume 2, (1995)
citing Safety Tube Corp. v. Comm., 8 TC 757 (1947), affd 168 F2d 787 (CCA6
1948); Westover Co. v. Smyth, 43 AFTR 1283 (ND Cal 1951), citing Mertens text;
Johns v. Comm., TC Memo 1956-119; Mensik v. Comm., 37 TC 703 (1962), affd
328 F2d 147 (CA7 1964); Marquardt Corp. v. Comm., 39 TC 443 (1962).
56 (Popup - Popup)
7. As cited in Merten's The Law of Federal Income Taxation, Section 12A.152, Volume
2, (1995).
57 (Popup - Popup)
8. Supra, note 6, Section 12A.146 citing Gaddis v. US., 330 F Supp 741 (D Miss 1971).
58 (Popup - Popup)
9. Supra, note 6, Section 12A.146 citing E.g., IRC Section 162 (a). See Grandview
Mines v. Comm., 32 TC 759 (1959), affd 282 F2d 700 (CA9 1060); Berger v.
Comm., 37 TC 1026 (1962). See also Equitable Life Ins. Co. of Iowa v. U.S., 340
F2d 9 (CA8 1965); National Life & Accident Ins. Co. v. U.S., 244 F Supp 135 (MD
Tenn 1965), citing Mertens text, affd 385 F2d 832 (CA6 1967) (deductions under life
insurance companies' provisions of the Code).
59 (Popup - Popup)
10. Ibid., citing Oswald v. Comm., 49 TC 645 (1968).
60 (Popup - Popup)
11. Ibid., citing Comm. v. Switlik, 184 F2d 299 (CA3 1950); O'Meara v. Comm., 8 TC
622 (1947).

61 (Popup - Popup)
12. As cited in Merten's The Law of Federal Income Taxation, Section 12A.161-162,
Volume 2, (1995).
62 (Popup - Popup)
13. Commissioner of Internal Revenue vs. Solidbank Corporation, G.R. No. 148191,
November 25, 2003, 416 SCRA 436, 453.
63 (Popup - Popup)
14. C.T.A. Case No. 3393, July 27, 1983, citing Rutkin vs. United States, 343 US 131,
137; 96 L. Ed. 835, 839 and National City Bank vs. Helvering [CA 2d] 98 F 2d 93,
96.
64 (Popup - Popup)
15. No. L-11976, August 29, 1961, 2 SCRA 1007.
65 (Popup - Popup)
16. G.R. No. 96322, December 20, 1991, 204 SCRA 957.
66 (Popup - Popup)
17. Aban, Benjamin B., Law of Basic Taxation in the Philippines, revised edition, page
328.
67 (Popup - Popup)
18. Guagua Electric Light Plant Co., Inc. vs. CIR CTA, G.R. No. L-14421, April 29,
1961, 1 SCRA 1221, 1225.
68 (Popup - Popup)
19. Atlanta Land Corporation vs. Commissioner of Internal Revenue, C.T.A. EB No. 79,
May 23, 2006, C.T.A. Case No. 6987 citing Arañas, Annotations and Jurisprudence
on the National Internal Revenue Code of 1977, As Amended, Sixth Edition, p. 571.
In a Resolution dated June 18, 2007, the Supreme Court affirmed the CTA and held
that petitioner Atlanta Land Corporation failed to sufficiently show that the CTA
committed any reversible error in the challenged decision as to warrant the exercise
of the court's discretionary appellate jurisdiction.
69 (Popup - Popup)
20. Fourth edition, 1978, page 549.
70 (Popup - Popup)
21. Second edition, 2005, page 191.
71 (Popup - Popup)
22. Supra, note 21.
72 (Popup - Popup)
23. Supra, note 19.
73 (Popup - Popup)
24. Philippine Bank of Communications vs. Commissioner of Internal Revenue, G.R. No.
112024, January 28, 1999, 302 SCRA 241, 250.
74 (Popup - Popup)
25. Abello vs. Commissioner of Internal Revenue, G.R. No. 120721, February 23, 2005,
452 SCRA 162 citing the cases of Cebu Portland Cement Co. v. Municipality of
Naga, 24 SCRA 708 [1968], Rizal Commercial Banking Corporation vs. Intermediate
Appellate Court, G.R. No. 74851, December 9, 1999, 320 SCRA 279, 289.
75 (Popup - Popup)
26. Ibid., citing Chartered Bank Employees Association v. Ople, 138 SCRA 273 [1985];

Luzon Surety Co., Inc. v. De Garcia, 30 SCRA 111 [1969]; Quijano v. Development
Bank of the Philippines, 35 SCRA 270 [1970].
76 (Popup - Popup)
27. G.R. No. 105208, May 29, 1995.
77 (Popup - Popup)
28. 102 Phil. 912.
78 (Popup - Popup)
29. No. L-10574, May 28, 1958, 103 Phil. 819.
79 (Popup - Popup)
30. Commissioner of Internal Revenue vs. S.C. Johnson and Son, Inc., G.R. No. 127105,
June 25, 1999, 309 SCRA 87, 108 citing Commissioner of Internal Revenue vs.
Tokyo Shipping Co., Ltd., 244 SCRA 332; Province of Tarlac vs. Alcantara, 216
SCRA 790, Magsaysay Lines, Inc. vs. Court of Appeals, 260 SCRA 513, Wonder
Mechanical Engineering Corporation vs. CTA, 64 SCRA 555.
80 (Popup - Popup)
31. Supra, note 30.
81 (Popup - Popup)
32. Commissioner of Internal Revenue vs. Far East Bank & Trust Co., G.R. No. 173854,
March 15, 2010, citing Atlas Consolidated Mining and Development Corporation v.
Commissioner of Internal Revenue, G.R. No. 159490, February 18, 2008, 546 SCRA
150, 163.

Meralco vs. CIR (December 6, 2010) PDF

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SECOND DIVISION

[C.T.A. CASE NO. 7242. December 6, 2010.]

MANILA ELECTRIC COMPANY, petitioner, vs. COMMISSIONER

The said Amended Petition is an appeal from respondent CIR's inaction/denial

1994 P1,847,186,617 P1,847,186,617 P1,149,772,719.52 P697,413,897.48

1995 P2,112,659,180 P2,112,659,180 P1,369,237,724.71 P743,421,455.29

1996 P2,601,323,036 P15,544 P2,601,307,492 P1,584,311,872.82 P1,016,995,619.18

1997 P2,591,310,020 P54,568.24 P2,591,255,451.76 P1,496,450,692.45 P1,094,804,759.31

1998 P2,361,775,866 P18,214 P2,361,757,652 P1,233,907,225.60 P1,127,850,426.40

2000 P1,558,159,055 P2,687,466.29 P1,555,471,588.71 P439,614,953.66 P1,115,856,635.05

Copyright 1994-2015 CD Technologies Asia, Inc. Taxation 2014 1

"WHEREFORE, in view of the foregoing, the instant petitions are

Petitioner MERALCO is a domestic corporation duly organized and existing

On February 16, 1998, the Energy Regulatory Board rendered a Decision

MERALCO appealed the Decision of the Energy Regulatory Board to the

1994 P5,277,676,049 P3,073,619,745 P1,847,186,617 P1,075,766,911 P771,419,706

"xxx xxx xxx.

7.) This Honorable Court is without jurisdiction to entertain the

Copyright 1994-2015 CD Technologies Asia, Inc. Taxation 2014 4

9.) Petitioner likewise invokes Article 2154 of the Civil Code, of

10.) However, petitioner has no cause of action under the provision of

12.) The inequity of the petition is further exposed when it is

14.) Furthermore, in action for refund, the burden of proof is on the

15.) The government will not be unduly enriched by keeping the

Thereafter, in a letter dated September 21, 2005 (which was received on

In the course of the proceedings, the parties submitted their "JOINT

Nonetheless, the parties filed a "SUPPLEMENTAL JOINT STIPULATION

After trial, the parties were directed to file their Memoranda.

2. Whether or not petitioner has charged to expense or to loss or offset

3. Whether or not petitioner's right to recover its excess income tax

We find the Petition meritorious.

We discuss the issues in seriatim.

1. As to the first issue —

(1) erroneously or illegally assessed or collected, or

(2) of any penalty claimed to have been collected without authority, or

(3) of any sum alleged to have been excessive or in any manner

Copyright 1994-2015 CD Technologies Asia, Inc. Taxation 2014 8

MERALCO contends that it would be absurd to reckon the running of the

Hence, MERALCO maintains that based on the special circumstance of the

Suffice it to say that in the recent case of Commissioner of Internal Revenue

"A taxpayer is entitled to a refund either by authority of a statute

Evidently, the provisions of the National Internal Revenue Code shall

We rejected the claim, holding that the Tucker Act limitations

In this jurisdiction, it is quite evident that a shorter statute of limitation to a

Copyright 1994-2015 CD Technologies Asia, Inc. Taxation 2014 12

Copyright 1994-2015 CD Technologies Asia, Inc. Taxation 2014 13

Equity as the complement of legal jurisdiction seeks to reach and do complete

"Moreover, even if the two-year period had already lapsed, the

". . . Technicalities and legalisms, however exalted, should not be

In the case of Commissioner of Internal Revenue vs. Mirant Pagbilao

Consequently, we will apply the foregoing elementary principles in our

Copyright 1994-2015 CD Technologies Asia, Inc. Taxation 2014 15

"Whether or not petitioner has charged to expense or to loss or offset against

The Notes to Financial Statements, attached to MERALCO's Audited

Based from the foregoing, the amounts to be refunded to or credited against

Copyright 1994-2015 CD Technologies Asia, Inc. Taxation 2014 16

A scrutiny of MERALCO's Statement of Income (as restated) for the year

2002 2003 2004 2005

Balance, January 1 P - P28,728 P25,608 P20,551

Breakdown of AP-Customers Refund as shown in B/S

Total Refunded to customers to date P - P4,715 P9,772 P10,566

Copyright 1994-2015 CD Technologies Asia, Inc. Taxation 2014 18

3. As to the third issue stipulated upon by the parties —