Meralco Vs CIR

(1)
SECOND DIVISION
[C.T.A. CASE NO. 7242. April 15, 2011.]

For: Refund or issuance of a Tax Credit Certificate
MANILA ELECTRIC COMPANY, petitioner, vs. COMMISSIONER

OF INTERNAL REVENUE, respondent.
RESOLUTION
MINDARO-GRULLA, J : p
This resolves respondent's "Motion for Reconsideration" and petitioner's

"Motion for Partial Reconsideration and Clarification" of the Decision dated
December 6, 2010 of this Court, the dispositive portion of which reads:
"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 taxable years 1994-1998 and 2000 is hereby
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 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.
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia 2016 1
Nos. 141314 and 141369, has been actually given or credited to them by
MERALCO.
SO ORDERED."
In two (2) separate Resolutions dated January 4, 2011 and January 12, 2011,
this Court, among others, directed petitioner and respondent to file their respective
comment to the Motion for Reconsideration and Motion for Partial Reconsideration
and Clarification. Petitioner filed its comment but respondent did not file her
comment despite notice thereof. ASTcaE
Respondent CIR, in assailing this Court's Decision, argues that a claim for
refund filed after the two-year prescriptive period provided under Section 229 of the
1997 National Internal Revenue Code, as amended, effectively bars recovery of any
refundable amount. Apparently, among the several issues previously stipulated and
agreed upon by the parties to be resolved by this Court, respondent only assails the
findings and conclusions pertaining to prescription. Respondent basically rehashed its
arguments previously passed upon and discussed by this Court. Further, queuing from
the dissenting opinion of the learned Associate Justice Juanito C. Castañeda,
respondent now asserts that this case is not worthy of the relaxation of the two-year
prescriptive period and argued as follows:
"According to Justinian, equity is 'justice sweetened by mercy.' This kind

of gesture of the law, however, is reserved for one whose cause is immaculate
and yet along the way, had fallen from grace. Such is not the case in this
instance. 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 issued its Decision ordering it to refund Php.167 kilowatt
hour to its consumers. At that point, petitioner should have ceased burdening the
Filipino people and refunded the excess amount 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. Such actuations do not merit equity.
Ultimately, the strict construction of refund laws prevails."
Petitioner in its Comment claims that respondent's Motion for Reconsideration

is devoid of merit and stress that the two-year prescriptive period is not jurisdictional
and may be suspended for reason of equity and other special circumstance. Also,
petitioner avers that the suggestion of claiming the repayments as deduction instead of
tax refund (pertaining to the excess income tax payments) would still unduly enrich
the government at the expense of the taxpayer, to wit:
"The remedy of claiming the repayments of the portion of the

provisional increase considered overcharges as deductions from income in the
year the obligation to pay or accrue arises, which is suggested in the dissenting
opinion, does not afford the petitioner complete relief. . . . . If the subsequent
repayments to customers are merely treated as deductions from income,
petitioner will not be able to recover the full amounts of excess income tax paid
during the taxable year in question but will realize only a partial tax benefit to
the extent of the prevailing income tax rates in the subsequent years the
obligation to pay or accrue arises. In such a case, the government will still be
unduly enriched at the expense of the taxpayer."
On the other hand, in petitioner's "Motion for Partial Reconsideration and

Clarification", petitioner assailed this Court's Decision, but rather specifically only on
its dispositive portion. Petitioner seeks clarification on the basis for determining the
amount of refund or credit to future consumption actually given or credited to its
customers for which respondent will issue the corresponding tax credit certificate.
Admitting the high probability that the total amount of refund or credit to future
consumption of the customers entitled in the Supreme Court Decision in G.R. Nos.
141314 and 141369, may not be fully refunded or credited as some of the electric
service accounts of customers entitled thereto are terminated, petitioner wants to
ensure the whole amount of tax refund and/or tax credit despite the probability of
existence of a residual amount under the said Supreme Court Decision. IcHSCT
We resolve.
The focal point in the instant case is whether the two-year prescriptive period
under Section 229 of the 1997 National Internal Revenue Code, as amended, may be
suspended. The answer is in the affirmative. The Supreme Court categorically ruled in
the case of CIR vs. Philippine American Life Insurance Co. 1(2) that "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." Indeed, if the
circumstances warrant, the interpretation on the law on prescription may be relaxed
for equitable reason primarily on the ground that it is a remedial measure intended for
the beneficent purpose of balancing the taxpayer and the government's interest. Thus,
the question arises as to whether the circumstances in the instant case warrant the
relaxation of the prescriptive period.
Considering the case of CIR vs. PNB, 2(3) a refund of overpayment of (advance)
income tax, citing the case of Panay vs. CIR, 3(4) a refund of overpayment of franchise
tax, even though were not squarely in all points, the Supreme Court's pronouncements
in these cases are relevant, to wit:
"While perhaps not in all fours because it involved the refund of overpayment
due to misinterpretation of the law on franchise, our ruling in Panay Electric
Co. vs. Collector of Internal Revenue, is apropos. There, the Court stated:
'. . . (L)egally speaking, the decision of the Tax Court [on the
two-year prescriptive period for tax refund] is therefore correct,
being in accordance with law. However, one's conscience does
not and cannot rest easy on this strict application of the law,
considering the special circumstances that surround this case.
Because of his erroneous interpretation of the law on franchise
taxes, the Collector, from the year 1947 had illegally collected
from petitioner the respectable sum of . . . From a moral
standpoint, the Government would be enriching itself of this
amount at the expense of the taxpayer.' (Words in bracket
added and underscoring added.)
Like the CA, this Court perceives no compelling reason why the
principle enunciated in Panay Electric and Commissioner vs. Phil-Am Life
should not be applied in this case, more so since the amount over which tax
credit is claimed was theoretically booked as advance income tax payment."
It is beyond cavil that there were excessive income tax payments for the
taxable years 1994-1998 and 2000-2001 and the peculiar circumstances surrounding
the instant case which is undisputed, to our circumspection as stated in the assailed
Decision warrant the relaxation of the prescriptive period. The Energy Regulatory
Board (ERB) 4(5) now Energy Regulatory Commission tasked to regulate among others
the distribution of energy resources and to fix rates to be charged by public utilities
involved in the distribution of electricity, approved MERALCO's application for
provisional rate increase. Billings thereon were included part of the income and the
corresponding taxes were paid and collected. Thereafter, the ERB issued its Decision
ordering it to refund Php.167 kilowatt hour to its consumers which, however, was set
aside by the Court of Appeals. Later on, the Court of Appeal's Decision was reversed
by the Supreme Court. aIcETS
Respondent CIR maintains that petitioner had the opportunity to claim for
refund as early as 1998 when the ERB issued its Decision ordering it to refund
Php.167 kilowatt hour to its consumers. That is, petitioner should have ceased
burdening the Filipino people and refunded the excess amount it collected but,
instead, chose to go through the court processes mindful of all its consequences.
Therefore, such actuations do not merit equity.
However, it is noted that the previously recognized income using the

provisional rate increase from which taxes were collected was ordered to be returned
to the consumer. The CIR cannot collect taxes on income that does not exist.
Correspondingly, a taxpayer should not be prohibited from recovering taxes paid on
income that does not exist or ceases to exist. To do so is a clear case of unjust
enrichment for the government at the expense of the taxpayer.
Nonetheless, had not the ERB approved MERALCO's provisional rate increase
and allow MERALCO to collect based on a rate the reasonableness and correctness of
which is still subject to deep scrutiny, this controversy would not exist, but it did.
Unfortunately, the reasonableness and correctness of the rate increase to be charged to
the public was held final and executory by the Supreme Court only on May 5, 2003.
Going through the court processes to enforce a person's right absent of any evidence
of bad faith should not be taken against such person. Hence, a taxpayer should not be
faulted for claiming refund on the taxes collected by the BIR on the reported income
from which the Supreme Court ordered to be returned. Concomitantly, MERALCO
should not be faulted from billing its consumers using the provisional rate increase
and reporting the same as income. In the same vein, MERALCO should not be totally
faulted from allegedly sleeping on its rights for not filing a claim for refund (ad
cautelam) within two years from payment of the income tax.
It is further noted that at the point in time that the taxes pertaining to the instant
case were collected by the respondent CIR for the taxable years 1994-1998 and
2000-2001 or even two (2) years thereafter, it cannot be gainsaid that it is erroneous or
illegal, without authority, excessive or in any manner wrongfully collected. To
reiterate, MERALCO declared as income those collection based on the provisional
rate increase and paid the corresponding taxes thereon. Part of said income was
ordered to be returned to the MERALCO's consumers. Thus, it is only but equitable
that the income tax corresponding to the collections pertaining to the Supreme Court
cases which became final and executory on May 5, 2003 be returned. Hence, we have
ruled pro hac vice that due to the peculiar circumstances of the instant case, the
two-year prescriptive period therein be relaxed.
Suffice it to say that there is basis as to petitioner's allegation that the

suggestion of claiming the repayments as deduction instead of tax refund (pertaining
to the excess income tax payments) would still unduly enrich the government at the
expense of the taxpayer in relation to the "claim of right doctrine", primarily used as a
criterion for determining what constituted "gross income". 5(6) Said doctrine originated
in an American jurisprudence way back in 1932, specifically, in the case of North
American Oil Consolidated v. Burnet. 6(7)
In the leading case of the "claim of right doctrine", North American Oil was
involved in a dispute over the year in which income, earned on property held by a
receiver during a title dispute between the taxpayer and the government, was to be
taxed. The possibilities were 1916, the year in which the income was earned; 1917,
the year in which the district court ruled in favor of the taxpayer and the money was
paid to the taxpayer; or 1922, the year the litigation was finally terminated in the
taxpayer's favor. In an opinion by Justice Brandeis of the US Supreme Court, 1917
was the year that the income must be reported and this set forth the claim of right
doctrine as follows: 7(8) SIcEHC
"If a taxpayer receives earnings under a claim of right and without

restriction as to its disposition, he has received income which he is required to
return, even though it may still be claimed that he is not entitled to retain the
money, and even though he may still be adjudged liable to restore its equivalent.
If in 1922 the government had prevailed, and the company had been obliged to
refund the profits received in 1917, it would have been entitled to a deduction
from the profits of 1922, not from those of any earlier year."
However, aware of the inequities related to this doctrine, the need to mitigate
the same becomes imperative. Thus, the US Congress 8(9) enacted section 1341 9(10) of
the 1954 Code to alleviate some of the inequities 10(11) felt existed in this area. 11(12) If
a taxpayer is entitled to a deduction only in the year of repayment, it may face an
inequity and a deduction in the year of repayment, often will not reduce the taxpayer's
tax liability by the same amount paid as a result of the initial receipt of income.
Also, an application of claim of right doctrine prohibits a taxpayer to amend

prior-year's return. 12(13) Obviously, if a taxpayer were simply able to amend the
prior-year's return, the claim-of-right doctrine would be unnecessary. Concomitantly,
this so-called "claim of right doctrine" particularly the deduction of repayments,
evolved into a procedure created by a statutory law in the US for the computation of
tax where the taxpayer restores a substantial amount of income previously reported
under the claim of right.
While the Philippine tax laws were based on the federal tax laws of the United
States, and pursuant to established rules of statutory construction, the Decisions of
American Courts construing the Federal Tax Code are entitled to great weight in the
interpretation of our own tax laws, 13(14) the instant case however does not warrant its
application.
Apparently, our lawmakers did not adopt Section 1341 of the US Internal
Revenue Code. 14(15) A perusal of Commonwealth Act No. 466, "An Act to Revise,
Amend and Codify the Internal Revenue Laws of the Philippines" (1939), Presidential
Decree No. 1158 "Decree to Consolidate and Codify All the Internal Revenue Laws
of the Philippines" (1977), and Republic Act No. 8424 "An Act Amending the
National Internal Revenue Code, as Amended, and for Other Purposes (1997), reveals
that there is no provision similar to section 1341 of the US Internal Revenue Code.
Our lawmakers did not enact a statute pertaining to claim of right situation. Hence,
our lawmakers appear to see it fit not to adopt the procedure of deducting those
repayments previously claimed as income.
Hence, the said doctrine may come into play only in determining whether the
treatment of an item of income should be influenced by the fact that the right to
receive or keep it is in dispute, but the full application of the said doctrine especially
the deduction of those repayments previously claimed and taxed as income in different
taxable years should not be given effect. Therefore, the taxpayer cannot fully rely on
claim of right doctrine and deduct those repayments previously claimed and taxed as
income. Under the United States Tax Code, the United States legislature specifically
addressed the inequities that arise under the "claim of right" and Sec. 1341 was
enacted with respect to the deductions thereto. In our jurisdiction, an item is
deductible only if specifically allowed by our Tax Code. Unfortunately, our Tax Code
did not provide that repayments previously claimed and taxed as income under the
claim of right situation, is specifically deductible in the year of repayments. IaEACT
In view of the inequities related to this so-called "claim of right doctrine" as

well as the fact that our legislature did not adopt nor enact a statute regarding the
deductibility of repayment under the claim of right situation similar to Section 1341 of
the US Internal Revenue Code, it is in our best interest not to fully adopt the same in
our jurisdiction. If it were the intent of the legislature to have a deduction based on
claim of right situation, a similar provision of Section 1341 of the US Internal
Revenue Code would have been expressly provided either in the "NIRC of 1977",
"NIRC of 1997" or in any amendments made thereon but there is none. Inevitably,
neither should we adopt the deductibility of repayments under the claim of right
situation since our legislature intentionally did not adopt the same.
As to petitioner's assertion to modify our Decision for the silence of basis for
determining the amount of refund or credit to future consumption actually given or
credited to its customers for which respondent will issue the corresponding tax credit
certificate considering the probability that the total amount of refund or credit to
future consumption of the customers entitled in the Supreme Court Decision in G.R.
Nos. 141314 and 141369, may not be fully refunded or credited, We are not
persuaded.
As previously held, MERALCO's admission and acceptance of the Audit

findings and Resolution of respondent CIR as embodied in their "Supplemental Joint
Stipulation of Facts and Issues", is noted, to wit:
"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 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 customer in the average amount of P0.167 per kilowatthour has
actually been credited or given to customer."
Corollary to petitioner's admission and acceptance of the mathematical

computation is also the admission and acceptance of the basis of determining the
amount of refund or credit to future consumption actually given or credited to its
customers expressed and set forth by the respondent CIR in their Audit Findings and
Resolutions which we held to be just and equitable.
In sum, while taxes are the lifeblood of the government and so should be
collected without unnecessary hindrance, such collection should be made in
accordance with law as any arbitrariness will negate the very reason for government
itself. It is therefore necessary to reconcile the apparently conflicting interests of the
authorities and the taxpayers so that the real purpose of taxation, which is the
promotion of the common good, may be achieved. 15(16) But the power of taxation is
sometimes called also the power to destroy. Therefore it should be exercised with
caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised
fairly, equally and uniformly, lest the tax collector kills the 'hen that lays the golden
egg.' And, in order to maintain the general public's trust and confidence in the
government this power must be used justly and not treacherously." 16(17) DTESIA
WHEREFORE, premises considered, both respondent's "Motion for

Reconsideration" and petitioner's "Motion for Partial Reconsideration and
Clarification" are hereby DENIED.
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

Resolution penned by Associate Justice Cielito N. Mindaro-Grulla. I vote to GRANT
respondent's "Motion for Reconsideration" and to DENY petitioner's "Motion for
Partial Reconsideration and Clarification." The reasons for my vote have been
discussed in my previous Dissenting Opinion. However, I wish to reiterate and
highlight a few points.
1. 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 1997 NIRC.
1.a. P.D. No. 69 originally added the phrase "regardless of any

supervening cause;" a mandatory provision not subject to
any qualification;
1.b. Rationale behind the two (2)-year prescriptive period; and
1.c. Section 229 of 1997 NIRC of 1997 applies not only to

erroneously and excessively paid tax but also to overpaid
taxes.
2. The claim-of-right doctrine is consistent with the recognition of

income and deduction under the 1997 NIRC.
2.a. Prescription begins to run when petitioner recognizes

income from overcharges;
2.b. Avoidance of claim-of-right doctrine; and CSHEca
2.c. Prematurity.
1. 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 1997 NIRC.
In a claim for refund, 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. 1(18) Section 229 of the 1997 National Internal
Revenue Code (NIRC) allows the taxpayer a period of two (2) years from date of
payment of the tax regardless of any supervening cause within which to file a claim
for refund.
1.a P.D. No. 69 originally added

the phrase "regardless of any
supervening cause; " a
mandatory provision not
subject to any qualification.
The prescriptive period is not affected by any supervening cause, hence, the
phrase "regardless of any supervening cause." It should be noted that under the
Philippine law, this phrase was emphasized and 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 after the lapse of the two (2)-year period,
a supervening cause should arise which would entitle the taxpayer to refund."
2(19) The two (2)-year period is always to be reckoned from the date of the payment
regardless of any supervening cause. 3(20)
1.b Rationale behind the two (2)

year prescriptive.
The advent of the phrase "regardless of any supervening cause" espouses the
rationale behind the two (2)-year prescriptive period which 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. 4(21)
Without the strict observance of the prescriptive period, the government will always
be at the losing end, refunding the taxes whenever supervening cause arises even after
the expiration of the two (2)-year period and making the phrase "regardless of any
supervening cause" futile and inoperative.
1.c Section 229 of 1997 NIRC of

1997 applies not only to
erroneously and excessively
paid tax but also to overpaid
taxes.
Section 229 of 1997 NIRC covers not only erroneously, illegally, excessively
or wrongfully collected taxes but also to overpaid taxes as held in the cases of
Collector of Internal Revenue vs. Prieto 5(22) and ACCRA Investments Corporation vs.
Court of Appeals 6(23) where the Supreme Court used the two (2)-year prescriptive
period even when the issue involved was overpayment of taxes. A fortiori, when the
payment of taxes was voluntarily made upon mistake the two (2)-year prescriptive
period finds application. EICSTa
2. The claim-of-right doctrine is

consistent with the recognition
of income and deduction under
the 1997 NIRC.
Under Sections 44 and 45 of the 1997 NIRC, the period of recognition of

income shall be 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 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. 7(24)
In American jurisprudence, the claim-of-right doctrine was applied in several

cases involving public utilities one of which is the case of Brooklyn Union Gas Co. v.
Comm., 62 F2d 505 (CCA2 1933). 8(25) 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. 9(26) However, to be entitled to a deduction, the taxpayer must meet
the requirements of a statutory provision entitling him or her to a deduction.
10(27) For instance, it must qualify as a trade or business expense . . ., 11(28) or as a
loss. 12(29)
In the case of S. Lowenstein & Son, Inc. v. Comm., 21 TC 648, affd 222 F2d
919 (CA6 1955), 13(30) 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. 14(31) 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, 15(32) the Court of Tax
Appeals (CTA) ruled that gains are taxable in the year during which they are realized.
In this case, by virtue of the claim-of-right doctrine and consistent with the
recognition of income and deduction under the NIRC of 1997, Meralco recognized a
bona fide claim over the amounts received out of its overcharged rate. Hence, its
remedy is to claim the repayments as deduction from its income from the time the
obligation to pay or accrue arises.
2.a Avoidance of claim-of-right

doctrine.
Granting without conceding that the claim-of-right doctrine does not apply,
then petitioner should NOT have recognized the overcharges as income from the time
it filed its annual ITRs. American jurisprudence, having persuasive effect in our
jurisdiction, dictates that in order to avoid the application of the claim-of-right
doctrine, a taxpayer must in the year of receipt at least establish its obligation to repay
the amount received and make provision for repayment. Establishment of a merely
contingent obligation to repay will not suffice. 16(33) In this case, Meralco
unconditionally recognized the overcharges as income from the time it filed its annual
ITRs. It 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, this is not a special circumstance worthy of the relaxation of the
rules on prescriptive period. aSHAIC
2.b Prescription begins to run

when petitioner recognizes
income from overcharges.
In the case of North American Oil Consolidated v. Burnet, 286 U.S. 417
(1932), 17(34) the United States Supreme Court held that North American became
entitled to the funds in 1917 under a claim of right, the year when it received funds
subject of ongoing litigation instead of 1922 when the case was finally resolved. Such
rule gave substance to the annual accounting period as it afforded finality to the tax
year by not holding it open until the eventual resolution of the dispute. 18(35) Following
this argument, the reckoning of the two (2)-year prescriptive period under Section 229
of 1997 NIRC should all the more apply in this case counting from the filing of ITR
and payment of tax because Meralco declared the overcharges as income even before
the Supreme Court decided the case with finality. Meralco's provisional increase was
undeniably treated as income thereby forming part of Meralco's taxable income in the
year of receipt.
Petitioner recognized income prematurely and therefore erroneous. Prescription

begins to run from the time it filed its annual income tax returns (ITRs), when it
unqualifiedly recognized the overcharges as income, the periods are as follows:
Taxable Date annual Administrative Judicial claim Judicial claim

Year ITR filed and claim (Original) (Amended)
tax paid
1994 7 April 1995 November 27, May 4, 2005 November 22,
2003 2005
1995 15 April 1996 -do- -do- -do-
1996 15 April 1997 -do- -do- -do-
1997 15 April 1998 -do- -do- -do-
1998 15 April 1999 -do- -do- -do-
2000 11 April 2001 -do- -do- -do-
In the taxable year 1994, the reckoning of the two (2)-year period should be on
April 7, 1995 when Meralco unqualifiedly recognized the overcharges as income. The
same applies for succeeding taxable years.
2.c Prematurity.
Assuming for the sake of argument, there is no other relief except for claim for
refund, the case would still fail for being premature with respect to the overcharges
not yet refunded to petitioner's consumers. The amount to be refunded is not yet fixed
and determined. Moreso, the refund is subject to a condition that the overcharges
should have been actually given or credited to future consumption of Meralco's
consumers. Meralco admitted that some of the electric service accounts of its
consumers entitled to refund are terminated, hence, it acceded to the probability that
the entire gross refund amount of P30,230,092,522.39 may not be fully refunded or
credited to future consumption. 19(36) HSacEI
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. Until and unless repayment can be ascertained, Meralco's overcharges are
still considered income under the claim of right doctrine, thus, the claim for refund
under this situation is premature.
In light of the foregoing, and for the specific reasons discussed fully in my
Dissenting Opinion of December 6, 2010, I vote to GRANT respondent's "Motion for
Reconsideration" and DENY petitioner's "Motion for Partial Reconsideration and
Clarification."
Footnotes
1. 244 SCRA 447, 453 (1995).
2. Commissioner of Internal Revenue vs. Philippine National Bank, G.R. No. 161997.
October 25, 2005.
3.G.R. No. L-10574. May 28, 1958.
4.Created under Executive Order No. 172, as amended.
5.Burnet v. Sanford & Brooks Co., 282 U.S. 359, 51 S.Ct. 150, 75 L.Ed. 383 (1931).
6.286 U.S. 417, 424, 52 S.Ct. 613, 76 L.Ed. 1197 (1932).
7.Van Cleave v. U.S., 718 F.2d 193 Decided Oct. 5, 1983.
8.Healy v. C.I.R., 345 U.S. 278, 73 S.Ct. 671, 97 L.Ed. 1007 (1953).
9.Sec. 1341. Computation of tax where taxpayer restores substantial amount held under
claim of right.
10. An example of an inequity troubling Congress was the fact that prior to the enactment
of § 1341 a taxpayer, because of a change in his tax bracket, might not receive a tax
benefit in the year of repayment of the item equivalent to the tax detriment suffered in
the year when the item was taken into income. See Healy v. C.I.R., 345 U.S. 278, 73
S.Ct. 671, 97 L.Ed. 1007 (1953).
11. United States v. Skelly Oil Co., 394 U.S. 678, 681-682, 89 S.Ct. 1379, 1382, 22 L.Ed.
642 (1969).
12. Healy v. Commissioner, 345 U.S. 278 (1953).
13. Rafael Arsenio S. Dizon, in his capacity as the Judicial Administrator of the Estate of
the deceased Jose P. Fernandez vs. Court of Tax Appeals and Commissioner of
Internal Revenue, G.R. No. 140944, April 30, 2008.
14. Supra, Note 12.
15. Jose B.L. Reyes and Edmundo A. Reyes vs. Pedro Almanzor, Vicente Abad Santos,
Jose Roño, in their capacities as appointed and Acting Members of the Central Board
of Assessment Appeals; Teresita H. Noblejas, Romulo M. Del Rosario, Raul C.
Flores, in their capacities as appointed and Acting Members of the Board of
Assessment Appeals of Manila; and Nicolas Catiil, in his capacity as City Assessor of
Manila, G.R. Nos. L-49839-46. April 26, 1991.
16. Commissioner of Internal Revenue vs. Tokyo Shipping Co. LTd., represented by
Soriamont Steamship Agencies, Inc., and Court of Tax Appeals, G.R. No. 68252, May
26, 1995.
CASTAÑEDA, JR., J., dissenting opinion:
1. Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc., G.R. No.
184823, October 6, 2010.
2. 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.
3. Tax Principles and Remedies, Associate Justice Japar B. Dimaampao, Second edition,
2005, page 191.
4. Supra, note 2.
5. No. L-11976, August 29, 1961, 2 SCRA 1007.
6. G.R. No. 96322, December 20, 1991, 204 SCRA 957.
7. 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).
8. As cited in Merten's The Law of Federal Income Taxation, Section 12A.152, Volume
2, (1995).
9. Supra, note 7, Section 12A.146 citing Gaddis v. US., 330 F Supp 741 (D Miss 1971).
10. Supra, note 7, 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).
11. Ibid., citing Oswald v. Comm., 49 TC 645 (1968).
12. Ibid., citing Comm. V. Switlik, 184 F2d 299 (CA3 1950); O'Meara v. Comm., 8 TC
622 (1947).
13. As cited in Merten's The Law of Federal Income Taxation, Section 12A.161-162,
Volume 2, (1995).
14. Commissioner of Internal Revenue vs. Solidbank Corporation, G.R. No. 148191,
November 25, 2003, 416 SCRA 436, 453.
15. 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.
2, (1995) citing Nordberg v. Comm., 79 TC 655 (1982), affd 720 F2d 658 (CA1
1983), quoting Hope v. Comm., 55 TC 1020 (1971), affd 471 F2d 738 (CA3 1972),
cert den 414 US 824 (1973).
17. As cited in Problems and Materials in Federal Income Taxation, Sanford M. Guerin
and Philip F. Postlewaite, Fourth Edition, 1994, pages 824-826.
18. Ibid., page 825.
19. Petitioner's Motion for Partial Reconsideration and Clarification, docket p. 1259.
Endnotes
1 (Popup - Popup)
CTA 7242 - June 15, 2005
CTA 7242 - December 6, 2010
CTA EB 773 - May 8, 2012
CTA EB 773 - November 13, 2012
CTA EB 773 - May 22, 2013
2 (Popup - Popup)
1. 244 SCRA 447, 453 (1995).
3 (Popup - Popup)
2. Commissioner of Internal Revenue vs. Philippine National Bank, G.R. No. 161997.
October 25, 2005.
4 (Popup - Popup)
3. G.R. No. L-10574. May 28, 1958.
5 (Popup - Popup)
4. Created under Executive Order No. 172, as amended.
6 (Popup - Popup)
5. Burnet v. Sanford & Brooks Co., 282 U.S. 359, 51 S.Ct. 150, 75 L.Ed. 383 (1931).
7 (Popup - Popup)
6. 286 U.S. 417, 424, 52 S.Ct. 613, 76 L.Ed. 1197 (1932).
8 (Popup - Popup)
7. Van Cleave v. U.S., 718 F.2d 193 Decided Oct. 5, 1983.
9 (Popup - Popup)
8. Healy v. C.I.R., 345 U.S. 278, 73 S.Ct. 671, 97 L.Ed. 1007 (1953).
10 (Popup - Popup)
9. Sec. 1341. Computation of tax where taxpayer restores substantial amount held under
claim of right.
11 (Popup - Popup)
10. An example of an inequity troubling Congress was the fact that prior to the enactment
of § 1341 a taxpayer, because of a change in his tax bracket, might not receive a tax
benefit in the year of repayment of the item equivalent to the tax detriment suffered in
the year when the item was taken into income. See Healy v. C.I.R., 345 U.S. 278, 73
S.Ct. 671, 97 L.Ed. 1007 (1953).
12 (Popup - Popup)
11. United States v. Skelly Oil Co., 394 U.S. 678, 681-682, 89 S.Ct. 1379, 1382, 22 L.Ed.
642 (1969).
13 (Popup - Popup)
12. Healy v. Commissioner, 345 U.S. 278 (1953).
14 (Popup - Popup)
13. Rafael Arsenio S. Dizon, in his capacity as the Judicial Administrator of the Estate of
the deceased Jose P. Fernandez vs. Court of Tax Appeals and Commissioner of
Internal Revenue, G.R. No. 140944, April 30, 2008.
15 (Popup - Popup)
14. Supra, Note 12.
16 (Popup - Popup)
15. Jose B.L. Reyes and Edmundo A. Reyes vs. Pedro Almanzor, Vicente Abad Santos,
Jose Roño, in their capacities as appointed and Acting Members of the Central Board
of Assessment Appeals; Teresita H. Noblejas, Romulo M. Del Rosario, Raul C.
Flores, in their capacities as appointed and Acting Members of the Board of
Assessment Appeals of Manila; and Nicolas Catiil, in his capacity as City Assessor of
Manila, G.R. Nos. L-49839-46. April 26, 1991.
17 (Popup - Popup)
16. Commissioner of Internal Revenue vs. Tokyo Shipping Co. LTd., represented by
Soriamont Steamship Agencies, Inc., and Court of Tax Appeals, G.R. No. 68252,
May 26, 1995.
18 (Popup - Popup)
1. Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc., G.R. No.
184823, October 6, 2010.
19 (Popup - Popup)
2. 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 (Popup - Popup)
3. Tax Principles and Remedies, Associate Justice Japar B. Dimaampao, Second edition,
2005, page 191.
21 (Popup - Popup)
4. Supra, note 2.
22 (Popup - Popup)
5. No. L-11976, August 29, 1961, 2 SCRA 1007.
23 (Popup - Popup)
6. G.R. No. 96322, December 20, 1991, 204 SCRA 957.
24 (Popup - Popup)
7. 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).
25 (Popup - Popup)
2, (1995).
26 (Popup - Popup)
9. Supra, note 7, Section 12A.146 citing Gaddis v. US., 330 F Supp 741 (D Miss 1971).
27 (Popup - Popup)
10. Supra, note 7, 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).
28 (Popup - Popup)
11. Ibid., citing Oswald v. Comm., 49 TC 645 (1968).
29 (Popup - Popup)
12. Ibid., citing Comm. V. Switlik, 184 F2d 299 (CA3 1950); O'Meara v. Comm., 8 TC
622 (1947).
30 (Popup - Popup)
13. As cited in Merten's The Law of Federal Income Taxation, Section 12A.161-162,
Volume 2, (1995).
31 (Popup - Popup)
14. Commissioner of Internal Revenue vs. Solidbank Corporation, G.R. No. 148191,
November 25, 2003, 416 SCRA 436, 453.
32 (Popup - Popup)
15. 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.
33 (Popup - Popup)
2, (1995) citing Nordberg v. Comm., 79 TC 655 (1982), affd 720 F2d 658 (CA1
1983), quoting Hope v. Comm., 55 TC 1020 (1971), affd 471 F2d 738 (CA3 1972),
cert den 414 US 824 (1973).
34 (Popup - Popup)
17. As cited in Problems and Materials in Federal Income Taxation, Sanford M. Guerin
and Philip F. Postlewaite, Fourth Edition, 1994, pages 824-826.
35 (Popup - Popup)
18. Ibid., page 825.
36 (Popup - Popup)
19. Petitioner's Motion for Partial Reconsideration and Clarification, docket p. 1259.

Meralco Vs CIR

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Meralco Vs CIR

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[C.T.A. CASE NO. 7242. April 15, 2011.]

MANILA ELECTRIC COMPANY, petitioner, vs. COMMISSIONER

This resolves respondent's "Motion for Reconsideration" and petitioner's

"WHEREFORE, premises considered, the Amended Petition for

1. Respondent's denial due to prescription of MERALCO's claim for

2. Respondent is ORDERED TO REFUND or TO ISSUE A TAX

"According to Justinian, equity is 'justice sweetened by mercy.' This kind

Petitioner in its Comment claims that respondent's Motion for Reconsideration

"The remedy of claiming the repayments of the portion of the

On the other hand, in petitioner's "Motion for Partial Reconsideration and

However, it is noted that the previously recognized income using the

Suffice it to say that there is basis as to petitioner's allegation that the

"If a taxpayer receives earnings under a claim of right and without

Also, an application of claim of right doctrine prohibits a taxpayer to amend

In view of the inequities related to this so-called "claim of right doctrine" as

As previously held, MERALCO's admission and acceptance of the Audit

In fine, MERALCO admits and accepts the Audit Findings and

Corollary to petitioner's admission and acceptance of the mathematical

WHEREFORE, premises considered, both respondent's "Motion for

(SGD.) CIELITO N. MINDARO-GRULLA

Caesar A. Casanova, J., concurs.

Juanito C. Castañeda, Jr., J., with dissenting opinion.

CASTAÑEDA, JR., J., dissenting opinion:

With all due respect to my esteemed colleagues, I register my dissent to the

1. Claims for refund should be exercised within the prescriptive

1.a. P.D. No. 69 originally added the phrase "regardless of any

1.b. Rationale behind the two (2)-year prescriptive period; and

1.c. Section 229 of 1997 NIRC of 1997 applies not only to

2. The claim-of-right doctrine is consistent with the recognition of

2.a. Prescription begins to run when petitioner recognizes

2.b. Avoidance of claim-of-right doctrine; and CSHEca

1. Claims for refund should be

1.a P.D. No. 69 originally added

regardless of any supervening cause. 3(20)

1.b Rationale behind the two (2)

1.c Section 229 of 1997 NIRC of

2. The claim-of-right doctrine is

Under Sections 44 and 45 of the 1997 NIRC, the period of recognition of

In the claim-of-right doctrine, if a taxpayer receives money or other property

In American jurisprudence, the claim-of-right doctrine was applied in several

Evidently, these American cases have persuasive effect in our jurisdiction,

2.a Avoidance of claim-of-right

2.b Prescription begins to run

Petitioner recognized income prematurely and therefore erroneous. Prescription

Taxable Date annual Administrative Judicial claim Judicial claim

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