UPSI-MI Versus CIR (G.R. No.

205955 ) – Applicability Of Irrevocability Rule To Refund Or Tax Credit

Under Section 75 of the National Internal Revenue Code, corporations, in general, are required to make quarterly

income tax payments. In the event that the the sum of the quarterly payments exceeds the total income tax due for the

entire year, Section 76 provides two alternative options to the corporation concerned:

1. Carry-over the excess credit; or

2. Be credited or refunded with the excess amount paid.

If the taxpayer elects the carry-over option, such election is permanent; the corporation is precluded from

subsequently changing its mind and replace its choice with the option of refund or tax credit. It is known as the

irrevocability rule.

What if the corporation opts for refund or tax credit, does the irrevocability rule also apply?
Once the taxpayer opts to carry over such excess creditable tax, after electing refund or issuance of tax credit
certificate, the carry-over option becomes irrevocable. Accordingly, the previous choice of a claim for refund, even if
subsequently pursued, may no longer be granted...
University Physicians Services, Inc. – Management, Inc., petitoner, VERSUS CIR
G.R. No. 205955 March 7, 2018
Is the Irrevocabilty Rule Under Sec. 76 Applicable to Tax Refund

FACTS:

On 6 April 2007, University Physicians Services, Inc. – Management, Inc. (UPSI-MI) filed its Annual Income Tax

Return (ITR) for the year ended 31 December 2006. UPSI-MI chose the option “To be issued a tax credit

certificate” with respect to the unutilized excess creditable taxes for the taxable year ending 31 December 2006

amounting to ₱2,927,834.00..

In 2007, UPSI-MI changed its taxable period from calendar year to fiscal year ending on the last day of March. Thus,

UPSI-MI filed on 14 November 2007 an Annual Income Tax Return (ITR) covering the short period from 01 January

2007 to 31 March 2007. The Annual ITR reflected an income tax overpayment as “Prior Year’s Excess Credit”.

On the same day, UPSI-MI amended the Annual ITR for the short period by excluding the sum of ₱2,927,834.00

under the line “Prior Year’s Excess Credits”.

On 10 October 2008, UPSI-MI filed with the CIR a claim for refund and/or issuance of a Tax Credit Certificate (TCC) in

the amount of ₱2,927,834.00, representing the alleged excess and unutilized creditable withholding taxes for taxable

year 2006.

The CTA Division denied the petition. It reasoned that UPSI-MI effectively exercised the carry-over option under

Section 76 of the National Internal Revenue Code of 1997 (NIRC). UPSI-MI argued that the irrevocability rule under

Section 76 of the NIRC is not applicable for the reason that it did not carry over to the succeeding taxable period the

2006 excess income tax credit. UPSI-MI added that the subject tax credits were inadvertently included in its original

2007 ITR, and such mistake was rectified in the amended 2007 ITR. Thus, UPSI-MI insisted that what should control

is its election of the option “To be issued a Tax Credit Certificate” in its 2006 ITR.

The CTA Division ruled that UPSI-MI’s alleged inadvertent inclusion of the 2006 excess tax credit in the 2007 original

ITR belies its own allegation that it did not carry over the said amount to the succeeding taxable period. The

amendment of the 2007 ITR cannot undo UPSI-MI’s actual exercise of the carry over option in the original 2007 ITR,

for to do so would be against the irrevocability rule.

The CTA En Banc ruled that UPSI-MI is barred by Section 76 of the NIRC from claiming a refund of its excess tax

credits for the taxable 2006. The barring effect applies after UPSI-MI carried over its excess tax credits to the
succeeding quarters of 2007, even is such carry-over was allegedly done inadvertently. The CTA En Banc

emphasized that the prevailing law and jurisprudence admit of no exception or qualification to the irrevocability rule.

UPSI-MI appealed to the Supreme Court contending, in part, that the irrevocability rule applies not only to the carry-

over option but also to the option of refund or tax credit. Thus, considering that it originally opted to be issued a tax

credit certificate, its inadvertent inclusion of the subject excess tax credit in its short period ITR has no effect.
ISSUE: WHETHER OR NOT the irrevocability rule provided under Section 76 of the NIRC applies not only to
the carry-over option but also to the option of tax refund or tax credit, thus entitling the petitioner for a tax
refund/credit of its 2006 excess tax credits considering that it originally opted the same, even if it thereafter
chose the carry-over option.
Whether UPSI-MI is entitled to the refund of its 2006 excess tax credits, for which it originally chose the option
of refund/tax credit in its 2006 ITR, when it thereafter indicated the option of carry-over in its ITR for the short
period ending 31 March 2007
RULING:

NO!

Under Section 75 of the National Internal Revenue Code, corporations, in general, are required to make quarterly

income tax payments. In the event that the sum of the quarterly payments exceeds the total income tax due for the

entire year, Section 76 provides two alternative options to the corporation concerned:

1. Carry-over the excess credit; or

2. Be credited or refunded with the excess amount paid.

Once the option to carry-over has been made, such option shall be considered irrevocable  for that

taxable period and no application for cash refund or issuance of a tax credit certificate shall be allowed

therefor.” 
The irrevocability rule applies only to the option of carry over and not to the option of cash refund/tax credit.

The law is very clear. The irrevocability rule is limited only to the option of carry-over such that a taxpayer is still free to

change its choice after electing a refund of its excess tax credit. The law does not prevent a taxpayer who originally

opted for a refund or tax credit certificate from shifting to the carry-over of the excess creditable taxes to the taxable

quarters of the succeeding taxable years.

The Irrevocability Rule Applies to the Subsequent Election of the Option to Carry Over

Once the taxpayer opts to carry over such excess creditable tax, after electing refund or issuance of tax credit

certificate, the carry-over option becomes irrevocable. Accordingly, the previous choice of a claim for refund, even if

subsequently pursued, may no longer be granted.

HENCE, Despite its initial option to refund its 2006 excess creditable tax, UPSI-MI subsequently indicated in its 2007

short period FAR that it carried over the excess creditable tax and applied the same against its 2007 income tax due.

By doing so, UPSI-MI constructively chose the option of carry-over, for which reason, the irrevocability rule forbade it

to revert to its initial choice. It does not matter that UPSI-MI had not actually benefited from the carry over on the

ground that it did not have a tax due in the 2007 short period. Neither may it insist that the insertion of the carry-over in

the 2007 FAR was by mere mistake or inadvertence. The irrevocability rule admits of no qualifications or conditions.

Hence, UPSI-MI is barred from recovering the subject excess creditable tax through refund or TCC.