CIR vs.

CA 257 SCRA 200

GR No. 119322 June 4, 1996
"Before one is prosecuted for willful attempt to evade or defeat any tax, the fact that a tax is due must first
be proved."

FACTS: The CIR assessed Fortune Tobacco Corp for 7.6 Billion Pesos representing deficiency income,
ad valorem and value-added taxes for the year 1992 to which Fortune moved for reconsideration of the
assessments. Later, the CIR filed a complaint with the Department of Justice against the respondent
Fortune, its corporate officers, nine (9) other corporations and their respective corporate officers for
alleged fraudulent tax evasion for supposed non-payment by Fortune of the correct amount of taxes,
alleging among others the fraudulent scheme of making simulated sales to fictitious buyers declaring
lower wholesale prices, as allegedly shown by the great disparity on the declared wholesale prices
registered in the "Daily Manufacturer's Sworn Statements" submitted by the respondents to the BIR. Such
documents when requested by the court were not however presented by the BIR, prompting the trial court
to grant the prayer for preliminary injuction sought by the respondent upon the reason that tax liabiliity
must be duly proven before any criminal prosecution be had. The petitioner relying on the Ungab Doctrine
sought the lifting of the writ of preliminary mandatory injuction issued by the trial court.

ISSUE: Whose contention is correct?

HELD: In view of the foregoing reasons, misplaced is the petitioners' thesis citing Ungab v. Cusi, that the
lack of a final determination of Fortune's exact or correct tax liability is not a bar to criminal
prosecution, and that while a precise computation and assessment is required for a civil action to collect
tax deficiencies, the Tax Code does not require such computation and assessment prior to criminal
prosecution.
    Reading Ungab carefully, the pronouncement therein that deficiency assessment is not necessary prior
to prosecution is pointedly and deliberately qualified by the Court with following statement quoted from
Guzik v. U.S.: "The crime is complete when the violator has knowingly and wilfully filed a fraudulent return
with intent to evade and defeat a part or all of the tax." In plain words, for criminal prosecution to proceed
before assessment, there must be a prima facie showing of a wilful attempt to evade taxes. There was a
wilful attempt to evade tax in Ungab because of the taxpayer's failure to declare in his income tax return
"his income derived from banana sapplings." In the mind of the trial court and the Court of Appeals,
Fortune's situation is quite apart factually since the registered wholesale price of the goods, approved by
the BIR, is presumed to be the actual wholesale price, therefore, not fraudulent and unless and until the
BIR has made a final determination of what is supposed to be the correct taxes, the taxpayer should not
be placed in the crucible of criminal prosecution. Herein lies a whale of difference between Ungab and the
case at bar.

G.R. No. L-22356             July 21, 1967

REPUBLIC OF THE PHILIPPINES, plaintiff-appellant,
vs.
PEDRO B. PATANAO, .
.
ANGELES, J.:
This is an appeal from an order of the Court of First Instance of Agusan in civil case No. 925, dismissing
plaintiff's complaint so far as concerns the collection of deficiency income taxes for the years 1951, 1953
and 1954 and additional residence taxes for 1951 and 1952, and requiring the defendant to file his
answer with respect to deficiency income tax for 1955 and residence taxes for 1953-1955.
In the complaint filed by the Republic of the Philippines, through the Solicitor General, against
Pedro B. Patanao, it is alleged that defendant was the holder of an ordinary timber license with
concession at Esperanza, Agusan, and as such was engaged in the business of producing logs and
lumber for sale during the years 1951-1955; that defendant failed to file income tax returns for 1953 and
1954, and although he filed income tax returns for 1951, 1952 and 1955, the same were false and
fraudulent because he did not report substantial income earned by him from his business; that in an
examination conducted by the Bureau of Internal Revenue on defendant's income and expenses for
1951-1955, it was ascertained that the sum of P79,892.75, representing deficiency; income taxes and
additional residence taxes for the aforesaid years, is due from defendant; that on February 14, 1958,
plaintiff, through the Deputy Commissioner of Internal Revenue, sent a letter of demand with enclosed
income tax assessment to the defendant requiring him to pay the said amount; that notwithstanding
repeated demands the defendant refused, failed and neglected to pay said taxes; and that the
assessment for the payment of the taxes in question has become final, executory and demandable,
because it was not contested before the Court of Tax Appeals in accordance with the provisions of
section 11 of Republic Act No. 1125.
Defendant moved to dismiss the complaint on two grounds, namely: (1) that the action is barred by
prior judgment, defendant having been acquitted in criminal cases Nos. 2089 and 2090 of the same court,
which were prosecutions for failure to file income tax returns and for non-payment of income taxes; and
(2) that the action has prescribed.
After considering the motion to dismiss, the opposition thereto and the rejoinder to the opposition, the
lower court entered the order appealed from, holding that the only cause of action left to the plaintiff in its
complaint is the collection of the income tax due for the taxable year 1955 and the residence tax (Class B)
for 1953, 1954 and 1955. A motion to reconsider said order was denied, whereupon plaintiff interposed
the instant appeal, which was brought directly to this Court, the questions involved being purely legal.
The conclusion of the trial court, that the present action is barred by prior judgment, is anchored on the
following rationale:
There is no question that the defendant herein has been accused in Criminal Cases Nos. 2089 and
2090 of this Court for not filing his income tax returns and for non-payment of income taxes for
the years 1953 and 1954. In both cases, he was acquitted. The rule in this jurisdiction is that the
accused once acquitted is exempt from both criminal and civil responsibility because when a
criminal action is instituted, civil action arising from the same offense is impliedly instituted
unless the offended party expressly waives the civil action or reserves the right to file it
separately. In the criminal cases abovementioned wherein the defendant was completely exonerated,
there was no waiver or reservation to file a separate civil case so that the failure to obtain conviction on a
charge of non-payment of income taxes is fatal to any civil action to collect the payment of said taxes.
Plaintiff-appellant assails the ruling as erroneous. Defendant-appellee on his part urges that it should be
maintained.
In applying the principle underlying the civil liability of an offender under the Penal Code to a case
involving the collection of taxes, the court a quo  fell into error. The two cases are circumscribed by factual
premises which are diametrically opposed to each either, and are founded on entirely different
philosophies. Under the Penal Code the civil liability is incurred by reason of the offender's criminal act.
Stated differently, the criminal liability gives birth to the civil obligation such that generally, if one is not
criminally liable under the Penal Code, he cannot become civilly liable thereunder. The situation under the
income tax law is the exact opposite. Civil liability to pay taxes arises from the fact, for instance, that one
has engaged himself in business, and not because of any criminal act committed by him. The criminal
liability arises upon failure of the debtor to satisfy his civil obligation. The incongruity of the factual
premises and foundation principles of the two cases is one of the reasons for not imposing civil indemnity
on the criminal infractor of the income tax law. Another reason, of course, is found in the fact that while
section 73 of the National Internal Revenue Code has provided the imposition of the penalty of
imprisonment or fine, or both, for refusal or neglect to pay income tax or to make a return thereof, it failed
to provide the collection of said tax in criminal proceedings. The only civil remedies provided, for the
collection of income tax, in Chapters I and II, Title IX of the Code and section 316 thereof, are distraint of
goods, chattels, etc. or by judicial action, which remedies are generally exclusive in the absence of a
contrary intent from the legislator. (People vs. Arnault, G.R. No. L-4288, November 20, 1952; People vs.
Tierra, G.R. Nos. L-17177-17180, December 28, 1964) Considering that the Government cannot seek
satisfaction of the taxpayer's civil liability in a criminal proceeding under the tax law or, otherwise stated,
since the said civil liability is not deemed included in the criminal action, acquittal of the taxpayer in the
criminal proceeding does not necessarily entail exoneration from his liability to pay the taxes. It is error to
hold, as the lower court has held, that the judgment in the criminal cases Nos. 2089 and 2090 bars the
action in the present case. The acquittal in the said criminal cases cannot operate to discharge defendant
appellee from the duty of paying the taxes which the law requires to be paid, since that duty is imposed by
statute prior to and independently of any attempts by the taxpayer to evade payment. Said obligation is
not a consequence of the felonious acts charged in the criminal proceeding, nor is it a mere civil liability
arising from crime that could be wiped out by the judicial declaration of non-existence of the criminal acts
charged. (Castro vs. The Collector of Internal Revenue, G.R. No. L-12174, April 20, 1962).
Regarding prescription of action, the lower court held that the cause of action on the deficiency
income tax and residence tax for 1951 is barred because appellee's income tax return for 1951
was assessed by the Bureau of Internal Revenue only on February 14, 1958, or beyond the five year
period of limitation for assessment as provided in section 331 of the National Internal Revenue Code.
Appellant contends that the applicable law is section 332 (a) of the same Code under which a proceeding
in court for the collection of the tax may be commenced without assessment at any time within 10 years
from the discovery of the falsity, fraud or omission.
The complaint filed on December 7, 1962, alleges that the fraud in the appellee's income tax return for
1951, was discovered on February 14, 1958. By filing a motion to dismiss, appellee hypothetically
admitted this allegation as all the other averments in the complaint were so admitted. Hence, section 332
(a) and not section 331 of the National Internal Revenue Code should determine whether or not the cause
of action of deficiency income tax and residence tax for 1951 has prescribed. Applying the provision of
section 332 (a), the appellant's action instituted in court on December 7, 1962 has not prescribed.
Wherefore, the order appealed from is hereby set aside. Let the records of this case be remanded to the
court of origin for further proceedings. No pronouncement as to costs.
Reyes, J.B.L., Makalintal, Bengzon, J.P., Zaldivar, Sanchez, Castro and Fernando, JJ., concur.
Concepcion, C.J. and Dizon, J., are on leave.

G.R. No. 147295             February 16, 2007

THE COMMISIONER OF INTERNAL REVENUE, Petitioner,
vs.
ACESITE (PHILIPPINES) HOTEL CORPORATION, Respondent.
DECISION
VELASCO, JR., J.:
The Case
Before us is a Petition for Review on Certiorari 1 under Rule 45 of the Rules of Court, assailing the
November 17, 2000 Decision2 of the Court of Appeals (CA) in CA-G.R. SP No. 56816, which affirmed the
January 3, 2000 Decision3 of the Court of Tax Appeals (CTA) in CTA Case No. 5645 entitled Acesite
(Philippines) Hotel Corporation v. The Commissioner of Internal Revenue for Refund of VAT Payments.
The Facts
The facts as found by the appellate court are undisputed, thus:
Acesite is the owner and operator of the Holiday Inn Manila Pavilion Hotel along United Nations Avenue
in Manila. It leases 6,768.53 square meters of the hotel’s premises to the Philippine Amusement and
Gaming Corporation [hereafter, PAGCOR] for casino operations. It also caters food and beverages to
PAGCOR’s casino patrons through the hotel’s restaurant outlets. For the period January (sic) 96 to April
1997, Acesite incurred VAT amounting to P30,152,892.02 from its rental income and sale of food and
beverages to PAGCOR during said period. Acesite tried to shift the said taxes to PAGCOR by
incorporating it in the amount assessed to PAGCOR but the latter refused to pay the taxes on account of
its tax exempt status.1awphi1.net
Thus, PAGCOR paid the amount due to Acesite minus the P30,152,892.02 VAT while the latter paid the
VAT to the Commissioner of Internal Revenue [hereafter, CIR] as it feared the legal consequences of
non-payment of the tax. However, Acesite belatedly arrived at the conclusion that its transaction with
PAGCOR was subject to zero rate as it was rendered to a tax-exempt entity. On 21 May 1998, Acesite
filed an administrative claim for refund with the CIR but the latter failed to resolve the same. Thus on 29
May 1998, Acesite filed a petition with the Court of Tax Appeals [hereafter, CTA] which was decided in
this wise:
As earlier stated, Petitioner is subject to zero percent tax pursuant to Section 102 (b)(3) [now 106(A)(C)]
insofar as its gross income from rentals and sales to PAGCOR, a tax exempt entity by virtue of a special
law. Accordingly, the amounts of P21,413,026.78 and P8,739,865.24, representing the 10% EVAT on its
sales of food and services and gross rentals, respectively from PAGCOR shall, as a matter of course, be
refunded to the petitioner for having been inadvertently remitted to the respondent.
Thus, taking into consideration the prescribed portion of Petitioner’s claim for refund of P98,743.40, and
considering further the principle of ‘solutio indebiti’ which requires the return of what has been delivered
through mistake, Respondent must refund to the Petitioner the amount of P30,054,148.64 computed as
follows:
Total amount per claim 30,152,892.02
Less Prescribed amount (Exhs A, X, & X-20)
January 1996 P 2,199.94
February 1996 26,205.04
March 1996 70,338.42 98,743.40

P30,054,148.64
vvvvvvvvvvvvvv
WHEREFORE, in view of all the foregoing, the instant Petition for Review is partially GRANTED. The
Respondent is hereby ORDERED to REFUND to the petitioner the amount of THIRTY MILLION FIFTY
FOUR THOUSAND ONE HUNDRED FORTY EIGHT PESOS AND SIXTY FOUR CENTAVOS
(P30,054,148.64) immediately.
SO ORDERED.4
The Ruling of the Court of Appeals
Upon appeal by petitioner, the CA affirmed in toto the decision of the CTA holding that PAGCOR was not
only exempt from direct taxes but was also exempt from indirect taxes like the VAT and consequently, the
transactions between respondent Acesite and PAGCOR were "effectively zero-rated" because they
involved the rendition of services to an entity exempt from indirect taxes. Thus, the CA affirmed the CTA’s
determination by ruling that respondent Acesite was entitled to a refund of PhP 30,054,148.64 from
petitioner.
The Issues
Hence, we have the instant petition with the following issues: (1) whether PAGCOR’s tax exemption
privilege includes the indirect tax of VAT to entitle Acesite to zero percent (0%) VAT rate; and (2) whether
the zero percent (0%) VAT rate under then Section 102 (b)(3) of the Tax Code (now Section 108 (B)(3) of
the Tax Code of 1997) legally applies to Acesite.
The petition is devoid of merit.
In resolving the first issue on whether PAGCOR’s tax exemption privilege includes the indirect tax of VAT
to entitle Acesite to zero percent (0%) VAT rate, we answer in the affirmative. We will however discuss
both issues together.
PAGCOR is exempt from payment of indirect taxes
It is undisputed that P.D. 1869, the charter creating PAGCOR, grants the latter an exemption from the
payment of taxes. Section 13 of P.D. 1869 pertinently provides:
Sec. 13. Exemptions. –
xxxx
(2) Income and other taxes. – (a) Franchise Holder: No tax of any kind or form, income or otherwise,
as well as fees, charges or levies of whatever nature, whether National or Local, shall be assessed
and collected under this Franchise from the Corporation; nor shall any form of tax or charge
attach in any way to the earnings of the Corporation, except a Franchise Tax of five (5%) percent of
the gross revenue or earnings derived by the Corporation from its operation under this Franchise. Such
tax shall be due and payable quarterly to the National Government and shall be in lieu of all kinds of
taxes, levies, fees or assessments of any kind, nature or description, levied, established or collected by
any municipal, provincial, or national government authority.
xxxx
(b) Others: The exemptions herein granted for earnings derived from the operations conducted
under the franchise specifically from the payment of any tax, income or otherwise, as well as any
form of charges, fees or levies, shall inure to the benefit of and extend to corporation(s),
association(s), agency(ies), or individual(s) with whom the Corporation or operator has any
contractual relationship in connection with the operations of the casino(s) authorized to be
conducted under this Franchise and to those receiving compensation or other remuneration from the
Corporation or operator as a result of essential facilities furnished and/or technical services rendered to
the Corporation or operator. (Emphasis supplied.)
Petitioner contends that the above tax exemption refers only to PAGCOR’s direct tax liability and not to
indirect taxes, like the VAT.
We disagree.
A close scrutiny of the above provisos clearly gives PAGCOR a blanket exemption to taxes with no
distinction on whether the taxes are direct or indirect. We are one with the CA ruling that PAGCOR is also
exempt from indirect taxes, like VAT, as follows:
Under the above provision [Section 13 (2) (b) of P.D. 1869], the term "Corporation" or operator refers to
PAGCOR. Although the law does not specifically mention PAGCOR’s exemption from indirect
taxes, PAGCOR is undoubtedly exempt from such taxes because the law exempts from taxes
persons or entities contracting with PAGCOR in casino operations. Although, differently worded, the
provision clearly exempts PAGCOR from indirect taxes. In fact, it goes one step further by granting
tax exempt status to persons dealing with PAGCOR in casino operations. The unmistakable
conclusion is that PAGCOR is not liable for the P30,152,892.02 VAT and neither is Acesite as the latter is
effectively subject to zero percent rate under Sec. 108 B (3). R.A. 8424. (Emphasis supplied.)
Indeed, by extending the exemption to entities or individuals dealing with PAGCOR, the legislature clearly
granted exemption also from indirect taxes. It must be noted that the indirect tax of VAT, as in the instant
case, can be shifted or passed to the buyer, transferee, or lessee of the goods, properties, or services
subject to VAT. Thus, by extending the tax exemption to entities or individuals dealing with PAGCOR in
casino operations, it is exempting PAGCOR from being liable to indirect taxes.
The manner of charging VAT does not make PAGCOR liable to said tax
It is true that VAT can either be incorporated in the value of the goods, properties, or services sold or
leased, in which case it is computed as 1/11 of such value, or charged as an additional 10% to the value.
Verily, the seller or lessor has the option to follow either way in charging its clients and customer. In the
instant case, Acesite followed the latter method, that is, charging an additional 10% of the gross sales and
rentals. Be that as it may, the use of either method, and in particular, the first method, does not denigrate
the fact that PAGCOR is exempt from an indirect tax, like VAT.
VAT exemption extends to Acesite
Thus, while it was proper for PAGCOR not to pay the 10% VAT charged by Acesite, the latter is not liable
for the payment of it as it is exempt in this particular transaction by operation of law to pay the indirect tax.
Such exemption falls within the former Section 102 (b) (3) of the 1977 Tax Code, as amended (now Sec.
108 [b] [3] of R.A. 8424), which provides:
Section 102. Value-added tax on sale of services – (a) Rate and base of tax – There shall be levied,
assessed and collected, a value-added tax equivalent to 10% of gross receipts derived by any person
engaged in the sale of services x x x; Provided, that the following services performed in the Philippines by
VAT-registered persons shall be subject to 0%.
xxxx
(b) Transactions subject to zero percent (0%) rated.—
xxxx
(3) Services rendered to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero
(0%) rate (emphasis supplied).
The rationale for the exemption from indirect taxes provided for in P.D. 1869 and the extension of such
exemption to entities or individuals dealing with PAGCOR in casino operations are best elucidated from
the 1987 case of Commissioner of Internal Revenue v. John Gotamco & Sons, Inc.,5 where the absolute
tax exemption of the World Health Organization (WHO) upon an international agreement was upheld. We
held in said case that the exemption of contractee WHO should be implemented to mean that the entity or
person exempt is the contractor itself who constructed the building owned by contractee WHO, and such
does not violate the rule that tax exemptions are personal because the manifest intention of the
agreement is to exempt the contractor so that no contractor’s tax may be shifted to the contractee
WHO. Thus, the proviso in P.D. 1869, extending the exemption to entities or individuals dealing with
PAGCOR in casino operations, is clearly to proscribe any indirect tax, like VAT, that may be shifted to
PAGCOR.
Acesite paid VAT by mistake
Considering the foregoing discussion, there are undoubtedly erroneous payments of the VAT pertaining
to the effectively zero-rate transactions between Acesite and PAGCOR. Verily, Acesite has clearly shown
that it paid the subject taxes under a mistake of fact, that is, when it was not aware that the transactions it
had with PAGCOR were zero-rated at the time it made the payments. In UST Cooperative Store v. City of
Manila,6 we explained that "there is erroneous payment of taxes when a taxpayer pays under a mistake of
fact, as for the instance in a case where he is not aware of an existing exemption in his favor at the time
the payment was made."7 Such payment is held to be not voluntary and, therefore, can be recovered or
refunded.8
Moreover, it must be noted that aside from not raising the issue of Acesite’s compliance with pertinent
Revenue Regulations on exemptions during the proceedings in the CTA, it cannot be gainsaid that
Acesite should have done so as it paid the VAT under a mistake of fact. Hence, petitioner’s argument on
this point is utterly tenuous.
Solutio indebiti applies to the Government
Tax refunds are based on the principle of quasi-contract or solutio indebiti and the pertinent laws
governing this principle are found in Arts. 2142 and 2154 of the Civil Code, which provide, thus:
Art. 2142. Certain lawful, voluntary, and unilateral acts give rise to the juridical relation of quasi-contract to
the end that no one shall be unjustly enriched or benefited at the expense of another.
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 it arises.
When money is paid to another under the influence of a mistake of fact, that is to say, on the mistaken
supposition of the existence of a specific fact, where it would not have been known that the fact was
otherwise, it may be recovered. The ground upon which the right of recovery rests is that money paid
through misapprehension of facts belongs in equity and in good conscience to the person who paid it. 9
The Government comes within the scope of solutio indebiti principle as elucidated in Commissioner of
Internal Revenue v. Fireman’s Fund Insurance Company, where we held that: "Enshrined in the basic
legal principles is the time-honored doctrine that no person shall unjustly enrich himself at the expense of
another. It goes without saying that the Government is not exempted from the application of this
doctrine."10
Action for refund strictly construed; Acesite discharged the burden of proof
Since an action for a tax refund partakes of the nature of an exemption, which cannot be allowed unless
granted in the most explicit and categorical language, it is strictly construed against the claimant who
must discharge such burden convincingly.11 In the instant case, respondent Acesite had discharged this
burden as found by the CTA and the CA. Indeed, the records show that Acesite proved its actual VAT
payments subject to refund, as attested to by an independent Certified Public Accountant who was duly
commissioned by the CTA. On the other hand, petitioner never disputed nor contested respondent’s
testimonial and documentary evidence. In fact, petitioner never presented any evidence on its behalf.
One final word. The BIR must release the refund to respondent without any unreasonable delay. Indeed,
fair dealing is expected by our taxpayers from the BIR and this duty demands that the BIR should refund
without any unreasonable delay what it has erroneously collected. 12
WHEREFORE, the petition is DENIED for lack of merit and the November 17, 2000 Decision of the CA is
hereby AFFIRMED. No costs.
SO ORDERED.
G.R. No. 173854               March 15, 2010
COMMISSIONER OF INTERNAL REVENUE, 
vs.
FAR EAST BANK & TRUST COMPANY (NOW BANK OF THE PHILIPPINE ISLANDS), Respondent.

Facts:

On April 10, 1995, Far East Bank filed its Annual Income Tax Return for its Corporate Banking Unit for the
taxable year ending December 31, 1994, reflecting a refundable income tax of P12,682,864.00.

The amount of P12,682,864.00 was carried over and applied against the Bank’s income tax liability for the
taxable year ending December 31, 1995. On April 15, 1996,the Bank filed its 1995 Annual Income Tax
Return, which showed a total overpaid income tax in the amount of P17,443,133.00.

Out of the P17,433,133.00 refundable income tax, only P13,645,109.00 was sought to be refunded by the
Bank. As to the remaining P3,798,024.00, the Bank opted to carry it over to the next taxable year.

On May 17, 1996, Far East Bank filed a claim for tax refund of the amount of P13,645,109.00 with the
BIR. Due to the failure of petitioner Commissioner of Internal Revenue (CIR) to act on the claim for
refund, the Bank brought the matter to the CTA on April 8, 1997 via a Petition for Review.

On October 4, 1999, the CTA rendered a Decision denying the Bank’s claim for refund on the ground that
the Bank failed to show that the income derived from rentals and sale of real property from which the
taxes were withheld were reflected in its 1994 Annual Income Tax Return.

On October 20, 1999, the Bank filed a Motion for New Trial based on excusable negligence. It prayed that
it be allowed to present additional evidence to support its claim for refund.However, the motion was
denied on December 16, 1999 by the CTA.

On appeal, the CA reversed the Decision of the CTA. The CA found that the Bankhad duly proven that
the income derived from rentals and sale of real property upon which the taxes were withheld were
included in the return as part of the gross income, sincethe BIRdisputed neither the Bank’s tax returns nor
the amount of tax refund being claimed as inaccurate or erroneous.

Issues:

Whether the Bank was able to prove its entitlement to the refund.

Whether the inaction of the Commissioner automatically entitles the Bank to a refund.

Decision:

The Supreme Court reversed the CA’s decision. It noted that while the Bank submitted Certificates of
Creditable Tax Withheld at Source and Monthly Remittance Returns of Income Taxes Withheld, which
pertain to rentals and sales of real property, a perusal of the Bank’s 1994 Annual Income Tax Return
shows that the gross income was derived solely from sales of services. In fact, the phrase "NOT
APPLICABLE" was printed on the schedules pertaining to rent, sale of real property, and trust
income.Thus, the income derived from rentals and sales of real property upon which the creditable taxes
were withheld were not included in the Bank’s gross income as reflected in its return.

Since no income was reported, it follows that no tax was withheld. It is incumbent upon the taxpayer to
reflect in his return the income upon which any creditable tax is required to be withheld at the source.

The Supreme Court added that the fact that the Commissioner failed to present any evidence or torefute
the evidence presented by the Bank does not automatically entitle the Bank to a tax refund. It is not the
duty of the government to disprove a taxpayer’s claim for refund. Rather, the burden of establishing the
factual basis of a claim for a refund rests on the taxpayer.And while the petitioner has the power to make
an examination of the returns and to assess the correct amount of tax, his failure to exercise such powers
does not create a presumption in favor of the correctness of the returns. The taxpayer must still present
substantial evidence to prove his claim for refund.

Hence, the Court concluded, for failing to prove its entitlement to a tax refund, the Bank’s claim must be
denied. 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.

G.R. No. 180290, September 29, 2014

COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. PHILIPPINE NATIONAL
BANK, Respondent.
DECISION
LEONEN, J.:
Before this court is a petition for review 1 under Rule 45 of the Rules of Court, seeking to annul the
October 1, 2007 decision2 and October 30, 2007 resolution 3 of the Court of Tax Appeals En Banc in
C.T.A. E.B. No. 285.

The assailed decision denied petitioner’s appeal and affirmed the January 30, 2007 decision 4 and May
30, 2007 resolution5 of the First Division of the Court of Tax Appeals, granting respondent a tax refund or
credit in the amount of P23,762,347.83, representing unutilized excess creditable withholding taxes for
taxable year 2000.  The assailed resolution denied petitioner’s motion for reconsideration.

The pertinent facts are summarized in the assailed decision as follows:chanRoblesvirtualLawlibrary

In several transactions including but not limited to the sale of real properties, lease and commissions,
[respondent] allegedly earned income and paid the corresponding income taxes due which were collected
and remitted by various payors as withholding agents to the Bureau of Internal Revenue (“BIR”) during
the taxable year 2000.

On April 18, 2001, [respondent] filed its tentative income tax return for taxable year 2000 which [it]
subsequently amended on July 25, 2001.

. . . [Respondent] filed again an amended income tax return for taxable year 2000 on June 20, 2002,
declaring no income tax liability . . . as it incurred a net loss in the amount of P11,318,957,602.00 and a
gross loss of P745,713,454.00 from its Regular Banking Unit (“RBU”) transactions.  However,
[respondent] had a 10% final income tax liability of P210,364,280.00 on taxable income of
P1,959,931,182.00 earned from its Foreign Currency Deposit Unit (“FCDU”) transactions for the same
year.  Likewise, in the [same] return, [respondent] reported a total amount of P245,888,507.00 final and
creditable withholding taxes which was applied against the final income tax due of P210,364,280.00
leaving an overpayment of P35,524,227.00. . . .

. . . .

In its second amended return, [respondent’s] income tax overpayment of P35,524,227.00 consisted of the
balance of the prior year's (1999) excess credits of P9,057,492.00 to be carried-over as tax credit to the
succeeding quarter/year and excess creditable withholding taxes for taxable year 2000 in the amount of
P26,466,735.00 which [respondent] opted to be refunded.

On November 11, 2002, [respondent] . . . filed a claim for refund or the issuance of a tax credit certificate
in the amount of P26,466,735.40 for the taxable year 2000 with the [BIR].
Due to [BIR's] inaction on its administrative claim, [respondent] appealed before [the Court of Tax
Appeals] by way of a Petition for Review on April 11, 2003. 6 (Citation omitted)

On January 30, 2007, the Court of Tax Appeals First Division rendered a decision in favor of respondent
as follows:chanRoblesvirtualLawlibrary
WHEREFORE, premises considered, the petition is hereby GRANTED.  Accordingly, respondent is
hereby ORDERED TO REFUND or ISSUE A TAX CREDIT CERTIFICATE to petitioner in the reduced
amount of Twenty Three Million Seven Hundred Sixty Two Thousand Three Hundred Forty Seven Pesos
and 83/100 (P23,762,347.83) representing unutilized excess creditable withholding taxes for taxable year
2000.7 (Emphasis in the original)

Petitioner’s motion for reconsideration was subsequently denied for lack of merit in the First Division’s
resolution dated May 30, 2007.

On appeal, the Court of Tax Appeals En Banc sustained the First Division’s ruling.  It held that the fact of
withholding and the amount of taxes withheld from the income payments received by respondent were
sufficiently established by the creditable withholding tax certificates, and there was no need to present the
testimonies of the various payors or withholding agents who issued the certificates and made the entries
therein.  It also held that respondent need not prove actual remittance of the withheld taxes to the Bureau
of Internal Revenue because the functions of withholding and remittance of income taxes are vested in
the payors who are considered the agents of petitioner. 8cralawlawlibrary

The Court of Tax Appeals En Banc also denied petitioner’s motion for reconsideration 9 in its October 30,
2007 resolution.

Hence, this instant petition was filed.

Petitioner claims that the Court of Tax Appeals “erred on a question of law in ordering the refund to
respondent of alleged excess creditable withholding taxes because(:)
A.  Respondent failed to prove that the creditable withholding taxes amounting to P23,762,347.83 are
duly supported by valid certificates of creditable tax withheld at source;

B.  Respondent failed to prove actual remittance of the alleged withheld taxes to the Bureau of Internal
Revenue (BIR); and

C.  Respondent failed to discharge its burden of proving its entitlement to a refund.” 10chanrobleslaw

Petitioner questions the validity of respondent’s certificates of creditable tax withheld at source
(withholding tax certificates) and contends that even if the original certificates were offered in evidence,
respondent failed to present the various withholding agents to: (1) identify and testify on their contents;
and (2) prove the subsequent remittance of the withheld taxes to the Bureau of Internal Revenue.
Moreover, petitioner faults respondent for presenting the withholding tax certificates only before the Court
of Tax Appeals, and not at the first instance when it filed its claim for refund administratively before the
Bureau of Internal Revenue.11cralawlawlibrary

In its comment,12 respondent counters that:chanRoblesvirtualLawlibrary

1) The petition should be dismissed for being pro forma because it does not specify the reversible
errors of either fact or law that the lower courts committed, and the arguments raised are all rehash
and purely factual;
2) It complied with all the requirements for judicial claim for refund of unutilized creditable withholding
taxes;
3) The fact of withholding was sufficiently established by the 622 creditable withholding tax certificates,
primarily attesting the amount of taxes withheld from the income payments received by respondent.
Furthermore, to present to the court all the withholding agents or payors to identify and authenticate
 each and every one of the 622 withholding tax certificates would be too burdensome and would
unnecessarily prolong the trial of the case; and
4) Respondent need not prove the actual remittance of withheld taxes to the Bureau of Internal
Revenue because the remittance is the responsibility of the payor or withholding agent and not the
payee.

In its reply,13 petitioner maintains that claims for refund are strictly construed against the claimant, and “it
is incumbent upon respondent to discharge the burden of proving . . . the fact of withholding of taxes and
their subsequent remittance to the Bureau of Internal Revenue.” 14cralawlawlibrary

In the resolution dated February 2, 2009,15 the court resolved to give due course to the petition and
decide the case according to the pleadings already filed.

The petition, however, should be denied.

The petition is but a reiteration of reasons and arguments previously set forth in petitioner’s pleadings
before the Court of Tax Appeals En Banc, and which the latter had already considered, weighed, and
resolved before it rendered its decision and resolution now sought to be set aside.

Furthermore, the questions on whether respondent’s claim for refund of unutilized excess creditable
withholding taxes amounting to P23,762,347.83 were duly supported by valid certificates of creditable tax
withheld at source and whether it had sufficiently proven its claim are questions of fact.   These issues
require a review, examination, evaluation, or weighing of the probative value of evidence presented,
especially the withholding tax certificates, which this court does not have the jurisdiction to do, barring the
presence of any exceptional circumstance, as it is not a trier of facts. 16cralawlawlibrary

Besides, as pointed out by respondent, petitioner did not object to the admissibility of the 622 withholding
tax certificates when these were formally offered by respondent before the tax court. 17   Hence, petitioner
is deemed to have admitted the validity of these documents. 18   Petitioner’s “failure to object to the offered
evidence renders it admissible, and the court cannot, on its own, disregard such
evidence.”19cralawlawlibrary

At any rate, the Court of Tax Appeals First Division and En Banc uniformly found that respondent has
established its claim for refund or issuance of a tax credit certificate for unutilized excess creditable
withholding taxes for the taxable year 2000 in the amount of P23,762,347.83.   The Court of Tax Appeals
First Division thoroughly passed upon the evidence presented by respondent and the report of the court-
commissioned auditing firm, SGV & Co., and found:chanRoblesvirtualLawlibrary
[O]ut of the total claimed creditable withholding taxes of P26,466,735.40, [respondent] was able to
substantiate only the amount of P25,666,064.80 [sic], computed as follows:chanRoblesvirtualLawlibrary
Amount of Claimed Creditable Taxes Withheld P26,466,735.40
Less:1.) Certificates which do not bear any date or period when the   48,600.00
indicated creditable taxes were withheld
  2.) Certificates dated outside the period of claim   730,151.10
  3.) Certificate without indicated amount of tax withheld 8,794.50
  4.) Certificates taken-up twice            9,000.00
  Substantiated Creditable Taxes Withheld P25,670,189.80  

. . . .

[O]ut of the claimed amount of P25,670,189.80 supported by valid certificates, only the creditable
withholding taxes of P23,762,347.83, the related income of which were verified to have been recorded in
[respondent’s] general ledger and reported in [respondent’s] income tax return either in the year 1999,
2000 or 2001, satisfied the third requisite, computed as follows:chanRoblesvirtualLawlibrary
Creditable Taxes Withheld With Valid Certificates P25,670,189.80
Less: Creditable Taxes Withheld, the related income of which was not      1,907,841.97
 verified against the general ledger
Refundable Excess Creditable Taxes Withheld P23,762,347.8320
(Emphasis supplied)

This court accords respect to the conclusion reached by the Court of Tax Appeals and will not
presumptuously set it aside absent any showing of gross error or abuse on its part. 21cralawlawlibrary

The certificate of creditable tax withheld at source 22 is the competent proof to establish the fact that taxes
are withheld.23   It is not necessary for the person who executed and prepared the certificate of creditable
tax withheld at source to be presented and to testify personally to prove the authenticity of the
certificates.24cralawlawlibrary

In Banco Filipino Savings and Mortgage Bank v. Court of Appeals, 25 this court declared that a certificate is
complete in the relevant details that would aid the courts in the evaluation of any claim for refund of
excess creditable withholding taxes:chanRoblesvirtualLawlibrary
In fine, the document which may be accepted as evidence of the third condition, that is, the fact of
withholding, must emanate from the payor itself, and not merely from the payee, and must indicate the
name of the payor, the income payment basis of the tax withheld, the amount of the tax withheld and the
nature of the tax paid.

At the time material to this case, the requisite information regarding withholding taxes from the sale of
acquired assets can be found in BIR Form No. 1743.1. As described in Section 6 of Revenue Regulations
No. 6-85, BIR Form No. 1743.1 is a written statement issued by the payor as withholding agent showing
the income or other payments made by the said withholding agent during a quarter or year and the
amount of the tax deducted and withheld therefrom. It readily identifies the payor, the income payment
and the tax withheld. It is complete in the relevant details which would aid the courts in the
evaluation of any claim for refund of creditable withholding taxes.26 (Emphasis supplied, citations
omitted)

Moreover, as correctly held by the Court of Tax Appeals En Banc, the figures appearing in the withholding
tax certificates can be taken at face value since these documents were executed under the penalties of
perjury, pursuant to Section 267 of the 1997 National Internal Revenue Code, as amended, which
reads:chanRoblesvirtualLawlibrary
SEC. 267.  Declaration under Penalties of Perjury. – Any declaration, return and other statements
required under this Code, shall, in lieu of an oath, contain a written statement that they are made under
the penalties of perjury.  Any person who willfully files a declaration, return or statement containing
information which is not true and correct as to every material matter shall, upon conviction, be subject to
the penalties prescribed for perjury under the Revised Penal Code.

Thus, upon presentation of a withholding tax certificate complete in its relevant details and with a written
statement that it was made under the penalties of perjury, the burden of evidence then shifts to the
Commissioner of Internal Revenue to prove that (1) the certificate is not complete; (2) it is false; or (3) it
was not issued regularly.

Petitioner's posture that respondent is required to establish actual remittance to the Bureau of Internal
Revenue deserves scant consideration. Proof of actual remittance is not a condition to claim for a refund
of unutilized tax credits.  Under Sections 57 and 58 of the 1997 National Internal Revenue Code, as
amended, it is the payor-withholding agent, and not the payee-refund claimant such as respondent, who
is vested with the responsibility of withholding and remitting income taxes.

This court’s ruling in Commissioner of Internal Revenue v. Asian Transmission Corporation,27 citing the
Court of Tax Appeals’ explanation, is instructive:chanRoblesvirtualLawlibrary
. . . proof of actual remittance by the respondent is not needed in order to prove withholding and
remittance of taxes to petitioner. Section 2.58.3 (B) of Revenue Regulation No. 2-98 clearly provides that
proof of remittance is the responsibility of the withholding agent and not of the taxpayer-refund claimant. It
should be borne in mind by the petitioner that payors of withholding taxes are by themselves constituted
as withholding agents of the BIR. The taxes they withhold are held in trust for the government. In the
event that the withholding agents commit fraud against the government by not remitting the taxes so
withheld, such act should not prejudice herein respondent who has been duly withheld taxes by the
withholding agents acting under government authority. Moreover, pursuant to Section 57 and 58 of the
NIRC of 1997, as amended, the withholding of income tax and the remittance thereof to the BIR is the
responsibility of the payor and not the payee. Therefore, respondent . . . has no control over the
remittance of the taxes withheld from its income by the withholding agent or payor who is the agent of the
petitioner. The Certificates of Creditable Tax Withheld at Source issued by the withholding agents of the
government are prima facie proof of actual payment by herein respondent-payee to the government itself
through said agents.28chanrobleslaw

Finally, petitioner’s allegation that the submission of the certificates of withholding taxes before the Court
of Tax Appeals was late is untenable.  The samples of the withholding tax certificates attached to
respondent’s comment bore the receiving stamp of the Bureau of Internal Revenue’s Large Taxpayers
Document Processing and Quality Assurance Division. 29   As observed by the Court of Tax Appeals En
Banc, “[t]he Commissioner is in no position to assail the authenticity of the CWT certificates due to PNB’s
alleged failure to submit the same before the administrative level since he could have easily directed the
claimant to furnish copies of these documents, if the refund applied for casts him any doubt.” 30   Indeed,
petitioner’s inaction prompted respondent to elevate its claim for refund to the tax court.

More importantly, the Court of Tax Appeals is not precluded from accepting respondent’s evidence
assuming these were not presented at the administrative level.  Cases filed in the Court of Tax Appeals
are litigated de novo.31   Thus, respondent “should prove every minute aspect of its case by presenting,
formally offering and submitting . . . to the Court of Tax Appeals [all evidence] . . . required for the
successful prosecution of [its] administrative claim.” 32cralawlawlibrary

WHEREFORE, the petition is DENIED.

G.R. No. 83736 January 15, 1992

COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
TMX SALES, INC. and THE COURT OF TAX APPEALS, respondents.
F.R. Quiogue for private respondent.

GUTIERREZ, JR., J.:
In a case involving corporate quarterly income tax, does the two-year prescriptive period to claim a refund
of erroneously collected tax provided for in Section 292 (now Section 230) of the National Internal
Revenue Code commence to run from the date the quarterly income tax was paid, as contended by the
petitioner, or from the date of filing of the Final Adjustment Return (final payment), as claimed by the
private respondent?
Section 292 (now Section 230) of the National Internal Revenue Code provides:
Sec. 292. 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 excessive or in any manner wrongfully collected, until a
claim for refund or credit has been duly filed with the Commissioner of Internal Revenue; 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 begun after the expiration of two years from the date of
payment of that tax or penalty regardless of any supervening cause that may arise after payment : . . .
(Emphasis supplied)
The facts of this case are uncontroverted.
Private respondent TMX Sales, Inc., a domestic corporation, filed its quarterly income tax return for the
first quarter of 1981, declaring an income of P571,174.31, and consequently paying an income tax
thereon of P247,010.00 on May 15, 1981. During the subsequent quarters, however, TMX Sales, Inc.
suffered losses so that when it filed on April 15, 1982 its Annual Income Tax Return for the year ended
December 31, 1981, it declared a gross income of P904,122.00 and total deductions of P7,060,647.00, or
a net loss of P6,156,525.00 (CTA Decision, pp. 1-2; Rollo, pp. 45-46).
Thereafter, on July 9, 1982, TMX Sales, Inc. thru its external auditor, SGV & Co. filed with the Appellate
Division of the Bureau of Internal Revenue a claim for refund in the amount of P247,010.00 representing
overpaid income tax. (Rollo, p. 30)
This claim was not acted upon by the Commissioner of Internal Revenue. On March 14, 1984, TMX
Sales, Inc. filed a petition for review before the Court of Tax Appeals against the Commissioner of Internal
Revenue, praying that the petitioner, as private respondent therein, be ordered to refund to TMX Sales,
Inc. the amount of P247,010.00, representing overpaid income tax for the taxable year ended December
31, 1981.
In his answer, the Commissioner of Internal Revenue averred that "granting, without admitting, the
amount in question is refundable, the petitioner (TMX Sales, Inc.) is already barred from claiming the
same considering that more than two (2) years had already elapsed between the payment (May 15, 1981)
and the filing of the claim in Court (March 14, 1984). (Sections 292 and 295 of the Tax Code of 1977, as
amended)."
On April 29, 1988, the Court of Tax Appeals rendered a decision granting the petition of TMX Sales, Inc.
and ordering the Commissioner of Internal Revenue to refund the amount claimed.
The Tax Court, in granting the petition, viewed the quarterly income tax paid as a portion or installment of
the total annual income tax due. Said the Tax Court in its assailed decision:
xxx xxx xxx
When a tax is paid in installments, the prescriptive period of two years provided in Section 306 (now
Section 292) of the Revenue Code should be counted from the date of the final payment or last
installment. . . . This rule proceeds from the theory that in contemplation of tax laws, there is no payment
until the whole or entire tax liability is completely paid. Thus, a payment of a part or portion thereof,
cannot operate to start the commencement of the statute of limitations. In this regard the word "tax" or
words "the tax" in statutory provisions comparable to section 306 of our Revenue Code have been
uniformly held to refer to the entire tax and not a portion thereof (Clark v. U.S., 69 F. 2d 748; A.S.
Kriedner Co. v. U.S., 30 F Supp. 274; Hills v. U.S., 50 F 2d 302, 55 F 2d 1001), and the vocable "payment
of tax" within statutes requiring refund claim, refer to the date when all the tax was paid, not when a
portion was paid (Braun v. U.S., 8 F supp. 860, 863; Collector of Internal Revenue v. Prieto, 2 SCRA
1007; Commissioner of Internal Revenue v. Palanca, 18 SCRA 496).
Petitioner Commissioner of Internal Revenue is now before this Court seeking a reversal of the above
decision. Thru the Solicitor General, he contends that the basis in computing the two-year period of
prescription provided for in Section 292 (now Section 230) of the Tax Code, should be May 15, 1981, the
date when the quarterly income tax was paid and not April 15, 1982, when the Final Adjustment Return
for the year ended December 31, 1981 was filed.
He cites the case of Pacific Procon Limited v. Commissioner of Internal Revenue (G.R. No. 68013,
November 12, 1984) involving a similar set of facts, wherein this Court in a minute resolution affirmed the
Court of Appeals' decision denying the claim for refund of the petitioner therein for being barred by
prescription.
A re-examination of the aforesaid minute resolution of the Court in the Pacific Procon case is warranted
under the circumstances to lay down a categorical pronouncement on the question as to when the two-
year prescriptive period in cases of quarterly corporate income tax commences to run. A full-blown
decision in this regard is rendered more imperative in the light of the reversal by the Court of Tax Appeals
in the instant case of its previous ruling in the Pacific Procon case.
Section 292 (now Section 230) of the National Internal Revenue Code should be interpreted in relation to
the other provisions of the Tax Code in order to give effect to legislative intent and to avoid an application
of the law which may lead to inconvenience and absurdity. In the case of People vs. Rivera (59 Phil 236
[1933]), this Court stated that statutes should receive a sensible construction, such as will give effect to
the legislative intention and so as to avoid an unjust or an absurd conclusion. INTERPRETATIO TALIS IN
AMBIGUIS SEMPER FRIENDA EST, UT EVITATUR INCONVENIENS ET ABSURDUM. Where there is
ambiguity, such interpretation as will avoid inconvenience and absurdity is to be adopted. Furthermore,
courts must give effect to the general legislative intent that can be discovered from or is unraveled by the
four corners of the statute, and in order to discover said intent, the whole statute, and not only a particular
provision thereof, should be considered. (Manila Lodge No. 761, et al. v. Court of Appeals, et al., 73
SCRA 162 [1976]) Every section, provision or clause of the statute must be expounded by reference to
each other in order to arrive at the effect contemplated by the legislature. The intention of the legislator
must be ascertained from the whole text of the law and every part of the act is to be taken into view.
(Chartered Bank v. Imperial, 48 Phil. 931 [1921]; Lopez v. El Hogar Filipino, 47 Phil. 249, cited in Aboitiz
Shipping Corporation v. City of Cebu, 13 SCRA 449 [1965]).
Thus, in resolving the instant case, it is necessary that we consider not only Section 292 (now Section
230) of the National Internal Revenue Code but also the other provisions of the Tax Code, particularly
Sections 84, 85 (now both incorporated as Section 68), Section 86 (now Section 70) and Section 87 (now
Section 69) on Quarterly Corporate Income Tax Payment and Section 321 (now Section 232) on keeping
of books of accounts. All these provisions of the Tax Code should be harmonized with each other.
Section 292 (now Section 230) provides a two-year prescriptive period to file a suit for a refund of a tax
erroneously or illegally paid, counted from the tile the tax was paid. But a literal application of this
provision in the case at bar which involves quarterly income tax payments may lead to absurdity and
inconvenience.
Section 85 (now Section 68) provides for the method of computing corporate quarterly income tax which
is on a cumulative basis, to wit:
Sec. 85. Method of computing corporate quarterly income tax. — Every corporation shall file in duplicate
a quarterly summary declaration of its gross income and deductions on a cumulative basis for the
preceding quarter or quarters upon which the income tax, as provided in Title II of this Code shall be
levied, collected and paid. The tax so computed shall be decreased by the amount of tax previously paid
or assessed during the preceding quarters and shall be paid not later than sixty (60) days from the close
of each of the first three (3) quarters of the taxable year, whether calendar or fiscal year. (Emphasis
supplied)
while Section 87 (now Section 69) requires the filing of an adjustment returns and final payment of income
tax, thus:
Sec. 87. Filing of adjustment returns final payment of income tax. — On or before the fifteenth day of April
or on or before the fifteenth day of the fourth month following the close of the fiscal year,  every taxpayer
covered by this Chapter shall file an Adjustment Return covering the total net taxable income of the
preceding calendar or fiscal year and if the sum of the quarterly tax payments made during that year is
not equal to the tax due on the entire net taxable income of that year the corporation shall either (a) pay
the excess tax still due or (b) be refunded the excess amount paid as the case may be . . . . (Emphasis
supplied)
In the case at bar, the amount of P247,010.00 claimed by private respondent TMX Sales, Inc. based on
its Adjustment Return required in Section 87 (now Section 69), is equivalent to the tax paid during the first
quarter. A literal application of Section 292 (now Section 230) would thus pose no problem as the two-
year prescriptive period reckoned from the time the quarterly income tax was paid can be easily
determined. However, if the quarter in which the overpayment is made, cannot be ascertained, then a
literal application of Section 292 (Section 230) would lead to absurdity and inconvenience.
The following application of Section 85 (now Section 68) clearly illustrates this point:
FIRST QUARTER:
Gross Income 100,000.00
Less: Deductions 50,000.00
—————
Net Taxable Income 50,000.00
=========
Tax Due & Paid [Sec. 24 NIRC (25%)] 12,500.00
=========
SECOND QUARTER:
Gross Income 1st Quarter 100,000.00
2nd Quarter 50,000.00 150,000.00
—————
Less: Deductions 1st Quarter 50,000.00
2nd Quarter 75,000.00 125,000.00
—————
Net Taxable Income 25,000.00
=========
Tax Due Thereon 6,250.00
Less: Tax Paid 1st Quarter 12,500.00
—————
Creditable Income Tax (6,250.00)
—————
THIRD QUARTER:
Gross Income 1st Quarter 100,000.00
2nd Quarter 50,000.00
3rd Quarter 100,000.00 250,000.00
—————
Less: Deductions 1st Quarter 50,000.00
2nd Quarter 75,000.00
3rd Quarter 25,000.00 150,000.00
————— —————
100,000.00
=========
Tax Due Thereon 25,000.00
Less: Tax Paid 1st Quarter 12,500.00
2nd Quarter — 12,500.00
————— =========
FOURTH QUARTER: (Adjustment Return required in Sec. 87)
Gross Income 1st Quarter 100,000.00
2nd Quarter 50,000.00
3rd Quarter 100,000.00
4th Quarter 75,000.00 325,000.00
————— —————
Less: Deductions 1st Quarter 50,000.00
2nd Quarter 75,000.00
3rd Quarter 25,000.00
4th Quarter 100,000.00 250,000.00
————— —————
Net Taxable Income 75,000.00
=========
Tax Due Thereon 18,750.00
Less: Tax Paid 1st Quarter 12,500.00
2nd Quarter —
3rd Quarter 12,500.00 25,000.00
————— —————
Creditable Income Tax (to be REFUNDED) (6,250.00)
=========
Based on the above hypothetical data appearing in the Final Adjustment Return, the taxpayer is entitled
under Section 87 (now Section 69) of the Tax Code to a refund of P6,250.00. If Section 292 (now Section
230) is literally applied, what then is the reckoning date in computing the two-year prescriptive period?
Will it be the 1st quarter when the taxpayer paid P12,500.00 or the 3rd quarter when the taxpayer also
paid P12,500.00? Obviously, the most reasonable and logical application of the law would be to compute
the two-year prescriptive period at the time of filing the Final Adjustment Return or the Annual Income Tax
Return, when it can be finally ascertained if the taxpayer has still to pay additional income tax or if he is
entitled to a refund of overpaid income tax.
Furthermore, Section 321 (now Section 232) of the National Internal Revenue Code requires that the
books of accounts of companies or persons with gross quarterly sales or earnings exceeding Twenty Five
Thousand Pesos (P25,000.00) be audited and examined  yearly by an independent Certified Public
Accountant and their income tax returns be accompanied by certified balance sheets, profit and loss
statements, schedules listing income producing properties and the corresponding incomes therefrom and
other related statements.
It is generally recognized that before an accountant can make a certification on the financial statements or
render an auditor's opinion, an audit of the books of accounts has to be conducted in accordance with
generally accepted auditing standards.
Since the audit, as required by Section 321 (now Section 232) of the Tax Code is to be conducted yearly,
then it is the Final Adjustment Return, where the figures of the gross receipts and deductions have been
audited and adjusted, that is truly reflective of the results of the operations of a business enterprise. Thus,
it is only when the Adjustment Return covering the whole year is filed that the taxpayer would know
whether a tax is still due or a refund can be claimed based on the adjusted and audited figures.
Therefore, the filing of quarterly income tax returns required in Section 85 (now Section 68) and
implemented per BIR Form 1702-Q and payment of quarterly income tax should only be considered mere
installments of the annual tax due. These quarterly tax payments which are computed based on the
cumulative figures of gross receipts and deductions in order to arrive at a net taxable income, should be
treated as advances or portions of the annual income tax due, to be adjusted at the end of the calendar or
fiscal year. This is reinforced by Section 87 (now Section 69) which provides for the filing of adjustment
returns and final payment of income tax. Consequently, the two-year prescriptive period provided in
Section 292 (now Section 230) of the Tax Code should be computed from the time of filing the Adjustment
Return or Annual Income Tax Return and final payment of income tax.
In the case of Collector of Internal Revenue v. Antonio Prieto (2 SCRA 1007 [1961]), this Court held that
when a tax is paid in installments, the prescriptive period of two years provided in Section 306 (Section
292) of the National internal Revenue Code should be counted from the date of the final payment. This
ruling is reiterated in Commission of Internal Revenue v.  Carlos Palanca (18 SCRA 496 [1966]), wherein
this Court stated that where the tax account was paid on installment, the computation of the two-year
prescriptive period under Section 306 (Section 292) of the Tax Code, should be from the date of the last
installment.
In the instant case, TMX Sales, Inc. filed a suit for a refund on March 14, 1984. Since the two-year
prescriptive period should be counted from the filing of the Adjustment Return on April 15, 1982, TMX
Sales, Inc. is not yet barred by prescription.
WHEREFORE, IN VIEW OF THE FOREGOING, the petition is hereby DENIED. The decision of the Court
of Tax Appeals dated April 29, 1988 is AFFIRMED. No costs.
SO ORDERED.

[G.R. NOS. 156637/162004 December 14, 2005]

PHILAM ASSET MANAGEMENT, INC., Petitioner, v. COMMISSIONER OF INTERNAL
REVENUE, Respondent.
DECISION
PANGANIBAN, J.:
Under Section 76 of the National Internal Revenue Code, a taxable corporation with excess quarterly
income tax payments may apply for either a tax refund or a tax credit, but not both. The choice of one
precludes the other. Failure to indicate a choice, however, will not bar a valid request for a refund, should
this option be chosen by the taxpayer later on.
The Case
Before us are two consolidated Petitions for Review 1 under Rule 45 of the Rules of Court, seeking to
review and reverse the December 19, 2002 Decision 2 of the Court of Appeals (CA) in CA-GR SP No.
69197 and its January 30, 2004 Decision3 in CA-GR SP No. 70882.
The dispositive portion of the assailed December 19, 2002 Decision, on the one hand, reads as follows:
"WHEREFORE, the petition is hereby DENIED. The assailed decision and resolution of the Court of Tax
Appeals are AFFIRMED."4
That of the assailed January 30, 2004 Decision, on the other hand, was similarly worded, except that it
referred to the May 2, 2002 Decision of the Court of Tax Appeals (CTA). 5
The Facts
In GR No. 156637, the CA adopted the CTA's narration of the facts as follows:
"Petitioner, formerly Philam Fund Management, Inc., is a domestic corporation duly organized and
existing under the laws of the Republic of the Philippines. It acts as the investment manager of both
Philippine Fund, Inc. (PFI) and Philam Bond Fund, Inc. (PBFI), which are open-end investment
companies[,] in the sale of their shares of stocks and in the investment of the proceeds of these sales into
a diversified portfolio of debt and equity securities. Being an investment manager, [p]etitioner provides
management and technical services to PFI and PBFI. Petitioner is, likewise, PFI's and PBFI's principal
distributor which takes charge of the sales of said companies' shares to prospective investors. Pursuant
to the separate [m]anagement and [d]istribution agreements between the [p]etitioner and PFI and PBFI,
both PFI and PBFI [agree] to pay the [p]etitioner, by way of compensation for the latter's services and
facilities, a monthly management fee from which PFI and PBFI withhold the amount equivalent to [a] five
percent (5%) creditable tax[,] pursuant to the Expanded Withholding Tax Regulations.
"On April 3, 1998, [p]etitioner filed its [a]nnual [c]orporate [i]ncome [t]ax [r]eturn for the taxable year 1997
representing a net loss of P2,689,242.00. Consequently, it failed to utilize the creditable tax withheld in
the amount of Five Hundred Twenty-Two Thousand Ninety-Two Pesos (P522,092.00) representing [the]
tax withheld by [p]etitioner's withholding agents, PFI and PBFI[,] on professional fees.
"The creditable tax withheld by PFI and PBFI in the amount of P522,092.00 is broken down as follows:
PFI P496,702.05
PBFI 25,389.66_
Total P522,091.71
"On September 11, 1998, [p]etitioner filed an administrative claim for refund with the [Bureau of Internal
Revenue (BIR)] - - Appellate Division in the amount of P522,092.00 representing unutilized excess tax
credits for calendar year 1997. Thereafter, on July 28, 1999, a written request was filed with the same
division for the early resolution of [p]etitioner's claim for refund.
"Respondent did not act on [p]etitioner's claim for refund[;] hence, a Petition for Review was filed with this
Court6 on November 29, 1999 to toll the running of the two-year prescriptive period." 7
On October 9, 2001, the CTA rendered a Decision denying petitioner's Petition for Review. Its Motion for
Reconsideration was likewise denied in a Resolution dated January 29, 2002.
In GR No. 162004, the antecedents are narrated by the CA in this wise:
"On April 13, 1999, [petitioner] filed its Annual Income Tax Return with the [BIR] for the taxable year 1998
declaring a net loss of P1,504,951.00. Thus, there was no tax due against [petitioner] for the taxable year
1998. Likewise, [petitioner] had an unapplied creditable withholding tax in the amount of P459,756.07,
which amount had been previously withheld in that year by petitioner's withholding agents[,] namely x x x
[PFI], x x x [PBFI], and Philam Strategic Growth Fund, Inc. (PSGFI).
"In the next succeeding year, [petitioner] had a tax due in the amount of P80,042.00, and a creditable
withholding tax in the amount of P915,995.00. [Petitioner] likewise declared in its 1999 tax return the
amount of P459,756.07, which represents its prior excess credit for taxable year 1998.
"Thereafter, on November 14, 2000, [petitioner] filed with the Revenue District Office No. 50, Revenue
Region No. 8, a written administrative claim for refund with respect to the unapplied creditable withholding
tax of P459,756.07. According to [petitioner,] the amount of P80,042.00, representing the tax due for the
taxable year 1999 has been credited from its P915,995.00 creditable withholding tax for taxable year
1999, thus leaving its 1998 creditable withholding tax in the amount of P459,756.07 still unapplied.
"The claim for refund yielded no action on the part of the BIR. [Petitioner] then filed a Petition for Review
before the CTA on December 26, 2000, asserting that it is entitled [to] the refund [of P459,756.07,] since
said amount has not been applied against its tax liabilities in the taxable year 1998.
"On May 2, 2002, the CTA rendered [a] x x x decision denying [petitioner's] Petition for Review. x x x." 8
Ruling of the Court of Appeals
The CA denied the claim of petitioner for a refund of the latter's excess creditable taxes withheld for the
years 1997 and 1998, despite compliance with the basic requirements of Revenue Regulations (RR) No.
12-94. The appellate court pointed out that, in the respective Income Tax Returns (ITRs) for both years,
petitioner did not indicate its option to have the amounts either refunded or carried over and applied to the
succeeding year. It was held that to request for either a refund or a credit of income tax paid, a
corporation must signify its intention by marking the corresponding option box on its annual corporate
adjustment return.
The CA further held in GR No. 156637 that the failure to present the 1998 ITR was fatal to the claim for a
refund, because there was no way to verify if the tax credit for 1997 could not have been applied against
the 1998 tax liabilities of petitioner.
In GR No. 162004, however, the subsequent acts of petitioner demonstrated its option to carry over its tax
credit for 1998, even if it again failed to tick the appropriate box for that option in its 1998 ITR. Under RR
12-94, its failure to indicate that option resulted in the automatic carry-over of any excess tax credit for the
prior year. The appellate court said that the government would not be unjustly enriched by denying a
refund, because there would be no forfeiture of the amount in its favor. The amount claimed as a refund
would remain in the account of the taxpayer until utilized in succeeding taxable years.
Hence, these Petitions.9
The Issues
Petitioner raises two issues in GR No. 156637 for the Court's consideration:
"A.
"Whether or not the failure of the [p]etitioner to indicate in its [a]nnual [i]ncome [t]ax [r]eturn the option to
refund its creditable withholding tax is fatal to its claim for refund.
"B.
"Whether or not the presentation in evidence of the [p]etitioner's [a]nnual [i]ncome [t]ax [r]eturn for the
succeeding calendar year is a legal requisite in a claim for refund of unapplied creditable withholding
tax."10
In GR No. 162004, petitioner raises one question only:
"Whether or not the petitioner is entitled to the refund of its unutilized creditable withholding tax in the
taxable year 1998 in the amount of P459,756.07."11
In both cases, a simple issue needs to be resolved: whether petitioner is entitled to a refund of its
creditable taxes withheld for taxable years 1997 and 1998.
The Court's Ruling
The Petition in GR No. 156637 is meritorious, but that in GR No. 162004 is not.
Main Issue:
Entitlement to Refund
The provision on the final adjustment return (FAR) was originally found in Section 69 of Presidential
Decree (PD) No. 1158, otherwise known as the "National Internal Revenue Code of 1977." 12 On August 1,
1980, this provision was restated as Section 8613 in PD 1705.14
On November 5, 1985, all prior amendments and those introduced by PD 1994 15 were codified16 into the
National Internal Revenue Code (NIRC) of 1985, as a result of which Section 86 was renumbered 17 as
Section 79.18
On July 31, 1986, Section 24 of Executive Order (EO) No. 37 changed all "net income" phrases
appearing in Title II of the NIRC of 1977 to "taxable income." Section 79 of the NIRC of 1985, 19 however,
was not amended.
On July 25, 1987, EO 27320 renumbered21 Section 86 of the NIRC22 as Section 76,23 which was also
rearranged24 to fall under Chapter 10 of Title II of the NIRC. Section 79, which had earlier been
renumbered by PD 1994, remained unchanged.
Thus, Section 69 of the NIRC of 1977 was renumbered as Section 86 under PD 1705; later, as Section 79
under PD 1994;25 then, as Section 76 under EO 273. 26 Finally, after being renumbered and reduced to the
chaff of a grain, Section 69 was repealed by EO 37.
Subsequently, Section 69 reappeared in the NIRC (or Tax Code) of 1997 as Section 76, which reads:
"Section 76. Final Adjustment Return. - - Every corporation liable to tax under Section 24 shall file a final
adjustment return covering the total net income 27 for the preceding calendar or fiscal year. If the sum of
the quarterly tax payments made during the said taxable year is not equal to the total tax due on the
entire taxable net income28 of that year the corporation shall either:
"(a) Pay the excess tax still due; or
"(b) Be refunded the excess amount paid, as the case may be.
"In case the corporation is entitled to a refund of the excess estimated quarterly income taxes paid, the
refundable amount shown on its final adjustment return may be credited against the estimated quarterly
income tax liabilities for the taxable quarters of the succeeding taxable year."
GR No. 156637
This section applies to the first case before the Court. Differently numbered in 1977 but similarly worded
20 years later (1997), Section 76 offers two options to a taxable corporation whose total quarterly income
tax payments in a given taxable year exceeds its
total income tax due. These options are (1) filing for a tax refund or (2) availing of a tax credit.
The first option is relatively simple. Any tax on income that is paid in excess of the amount due the
government may be refunded, provided that a taxpayer properly applies for the refund.
The second option works by applying the refundable amount, as shown on the FAR of a given taxable
year, against the estimated quarterly income tax liabilities of the succeeding taxable year.
These two options under Section 76 are alternative in nature. 29 The choice of one precludes the other.
Indeed, in Philippine Bank of Communications v. Commissioner of Internal Revenue,30 the Court ruled
that a corporation must signify its intention - - whether to request a tax refund or claim a tax credit - - by
marking the corresponding option box provided in the FAR. 31 While a taxpayer is required to mark its
choice in the form provided by the BIR, this requirement is only for the purpose of facilitating tax
collection.
One cannot get a tax refund and a tax credit at the same time for the same excess income taxes paid.
Failure to signify one's intention in the FAR does not mean outright barring of a valid request for a refund,
should one still choose this option later on. A tax credit should be construed merely as an alternative
remedy to a tax refund under Section 76, subject to prior verification and approval by respondent. 32
The reason for requiring that a choice be made in the FAR upon its filing is to ease tax
administration,33 particularly the self-assessment and collection aspects. A taxpayer that makes a choice
expresses certainty or preference and thus demonstrates clear diligence. Conversely, a taxpayer that
makes no choice expresses uncertainty or lack of preference and hence shows simple negligence or plain
oversight.
In the present case, respondent denied the claim of petitioner for a refund of excess taxes withheld in
1997, because the latter
(1) had not indicated in its ITR for that year whether it was opting for a credit or a refund; and (2) had not
submitted as evidence its 1998 ITR, which could have been the basis for determining whether its claimed
1997 tax credit had not been applied against its 1998 tax liabilities.
Requiring that the ITR or the FAR of the succeeding year be presented to the BIR in requesting a tax
refund has no basis in law and jurisprudence.
First, Section 76 of the Tax Code does not mandate it. The law merely requires the filing of the FAR for
the preceding - - not the succeeding - - taxable year. Indeed, any refundable amount indicated in the FAR
of the preceding taxable year may be credited against the estimated income tax liabilities for the taxable
quarters of the succeeding taxable year. However, nowhere is there even a tinge of a hint in any of the
provisions of the Tax Code that the FAR of the taxable year following the period to which the  tax
credits are originally being applied should also be presented to the BIR.
Second, Section 534 of RR 12-94, amending Section 10(a) of RR 6-85, merely provides that claims for the
refund of income taxes deducted and withheld from income payments shall be given due course only (1)
when it is shown on the ITR that the income payment received is being declared part of the taxpayer's
gross income; and (2) when the fact of withholding is established by a copy of the withholding tax
statement, duly issued by the payor to the payee, showing the amount paid and the income tax withheld
from that amount.35
Undisputedly, the records do not show that the income payments received by petitioner have not been
declared as part of its gross income, or that the fact of withholding has not been established. According to
the CTA, "[p]etitioner substantially complied with the x x x requirements" of RR 12-94 "[t]hat the fact of
withholding is established by a copy of a statement duly issued by the payor (withholding agent) to the
payee, showing the amount paid and the amount of tax withheld therefrom; and x x x [t]hat the income
upon which the taxes were withheld were included in the return of the recipient." 36
The established procedure is that a taxpayer that wants a cash refund shall make a written request for it,
and the ITR showing the excess expanded withholding tax credits shall then be examined by the BIR. For
the grant of refund, RRs 12-94 and 6-85 state that all
pertinent accounting records should be submitted by the taxpayer. These records, however, actually refer
only to (1) the withholding tax statements; (2) the ITR of the present quarter to which the excess
withholding tax credits are being applied; and (3) the ITR of the quarter for the previous taxable year in
which the excess credits arose.37 To stress, these regulations implementing the law do not require the
proffer of the FAR for the taxable year following the period to which the tax credits are being applied.
Third, there is no automatic grant of a tax refund. As a matter of procedure, the BIR should be given the
opportunity "to investigate and confirm the veracity" 38 of a taxpayer's claim, before it grants the refund.
Exercising the option for a tax refund or a tax credit does not ipso facto confer upon a taxpayer the right to
an immediate availment of the choice made. Neither does it impose a duty on the government to allow tax
collection to be at the sole control of a taxpayer. 39
Fourth, the BIR ought to have on file its own copies of petitioner's FAR for the succeeding year, on the
basis of which it could rebut the assertion that there was a subsequent credit of the excess income tax
payments for the previous year. Its failure to present this vital document to support its contention against
the grant of a tax refund to petitioner is certainly fatal.
Fifth, the CTA should have taken judicial notice 40 of the fact of filing and the pendency of petitioner's
subsequent claim for a refund of excess creditable taxes withheld for 1998. The existence of the claim
ought to be known by reason of its judicial functions. Furthermore, it is decisive to and will easily resolve
the material issue in this case. If only judicial notice were taken earlier, the fact that there was no carry-
over of the excess creditable taxes withheld for 1997 would have already been crystal clear.
Sixth, the Tax Code allows the refund of taxes to a taxpayer that claims it in writing within two years after
payment of the taxes erroneously received by the BIR. 41 Despite the failure of petitioner
to make the appropriate marking in the BIR form, the filing of its written claim effectively serves as an
expression of its choice to request a tax refund, instead of a tax credit. To assert that any future claim for
a tax refund will be instantly hindered by a failure to signify one's intention in the FAR is to render
nugatory the clear provision that allows for a two-year prescriptive period.
In fact, in BPI-Family Savings Bank v. CA,42 this Court even ordered the refund of a taxpayer's excess
creditable taxes, despite the express declaration in the FAR to apply the excess to the succeeding
year.43 When circumstances show that a choice of tax credit has been made, it should be respected. But
when indubitable circumstances clearly show that another choice - - a tax refund - - is in order, it should
be granted. "Technicalities and legalisms, however exalted, should not be misused by the government to
keep money not belonging to it and thereby enrich itself at the expense of its law-abiding citizens." 44
In the present case, although petitioner did not mark the refund box in its 1997 FAR, neither did it perform
any act indicating that it chose a tax credit. On the contrary, it filed on September 11, 1998, an
administrative claim for the refund of its excess taxes withheld in 1997. In none of its quarterly returns for
1998 did it apply the excess creditable taxes. Under these circumstances, petitioner is entitled to a  tax
refund of its 1997 excess tax credits in the amount of P522,092.
GR No. 162004
As to the second case, Section 76 also applies. Amended by Republic Act (RA) No. 8424, otherwise
known as the "Tax Reform Act of 1997," it now states:
"SEC. 76. Final Adjustment Return. - - Every corporation liable to tax under Section 27 shall file a final
adjustment return covering the total taxable income for the preceding calendar or fiscal year. If the sum of
the quarterly tax payments made during the said taxable year is not equal to the total tax due on the
entire taxable income of that year, the corporation shall either:
(A) Pay the balance of tax still due; or
(B) Carry over the excess credit; or
(C) Be credited or refunded with the excess amount paid, as the case may be.
"In case the corporation is entitled to a tax credit or refund of the excess estimated quarterly income taxes
paid, the excess amount shown on its final adjustment return may be carried over and credited against
the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years.
Once the option to carry-over and apply the excess quarterly income tax against income tax due for the
taxable quarters of the succeeding taxable years has been made, such option shall be considered
irrevocable for that taxable period and no application for cash refund or issuance of a tax credit certificate
shall be allowed therefor."
The carry-over option under Section 76 is permissive. A corporation that is entitled to a tax refund or a tax
credit for excess payment of quarterly income taxes may carry over and credit the excess income taxes
paid in a given taxable year against the estimated income tax liabilities of the succeeding quarters. Once
chosen, the carry-over option shall be considered irrevocable 45 for that taxable period, and no application
for a tax refund or issuance of a tax credit certificate shall then be allowed.
According to petitioner, it neither chose nor marked the carry-over option box in its 1998 FAR. 46 As this
option was not chosen, it seems that there is nothing that can be considered irrevocable. In other words,
petitioner argues that it is still entitled to a refund of its 1998 excess income tax payments.
This argument does not hold water. The subsequent acts of petitioner reveal that it has effectively
chosen the carry-over option.
First, the fact that it filled out the portion "Prior Year's Excess Credits" in its 1999 FAR means that it
categorically availed itself of the carry-over option. In fact, the line that precedes that phrase in the BIR
form clearly states "Less: Tax Credits/Payments." The contention that it merely filled out that portion
because it was a requirement - - and that to have done otherwise would have been tantamount to
falsifying the FAR - - is a long shot.
The FAR is the most reliable firsthand evidence of corporate acts pertaining to income taxes. In it are
found the itemization and summary of additions to and deductions from income taxes due. These entries
are not without rhyme or reason. They are required, because they facilitate the tax administration
process.
Failure to indicate the amount of "prior year's excess credits" does not mean falsification by a taxpayer of
its current year's FAR. On the contrary, if an application for a tax refund has been - - or will be - - filed,
then that portion of the BIR form should necessarily be blank, even if the FAR of the previous taxable year
already shows an overpayment in taxes.
Second, the resulting redundancy in the claim of petitioner for a  refund of its 1998 excess tax credits on
November 14, 200047 cannot be countenanced. It cannot be allowed to avail itself of a tax refund and
a tax credit at the same time for the same excess income taxes paid. Besides, disallowing it from getting
a tax refund of those excess tax credits will not enervate the two-year prescriptive period under the Tax
Code. That period will apply if the carry-over option has not been chosen.
Besides, "tax refunds x x x are construed strictly against the taxpayer." 48 Petitioner has failed to meet the
burden of proof required in order to establish the factual basis of its claim for a tax refund.
Third, the "first-in first-out" (FIFO) principle enunciated by the CTA 49 does not apply.50 Money is fungible
property.51 The amount to be applied against the P80,042 income tax due in the 1998 FAR 52 of petitioner
may be taken from its excess credits in 1997 or from those withheld in 1998 or from both. Whichever of
these the amount will be taken from will not make a difference.
Even if the FIFO principle were to be applied, the tax credits would have to be in consonance with the
usual and normal course of events. In fact, the FAR is cumulative in nature. 53 Following a natural
sequence, the prior year's excess tax credits will have to be reduced first to answer for any current tax
liabilities before the current year's withheld amounts can be applied. Otherwise, there will be no sense in
requiring a taxpayer to fill out the line items in the FAR to segregate its sources of tax credits.
Whether the FIFO principle is applied or not, Section 76 remains clear and unequivocal. Once the carry-
over option is taken, actually or constructively, it becomes irrevocable. Petitioner has chosen that option
for its 1998 creditable withholding taxes. Thus, it is no longer entitled to a  tax refund of P459,756.07,
which corresponds to its 1998 excess tax credit. Nonetheless, the amount will not be forfeited in the
government's favor, because it may be claimed by petitioner as tax credits in the succeeding taxable
years.
WHEREFORE, the Petition in GR No. 156637 is GRANTED and the assailed December 19, 2002
Decision REVERSED and SET ASIDE. No pronouncement as to costs.
The Petition in GR No. 162004 is, however, DENIED and the assailed January 30, 2004
Decision AFFIRMED. Costs against petitioner.
SO ORDERED.

COMMISSIONER OF INTERNAL REVENUE,

C.T.A. EB NO. 803
(C.T.A. CASE NO. 7711)
Petitioner,
-versusRHOMBUS ENERGY, IN CORPORA TED,
Respondent.
Present:
A COST A, Presiding Justice, CASTANEDA, JR.,
BAUTISTA, UY, CASANOVA,
P ALANCA-ENRIQUEZ, F ABON-VICTORINO,
MINDARO-GRULLA, and COTANGCO-MANALASTAS, JJ.
Promulgated:

DECISION
PALANCA-ENRIQUEZ, J.:

"Once the taxpayer opts to carry-over the excess income tax against the taxes due for the succeeding
taxable years, such option is irrevocable for the whole amount of the excess income tax, thus, prohibiting
the taxpayer from applying for a refund for that same excess

C.T.A. EB NO. 803

(C.T.A. CASE NO. 7711)
DECISION

income tax in the next succeeding taxable years. The unutilized excess tax credits will remain in the
taxpayer's account and will be carried over and applied against the taxpayer's income tax liabilities in the
succeeding taxable years until fully utilized" (Commissioner of Internal Revenue vs.
Philippine American Life and General Insurance Company, 631 SCRA 551-552).

THE CASE

This is a Petition for Review filed by the Commissioner of Internal

Revenue (hereafter "CIR") under Section 11 of RA 1125, as amended by
Section 18 of RA 9282, in relation to Rule 43 of the 1997 Rules of Civil
Procedure, as amended, which seeks to reverse and set aside the Decision dated March 23, 2011 and
Resolution dated June 30, 2011 rendered by the First Division of this Court in C.T.A. Case No. 7711, the
respective dispositive portions of which read, as follows:
"WHEREFORE, the instant Petition for
Review is GRANTED. Consequently, respondent
Commissioner of Internal Revenue is hereby
DIRECTED TO REFUND or TO ISSUE A TAX
CREDIT CERTIFICATE in favor of petitioner
Rhombus Energy, Inc. in the amount of
Php1,500,653.00, representing the latter's unutilized creditable income taxes withheld for the taxable year
2005. C.T.A. EB NO. 803 SO ORDERED."
"WHEREFORE, there being no compelling to disturb the ruling of the Court in the assailed Decision of
March 23, 2011, the Motion for Reconsideration dated April 12, 20 11, filed by respondent is hereby
DENIED, for lack of merit.
SO ORDERED."

THE PARTIES
3
Petitioner CIR is the government officer vested with legal authority to refund overpaid, as well as
erroneously or illegally collected internal revenue taxes, with office address at the Bureau of Internal
Revenue ("BIR"), National Office Bldg., BIR Road, Diliman, Quezon City.
Respondent Rhombus Energy, Inc., on the other hand, IS a corporation duly organized and existing under
the laws of the Republic of the Philippines, with Securities and Exchange Commission Registration No.
A199807793, and principal office at Suite 208, 2nd Floor, Manila
Bank Corporation Condominium Building, 6772 Ayala Avenue, Makati City.

THE FACTS

4
Records show that from October 1998 to July 2007, respondent was registered with and was under the
jurisdiction of Revenue Region
No. 8, Revenue District Office ("RDO") No. 50 (South Makati) of the BIR with Taxpayer Identification No.
005-650-790-000. However, due to respondent's change of address from Suite 1402, BDO Plaza, 8737
Paseo de Roxas, Salcedo Village, Makati City to Suite 208, 2nd Floor, the Manila Bank Corporation
Condominium Building, 6772 Ayala A venue, Makati City, respondent filed an application for change of
home RDO.
Thus, on July 18, 2007, respondent was transferred to the jurisdiction of RDO No. 47, with Certificate of
Registration No. OCN
9RC0000211342.
In the meantime, on April 17, 2006, respondent filed its Annual
Income Tax Return ("ITR") for taxable year 2005, detailed, as follows:
Sales/Revenues/Receipts/Fees P59,551,116.00
Less: Cost of Sales 22,351.923.00
Gross Income from Operations 37,199,193.00
Add: Non-Operating and Other Income 209,320.181.00
Gross Income P246,519,374.00
Less: Deductions 144.421.350.00
Taxable Income P102,098,024.00
Income Tax 33,181,858.00
Less: Prior Year's Excess Credits PO.OO
Tax Payments for the First 3 Quarters 6,159,215.00
Creditable Tax Withheld for
Quarters
Total Tax Credits/Payments
Tax Payable/(Overpayment)
5
28,523,296.00
P34,682,511.00
P1,500,653.00
In said Annual ITR for taxable year 2005, respondent indicated that its excess creditable withholding tax
("CWT") for the year 2005 was "To be refunded".
On May 29, 2006, respondent filed its Quarterly Income Tax
Return for the first quarter of taxable year 2006 showing prior year's excess credits ofP1,500,653.00.
On August 25, 2006, respondent filed its Quarterly Income Tax
Return for the second quarter of taxable year 2006 showing prior year's excess credits ofP1,500,653.00.
On November 27, 2006, respondent filed its Quarterly Income Tax
Return for the third quarter of taxable year 2006 showing prior year's excess credits of P1,500,653.00.
On December 29, 2006, respondent filed with the Revenue Region
No. 8 an administrative claim for refund of its alleged excess/unutilized
CWT for the year 2005 in the amount ofP1,500,653.00.
Mf

On April 2, 2007, respondent filed its Annual Income Tax Return for taxable year 2006 showing prior
year's excess credits ofPO.OO.
On December 7, 2007, pending petitioner's action on respondent's claim for refund or issuance of a tax
credit certificate of its excess/unutilized CWT for the year 2005 and before the lapse of the period for filing
an appeal, respondent filed the instant Petition for Review.
In her Answer, by way of special and affirmative defenses, the
CIR alleged: assuming without admitting that respondent filed a claim for refund, the same is subject to
investigation by the BIR; respondent failed to demonstrate that the tax was erroneously or illegally
collected; taxes paid and collected are presumed to have been made in accordance with laws and
regulations, hence, not refundable; it is incumbent upon respondent to show that it has complied with the
provisions of Section
204(C), in relation to Section 229 of the Tax Code, as amended, upon which its claim for refund was
premised; in an action for tax refund the burden is upon the taxpayer to prove that he is entitled thereto,
and failure to discharge said burden is fatal to the claim; and claim~ refund are construed strictly against
the claimant, as the same partake of the nature of exemption from taxation.
After trial on the merits, on March 23, 2011, the First Division rendered the assailed Decision granting the
Petition for Review.
On April 14, 2011, petitioner CIR filed a "Motion for
Reconsideration", which was denied for lack of merit by the First
Division in a Resolution dated June 30, 2011.
Not satisfied, petitioner CIR filed the instant Petition for Review
raising the following:

ISSUES

I
WHETHER OR NOT RESPONDENT IS ENTITLED TO ITS CLAIM FOR REFUND OF UNUTILIZED
CREDITABLE WITHHOLDING TAXES IN THE AMOUNT OF P1,500,653.00, FOR TAXABLE YEAR
2005.
II
WHETHER OR NOT RESPONDENT HAD ALREADY EXERCISED ITS OPTION TO CARRY-OVER ITS
CLAIM FOR REFUND OF UNUTILIZED CREDITABLE WITHHOLDING TAXES IN THE AMOUNT OF
P!,500,653.00 FOR 2005 TO THE SUCCEEDING 1sT, 2ND AND 3RD
QUARTERS OF TAXABLE YEAR 2006.
8
On August 18, 2011, without necessarily giving due course to the petition, we required the respondent to
file its comment, not a motion to dismiss, within ten (10) days from notice; afterwhich, the petition shall be
deemed submitted for decision, unless the Court en Bane decides to require the parties to submit their
simultaneous memoranda. Despite the granting of its "Motion for Extension of Time to File Comment to
Petition for Review", respondent failed to file its
"Comment" within the extension granted.
On September 21, 2011, respondent filed a "Motion to Admit
Attached Comment to the Petition for Review", which was denied by the
Court in a Resolution dated October 4, 2011. Both parties were granted a period of thirty (30) days from
notice within which to file their simultaneous memoranda, after which the case shall be deemed submitted
for decision.
On November 3, 2011, petitioner filed a "Manifestation and
Motion" stating that she is adopting all her legal arguments/position found in her Petition for Review filed
on July 26, 2011 with this Court, as well as the factual findings and conclusions of Presiding Justice
Ernesto
D. Acosta in his Dissenting Opinions dated March 23, 2011 and June 30,
2011 in C.T.A. Case No. 7711, as part of her memorandum, which the
Court noted on November 8, 2011.
On November 9, 2011, respondent filed a "Motion to Admit
Attached Respondent's Memorandum", with attached "Respondent's Memorandum". On December 6,
2011, the Court granted the "Motion to
Admit Attached Respondent's Memorandum" and admitted respondent's memorandum.
Petitioner CIR 's Arguments
Petitioner CIR contends that respondent had already exercised its option to carry-over the amount of
P1,500,653.00, representing its excess/unutilized CWT for 2005 when it included said amount in its 1st,
2nd and 3rd quarterly ITR's for taxable year 2006; hence, pursuant to
Section 76 of the 1997 Tax Code, no claim for refund is allowed since such option is considered
irrevocable. IDAIJ

Respondent Rhombus Energv. Inc.'s Counter-Arguments

Respondent counter-argues that its choice to be refunded its 2005 CWT is irrevocable; it did not actually
utilize or apply any portion of the 2005 excess CWT as payment of income tax in the 1st, 2nd, and 3 rd
quarters of 2006, or even in the Annual ITRs of 2006 and 2007; the shareholders and board of directors
of respondent approved the dissolution of respondent effective December 31, 2010, hence petitioner
would no longer be able to carry-over and utilize the 2005 excess CWT in the succeeding years.

THE COURT EN BANC'S RULING

The petition is meritorious.
Section 76 of the NIRC of 1997, as amended, provides:

"SEC. 76. Final Adjustment Return. – Every corporation liable to tax under Section 27 shall file a final
adjustment return covering the total taxable income for the preceding calendar or fiscal year. If the sum of
the quarterly tax payments made during the said taxable year is not equal to the total tax due on the
entire taxable income of that year,
the corporation shall either:
(A) Pay the balance of the tax still due; or
(B) Carry-over the excess credit; or (9.)k'

(C) Be credited or refunded with the excess amount paid, as the case may be.
In case the corporation is entitled to a tax credit or refund of the excess estimated quarterly income taxes
paid, the excess amount shown on its final adjustment return may be carried over and credited against
the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years.
Once the option to carry-over and apply the excess quarterly income tax against income due for the
taxable quarters of the succeeding taxable years has been made, such option shall be considered
irrevocable for that taxable period and no application for cash refund or issuance
of a tax credit certificate shall be allowed therefor."
11
The above provision gives two options to a taxable corporation whose total quarterly income tax payment
in a given taxable year exceeds its total income tax due. These options are
( 1) be credited or refunded either in the form of cash or credit certificate with the excess amount paid; or
(2) carry over the excess credit to the succeeding taxable year.
The first option works simply by applying for a cash refund or tax credit certificate with the BIR for any tax
on income that is paid in excess of the amount due to the government. The second option, on the other
hand, works by applying the refundable amount, as shown on the Final Adjustment Return, of the given
taxable year, against the income tax liabilities of the succeeding taxable year.

12
Records show that petitioner's Annual Income Tax Return for the year ended December 31, 2005 reflects
a net loss of P1,500,653.00
(Exhibit "B '').
Since petitioner incurred a net loss for taxable year 2005, on
December 29, 2006, petitioner filed with Revenue Region 8 an administrative claim for refund of its
excess creditable withholding tax for calendar year 2005 in the amount of P1,500,653.00 (Exhibit "!"). In
effect, petitioner availed of the first option provided in Section 76 of the NIRC of 1997, as amended.
However, a perusal of petitioner's Quarterly Income Tax Return for the first quarter of taxable year 2006
(Exhibit "DD '') shows that petitioner carried over its unutilized creditable withholding tax for taxable year
2005 in the amount ofP1,500,653.00, subject of the present petition for refund or issuance of a TCC.
Also, a perusal of petitioner's Quarterly Income Tax Return for the
second quarter of taxable year 2006 (Exhibit "EE'') shows that petitioner
again carried over its unutilized creditable withholding tax for taxable year 2005 in the amount
ofP1,500,653.00, subject of the present petition for refund or issuance of a TCC.
Likewise, petitioner's Quarterly Income Tax Return for the third quarter of taxable year 2006 (Exhibit "FF")
shows that petitioner carried over its unutilized creditable withholding tax for taxable year 2005 in the
amount of Pl,500,653.00, subject of the present petition for refund or issuance of a TCC.
It bears stressing that the last paragraph of Section 76 of the NIRC
of 1997, as amended, provides that once the option to carry-over and apply the excess quarterly income
tax against income due for the taxable quarters of the succeeding taxable years has been made, such
option shall be considered irrevocable for that taxable period and no application for cash refund or
issuance of a TCC shall be allowed therefore.
Thus, in the recent case of Mirant (Philippines) Operations
Corporation (formerly: Southern Energy Asia-Pacific Operations (Phils.) Inc.) vs. Commissioner of Internal
Revenue, 652 SCRA 89-93, the
Supreme Court ruled, as follows:
"Once exercised, the option to carry
over is Irrevocable
"xxx xxx
The last sentence of Section 76 is clear in its mandate. Once a corporation exercises the option to carry-
over and apply the excess quarterly income tax against the tax due for the taxable quarters of the
succeeding taxable years, such option is irrevocable for that taxable period. Having chosen to carry-over
the excess quarterly income tax, the corporation cannot thereafter choose to apply for a cash refund or for
the issuance of a tax credit certificate for the amount representing such overpayment.
In the recent case of Commissioner of Internal Revenue v. P L
Management International Philippines, Inc. (G.R. No. 160949, April 4,
2011), the Court discussed the irrevocability rule of Section 76 in this
WISe:
The predecessor provision of Section 76 of the NIRC of 1997 is
Section 79 of the NIRC of 1985, which provides: Section 79. Final Adjustment Return. - Every corporation
liable to tax under Section 24 shall file a final adjustment return covering the total net income for the
preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable
year is not equal to the total tax due on the entire taxable net income of that year the corporation shall
either:

(a) Pay the excess tax still due; or

(b) Be refunded the excess amount paid, as the case may be.

In case the corporation is entitled to a refund of the excess estimated quarterly income taxes-paid, the
refundable amount shown on its final adjustment return may be credited against the estimated quarterly
income tax liabilities for the taxable quarters of the succeeding taxable year.
As can be seen, Congress added a sentence to Section 76 of the
NIRC of 1997 in order to lay down the irrevocability rule, to wit:
w

xxx Once the option to carry-over and apply the excess quarterly income tax against income tax due for
the taxable quarters of the succeeding taxable years has been made, such option shall be considered
irrevocable for that taxable period and no application for tax refund or issuance of a tax credit certificate
shall be allowed
therefor.
In Phi/am Asset Management, Inc. v. Commissioner of Internal
Revenue (514 Phil. 147, 157 [2005}), the Court expounds on the two alternative options of a corporate
taxpayer whose total quarterly income tax payments exceed its tax liability, and on how the choice of one
option precludes the other, viz:
The first option is relatively simple. Any tax on income that is paid in excess of the amount due the
government may be refunded, provided that a taxpayer properly applies for the refund.
The second option works by applying the refundable amount,
as shown on the FAR of a given taxable year, against the estimated quarterly income tax liabilities of the
succeeding taxable year.
These two options under Section 76 are alternative in nature.
The choice of one precludes the other. Indeed, in Philippine Bank of
Communications v. Commissioner of Internal Revenue (361 Phil. 916
[1999}), the Court ruled that a corporation must signify its intentionwhether to request a tax refund or
claim a tax credit - by marking the corresponding option box provided in the FAR. While a taxpayer is
required to mark its choice in the form provided by the BIR, this requirement is only for the purpose of
facilitating tax collection.
One cannot get a tax refund and a tax credit at the same time for the same excess income taxes paid. xxx
In Commissioner of Internal Revenue v. Bank of the Philippine Islands (G.R. No. 178490, July 7, 2009,
592 SCRA 219, 231), the
Court, citing the aforequoted pronouncement in Philam Asset
Management, Inc., points out that Section 76 of the NIRC of 1997 is clear and unequivocal in providing
that the carry-over option, once actually or constructively chosen by a corporate taxpayer, becomes
irrevocable. The Court explains: Hence, the controlling factor for the operation of the irrevocability rule is
that the taxpayer chose an option; and once it had already done so, it could no longer make another one.
Consequently, after the taxpayer opts to carry-over its excess tax credit to the following taxable period,
the question of whether or not it actually gets to apply said tax credit is irrelevant. Section 76 of the NIRC
of 1997 is explicit in stating that once the option to carry over has been made, 'no application for tax
refund or issuance of a tax credit certificate shall be allowed therefor.'
The last sentence of Section 76 of the NIRC of 1997 reads:
'Once the option to carry-over and apply the excess quarterly income tax against income tax due for the
taxable quarters of the succeeding taxable years has been made, such option shall be considered
irrevocable for that taxable period and no application for tax refund or issuance of a tax credit certificate
shall be allowed therefor.' The phrase 'for that taxable period' merely identifies the excess income tax,
subject of the option, by referring to the taxable period when it was acquired by the taxpayer. In the
present case, the excess income tax credit, which BPI opted to carry over, was acquired by the said bank
during the taxable year 1998. The option of BPI to carry over its 1998 excess income tax credit is
irrevocable; it cannot later on opt to apply for a refund of the very same 1998 excess income tax credit.
The Court of Appeals mistakenly understood the phrase 'for that taxable period' as a prescriptive period
for the irrevocability rule.
This would mean that since the tax credit in this case was acquired in
1998, and BPI opted to carry it over to 1999, then the irrevocability of the option to carry over expired by
the end of 1999, leaving BPI free to again take another option as regards its 1998 excess income tax
credit.
This construal effectively renders nugatory the irrevocability rule. The evident intent of the legislature, in
adding the last sentence to Section 7 6 of the NIRC of 1997, is to keep the taxpayer from flip-flopping on
its options, and avoid confusion and complication as regards said taxpayer's excess tax credit. The
interpretation of the Court of Appeals only delays the flip-flopping to the end of each succeeding taxable
period. The Court similarly disagrees in the declaration of the Court of
Appeals that to deny the claim for refund of BPI, because of the irrevocability rule, would be tantamount to
unjust enrichment on the part of the government. The Court addressed the very same in Philam, where it
elucidated that there would be no unjust enrichment in the event of denial of the claim for refund under
such circumstances, because there would be no forfeiture of any amount in favor of the government. The
amount being claimed as a refund would remain in the account of the taxpayer until utilized in succeeding
taxable years, as provided in Section 76 of the NIRC of 1997. It is worthy to note that unlike the option for
refund of excess income tax, which prescribes after two years from the filing of the FAR, there is no
prescriptive period for the carrying over of the same. Therefore, the excess income tax credit of BPI,
which it acquired in 1998 and opted to carry over, may be repeatedly carried over to succeeding taxable
years, i.e., to
1999, 2000, 2001, and so on and so forth, until actually applied or credited to a tax liability o fBPI."
17
Pursuant to the above ruling of the Supreme Court, the Congress laid down the irrevocability rule that
once the taxpayer opted to carryover and apply the excess quarterly income tax against income tax due
for the taxable quarters of the succeeding years, such option to carry over shall be considered
irrevocable. Meaning, the taxpayer can no longer change its mind and opts to claim for refund or request
for issuance of
TCC as regards the excess creditable withholding tax carried-over.
Such option is irrevocable for the whole amount of excess income tax, thus, prohibiting the taxpayer from
applying for a refund for that same excess income tax in the next succeeding taxable years. The
unutilized excess tax credits will remain in the taxpayer's account and will be carried over and applied
against the taxpayer's income tax liabilities in the succeeding taxable years until fully utilized
(Commissioner of Internal Revenue vs. The Philippine American Life and General Insurance Company,
supra).
To reiterate, Section 76 is clear and unequivocal. Once the carryover option is taken, actually or
constructively, it becomes irrevocable. It mentioned no exception or qualification to the irrevocability rule
(Commissioner of Internal Revenue vs. Bank of the Philippines Islands 592 SCRA
231). Hence, the controlling factor for the operation of the irrevocability rule is that the taxpayer chose an
option; and once it had already done so, it could no longer make another one. Consequently, after the
taxpayer opts to carry-over its excess tax credit to the following taxable period, the question of whether or
not it actually gets to apply said tax credit is irrelevant. Section 76 of the NIRC of 1997 is explicit in stating
that once the option to carry over has been made, 'no application for tax refund or issuance of a tax credit
certificate shall be allowed therefor' (supra).
Applying the foregoing rulings to the instant case, considering that petitioner opted to carry-over its
unutilized creditable withholding tax of
P1,500,653.00 for taxable year 2005 to the first, second and third quarters of taxable year 2006 when it
had actually carried-over said excess creditable withholding tax to the first, second and third quarters in
its Quarterly Income Tax Returns for taxable year 2006, said option to carryover becomes irrevocable.
Petitioner's act of reporting in its Annual Income Tax Return for taxable year 2006 of prior year's excess
credits other than MCIT as 0.00, will not change the fact that petitioner had already opted the carry-over
option in its first, second and third quarters
Quarterly Income Tax Returns for taxable year 2006, and said choice is irrevocable. As previously
mentioned, whether or not petitioner actually gets to apply said excess tax credit is irrelevant and would
not change the carry-over option already made.
Thus, the present petition praying for refund or issuance of a TCC of its unutilized creditable withholding
tax for taxable year 2005 in the amount of P1,500,653.00 must perforce be denied in view of the
irrevocability rule on carry-over option of unutilized creditable withholding tax.

WHEREFORE, premises considered, the instant Petition for

Review is hereby GRANTED. Accordingly, the Decision of the First
Division dated March 23, 2011 and Resolution dated June 30, 2011are hereby REVERSED and SET
ASIDE, and another one is hereby entered
DISMISSING the Petition For Review filed in C.T.A. Case No. 7711.
SO ORDERED.