EIGHTH DIVISION

[C.A.-G.R. SP NO. 38304. April 14, 2000.]

BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. COMMISSIONER OF INTERNAL

REVENUE, respondent.

DECISION

AQUINO, J p:

The original ponente in this appealed case was Justice Jainal D. Rasul who
recently retired from this Court. The undersigned was designated as such only on
March 6, 2000.

This is an appeal by petition for review of the decision dated July 19, 1994 of the
Court of Tax Appeals in C.T.A. Case No. 4214 rejecting petitioner Bank of the
Philippine Islands' (BPI) claim for refund of creditable income tax withheld for
1985, because it was time barred. cdtai

The facts are undisputed.

By virtue of the Articles of Merger approved by the Securities and Exchange

Commission on July 1, 1985 (Exhibit D) petitioner BPI became the successor-in-
interest of the Family Bank and Trust Company (FBTC) whose corporate
existence ended on June 30, 1995.

From January 1 to June 30, 1985, FBTC earned incomes consisting of rentals from
its leased properties and interest from treasury notes purchased from the
Central Bank. Pursuant to the Expanded Withholding Tax Regulations, the
lessees of FBTC withheld 5 percent or P 118,609.17 on said rentals while the
Central Bank withheld 15 percent or 55,456.60 on the interest on the treasury
notes. These withheld income taxes in the total amount of P 174,065.77 (Exhibit
E) were remitted to the Bureau of Internal Revenue. Moreover, the FBTC had a
prior years' excess credit of P 2,146,072.57, This excess credit plus the withheld
income taxes amounted to P2,320,138.34. Cdpr

On April 10, 1986, the FBTC filed its final income tax return (Exhibit A) with the
BIR showing a net loss of P64,502,935.00 and a refundable amount of
P174,065.77 representing the creditable income tax withheld at source from
January 1 to June 30, 1985. On October 7, 1986, petitioner BPI as successor-in-
interest of FBTC filed a letter claim dated October 10, 1986 (Exhibit B) with the
BIR asking for refund of P2,320,138.34. The BIR however refunded to petitioner
BPI only the amount of P2,146,072.57 (prior years' excess credits).

Since the BIR refused to refund the withheld income taxes on rentals and
interests in the amount of P174,065.77, petitioner BPI filed on December 29,
1987 a petition for review with the Court of Tax Appeals seeking a reversal of
BIR's resolution. After due proceedings, the Court of Tax Appeals rendered on
July 19, 1994 a decision dismissing the petition for review on the ground that the
claim for tax refund had already prescribed. A motion for reconsideration was
filed but it was denied. LexLib

Hence, this petition for review.

The simple issue in this case is a legal one: On October 7, 1986, had petitioner
BPI's claim for refund of the withheld income taxes in the amount of P174,065.77
already prescribed? The BIR and CTA said, yes, but petitioner BPI says, no. To
resolve this issue, it is necessary to determine the deadline for the filing by the
FBTC of its final adjustment return.

Citing Sec. 78 of the Tax Code and Sec. 744 of the Income Tax Resolution, the
CTA held that said return should have been filed within 30 days from SEC's
approval of the Articles of Merger on July 1, 1985. Petitioner BPI disagrees and,
invoking Sec. 46 (a) and Sec. 70 (B) of the Tax Code, contends that said return
should have been filed on the 15th day of the 4th month following the close of
FBTC's taxable year. cdll

It should be noted that this case was decided under the Tax Code which has
already been amended and modified by R.A. 8424 otherwise known as the
Comprehensive Tax Reform Program which became effective on January 1, 1998.
With the parties invoking different provisions of law and regulations, there is a
need to reproduce them for a better understanding and resolution of issues.

Sec. 78, Tax Code —

"Sec. 78. Return of corporation contemplating dissolution. — Every

corporation shall, within thirty days after the adoption by the corporation of a
resolution or plan for the dissolution of the corporation or for the liquidation of
the whole or any part of its capital stock, render a correct return to the Collector
of Internal Revenue, verified under oath, setting forth the terms of such
resolution or plan and such other information as the Minister of Finance shall by
regulations, prescribe." cdtai

Sec. 244, Income Tax Regulations —

"Sec. 244. Return of corporation contemplating dissolution or retiring from

business. — All corporations, partnership, joint accounts and associations,
contemplating dissolution, shall within 30 days after the approval of such
resolution authorizing their dissolution, and within the same period after their
retirement from business, file their income tax return covering the profit earned
or business done by them from the beginning of the year up to the date of such
dissolution or retirement and pay the corresponding income tax due thereon
upon demand by the Commissioner of Internal Revenue. . . ." cda

Sec. 42(which later on became Sec. 41 of Tax Code.

"Sec. 42. Final or adjustment returns for a period of less than twelve months.
— (a) Return for short period resulting from change of accounting period. — If a
taxpayer, other than an individual, with the approval of the Commissioner of
Internal Revenue, changes the basis of computing net income from fiscal year to
calendar year, a separate final or adjustment return shall be made for the period
between the close of the last fiscal year for which return was made and the
following December 31. If the change is from calendar year to fiscal year, a
separate final or adjustment return shall be made for the period between the
close of the last calendar year for which return was made and the date
designated as the close of the fiscal year. If the change is from one fiscal year to
another fiscal year, a separate final or adjustment return shall be made for the
period between the close of the former fiscal year and the date designated as
the close of the new fiscal year. Cdpr

(b) Income computed on basis of short period. — Where a separate final or

adjustment return is made under subsection (a) on account of a change in the
accounting period, and in all other cases where a separate final or adjustment
return is required or permitted by regulations prescribed by the Secretary of
Finance, to be made for a fractional part of a year, then the income shall be
computed on the basis of the period for which separate final or adjustment
return is made.

Sec. 46 (a), Tax Code,

"Sec. 46. Corporation returns. — (a) Requirements. — Every corporation,

subject to the tax herein imposed, except foreign corporations not engaged in
trade or business in the Philippines shall render, in duplicate, a true and accurate
quarterly income tax return and final or adjustment return in accordance with
the provisions of Chapter IX of this Title. The return shall be filed by the
president, vice-president or other principal officer, and shall be sworn to by such
officer and by the treasurer or assistant treasurer." cdphil

Sec. 70 (b), Tax Code —

"(b) Time of filing the income tax return. — The corporate quarterly declaration
shall be filed within (60) days following the close of each of the first three quarter
of the taxable year. The final adjustment return shall be filed on or before the
15th day of April or on or before the 15th day of the fourth month following the
close of the fiscal year, as the case may be."

Upon deep reflection, this Court shares the opinion of the BIR and the CTA. Sec.
78 of the Tax Code and Sec. 244 of the Revenue Regulations No. 2 required FBTC
as a dissolving corporation to file its income tax return within 30 days after the
cessation of its business or 30 days after the approval of the merger on July 1,
1985 or up to July 31, 1985.

Under Sec. 292 of the Tax Code, an action to claim for refund of an excessively
collected tax starts to run from the day in which a corporate taxpayer is required
by law to file its final income tax return. Accordingly, petitioner BPI should have
filed the action for the refund of the excessively collected income tax return
within two (2) years from July 31, 1985 which was July 31, 1987. Unfortunately,
petitioner filed said action only on December 29, 1987-which was late by 151
days. Said action was, therefore, clearly time-barred. cdtai

Petitioner contends that Sec. 78, supra required not a income tax or final
adjustment return but an information return. It submits that-

"To understand what Sec. 70 really requires, a review of its origin, its
amendment by Executive Order No. 1026 of Mr. Marcos, and its further
amendment by P.D. No. 1994 (81 O.G. 5527 & 5576) which transposed it as Sec.
46 (c) of the Tax Code, and its re-enactment in Executive Order No. 37 of Pres.
Aquino as sec. 46(c) but without the second paragraph introduced by Executive
Order No. 1026, would be very enlightening.

(1) The original sec. 78.

Sec. 78 of the 1939 National Internal Revenue Code was found in Chapter IX
(Administrative Provisions) of Title II (Income Tax), together with other sections
requiring the filing of information returns. These other information returns were:
return of corporations on dividends paid (sec. 75). return on payments of P1,000
or more (sec. 77), return or brokers (sec. 79) and return on foreign corporations
(sec. 80).

On the other hand, the requirement to file income tax return, imposed on
individuals, corporations, partnerships, receivers and trustees, and the manner
the income tax would be assessed and paid on such returns was found in Ch. VI.

Thus the requirement of an information return was very different from the
requirement of an income tax returns, which later would be called, in the case of
corporations, as the 'final adjustment return.'"

This Court does not agree. The holding of the CTA on this point is what, in the
opinion of this Court, is the correct interpretation of the law. This Court quotes
with approval said holding:

"Sec. 46. Corporation returns. — (a) Requirement. — every corporation,

subject to the tax herein imposed, except foreign corporation not engaged in
trade or business in the Philippines shall render, in duplicate, a true and accurate
quarterly income tax return and final and adjustment return in accordance with
the provisions of Chapter X of this title, the return shall be filled by the President,
vice-president, or other principal officer, and shall be sworn to by such officer
and by the treasurer or assistant treasurer." LexLib

"On the other hand, Chapter X of Title II (Income Tax) refers to the Quarterly
Corporate Income Tax Payments, Petitioner tried to mislead us by saying that
what is required is only an information return. The amendment merely added a
sanction on the part of the officers of the corporation in case of failure to provide
such information return and to secure the necessary tax clearance,

"A closer look of Section 46(a) and Chapter X of Title II showed that it both made
specific mention of "income tax return" and "income tax payments",
respectively, Normally, an ongoing corporation files a Quarterly Corporate
Income Tax Return. The final adjustment return therefore aptly refers to the Final
Adjustment Income Tax Return. All references pointed to by petitioner have
some relations to income tax payments and the filing of an accurate Income Tax
Return. We cannot deviate from the fact that indeed 'correct return' means
'correct income tax return', the Final Adjustment Income Tax Return. llcd

"Moreover, this Court gives more weight to Section 244 of Rev. Regs. No. 2 when
it stated 'income tax return'. As a rule, all regulations promulgated by the
Secretary of Finance for the effective enforcement of the provisions of the
National Internal Revenue Code are presumed valid unless they are
unreasonable and contrary to law or the Constitution. (see Art. 7, New Civil
Code),

"The construction given to a statute by an administrative agency charged with

the interpretation and application of that statute is entitled to great respect and
should be accorded great weight by the courts, unless such construction is
clearly shown to be in sharp conflict with the governing statute or the
Constitution or other laws. The rationale for this rule relates not only to the
emergence of the multifarious needs of a modern or modernizing society and the
establishment of diverse administrative agencies for addressing and satisfying
those needs; it also relates to accumulation or experience and growth of
specialized capabilities by the administrative agency charged with implementing
a particular statute, (Nestle Philippines, Inc. vs. Court of Appeals, G.R. No. 86738,
November 13, 1991, 203 SCRA 504)." cdlex

In view of the foregoing, this court, finds no reversible error in the appealed
decision.

WHEREFORE, for lack of merit, the petition is DISMISSED and the appealed
decision is AFFIRMED. Cost against the petitioner.

SO ORDERED.

Guerrero and Gozo-Dadole, JJ., concur.

C o p y r i g h t 2 0 0 2 C D T e c h n o l o g i e s A s i a, I n c.

CA-G.R. SP No. 47745 April 6, 2000