G.R. No. 83736 - Commissioner of Internal Revenue vs. TMX Sales, Inc.

TMX Sales, Inc., a domestic corporation, filed its quarterly income tax return for the first quarter of 1981, declaring a gross income of P571,174.31 and paying an income tax of P247,010.00 on May 15, 1981.
In subsequent quarters, the corporation incurred losses which culminated in the filing of its Annual Income Tax Return for the year ended December 31, 1981 on April 15, 1982. In this return, TMX Sales, Inc. declared a gross income of P904,122.00 against total deductions amounting to P7,060,647.00, thereby reflecting a net loss of P6,156,525.00.

On July 9, 1982, through its external auditor SGV & Co., TMX Sales, Inc. filed a claim for refund with the Appellate Division of the Bureau of Internal Revenue for the overpayment of P247,010.00.
The Commissioner of Internal Revenue failed to act on this claim, prompting further administrative action.

TMX Sales, Inc. subsequently filed a petition for review on March 14, 1984, challenging the Commissioner's inaction and seeking a refund of the overpaid tax.
In response, the Commissioner contended that the claim for refund was time-barred as it was filed more than two years after the original payment date (May 15, 1981), invoking Sections 292 and 295 of the Tax Code of 1977 (as amended).

On April 29, 1988, the Court of Tax Appeals rendered a decision in favor of TMX Sales, Inc., ordering the Commissioner to refund the overpaid amount.
The Tax Court based its decision on the principle that when tax payments are made in installments, the prescriptive period for a refund claim should commence from the date of the final installment or the filing of the Final Adjustment Return.

Section 292 (now Section 230) of the National Internal Revenue Code mandates that no suit for recovery of overpaid tax may be brought after two years from the date of payment.
Other pertinent provisions include Sections 85 (now Section 68) and 87 (now Section 69) governing the computation of quarterly income tax and the filing of adjustment returns, respectively, as well as Section 321 (now Section 232) on the auditing and certification of financial statements.
The case also references existing rulings, such as Collector of Internal Revenue v. Antonio Prieto and Commissioner of Internal Revenue v. Carlos Palanca, which emphasize that when taxes are paid in installments, the two-year prescriptive period should be computed from the date of the final payment.

The petitioner, through the Solicitor General, argued for a strict, literal application of Section 292 (now Section 230) such that the two-year prescriptive period should be reckoned from the initial payment date (May 15, 1981).
This argument was bolstered by the earlier Pacific Procon Limited case, which similarly interpreted the timing for initiating the refund claim.

The Court, in reaching its decision, emphasized the impracticality and absurdity of computing the prescriptive period from an initial partial payment when the final tax liability is only confirmed upon the filing of the Final Adjustment Return.
By harmonizing the relevant provisions of the Tax Code, the Court determined that the appropriate starting point for the prescription is the date of filing of the Adjustment Return, not the date of the quarterly payment.

Should the two-year prescriptive period for claiming a refund under Section 292 (now Section 230) commence from the date the quarterly income tax payment was made (May 15, 1981)?
Or should it commence from the date of filing of the Final Adjustment Return (April 15, 1982) when the true tax liability was ascertained?

Proper Interpretation of Statutory Provisions Regarding Installment Payments

How should the Court interpret the provision on refund claims in cases where tax payments are made in installments?
What is the legislative intent behind treating quarterly payments as merely installment advances toward the final annual tax liability?

Would a literal application of Section 292 lead to an absurd or inconvenient outcome if the prescriptive period were reckoned from the date of a partial quarterly payment rather than from the final settlement date of the tax liability?
How should ambiguities in the statute be resolved in light of the principles established in People v. Rivera and other precedents?