Title
Philippine Bank of Communications vs. Commissioner of Internal Revenue
Case
G.R. No. 112024
Decision Date
Jan 28, 1999
Philippine Bank of Communications filed for tax refunds due to overpayment, but both the Court of Tax Appeals and the Court of Appeals denied its claims based on the prescriptive period for filing.
tax refund
tax credit
corporate income tax

Case Summary (G.R. No. 112024)

Factual Background

PBCom filed quarterly income tax returns for the first and second quarters of 1985, reported profits, and paid a total of P5,016,954.00 which were reflected in Tax Debit Memo Nos. 0746-85 and 0747-85 from the BIR. When PBCom filed its Annual Income Tax Return for the year ended December 31, 1985, it reported a net loss of P25,317,228.00 and thus declared no income tax liability for that year. For 1986 PBCom likewise reported a net loss of P14,129,602.00 and declared no tax payable, but it received withholding creditable taxes from lessees of P282,795.50 in 1985 and P234,077.69 in 1986.

Administrative Claims and Litigation

On August 7, 1987, PBCom requested from the Commissioner of Internal Revenue a tax credit of P5,016,954.00 representing overpayments in the first and second quarters of 1985, and on July 25, 1988 filed a claim for refund of withholding taxes of P282,795.50 for 1985 and P234,077.69 for 1986. Pending the respondent’s investigation, PBCom filed a petition for review with the Court of Tax Appeals on November 18, 1988, docketed as CTA Case No. 4309.

Trial Court and Intermediate Decisions

The Court of Tax Appeals rendered judgment on May 20, 1993 denying PBCom’s 1985 refund/tax credit claim of P5,299,749.95 as filed beyond the two-year reglementary period and denying the 1986 claim of P234,077.69 on the ground that PBCom had in all likelihood automatically credited the amount to the succeeding year; the CTA dismissed the petition for lack of merit. PBCom’s motion for reconsideration was denied on July 20, 1993. The Court of Appeals affirmed the CTA resolution in toto by its September 22, 1993 Resolution.

Issues Presented

The petition to the Supreme Court presented two principal issues: first, whether PBCom could rely on Revenue Memorandum Circular No. 7-85 and thus avoid prejudice from the BIR’s later rejection of that circular’s ten-year prescriptive rule in favor of the statutory two-year period; and second, whether the Court of Appeals erred in affirming the CTA’s denial of the 1986 refund claim of P234,077.69 on an assumption, without proof, that PBCom had automatically credited the amount in 1987.

Petitioner’s Contentions

PBCom argued that it relied in good faith on RMC No. 7-85, issued April 1, 1985, which announced that claims for refund or tax credit of excess corporate income tax arising from final adjustment returns were not subject to the two-year prescriptive period of the Tax Code but could be pursued within ten years under Article 1144, Civil Code. PBCom invoked the doctrine that the government should not retroactively adopt a position contrary to an earlier official ruling when such reversal would prejudice taxpayers, citing ABS-CBN Broadcasting Corporation v. Court of Tax Appeals, 108 SCRA 142 (1981), and relied on Sec. 246, National Internal Revenue Code to argue against retroactive application of changed rulings.

Respondent’s Contentions

The Commissioner of Internal Revenue, through the Solicitor General, maintained that Sec. 230, NIRC of 1977 fixed the prescriptive period for suits to recover erroneously or illegally collected taxes at two years from date of payment and that the two-year period should be reckoned from the filing of the Final Adjustment Return, generally due April 15 following the close of the taxable year. The respondent cited ACCRA Investments Corp. v. Court of Appeals, 204 SCRA 957 (1991), and Commissioner of Internal Revenue v. TMX Sales, Inc., 205 SCRA 184 (1992), to support the computation of the prescriptive period and argued that PBCom’s petition filed with the CTA on November 18, 1988 was untimely.

Supreme Court Disposition

The Supreme Court denied the petition and affirmed the Court of Appeals decision with costs against the petitioner. The Court held that RMC No. 7-85 could not prevail over the express statutory provision of Sec. 230, NIRC of 1977 and that the BIR circular improperly sought to extend the statutory two-year prescriptive period to ten years, thereby effectively amending the statute without authority.

Legal Basis and Reasoning Regarding Prescription

The Court emphasized the statutory text of Sec. 230, NIRC of 1977, which bars suit for recovery of national internal revenue tax after the expiration of two years from the date of payment. The Court reiterated its prior holdings that the prescriptive period begins to run when the refund is ascertainable, which occurs upon the filing of the final adjustment return; it cited Commissioner of Internal Revenue v. Philippine American Life Insurance Co., 244 SCRA 446 (1995), to explain that two years run from the date of the final adjustment return. The Court concluded that RMC No. 7-85 created an inconsistency with the statutory mandate and constituted unlawful administrative legislation rather than a permissible interpretation.

Administrative Rulings, Estoppel, and Non-Retroactivity

The Court treated RMC No. 7-85 as an administrative ruling that lacks the force to modify a statute. It recalled the principle that courts will ignore administrative interpretations that conflict with express statutory provisions and cited authorities such as People v. Hernandez, 59 Phil. 272 (1933), and Commissioner of Internal Revenue v. Court of Appeals, 240 SCRA 368 (1993). The Court rejected PBCom’s estoppel argument, observing that estoppel does not apply against the State in such circumstances and that the alleged misrepresentation was not corrected by the Commissioner

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