Title
Rhombus Energy, Inc. vs. Commissioner of Internal Revenue
Case
G.R. No. 206362
Decision Date
Aug 1, 2018
Rhombus Energy claimed a refund for excess creditable withholding tax for 2005, initially granted by CTA First Division but reversed by CTA En Banc. Supreme Court ruled in favor, reinstating refund, citing proper exercise of refund option and compliance with requisites.
excess creditable withholding tax
irrevocability rule
annual income tax return

Case Summary (G.R. No. 206362)

Factual Background

From October 1998 to July 2007, Rhombus was under the jurisdiction of Revenue Region No. 8, Revenue District Office No. 50 and carried Taxpayer Identification No. 005-650-790-000, but it changed address and on July 18, 2007 was transferred to RDO No. 47. On April 17, 2006 Rhombus filed its Annual Income Tax Return for taxable year 2005 showing tax payable/(overpayment) of P1,500,653.00 and it marked the box “To be refunded” for its excess creditable withholding tax. Rhombus subsequently filed Quarterly Income Tax Returns for the first, second and third quarters of 2006 showing prior year’s excess credits of P1,500,653.00. On December 29, 2006 Rhombus filed an administrative claim for refund of unutilized creditable withholding tax for 2005 in the amount of P1,500,653.00. On April 2, 2007 Rhombus filed its Annual ITR for 2006 showing prior year’s excess credits of 0.00. On December 7, 2007 Rhombus filed the petition for review with the Court of Tax Appeals.

Procedural History

The Court of Tax Appeals First Division granted Rhombus’s claim for refund in a decision dated March 23, 2011. The Commissioner of Internal Revenue filed a motion for reconsideration on April 14, 2011, which the First Division denied on June 30, 2011. The CIR elevated the matter to the CTA En Banc, which reversed the First Division by decision promulgated October 11, 2012. The CTA En Banc denied Rhombus’s motion for reconsideration on March 13, 2013. Rhombus then appealed to the Supreme Court.

CTA First Division Decision

The CTA First Division found that Rhombus had signified its intention to be refunded by marking “To be refunded” on its 2005 Annual ITR and that its 2006 and 2007 Annual ITRs did not reflect prior year’s excess credits, which the First Division interpreted as evidence that Rhombus did not carry over its 2005 excess credits. The First Division also found that Rhombus filed both its administrative and judicial claims within the two-year prescriptive period under Section 229, that the income related to the withheld taxes was declared in the ITR, and that withholding was established by withholding tax certificates and supporting invoices and audited financial statements; it therefore granted the refund of P1,500,653.00.

CTA En Banc Decision

The CTA En Banc reversed. Relying on Commissioner of Internal Revenue v. Mirant (Philippines) Operations, Corporation and on the interpretation of Section 76, the En Banc held that once a taxpayer opts to carry over excess tax credit, the option becomes irrevocable and bars any later application for cash refund or issuance of a tax credit certificate. The En Banc concluded that because Rhombus reported prior year’s excess credits of P1,500,653.00 in its 2006 quarterly ITRs it had effectively opted to carry over and therefore could not seek refund; it dismissed the petition.

Issue Presented

Whether the taxpayer was barred by the irrevocability rule of Section 76 from claiming a refund of its excess and/or unutilized creditable withholding tax for taxable year 2005.

Parties' Contentions

The Commissioner asserted, inter alia, that any claim for refund was subject to BIR investigation, that taxes are presumed validly collected and nonrefundable absent proof to the contrary, that the burden lay on Rhombus to prove entitlement, and that the taxpayer must comply with the provisions invoked for refund. Rhombus maintained that it timely filed its administrative and judicial claims, that it declared the income from which withholding arose in its ITR, and that it possessed withholding tax certificates and supporting accounting and invoice documents establishing entitlement to the refund.

Supreme Court's Ruling

The Supreme Court reversed the CTA En Banc, reinstated the CTA First Division decision dated March 23, 2011 and the First Division resolution dated June 30, 2011, and directed the Commissioner of the Bureau of Internal Revenue to refund to or to issue a tax credit certificate in favor of Rhombus Energy, Inc. in the amount of P1,500,653.00 representing excess creditable withholding tax for the year 2005. The Court made no pronouncement on costs.

Legal Basis and Reasoning

The Court recognized the irrevocability rule articulated in Section 76 but explained that the rule operates from the moment the taxpayer makes an option; the question is when the option was exercised. The Court cited Republic v. Team (Phils.) Energy Corporation for the proposition that the option becomes irrevocable once actually or constructively chosen and that the phrase “for that taxable period” in Section 76 identifies the taxable period when the excess credit was acquired rather than creating a prescriptive period for irrevocability. Applying that principle, the Court held that Rhombus exercised the option to be refunded when it marked “To be refunded” on its 2005 Annual ITR; that exercise precluded a later carry-over. The Court therefore concluded that the CTA En Banc erred in applying the irrevocability rule against Rhombus on the ground that Rhombus reported the prior year’s excess credits in its 2006 quarterly ITRs, because such reporting did not reverse the refund option previously exercised.

Requisites for Refund and Their Appli

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