Case Summary (G.R. No. 204687)
Applicable Law
The relevant statute in this case is the National Internal Revenue Code (NIRC) of 1997, specifically Section 76, which governs tax credit options for corporations concerning excess income tax payments.
Background of the Case
The case involves a petition filed by UCPB contesting the denial of its claim for tax refund or tax credit certificate amounting to P43,484,162, which represented unutilized creditable withholding taxes from the year 2004. UCPB, while primarily engaged in banking activities, was required to pay withholding taxes on various income streams but reported a net loss for the year, leaving these taxes unutilized.
Initial Tax Filing Issues
UCPB filed its original Income Tax Return (ITR) for 2004 on April 15, 2005, but encountered issues that resulted in incomplete data being submitted. Consequently, UCPB refiled the ITR the same day; however, this second filing was treated as an amended return by the Bureau of Internal Revenue (BIR). UCPB followed up with additional amended returns later in 2005 and 2006, continuously declaring losses.
Claim for Refund
On March 20, 2007, UCPB submitted a claim for refund to the BIR based on its unutilized creditable withholding tax. As the deadline for filing this claim approached, UCPB also filed a Petition for Review with the Court of Tax Appeals (CTA) on April 16, 2007, due to the inaction of the CIR.
Arguments Presented
In defense of the claim for refund, UCPB asserted that the taxes withheld were not applied against its losses, rendering them erroneous payments eligible for refund under Section 58(D) of the NIRC. In contrast, the CIR contended that UCPB had not documented the claim properly and failed to adhere to the requirements for filing a refund, including the necessary deadlines and proving that the payments were declared as part of gross income.
Ruling of the CTA Division
The CTA Division ruled against UCPB, emphasizing that the options under Section 76 of the NIRC were mutually exclusive. UCPB’s act of carrying over its excess credits to future tax filings was viewed as an irrevocable choice, negating its original claim for refund. The CTA determined that once an excess tax amount was carried over, any claim to refund that amount was barred, highlighting the necessity for taxpayers to clearly assert their options and adhere strictly to statutory provisions.
Ruling of CTA En Banc
UCPB's motion for reconsideration was initially met with a partial reversal regarding the irrevocability of the options, however, the CTA En Banc ultimately reaffirmed the CTA Division’s prior decision. It underscored that while the option to carry over was irrevocable, the option to claim a refund remained available. Yet, UCPB's actions to carry over its excess credits invalidated any previous claim for a refund.
Supreme Court Ruling
The Supreme Court sided with the CTA En Ba
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Facts of the Case
- The petitioner, United Coconut Planters Bank (UCPB), is engaged in banking and for taxable year 2004, disposed of real properties acquired as payments from defaulting borrowers.
- Sales of these ordinary assets were subject to a 6% creditable withholding tax.
- Some of UCPB's clients are BIR-designated Top Ten Thousand Corporations required to withhold 2% on income payments to UCPB.
- Rental income earned by UCPB was subject to 5% creditable withholding tax deducted by lessees.
- UCPB had no taxable income in 2004; thus, creditable withholding taxes withheld by clients and lessees were unutilized.
- UCPB filed its original and multiple amended Income Tax Returns (ITRs) for 2004, reflecting losses and excess tax credits.
- On March 20, 2007, UCPB filed a claim for refund or issuance of tax credit certificate of P43,484,162 representing unutilized creditable withholding taxes for 2004.
- Due to CIR's inaction, UCPB filed a Petition for Review before the Court of Tax Appeals (CTA) on April 16, 2007.
CIR’s Opposition and Arguments
- CIR argued the refund claim was subject to routine BIR investigation.
- The amount claimed was allegedly not properly documented.
- The burden of proof was on UCPB, and failure to meet it is fatal to the claim.
- The petition for review was premature as the 120-day period to address the administrative claim had not expired.
- UCPB failed to comply with prescriptive periods under Sections 204(C) and 229 of the Tax Code.
- Tax refund claims are strictly construed against the claimant and disfavored jurisprudentially.
UCPB's Contentions
- UCPB paid creditable withholding taxes of P43,484,162 in 2004 and could not utilize them due to no taxable income.
- It clearly indicated the option to apply for refund or tax credit certificate in its amended 2004 ITR, making the amount proper subject for claim under Section 76 of the NIRC.
- The claimed amount was not carried over or claimed as prior year’s excess credits in subsequent years.
- Thus, UCPB contended it was entitled to the refund or tax credit certificate.
CIR’s Counter-Arguments on Carry-Over
- Investigation showed UCPB carried over its excess income tax for 2004 to succeeding quarters in 2005.
- The amount claimed as unutilized creditable withholding tax was included in the originally filed quarterly and annual ITRs for 2005.
- CIR emphasized that marking the option to be issued a tax credit certificate was negated by the carry-over of excess credits.
CTA Division Decision
- The CTA Division denied UCPB's petition for review in its September 17, 2010 Decision.
- Held that under Section 76 of the NIRC, the options to carry-over