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CIR v. TMX SALES

FACTS:

The dispute in this case revolves around the prescriptive period for claiming a refund of erroneously collected tax. The petitioner, TMX Sales, Inc., a corporation, filed its quarterly income tax return for the first quarter of 1981 and paid an income tax amounting to P247,010.00. However, it suffered losses in the subsequent quarters, resulting in a net loss for the year ended December 31, 1981.

On July 9, 1982, TMX Sales, Inc. lodged a claim for refund with the Appellate Division of the Bureau of Internal Revenue. However, due to the lack of action on the claim, TMX Sales, Inc. brought a petition for review before the Court of Tax Appeals. The Commissioner of Internal Revenue contended that the petitioner was already barred from claiming the refund because more than two years had transpired between the payment and the filing of the claim.

The Court of Tax Appeals sided with TMX Sales, Inc. and granted the petition, ordering the Commissioner of Internal Revenue to refund the requested amount. Dissatisfied, the Commissioner of Internal Revenue appealed the decision to the Supreme Court, asserting that the prescriptive period should be reckoned from the date of payment of the quarterly income tax, and not from the date of filing the Final Adjustment Return.

ISSUES:

  1. The issue in this case is whether the two-year prescriptive period for filing a suit for a refund of a tax erroneously or illegally paid, as provided in Section 292 (now Section 230) of the National Internal Revenue Code, should be computed from the time the tax was paid or from the time the quarter in which the overpayment was made can be ascertained.

  2. The issue in this case is whether the two-year prescriptive period for the filing of a claim for a refund of overpaid income tax should be counted from the 1st quarter or the 3rd quarter of the taxable year.

RULING:

  1. The court ruled that the two-year prescriptive period should be computed from the time the quarter in which the overpayment was made can be ascertained. A literal application of Section 292 (now Section 230) would lead to absurdity and inconvenience if the quarter in which the overpayment is made cannot be determined. Therefore, to avoid this, the court held that the prescriptive period should be calculated based on when the quarter can be ascertained.

  2. The court ruled that the two-year prescriptive period for the filing of a claim for a refund of overpaid income tax should be counted from the time of filing the Final Adjustment Return or the Annual Income Tax Return, when it can be finally ascertained if the taxpayer has still to pay additional income tax or if he is entitled to a refund of overpaid income tax. The court also held that the filing of quarterly income tax returns and payment of quarterly income tax should only be considered as installments of the annual tax due and should be treated as advances or portions of the annual income tax due, to be adjusted at the end of the calendar or fiscal year. The court cited previous cases wherein it was held that when a tax is paid in installments, the prescriptive period should be counted from the date of the final payment or the date of the last installment.

PRINCIPLES:

  • The legislative intent of a statute should be determined by considering the whole statute and all its provisions. Manila Lodge No. 761, et al. v. Court of Appeals, et al. 73 SCRA 162

  • Every section, provision, or clause of a statute should be expounded by reference to each other in order to give effect to the intention of the legislator. Chartered Bank v. Imperial, 48 Phil. 931 ; Lopez v. El Hogar Filipino, 47 Phil. 249, cited in Aboitiz Shipping Corporation v. City of Cebu, 13 SCRA 449

  • In interpreting the provisions of the tax code, all provisions should be harmonized with each other.

  • The two-year prescriptive period for the filing of a claim for a refund of overpaid income tax should be counted from the time of filing the Final Adjustment Return or the Annual Income Tax Return.

  • The filing of quarterly income tax returns and payment of quarterly income tax should only be considered as installments of the annual tax due and should be treated as advances or portions of the annual income tax due, to be adjusted at the end of the calendar or fiscal year.

  • When a tax is paid in installments, the prescriptive period for claiming a refund should be counted from the date of the final payment or the date of the last installment.