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CIR v. PHILIPPINE NATIONAL BANK

FACTS:

The case involves a dispute between the Philippine National Bank (PNB) and the Bureau of Internal Revenue (BIR) regarding a claim for tax credit certificate (TCC) for an advance income tax payment made by PNB in 1991. PNB incurred losses from 1992 to 1996, resulting in a credit balance in its favor in the amount of P73,298,892.60. PNB requested the issuance of a TCC for the unutilized balance of its advance payment, but the BIR denied the claim stating that the amount had already been applied as tax credit against PNB's income tax liability for 1992.

PNB sought a refund or tax credit for the said payment amounting to P180 million. The BIR denied the claim, stating that the recommendation for the issuance of a TCC was for a different year, and that the claim was already prescribed because it was filed beyond the two-year prescriptive period as provided under the National Internal Revenue Code (NIRC). PNB appealed the denial action to the Court of Tax Appeals (CTA), but the CTA granted the BIR's motion to dismiss and denied PNB's petition for review on the ground that the claim was filed beyond the prescriptive period. PNB filed a petition for review with the Court of Appeals (CA), arguing that the two-year prescriptive period is not jurisdictional and that there are exceptions. The CA reversed the ruling of the CTA and remanded the case to the BIR for the issuance of the TCC. The BIR filed a motion for reconsideration, but it was denied by the CA. The BIR then filed the present recourse before the Supreme Court, raising several substantive arguments against the CA's decision.

The petitioner, Bureau of Internal Revenue (BIR), argues that the respondent, PNB, should not be entitled to a refund or credit of overpaid national internal revenue taxes because it was not an erroneous, illegal, or wrongful collection. The petitioner asserts that any excess or overpaid income tax for a given taxable year may only be carried over to the succeeding year and cannot go beyond that, as the respondent attempted to do. The petitioner further argues against the invocation of equity and estoppel, stating that the erroneous application and enforcement of tax laws by public officers does not preclude the subsequent correct application of such laws.

In response, the respondent contends that its claim for tax credit did not arise from an overpayment resulting from erroneous, illegal, or wrongful collection of tax. The respondent argues that its advance income tax payment for 1991 was a deposit made in anticipation of taxes not yet due or levied and was not a payment of a valid and existing tax liability. The respondent also argues that even if the two-year limitation in the National Internal Revenue Code is applicable, the prescriptive period is not jurisdictional and can be suspended under exceptional circumstances.

The Court of Tax Appeals and the BIR denied the respondent's claim for refund or credit based on the argument that it was time-barred. However, the Court of Appeals disagreed with their stance and ruled in favor of the respondent. The issue at hand revolves around the applicability of the two-year prescriptive period under Section 230 (now Section 229) of the National Internal Revenue Code.

ISSUES:

  1. Whether the two-year prescriptive period under Section 230 of the National Internal Revenue Code (NIRC) applies to the claim for refund or credit made by respondent PNB.

  2. Whether the request for issuance of a tax credit certificate by PNB can be considered as a simple case of excess payment subject to the two-year limitation.

  3. Whether the withholding taxes collected during the taxable year became untenable and took on the nature of erroneously collected taxes at the end of the taxable year.

  4. Whether the advance income tax payment made by the respondent can be treated as erroneous, wrongful, or illegal payment of tax within the meaning of Section 230 of the Tax Code.

  5. Whether the two-year prescriptive period under Section 230 of the Tax Code bars the respondent's claim for tax credit.

  6. Whether or not the claim for tax credit made by respondent Philippine National Bank (PNB) is already time-barred.

  7. Whether the two-year limitation in Section 230 of the NIRC applies to respondent's request for issuance of a tax credit certificate

  8. Whether mistakes of tax officers constitute a bar to the collection of taxes by the BIR Commissioner

  9. Whether the initiatory pleading of respondent suffers from forum shopping and warrants dismissal

RULING:

  1. The prescriptive period under Section 230 of the NIRC does not apply to the claim for refund or credit made by respondent PNB. The provision is intended to apply to suits for the recovery of internal revenue taxes or sums erroneously, excessively, illegally, or wrongfully collected. PNB's claim for tax credit stemmed from an advance payment of taxes and not from an overpayment of tax erroneously or illegally collected. Therefore, PNB's claim is not time-barred.

  2. The request for issuance of a tax credit certificate by PNB cannot be considered as a simple case of excess payment subject to the two-year limitation. PNB's request sought the application of amounts advanced to the BIR to future annual income tax liabilities. This situation is different from a case where a corporation is unable to apply withheld and remitted taxes due to net losses. In the latter instance, such creditable withholding taxes are considered "erroneously collected taxes" eligible for refund under Section 230.

  3. Yes, the withholding taxes collected during the taxable year became untenable and took on the nature of erroneously collected taxes at the end of the taxable year.

  4. No, the advance income tax payment made by the respondent cannot be treated as erroneous, wrongful, or illegal payment of tax within the meaning of Section 230 of the Tax Code.

  5. No, the two-year prescriptive period under Section 230 of the Tax Code does not bar the respondent's claim for tax credit.

  6. The Supreme Court ruled that the claim for tax credit made by PNB is not time-barred. The Court held that the two-year prescriptive period for tax refund may be suspended for reasons of equity and other special circumstances. In this case, PNB's advance payment was made to cover future tax obligations and not reflected as quarterly payments in the adjusted final return. Therefore, limiting the carry-over of the balance of the advance payment only to the immediately succeeding taxable year would be unfair. Moreover, PNB's conduct, as well as the fact that the BIR was put on notice of PNB's intention to apply the entire amount to future tax obligations, supports the presumption that the carrying forward of the advance payment extended to succeeding taxable years. Thus, PNB's claim for tax credit is not time-barred.

  7. The Court affirms the ruling of the CA that respondent's request for issuance of a tax credit certificate should not be subject to the two-year limitation in Section 230 of the NIRC.

  8. The Court finds it unnecessary to rule on whether mistakes of tax officers constitute a bar to the collection of taxes by the BIR Commissioner.

  9. The issue of forum shopping raised by the petitioner is disregarded as it was raised for the first time in the appellate proceedings, and the Court holds that the issue of forum shopping should have been invoked at the first opportunity in the trial court.

PRINCIPLES:

  • The two-year prescriptive period under Section 230 of the NIRC applies to suits for the recovery of internal revenue taxes or sums erroneously, excessively, illegally, or wrongfully collected.

  • A claim for tax credit is not subject to the two-year prescriptive period if it does not stem from an overpayment of tax erroneously or illegally collected.

  • Creditable withholding taxes are considered "erroneously collected taxes" eligible for refund under Section 230 if the corporation is unable to apply them due to net losses.

  • Withholding taxes are deposits subject to adjustments at the proper time when the complete tax liability is determined.

  • The two-year prescriptive period under Section 230 of the Tax Code does not apply to tax credits arising from advance income tax payments.

  • The taxpayer's intention regarding the application of the balance of advance income tax payment must be considered in determining the request for tax credit.

  • The prescriptive period for tax refund may be suspended for reasons of equity and other special circumstances.

  • The two-year prescriptive period for tax refund is not jurisdictional and can be set aside based on equity and other special circumstances.

  • The Court will not set aside lightly the conclusions reached by the Court of Tax Appeals (CTA) which has developed an expertise in resolving tax problems.

  • It is the claimant's responsibility to establish the factual basis of their claim for tax credit or refund.

  • An earlier BIR ruling that there is no legal question to be resolved but only a factual interpretation may be overlooked if it is inconsistent with the facts on record.

  • The Court may consider equity and fairness in resolving issues related to tax refunds or tax credit certificates.

  • The mistake of tax officers may not necessarily bar the collection of taxes by the BIR Commissioner.

  • The issue of forum shopping should be raised at the first opportunity in the trial court and cannot be raised for the first time on appeal.