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MITSUBISHI CORPORATION-MANILA BRANCH v. CIR

FACTS:

The case involves a petition for review on certiorari filed by Mitsubishi Corporation - Manila Branch, a Japanese corporation, against the Decision and Resolution of the Court of Tax Appeals (CTA) En Banc. The CTA En Banc reversed the ruling of the CTA Division, which initially granted the petitioner's claim for refund of income tax and branch profit remittance tax (BPRT).

The petitioner entered into a contract with the National Power Corporation (NPC) for the implementation of a power plant project in the Philippines. This project was financed by a loan from Japan. The Exchange of Notes between the governments of Japan and the Philippines stipulated that the Philippine government would assume all taxes imposed on Japanese contractors involved in the project.

After completing the project, the petitioner filed its income tax return with the Bureau of Internal Revenue (BIR), which included the income from the said project. Additionally, the petitioner remitted the BPRT to its head office in Japan.

Subsequently, the petitioner filed an administrative claim for refund with the Commissioner of Internal Revenue (CIR). Dissatisfied with the CIR's decision, the petitioner brought the case before the CTA by filing a petition for review.

The CTA Division granted the petitioner's claim for refund; however, this decision was overturned by the CTA En Banc. Consequently, the petitioner elevated the case to the Supreme Court. The two main issues to be resolved by the Court are whether the petitioner is entitled to a refund and, if so, from which government entity should the refund be claimed.

ISSUES:

  1. Whether petitioner is entitled to a refund.

  2. If the petitioner is entitled to a refund, from which government entity should the refund be claimed.

  3. Whether the petitioner is entitled to a tax refund for the income tax and branch profits remitted to its head office in Japan.

  4. Whether the administrative issuances of the Commissioner of Internal Revenue (CIR) directing the petitioner to claim the refund from the National Power Corporation (NPC) instead of the CIR himself are valid.

  5. Whether or not the Sandiganbayan committed grave abuse of discretion in denying the motion to quash the information against the accused on the ground of violation of their constitutional right to speedy disposition of their cases.

  6. Whether or not the Sandiganbayan committed grave abuse of discretion in not applying the rules on suspension pendente lite to the accused.

RULING:

  1. The Court ruled in favor of the petitioner. The subject taxes in the amount of P52,612,812.00 were erroneously collected from the petitioner as the obligation to pay the same had already been assumed by the Philippine Government. The Court held that the proper remedy for the petitioner is to recover the subject taxes from the National Power Corporation (NPC), not from the Commissioner of Internal Revenue (CIR).

  2. The petitioner is entitled to a tax refund for the income tax and branch profits remitted to its head office in Japan. The tax assumption provision in the Exchange of Notes and the Contract states that the Philippine government, through the NPC, shall pay any and all forms of taxes that are directly imposable under the Contract. The CIR had already acknowledged through administrative issuances that Japanese contractors involved in the project are not liable for these taxes. Thus, the BIR erroneously collected the taxes, and the petitioner is entitled to a refund.

  3. The administrative issuances of the CIR directing the petitioner to claim the refund from the NPC instead of the CIR himself are not valid. The NIRC vests the authority to credit or refund taxes erroneously collected by the government upon the CIR. Administrative issuances cannot override the statutory mandate of the CIR. Therefore, the petitioner's claim for refund should have been filed with the CIR, and the CIR has the power to collect the subject taxes from the NPC as the party that assumed the petitioner's tax liability.

  4. The Sandiganbayan did not commit grave abuse of discretion in denying the motion to quash the information against the accused on the ground of violation of their constitutional right to speedy disposition of their cases.

  5. The Sandiganbayan did not commit grave abuse of discretion in not applying the rules on suspension pendente lite to the accused.

PRINCIPLES:

  • The Commissioner of Internal Revenue has the authority to credit or refund taxes that are erroneously or illegally collected by the government. (Section 204 (C) of the NIRC)

  • A claim for refund or credit with the Commissioner of Internal Revenue must be filed before a suit or proceeding can be maintained in any court for the recovery of any alleged erroneously or illegally assessed or collected tax. (Section 229 of the NIRC)

  • An exchange of notes is considered as an executive agreement, which is binding on the State even without Senate concurrence. (Abaya v. Ebdane)

  • The concept of an assumption is different from an exemption. An assumption means that the obligation or liability remains, although it is passed on to a different person. (Paragraph 5 (2) of the Exchange of Notes)

  • Constitutional provisions on tax exemptions do not apply to situations where an assumption of taxes is made.

  • The tax assumption provision in a contract prevails and obligates the Philippine government to pay any and all forms of taxes that are directly imposable under the contract.

  • Administrative issuances, such as revenue memorandum circulars, are entitled to respect from the courts but are not conclusive. They will be disregarded if found to be incorrect or inconsistent with the law they seek to implement.

  • Claims for refund of erroneously collected taxes must be filed with the Commissioner of Internal Revenue, as mandated by the NIRC. Administrative issuances directing the refund to be claimed from other parties cannot prevail over the statutory mandate.

  • The right to speedy disposition of cases is guaranteed by the Constitution. However, the determination of whether there has been a violation of this right is based on a balancing of factors such as the length of delay, the reasons for the delay, the assertion of the right by the accused, and the prejudice caused by the delay.

  • The rules on suspension pendente lite may be applied to accused public officers when their cases involve offenses punishable by imprisonment exceeding six years, provided that certain conditions are met, such as the validity of the information and the likelihood of the accused committing further acts of malfeasance while in office.