CD: Commissioner of Internal Revenue v. Mc.George Food Industries, Inc.

August 11, 2015 at 10:10 am (2010) (, )

CIR v. MC.GEORGE FOOD INDUSTRIES, INC.
G.R. No. 174157 October 20, 2010
Carpio, J.

Doctrine:
Pursuant to the general rule on the prospective application of laws, the 1997 NIRC operates to govern the conduct of corporate taxpayers the moment it took effect on 1 January 1998.

Facts:
On 15 April 1998, respondent filed with the BIR its final adjustment income tax return for the calendar year ending 31 December 1997. The return indicated a net overpayment of P4,736,188. Exercising its option to either seek a refund of this amount or carry it over to the succeeding year as tax credit, respondent chose the latter, indicating in its 1997 final return that it wished the amount “to be applied as credit to next year.”

On 15 April 1999, respondent filed its final adjustment return for the calendar year ending 31 December 1998, indicating a tax liability of P5,799,056. Instead of applying to this amount its unused tax credit carried over from 1997 (P4,736,188), respondent merely deducted from its tax liability the taxes withheld at source for 1998 and paid the balance of P5,581,877.

On 14 April 2000, respondent simultaneously filed with the BIR and the Court of Tax Appeals (CTA) a claim for refund of its overpayment in 1997 of P4,736,188. The CTA held that refund was proper because respondent complied with the requirements of timely filing of the claim and its substantiation.

Petitioner sought reconsideration, contending that respondent is precluded from seeking a refund for its overpayment in 1997 after respondent opted to carry-over and apply it to its future tax liability, following Section 76 of the 1997 NIRC. Petitioner claimed that Section 76 applies to respondent because by the time respondent filed its final adjustment return for 1997 on 15 April 1998, the 1997 NIRC was already in force, having taken effect on 1 January 1998.

The CTA denied reconsideration, holding that the 1997 NIRC only covers transactions done after 1 January 1998.

The Court of Appeals affirmed the CTA, ruling that the right to claim for refund or tax credit must be governed by the law in effect at the time the excess credits were earned. Thus, the pertinent law applicable to the case at bar is Section 69 of the old Tax Code.

Issue:
Whether or not the 1997 NIRC is the governing law

Held:
Yes. Section 76 of the 1997 NIRC controls.

Section 76 should be applied following the general rule on the prospective application of laws such that they operate to govern the conduct of corporate taxpayers the moment the 1997 NIRC took effect on 1 January 1998.

The lower courts grounded their contrary conclusion on the fact that respondent’s overpayment in 1997 was based on transactions occurring before 1 January 1998. This analysis suffers from the twin defects of missing the gist of the present controversy and misconceiving the nature and purpose of Section 76. None of respondent’s corporate transactions in 1997 is disputed here. Nor can it be argued that Section 76 determines the taxability of corporate transactions. To sustain the rulings below is to subscribe to the untenable proposition that, had Congress in the 1997 NIRC moved the deadline for the filing of final adjustment returns from 15 April to 15 March of each year, taxpayers filing returns after 15 March 1998 can excuse their tardiness by invoking the 1977 NIRC because the transactions subject of the returns took place before 1 January 1998. A keener appreciation of the nature and purpose of the varied provisions of the 1997 NIRC cautions against sanctioning this reasoning.

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CD: CIR v. Aichi Forging Company of Asia, Inc.

November 23, 2010 at 7:01 pm (2010, Case Digests) (, , )

CIR v. AICHI FORGING COMPANY OF ASIA, INC.
G.R. No. 184823 October 6, 2010
Del Castillo, J.

Doctrine:
– The CIR has 120 days, from the date of the submission of the complete documents within which to grant or deny the claim for refund/credit of input vat. In case of full or partial denial by the CIR, the taxpayer’s recourse is to file an appeal before the CTA within 30 days from receipt of the decision of the CIR. However, if after the 120-day period the CIR fails to act on the application for tax refund/credit, the remedy of the taxpayer is to appeal the inaction of the CIR to CTA within 30 days.

– A taxpayer is entitled to a refund either by authority of a statute expressly granting such right, privilege, or incentive in his favor, or under the principle of solutio indebiti requiring the return of taxes erroneously or illegally collected. In both cases, a taxpayer must prove not only his entitlement to a refund but also his compliance with the procedural due process.

– As between the Civil Code and the Administrative Code of 1987, it is the latter that must prevail being the more recent law, following the legal maxim, Lex posteriori derogat priori.

– The phrase “within two (2) years x x x apply for the issuance of a tax credit certificate or refund” under Subsection (A) of Section 112 of the NIRC refers to applications for refund/credit filed with the CIR and not to appeals made to the CTA.

Facts:
Petitioner filed a claim of refund/credit of input vat in relation to its zero-rated sales from July 1, 2002 to September 30, 2002. The CTA 2nd Division partially granted respondent’s claim for refund/credit.

Petitioner filed a Motion for Partial Reconsideration, insisting that the administrative and the judicial claims were filed beyond the two-year period to claim a tax refund/credit provided for under Sections 112(A) and 229 of the NIRC. He reasoned that since the year 2004 was a leap year, the filing of the claim for tax refund/credit on September 30, 2004 was beyond the two-year period, which expired on September 29, 2004. He cited as basis Article 13 of the Civil Code, which provides that when the law speaks of a year, it is equivalent to 365 days. In addition, petitioner argued that the simultaneous filing of the administrative and the judicial claims contravenes Sections 112 and 229 of the NIRC. According to the petitioner, a prior filing of an administrative claim is a “condition precedent” before a judicial claim can be filed.

The CTA denied the MPR thus the case was elevated to the CTA En Banc for review. The decision was affirmed. Thus the case was elevated to the Supreme Court.

Respondent contends that the non-observance of the 120-day period given to the CIR to act on the claim for tax refund/credit in Section 112(D) is not fatal because what is important is that both claims are filed within the two-year prescriptive period. In support thereof, respondent cited Commissioner of Internal Revenue v. Victorias Milling Co., Inc. [130 Phil 12 (1968)] where it was ruled that “if the CIR takes time in deciding the claim, and the period of two years is about to end, the suit or proceeding must be started in the CTA before the end of the two-year period without awaiting the decision of the CIR.”

Issues:
1. Whether or not the claim for refund was filed within the prescribed period
2. Whether or not the simultaneous filing of the administrative and the judicial claims contravenes Section 229 of the NIRC, which requires the prior filing of an administrative claim, and violates the doctrine of exhaustion of administrative remedies

Held:
1. Yes. As ruled in the case of Commissioner of Internal Revenue v. Mirant Pagbilao Corporation (G.R. No. 172129, September 12, 2008), the two-year period should be reckoned from the close of the taxable quarter when the sales were made.

In Commissioner of Internal Revenue v. Primetown Property Group, Inc (G.R. No. 162155, August 28, 2007, 531 SCRA 436), we said that as between the Civil Code, which provides that a year is equivalent to 365 days, and the Administrative Code of 1987, which states that a year is composed of 12 calendar months, it is the latter that must prevail being the more recent law, following the legal maxim, Lex posteriori derogat priori.

Thus, applying this to the present case, the two-year period to file a claim for tax refund/credit for the period July 1, 2002 to September 30, 2002 expired on September 30, 2004. Hence, respondent’s administrative claim was timely filed.

2. Yes. We find the filing of the judicial claim with the CTA premature.

Section 112(D) of the NIRC clearly provides that the CIR has “120 days, from the date of the submission of the complete documents in support of the application [for tax refund/credit],” within which to grant or deny the claim. In case of full or partial denial by the CIR, the taxpayer’s recourse is to file an appeal before the CTA within 30 days from receipt of the decision of the CIR. However, if after the 120-day period the CIR fails to act on the application for tax refund/credit, the remedy of the taxpayer is to appeal the inaction of the CIR to CTA within 30 days.

Subsection (A) of Section 112 of the NIRC states that “any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales.” The phrase “within two (2) years x x x apply for the issuance of a tax credit certificate or refund” refers to applications for refund/credit filed with the CIR and not to appeals made to the CTA.

The case of Commissioner of Internal Revenue v. Victorias Milling, Co., Inc. is inapplicable as the tax provision involved in that case is Section 306, now Section 229 of the NIRC. Section 229 does not apply to refunds/credits of input VAT.

The premature filing of respondent’s claim for refund/credit of input VAT before the CTA warrants a dismissal inasmuch as no jurisdiction was acquired by the CTA.

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CD: JRA Philippines, Inc. v. CIR

October 29, 2010 at 4:16 pm (2010, Case Digests) (, , )

J.R.A. PHILIPPINES, INC. v. COMMISSIONER OF INTERNAL REVENUE
G.R. No. 177127 October 11, 2010
Del Castillo, J.

Doctrine:
The absence of the word “zero rated” on the invoices/receipts is fatal to a claim for credit/refund of input VAT.
Stare decisis et non quieta movere. Courts are bound by prior decisions. Thus, once a case has been decided one way, courts have no choice but to resolve subsequent cases involving the same issue in the same manner.

Facts:
Petitioner, a PEZA Corporation, filed applications for tax credit/refund of unutilized input VAT on its zero-rated sales for the taxable quarters of 2000. The claim for credit/refund, however, remained unacted by the respondent. Hence, petitioner was constrained to file a petition before the CTA.

The CTA eventually denied the petition for lack of the word “zero-rated” on the invoices/receipts.

Issue:
Whether or not the failure to print the word “zero-rated” on the invoices/receipts is fatal to a claim for credit/ refund of input VAT on zero-rated sales

Held:
Yes. The absence of the word “zero rated” on the invoices/receipts is fatal to a claim for credit/refund of input VAT. This has been squarely resolved in Panasonic Communications Imaging Corporation of the Philippines (formerly Matsushita Business Machine Corporation of the Philippines) v. Commissioner of Internal Revenue (G.R. No. 178090, 612 SCRA 28, February 8, 2010). In that case, the claim for tax credit/refund was denied for non-compliance with Section 4.108-1 of Revenue Regulations No. 7-95, which requires the word “zero rated” to be printed on the invoices/receipts covering zero-rated sales.

From the abovementioned decision, the Court ruled that the appearance of the word “zero-rated” on the face of invoices covering zero-rated sales prevents buyers from falsely claiming input VAT from their purchases when no VAT was actually paid. If, absent such word, a successful claim for input VAT is made, the government would be refunding money it did not collect.

Stare decisis et non quieta movere. Courts are bound by prior decisions. Thus, once a case has been decided one way, courts have no choice but to resolve subsequent cases involving the same issue in the same manner [Agencia Exquisite of Bohol, Incorporated v. Commissioner of Internal Revenue, G.R. Nos. 150141, 157359 and 158644, February 12, 2009, 578 SCRA 539, 550].

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CD: Basilan Estates, Inc. v. CIR

September 17, 2010 at 6:30 pm (1967, Case Digests) (, )

BASILAN ESTATES, INC. v. CIR
G.R. No. L-22492 September 5, 1967
Bengzon, J.P., J.

Doctrine:
The income tax law does not authorize the depreciation of an asset beyond its acquisition cost. Hence, a deduction over and above such cost cannot be claimed and allowed. The reason is that deductions from gross income are privileges, not matters of right. They are not created by implication but upon clear expression in the law.

Facts:
Basilan Estates, Inc. claimed deductions for the depreciation of its assets on the basis of their acquisition cost. As of January 1, 1950 it changed the depreciable value of said assets by increasing it to conform with the increase in cost for their replacement. Accordingly, from 1950 to 1953 it deducted from gross income the value of depreciation computed on the reappraised value.

CIR disallowed the deductions claimed by petitioner, consequently assessing the latter of deficiency income taxes.

Issue:
Whether or not the depreciation shall be determined on the acquisition cost rather than the reappraised value of the assets

Held:
Yes. The following tax law provision allows a deduction from gross income for depreciation but limits the recovery to the capital invested in the asset being depreciated:

(1)In general. — A reasonable allowance for deterioration of property arising out of its use or employment in the business or trade, or out of its not being used: Provided, That when the allowance authorized under this subsection shall equal the capital invested by the taxpayer . . . no further allowance shall be made. . . .

The income tax law does not authorize the depreciation of an asset beyond its acquisition cost. Hence, a deduction over and above such cost cannot be claimed and allowed. The reason is that deductions from gross income are privileges, not matters of right. They are not created by implication but upon clear expression in the law [Gutierrez v. Collector of Internal Revenue, L-19537, May 20, 1965].

Depreciation is the gradual diminution in the useful value of tangible property resulting from wear and tear and normal obsolescense. It commences with the acquisition of the property and its owner is not bound to see his property gradually waste, without making provision out of earnings for its replacement.

The recovery, free of income tax, of an amount more than the invested capital in an asset will transgress the underlying purpose of a depreciation allowance. For then what the taxpayer would recover will be, not only the acquisition cost, but also some profit. Recovery in due time thru depreciation of investment made is the philosophy behind depreciation allowance; the idea of profit on the investment made has never been the underlying reason for the allowance of a deduction for depreciation.

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CD: Commissioner of Internal Revenue v. YMCA

September 16, 2010 at 4:52 pm (1998, Case Digests) (, , , )

COMMISSIONER OF INTERNAL REVENUE v. YMCA
G.R. No. 124043 October 14, 1998
Panganiban, J.

Doctrine:
Rental income derived by a tax-exempt organization from the lease of its properties, real or personal, is not exempt from income taxation, even if such income is exclusively used for the accomplishment of its objectives.

A claim of statutory exemption from taxation should be manifest and unmistakable from the language of the law on which it is based. Thus, it must expressly be granted in a statute stated in a language too clear to be mistaken. Verba legis non est recedendum — where the law does not distinguish, neither should we.

– The bare allegation alone that one is a non-stock, non-profit educational institution is insufficient to justify its exemption from the payment of income tax. It must prove with substantial evidence that (1) it falls under the classification non-stock, non-profit educational institution; and (2) the income it seeks to be exempted from taxation is used actually, directly, and exclusively for educational purposes.

– The Court cannot change the law or bend it to suit its sympathies and appreciations. Otherwise, it would be overspilling its role and invading the realm of legislation. The Court, given its limited constitutional authority, cannot rule on the wisdom or propriety of legislation. That prerogative belongs to the political departments of government.

Facts:
Private Respondent YMCA is a non-stock, non-profit institution, which conducts various programs and activities that are beneficial to the public, especially the young people, pursuant to its religious, educational and charitable objectives.

YMCA earned income from leasing out a portion of its premises to small shop owners, like restaurants and canteen operators, and from parking fees collected from non-members. Petitioner issued an assessment to private respondent for deficiency taxes. Private respondent formally protested the assessment. In reply, the CIR denied the claims of YMCA.

Issue:
Whether or not the income derived from rentals of real property owned by YMCA subject to income tax

Held:
Yes. Income of whatever kind and character of non-stock non-profit organizations from any of their properties, real or personal, or from any of their activities conducted for profit, regardless of the disposition made of such income, shall be subject to the tax imposed under the NIRC.

Rental income derived by a tax-exempt organization from the lease of its properties, real or personal, is not exempt from income taxation, even if such income is exclusively used for the accomplishment of its objectives.

Because taxes are the lifeblood of the nation, the Court has always applied the doctrine of strict in interpretation in construing tax exemptions (Commissioner of Internal Revenue v. Court of Appeals, 271 SCRA 605, 613, April 18, 1997). Furthermore, a claim of statutory exemption from taxation should be manifest and unmistakable from the language of the law on which it is based. Thus, the claimed exemption “must expressly be granted in a statute stated in a language too clear to be mistaken” (Davao Gulf Lumber Corporation v. Commissioner of Internal Revenue and Court of Appeals, G.R. No. 117359, p. 15 July 23, 1998).

Verba legis non est recedendum. The law does not make a distinction. The rental income is taxable regardless of whence such income is derived and how it is used or disposed of. Where the law does not distinguish, neither should we.

Private respondent also invokes Article XIV, Section 4, par. 3 of the Constitution, claiming that it “is a non-stock, non-profit educational institution whose revenues and assets are used actually, directly and exclusively for educational purposes so it is exempt from taxes on its properties and income.” This is without merit since the exemption provided lies on the payment of property tax, and not on the income tax on the rentals of its property. The bare allegation alone that one is a non-stock, non-profit educational institution is insufficient to justify its exemption from the payment of income tax.

For the YMCA to be granted the exemption it claims under the above provision, it must prove with substantial evidence that (1) it falls under the classification non-stock, non-profit educational institution; and (2) the income it seeks to be exempted from taxation is used actually, directly, and exclusively for educational purposes. Unfortunately for respondent, the Court noted that not a scintilla of evidence was submitted to prove that it met the said requisites.

The Court appreciates the nobility of respondent’s cause. However, the Court’s power and function are limited merely to applying the law fairly and objectively. It cannot change the law or bend it to suit its sympathies and appreciations. Otherwise, it would be overspilling its role and invading the realm of legislation. The Court regrets that, given its limited constitutional authority, it cannot rule on the wisdom or propriety of legislation. That prerogative belongs to the political departments of government.

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CD: Philippine Bank of Communications v. Commissioner of Internal Revenue

September 16, 2010 at 1:51 pm (1999, Case Digests) (, )

PHILIPPINE BANK OF COMMUNICATIONS v. CIR
G.R. No. 112024 January 28, 1999
Quisumbing, J.

Doctrine:
– Any excess of the total quarterly payments over the actual income tax computed in the adjustment or final corporate income tax return, shall either (a) be refunded to the corporation, or (b) may be credited against the estimated quarterly income tax liabilities for the quarters of the succeeding taxable year.

The corporation must signify in its annual corporate adjustment return (by marking the option box provided in the BIR form) its intention, whether to request for a refund or claim for an automatic tax credit for the succeeding taxable year. To ease the administration of tax collection, these remedies are in the alternative, and the choice of one precludes the other.

– Basic is the principle that “taxes are the lifeblood of the nation.” Due process of law under the Constitution does not require judicial proceedings in tax cases. This must necessarily be so because it is upon taxation that the government chiefly relies to obtain the means to carry on its operations and it is of utmost importance that the modes adopted to enforce the collection of taxes levied should be summary and interfered with as little as possible.

– A memorandum-circular of a bureau head could not operate to vest a taxpayer with shield against judicial action for there are no vested rights to speak of respecting a wrong construction of the law.

Facts:
Petitioner reported a net loss in 1986 and thus declared no tax payable. On 1987, petitioner requested the respondent, among others, for a tax credit representing the overpayment of taxes in the first and second quarters of 1985.

Thereafter, petitioner filed a claim for refund of creditable taxes withheld by their lessees from property rentals in 1985 and in 1986. Pending investigation, petitioner instituted a Petition for Review before the Court of Tax Appeals (CTA).

CTA denied the request of petitioner for a tax refund or credit for 1985 on the ground that it was filed beyond the two-year reglementary period provided for by law. The petitioner’s claim for refund in 1986 was likewise denied on the assumption that it was automatically credited by PBCom against its tax payment in the succeeding year. MR was denied.

CA affirmed the decision in toto hence this petition.

Petitioner argues that the government is barred from asserting a position contrary to its declared circular if it would result to injustice to taxpayers. Citing ABS CBN Broadcasting Corporation vs. Court of Tax Appeals (1981), petitioner claims that rulings or circulars promulgated by the Commissioner of Internal Revenue have no retroactive effect if it would be prejudicial to taxpayers.

Respondent argues that the two-year prescriptive period for filing tax cases in court concerning income tax payments of Corporations is reckoned from the date of filing the Final Adjusted Income Tax Return, which is generally done on April 15 following the close of the calendar year. Further, respondent Commissioner stresses that when the petitioner filed the case before the CTA on November 18, 1988, the same was filed beyond the time fixed by law, and such failure is fatal to petitioner’s cause of action.

Issue:
Whether or not the Court of Appeals erred in denying the plea for tax refund or tax credits on the ground of prescription

Held:
No. The rule states that the taxpayer may file a claim for refund or credit with the Commissioner of Internal Revenue, within two (2) years after payment of tax, before any suit in CTA is commenced. The two-year prescriptive period provided, should be computed from the time of filing the Adjustment Return and final payment of the tax for the year.

Basic is the principle that “taxes are the lifeblood of the nation.” Due process of law under the Constitution does not require judicial proceedings in tax cases. This must necessarily be so because it is upon taxation that the government chiefly relies to obtain the means to carry on its operations and it is of utmost importance that the modes adopted to enforce the collection of taxes levied should be summary and interfered with as little as possible.

From the same perspective, claims for refund or tax credit should be exercised within the time fixed by law because the BIR being an administrative body enforced to collect taxes, its functions should not be unduly delayed or hampered by incidental matters.

Any excess of the total quarterly payments over the actual income tax computed in the adjustment or final corporate income tax return, shall either (a) be refunded to the corporation, or (b) may be credited against the estimated quarterly income tax liabilities for the quarters of the succeeding taxable year.

The corporation must signify in its annual corporate adjustment return (by marking the option box provided in the BIR form) its intention, whether to request for a refund or claim for an automatic tax credit for the succeeding taxable year. To ease the administration of tax collection, these remedies are in the alternative, and the choice of one precludes the other.

A memorandum-circular of a bureau head could not operate to vest a taxpayer with shield against judicial action. For there are no vested rights to speak of respecting a wrong construction of the law by the administrative officials and such wrong interpretation could not place the Government in estoppel to correct or overrule the same [Tan Guan vs. Court of Tax Appeals, 19 SCRA 903 (1967)].

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CD: CIR v. BPI

September 2, 2010 at 11:55 am (2009, Case Digests) (, )

CIR v. BPI
G.R. No. 178490 July 7, 2009
Chico-Nazario, J.

Doctrine:
1. The phrase “for that taxable period” merely identifies the excess income tax, subject of the option, by referring to the taxable period when it was acquired by the taxpayer.

2. When circumstances show that a choice has been made by the taxpayer to carry over the excess income tax as credit, it should be respected; but when indubitable circumstances clearly show that another choice, a tax refund, is in order, it should be granted. As to which option the taxpayer chose is generally a matter of evidence.

“Technicalities and legalisms, however exalted, should not be misused by the government to keep money not belonging to it and thereby enrich itself at the expense of its law-abiding citizens.”

Facts:
In filing its Corporate Income Tax Return for the Calendar Year 2000, BPI carried over the excess tax credits from the previous years of 1997, 1998 and 1999. However, BPI failed to indicate in its ITR its choice of whether to carry over its excess tax credits or to claim the refund of or issuance of a tax credit certificate.

BPI filed with the Commissioner of Internal Revenue (CIR) an administrative claim for refund. The CIR failed to act on the claim for tax refund of BPI. Hence, BPI filed a Petition for Review before the CTA, whom denied the claim.

The CTA relied on the irrevocability rule laid down in Section 76 of the National Internal Revenue Code (NIRC) of 1997, which states that once the taxpayer opts to carry over and apply its excess income tax to succeeding taxable years, its option shall be irrevocable for that taxable period and no application for tax refund or issuance of a tax credit shall be allowed for the same.

The Court of Appeals reversed the CTA decision stating that there was no actual carrying over of the excess tax credit, given that BPI suffered a net loss in 1999, and was not liable for any income tax for said taxable period, against which the 1998 excess tax credit could have been applied.

The Court of Appeals further stated that even if Section 76 was to be construed strictly and literally, the irrevocability rule would still not bar BPI from seeking a tax refund of its 1998 excess tax credit despite previously opting to carry over the same. The phrase “for that taxable period” qualified the irrevocability of the option of BIR to carry over its 1998 excess tax credit to only the 1999 taxable period; such that, when the 1999 taxable period expired, the irrevocability of the option of BPI to carry over its excess tax credit from 1998 also expired.

Issue:
1. What is the period captured by the irrevocability rule?
2. Whether or not the taxpayer’s failure to mark the option chosen is fatal to whatever claim

Held:
1. The last sentence of Section 76 of the NIRC of 1997 reads: “Once the option to carry-over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for tax refund or issuance of a tax credit certificate shall be allowed therefor.” The phrase “for that taxable period” merely identifies the excess income tax, subject of the option, by referring to the taxable period when it was acquired by the taxpayer.

In the present case, the excess income tax credit, which BPI opted to carry over, was acquired by the said bank during the taxable year 1998. The option of BPI to carry over its 1998 excess income tax credit is irrevocable; it cannot later on opt to apply for a refund of the very same 1998 excess income tax credit.

2. No. Failure to signify one’s intention in the FAR does not mean outright barring of a valid request for a refund, should one still choose this option later on. The reason for requiring that a choice be made in the FAR upon its filing is to ease tax administration (Philam Asset Management, Inc. v. CIR G.R. No. 156637 and No. 162004, 14 December 2005). When circumstances show that a choice has been made by the taxpayer to carry over the excess income tax as credit, it should be respected; but when indubitable circumstances clearly show that another choice – a tax refund – is in order, it should be granted. Therefore, as to which option the taxpayer chose is generally a matter of evidence.

“Technicalities and legalisms, however exalted, should not be misused by the government to keep money not belonging to it and thereby enrich itself at the expense of its law-abiding citizens.”

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CD: AT&T Communications Services Philippines, Inc. v. CIR

August 27, 2010 at 3:26 pm (2010, Case Digests) (, )

AT&T COMMUNICATIONS SERVICES PHILIPPINES, INC. v. CIR
G.R. No. 182364 August 3, 2010
Carpio Morales, J.

Doctrine:
Section 113 of the Tax Code does not create a distinction between a sales invoice and an official receipt.

Facts:
Petitioner filed with the respondent an application for tax refund and/or tax credit of its excess/unutilized input VAT from zero-rated sales. To prevent the running of the prescriptive period, petitioner subsequently filed a petition for review with the CTA.

The CTA held that since petitioner is engaged in sale of services, VAT Official Receipts should have been presented in order to substantiate its claim of zero-rated sales, not VAT invoices which pertain to sale of goods or properties.

Issue:
Whether or not a Sales Invoice would suffice as a proof for entitlement to a refund of unutilized input VAT from zero-rated sales, even for seller of services

Held:
Yes. Section 113 of the Tax Code does not create a distinction between a sales invoice and an official receipt. Parenthetically, to determine the validity of petitioner’s claim as to unutilized input VAT, an invoice would suffice provided the requirements under Sections 113 and 237 of the Tax Code are met.

Sales invoices are recognized commercial documents to facilitate trade or credit transactions. They are proofs that a business transaction has been concluded, hence, should not be considered bereft of probative value (Seaoil Petroleum Corporation v. Autocorp Group, G.R. No. 164326, October 17, 2008). Only the preponderance of evidence threshold as applied in ordinary civil cases is needed to substantiate a claim for tax refund proper (Commissioner of Internal Revenue v. Mirant Pagbilao Corporation, G.R. No. 172129, September 12, 2008).

A taxpayer engaged in zero-rated transactions may apply for tax refund or issuance of tax credit certificate for unutilized input VAT, subject to the following requirements: (1) the taxpayer is engaged in sales which are zero-rated (i.e., export sales) or effectively zero-rated; (2) the taxpayer is VAT-registered; (3) the claim must be filed within two years after the close of the taxable quarter when such sales were made; (4) the creditable input tax due or paid must be attributable to such sales, except the transitional input tax, to the extent that such input tax has not been applied against the output tax; and (5) in case of zero-rated sales, the acceptable foreign currency exchange proceeds thereof have been duly accounted for in accordance with BSP rules and regulations.

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CD: Commissioner of Internal Revenue v. Eastern Telecommunications Philippines

August 16, 2010 at 12:12 pm (2010, Case Digests) (, )

Commissioner of Internal Revenue v. Eastern Telecommunications Philippines
G.R. No. 163835 July 7, 2010
Brion, J.

Doctrine:
Lapses in the literal observance of a rule of procedure may be overlooked when they have not prejudiced the adverse party and especially when they are more consistent with upholding settled principles in taxation.

The burden of strict compliance with statutory and administrative requirements by the person claiming for a tax refund cannot be offset by the non-observance of procedural technicalities by the government’s tax agents when the non-observance of the remedial measure addressing it does not in any manner prejudice the taxpayer’s due process rights.

Facts:
Eastern filed with the CIR a written application for refund or credit of unapplied input taxes it paid on the imported equipment purchased during 1995 and 1996 amounting to P22,013,134.00. To toll the running of the two-year prescriptive period under the same provision, Eastern filed an appeal with the CTA. The CTA found that Eastern has a valid claim for the refund/credit of the unapplied input taxes, declaring it entitled to a tax refund of P16,229,100.00.

The CIR filed a motion for reconsideration of the CTA’s decision. Subsequently, it filed a supplemental motion for reconsideration. The CTA denied the CIR’s motion for reconsideration. The CIR then elevated the case to the CA, who affirmed the CTA ruling and likewise denied the subsequent motion for reconsideration. Hence, the present petition.

The CIR posits that, applying Section 104(A) of the Tax Code on apportionment of tax credits, Eastern is entitled to a tax refund of only a portion of the amount claimed. Since the VAT returns clearly reflected income from exempt sales, the CIR asserts that this constitutes as an admission on Eastern’s part that it engaged in transactions not subject to VAT. Hence, the proportionate allocation of the tax credit to VAT and non-VAT transactions provided in Section 104(A) of the Tax Code should apply.

Eastern objects to the arguments raised in the petition, alleging that these have not been raised in the Answer filed by the CIR before the CTA and was only raised. In fact, the CIR only raised the applicability of Section 104(A) of the Tax Code in his supplemental motion for reconsideration of the CTA’s ruling. Eastern claims that for the CIR to raise such an issue now would constitute a violation of its right to due process; following settled rules of procedure and fair play, the CIR should not be allowed at the appeal level to change his theory of the case.

Eastern further argues that there is no evidence on record that would evidently show that respondent is also engaged in other transactions that are not subject to VAT.

Issue:
Whether or not the rule in Section 104(A) of the Tax Code on the apportionment of tax credits can be applied in appreciating Eastern’s claim for tax refund, considering that the matter was raised by the CIR only when he sought reconsideration of the CTA ruling

Held:
Yes. The question of the applicability of Section 104(A) of the Tax Code was already raised but the tax court did not rule on it. This failure should not be taken against the CIR. The mere declaration of exempt sales in the VAT returns, whether based on Section 103 of the Tax Code or some other special law, should have prompted for the application of Section 104 (A) of the Tax Code to Eastern’s claim.

The general rule is that appeals can only raise questions of law or fact that (a) were raised in the court below, and (b) are within the issues framed by the parties therein (People v. Echegaray, G.R. No. 117472). An issue which was neither averred in the pleadings nor raised during trial in the court below cannot be raised for the first time on appeal.

The rule against raising new issues on appeal is not without exceptions; it is a procedural rule that the Court may relax when compelling reasons so warrant or when justice requires it. What constitutes good and sufficient cause that would merit suspension of the rules is discretionary upon the courts (CIR v. Mirant Pagbilao Corporation, G.R. No. 159593). Another exception is when the question involves matters of public importance.

“Taxes are the lifeblood of the government.” For this reason, the right of taxation cannot easily be surrendered; statutes granting tax exemptions are considered as a derogation of the sovereign authority and are strictly construed against the person or entity claiming the exemption. Claims for tax refunds, when based on statutes granting tax exemption or tax refund, partake of the nature of an exemption; thus, the rule of strict interpretation against the taxpayer-claimant similarly applies (CIR v. Fortune Tobacco Corporation, G.R. Nos. 167274-75).

The taxpayer is charged with the heavy burden of proving that he has complied with and satisfied all the statutory and administrative requirements to be entitled to the tax refund. This burden cannot be offset by the non-observance of procedural technicalities by the government’s tax agents when the non-observance of the remedial measure addressing it does not in any manner prejudice the taxpayer’s due process rights.

Lapses in the literal observance of a rule of procedure may be overlooked when they have not prejudiced the adverse party and especially when they are more consistent with upholding settled principles in taxation.

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