Jurisprudence: G.R. Nos. 118498 & 124377 October 12, 1999

THIRD DIVISION
G.R. Nos. 118498 & 124377 October 12, 1999
FILIPINAS SYNTHETIC FIBER CORPORATION, petitioner vs. COURT OF APPEALS, COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE, respondents.

D E C I S I O N

PURISIMA, J.:

Before the Court are two consolidated Petitions for Review on Certiorari under Rule 45 of the Revised Rules of Court seeking to set aside the Decisions of the Court of Appeals in CA-GR. SP Nos. 32922 and 32022.

In G.R. No. 118498, the Court of Appeals culled the antecedent facts that matter as follows:

The basic operative facts are not in dispute, to wit: Filipinas Synthetic Fiber Corporation , a domestic corporation received on December 27, 1979 a letter of demand ... from the Commissioner of Internal Revenue ... assessing it for deficiency withholding tax at source in the total amount of P829,748.77, inclusive of interest and compromise penalties, for the period from the fourth quarter of 1974 to the fourth quarter of 1975. The bulk of the deficiency withholding tax assessment, however, consisted of interest and compromise penalties for alleged late payment of withholding taxes due on interest loans, royalties and guarantee fees paid by the petitioner to non-resident corporations. The assessment was seasonably protested by the petitioner through its auditor, SGV and Company. Respondent denied the protest in a letter dated 14 May 1985 ... on the following ground: For Philippine internal revenue tax purposes, the liability to withhold and pay income tax withheld at source from certain payments due to a foreign corporation is at the time of accrual and not at the time of actual payment or remittance thereof, citing BIR Ruling No. 71-003 and BIR Ruling No. 24-71-003-154-84 dated 12 September 1984 as well as the decision of the Court of Tax Appeals ... in CTA Case No. 3307 entitled Construction Resources of Asia, Inc., versus Commissioner of Internal Revenue. The aforementioned case held that the liability of the taxpayer to withhold and pay the income tax withheld at source from certain payments due to a non-resident foreign corporation attaches at the time of accrual payment or remittance thereof and the withholding agent/corporation is obliged to remit the tax to the government since it already and properly belongs to the government. Since the taxpayer failed to pay the withholding tax on interest, royalties, and guarantee fee at the time of their accrual and in the books of the corporation the aforesaid assessment is therefore legal and proper.

On June 28, 1985, petitioner brought a Petition for Review before the Court of Tax Appeals, docketed as CTA Case No. 3951. On June 15, 1993, the said court came out with its Decision, ruling thus:

IN VIEW OF THE FOREGOING, judgment is hereby rendered ordering petitioner to pay respondent the amount of P306,165.35 as deficiency withholding tax at source for the fourth quarter of 1974 to the third quarter of 1975 plus 10% surcharge and 14% annual interest from November 29, 1979 to July 31, 1980, plus 20% interest from August 1, 1980 until fully paid but not to exceed that which corresponds to a period of three (3) years pursuant to P.D. No. 1705.

SO ORDERED.

With the denial of its motion for reconsideration, petitioner appealed the CTA disposition to the Court of Appeals, which affirmed in toto the appealed decision.

Dissatisfied therewith, petitioner found its way to this Court via the present Petition; contending that:

THE CA ERRED IN HOLDING THAT FILSYNS LIABILITY TO WITHHOLD THE INCOME TAX FOR INTEREST, ROYALTIES AND DIVIDENDS, WHICH WERE PAYABLE TO NON-RESIDENT FOREIGN CORPORATIONS, ATTACHED UPON SETTING-UP OR ACCRUAL OF THESE AMOUNTS RATHER THAN WHEN SAID AMOUNTS BECOME DUE AND DEMANDABLE UNDER THE APPLICABLE CONTRACTS.

In G.R. No. 124377, what is being questioned by petitioner is the assessed deficiency withholding tax at source for the period from the fourth quarter of 1975 to the fourth quarter of 1976 amounting to P379,700.68.

The pivot of inquiry here is - whether the liability to withhold tax at source on income payments to non-resident foreign corporations arises upon remittance of the amounts due to the foreign creditors or upon accrual thereof.

It is petitioners submission that the withholding taxes on the said interest income and royalties were paid to the government when the subject interest and royalties were actually remitted abroad. Stated otherwise, whatever amount has accrued in the books, the withholding tax due thereon is ultimately paid to the government upon remittance abroad of the amount accrued.

Section 53 of the National Internal Revenue Code, in force at that time (1975), reads:

Withholding Tax at source ...

x x x

(b) Non-resident aliens and foreign corporations - Every individual, corporation, partnership, or association, in whatever capacity acting, including a lessee or mortgagor of real or personal property, trustee acting in any trust capacity, executor, administrator, receiver, conservator, fiduciary, employer, and every officer or employee of the Government of the Republic of the Philippines having the control, receipt, custody, disposal, or payment of interest, dividends, rents, royalties, salaries, wages, premiums, annuities, compensation, remunerations, emoluments, or other fixed or determinable annual, periodical, or casual gains, profits, and income, and capital gains, of any non-resident alien not engaged in trade or business within the Philippines, shall (except in the case provided in sub-section (a) (1) of this Section) deduct and withhold from the annual, periodical, or casual gains, profits, and income, and capital gains, a tax equal to 30 per cent thereof.

x x x

(2) Non-resident foreign corporations - In the case of foreign corporations subject to tax under this Title, not engaged in trade or business within the Philippines, there shall be deducted and withheld at the source in the same manner and upon the same items as is provided in subsection (b) (1) of this section, as well as on remunerations for technical services or otherwise, a tax equal to thirty-five (35) per cent thereof. This tax shall be returned and paid in and subject to the same conditions as provided in Section 54.

On the other hand, Section 54 of the same law, provides:

Returns and payments of taxes withheld at source -

(a) Quarterly return and payment of taxes withheld - Taxes deducted and withheld under Section 53 shall be covered by a return and paid to the Commissioner of Internal Revenue or his collection agent in the province, city, or municipality where the withholding agent has his legal residence or principal place of business, or where the withholding agent is a corporation, where the principal office is located. The taxes deducted and withheld by the withholding agent shall be held as a special fund in trust for the Government until paid to the collecting officers. The Commissioner of Internal Revenue may, with the approval of the Secretary of Finance, require these withholding agents to pay or deposit the taxes deducted and withheld at more frequent intervals when necessary to protect the interest of the Government. The return shall be filed and the payment made within 25 days from the close of each calendar quarter ...

The aforecited provisions of law are silent as to when does the duty to withhold the taxes arise. And to determine the same, an inquiry as to the nature of accrual method of accounting, the procedure used by the herein petitioner, and to the modus vivendi of withholding tax at source come to the fore.

The method of withholding tax at source is a procedure of collecting income tax sanctioned by the National Internal Revenue Code. Section 53 (c) of which, provides:

Return and Payment - Every person required to deduct and withhold any tax under this section shall make return thereof, ... for the payment of the tax, shall pay the amount withheld to the officer of the Government of the Philippines authorized to receive it. Every such person is made personally liable for such tax, and is indemnified against the claims and demands of any person for the amount of any payments made in accordance with the provision of this section.

In the aforecited provision of law, the withholding agent is explicitly made personally liable for the income tax withheld under Section 54. In Phil. Guaranty Co., Inc. vs. Commissioner of Internal Revenue, the Court, has ratiocinated:

The law sets no condition for the personal liability of the withholding agent to attach. The reason is to compel the withholding agent to withhold the tax under all circumstances. In effect, the responsibility for the collection of the tax as well as the payment thereof is concentrated upon the person over whom the Government has jurisdiction. Thus, the withholding agent is constituted the agent both the government and the taxpayer. With respect to the collection and/or withholding of the tax, he is the Governments agent. In regard to the filing of the necessary income tax return and the payment of the tax to the Government, he is the agent of the taxpayer. The withholding agent, therefore, is no ordinary government agent especially because under Section 53 (c) he is held personally liable for the tax he is duty bound to withhold; whereas, the Commissioner of Internal Revenue and his deputies are not made liable to law.

On the other hand, under the accrual basis method of accounting, income is reportable when all the events have occurred that fix the taxpayers right to receive the income, and the amount can be determined with reasonable accuracy. Thus, it is the right to receive income, and not the actual receipt, that determines when to include the amount in gross income.[5] Gleanable from this notion are the following requisites of accrual method of accounting, to wit: (1) that the right to receive the amount must be valid, unconditional and enforceable, i.e., not contingent upon future time; (2) the amount must be reasonably susceptible of accurate estimate; and (3) there must be a reasonable expectation that the amount will be paid in due course.

In the case at bar, after a careful examination of pertinent records, the Court concurred in the finding by the Court of Appeals in CA GR. SP No. 32922 that there was a definite liability, a clear and imminent certainty that at the maturity of the loan contracts, the foreign corporation was going to earn income in an ascertained amount, so much so that petitioner already deducted as business expense the said amount as interests due to the foreign corporation. This is allowed under the law, petitioner having adopted the accrual method of accounting in reporting its incomes.

All things studiedly considered, the Court is of the opinion, and holds, that the Court of Appeals erred not in ruling that:

x x x Petitioner cannot now claim that there is no duty to withhold and remit income taxes as yet because the loan contract was not yet due and demandable. Having written-off the amounts as business expense in its books, it had taken advantage of the benefit provided in the law allowing for deductions from gross income. Moreover, it had represented to the BIR that the amounts so deducted were incurred as a business expense in the form of interest and royalties paid to the foreign corporations. It is estopped from claiming otherwise now.

WHEREFORE, the decisions of the Court of Appeals in CA GR. SP Nos. 32922 and 32022 are hereby AFFIRMED in toto. No pronouncement as to costs.

SO ORDERED.

Tax Case Digest: Filipinas Synthentic Fiber v. CA (1999)

THIRD DIVISION
Filipinas Synthentic Fiber v. CA (1999)
G.R. Nos. 118498 & 124377  October 12, 1999
PURISIMA, J.

Lessons Applicable: Apply accrual method equally for both deduction and income, estoppel applies in CTA tax disputes

Laws Applicable:

FACTS:

• Filipinas Synthetic Fiber Corp. received a letter of demand for deficiency withholding tax on interest loans, royalties and guarantee fees paid by it non-resident corporations.
• It filed a protest on the ground that: "For Philippine Internal Revenue Tax purposes, the liability to withhold is from the time of accrual or remittance citing BIR ruling No. 71-3003 and 24-71-003-154-84.  
• It then filed a Petition for Review at the CTA and CA who denied its petition that it can be paid upon remittance.

ISSUE: W/N liability to withhold tax at source on income payments to non-resident foreign corporations arises upon remittance of the amount due rather than upon accrual.

HELD: No. CA AFFIRMED in toto.

• Section 53 (c) he is held personally liable for the tax he is duty bound to withhold; whereas, the Commissioner of Internal Revenue and his deputies are not made liable to law.
• Since there was a definite clear liability and imminent certainty that it was going to earn income it should already be taxable. 
• Moreover, petitioner is estopped for he has already claimed deductions as there were incurred as a business expense in the form of interest and royalties paid.
  

Jurisprudence: G.R. No. 168118 August 28, 2006

SECOND DIVISION
Manila Bank v. CIR (2006)
G.R. No. 168118 August 28, 2006
SANDOVAL-GUTIERREZ, J.
 
FACTS
Before us is a Petition for Review on Certiorari assailing the Decision of the Court of Appeals dated May 11, 2005 in CA-G.R. SP No. 77177, entitled The Manila Banking Corporation, petitioner, versus Commissioner of Internal Revenue, respondent.

The Manila Banking Corporation, petitioner, was incorporated in 1961 and since then had engaged in the commercial banking industry until 1987. On May 22, 1987, the Monetary Board of the Bangko Sentral ng Pilipinas (BSP) issued Resolution No. 505, pursuant to Section 29 of Republic Act (R.A.) No. 265 (the Central Bank Act), prohibiting petitioner from engaging in business by reason of insolvency. Thus, petitioner ceased operations that year and its assets and liabilities were placed under the charge of a government-appointed receiver.

Meanwhile, R.A. No. 8424, otherwise known as the Comprehensive Tax Reform Act of 1997, became effective on January 1, 1998. One of the changes introduced by this law is the imposition of the minimum corporate income tax on domestic and resident foreign corporations. Implementing this law is Revenue Regulations No. 9-98 stating that the law allows a four (4) year period from the time the corporations were registered with the Bureau of Internal Revenue (BIR) during which the minimum corporate income tax should not be imposed.

On June 23, 1999, after 12 years since petitioner stopped its business operations, the BSP authorized it to operate as a thrift bank. The following year, specifically on April 7, 2000, it filed with the BIR its annual corporate income tax return and paid P33,816,164.00 for taxable year 1999.

Prior to the filing of its income tax return, or on December 28, 1999, petitioner sent a letter to the BIR requesting a ruling on whether it is entitled to the four (4)-year grace period reckoned from 1999. In other words, petitioners position is that since it resumed operations in 1999, it will pay its minimum corporate income tax only after four (4) years thereafter.

On February 22, 2001, the BIR issued BIR Ruling No. 007-2001 stating that petitioner is entitled to the four (4)-year grace period. Since it reopened in 1999, the minimum corporate income tax may be imposed not earlier than 2002, i.e. the fourth taxable year beginning 1999. The relevant portions of the BIR Ruling state:

In reply, we hereby confirm that the law and regulations allow new corporations as well as existing corporations a leeway or adjustment period of four years counted from the year of commencement of business operations (reckoned at the time of registration by the corporation with the BIR) during which the MCIT (minimum corporate income tax) does not apply. If new corporations, as well as existing corporations such as those registered with the BIR in 1994 or earlier, are granted a 4-year grace period, we see no reason why TMBC, a corporation that has ceased business activities due to involuntary closure for more than a decade and is now only starting again to place its business back in order, may not be given the same opportunity. It should be stressed that although TMBC had been registered with the BIR before 1994, yet it did not have any business from 1987 to June 1999 due to its involuntary closure. This Office is therefore of an opinion, that for purposes of justice, equity and consistent with the intent of the law, TMBC's reopening last July 1999 is akin to the commencement of business operations of a new corporation, in consideration of which the law allows a 4-year period during which MCIT is not to be applied. Hence, MCIT may be imposed upon TMBC not earlier than 2002, i.e., the fourth taxable year beginning 1999 which is the year when TMBC reopened.

Likewise, we find merit in your position that for having just come out of receivership proceedings, which not only resulted in substantial losses but actually brought about a complete cessation of all businesses, TMBC may be qualified to ask for suspension of the MCIT. The law provides that the Secretary of Finance, upon the recommendation of the Commissioner, may suspend the imposition of the MCIT on any corporation which suffers losses on account of prolonged labor dispute, or because of force majeure, or because of legitimate business reverses. [NIRC, Sec. 27(E)(3)] Revenue Regulations 9-98 defines the term legitimate business reverses to include substantial losses sustained due to fire, robbery, theft or embezzlement, or for other economic reasons as determined by the Secretary of Finance. Cessation of business activities as a result of being placed under involuntary receivership may be one such economic reason. But to be a basis for the recognition of the suspension of MCIT, such a situation should be properly defined and included in the regulations, which this Office intends to do. Pending such inclusion, the same cannot yet be invoked. Nevertheless, it is the position of this Office that the counting of the fourth taxable year, insofar as TMBC is concerned, begins in the year 1999 when TMBC reopened such that it will be only subject to MCIT beginning the year 2002.

Pursuant to the above Ruling, petitioner filed with the BIR a claim for refund of the sum of P33,816,164.00 erroneously paid as minimum corporate income tax for taxable year 1999.

Due to the inaction of the BIR on its claim, petitioner filed with the Court of Tax Appeals (CTA) a petition for review.

On April 21, 2003, the CTA denied the petition, finding that petitioners payment of the amount of P33,816,164.00 corresponding to its minimum corporate income tax for taxable year 1999 is in order. The CTA held that petitioner is not entitled to the four (4)-year grace period because it is not a new corporation. It has continued to be the same corporation, registered with the Securities and Exchange Commission (SEC) and the BIR, despite being placed under receivership, thus:

Moreover, it must be emphasized that when herein petitioner was placed under receivership, there was merely an interruption of its business operations. However, its corporate existence was never affected. The general rule is that the appointment of the receiver does not terminate the charter or work a dissolution of the corporation, even though the receivership is a permanent one. In other words, the corporation continues to exist as a legal entity, clothed with its franchises (65 Am. Jur. 2d, pp. 973-974). Petitioner, for all intents and purposes, remained to be the same corporation, registered with the SEC and with the BIR. While it may continue to perform its corporate functions, all its properties and assets were under the control and custody of a receiver, and its dealings with the public is somehow limited, if not momentarily suspended. x x x

On June 11, 2003, petitioner filed with the Court of Appeals a petition for review. On May 11, 2005, the appellate court rendered a Decision affirming the assailed judgment of the CTA. 

Thus, this petition for review on certiorari.

The main issue for our resolution is whether petitioner is entitled to a refund of its minimum corporate income tax paid to the BIR for taxable year 1999. 

Petitioner contends that the Court of Tax Appeals erred in holding that it is not entitled to the four (4)-year grace period provided by law suspending the payment of its minimum corporate income tax since it is not a newly created corporation, having been registered as early as 1961.

For his part, the Commissioner of Internal Revenue (CIR), respondent, maintains that pursuant to R.A. No. 8424, petitioner should pay its minimum corporate income tax beginning January 1, 1998 as it did not close its business operations in 1987 but merely suspended the same. Even if placed under receivership, its corporate existence was never affected. Thus, it falls under the category of an existing corporation recommencing its banking business operations. 

Section 27(E) of the Tax Code provides:
Sec. 27. Rates of Income Tax on Domestic Corporations. x x x

(E) Minimum Corporate Income Tax on Domestic Corporations. -

(1) Imposition of Tax. - A minimum corporate income tax of two percent (2%) of the gross income as of the end of the taxable year, as defined herein, is hereby imposed on a corporation taxable under this Title, beginning on the fourth taxable year immediately following the year in which such corporation commenced its business operations, when the minimum corporate income tax is greater than the tax computed under Subsection (A) of this Section for the taxable year.

(2) Carry Forward of Excess Minimum Tax. - Any excess of the minimum corporate income tax over the normal income tax as computed under Subsection (A) of this Section shall be carried forward and credited against the normal income tax for the three (3) immediately succeeding taxable years.
x x x
Upon the other hand, Revenue Regulation No. 9-98 specifies the period when a corporation becomes subject to the minimum corporate income tax, thus:

(5) Specific Rules for Determining the Period When a Corporation Becomes Subject to the MCIT (minimum corporate income tax) -

For purposes of the MCIT, the taxable year in which business operations commenced shall be the year in which the domestic corporation registered with the Bureau of Internal Revenue (BIR).

Firms which were registered with BIR in 1994 and earlier years shall be covered by the MCIT beginning January 1, 1998.

 x x x

The intent of Congress relative to the minimum corporate income tax is to grant a four (4)-year suspension of tax payment to newly formed corporations. Corporations still starting their business operations have to stabilize their venture in order to obtain a stronghold in the industry. It does not come as a surprise then when many companies reported losses in their initial years of operations. The following are excerpts from the Senate deliberations:

Senator Romulo: x x x Let me go now to the minimum corporate income tax, which is on page 45 of the Journal, which is to minimize tax evasion on those corporations which have been declaring losses year in and year out. Here, the tax rate is three-fourths, three quarter of a percent or .75% applied to corporations that do not report any taxable income on the fourth year of their business operation. Therefore, those that do not report income on the first, second and third year are not included here.

Senator Enrile: We assume that this is the period of stabilization of new company that is starting in business.

Senator Romulo: That is right. 

Thus, in order to allow new corporations to grow and develop at the initial stages of their operations, the lawmaking body saw the need to provide a grace period of four years from their registration before they pay their minimum corporate income tax.

Significantly, on February 23, 1995, Congress enacted R.A. No. 7906, otherwise known as the Thrift Banks Act of 1995. It took effect on March 18, 1995. This law provides for the regulation of the organization and operations of thrift banks. Under Section 3, thrift banks include savings and mortgage banks, private development banks, and stock savings and loans associations organized under existing laws.

On June 15, 1999, the BIR issued Revenue Regulation No. 4-95 implementing certain provisions of the said R.A. No. 7906. Section 6 provides:

Sec. 6. Period of exemption. All thrift banks created and organized under the provisions of the Act shall be exempt from the payment of all taxes, fees, and charges of whatever nature and description, except the corporate income tax imposed under Title II of the NIRC and as specified in Section 2(A) of these regulations, for a period of five (5) years from the date of commencement of operations; while for thrift banks which are already existing and operating as of the date of effectivity of the Act (March 18, 1995), the tax exemption shall be for a period of five (5) years reckoned from the date of such effectivity.

For purposes of these regulations, date of commencement of operations shall be understood to mean the date when the thrift bank was registered with the Securities and Exchange Commission or the date when the Certificate of Authority to Operate was issued by the Monetary Board of the Bangko Sentral ng Pilipinas, whichever comes later.

x x x

As mentioned earlier, petitioner bank was registered with the BIR in 1961. However, in 1987, it was found insolvent by the Monetary Board of the BSP and was placed under receivership. After twelve (12) years, or on June 23, 1999, the BSP issued to it a Certificate of Authority to Operate as a thrift bank. Earlier, or on January 21, 1999, it registered with the BIR. Then it filed with the SEC its Articles of Incorporation which was approved on June 22, 1999.

It is clear from the above-quoted provision of Revenue Regulations No. 4-95 that the date of commencement of operations of a thrift bank is the date it was registered with the SEC or the date when the Certificate of Authority to Operate was issued to it by the Monetary Board of the BSP, whichever comes later.

Let it be stressed that Revenue Regulations No. 9-98, implementing R.A. No. 8424 imposing the minimum corporate income tax on corporations, provides that for purposes of this tax, the date when business operations commence is the year in which the domestic corporation registered with the BIR. However, under Revenue Regulations No. 4-95, the date of commencement of operations of thrift banks, such as herein petitioner, is the date the particular thrift bank was registered with the SEC or the date when the Certificate of Authority to Operate was issued to it by the Monetary Board of the BSP, whichever comes later.

Clearly then, Revenue Regulations No. 4-95, not Revenue Regulations No. 9-98, applies to petitioner, being a thrift bank. It is, therefore, entitled to a grace period of four (4) years counted from June 23, 1999 when it was authorized by the BSP to operate as a thrift bank. Consequently, it should only pay its minimum corporate income tax after four (4) years from 1999.

WHEREFORE, we GRANT the petition. The assailed Decision of the Court of Appeals in CA-G.R. SP No. 77177 is hereby REVERSED. Respondent Commissioner of Internal Revenue is directed to refund to petitioner bank the sum of P33,816,164.00 prematurely paid as minimum corporate income tax.

SO ORDERED.

Tax Case Digest: Manila Bank v. CIR (2006)

SECOND DIVISION
Manila Bank v. CIR (2006)
G.R. No. 168118 August 28, 2006
SANDOVAL-GUTIERREZ, J.

Lessons Applicable: 4-year grace period is based on the registration and commencement (not only for newly formed corporation), MCIT law encourages new business

Laws Applicable: MCIT

FACTS:

• Manila Bank, after 12 years of being prohibited to operate due to insolvency by the Monetary Board of the BSP, is granted to operate as a thrift bank.
• It paid its taxed for 1999. 
• Then, it asked the BIR whether it is entitled to the 4-year grace period before it shall be subject to MCIT.
• BIR confirmed its entitlement.
• It filed a claim for refund erroneously paid as MCIT in 1999.
• Due to inaction, it filed a Petition for Review with the CTA who denied it since it is not a new corporation and has continued its registration with the SEC and BIR.

ISSUE: W/N Manila Bank is entitled to a 4-year grace period.

HELD: Yes. GRANT the petition.

• The intent of the Congress relative to the MCIT is to grant 4-year grace period so that newly formed corporate can stabilize itself in order to obtain a stronghold in the industry.  
• Rev. Reg. No. 4-95 clearly provides that the date of commencement of the operations of a thrift bank is the date that it was registered with the SEC or the date when the certificate of authority to operate was issued by the Monetary Board of the BSP, whichever comes later.
• Rev. Reg. No. 4-98, implementing RA 8424 imposing MCIT provides for purposes of this tax, date when business operations commence is the year which the company is registered with the BIR, thus in this case only on June 23, 1999

Jurisprudence: G.R. No. 184823 October 6, 2010

FIRST DIVISION

G.R. No. 184823               October 6, 2010

COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
AICHI FORGING COMPANY OF ASIA, INC., Respondent.

D E C I S I O N

DEL CASTILLO, J.:

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 non-observance of the prescriptive periods within which to file the administrative and the judicial claims would result in the denial of his claim.

This Petition for Review on Certiorari under Rule 45 of the Rules of Court seeks to set aside the July 30, 2008 Decision1 and the October 6, 2008 Resolution of the Court of Tax Appeals (CTA) En Banc.

Factual Antecedents

Respondent Aichi Forging Company of Asia, Inc., a corporation duly organized and existing under the laws of the Republic of the Philippines, is engaged in the manufacturing, producing, and processing of steel and its by-products. It is registered with the Bureau of Internal Revenue (BIR) as a Value-Added Tax (VAT) entity4 and its products, "close impression die steel forgings" and "tool and dies," are registered with the Board of Investments (BOI) as a pioneer status.

On September 30, 2004, respondent filed a claim for refund/credit of input VAT for the period July 1, 2002 to September 30, 2002 in the total amount of P3,891,123.82 with the petitioner Commissioner of Internal Revenue (CIR), through the Department of Finance (DOF) One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center.

Proceedings before the Second Division of the CTA

On even date, respondent filed a Petition for Review with the CTA for the refund/credit of the same input VAT. The case was docketed as CTA Case No. 7065 and was raffled to the Second Division of the CTA.

In the Petition for Review, respondent alleged that for the period July 1, 2002 to September 30, 2002, it generated and recorded zero-rated sales in the amount of P131,791,399.00, which was paid pursuant to Section 106(A) (2) (a) (1), (2) and (3) of the National Internal Revenue Code of 1997 (NIRC); that for the said period, it incurred and paid input VAT amounting to P3,912,088.14 from purchases and importation attributable to its zero-rated sales; and that in its application for refund/credit filed with the DOF One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center, it only claimed the amount of P3,891,123.82.

In response, petitioner filed his Answer12 raising the following special and affirmative defenses, to wit:

4. Petitioner’s alleged claim for refund is subject to administrative investigation by the Bureau;

5. Petitioner must prove that it paid VAT input taxes for the period in question;

6. Petitioner must prove that its sales are export sales contemplated under Sections 106(A) (2) (a), and 108(B) (1) of the Tax Code of 1997;

7. Petitioner must prove that the claim was filed within the two (2) year period prescribed in Section 229 of the Tax Code;

8. In an action for refund, the burden of proof is on the taxpayer to establish its right to refund, and failure to sustain the burden is fatal to the claim for refund; and

9. Claims for refund are construed strictly against the claimant for the same partake of the nature of exemption from taxation.

Trial ensued, after which, on January 4, 2008, the Second Division of the CTA rendered a Decision partially granting respondent’s claim for refund/credit. Pertinent portions of the Decision read:

For a VAT registered entity whose sales are zero-rated, to validly claim a refund, Section 112 (A) of the NIRC of 1997, as amended, provides:

SEC. 112. Refunds or Tax Credits of Input Tax. –

(A) Zero-rated or Effectively Zero-rated Sales. – Any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two (2) 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, except transitional input tax, to the extent that such input tax has not been applied against output tax: x x x

Pursuant to the above provision, petitioner must comply with the following requisites: (1) the taxpayer is engaged in sales which are zero-rated 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; and (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.

The Court finds that the first three requirements have been complied [with] by petitioner.

With regard to the first requisite, the evidence presented by petitioner, such as the Sales Invoices (Exhibits "II" to "II-262," "JJ" to "JJ-431," "KK" to "KK-394" and "LL") shows that it is engaged in sales which are zero-rated.

The second requisite has likewise been complied with. The Certificate of Registration with OCN 1RC0000148499 (Exhibit "C") with the BIR proves that petitioner is a registered VAT taxpayer.

In compliance with the third requisite, petitioner filed its administrative claim for refund on September 30, 2004 (Exhibit "N") and the present Petition for Review on September 30, 2004, both within the two (2) year prescriptive period from the close of the taxable quarter when the sales were made, which is from September 30, 2002.

As regards, the fourth requirement, the Court finds that there are some documents and claims of petitioner that are baseless and have not been satisfactorily substantiated.

x x x x

In sum, petitioner has sufficiently proved that it is entitled to a refund or issuance of a tax credit certificate representing unutilized excess input VAT payments for the period July 1, 2002 to September 30, 2002, which are attributable to its zero-rated sales for the same period, but in the reduced amount of P3,239,119.25, computed as follows:
Amount of Claimed Input VAT     P 3,891,123.82
Less:    
Exceptions as found by the ICPA     41,020.37
Net Creditable Input VAT     P 3,850,103.45
Less:    
Output VAT Due     610,984.20
Excess Creditable Input VAT     P 3,239,119.25

WHEREFORE, premises considered, the present Petition for Review is PARTIALLY GRANTED. Accordingly, respondent is hereby ORDERED TO REFUND OR ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner [in] the reduced amount of THREE MILLION TWO HUNDRED THIRTY NINE THOUSAND ONE HUNDRED NINETEEN AND 25/100 PESOS (P3,239,119.25), representing the unutilized input VAT incurred for the months of July to September 2002.

SO ORDERED

Dissatisfied with the above-quoted Decision, 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. He explained that the rationale of such requirement rests not only on the doctrine of exhaustion of administrative remedies but also on the fact that the CTA is an appellate body which exercises the power of judicial review over administrative actions of the BIR.

The Second Division of the CTA, however, denied petitioner’s Motion for Partial Reconsideration for lack of merit. Petitioner thus elevated the matter to the CTA En Banc via a Petition for Review.

Ruling of the CTA En Banc

On July 30, 2008, the CTA En Banc affirmed the Second Division’s Decision allowing the partial tax refund/credit in favor of respondent. However, as to the reckoning point for counting the two-year period, the CTA En Banc ruled:

Petitioner argues that the administrative and judicial claims were filed beyond the period allowed by law and hence, the honorable Court has no jurisdiction over the same. In addition, petitioner further contends that respondent's filing of the administrative and judicial [claims] effectively eliminates the authority of the honorable Court to exercise jurisdiction over the judicial claim.

We are not persuaded.

Section 114 of the 1997 NIRC, and We quote, to wit:

SEC. 114. Return and Payment of Value-added Tax. –

(A) In General. – Every person liable to pay the value-added tax imposed under this Title shall file a quarterly return of the amount of his gross sales or receipts within twenty-five (25) days following the close of each taxable quarter prescribed for each taxpayer: Provided, however, That VAT-registered persons shall pay the value-added tax on a monthly basis.

[x x x x ]

Based on the above-stated provision, a taxpayer has twenty five (25) days from the close of each taxable quarter within which to file a quarterly return of the amount of his gross sales or receipts. In the case at bar, the taxable quarter involved was for the period of July 1, 2002 to September 30, 2002. Applying Section 114 of the 1997 NIRC, respondent has until October 25, 2002 within which to file its quarterly return for its gross sales or receipts [with] which it complied when it filed its VAT Quarterly Return on October 20, 2002.

In relation to this, the reckoning of the two-year period provided under Section 229 of the 1997 NIRC should start from the payment of tax subject claim for refund. As stated above, respondent filed its VAT Return for the taxable third quarter of 2002 on October 20, 2002. Thus, respondent's administrative and judicial claims for refund filed on September 30, 2004 were filed on time because AICHI has until October 20, 2004 within which to file its claim for refund.

In addition, We do not agree with the petitioner's contention that the 1997 NIRC requires the previous filing of an administrative claim for refund prior to the judicial claim. This should not be the case as the law does not prohibit the simultaneous filing of the administrative and judicial claims for refund. What is controlling is that both claims for refund must be filed within the two-year prescriptive period.

In sum, the Court En Banc finds no cogent justification to disturb the findings and conclusion spelled out in the assailed January 4, 2008 Decision and March 13, 2008 Resolution of the CTA Second Division. What the instant petition seeks is for the Court En Banc to view and appreciate the evidence in their own perspective of things, which unfortunately had already been considered and passed upon.

WHEREFORE, the instant Petition for Review is hereby DENIED DUE COURSE and DISMISSED for lack of merit. Accordingly, the January 4, 2008 Decision and March 13, 2008 Resolution of the CTA Second Division in CTA Case No. 7065 entitled, "AICHI Forging Company of Asia, Inc. petitioner vs. Commissioner of Internal Revenue, respondent" are hereby AFFIRMED in toto.

SO ORDERED.

Petitioner sought reconsideration but the CTA En Banc denied23 his Motion for Reconsideration.

Issue

Hence, the present recourse where petitioner interposes the issue of whether respondent’s judicial and administrative claims for tax refund/credit were filed within the two-year prescriptive period provided in Sections 112(A) and 229 of the NIRC.

Petitioner’s Arguments

Petitioner maintains that respondent’s administrative and judicial claims for tax refund/credit were filed in violation of Sections 112(A) and 229 of the NIRC. He posits that pursuant to Article 13 of the Civil Code, 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.

Petitioner further argues that the CTA En Banc erred in applying Section 114(A) of the NIRC in determining the start of the two-year period as the said provision pertains to the compliance requirements in the payment of VAT.28 He asserts that it is Section 112, paragraph (A), of the same Code that should apply because it specifically provides for the period within which a claim for tax refund/ credit should be made.

Petitioner likewise puts in issue the fact that the administrative claim with the BIR and the judicial claim with the CTA were filed on the same day. He opines that 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.31 He insists that such procedural requirement is based on the doctrine of exhaustion of administrative remedies and the fact that the CTA is an appellate body exercising judicial review over administrative actions of the CIR.

Respondent’s Arguments

For its part, respondent claims that it is entitled to a refund/credit of its unutilized input VAT for the period July 1, 2002 to September 30, 2002 as a matter of right because it has substantially complied with all the requirements provided by law.33 Respondent likewise defends the CTA En Banc in applying Section 114(A) of the NIRC in computing the prescriptive period for the claim for tax refund/credit. Respondent believes that Section 112(A) of the NIRC must be read together with Section 114(A) of the same Code.

As to the alleged simultaneous filing of its administrative and judicial claims, respondent contends that it first filed an administrative claim with the One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center of the DOF before it filed a judicial claim with the CTA. To prove this, respondent points out that its Claimant Information Sheet No. 4970236 and BIR Form No. 1914 for the third quarter of 2002, which were filed with the DOF, were attached as Annexes "M" and "N," respectively, to the Petition for Review filed with the CTA. Respondent further 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 cites Commissioner of Internal Revenue v. Victorias Milling Co., Inc. where it was ruled that "[i]f, however, 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]." Lastly, respondent argues that even if the period had already lapsed, it may be suspended for reasons of equity considering that it is not a jurisdictional requirement.

Our Ruling

The petition has merit.

Unutilized input VAT must be claimed within two years after the close of the taxable quarter when the sales were made

In computing the two-year prescriptive period for claiming a refund/credit of unutilized input VAT, the Second Division of the CTA applied Section 112(A) of the NIRC, which states:

SEC. 112. Refunds or Tax Credits of Input Tax. –

(A) Zero-rated or Effectively Zero-rated Sales – Any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two (2) 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, except transitional input tax, to the extent that such input tax has not been applied against output tax: Provided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (B) and Section 108 (B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods or properties or services, and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions, it shall be allocated proportionately on the basis of the volume of sales. (Emphasis supplied.)

The CTA En Banc, on the other hand, took into consideration Sections 114 and 229 of the NIRC, which read:

SEC. 114. Return and Payment of Value-Added Tax. –

(A) In General. – Every person liable to pay the value-added tax imposed under this Title shall file a quarterly return of the amount of his gross sales or receipts within twenty-five (25) days following the close of each taxable quarter prescribed for each taxpayer: Provided, however, That VAT-registered persons shall pay the value-added tax on a monthly basis.

Any person, whose registration has been cancelled in accordance with Section 236, shall file a return and pay the tax due thereon within twenty-five (25) days from the date of cancellation of registration: Provided, That only one consolidated return shall be filed by the taxpayer for his principal place of business or head office and all branches.

x x x x

SEC. 229. Recovery of tax erroneously or illegally collected. –

No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty or sum has been paid under protest or duress.

In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid. (Emphasis supplied.)

Hence, the CTA En Banc ruled that the reckoning of the two-year period for filing a claim for refund/credit of unutilized input VAT should start from the date of payment of tax and not from the close of the taxable quarter when the sales were made.

The pivotal question of when to reckon the running of the two-year prescriptive period, however, has already been resolved in Commissioner of Internal Revenue v. Mirant Pagbilao Corporation, where we ruled that Section 112(A) of the NIRC is the applicable provision in determining the start of the two-year period for claiming a refund/credit of unutilized input VAT, and that Sections 204(C) and 229 of the NIRC are inapplicable as "both provisions apply only to instances of erroneous payment or illegal collection of internal revenue taxes." We explained that:

The above proviso [Section 112 (A) of the NIRC] clearly provides in no uncertain terms that unutilized input VAT payments not otherwise used for any internal revenue tax due the taxpayer must be claimed within two years reckoned from the close of the taxable quarter when the relevant sales were made pertaining to the input VAT regardless of whether said tax was paid or not. As the CA aptly puts it, albeit it erroneously applied the aforequoted Sec. 112 (A), "[P]rescriptive period commences from the close of the taxable quarter when the sales were made and not from the time the input VAT was paid nor from the time the official receipt was issued." Thus, when a zero-rated VAT taxpayer pays its input VAT a year after the pertinent transaction, said taxpayer only has a year to file a claim for refund or tax credit of the unutilized creditable input VAT. The reckoning frame would always be the end of the quarter when the pertinent sales or transaction was made, regardless when the input VAT was paid. Be that as it may, and given that the last creditable input VAT due for the period covering the progress billing of September 6, 1996 is the third quarter of 1996 ending on September 30, 1996, any claim for unutilized creditable input VAT refund or tax credit for said quarter prescribed two years after September 30, 1996 or, to be precise, on September 30, 1998. Consequently, MPC’s claim for refund or tax credit filed on December 10, 1999 had already prescribed.

Reckoning for prescriptive period under
Secs. 204(C) and 229 of the NIRC inapplicable

To be sure, MPC cannot avail itself of the provisions of either Sec. 204(C) or 229 of the NIRC which, for the purpose of refund, prescribes a different starting point for the two-year prescriptive limit for the filing of a claim therefor. Secs. 204(C) and 229 respectively provide:

Sec. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. – The Commissioner may –

x x x x

(c) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty: Provided, however, That a return filed showing an overpayment shall be considered as a written claim for credit or refund.

x x x x

Sec. 229. Recovery of Tax Erroneously or Illegally Collected. – No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, of any sum alleged to have been excessively or in any manner wrongfully collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress.

In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid.

Notably, the above provisions also set a two-year prescriptive period, reckoned from date of payment of the tax or penalty, for the filing of a claim of refund or tax credit. Notably too, both provisions apply only to instances of erroneous payment or illegal collection of internal revenue taxes.

MPC’s creditable input VAT not erroneously paid

For perspective, under Sec. 105 of the NIRC, creditable input VAT is an indirect tax which can be shifted or passed on to the buyer, transferee, or lessee of the goods, properties, or services of the taxpayer. The fact that the subsequent sale or transaction involves a wholly-tax exempt client, resulting in a zero-rated or effectively zero-rated transaction, does not, standing alone, deprive the taxpayer of its right to a refund for any unutilized creditable input VAT, albeit the erroneous, illegal, or wrongful payment angle does not enter the equation.

x x x x

Considering the foregoing discussion, it is clear that Sec. 112 (A) of the NIRC, providing a two-year prescriptive period reckoned from the close of the taxable quarter when the relevant sales or transactions were made pertaining to the creditable input VAT, applies to the instant case, and not to the other actions which refer to erroneous payment of taxes. (Emphasis supplied.)

In view of the foregoing, we find that the CTA En Banc erroneously applied Sections 114(A) and 229 of the NIRC in computing the two-year prescriptive period for claiming refund/credit of unutilized input VAT. To be clear, Section 112 of the NIRC is the pertinent provision for the refund/credit of input VAT. Thus, the two-year period should be reckoned from the close of the taxable quarter when the sales were made.

The administrative claim was timely filed

Bearing this in mind, we shall now proceed to determine whether the administrative claim was timely filed.

Relying on Article 13 of the Civil Code, which provides that a year is equivalent to 365 days, and taking into account the fact that the year 2004 was a leap year, petitioner submits that 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 29, 2004.

We do not agree.

In Commissioner of Internal Revenue v. Primetown Property Group, Inc., 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 following the legal maxim, Lex posteriori derogat priori. Thus:

Both Article 13 of the Civil Code and Section 31, Chapter VIII, Book I of the Administrative Code of 1987 deal with the same subject matter – the computation of legal periods. Under the Civil Code, a year is equivalent to 365 days whether it be a regular year or a leap year. Under the Administrative Code of 1987, however, a year is composed of 12 calendar months. Needless to state, under the Administrative Code of 1987, the number of days is irrelevant.

There obviously exists a manifest incompatibility in the manner of

computing legal periods under the Civil Code and the Administrative Code of 1987. For this reason, we hold that Section 31, Chapter VIII, Book I of the Administrative Code of 1987, being the more recent law, governs the computation of legal periods. Lex posteriori derogat priori.

Applying Section 31, Chapter VIII, Book I of the Administrative Code of 1987 to this case, the two-year prescriptive period (reckoned from the time respondent filed its final adjusted return on April 14, 1998) consisted of 24 calendar months, computed as follows:
Year 1 1st calendar month     April 15, 1998 to May 14, 1998
2nd calendar month     May 15, 1998 to June 14, 1998
3rd calendar month     June 15, 1998 to July 14, 1998
4th calendar month     July 15, 1998 to August 14, 1998
5th calendar month     August 15, 1998 to September 14, 1998
6th calendar month     September 15, 1998 to October 14, 1998
7th calendar month     October 15, 1998 to November 14, 1998
8th calendar month     November 15, 1998 to December 14, 1998
9th calendar month     December 15, 1998 to January 14, 1999
10th calendar month     January 15, 1999 to February 14, 1999
11th calendar month     February 15, 1999 to March 14, 1999
12th calendar month     March 15, 1999 to April 14, 1999
Year 2 13th calendar month     April 15, 1999 to May 14, 1999
14th calendar month     May 15, 1999 to June 14, 1999
15th calendar month     June 15, 1999 to July 14, 1999
16th calendar month     July 15, 1999 to August 14, 1999
17th calendar month     August 15, 1999 to September 14, 1999
18th calendar month     September 15, 1999 to October 14, 1999
19th calendar month     October 15, 1999 to November 14, 1999
20th calendar month     November 15, 1999 to December 14, 1999
21st calendar month     December 15, 1999 to January 14, 2000
22nd calendar month     January 15, 2000 to February 14, 2000
23rd calendar month     February 15, 2000 to March 14, 2000
24th calendar month     March 15, 2000 to April 14, 2000

We therefore hold that respondent's petition (filed on April 14, 2000) was filed on the last day of the 24th calendar month from the day respondent filed its final adjusted return. Hence, it was filed within the reglementary period.

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.

The filing of the judicial claim was premature

However, notwithstanding the timely filing of the administrative claim, we

are constrained to deny respondent’s claim for tax refund/credit for having been filed in violation of Section 112(D) of the NIRC, which provides that:

SEC. 112. Refunds or Tax Credits of Input Tax. –

x x x x

(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. – In proper cases, the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days from the date of submission of complete documents in support of the application filed in accordance with Subsections (A) and (B) hereof.

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals. (Emphasis supplied.)

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.

In this case, the administrative and the judicial claims were simultaneously filed on September 30, 2004. Obviously, respondent did not wait for the decision of the CIR or the lapse of the 120-day period. For this reason, we find the filing of the judicial claim with the CTA premature.

Respondent’s assertion that the non-observance of the 120-day period is not fatal to the filing of a judicial claim as long as both the administrative and the judicial claims are filed within the two-year prescriptive period52 has no legal basis.

There is nothing in Section 112 of the NIRC to support respondent’s view. Subsection (A) of the said provision 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. This is apparent in the first paragraph of subsection (D) of the same provision, which states that the CIR has "120 days from the submission of complete documents in support of the application filed in accordance with Subsections (A) and (B)" within which to decide on the claim.

In fact, applying the two-year period to judicial claims would render nugatory Section 112(D) of the NIRC, which already provides for a specific period within which a taxpayer should appeal the decision or inaction of the CIR. The second paragraph of Section 112(D) of the NIRC envisions two scenarios: (1) when a decision is issued by the CIR before the lapse of the 120-day period; and (2) when no decision is made after the 120-day period. In both instances, the taxpayer has 30 days within which to file an appeal with the CTA. As we see it then, the 120-day period is crucial in filing an appeal with the CTA.

With regard to Commissioner of Internal Revenue v. Victorias Milling, Co., Inc. relied upon by respondent, we find the same inapplicable as the tax provision involved in that case is Section 306, now Section 229 of the NIRC. And as already discussed, Section 229 does not apply to refunds/credits of input VAT, such as the instant case.

In fine, 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.

WHEREFORE, the Petition is hereby GRANTED. The assailed July 30, 2008 Decision and the October 6, 2008 Resolution of the Court of Tax Appeals are hereby REVERSED and SET ASIDE. The Court of Tax Appeals Second Division is DIRECTED to dismiss CTA Case No. 7065 for having been prematurely filed.

SO ORDERED.

Tax Case Digest: CIR v. Aichi Forging Company (2010)

FIRST DIVISION
CIR v. Aichi Forging Company (2010)
G.R. No. 184823  October 6, 2010
DEL CASTILLO, J.

Lessons Applicable: Legal Period: 1 year = 12 months, Exhaust Administrative Claim Before Judicial Claim, Lex Posterioni Derogati Priori

Laws Applicable:

FACTS:

• Aichi forging, a VAT entity filed a claim for refund of input  VAT for its zero-rated sales with the Dept. of Finance One-Stop Inter-Agency Tax Credit and Duty Drawback Center on Sept 30, 2004.
• On the same date, it filed a Petition for Review with the CTA. 
• CTA partially granted the refund by reducing the leaseless claims. 
• CIR filed a Motion for Reconsideration insisting that they were filed beyond the prescriptive period in accordance to Art. 13 that: 1 year = 365 days and that filing an administrative claim is a condition precedent before a judicial claim can be filed with the CTA.
• CTA and CTA En Banc denied petition.

ISSUE:
1. W/N the claim was filed with the prescriptive period of 2 year provided under Sec. 112 (A) NIRC
2. W/N filing an administrative claim is a condition precedent to a judicial claim for refund.

HELD:
1. Yes. Sec. 204 (c) and 229 are applied only in instances of erroneous payment and illegal collection.  Sec. 112 (A) of NIRC applies here.  Sec. 31 Chapter VIII Book I of the Administrative Code of 1987 being the more recent law governing legal period applies making 1 year = 12 months.  The principle of Lex Posterioni Derogati Priori applies.  Thus, since it is filed on exactly Sept. 30, 2004 filing is timely.

2. Yes. Sec. 112 (D) of the NIRC clearly provides that the CIR has 120 days from date of the submission of the complete documents in support of the application within which to grant or deny the claim.  In case of full or partial denial by the CIR, the recourse is to 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, the remedy is to appeal the inaction of the CIR to the CTA within 30 days.

Jurisprudence: G.R. No. 176165 June 15, 2011

SECOND DIVISION
CIR v. Mirant (2011)
G.R. No. 176165 June 15, 2011
MENDOZA, J.

These are two consolidated petitions for review on certiorari under Rule 45 of the Rules of Court.

In G.R. No. 171742, petitioner Commissioner of Internal Revenue (CIR) seeks the reversal of the January 17, 2006 Decision and March 9, 2006 Resolution of the Court of Tax Appeals (CTA) En Banc in CTA E.B. Case No. 123.

In G.R. No. 176165, petitioner Mirant (Philippines) Operations, Corporation (Mirant) seeks the reversal of the October 26, 2006 Decision and January 5, 2007 Resolution of the CTA En Banc in CTA E.B. Case No. 125.

THE FACTS
Petitioner is empowered to perform the lawful duties of his office including, among others, the duty to act on and approve claims for refund or tax credit as provided by law.

Respondent Mirant is a corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines, with principal office at Bo. Ibabang Pulo, Pagbilao Grande Island, Pagbilao, Quezon.

Mirant also operated under the names Southern Energy Asia-Pacific Operations (Phils.), Inc., CEPA Operations (Philippines) Corporation; CEPA Tileman Project Management Corporation; and Hopewell Tileman Project Management Corporation.

Mirant, duly licensed to do business in the Philippines, is primarily engaged in the design, construction, assembly, commissioning, operation, maintenance, rehabilitation and management of gas turbine and other power generating plants and related facilities using coal, distillate, and other fuel provided by and under contract with the Government of the Republic of the Philippines or any subdivision, instrumentality or agency thereof, or any government-owned or controlled corporations or other entities engaged in the development, supply or distribution of energy.

Mirant entered into Operating and Management Agreements with Mirant Pagbilao Corporation (formerly Southern Energy Quezon, Inc.) and Mirant Sual Corporation (formerly Southern Energy Pangasinan, Inc.) to provide these companies with maintenance and management services in connection with the operation, construction and commissioning of coal-fired power stations situated in Pagbilao, Quezon, and Sual, Pangasinan respectively.

On October 15, 1999, Mirant filed with the Bureau of Internal Revenue (BIR) its income tax return for the fiscal year ending June 30, 1999, declaring a net loss of P235,291,064.00 and unutilized tax credits of ₱32,263,388.00:

Gross Income

	P (64,438,434.00)
Less: Deductions	170,852,630.00
Net Loss	₱(235,291,064.00)
Income Tax Due	₱---
Less: Prior Years Excess Credits	4,714,516.00
Creditable Tax Withheld
First Three Quarters	21,702,771.00
Fourth Quarter	5,846,101.00
Tax Overpayment	₱32,263,388.00

On April 17, 2000, Mirant filed with the BIR an amended income tax return (ITR) for the fiscal year ending June 30, 1999, reporting an increased net loss amount of ₱379,324,340.00 but reporting the same unutilized tax credits of ₱32,263,388.00, which it opted to carry over as a tax credit to the succeeding taxable year, thus:

Gross Income	₱(113,113,036.00)
Less: Deductions	248,211,204.00
Net Loss	₱(379,324,240.00)
Income Tax Due	₱ ---
Less: Prior Years Excess Credits	4,714,516.00
Creditable Tax Withheld
First Three Quarters	21,702,771.00
Fourth Quarter	5,846,101.00
Tax Overpayment	₱32,263,388.00

To synchronize its accounting period with those of its affiliates, Mirant allegedly secured the approval of the BIR to change its accounting period from fiscal year (FY) to calendar year (CY) effective December 31, 1999. Thus, on April 17, 2000, Mirant filed its income tax return for the interim period July 1, 1999 to December 31, 1999, declaring a net loss in the amount of ₱381,874,076.00 and unutilized tax credits of ₱48,626,793.00:

Gross Income

	₱(320,895,462.00)
Less: Deductions	60,978,614.00
Net Loss	₱(381,874,076.00)
Income Tax Due	₱ ---
Less: Prior Years Excess Credits	32,263,388.00
Creditable Tax Withheld
First Three Quarters	16,363,405.00
Fourth Quarter	---
Tax Overpayment	₱48,626,793.00

Mirant indicated the excess amount of ₱48,626,793.00 as To be carried over as tax credit next year/quarter.

On April 10, 2001, it filed with the BIR its income tax return for the calendar year ending December 31, 2000, reflecting a net loss of ₱56,901,850.00 and unutilized tax credits of ₱87,345,116.00, computed as follows:

Gross Income

	P(4,080,541.00)
Less: Deductions	52,821,309.00
Net Loss	₱(56,901,850.00)
Income Tax Due	₱ ---
Less: Prior Years Excess Credits	48,626,793.00
Creditable Tax Withheld
First Three Quarters	25,336,971.00
Fourth Quarter	13,381,352.00
Tax Overpayment	₱87,345,116.00

On September 20, 2001, Mirant wrote the BIR a letter claiming a refund of ₱87,345,116.00 representing overpaid income tax for the FY ending June 30, 1999, the interim period covering July 1, 1999 to December 31, 1999, and CY ending December 31, 2000.

As the two-year prescriptive period for the filing of a judicial claim under Section 229 of the National Internal Revenue Code (NIRC) of 1997 was about to lapse without action on the part of the BIR, Mirant elevated its case to the CTA by way of Petition for Review on October 12, 2001. The case was docketed as CTA Case No. 6340.

The CTA First Division rendered judgment partially granting Mirants claim for refund in the reduced amount of ₱38,620,427.00, representing its duly substantiated unutilized creditable withholding taxes for taxable year 2000 out of the total claim of ₱38,718,323.00 therefor. It appears that the total claim was reduced by ₱97,896.00 for the following reasons: the amount of ₱92,996.00 was deducted because the CTA First Division found that it was not covered by the withholding tax certificate issued by Southern Energy Quezon, Inc. for the period October 1, 2000 to December 31, 2000. Moreover the additional amount of ₱4,900.00 was also deducted because based on the reconciliation schedule for the creditable taxes of ₱745,290.00 withheld by Southern Energy Quezon, Inc. for the period October 1, 2000 to December 31, 2000 on Mirants Philippine peso billings under Invoice No. 0015, the corresponding creditable taxes claimed by Mirant in its 2000 income tax return amounted to ₱750,190.00 which was higher by ₱4,900.00 than that reflected in the certificate.

Additionally, Mirants claim for the refund of its unutilized tax credits for the taxable year 1999 in the total amount of ₱48,626,793.00, was denied as it exercised the carry-over option with regard to the said unutilized tax credits, which is irrevocable pursuant to the provisions of Section 76 of the 1997 NIRC.

The dispositive portion of the assailed May 18, 2005 Decision of the CTA First Division reads:

IN VIEW OF ALL THE FOREGOING, the instant Petition for Review is hereby GRANTED but in a reduced amount of ₱38,620,427.00. Accordingly, respondent is ORDERED TO REFUND, or in the alternative, ISSUE A TAX CREDIT CERTIFICATE in favor of the petitioner in the amount of P38,620,427.00 representing unutilized creditable withholding taxes for taxable year 2000.

Both parties filed their respective motions for partial reconsideration of the above decision, but these were both denied for lack of merit in a Resolution dated September 22, 2005.

Both parties sought redress before the CTA En Banc in two separate petitions for review docketed as CTA EB Case No. 123 and CTA EB Case No. 125, respectively.

According to the CTA, although arising from the same case, CTA Case No. 6340, these two cases were not consolidated because CTA EB Case No. 125 was initially dismissed due to procedural infirmities.

In a Resolution dated April 28, 2006, however, acting on Mirants motion for reconsideration, the CTA En Banc recalled its earlier resolution and reinstated the case.[21] Eventually, the CTA En Banc in separate decisions, denied due course and dismissed the two cases. The CIR and Mirant filed their respective motions for reconsideration but both were denied. Thus, the CIR and Mirant filed their respective petitions for review with this Court, docketed as G.R. No. 171742 and G.R. No. 176165, respectively.

ISSUES

In G.R. No. 171742, the CIR raises the following issue:
WHETHER OR NOT THE COURT OF TAX APPEALS ERRED ON A QUESTION OF LAW IN HOLDING RESPONDENT ENTITLED TO A REFUND OR TAX CREDIT IN THE AMOUNT OF P38,620,427.00.

In G.R. No. 176165, Mirant raises the following issue:

WHETHER OR NOT PETITIONER IS ENTITLED TO A CLAIM FOR ADDITIONAL REFUND OR ISSUANCE OF A TAX CREDIT CERTIFICATE IN THE AMOUNT OF P48,626,793.00 REPRESENTING EXCESS CREDITABLE WITHHOLDING TAXES FOR THE FISCAL YEAR ENDED JUNE 30, 1999 AND THE INTERIM PERIOD FROM JULY 1, 1999 TO DECEMBER 31, 1999.

In essence, the issue is whether Mirant is entitled to a tax refund or to the issuance of a tax credit certificate and, if it is, then what is the amount to which it is entitled.

RULING OF THE COURT

The Court finds the assailed decisions and resolutions of the CTA En Banc in CTA E.B. Case Nos. 123 and 125 to be consistent with law and jurisprudence.

Once exercised, the option to carry over is irrevocable.

Section 76 of the National Internal Revenue Code (Presidential Decree No. 1158, as amended) provides:

SEC. 76. - Final Adjustment Return. - Every corporation liable to tax under Section 27 shall file a final adjustment return covering the total taxable income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable income of that year, the corporation shall either:

(A) Pay the balance of tax still due; or

(B) Carry-over the excess credit; or

(C) Be credited or refunded with the excess amount paid, as the case may be.

In case the corporation is entitled to a tax credit or refund of the excess estimated quarterly income taxes paid, the excess amount shown on its final adjustment return may be carried over and credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years. 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 cash refund or issuance of a tax credit certificate shall be allowed therefor. (Underscoring and emphasis supplied.)

The last sentence of Section 76 is clear in its mandate. Once a corporation exercises the option to carry-over and apply the excess quarterly income tax against the tax due for the taxable quarters of the succeeding taxable years, such option is irrevocable for that taxable period. Having chosen to carry-over the excess quarterly income tax, the corporation cannot thereafter choose to apply for a cash refund or for the issuance of a tax credit certificate for the amount representing such overpayment.

In the recent case of Commissioner of Internal Revenue v. PL Management International Philippines, Inc., the Court discussed the irrevocability rule of Section 76 in this wise:

The predecessor provision of Section 76 of the NIRC of 1997 is Section 79 of the NIRC of 1985, which provides:

 Section 79. Final Adjustment Return. Every corporation liable to tax under Section 24 shall file a final adjustment return covering the total net income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable net income of that year the corporation shall either:

(a)    Pay the excess tax still due; or

(b) Be refunded the excess amount paid, as the case may be.

In case the corporation is entitled to a refund of the excess estimated quarterly income taxes-paid, the refundable amount shown on its final adjustment return may be credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable year.

As can be seen, Congress added a sentence to Section 76 of the NIRC of 1997 in order to lay down the irrevocability rule, to wit:

xxx 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.

In Philam Asset Management, Inc. v. Commissioner of Internal Revenue, the Court expounds on the two alternative options of a corporate taxpayer whose total quarterly income tax payments exceed its tax liability, and on how the choice of one option precludes the other, viz:

The first option is relatively simple. Any tax on income that is paid in excess of the amount due the government may be refunded, provided that a taxpayer properly applies for the refund.

The second option works by applying the refundable amount, as shown on the FAR of a given taxable year, against the estimated quarterly income tax liabilities of the succeeding taxable year.

These two options under Section 76 are alternative in nature.  The choice of one precludes the other.  Indeed, in Philippine Bank of Communications v. Commissioner of Internal Revenue, the Court ruled that a corporation must signify its intention whether to request a tax refund or claim a tax credit by marking the corresponding option box provided in the FAR. While a taxpayer is required to mark its choice in the form provided by the BIR, this requirement is only for the purpose of facilitating tax collection.        

One cannot get a tax refund and a tax credit at the same time for the same excess income taxes paid. xxx

In Commissioner of Internal Revenue v. Bankof the Philippine Islands, the Court, citing the aforequoted pronouncement in Philam Asset Management, Inc., points out that Section 76 of the NIRC of 1997 is clear and unequivocal in providing that the carry-over option, once actually or constructively chosen by a corporate taxpayer, becomes irrevocable. The Court explains:

 Hence, the controlling factor for the operation of the irrevocability rule is that the taxpayer chose an option; and once it had already done so, it could no longer make another one. Consequently, after the taxpayer opts to carry-over its excess tax credit to the following taxable period, the question of whether or not it actually gets to apply said tax credit is irrelevant. Section 76 of the NIRC of 1997 is explicit in stating that once the option to carry over has been made, no application for tax refund or issuance of a tax credit certificate shall be allowed therefor.

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.

The Court of Appeals mistakenly understood the phrase for that taxable period as a prescriptive period for the irrevocability rule. This would mean that since the tax credit in this case was acquired in 1998, and BPI opted to carry it over to 1999, then the irrevocability of the option to carry over expired by the end of 1999, leaving BPI free to again take another option as regards its 1998 excess income tax credit. This construal effectively renders nugatory the irrevocability rule. The evident intent of the legislature, in adding the last sentence to Section 76 of the NIRC of 1997, is to keep the taxpayer from flip-flopping on its options, and avoid confusion and complication as regards said taxpayer's excess tax credit. The interpretation of the Court of Appeals only delays the flip-flopping to the end of each succeeding taxable period.

The Court similarly disagrees in the declaration of the Court of Appeals that to deny the claim for refund of BPI, because of the irrevocability rule, would be tantamount to unjust enrichment on the part of the government. The Court addressed the very same argument in Philam, where it elucidated that there would be no unjust enrichment in the event of denial of the claim for refund under such circumstances, because there would be no forfeiture of any amount in favor of the government. The amount being claimed as a refund would remain in the account of the taxpayer until utilized in succeeding taxable years, as provided in Section 76 of the NIRC of 1997. It is worthy to note that unlike the option for refund of excess income tax, which prescribes after two years from the filing of the FAR, there is no prescriptive period for the carrying over of the same. Therefore, the excess income tax credit of BPI, which it acquired in 1998 and opted to carry over, may be repeatedly carried over to succeeding taxable years, i.e., to 1999, 2000, 2001, and so on and so forth, until actually applied or credited to a tax liability of BPI.

Inasmuch as the respondent already opted to carry over its unutilized creditable withholding tax of P1,200,000.00 to taxable year 1998, the carry-over could no longer be converted into a claim for tax refund because of the irrevocability rule provided in Section 76 of the NIRC of 1997. Thereby, the respondent became barred from claiming the refund. [Underscoring supplied]

In this case, in its amended ITR for the year ended July 30, 1999 and for the interim period ended December 31, 1999,[28] Mirant clearly ticked the box signifying that the overpayment was To be carried over as tax credit next year/quarter. Item 31 of the Annual Income Tax Return Form (BIR Form No. 1702) also clearly indicated If overpayment, mark one box only. (once the choice is made, the same is irrevocable).

Applying the irrevocability rule in Section 76, Mirant having opted to carry over its tax overpayment for the fiscal year ending July 30, 1999 and for the interim period ending December 31, 1999, it is now barred from applying for the refund of the said amount or for the issuance of a tax credit certificate therefor, and for the unutilized tax credits carried over from the fiscal year ended June 30, 1998.

Mirant is entitled to the refund of its unutilized creditable withholding taxes for the taxable year 2000.

It is apt to restate here the time-honored doctrine that the findings and conclusions of the CTA are accorded the highest respect and will not be lightly set aside. The CTA, by the very nature of its functions, is dedicated exclusively to the resolution of tax problems and has accordingly developed an expertise on the subject unless there has been an abusive or improvident exercise of authority. Citing Barcelon, Roxas Securities, Inc. (now known as UBP Securities, Inc.) v. Commissioner of Internal Revenue, this Court in Toshiba Information Equipment (Phils.), Inc. v. Commissioner of Internal Revenue, explicitly pronounced

Jurisprudence has consistently shown that this Court accords the findings of fact by the CTA with the highest respect.  In Sea-Land Service Inc. v. Court of Appeals [G.R. No. 122605, 30 April 2001, 357 SCRA 441, 445-446], this Court recognizes that the Court of Tax Appeals, which by the very nature of its function is dedicated exclusively to the consideration of tax problems, has necessarily developed an expertise on the subject, and its conclusions will not be overturned unless there has been an abuse or improvident exercise of authority.  Such findings can only be disturbed on appeal if they are not supported by substantial evidence or there is a showing of gross error or abuse on the part of the Tax Court.  In the absence of any clear and convincing proof to the contrary, this Court must presume that the CTA rendered a decision which is valid in every respect.

In this case, having studied the applicable law and jurisprudence, the Court agrees with the conclusion of the CTA that Mirant complied with all the requirements for the refund of its unutilized creditable withholding taxes for taxable year 2000.

In Commissioner of Internal Revenue v. Far East Bank & Trust Company (now Bank of the Philippine Islands), the Court enumerated the requisites for claiming a tax credit or a refund of creditable withholding tax:

1) The claim must be filed with the CIR within the two-year period from the date of payment of the tax;
2) It must be shown on the return that the income received was declared as part of the gross income; and
3) The fact of withholding must be established by a copy of a statement duly issued by the payor to the payee showing the amount paid and the amount of the tax withheld.

First, Mirant clearly complied with the two-year period. This requirement is based on Section 229 of the NIRC of 1997 which provides:
SEC. 229. Recovery of Tax Erroneously or Illegally Collected. - No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress.

In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid. [Underscoring supplied]

Mirant filed its income tax return for the taxable year ending December 31, 2000 on April 10, 2001. Thus, from such date of filing, petitioner had until April 10, 2003 within which to file its claim for refund or for the issuance of a tax credit certificate in its favor.

Mirant filed its administrative claim with the BIR on September 20, 2001. It thereafter filed its Petition for Review with the CTA on October 12, 2001, or clearly within the prescribed two-year period.

Second, Mirant was also able to establish that the income, upon which the creditable withholding taxes were paid, was declared as part of its gross income in its ITR. As the CTA En Banc concluded:

As regards petitioner CIRs contention that respondent Mirant was not able to establish that the income upon which the creditable withholding taxes were paid was included in respondents Income Tax Returns, a perusal of the records reveals otherwise. The reported creditable taxes withheld of ₱38,718,323.00 were withheld from the services fees of ₱871,127,253.00 received by respondent from its affiliates, the Southern Energy Quezon, Inc. and the Southern Energy Pangasinan, Inc., pursuant to the Operating and Maintenance Service Agreements entered into by respondent Mirant with said entities (Exhibits HH, K, and K-1). The gross income figure of ₱871,127,253.00 is the very same amount declared by respondent in its income tax return for taxable year 2000 (Exhibits O-11 & O-12).

The CIR disagrees but merely alleges without any clear argument or basis that Mirant failed to prove that the income from which its creditable taxes were withheld were duly declared as part of its income in its annual ITR.

Thus, there being no cogent reason presented to reverse the findings and conclusions of the CTA, the Court affirms its finding that the income received was declared as part of the gross income, as shown in Mirants tax return.

Finally, Mirant was also able to establish the fact of withholding of the creditable withholding tax.

The CIR is of the opinion that Mirants non-presentation of the various payors or withholding agents to verify the Certificates of Creditable Tax Withheld at Source (CWTs), the registered books of accounts and the audited financial statements for the various periods covered to corroborate its other allegations, and its failure to offer other evidence to prove and corroborate the propriety of its claim for refund and failure to establish the fact of remittance of the alleged withheld taxes by various payors to the BIR, are all fatal to its claim.

Citing the CTA First Division, Mirant argues that since the CWTs were duly signed and prepared under pain of perjury, the figures appearing therein are presumed to be true and correct. The CWTs were presented and duly identified by its witness, Magdalena Marquez, and further verified by the duly commissioned independent CPA, Ruben R. Rubio, on separate hearing dates, before the CTA First Division. Moreover, these certificates were found by the duly commissioned independent CPA to be faithful reproductions of the originals, as stated in his supplementary report dated March 24, 2003.

The Court agrees with the conclusion of the CTA En Banc:

Contrary to petitioner CIRs contention, the fact of withholding was likewise established through respondents presentation of the Certificates of Creditable Tax Withheld At Source, duly issued to it by Southern Energy Pangasinan, Inc. and Southern Energy Quezon, Inc., for the year 2000 (Exhibits Y, Z, AA to FF). These certificates were found by the duly commissioned independent CPA to be faithful reproductions of the original copies, as per his Supplementary Report dated March 24, 2003 (Exhibit RR).

As to petitioner CIRs contention that the Report of the independent CPA dated February 21, 2003 shows several discrepancies, We sustain the findings of the First Division. On direct examination, Mr. Ruben Rubio, the duly commissioned independent CPA, testified and explained that the discrepancy was merely brought about by: (1) the difference in foreign exchange (forex) rates at the time the certificates were recorded by respondent Mirant and the forex rates used at the time the certificates were issued by its customers; and (2) the timing difference between the point when respondent Mirant recognized or accrued its income and the time when the corresponding creditable tax was withheld by its customers. x x x

x x x

As extensively discussed by the First Division:
The creditable withholding taxes of P40,600,971.79 reflected in the certificates were higher by P1,882,648.79 when compared with the creditable withholding taxes of P38,718,323.00 reported by petitioner in its income tax return for taxable year 2000 (Exhibit O-7). As stated by SGV & Co. in its report dated February 21, 2003 (Exhibit NN), tax credits were claimed by petitioner in its income tax return for taxable year 2000 prior to its receipt of the certificates from the withholding agents. At the time it recognized and accrued its income, petitioner also reported the related creditable withholding taxes, which was prior to the receipt of the certificates from the withholding agents. Hence, the discrepancy of P1,882,648.79 in creditable withholding taxes was mainly brought about by the difference between the foreign exchange (forex) rates used at the time when petitioner recorded its income and the related tax credits and the forex rates used by the withholding agents at the time when income payments were made to petitioner in reporting its tax credits, the same do not have a bearing on petitioners total claim because the resulting increase in the amounts of creditable withholding taxes reflected in the certificates were not declared by the petitioner in its income tax return for the said year. However, for the creditable taxes withheld by Southern Energy Quezon, Inc. for the period October 1, 2000 to December 31, 2000 totalling P7,670,746.00 (which formed part of the creditable withholding taxes of P8,834,280.11 shown in the certificate marked as Exhibit EE), the same were based on forex rates which were lower than those used by petitioner in recognizing the tax credits of P7,763,742.00 for the same transactions. In other words, petitioners claimed unutilized tax credits of P92,996.00 (P7,763,742.00 less P7,670,746.00) were not covered by the withholding tax certificate issued by Southern Energy, Quezon Inc. for the period October 1, 2000 to December 31, 2000 and should therefore be deducted from the total claim of P38,718,323.00 Below is the breakdown of the amount of P92,996.00:

			Creditable Withholding Taxes		Overclaimed Tax Credits
Exhibits	Period Covered	Withholding Agent	Per Certificate (a)	Per ITR (b)	(b) (a)
EE, QQ	10/01/00 12/31/00	Southern Energy Quezon, Inc.	P4,298,892.00	₱4,350,327.00	P51,435.00
			3,371,854.00	3,413,415.00	41,561.00
			P7,670,746.00	P7,763,742.00	P92,996.00

The reconciliation schedule also shows that for the creditable taxes of P745,290.00 withheld by Southern Energy Quezon Inc. for the period October 1, 2000 to December 31, 2000 on petitioners Philippine peso billings under Invoice No. 0015, the corresponding creditable taxes claimed by petitioner in its 2000 income tax return amounted to P750,190.00 which were higher by P4,900.00 than those reflected in the certificate. Accordingly, the amount of P4,900.00 shall be deducted from petitioners total claim.

In fine, this Court finds that of the total unutilized credits of P38,718, 323.00 declared by petitioner in its 2000 income tax return, only the amount of P38,620,427.00 (P38,718,323.00 less P92,996.00) was duly substantiated by withholding tax certificates.

Therefore, as the CTA ruled, Mirant complied with all the legal requirements and it is entitled, as it opted, to a refund of its excess creditable withholding tax for the taxable year 2000 in the amount of ₱38,620,427.00.

The Court finds no abusive or improvident exercise of authority on the part of the CTA. Since there is no showing of gross error or abuse on the part of the CTA, and its findings are supported by substantial evidence, there is no cogent reason to disturb its findings and conclusions.

WHEREFORE, the petitions in G.R. No. 171742 and G.R. No. 176165 are DENIED.

SO ORDERED.