Haystack: ACCRA Investments Corporation vs. Court of Appeals (GR 96322, 20 December 1991)

ACCRA Investments Corporation vs. Court of Appeals (GR 96322, 20 December 1991)
Third Division, Gutierrez Jr. (J): 4 concur

Facts: ACCRA Investment Corporation is a domestic corporation engaged in the business of real estate investment and management consultancy. On 15 April 1982, the corporation filed with the Bureau of Internal Revenue (BIR) its annual corporate income tax return for the calendar year ending 31 December 1981 reporting a net loss of P2,957,142.00. In the said return, the corporation declared as creditable all taxes withheld at source by various withholding agents (the Malayan Insurance Co., the Angara Concepcion Regala & Cruz Law Offices, MJ Development Corp. andPhilippine Global Communications Inc., totaling P82,751.91. The withholding agents paid and remitted amounts representing taxes on rental, commission and consultancy income of the corporation to the BIR from February to December 1981. In a letter dated 29 December 1983 addressed to the Commissioner of Internal Revenue, the corporation filed a claim for refund inasmuch as it had no tax liability against which to credit the amounts withheld.

Pending action of the Commissioner on its claim for refund, the corporation, on 13 April 1984, filed a petition for review with the Court of Tax Appeals (CTA) asking for the refund of the amounts withheld as overpaid income taxes. On 27 January 1988, the CTA dismissed the petition for review after a finding that the two-year period within which the corporation’s claim for refund should have been filed had already prescribed pursuant to Section 292 of the National Internal Revenue Code (NIRC) of 1977, as amended. Acting on the corporation’s motion for reconsideration, the CTA in its resolution dated 27 September 1988 denied the same for having been filed out of time.

On 14 January 1989, the corporation filed with the Supreme Court its petition for review, which the Court referred to the appellate court in the Court’s resolution dated 15 February 1990 for proper determination and disposition. On 28 May 1990, the appellate court affirmed the decision of the CTA opining that the two-year prescriptive period in question commences “from the date of payment of the tax” as provided under Section 292 of the Tax Code of 1977 (now Sec. 230 of the NIRC of 1986), i.e., “from the end of the tax year when a taxpayer is deemed to have paid all taxes withheld at source”, and not “from the date of the filing of the income tax return” as posited by the corporation. Its motion for reconsideration with the appellate court having been denied in a resolution dated 20 November 1990, the corporation elevated this case to the Supreme Court.

The Supreme Court granted the petition, reversed and set aside the 28 May 1990 decision and 20 November 1990 resolution of the Court of Appeals, and directed the Commissioner of Internal Revenue to refund to the corporation the amount of P82,751.91.

1. Section 230 NIRC; Recovery of tax erroneously or illegally collected
Section 230 of the Tax Code provides that “ 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 excessive 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 begin after the expiration of two 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 to have been erroneously paid.” (Emphasis Supplied).

2. Ruling in Gibbs v. Commissioner of Internal Revenue (155 SCRA 318 [1965])
Payment is a mode of extinguishing obligations (Art. 1231, Civil Code) and it means not only the delivery of money but also the performance, in any other manner, of an obligation (Id., Art 1231). A taxpayer, resident or non-resident, does so not really to deposit an amount to the Commissioner of Internal Revenue, but, in truth, to perform and extinguish his tax obligation for the year concerned. In other words, he is paying his tax liabilities for that year. Consequently, a taxpayer whose income is withheld at source will be deemed to have paid his tax liability when the same falls due at the end of the tax year. It is from this latter date then, or when the tax liability falls due, that the two-year prescriptive period under Section 306 (now part of Section 230) of the Revenue Code starts to run with respect to payments effected through the withholding tax system.

3. Present case: Alternative reckoning dates and Nature of refund claim
The Gibbs ruling presents two alternative reckoning dates, i.e., (1) the end of the tax year; and (2) when the tax liability falls due. Herein, the corporation’s withholding agents had paid the corresponding taxes withheld at source to the BIR from February to December 1981. In having applied the first alternative date — “the end of the tax year” in order to determine whether the corporation’s claim for refund had been seasonably filed, the appellate court failed to appreciate properly the attending circumstances of the case. The corporation is not claiming a refund of overpaid withholding taxes, per se. It is asking for the recovery of the sum of P82,751.91.00, the refundable or creditable amount determined upon the petitioner corporation’s filing of the its final adjustment tax return on or before 15 April 1982 when its tax liability for the year 1981 fell due. The distinction is essential in the resolution of this case for it spells the difference between being barred by prescription and entitlement to a refund.

4. Section 49 of 1986 NIRC; Payment and assessment of income tax for individuals and corporations
Under Section 49 of the National Internal Revenue Code of 1986, as amended, it is explicitly provided that “(a) Payment of tax — (1) In general. — The total amount of tax imposed by this Title shall be paid by the person subject thereto at the time the return is filed . . .”

5. Section 70 (b) of 1986 NIRC; Time of filing the income return
Section 70, subparagraph (b) of the Tax Code states when the income tax return with respect to taxpayers like the petitioner corporation must be filed. It provides that “The corporate quarterly declaration shall be filed within sixty (60) days following the close of each of the first three quarters of the taxable year. The final adjustment return shall be filed on or before the 15th day of the 4th month following the close of the fiscal year, as the case may be.”

6. Present case: Corporation complied with filing of final adjustment return
The corporation’s taxable year is on a calendar year basis, hence, with respect to the 1981 taxable year, ACCRAIN had until 15 April 1982 within which to file its final adjustment return. The corporation duly complied with this requirement. On the basis of the corporate income tax return which ACCRAIN filed on 15 April 1982, it reported a net loss of P2,957,142.00. Consequently, as reflected thereon, the petitioner corporation, after due computation, had no tax liability for the year 1981. Had there been any, payment thereof would have been due at the time the return was filed pursuant to subparagraph (c) of Section 70 of the NIRC.

7. Section 70 (c) of 1986 NIRC; Time payment of the income tax
Section 70, subparagraph (c) of the Tax Code provides that “The income tax due on the corporate quarterly returns and the final income tax returns computed in accordance with Section 68 and 69 shall be paid at the time the declaration or return is filed as prescribed by the Commissioner of Internal Revenue.”

8. Section 8 of BIR Revenue Regulation 13-78; Claims for tax credit or refund
Anent claims for refund, section 8 of Revenue Regulation No. 13-78 issued by the Bureau of Internal Revenue requires that “Claims for tax credit or refund of income tax deducted and withheld on income payments shall be given due course only when it is shown on the return that the income payment received was declared as part of the gross income and the fact of withholding is established by a copy of the statement duly issued by the payor to the payee (BIR Form No. 1 743-A) showing the amount paid and the amount of tax withheld therefrom.”

9. Section 69 of 1986 NIRC; Final Adjustment Return
The term “return,” in the case of domestic corporation like ACCRAIN, refers to the final adjustment return as mentioned in Section 69 of the Tax Code of 1986, as amended, which partly reads “Every corporation liable to tax under Section 24 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 excess tax still due; or (b) Be refunded the excess amount paid, as the case may be.”

10. Need to file a return before a claim for refund
There is the need to file a return first before a claim for refund can prosper inasmuch as the Commissioner by his own rules and regulations mandates that the corporate taxpayer opting to ask for a refund must show in its final adjustment return the income it received from all sources and the amount of withholding taxes remitted by its withholding agents to the Bureau of Internal Revenue.

11. Reckoning date for two-year prescriptive period; CIR vs. Asia Australia Express Ltd.
In the Supreme Court Resolution dated 10 April 1989 in the case of Commissioner of Internal Revenue v. Asia Australia Express, Ltd. (G.R. No. 85956), the Supreme Court ruled that the two-year prescriptive period within which to claim a refund commences to run, at the earliest, on the date of the filing of the adjusted final tax return. Hence, the corporation had until April 15, 1984 within which to file its claim for refund.

12. Rationale in computing the 2-year prescriptive period
The rationale in computing the two-year prescriptive period with respect to the corporation’s claim for refund from the time it filed its final adjustment return is the fact that it was only then that the corporation could ascertain whether it made profits or incurred losses in its business operations. The “date of payment”, therefore, was when its tax liability, if any, fell due upon its filing of its final adjustment return.