Koppel (Phils.) Inc. vs. Collector of Internal Revenue (GR L-10550, 19 September 1961)
En Banc, Paredes (J): 9 concur, 1 took no part.
Facts: Koppel (Philippines) Inc., is a domestic corporation of American capital duly organized and existing by virtue of the Philippine laws. During the year 1942 to the early part of 1945, the Company sustained losses arising from the occupation of the Philippines by the Japanese Military forces from 1941 to the battle of liberation in 1945. On 27 March 1942, the U.S. Congress passed Public Law 506 (War Damage Insurance Act) to cover insurance of all properties in the Philippines which might be damaged, destroyed or lost due to the operations of war. The Company, relying on the provisions of this legislation, entered in its books as “accounts receivable” from the U.S. Government the entire value of its properties damaged, destroyed and lost during World War II. On 30 April 1946, the U.S. Congress enacted Public Law 370 (Philippine Rehabilitation Act of 1946), which provided that the Philippine War Damage Commission supersedes the War Damage Commission.
[Prior Case: GR L-6701] On 15 January 1947, the U.S.-Philippine War Damage Commission, the agency entrusted with the enforcement of said Public Law 370, issued a notice to the effect that 25 February 1947, was the date agreed upon as the initial date for the issuance of forms for the claimants of war damages and the claims could not be filed until after 1 March 1947. In 1947, the Company came to know that its losses equivalent to 25% or P256,054.88 could not be recovered, for which reason Company could not claim deduction for said losses in its 1945 and 1946 income tax returns. Company, therefore, in its book of accounts for the year 1947, wrote off as “bad debts”, the said amount of P256,054.88. On 6 June 1949, the Collector of Internal Revenue, assessed against the Company’s income tax for 1947, the sum of P34,636.21, corresponding to the amount of P256,054.88 as war losses sustained and ascertained to be unrecoverable in 1946. On 29 June 1949, the Company paid under protest with the BIR the amount of P34,636.21 as alleged deficiency income tax due, based on the disallowed deduction of P256,054.88. The Company repeatedly sought from the Collector a reconsideration of the assessment and the refund of the amount of P34,636.21 later reduced to P30,726.21, on the ground that said assessment was illegal. The then Secretary of Finance, Pio Pedrosa, on 11 September 1951, sustained Company’s stand and that of other taxpayers similarly situated, setting rules to be followed. The Collector issued General Circular V-123 addressed to all Internal Revenue officers and income tax examiners to apply the rules in the investigation of income tax returns involving war damage losses. On 21 September 1951, the Company reiterated its demand for the refund of the amount of P30,726.53. The Company, on 28 July 1953, received a communication denying the refund of the amount, on the ground that the ruling of Finance Secretary Pedrosa had already been revoked by his successor, Secretary of Finance Aurelio Montinola.
On 27 August 1953, the Company filed a petition for review with the then Board of Tax Appeals (BTA Case 157), praying that the Collector be ordered to refund to the Company the sum of P30,726.53, to which on 5 September 1953 the Collector answered, praying for the dismissal of the case. The case was submitted for decision after the parties had filed their respective memoranda. Notwithstanding the lapse of 60 days from the filing of the petition for review, the Board of Tax Appeals, had not rendered any decision. On 4 November 1953, Company gave notice of intention to file an appeal, pursuant to section 21 of Executive Order 401-A. On 13 November 1953, the Company received a copy of the decision of the Board of Tax Appeals dated 26 October 1953, confirming the order of the Collector, in denying the refund requested by the Company. A petition for review was presented before the Supreme Court (GR L-5701). The Supreme Court, on 29 April 1954, dismissed the Company’s appeal in said case “without prejudice, following the decision in University of Sto. Tomas vs. Board of Tax Appeals, G.R. No. L-6701”.
[Present Case: GR 10550] On 18 May 1954, Company filed a complaint with the Manila Court of First Instance (Civil Case 22893), praying that the Collector be ordered to refund to the Company the sum of P30,726.53. Upon motion of the Solicitor General, the Manila CFI remanded the case to the Court of Tax Appeals, pursuant to section 22 of RA 1125, in which Court, on 14 December 1955, the parties submitted a stipulation of facts. On 5 March 1956, the Court of Tax Appeals rendered a decision, declaring that it had no jurisdiction over the dispute, on the ground that Company’s cause of action to seek the refund of P30,726.53, had already prescribed under section 306 of the National Internal Revenue Code. The Tax Court also sustained the order of the Collector, denying the refund of P30,726.53, under section 30 par. (d), sub-par. (2) and sec. 30 par. (e) sub-par. (1), of the said revenue Code. The Company appealed.
The Supreme Court dismissed the appeal, with costs.
1. Section 102 of Public Law 370
Section 102 of Public Law 370 states: “Provided further, that in case the aggregate amount of the claims which would be payable to anyone claimant under the foregoing provisions exceeds $500, the aggregate amount of the claims approved in favor of such claimant shall be reduced by 25 per centum of the excess over $500.”
2. Section 306 NIRC
Section 306 of the National Internal Revenue 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 Collector of Internal Revenue; 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 begun after the expiration of two years from the date of payment of the tax or penalty.”
3. Section 306 NIRC construed; Kiener Co. vs. David
In the case of Kiener Co. Ltd. vs. S. David, the Court declared that “To this end, and bearing in mind that the Legislature is presumed to have understood the language it used to have acted with full idea of what it wanted to accomplish, it is fair and reasonable to say, without doing violence to the context of either of the two provisions, that by the first is meant simply that the Collector of Internal Revenue shall be given an opportunity to consider his mistake, if mistake has been committed, before he is sued but not, as the appellant contends, that pending consideration of the claim, the period of the two years provided in the last clause shall be deemed interrupted. Nowhere and in no wise does the law imply that the Collector of Internal Revenue must act upon the claim, or that the taxpayer shall not go to court before he is notified of the Collector’s action. Having filed his claim and the Collector of Internal Revenue having had ample time to study it, the claimant may, indeed should, without the statutory period of two years proceed with his suit without waiting for the Collector’s decision. We understand the filing of the claim with the Collector of Internal Revenue to be intended primarily as a notice or warning that, unless the tax or penalty alleged to have been collected erroneously or illegally is refunded, court action will follow. Previous and timely notice is, in other cases and for diverse salutary reasons, made a prerequisite to the prosecution of contemplated proceedings without imposing on the party to whom the notice was sent any obligation to make any move.”
4. Present case: Company did not act within 2 years of payment, waited decision made after 4 years from payment
The two years within which to file an action in court for the recovery of the tax in the present case expired on 29 June 1951. Within the said period, the Company failed to file an action for refund either in the Court of First Instance or the Board of Tax Appeals, immediately after the creation of the Board under Executive Order 401-A promulgated on 5 January 1951. The Company just waited for the decision of the Collector in its claim for refund, which was handed down on 28 July 1953, after more than 4 years from payment. It is clearly ruled in the Kiener case that the Company should not have folded his arms and wait for the decision, knowing, that the “time for bringing an action for a refund of income tax, fixed by statute, is not extended by the delay of the Collector of Internal Revenue in giving notice of the rejection of such claim. There was an assessment; the Company paid; the Company asked for refund; it was denied; a motion for reconsideration was presented and no resolution was forthcoming from the Collector. Aware of the provisions of the law, it was the duty of the Company to have urged the Collector for his decision and wake him up from his lethargy or file his action within the time prescribed by law.
5. Laches; State not estopped by errors and mistakes of its agents
The court should not give a premium to a litigant who sleeps on his rights. The lawyers of the Company may not come now and invoke estoppel when they have been in laches themselves. The government is never estopped by error or mistake on the part of its agents (Pineda, et al. v. CFI and Coll. of Int. Rev., 52 Phil., 803).
6. Reservation of the Supreme Court in GRL-5701 construed; Applicability of the Kiener case
The reservation made by the Supreme Court in the case L-5701 should not be interpreted as permitting the Company to file another case under all circumstances, but as the facts and circumstances might warrant under the law. The ruling in the Kiener case is still a sound one, and should be, as it is applied, as a matter of public policy, in the enforcement of tax laws.
