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Section 230 [now Sec. 229, 1997 NIRC] of the Tax Code, as couched,
particularly its statute of limitations component, is, in context, intended to
apply to suits for the recovery of internal revenue taxes or sums
erroneously, excessively, illegally or wrongfully collected. Black defines the
term
erroneous or illegal tax as one levied without statutory authority. In the
strict legal viewpoint, therefore, PNBs claim for tax credit did not
proceed from, or is a consequence of overpayment of tax erroneously
or illegally collected. It is beyond cavil that respondent PNB issued to the
BIR the check for P180 Million in the concept of tax payment in advance,
thus eschewing the notion that there was error or illegality in the payment.
Even if the two (2)-year prescriptive period, if applicable, had already
lapsed, the same is not jurisdictional and may be suspended for reasons of
equity and other special circumstances. Records show that the BIRs very
own conduct led PNB to believe all along that its original intention to apply
the advance payment to its future income tax obligations will be respected
by the BIR.
FACTS:
Smart Communications, Inc. (Smart) entered into 3 agreements with Prism
Transactive (M) Sdn. Bhd. (Prism), a non-resident Malaysian corporation,
under which Prism would provide programming and consultancy services
for the installation of the Service Download Manager (SDM Agreement) and
the Channel Manager (CM Agreement), and for the installation and
implementation of Smart Money and Mobile Banking Service SIM
Applications and Private Text Platform (SIM Application Agreement). Prism
billed Smart US$547,822.45. Thinking that the amount constituted
royalties, Smart withheld from its payments to Prism the amount
ofUS$136,955.61 or P7,008,840.43, representing the 25% royalty tax under
the RP-Malaysia Tax Treaty. Within the 2-year period to claim a refund,
Smart filed an administrative claim with the Bureau of Internal Revenue
(BIR) for the refund of the withheld amount (P7,008,840.43). When the
Commissioner of Internal Revenue (CIR) failed to act on its claim, Smart
filed a Petition for Review with the Court of Tax Appeals (CTA). Smart
averred that its payments to Prism were not royalties but business profits,
as defined in the RP-Malaysian Tax Treaty, which were not taxable because
Prism did not have a permanent establishment in the Philippines. The CIR
countered that Smart, as a withholding agent was not a party-in-interest to
file the claim for refund, and even if it were the proper party,there was no
showing that the payments to Prism constituted business profits. The
CTAs Second Division sustained Smarts right to file the claim for refund,
citing the cases ofCommissioner of Internal Revenue vs. Wander
Philippines, Inc. [243 Phil. 717 (1988)], Commissioner of Internal Revenue
vs. Procter & Gamble Philippine Manufacturing Corporation (G.R. No.
66838, 2 December 1991, 204 SCRA 377) and Commissioner of Internal
Revenue vs. The Court of Tax Appeals [G.R. No. 93901, 11 February 1992
(Minute Resolution)]. However, it granted only the refund of the withholding
tax on Smarts payment for the SDM Agreement (P3,989,456.43) because
only the payment for the SDM Agreement constituted royalty which was
subject to withholding tax. The court considered the payments for the CM
and SIM Application agreements as business profits which were not
subject to tax under the RP-Malaysia Tax Treaty. On appeal, the CTA En
Banc affirmed its Second Divisions ruling. The CIR, thus, brought the case
to the Supreme Court for review, arguing that the cases cited by the CTA in
upholding Smarts right to claim the refund, were inapplicable because the
withholding agents therein were wholly owned subsidiaries of the
taxpayers, unlike in this case where the withholding agent was unrelated to
the taxpayer. The CIR maintained that the proper party to file the refund
was the taxpayer, Prism, citing the case of Silkair (Singapore) Pte, Ltd. vs.
Commissioner of Internal Revenue (G.R. No. 173594, 6 February 2008, 544
SCRA 100). The CIR further argued that assuming Smart was the proper
party to file the claim, it was still not entitled to any refund because its
payments to Prism were taxable as royalties, having been made in
consideration for the use of the programs owned by Prism.
ISSUE:
Whether or not Smart had the right to file the claim for refund
RULING:
Smart, as withholding agent, may file the claim for refund. The person
entitled to claim a tax refund is the taxpayer [Sections 204(c) and 229 of the
National Internal Revenue Code (NIRC)]. However, in case the taxpayer
does not file a claim for refund, the withholding agent may file the claim.
Thus, in Commissioner of Internal Revenue v. Procter & Gamble Philippine
Manufacturing Corporation (G.R. No. 66838, December 2, 1991, 204 SCRA
377), a withholding agent was considered a proper party to file a claim for
refund of the withheld taxes of its foreign parent company. The CIR was
incorrect in saying that this ruling applies only when the withholding agent
and the taxpayer are related parties, i.e., where the withholding agent is a
wholly owned subsidiary of the taxpayer. Although such relation between
the taxpayer and the withholding agent is a factor that increases the latters
legal interest to file a claim for refund, there is nothing in the decision in
said case to suggest that such relationship is required or that the lack of
such relation deprives the withholding agent of the right to file a claim for
refund. Rather, what is clear in the decision is that a withholding agent has
a legal right to file a claim for refund for two reasons. First, he is
considered a taxpayer under the NIRC as he is personally liable for the
withholding tax as well as for deficiency assessments, surcharges, and
penalties, should the amount of the tax withheld be finally found to be less
than the amount that should have been withheld under law. Second, as an
agent of the taxpayer, his authority to file the necessary income tax return
and to remit the tax withheld to the government impliedly includes the
authority to file a claim for refund and to bring an action for recovery of
such claim. Silkair (Singapore) Pte, Ltd. vs. Commissioner of Internal
Revenue (supra), cited by the CIR, was inapplicable as it involved excise
taxes, not withholding taxes. In that case, it was ruled that the proper party
to question, or seek a refund of, an indirect tax is the statutory taxpayer,
the person on whom the tax is imposed by law and who paid the same even
if he shifts the burden thereof to another. As an agent of the taxpayer, it is
the duty of the withholding agent to return to the principal taxpayer what
he has recovered. Otherwise, he would be unjustly enriching himself at the
expense of the principal taxpayer from whom the taxes were withheld, and
from whom he derives his legal right to file a claim for refund.
United Airlines vs. CIR (September 29, 2010)
Facts:
International airline, petitioner United Airlines, filed a claim for income tax
refund. Petitioner sought to be refunded the erroneously collected income
tax from in the amount of P5,028,813.23 on passenger revenue from tickets
sold in the Philippines, the uplifts of which did not originate in the
Philippines. The airlines ceased operation originating form the Philippines
since February 21, 1998.
Court of tAx appeals ruled the petitioner is not entitled to a refund because
under the NIRC, income tax on GPB also includes gross revenue from
carriage of cargoes from the Philippines. And upon assessment by the CTA,
it was found out that petitioner deducted items from its cargo revenues
which should have entitled the government to an amount of P 31.43 million,
which is obviously higher than the amount the petitioner prayed to be
refunded.
Issue:
Whether or not petitioner is entitled to a refund?
HELD:
Petitioners (similar) tax refund claim assumes that the tax return that it
filed was correct. Given, however, the finding of the CTA that petitioner,
although not liable under Sec. 28(A)(3)(a) of the 1997 NIRC, is liable under
Sec. 28(A)(1), the correctness of the return filed by petitioner is now put in
doubt. As such, we(the court) cannot grant the prayer for a refund.
The court held that the petitioner is not entitled to a refund, Having
underpaid the GPB tax due on its cargo revenues for 1999, the amount of
the former being even much higher (P31.43 million) than the tax refund
sought (P5.2 million).
Held: Yes. The main thrust of their petition is that the issuance of a warrant
distraint and levy is proof of the finality of an assessment because it is the
most drastic action of all media of enforcing the collection of tax, and is
tantamount to an outright denial of a motion for reconsideration of an
assessment. Among others, petitioners contends that the warrant of
distraint and levy was issued after respondent corporation filed a request
for reconsideration of subject assessment, thus constituting petitioners
final decision in the disputed assessment.
City of Makati vs. CIR (CTA Case No. 641, September 2, 2011)
Judy Ann L. Santos vs. People and BIR (August 26, 2008)
FACTS:
The case began when then CIR Guillermo L. Parayno Jr. recommended the
criminal prosecution of Juday to Justice Secretary Raul M. Gonzales for
substantial underdeclaration of income.
Consequently, an Information charging Juday for violation of Section 255 in
relation to Sections 254 and 248 (B) of the Tax Code was filed with the CTA.
Juday then filed a Motion to Quash the Information which the CTA denied.
Similarly, Judays reconsideration was also denied by the CTAs First
Division. Juday then filed with the CTA en banc, a Motion for Extension of
Time to File Petition for Review to appeal the denial of the abovementioned
Motion to Quash. In the meantime, while Juday was able to file her Petition
for Review with the CTA en banc on June 16, 2006, the CTA en banc denied
on June 19, 2006 the Motion for Extension of time to file Petition for Review
previously filed by Juday. Aggrieved, Juday sought redress from the
Supreme Court asserting that the resolution of the CTA Division denying a
motion to quash is appealable to the CTA en banc pursuant to Section 18 of
Republic Act No. 1125, as amended. Juday alleged that if that is not the
case, a procedural void would be created, leaving the parties without any
remedy involving erroneous resolutions of the CTA Division.
ISSUE:
Is the filing of a Petition for Review with the CTA En Banc the proper
remedy for a party aggrieved by an interlocutory order of a Division of the
CTA?
RULING:
The SC ruled that the petition for review to be filed with the CTA en banc
as the mode for appealing a decision, resolution, or order of the CTA
Division, under Section 18 of Republic Act No. 1125, as amended, is not a
totally new remedy, unique to the CTA, with a special application or use
therein. To the contrary, the CTA merely adopts the procedure for petitions
for review and appeals long established and practiced in other Philippine
courts. Accordingly, doctrines, principles, rules, and precedents laid down
in jurisprudence by this Court as regards petitions for review and appeals in
courts of general jurisdiction should likewise bind the CTA, and it cannot
depart therefrom. Section 1, Rule 41 of the Revised Rules of Court,
governing appeals from the Regional Trial Courts (RTCs) to the Court of
Appeals, provides that an appeal may be taken only from a judgment or final
order that completely disposes of the case or of a matter therein when
declared by the Rules to be appealable. Said provision, thus, explicitly
states that no appeal may be taken from an interlocutory order. It is well-
settled that after a final order or judgment has been issued, the court
should have nothing more to do in respect of the relative rights of the
parties to the case. Conversely, "an interlocutory order is one that does not
finally dispose of the case and does not end the Court's task of adjudicating
the parties' contentions in determining their rights and liabilities as regards
each other, but obviously indicates that other things remain to be done by
the Court."
The period to appeal the decision or ruling of the RTC to the CTA via a
Petition for Review is specifically governed by Section 11 of Republic Act
No. 9282 and Section 3(a), Rule 8 of the Revised Rules of the CTA. The
afore-quoted provisions provide that to appeal an adverse decision or
ruling of the RTC to the CTA, the taxpayer must file a Petition for
Review with the CTA within 30 days from receipt of said adverse
decision or ruling of the RTC. However, Section 11 of Republic Act No.
9282 does state that the Petition for Review shall be filed with the
CTA following the procedure analogous to Rule 42 of the Revised
Rules of Civil Procedure. Section 1, Rule 42[16] of the Revised Rules of
Civil Procedure provides that the Petition for Review of an adverse
judgment or final order of the RTC must be filed with the Court of Appeals
within: (1) the original 15-day period from receipt of the judgment or final
order to be appealed; (2) an extended period of 15 days from the lapse
of the original period; and (3) only for the most compelling
reasons, another extended period not to exceed 15 days from the
lapse of the first extended period.
In this case, the CTA First Division erred in finding that petitioners failed to
file their Petition for Review in CTA within the reglementary period.