IR v CTA (1994)

CIR v CTAGR No 106611, July 21, 1994

FACTS:Citytrust filed a petition with the Court of Tax Appeals claiming the refund of its income tax overpayments for the years 1983, 1984 and 1985 in the total amount of P19,971,745. The CIR could not present any evidence due to the repeated failure of the tax credit/refund division of the BIR to transmit the records of the case and the investigation report to the Solicitor General. The case was decided in favor of City Trust. Upon motion of reconsideration, petitioner alleged that through an inter-office memorandum of the Tax Credit/Refund Division, dated August 8, 1991, he came to know only that Citytrust had outstanding tax liabilities for 1984 in the amount of P56,588,740.91 representing deficiency income and business taxes.

ISSUES:1. Whether the BIR was denied its day in court2. Whether the CTA erred in denying petitioners supplemental motion for reconsideration alleging bringing to said courts attention the existence of deficiency income and business taxes

RULING:1. Yes, the BIR is denied its day in court. When it was petitioners turn to present evident evidence, several postponements were sought by its counsel, the Solicitor General, due to the unavailability of the necessary records which were not transmitted by the Refund Audit Division of the BIR to said counsel. It was under such predicament and in deference to the tax court that the counsel was constrained to submit the case for decision without presenting any evidence. It is a long and firmly settled rule of law that the Government is not bound by the errors committed by its agents.2. Yes. The fact of such deficiency assessment is intimately related and inextricably intertwined with the right of the bank. The private respondent cannot be entitled to refund and at the same time be liable for a deficiency tax assessment for the same year.

2. Phil Bank of Communications vs. CIR, et. al. 302 SCRA 241 January 28, 1999

Facts: Petitioner, Philippine Bank of Communications (PBCom), a commercial banking corporation duly organized under Philippine laws, filed its quarterly income tax returns for the first and second quarters of 1985, reported profits, and paid the total income tax of P5,016,954.00. The taxes due were settled by applying PBCom's tax credit memos.

Subsequently, however, PBCom suffered losses so that when it filed its Annual Income Tax Returns for the year-ended December 31, 1986, the petitioner likewise reported a net loss of P14,129,602.00, and thus declared no tax payable for the year.

But during these two years, PBCom earned rental income from leased properties. The lessees withheld and remitted to the BIR withholding creditable taxes of P282,795.50 in 1985 and P234,077.69 in 1986.

Subsequently, Petitioner requested the Commissioner of Internal Revenue, among others, for a tax credit of P5,016,954.00 representing the overpayment of taxes in the first and second quarters of 1985.

Thereafter, on July 25, 1988, petitioner filed a claim for refund of creditable taxes withheld by their lessees from property rentals in 1985 for P282,795.50 and in 1986 for P234,077.69.

Pending the investigation of the respondent Commissioner of Internal Revenue, petitioner instituted a Petition for Review on November 18, 1988 before the Court of Tax Appeals (CTA).

The CTA rendered a decision which, as stated on the outset, denied the request of petitioner for a tax refund or credit in the sum amount of P5,299,749.95, on the ground that it was filed beyond the two-year reglementary period provided for by law. The petitioner's claim for refund in 1986 amounting to P234,077.69 was likewise denied on the assumption that it was automatically credited by PBCom against its tax payment in the succeeding year.

ISSUE: Whether the Court of Appeals erred in denying the plea for tax refund or tax credits on the ground of prescription

HELD: No. Basic is the principle that "taxes are the lifeblood of the nation." The primary purpose is to generate funds for the State to finance the needs of the citizenry and to advance the common weal. 13 Due process of law under the Constitution does not require judicial proceedings in tax cases. This must necessarily be so because it is upon taxation that the government chiefly relies to obtain the means to carry on its operations and it is of utmost importance that the modes adopted to enforce the collection of taxes levied should be summary and interfered with as little as possible.

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

Sec. 230 of the National Internal Revenue Code (NIRC) of 1977 (now Sec. 229, NIRC of 1997) provides for the prescriptive period for filing a court proceeding for the recovery of tax erroneously or illegally collected.

The rule states that the taxpayer may file a claim for refund or credit with the Commissioner of Internal Revenue, within two (2) years after payment of tax, before any suit in CTA is commenced. The two-year prescriptive period provided, should be computed from the time of filing the Adjustment Return and final payment of the tax for the year.

GOMEZ v. PALOMARGR No. L-23645, October 29, 196825 SCRA 827

FACTS: Petitioner Benjamin Gomez mailed a letter at the post office in San Fernando, Pampanga. It did not bearthe special anti-TB stamp required by the RA 1635. It was returned to the petitioner. Petitioner now assails theconstitutionality of the statute claiming that RA 1635 otherwise known as the Anti-TB Stamp law is violative ofthe equal protection clause because it constitutes mail users into a class for the purpose of the tax while leavinguntaxed the rest of the population and that even among postal patrons the statute discriminatorily grantsexemptions. The law in question requires an additional 5 centavo stamp for every mail being posted, and no mailshall be delivered unless bearing the said stamp.

ISSUE: Is the Anti-TB Stamp Law unconstitutional, for being allegedly violative of the equal protection clause?

HELD: No. It is settled that the legislature has the inherent power to select the subjects of taxation and to grantexemptions. This power has aptly been described as "of wide range and flexibility." Indeed, it is said that in thefield of taxation, more than in other areas, the legislature possesses the greatest freedom in classification. Thereason for this is that traditionally, classification has been a device for fitting tax programs to local needs andusages in order to achieve an equitable distribution of the tax burden. The classification of mail users is based on the ability to pay, the enjoyment of a privilege and on administrativeconvenience. Tax exemptions have never been thought of as raising revenues under the equal protection clause.