Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 112024 January 28, 1999

PHILIPPINE BANK OF COMMUNICATIONS, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, COURT OF TAX APPEALS and COURT OF APPEALS,
respondent.

QUISUMBING, J.:
This petition for review assails the Resolution 1 of the Court of Appeals da
ted September 22, 1993 affirming the Decision 2 and a Resolution 3 of the Court
Of Tax Appeals which denied the claims of the petitioner for tax refund and tax
credits, and disposing as follows:
IN VIEW OF ALL, THE FOREGOING, the instant petition for review, is DENIED du
e course. The Decision of the Court of Tax Appeals dated May 20, 1993 and its re
solution dated July 20, 1993, are hereby AFFIRMED in toto.
SO ORDERED. 4
The Court of Tax Appeals earlier ruled as follows:
WHEREFORE, Petitioner's claim for refund/tax credits of overpaid income tax
for 1985 in the amount of P5,299,749.95 is hereby denied for having been filed b
eyond the reglementary period. The 1986 claim for refund amounting to P234,077.6
9 is likewise denied since petitioner has opted and in all likelihood automatica
lly credited the same to the succeeding year. The petition for review is dismiss
ed for lack of merit.
SO ORDERED. 5
The facts on record show the antecedent circumstances pertinent to this case
.
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 t
he total income tax of P5,016,954.00. The taxes due were settled by applying PBC
om's tax credit memos and accordingly, the Bureau of Internal Revenue (BIR) issu
ed Tax Debit Memo Nos. 0746-85 and 0747-85 for P3,401,701.00 and P1,615,253.00,
respectively.
Subsequently, however, PBCom suffered losses so that when it filed its Annua
l Income Tax Returns for the year-ended December 31, 1986, the petitioner likewi
se reported a net loss of P14,129,602.00, and thus declared no tax payable for t
he year.
But during these two years, PBCom earned rental income from leased propertie
s. The lessees withheld and remitted to the BIR withholding creditable taxes of

P282,795.50 in 1985 and P234,077.69 in 1986.

On August 7, 1987, petitioner requested the Commissioner of Internal Revenue
, among others, for a tax credit of P5,016,954.00 representing the overpayment o
f taxes in the first and second quarters of 1985.
Thereafter, on July 25, 1988, petitioner filed a claim for refund of credita
ble taxes withheld by their lessees from property rentals in 1985 for P282,795.5
0 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 Co
urt of Tax Appeals (CTA). The petition was docketed as CTA Case No. 4309 entitle
d: "Philippine Bank of Communications vs. Commissioner of Internal Revenue."
The losses petitioner incurred as per the summary of petitioner's claims for
refund and tax credit for 1985 and 1986, filed before the Court of Tax Appeals,
are as follows:
1985 1986

Net Income (Loss) (P25,317,288.00) (P14,129,602.00)

Tax Due NIL NIL
Quarterly tax.
Payments Made 5,016,954.00
Tax Withheld at Source 282,795.50 234,077.69

Excess Tax Payments P5,299,749.50* P234,077.69

=============== =============
* CTA's decision reflects PBCom's 1985 tax claim as P5,299,749.95. A forty f
ive centavo difference was noted.
On May 20, 1993, 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 o
f P5,299,749.95, on the ground that it was filed beyond the two-year reglementar
y period provided for by law. The petitioner's claim for refund in 1986 amountin
g 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.
On June 22, 1993, petitioner filed a Motion for Reconsideration of the CTA's
decision but the same was denied due course for lack of merit. 6
Thereafter, PBCom filed a petition for review of said decision and resolutio
n of the CTA with the Court of Appeals. However on September 22, 1993, the Court
of Appeals affirmed in toto the CTA's resolution dated July 20, 1993. Hence thi
s petition now before us.
The issues raised by the petitioner are:
I. Whether taxpayer PBCom

which relied in good faith on the formal assurance

s of BIR in RMC No. 7-85 and did not immediately file with the CTA a petition fo
r review asking for the refund/tax credit of its 1985-86 excess quarterly income
tax payments
can be prejudiced by the subsequent BIR rejection, applied retroac
tivity, of its assurances in RMC No. 7-85 that the prescriptive period for the r
efund/tax credit of excess quarterly income tax payments is not two years but te
n (10). 7
II. Whether the Court of Appeals seriously erred in affirming the CTA decisi
on which denied PBCom's claim for the refund of P234,077.69 income tax overpaid
in 1986 on the mere speculation, without proof, that there were taxes due in 198
7 and that PBCom availed of tax-crediting that year. 8
Simply stated, the main question is: Whether or not the Court of Appeals err
ed in denying the plea for tax refund or tax credits on the ground of prescripti
on, despite petitioner's reliance on RMC No. 7-85, changing the prescriptive per
iod of two years to ten years?
Petitioner argues that its claims for refund and tax credits are not yet bar
red by prescription relying on the applicability of Revenue Memorandum Circular
No. 7-85 issued on April 1, 1985. The circular states that overpaid income taxes
are not covered by the two-year prescriptive period under the tax Code and that
taxpayers may claim refund or tax credits for the excess quarterly income tax w
ith the BIR within ten (10) years under Article 1144 of the Civil Code. The pert
inent portions of the circular reads:
REVENUE MEMORANDUM CIRCULAR NO. 7-85
SUBJECT: PROCESSING OF REFUND OR TAX CREDIT OF EXCESS CORPORATE INCOME TAX R
ESULTING FROM THE FILING OF THE FINAL ADJUSTMENT RETURN.
TO: All Internal Revenue Officers and Others Concerned.
Sec. 85 And 86 Of the National Internal Revenue Code provide:
xxx xxx xxx
The foregoing provisions are implemented by Section 7 of Revenue Regulations
Nos. 10-77 which provide;
xxx xxx xxx
It has been observed, however, that because of the excess tax payments, corp
orations file claims for recovery of overpaid income tax with the Court of Tax A
ppeals within the two-year period from the date of payment, in accordance with s
ections 292 and 295 of the National Internal Revenue Code. It is obvious that th
e filing of the case in court is to preserve the judicial right of the corporati
on to claim the refund or tax credit.
It should he noted, however, that this is not a case of erroneously or illeg
ally paid tax under the provisions of Sections 292 and 295 of the Tax Code.
In the above provision of the Regulations the corporation may request for th
e refund of the overpaid income tax or claim for automatic tax credit. To insure
prompt action on corporate annual income tax returns showing refundable amounts
arising from overpaid quarterly income taxes, this Office has promulgated Reven
ue Memorandum Order No. 32-76 dated June 11, 1976, containing the procedure in p
rocessing said returns. Under these procedures, the returns are merely pre-audit
ed which consist mainly of checking mathematical accuracy of the figures of the
return. After which, the refund or tax credit is granted, and, this procedure wa
s adopted to facilitate immediate action on cases like this.

In this regard, therefore, there is no need to file petitions for review in

the Court of Tax Appeals in order to preserve the right to claim refund or tax c
redit the two year period. As already stated, actions hereon by the Bureau are i
mmediate after only a cursory pre-audit of the income tax returns. Moreover, a t
axpayer may recover from the Bureau of Internal Revenue excess income tax paid u
nder the provisions of Section 86 of the Tax Code within 10 years from the date
of payment considering that it is an obligation created by law (Article 1144 of
the Civil Code). 9 (Emphasis supplied.)
Petitioner argues that the government is barred from asserting a position co
ntrary to its declared circular if it would result to injustice to taxpayers. Ci
ting ABS CBN Broadcasting Corporation vs. Court of Tax Appeals 10 petitioner cla
ims that rulings or circulars promulgated by the Commissioner of Internal Revenu
e have no retroactive effect if it would be prejudicial to taxpayers, In ABS-CBN
case, the Court held that the government is precluded from adopting a position
inconsistent with one previously taken where injustice would result therefrom or
where there has been a misrepresentation to the taxpayer.
Petitioner contends that Sec. 246 of the National Internal Revenue Code expl
icitly provides for this rules as follows:
Sec. 246 Non-retroactivity of rulings Any revocation, modification or reversa
l of any of the rules and regulations promulgated in accordance with the precedi
ng section or any of the rulings or circulars promulgated by the Commissioner sh
all not be given retroactive application if the revocation, modification or reve
rsal will be prejudicial to the taxpayers except in the following cases:
a). where the taxpayer deliberately misstates or omits material facts from h
is return or in any document required of him by the Bureau of Internal Revenue;
b). where the facts subsequently gathered by the Bureau of Internal Revenue
are materially different from the facts on which the ruling is based;
c). where the taxpayer acted in bad faith.
Respondent Commissioner of Internal Revenue, through Solicitor General, argu
es that the two-year prescriptive period for filing tax cases in court concernin
g income tax payments of Corporations is reckoned from the date of filing the Fi
nal Adjusted Income Tax Return, which is generally done on April 15 following th
e close of the calendar year. As precedents, respondent Commissioner cited cases
which adhered to this principle, to wit ACCRA Investments Corp. vs. Court of Ap
peals, et al., 11 and Commissioner of Internal Revenue vs. TMX Sales, Inc., et a
l.. 12 Respondent Commissioner also states that since the Final Adjusted Income
Tax Return of the petitioner for the taxable year 1985 was supposed to be filed
on April 15, 1986, the latter had only until April 15, 1988 to seek relief from
the court. Further, respondent Commissioner stresses that when the petitioner fi
led the case before the CTA on November 18, 1988, the same was filed beyond the
time fixed by law, and such failure is fatal to petitioner's cause of action.
After a careful study of the records and applicable jurisprudence on the mat
ter, we find that, contrary to the petitioner's contention, the relaxation of re
venue regulations by RMC 7-85 is not warranted as it disregards the two-year pre
scriptive period set by law.
Basic is the principle that "taxes are the lifeblood of the nation." The pri
mary purpose is to generate funds for the State to finance the needs of the citi
zenry and to advance the common weal. 13 Due process of law under the Constituti
on 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 a
dopted to enforce the collection of taxes levied should be summary and interfere
d with as little as possible. 14
From the same perspective, claims for refund or tax credit should be exercis
ed within the time fixed by law because the BIR being an administrative body enf
orced to collect taxes, its functions should not be unduly delayed or hampered b
y 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 proceedin
g for the recovery of tax erroneously or illegally collected, viz.:
Sec. 230. Recovery of tax erroneously or illegally collected.
No suit or pro
ceeding shall be maintained in any court for the recovery of any national intern
al 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 colle
cted, until a claim for refund or credit has been duly filed with the Commission
er; but such suit or proceeding may be maintained, whether or not such tax, pena
lty, or sum has been paid under protest or duress.
In any case, no such suit or proceedings shall begun after the expiration of
two years from the date of payment of the tax or penalty regardless of any supe
rvening cause that may arise after payment; Provided however, That the Commissio
ner 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 clea
rly to have been erroneously paid. (Emphasis supplied)
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 pay
ment of the tax for the year.
In Commissioner of Internal Revenue vs. Philippine American Life Insurance C
o., 15 this Court explained the application of Sec. 230 of 1977 NIRC, as follows
:
Clearly, the prescriptive period of two years should commence to run only fr
om the time that the refund is ascertained, which can only be determined after a
final adjustment return is accomplished. In the present case, this date is Apri
l 16, 1984, and two years from this date would be April 16, 1986. . . . As we ha
ve earlier said in the TMX Sales case, Sections 68. 16 69, 17 and 70 18 on Quart
erly Corporate Income Tax Payment and Section 321 should be considered in conjun
ction with it 19
When the Acting Commissioner of Internal Revenue issued RMC 7-85, changing t
he prescriptive period of two years to ten years on claims of excess quarterly i
ncome tax payments, such circular created a clear inconsistency with the provisi
on of Sec. 230 of 1977 NIRC. In so doing, the BIR did not simply interpret the l
aw; rather it legislated guidelines contrary to the statute passed by Congress.
It bears repeating that Revenue memorandum-circulars are considered administ
rative rulings (in the sense of more specific and less general interpretations o
f tax laws) which are issued from time to time by the Commissioner of Internal R
evenue. It is widely accepted that the interpretation placed upon a statute by t
he executive officers, whose duty is to enforce it, is entitled to great respect
by the courts. Nevertheless, such interpretation is not conclusive and will be
ignored if judicially found to be erroneous. 20 Thus, courts will not countenanc

e administrative issuances that override, instead of remaining consistent and in

harmony with the law they seek to apply and implement. 21
In the case of People vs. Lim, 22 it was held that rules and regulations iss
ued by administrative officials to implement a law cannot go beyond the terms an
d provisions of the latter.
Appellant contends that Section 2 of FAO No. 37-1 is void because it is not
only inconsistent with but is contrary to the provisions and spirit of Act. No 4
003 as amended, because whereas the prohibition prescribed in said Fisheries Act
was for any single period of time not exceeding five years duration, FAO No 371 fixed no period, that is to say, it establishes an absolute ban for all time.
This discrepancy between Act No. 4003 and FAO No. 37-1 was probably due to an ov
ersight on the part of Secretary of Agriculture and Natural Resources. Of course
, in case of discrepancy, the basic Act prevails, for the reason that the regula
tion or rule issued to implement a law cannot go beyond the terms and provisions
of the
latter. . . . In this connection, the attention of the technical men in the
offices of Department Heads who draft rules and regulation is called to the impo
rtance and necessity of closely following the terms and provisions of the law wh
ich they intended to implement, this to avoid any possible misunderstanding or c
onfusion as in the present case. 23
Further, fundamental is the rule that the State cannot be put in estoppel by
the mistakes or errors of its officials or agents. 24 As pointed out by the res
pondent courts, the nullification of RMC No. 7-85 issued by the Acting Commissio
ner of Internal Revenue is an administrative interpretation which is not in harm
ony with Sec. 230 of 1977 NIRC. for being contrary to the express provision of a
statute. Hence, his interpretation could not be given weight for to do so would
, in effect, amend the statute.
It is likewise argued that the Commissioner of Internal Revenue, after promu
lgating RMC No. 7-85, is estopped by the principle of non-retroactively of BIR r
ulings. Again We do not agree. The Memorandum Circular, stating that a taxpayer
may recover the excess income tax paid within 10 years from date of payment beca
use this is an obligation created by law, was issued by the Acting Commissioner
of Internal Revenue. On the other hand, the decision, stating that the taxpayer
should still file a claim for a refund or tax credit and corresponding petition
fro review within the
two-year prescription period, and that the lengthening of the period of limi
tation on refund from two to ten years would be adverse to public policy and run
counter to the positive mandate of Sec. 230, NIRC, - was the ruling and judicia
l interpretation of the Court of Tax Appeals. Estoppel has no application in the
case at bar because it was not the Commissioner of Internal Revenue who denied
petitioner's claim of refund or tax credit. Rather, it was the Court of Tax Appe
als who denied (albeit correctly) the claim and in effect, ruled that the RMC No
. 7-85 issued by the Commissioner of Internal Revenue is an administrative inter
pretation which is out of harmony with or contrary to the express provision of a
statute (specifically Sec. 230, NIRC), hence, cannot be given weight for to do
so would in effect amend the statute. 25
Art. 8 of the Civil Code 26 recognizes judicial decisions, applying or inter
preting statutes as part of the legal system of the country. But administrative
decisions do not enjoy that level of recognition. A memorandum-circular of a bur
eau head could not operate to vest a taxpayer with shield against judicial actio
n. For there are no vested rights to speak of respecting a wrong construction of
the law by the administrative officials and such wrong interpretation could not
place the Government in estoppel to correct or overrule the same. 27 Moreover,
the non-retroactivity of rulings by the Commissioner of Internal Revenue is not
applicable in this case because the nullity of RMC No. 7-85 was declared by resp

ondent courts and not by the Commissioner of Internal Revenue. Lastly, it must b
e noted that, as repeatedly held by this Court, a claim for refund is in the nat
ure of a claim for exemption and should be construed in strictissimi juris again
st the taxpayer. 28
On the second issue, the petitioner alleges that the Court of Appeals seriou
sly erred in affirming CTA's decision denying its claim for refund of P234,077.6
9 (tax overpaid in 1986), based on mere speculation, without proof, that PBCom a
vailed of the automatic tax credit in 1987.
Sec. 69 of the 1977 NIRC 29 (now Sec. 76 of the 1997 NIRC) provides that any
excess of the total quarterly payments over the actual income tax computed in t
he adjustment or final corporate income tax return, shall either (a) be refunded
to the corporation, or (b) may be credited against the estimated quarterly inco
me tax liabilities for the quarters of the succeeding taxable year.
The corporation must signify in its annual corporate adjustment return (by m
arking the option box provided in the BIR form) its intention, whether to reques
t for a refund or claim for an automatic tax credit for the succeeding taxable y
ear. To ease the administration of tax collection, these remedies are in the alt
ernative, and the choice of one precludes the other.
As stated by respondent Court of Appeals:
Finally, as to the claimed refund of income tax over-paid in 1986
the Court
of Tax Appeals, after examining the adjusted final corporate annual income tax r
eturn for taxable year 1986, found out that petitioner opted to apply for automa
tic tax credit. This was the basis used (vis-avis the fact that the 1987 annual
corporate tax return was not offered by the petitioner as evidence) by the CTA i
n concluding that petitioner had indeed availed of and applied the automatic tax
credit to the succeeding year, hence it can no longer ask for refund, as to [si
c] the two remedies of refund and tax credit are alternative. 30
That the petitioner opted for an automatic tax credit in accordance with Sec
. 69 of the 1977 NIRC, as specified in its 1986 Final Adjusted Income Tax Return
, is a finding of fact which we must respect. Moreover, the 1987 annual corporat
e tax return of the petitioner was not offered as evidence to contovert said fac
t. Thus, we are bound by the findings of fact by respondent courts, there being
no showing of gross error or abuse on their part to disturb our reliance thereon
. 31
WHEREFORE, the, petition is hereby DENIED, The decision of the Court of Appe
als appealed from is AFFIRMED, with COSTS against the petitioner.1wphi1.nt
SO ORDERED.
Bellosillo, Puno, Mendoza, and Buena, JJ., concur.
Footnotes
1. Penned by Associate Justices Isaali S. Isnami and concurred in by Associa
te Justice Nathanael P. De Pano, Jr. and Associate Justice Corona Ibay Somera; r
ollo. 101-104.
2. Penned by Ernesto D. Acosta, Presiding Judge, concurred in by Associate J
udge Manuel K. Gruba and Associate Judge Ramon O. De Veyra; rollo, pp. 33-47.
3. Rollo, pp. 70-73.
4. Supra, see note 1, at p. 103.

5. Supra, see note 2. at p. 46.

6. Supra, see note 3, at 73.
7. Memorandum of petitioner, rollo, pp. 179-198, at p. 183.
8. Ibid., at p. 194.
9. Supra, See note 2, pp. 37-38.
10. 108 SCRA 142 (1981).
11. 204 SCRA 957 (1991).
12. 205 SCRA 184 (1992).
13. Napocor vs. Province of Albay, 186 SCRA 198 (1990), at p. 207.
14. Teodoro and de Leon, Law on Income Taxation, 1993 ed., at 485.
15. 244 SCRA 446 (1995).
16. Declaration of Corporate Quarterly Income Tax (now Sec. 75, 1997 NIRC).
17. Final Adjustment Return (now Sec. 76. 1997 NIRC).
18. Place of Filing (now Sec.77. 1997 NIRC).
19. Supra, see note 15, at p. 453.
20. People vs. Hernandez, 59 Phil. 272 (1933) at p. 276; Molina vs. Rafferty
, 37 Phil. 545 (1918) at p. 555.
21. Commissioner of Internal Revenue vs. Court of Appeals, 240 SCRA 368 (199
3) at p. 372.
22 108 Phil. 1091 (1960).
23. Ibid., at pp. 1093-1094.
24. Republic vs. Intermediate Appellate Court, 209 SCRA 90 (1992); DBP vs. C
ommission on Audit, 231 SCRA 202 (1994); Sharp International Marketing vs. CA, 2
01 SCRA 299 (1991) GSIS vs. CA, 218 SCRA 233 (1990 citing Beronilla vs. GSIS, 36
SCRA 44, 55 (1970); Republic vs. PLDT, 26 SCRA 620 (1969); Pineda vs. CFI of Ta
yabas, 52 Phil. 803 (1929); Beguet Consolidated Mining Co. vs. Pineda 98 Phil. 7
11 (1956); Repulic vs. Philippine Rabbit Bus Lines, Inc., 32 SCRA 211(1970); Peo
ple vs. Castaeda, 165 SCRA 327 (1988).
25. Supra, see note 1, p. 102.
26. Sec. 8. Judicial decisions applying or interpreting the laws or the Cons
titution shall form a part of the legal system of the Philippines.
27. Tan Guan vs. Court of Tax Appeals, 19 SCRA 903 (1967) at p. 907; Compani
a General de Tabacos de Filipinas vs. City of Manila, 8 SCRA, 367 (1963) at p. 3
72.
28. Commissioner of Internal Revenue vs. Tokyo shipping Co., Ltd., 244 SCRA
332, Province of Tarlac vs. Alcantara, 216 SCRA 790, Philippine Petroluem Corp.
vs. Municipality of Pililia Rizal, 198 SCRA 82, Commissioner of Internal Revenue

vs. Mitsubishi Metal Corp., 181 SCRA 214.

29. Sec. 69. Final Adjustment Return Every corporation liable to tax under Se
ction 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 entir
e 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 tile case may be.
In case the corporation is entitled to a refund of the excess estimated quar
terly income taxes paid, the refundable amount shown on its final adjustment ret
urn may be credited against the estimated quarterly income tax liabilities for t
he taxable quarters of the succeeding taxable year.
30. Supra, see note 1. at p. 103.
31. Philippine Refining Company vs. Court of Appeals, 256 SCRA 667 (1996) at
p. 676, citing: the Coca-Cola Export Corporation vs. Commissioner of Internal R
evenue , et al., L-23604, March 15, 1974, 56 SCRA 5; Nasiad, et, al., vs. Court
of Appeals, L-29318, November 29, 1974, 61 SCRA 236.
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