A.a. #2 PHILIPPINE BANK OF COMMUNICATIONS VS CIR, G.R. No.

119024 adopted to enforce the collection of taxes levied should be summary and
[Concept and Purpose of Taxation] interfered with as little as possible.
Case Digest by: Amores, L.G.
From the same perspective, claims for refund or tax credit should be exercised
FACTS: within the time fixed by law because the BIR being an administrative body
Petitioner, Philippine Bank of Communications (PBCom), a commercial banking enforced to collect taxes, its functions should not be unduly delayed or
corporation duly organized under Philippine laws, filed its quarterly income tax hampered by incidental matters.
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 Sec. 230 of the National Internal Revenue Code (NIRC) of 1977 (now Sec. 229,
PBCom's tax credit memos and accordingly, the Bureau of Internal Revenue NIRC of 1997)1 provides for the prescriptive period for filing a court proceeding
(BIR) issued Tax Debit Memo Nos. 0746-85 and 0747-85 for P3,401,701.00 for the recovery of tax erroneously or illegally collected.
and P1,615,253.00, respectively.
The rule states that the taxpayer may file a claim for refund or credit with the
Subsequently, however, PBCom suffered losses so that when it filed its Annual Commissioner of Internal Revenue, within two (2) years after payment of tax,
Income Tax Returns for the year-ended December 31, 1986, the petitioner before any suit in CTA is commenced. The two-year prescriptive period
likewise reported a net loss of P14,129,602.00, and thus declared no tax provided, should be computed from the time of filing the Adjustment Return and
payable for the year. final payment of the tax for the year.

But during these two years, PBCom earned rental income from leased In Commissioner of Internal Revenue vs. Philippine American Life Insurance
properties. The lessees withheld and remitted to the BIR withholding creditable Co., this Court explained the application of Sec. 230 of 1977 NIRC, as follows:
taxes of P282,795.50 in 1985 and P234,077.69 in 1986. Clearly, the prescriptive period of two years should commence to run only from
the time that the refund is ascertained, which can only be determined after a
On August 7, 1987, petitioner requested the Commissioner of Internal final adjustment return is accomplished.
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. When the Acting Commissioner of Internal Revenue issued RMC 7-85,
changing the prescriptive period of two years to ten years on claims of excess
Thereafter, on July 25, 1988, petitioner filed a claim for refund of creditable quarterly income tax payments, such circular created a clear inconsistency with
taxes withheld by their lessees from property rentals in 1985 for P282,795.50 the provision of Sec. 230 of 1977 NIRC. In so doing, the BIR did not simply
and in 1986 for P234,077.69. interpret the law; rather it legislated guidelines contrary to the statute passed by
Congress.
Pending the investigation of the respondent Commissioner of Internal Revenue,
petitioner instituted a Petition for Review on November 18, 1988 before the It bears repeating that Revenue memorandum-circulars are considered
Court of Tax Appeals (CTA). The losses petitioner incurred as per the summary administrative rulings (in the sense of more specific and less general
of petitioner's claims for refund and tax credit for 1985 and 1986, filed before interpretations of tax laws) which are issued from time to time by the
the CTA. Commissioner of Internal Revenue. It is widely accepted that the interpretation
placed upon a statute by the executive officers, whose duty is to enforce it, is
CTA - which denied the claims of the petitioner for tax refund and tax credits for entitled to great respect by the courts. Nevertheless, such interpretation is not
1985 for filing beyond the two-year reglementary period. CTA also denied the conclusive and will be ignored if judicially found to be erroneous. Thus, courts
claim for refund for 1986 on the speculation that petitioner had automatically will not countenance administrative issuances that override, instead of
credited against its tax payment in the succeeding year. remaining consistent and in harmony with the law they seek to apply and
MR – denied implement.
CA – affirmed CTA’s decision.
Further, fundamental is the rule that the State cannot be put in estoppel by the
Hence, this petition for review. mistakes or errors of its officials or agents. As pointed out by the respondent
courts, the nullification of RMC No. 7-85 issued by the Acting Commissioner of
Petitioner – argues that its claims for refund and tax credits are not yet barred Internal Revenue is an administrative interpretation which is not in harmony
by prescription relying on the applicability of Revenue Memorandum Circular with Sec. 230 of 1977 NIRC for being contrary to the express provision of a
No. 7-85 issued on April 1, 1985. The circular states that overpaid income taxes statute. Hence, his interpretation could not be given weight for to do so would,
are not covered by the two-year prescriptive period under the tax Code and that in effect, amend the statute.
taxpayers may claim refund or tax credits for the excess quarterly income tax
with the BIR within ten (10) years under Article 1144 of the Civil Code. WHEREFORE, the, petition is hereby DENIED, The decision of the Court of
Appeals appealed from is AFFIRMED, with COSTS against the
ISSUE(S): petitioner.1âwphi1.nêt

1. Whether or not the Court of Appeals erred in denying the plea for tax
refund or tax credits on the ground of prescription, despite
petitioner's reliance on RMC No. 7-85, changing the prescriptive
1
period of two years to ten years? Sec. 230. Recovery of tax erroneously or illegally collected. — No suit or proceeding
shall be maintained in any court for the recovery of any national internal revenue tax
RULING: 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
NO.
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
Basic is the principle that "taxes are the lifeblood of the nation." The primary duress.
purpose is to generate funds for the State to finance the needs of the citizenry
and to advance the common weal. Due process of law under the Constitution In any case, no such suit or proceedings shall begun after the expiration of two years
does not require judicial proceedings in tax cases. This must necessarily be so 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
because it is upon taxation that the government chiefly relies to obtain the written claim therefor, refund or credit any tax, where on the face of the return upon which
means to carry on its operations and it is of utmost importance that the modes payment was made, such payment appears clearly to have been erroneously paid.