On April 17, 2006, respondent filed its Annual Income Tax Return (“ITR”) for taxable year 2005. Said Annual ITR indicated, among others, the excess creditable withholding tax (“CWT”) for the year 2005 in the amount P1,500,653.00 was “To be refunded” to it by the CIR. Rhombus reiterated this excess credit from the previous year in its Tax Returns for the first, second and third quarter of 2006. On December 29, 2006, respondent filed with the Revenue Region No. 8 an administrative claim for refund of its alleged excess/unutilized CWT for the year 2005 in the amount of P1,500,653.00.
On December 7, 2007, pending action on Rhombus’ claim for refund or issuance of a tax credit certificate of its excess/unutilized CWT for the year 2005 and before the lapse of the period for filing an appeal, Rhombus filed filed a Petition for Review before the Court of Tax Appeals (CTA) First Division.
In CIR’s Answer, they alleged: a claim for refund is subject to investigation by the BIR; respondent failed to demonstrate that the tax was erroneously or illegally collected; taxes paid and collected are presumed to have been made in accordance with laws and regulations; in an action for tax refund the burden is upon the taxpayer to prove that he is entitled thereto, and failure to discharge said burden is fatal to the claim; and claims for refund are construed strictly against the claimant.
After trial on the merits, in 2011, the First Division rendered the assailed Decision GRANTING the Petition for Review. CIR filed a “Motion for Reconsideration,” which was denied for lack of merit.
EN BANC Reversed the Decision of CTA First Division and found in favor of CIR. Section 76 of the NIRC of 1997 is explicit in stating that once the option to carry over has been made no application for tax refund or issuance of a tax credit certificate shall be allowed.
Considering that petitioner opted to carry-over its unutilized creditable withholding tax of P1,500,653.00 for taxable year 2005 to the first, second and third quarters of taxable year 2006 when it had actually carried-over said excess creditable withholding tax to the first, second and third quarters in its Quarterly Income Tax Returns for taxable year 2006, said option to carry-over becomes irrevocable. MR likewise denied. Hence an appeal by Rhombus to Supreme Court.
Whether or not Rhombus has proven its entitlement to the refund.
HELD: Yes, The appeal is meritorious.
Section 76. Final Adjusted Return. — Every corporation liable to tax under Section 27 shall file a final adjustment return covering the total taxable income for the preceding calendar of 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 entire taxable income of that year, the corporation shall either:
(A) Pay the balance of the tax still due; or
(B) Carry over the excess credit; or
(C) Be credited or refunded with the excess amount paid, as the case may be.
In case the corporation is entitled to a tax credit or refund of the excess estimated quarterly income taxes paid, the excess amount shown on its final adjustment return may be carried over and credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years. Once the option to carry-over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for cash refund or issuance of a tax credit certificate shall be allowed therefor.||| (Tax Reform Act of 1997, Republic Act No. 8424, [December 11, 1997])
CTA En Banc finds that Rhombus had actually exercised the option to be refunded, it nonetheless maintained that Rhombus was not entitled to the refund for having reported the prior year’s excess credits in its quarterly ITRs for the year 2006.
The CTA En Banc thereby misappreciated the fact that Rhombus had already exercised the option for its unutilized creditable withholding tax for the year 2005 to be refunded when it filed its annual ITR for the taxable year ending December 31, 2005. The Court citing the case of Republic v. Team (Phils.) Energy Corporation, supra, the irrevocability rule took effect when the option was exercised.
In the case of Rhombus, therefore, its marking of the box “To be refunded” in its 2005 annual ITR constituted its exercise of the option, and from then onwards Rhombus became precluded from carrying-over the excess creditable withholding tax. THE FACT THAT THE PRIOR YEAR’S EXCESS CREDITS WERE REPORTED IN ITS 2006 QUARTERLY ITR’S DID NOT REVERSE THE OPTION TO BE REFUNDED PREVIOUSLY EXERCISED IN ITS 2005 ANNUAL ITR. As such, the CTA En Banc erred in applying the irrevocability rule against Rhombus.
AS TO THE ISSUE ON REFUND
The requisites for entitlement to the refund are as follows:
1. That the claim for refund was filed within the two-year reglementary period pursuant to Section 229 of the NIRC;
2. When it is shown on the ITR that the income payment received is being declared part of the taxpayer’s gross income; and
3. When the fact of withholding is established by a copy of the withholding tax statement, duly issued by the payor to the payee, showing the amount paid and income tax withheld from that amount.
1. That the claim for refund was filed within the two-year reglementary period pursuant to Section 229 of the NIRC Rhombus filed its Annual ITR for the year 2005 on April 17, 2006. Counting from the said date, petitioner had until April 17, 2008, within which to file both its administrative and judicial claim for refund or issuance of a tax credit certificate. Clearly, petitioner’s administrative claim filed on December 29, 2006 and judicial claim via the instant Petition for Review filed on December 07, 2007, were within the two-year prescriptive limit.
2. When it is shown on the ITR that the income payment received is being declared part of the taxpayer’s gross income Rhombus filed its Annual ITR for the year 2005 on April 17, 2006. Counting from the said date, petitioner had until April 17, 2008, within which to file both its administrative and judicial claim for refund or issuance of a tax credit certificate. Clearly, petitioner’s administrative claim filed on December 29, 2006 and judicial claim via the instant Petition for Review filed on December 07, 2007, were well within the two-year prescriptive limit.
3. When the fact of withholding is established by a copy of the withholding tax statement, duly issued by the payor to the payee, showing the amount paid and income tax withheld from that amount. Rhombus declared in its return the income related to the creditable withholding taxes sufficiently as found by CTA First Division. The Court likewise held that the members of the CTA First Division were in the best position as trial judges to examine the documents submitted in relation thereto, and to make the proper findings thereon. Given their expertise on the matter, we accord weight and respect to their finding that Rhombus had satisfied the requirements for its claim for refund of its excess creditable withholding taxes for the year 2005.
WHEREFORE, the Court REVERSES and SETS ASIDE the resolution issued by the Court of Tax Appeals En Banc and REINSTATES the decision rendered by the Court of Tax Appeals, First Division; and DIRECTS the Commissioner of the Bureau of Internal Revenue to refund to or to issue a tax credit certificate in favor of petitioner Rhombus Energy, Inc. in the amount of P1,500,653.00 representing excess creditable withholding tax for the year 2005.
Credit to: Emuelson Erce