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ENBANC
COMMISSIONER
REVENUE,
OF
INTERNAL
Petitioner,
Present:
A COSTA, Presiding Justice,
CASTANEDA, JR.,
BAUTISTA,
UY,
CASANOVA,
PALANCA-ENRIQUEZ,
F ABON-VICTORINO,
MINDARO-GRULLA, and
COTANGCO-MANALASTAS, JJ.
-versus-
Promulgated:
MAY 0 8 2012
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X -------------------------------------------------------------------------------------------- X
DECISION
PALANCA-ENRIQUEZ, J..:
When the law is clear, there is no other recourse but to apply it regardless
of its perceived harshness. Dura lex sed lex (Obiasca vs. Basallote, 61 3 SCRA 11 9) .
As a court, our duty is to apply the law. We have no choice but to see to it that
the mandate ofthe law is obeyed.
(}fJt
THE CASE
This is a Petition for Review filed by the Commissioner of Internal
Revenue (hereinafter "CIR") under Section 3(b), Rule 8 of the 2005 Revised
the
Amended
1.
Respondent's denial due to prescnptwn of
MERALCO's claim for a tax refund or credit for the taxable
years 1994-1998 and 2000 is REVERSED and SET ASIDE;
2.
Respondent is ORDERED TO REFUND or TO
ISSUE A TAX CREDIT CERTIFICATE in favor of
MERALCO in the amount of P5,796,342,792 .71 ,
corresponding to the claim for a tax refund or credit for the
taxable years 1994-1998 and 2000, subject to and in
proportion that the refund or credit to future consumption
due to the customers concerned in the average amount of
PO .167 per kilowatthour arising from the Supreme Court's
Decision in G.R. Nos. 141314 and 141369, has been actually
given or credited to them by MERALCO.
SO ORDERED."
TIN
000-101-528-000
and
Certificate
of
Registration
THE FACTS
The facts, as found by the Second Division, are, as follows:
oP
No.
provisional increase of P0.184 per kwh, subject to the condition that after
hearing and evaluation, should MERALCO be entitled to a lesser increase in
rates, all excess amounts collected by MERALCO shall be refunded to its
customers or credited to their future consumption.
Thus, MERALCO paid the income tax due on its taxable income based
on gross electric revenue computed at an average basic distribution rate of
P2.996 per kwh (i.e., existing average rate of P2.812 per kwh, plus provisional
increase ofP0.184).
On February 16, 1998, the ERB rendered a decision granting a rate
increase of only P0.017 per kwh and ordering MERALCO to refund or credit to
its customers the average amount ofP0.167 per kwh beginning February 1994.
MERALCO appealed the decision of the ERB to the Court of Appeals,
docketed as CA-G.R. SP No. 46888.
Nos. 141314 and 141369 reversing the decision of the Court of Appeals, the
dispositive portion of which reads, as follows:
"WHEREFORE, in view of the foregoing, the instant
petitions are GRANTED and the decision of the Court of
Appeals in C.A. G.R. SP No. 46888 is REVERSED.
Respondent MERALCO is authorized to adopt a rate
adjustment in the amount of P0.017 per kilowatthour, effective
with respect to MERALCO's billing cycles beginning February
1994. Further, in accordance with the decision of the ERB
dated February 16, 1998, the excess average amount of P0.167
per kilowatthour starting with the applicant's billing cycles
beginning February 1998 is ordered to be refunded to
MERALCO's customers or correspondingly credited in their
favor for future consumption.
SO ORDERED."
On May 5, 2003, the decision of the Supreme Court became final and
executory.
Consequently, MERALCO's gross electric revenue during the taxable
years 1994-1998 and 2000-2001, taxable income and income tax liability were
reduced, thereby resulting to excess income tax payments, as follows:
(#t
YEAR
1994
1995
1996
1997
1998
2000
2001
TOTAL
ORIGINAL
TAXABLE
INCOME
REDUCED
TAXABLE
INCOME
~5 , 2 77, 6 7 6 , 049
6,036, 169,086
7,432,351 ,531
7,403 , 742,914
6,946,399,606
4,869,24 7,048
4,012, 193 , 155
1!41,977,779,389
3,447,481 ,566
4,526,289,260
4,275 ,202,476
3,629,126,440
1,373 ,796,730
387,079,475
1!20,712,595,692
INCOME TAX
ORIGINALLY
PAID
~I
,847, 186,617
2, I 12,659, 180
2,60 I ,323,036
2,591 ,3 I 0,020
2,361 ,775,866
I ,558, 159,055
1,283 ,901,810
1!14,356,315,584
INCOME TAX
ACTUALLY
PAID
~I
,075 , 766,911
I ,206,618,548
I ,584,20 I ,241
I ,496,320,866
I ,233 ,902,990
439,614,954
212,355 ,792
1!7 ,248, 781,302
EXCESS
INCOME TAX
~771 ,419 ,7 06
906,040,632
1,01 7, 12 1,795
1,094,989, 154
1'12 7, 872,876
I, 118,544, I 0 I
I ,071 ,546,018
1!7 ,1 07,534,282
On November 27, 2003, MERALCO filed a claim for tax refund or credit
of excess income tax payments with the CIR.
On May 4, 2005, due to inaction, MERALCO appealed to this Court in
Division its claim for refund or tax credit of excess income tax payment by way
of a "Petition for Review (Ad Cautelam )".
In her answer, by way of special and affirmative defenses, the CIR
alleged: this Court is without jurisdiction to entertain the instant petition;
MERALCO's assertion that the two (2)-year period should be reckoned from
the time the Supreme Court decision came out cannot be sustained; MERALCO
has no cause of action under the provision of solutio indebiti; equity belongs to
those who come to court with clean hands; MERALCO had the opportunity to
claim for refund as early as 1998 when the ERB issued its decision ordering
MERALCO to refund PO.l67 per kilowatthour to its consumers; and the
inequity of MERALCO is further exposed when it prayed for the refund of the
entire amount of alleged erroneously collected income taxes it paid from 1994-
{Mi
1998 and 2000-2001, when it has not even showed proof that it paid all of the
amounts it should refund to its consumers.
On November 22, 2005, MERALCO filed a "Motion for Leave to Amend
Petition for Review (Ad Cautelam)" with attached "Amended Petition for
Review (Ad Cautelam)" for the purpose of excluding its claim for tax refund or
credit for taxable year 2001 in the amount ofP1,071,546,018.00 on the ground
that on October 3, 2005, MERALCO received the letter-decision dated
September 21, 2005 from the CIR partially granting its administrative claim for
refund or credit for taxable year 2001 to the extent of P894,4 73,932.58, but
denying the claim for taxable years 1994-1998 and 2000 due to prescription. In
its "Amended Petition for Review (Ad Cautelam)", MERALCO prayed that it
be
refunded
or
issued
tax
credit
certificate
in
the
amount
of
C.T.A. EB NO . 773
(C.T.A. CASE NO. 7242)
DECISION
(JM
C.T.A. EB NO . 773
(C.T.A. CASE NO. 7242)
DECISION
Without necessarily giving due course to the Petition for Review, on May
27, 2011, we required MERALCO to file its comment, within ten (1 0) days
from notice.
On June 27, 2011, after it filed a "Motion for Extension of Time to File
Comment on Commissioner of Internal Revenue's Petition for Review",
MERALCO filed its Comment to the Petition for Review.
On July 7, 2011, we ordered both parties to file their simultaneous
memoranda, within thirty (30) days from notice; afterwhich, the petition shall be
deemed submitted for decision.
On August 22, 2011, MERALCO filed its "Memorandum". On the other
hand, on September 9, 2011, the CIR filed a "Motion to Admit Attached
Memorandum", which the Court, in the interest of substantial justice, granted in
its Resolution dated September 28, 2011, and the case was deemed submitted
for decision.
Petitioner CIR 's Arguments
The CIR argues that a claim for refund cannot be made after the two (2)year prescriptive period provided under Section 229 of the NIRC of 1997, as
amended. Since the claim for refund covers the taxable periods 1994 to 1998
and 2000, the Petition for Review filed on May 4, 2005 was evidently filed
beyond the prescriptive period, and with the recommendation of denial from the
10
11
C.T.A. EB NO . 773
(C.T.A. CASE NO . 7242)
DECISION
CTA En Bane under the ponencia of Associate Justice Juanita C. Castaneda, Jr.
in the case of Atlanta Land Corporation vs. Commissioner of Internal Revenue,
C. TA . EB No. 79, May 23, 2006 ("Atlanta case"), where the CTA En Bane
XXX.
@!(JJ
12
C.T.A. EB NO . 773
(C.T.A. CASE NO. 7242)
DECISION
added by P.D. No. 69 dated November 24, 1972 and was retained
in both the 1977 and 1997 National Internal Revenue Code. The
intent of the law is unmistakable, to establish as a condition sine
qua non that all claims and actions for refund of any tax or penalty
shall be filed within two years from the date of payment of such tax
or penalty, 'even if the taxpayer had no cause for refund as the tax
or penalty, was legally collected, and even if after the lapse of the
two-year period, a supervening cause should arise which would
entitle the taxpayer to refund.
We concur with the ruling of the Court in Division that 'the
two-year prescriptive period for filing an action for tax refund was
purposedly included in Section 229 of the 1997 NIRC to enable the
government to settle claims for refund at the earliest possible time
considering that taxes are the lifeblood of the Government and their
prompt and certain availability is an imperious need (Commissioner
of Internal Revenue vs. Pineda, 21 SCRA 105) . The availability of funds
from the collection of taxes cannot forever be left subject to the
contingency of refund brought about by certain acts which are
solely within the exclusive control of the private contracting
parties, otherwise, fiscal adequacy cannot be achieved."
The above CT A En Bane decision was affirmed by the Supreme
Court in G.R. No. 172773 , entitled "Atlanta Land Corporation vs.
Commissioner of Internal Revenue " in a Resolution dated June 18, 2007
(MJ
13
On August 22, 2007, the above Resolution of the Supreme Court dated
June 18, 2007 became final and executory and Entry of Judgment was
accordingly issued.
Considering that the Supreme Court had already settled that the reckoning
point of the two (2) year prescriptive period under Section 229 of the NIRC of
14
1994
1995
1996
1997
1998
2000
Date of Payment
of Tax
April
April
April
April
April
April
7, 1995
15, 1996
15, 1997
15, 1998
15, 1999
11 , 2001
Deadline to File
Administrative and
Judicial Claims
April 7, 1997
April 15, 1998
April 15, 1999
April 15, 2000
April 15, 2001
April 11 , 2003
Number of Years/Months
Late in Filing
Admini strati ve Claim
6 yrs, 7 months & 20 days
5 yrs, 7 months & 12 days
4 yrs, 7 months & 12 days
3 yrs, 7 months & 12 days
2 yrs, 7 months & 12 days
7 months & 16 days
Number of Years
Late in Filing
Judicial Clai m
8 yrs & 27 days
7 yrs & 19 days
6 yrs & 19 days
5 yrs & 19 days
4 yrs & 19 days
2 yrs & 23 days
Records show, however, that it was only on November 27, 2003 that
MERALCO filed with the CIR its administrative claim for refund or tax credit
of excess income tax payments for the years mentioned, and it was only on May
(MJ_
15
4, 2005 that MERALCO filed its judicial claim for refund or credit with this
Court in Division. Clearly, both the administrative and judicial claims were
filed way beyond the two (2)-year prescriptive period.
The two (2)-vear prescriptive period
under Section 229 is mandatory
"SEC. 229.
Collected.
XXX
XXX
Corollary thereto, the last sentence of Section 3 (a) (2) , Rule 4 of the 2005
Revised Rules of the CTA, as amended, provides: "xxx Provided, still further,
that in the case of claims for refund of taxes erroneously or illegally collected,
the taxpayer must file a petition for review with the Court prior to the
expiration of the two-year period under Section 229 of the National
Internal Revenue Code".
16
It is clear from the above provisions that Section 229 uses the phrase
"shall be filed" and not "may be filed", while Section 3 (a) (2) , Rule 4 of the
2005 Revised Rules of the CTA, as amended, uses the phrase "must file" and not
"may file", which clearly show that the two (2)-year period to file the claim for
refund or credit is mandatory, and not merely permissive. The use of the words
"shall" and "must" is imperative, operating to impose a duty. This is a settled
rule in this jurisdiction.
Section 229 o(the 1997 NIRC does not provide
(or any exception to give way to special
circumstances to justify relaxation o(the rule
We find it hard to agree with the ruling of the Second Division that
MERALCO is entitled to its claim for tax refund or credit for taxable years
1994-1998 and 2000 due to the special circumstance in the instant case and that
the two (2)-year prescriptive period should commence to run only on May 5,
2003, the date the decision of the Supreme Court in G.R. Nos. 141314 and
141369 had become final and executory, as it was only at that time that the right
to claim for a tax refund or credit had become determinable and the basis for the
excessive or erroneous payment had arisen.
As the former CTA En Bane had previously ruled in the Atlanta case,
Section 229 of the NIRC of 1997, as amended, does not provide for any
exception or qualification. However, as regards corporate income taxes, the
17
18
C.T.A . EB NO . 773
(C.T.A. CASE NO . 7242)
DECISION
19
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".
Without the strict observance of the two (2)-year prescriptive period, the
government will always be at the losing end, refunding taxes whenever
supervening cause arises even after the expiration of the two (2)-year period,
thus making the phrase "regardless of any supervening cause" futile and
inoperative.
Therefore, MERALCO's claim for refund should have been filed within
the two (2)-year prescribed period, reckoned from the dates the income taxes
thereon had been paid, and not from May 5, 2003, the date the decision of the
Supreme Court in G.R. Nos. 141314 and 141369 had become final and
executory. MERALCO's appeals to the Court of Appeals and to the Supreme
Court are both extraneous matters that occurred after payment of the tax, hence,
not relevant in determining the prescriptive period.~
C.T.A. EB NO . 773
(C.T.A. CASE NO . 7242)
DECISION
20
&JJ1
21
MERALCO when it paid income taxes to the BIR for the years 1994-1998 and
2000. MERALCO was fully aware ofthe status of its application for revision of
its rate schedule and the proceedings that transpired thereafter. It was fully
aware that the increase granted to it in the ERB Order dated January 28, 1994
was merely provisional and subject to the condition that after hearing and
evaluation, should MERALCO be entitled to a lesser increase in rates, all excess
collected by MERALCO shall be refunded to its customers or credited to their
future consumption. At the outset, when the ERB provisionally granted and
subjected to a condition its application for increase, MERALCO should have
known the consequences of a possible reduction of its application.
Thusly:
"Neither can we hold PEA liable based on solutio indebiti,
the legal maxim that no one should enrich itself at the expense of
another. As we explained in Powton Conglomerate, Inc. vs.
Agcolicol,
'the principle of unjust enrichment cannot be validly invoked
by the respondent who, through his own act or omission, took the
risk of being denied payment for additional costs by not giving the
petitioners prior notice of such costs and/or by not securing their
written consent thereto, as required by law and their contract.'
xxx
22
support of its claim for refund or credit on the ground of equity considerations,
the Supreme Court declared:
"When money is paid to another under the influence of a
mistake of fact, that is to say, on the mistaken supposition of the
existence of a specific fact, where it would not have been known
that the fact was otherwise, it may be recovered. The ground upon
which the right of recovery rests is that money paid through
misapprehension of facts belongs in equity and in good conscience
to the person who paid it" (4 Am. Jur. 514) .
Thus, pursuant to the above rulings of the Supreme Court, there is no
mistake of fact on the part of MERALCO. MERALCO, therefore, cannot
validly invoke the provision of unjust enrichment.
Equitv applies only in the absence o(law
We cannot likewise agree with the Second Division's ruling that "if the
circumstances warrant, the interpretation on the law on prescription may be
relaxed for equitable reason".
Basic is the rule that equity is applied only in the absence of, and never
against statutory law or judicial rules of procedure (Mendio la vs. Court of Appeals,
258 SCRA 502). Thus:
23
of St. Mathew Christian Academy vs. Metropolitan Bank and Trust Co., 614
SCRA 61-62).
Verily, equity will operate only in cases where there are no applicable
law or rule or when the provisions and interpretation of the law are doubtful,
which is not obtaining in this case.
In this case, considering the clear and explicit provision of Section 229 of
the NIRC of 1997, as amended, equity will not apply; otherwise, it would be
tantamount to overruling or supplanting the express provision of the law.
All the foregoing considered, we have no alternative, but to deny
MERALCO's claim for refund for having been filed way beyond the two (2)year prescribed period.
reversed.
SO ORDERED.
~A~-~
Associate Justice
24
WE CONCUR:
L-u.-
o~
ERNESTO D. ACOSTA
Associate Justice
Q_~,;, c.. ~~ ~ .
ER~UY
As~~~~ice
(I join
Justi~
R. Bautista's
Dissenting Opinion)
CAESAR A. CASANOVA
Associate Justice
~ N .M~~,CnJL
(I join the Dissenting Opinion of
Justice Lovell R. Bautista)
CIELITO N. MINDARO-GRULLA
Associate Justice
AMELIA R. COTANGCO-MANALASTAS
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, it is hereby
certified that the above Decision has been reached in consultation with the
members of the Court En Bane before the case was assigned to the writer of the
opinion of the Court.
L~
- v~
ERNESTO D. ACOSTA
Presiding Justice
COMMISSIONER OF INTERNAL
REVENUE,
Petitioner,
Present:
Acosta, P.J.,
Castaneda, Jr.,
Bautista,
-versus-
Uy,
Casanova,
Palanca-Enriquez,
Fa bon-Victorino,
Mindaro-Grulla, and
Cotangco-Manalastas, JJ.
Promulgated:
!lf<l/t~~
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,
x----------------------------------------------------------------------------------x
MAY 0 B2012
I concur in the decision penned by Associate Justice Olga PalancaEnriquez and vote to GRANT the Petition for Review based on the grounds set
forth in the decision and on the following grounds:
I.
ft-
I.
The claim has already prescribed.
In a claim for refund, a taxpayer must prove not only his entitlement to a
refund but also his compliance with the procedural due process as nonobservance of the prescriptive periods within which to file the administrative and
1997 National Internal Revenue Code (NIRC) allows the taxpayer a period of two
(2) years from date of payment of the tax regardless of any supervening
cause within which to file a claim for refund. This provision, which is,
mandatory, is not subject to any qualification, and, hence, it applies regardless of
the conditions under which the payment has been made.
categorically states:
SEC. 229.
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 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 excessively or in any
manner wrongfully collected until a claim for refund or
credit 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
duress.
The law is clear and unambiguous. Under the verba legis rule, if the words
of the law are clear, plain, and free from ambiguity, it must be given its literal
Commissioner of Internal Revenue v. Aichi Forging Company ofAsia, Inc., G.R. No. 184823, October 6, 20 10, 632
SCRA 422.
2
Guagua Electric Light Plant Co., Inc. vs. Collector of internal Revenue, G.R. No. 14421 , April 29, 196 1, I SCRA
1221, 1225.
j=-
All
that has to be done is to apply it in every case that falls within its terms. 5
Applying the above provision to the instant case, prescription has already
set in, both in the administrative level (November 27, 2003) and judicial level
(May 4, 2005) for the taxable years 1994-1998 and 2000. As expressly stated by
law, the two (2)-year prescriptive period has already lapsed reckoned from the
date of payment of the tax without consideration to any supervening cause that
may arise after payment.
I.b
government~
Commissioner of Internal Revenue vs. Central Luzon Drug Corporation, G.R. No. 1596 10, June 12, 2008, 554 SCRA
398.
4
Carmelino F. Pansacola vs. Commissioner of Internal Revenue, G.R. No. 15999 1, November 16, 2006, 507 SCRA 8 1
citing the case of Allied Brokerage Corporation vs. Commissioner of Customs, No. L- 2764 1, August 3 1, 197 1, 40
SC RA 555, 559, 560.
5
Ibid.
the CTA En Bane denied the claim for refund for being time-barred.
The court disregarded the supervening causes such as the rescission of dacion
en pago arrangement and subsequent enactment of RA 9182 or "The Special
Purpose Vehicle Act" in reckoning the 2-year prescriptive period. The court
explained that the availability of funds from the collection of taxes cannot
Vitug and Acosta, Tax Law and Jurisprudence, Third Edition, page 2.
C.T.A. EB No. 79, May 23, 2006. Penned by Associate Justice Juanito C. Castaneda, Jr., with Presiding Justice
Ernesto D. Acosta, Associate Justices Lovell R. Bautista, Erlinda P. Uy, Caesar A. Casanova, and Olga PalancaEnriquez, concurring. Affirmed in G.R. No. 172773 dated June 18, 2007.
8
/bid.
9
Philippine Bank ofCommunications vs. Commissioner of Internal Revenue, G.R. No. 112024, January 28, 1999,302
SCRA 241, 250.
7
In the recent case of United States vs. Clintwood Elkhorn Mining Co. et
a!., 10 (Clintwood case) US Supreme Court was unanimous in holding that the US
Internal Revenue Code which provides for a two (2) and three (3)-year period of
limitations in a claim for refund prevails over the longer period of limitations
under the Tucker Act. In the said case, the taxpayers sought the refund of coal
taxes which was later on ruled as unconstitutional. The US Supreme Court
explained the rationale of the period of limitation in a claim for tax refund in this
wise:
XXX
XXX
jc-
No. 07-308, Apri l 15, 2008, 553 U.S._ (2008), http ://www.supremeco urt. gov/op ini ons/07pd f/07-308.pdf
XXX
XXX
)()()(
)()()(
Supra note I 0.
Supra note I 0.
XXX
XXX
l.c Meralco's
overcharges from
1994-1998 and 2000 were
and
actually
received
recognized in the said years.
Income is taxable in the year
realized and not in the year
when court litigation has
ended involving the same
income.
Accordingly,
prescription in refund begins
to run upon recognition of
income.
13
Supra note I 0.
)k-
reported the same as income, hence, prescription begins to run when petitioner
recognizes income from overcharges.
15
utility company, in the course of rate dispute, had certain funds made available
to it by an interlocutory order of court, subject to the taxpayer's posting of a
security bond or securities of equal value. The taxpayer preferred not to take the
funds on such conditions, and instead took them at the conclusion of litigation
two years later. The taxpayer realized income in the earlier year under the claimof-right rule, because the taxpayer had the power to secure the release of the
funds, that is, there remained no effective restriction upon the taxpayer's
dominion over them. In the present case, Meralco actually received and ~
14
Merten 's The Law of Federal Income Taxation , Section 12A. l45, Volume 2, (1995) citing Safety Tube Corp. v.
Comm., 8 TC 757 (1947), atfd 168 F2d 787 (CCA6 1948); Westover Co. v. Smyth, 43 AFTR 1283 (ND Cal 1951),
citing Mertens text; Johns v. Comm ., TC Memo 1956-119; Mensik v. Comm., 37 TC 703 (1962), affd 328 F2d 147
(CA7 1964); Marquardt Corp. v. Comm., 39 TC 443 ( 1962).
15
As cited in Merten 's The Law of Federal Income Taxation, Section 12A.l52, Volume 2, ( 1995).
In the case of S. Lowenstein & Son Inc. v. Comm., 21 TC 648, affd 222
F2d 919 (CA6 1955)/
16
Supra note 15, Section 12A.146 citing Gaddis v. US., 330 F Supp 74 1 (D Miss 1971 ).
Supra note 15, Section 12A. 146 citing E.g., IRC Section 162(a). See Grandview Mines v. Comm., 32 TC 759 ( 1959),
affd 282 F2d 700 (CA9 1060); Berger v. Comm. , 37 TC 1026 (1962). See also Equitable Life Ins. Co. oflowa v. U.S.,
340 F2d 9 (CA8 1965); National Life & Accident Ins. Co v. U.S., 244 F Supp 135 (MD Tenn 1965), citing Mertens
text, affd 385 F2d 832 (CA6 1967) (deductions under life insurance companies' provisions of the Code).
18
Ibid., citing Oswald v. Comm., 49 TC 645 ( 1968).
19
Ibid., citing Comm. V. Switlik, 184 F2d 299 (CA3 1950); O ' Meara v. Comm., 8 TC 622 ( 1947).
20
As cited in Merten 's The Law of Federal Income Taxation, Section 12A. I46, Volume 2, (1995).
21
Commissioner of Internal Revenue vs. Solidbank Corporation, G.R. No. 148191 , November 25, 2003, 416 SCRA
436, 453.
17
Income Tax
22
22
23
l.d
24
In the case of North American Oil Consolidated v. Burnet, 286 U.S. 417
(1932)/
(North American case) the United States Supreme Court held that
North American became entitled to the funds in 1917 under a claim of right, the
year when it received funds subject of ongoing litigation NOT in the year 1922
when the case was finally resolved . Such rule gave substance to the annual
accounting period as it afforded finality to the tax year by not holding it open
24
25
J-c--
until the eventual resolution of the dispute. 26 Following this argument, the
reckoning of the two (2)-year prescriptive period under Section 229 of 1997
NIRC shou ld all the more apply in this case counting from the filing of ITR and
payment of tax because Meralco declared the overcharges as income even
before the Supreme Court decided the case with finality. Meralco's provisional
increase was undeniably treated as income thereby forming part of Meralco's
taxable income in the year of receipt.
For taxable year 1994, the reckoning of the two (2)-year period should be
on April 7, 1995 when Meralco unqualifiedly recognized the overcharges as
income. The same applies for succeeding taxable years as shown below:
Date annual
ITR filed and
tax paid
7 April 1995 27
1995
1996
1997
1998
2000
15
15
15
13
11
26
April
April
April
April
April
1996
1997
1998
1999
2001
Ltl
29
30
31
jL
Administrative
claim
November 27,
2003
-do-do-do-do-do-
Ibid.
Respondent' s Formal Offer of Evidence, Exhibit "FF"
28
Respondent's Formal Offer of Evidence, Exhibit " II"
29
Respondent's Formal Offer of Evidence, Exhibit " LL"
30
Respondent's Formal Offer of Evidence, Exhibit "00"
31
Respondent's Formal Offer of Evidence, Exhibit " RR"
32
Respondent' s Formal Offer of Ev idence, Exhibit "XX"
27
Judicial claim
(Original)
May 4, 2005
-do-do-do-do-do-
Judicial claim
(Amended)
November 22,
2005
-do-do-do-do-do-
knowing fully well the uncertainty and possible reversal of its case before the
Supreme Court. When it took the risk of imposing higher rates to its consumers,
it also assumed the risk of paying excess income taxes bearing in mind that the
prescriptive period for refund disregards any supervening cause that may arise
after payment.
If at all,
33
As cited in Merten ' s The Law of Federal Income Taxation , Section 12A. I50, Volume 2, ( 1995) citing Nordberg v.
Comm., 79 TC 655 ( 1982), affd 720 F2d 658 (CA l 1983), quoting Hope v. Comm ., 55 TC 1020 (197 1), affd 471 F2d
738 (CA3 1972), cert den 4 14 US 824 ( 1973).
II.
The claim was not duly proven.
Tax refunds are in the nature of tax exemptions. As such, they are
regarded as in derogation of sovereign authority and to be construed
34
strictissimi
proof is upon him who claims the exemption in his favor and he must be able to
justify his claim by the clearest grant of organic or statute law and cannot be
permitted to exist upon vague implications.
35
strictissimi scrutinized
36
Assuming without conceding, Meralco's claim has not yet prescribed, the
claim is at best premature and would still fail with respect to the overcharges not
yet refunded to petitioner's consumers. The amount to be refunded has not yet
been fully returned to the consumers. In Meralco's Notes to Financial
34
Commissioner of Internal Revenue vs. S.C. Johnson and Son, Inc., G. R. No. 127 105, Ju ne 25, 1999,309 SCRA 87,
I 08 citing Commissioner of Internal Revenue vs. Tokyo Shipping Co., Ltd., 244 SCRA 332; Province of Tar lac vs.
Alcantara, 2 16 SCRA 790, Magsaysay Lines, Inc. vs. Court ofAppeals, 260 SCRA 5 13.
35
Ibid.
36
Commissioner of Internal Revenue vs. Far East Bank & Trust Co. (now BPI), G.R. No. 173854, March 15, 20 10,
6 15 SCRA 4 17, 43 1 citing Atlas Consolidated Mining and Development Corporation v. Comm issioner of Internal
Revenue, G. R. No. 159490, February 18, 2008, 546 SCRA 150, 163.
jk-
Statements37 for the year ended December 31, 2007, assuming the previous
payments were indeed repaid, there remained an estimated balance of P14,396M
not yet refunded.
In light of the foregoing, I vote to GRANT the "Petition for Review" filed
by Commissioner of Internal Revenue, and accordingly REVERSE and SET ASIDE)k-
37
38
the Decision dated December 6, 2010 and Resolution dated April 15, 2011
rendered by the CTA Second Division.
a~~e~u
En Bane
COMMISSIONER OF INTERNAL
REVENUE,
Petitioner,
-versus-
Promulgated :
MAY 0 8 2012
61lf~
/,'lfo
/'/~,
X-------------------------------------------------------------------------------------------------X
DISSENTING OPINION
BAUTISTA,[.:
Applying the basic postulate that no one should unjustly enrich himself at
the expense of anotl1er, the caveat likewise covers the government,! the return of
what was erroneously paid - respondent's right to claim for refund - emanates
from the said principle, and not from Section 229 of the 1997 NIRC, as amended.
In conhast to the disquisition made by the majority, I find the Petition for
Review bereft of merit.
1 Conunissioner of Internal Rev enue v. Mirant Pagbilao Corporation [Formerly Southern Energy Quezon,
Inc.]. G.R. No. 172129, September 12, 2008, 565 SCRA 154, citing Commissioner of lntemal Revenue v. Fireman 's
Fnmi ln'"mna CD., No. L-30644, M"d' 9, 1987, 148 SCRA 315.
~
DISSENTING OPINION
CT A EB CASE NO. 773 (CT A Case No. 7242)
Page 2 of 11
no such suit or proceeding shall be filed after the expiration of two (2) years from the date
of payment of the tax or penalty regardless of any supervening cause that may arise after
payment," the factual milieu surrounding the case at bench, however, deserves this
Court's recognition as well.
Based on the records of the case, on January 28, 1994, the then Energy
Regulatory Board ("ERB") issued an Order, docketed as ERB Case No. 93-118,
which states as follows :
WHEREFORE, premises considered, and in accordance with
Section 8 of Executive Order No. 172 and the applicable provisions of
the Public Service Act, as amended, this Board hereby provisionally
authorizes applicant Manila Electric Company to adopt and
implement the attached rate schedules
embodying the
aforementioned rate adjustment in the average amount of 18.4
centavos per kwh, effective with respect to applicant's billing cycles
beginning February 1994.
In the event, however, that the Board finds, after hearing and
submission by the Commission on Audit of an audit report on the
books and records of account of the applicant, that the latter is entitled
to a lesser increase in rates, all excess amounts collected from the
applicant's customers as a result of this Order shall be refunded
'.
DISSENTING OPINION
CT A EB CASE NO. 773 (CT A Case No. 7242)
Page 3 of 11
XXX
XXX
DISSENTING OPINION
CT A EB CASE NO. 773 (CT A Case No. 7242)
Page 4 of 11
SO ORDERED.4
Lastly, on November 15, 2002, the Supreme Court rendered the following
in the case of Republic of the Philippines, et al., v. Manila Electric Company, Inc.,
docketed as G.R. Nos. 141314 and 141369, to wit:
WHEREFORE, in view of the foregoing, the instant petitions are
GRANTED and the decision of the Court of Appeals in CA. G.R. SP
No. 46888 is REVERSED. Respondent MERALCO is autl1orized to
adopt a rate adjustment in the amount of P0.017 per kilowatiliour,
effective with respect to MERALCO' s billing cycles begilming Februmy
1994. Further, in accordance with the decision of the ERB dated
February 16, 1998, the excess average amount of P0.167 per
kilowatthour starting with the applicant's billing cycles beginning
February 1998 is ordered to be refunded to MERALCO's customers or
correspondingly credited in their favor for future consumption.
SO ORDERED.s (Boldfacing supplied.)
From the issuance of the ERB Order dated January 28, 1994 that respondent
MERALCO was authorized to adopt and implement the rate adjusb.nent in the
average amount of P0.184 per kilowatiliour, effective with the billing cycles
beginning February 1994, until the Supreme Court finally ruled that only a rate
adjusb.nent in the amount of P0.017 per kilowatthour is considered just and
reasonable, the case at bench may have consequences which cannot just be simply
4 !d., at p. 245 .
s /d., at p . 273 .
DISSENTING OPINION
O'A EB CASE NO. 773 (O'A Case No. 7242)
Page 5 of 11
return and paid the income tax thereon, it is beyond cavil that neither the right to
claim for refund can be determined nor there was basis for MERALCO to know
that the income tax payments for the taxable years 1994-1998 and 2000 were
erroneous and excessive.
Decision in G.R. Nos. 141314 and 141369 became final and executory on May 5,
2003."6 Thus, I agree with the following disquisitions:
In the instant case, it is clear that MERALCO' s right to claim for
a tax refund for the taxable years 1994-1998 and 2000 cannot yet be
ascertained or determined at the filing of the final adjustment return.
XXX .
Rollo, p.43.
Ibid., p. 44.
8 Commissioner of Internal Revenue v. Philippine Phosphate Fertilizer Corporation, G.R. No. 144440,
September 1, 2004, citing Gonzalo Puyat & Sons, Inc. v. Citjt of Manila, et al., 117 Phil. 985, 989 (1963) . See also
Citibank N.A. v. Court of Appeals, 345 Phil. 695, 713 (2001) .
9 ART. 1145. The following actions must be conunenced wiU1in six years:
6
SXX
XXX
XXX
DISSENTING OPINION
DISSENTING OPINION
CT A EB CASE NO. 773 (CIA Case No. 7242)
Page 7 ofll
Reckoning from the time the Supreme Court's ruling became final on May
5, 2003, respondent had until May 5, 2009 within which to file its claim under the
principle of solutio indebiti; the administrative claim was filed on November 23,
2003, while the Petition for Review before this Court was filed on May 4, 2005.
Clearly then, respondent's right to refund has not yet prescribed.
For this Court to rule that the right to recover its excess income tax has
prescribed under the foregoing circumstances would be to deprive the law of its
quality of fairness and justice then, if there is no recognition of what had
hanspired prior to such adjudication.1 2
Thus, the principle of solutio indebiti should be applied in the present case.
The government should not use technicalities to hold on to money that does not
belong to it.13
I further quote with approval the ruling made in the assailed Decision, to
wit:
The Notes to Financial Statements, attached to MERALCO's
Audited Financial Statements for the years ended December 31, 2003
and 2002, stated:
"xxx The loss arising from the SC decision amounted
to ~28,728 million, which represents the amount of refund
to its customers of ~0.167 per kwh for billing cycles from
February 1994 to December 31, 2002. The Company's 2002
financial statements have been restated to reflect U1e loss
arising from the SC decision. Refunds covering the periods
February 1994 to December 31, 2001, amounting to ~23,817
Columbia Pictures, Inc. v. Court of Appeals, G.R. No. 110318, August 28, 1996, 261 SCRA 144, 168.
Southern Philippines Power Corporation v. Conunissioner of Internal Revenue, G.R. No. 179632, October
19, 2011, d ti"g Store Umd /"'"""""/ Coryomtioo v. Commi"''"" of'"'"'"/ R""""' G.R. No. 171956, J o J
18,2008,542 SCRA 114, 123.
12
13
DISSENTING OPINION
CfA EB CASE NO. 773 (CfA Case No. 7242)
Page 8 of 11
million, net of tax effect for 1999 of ~1,126 million (see Note
23), were accounted for as an exhaordinary loss in the 2002
statement of income. Refunds covering the period Janua1y
1, 2002 to December 31, 2002, amounting to ro,785 million
were reflected as a reversal of 2002 revenues. The related
tax effect of ~1,133 million is reflected as a reduction in the
provision for income tax (see Note 23). The Company's
revenues for the first five months of 2003 were adjusted to
reflect a rollback of its distribution rates totalling
approximately ~1,595 million."
Based from the foregoing, the amounts to be refunded to or
credited against future consumption of MERALCO's customers
pursuant to the Supreme Court Decision in G.R. Nos. 141314 and
141369 totalled ro0,323 million, broken down as follows:
Period Covered
Feb. 1994 to December 31, 2001
Jan. 1, 2002 to Dec. 31, 2002
Jan. 1 to May 2003
Amount of Refund
(in millions)
24,943
~
3,785
1,595
30,323
12
DISSENTING OPINION
CIA EB CASE NO. 773 (CIA Case No. 7242)
Page 9 ofll
DISSENTING OPINION
CIA EB CASE NO. 773 (CIA Case No. 7242)
Page 10 ofll
2002
p
2003
2004
(AMOUNTS EN MELUONS)
p
p 25,608
28,728
1,595
p.. 25,608
p
30,323
4,715
5,057
p 25,608
p 20,551
2005
p 20,551
Balance, January 1
Add:
Set up of Refund
Subtotal
Less:
Refunded
Balance, December 31
Present Value Effect
Balance as shown in Balance Sheet, Dec. 31 (Nominal)
F 28,728
25,608
F 22,594
6,134
p 28,728
6,919
18,689
25,608
12
5,409
15,142
12 20,551
12 15,523
4,715
25,608
p 30,323
p 10,566
28,728
p 28,728
F 28,728
28,728
F 28,728
p
p
20,551
9,772
20,551
F 30,323
p 20,551
794
F 19,757
(4,234)
p 15,523
12 3,787
11,736
14
19,757
30,323
DISSENTING OPINION
0' A EB CASE NO. 773 (0' A Case No. 7242)
Page 11 ofll
Company, Inc,15 I see no reason to deviate from the pronouncement that the order
of refund or issuance of tax credit certificate is subject to and in proportion to the
refund/ credit to future consumption due to respondent's customers in the
average amount of F0.167 per kilowatthour. Indeed, it will amount to injustice if
respondent
can
recover
all
the
excess
income
tax
payments
without
WE CONCUR:
-#---
CAESAR A. CASANOVA
Associate Justice
~N.M~~-C~
CIELITO N. MINDARO-GRULLA
Associate Justice
AMELIA R. COTANGCO-MANALASTAS
Associate Justice
15
G.R. Nos. 141314 and 141369, N ovember 15, 2002, 391 SCRA 700.