8. PHIL. BANK OF COMMUNICATIONS v.
CIR
Ponente: Quisumbing, J.
DOCTRINE: 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. 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.
FACTS:
In 1985, petitioner Phil. Bank of Communications (PBCom) filed its quarterly income tax returns for the first
and second quarters of the year, reported profits, and paid the total income tax of P5,016,954.00.
Subsequently, PBCom suffered losses and declared in its Annual Income Tax Returns for the year-ended
December 31, 1985, a net loss of P25,317,228.00, thereby showing no income tax liability. For the
succeeding year ending December 31, 1986, it likewise reported a net loss of P14,129,602.00, and thus
declared no tax payable for the year.
o However, 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.
On August 7, 1987, PBCom requested the Commissioner of Internal Revenue for a tax credit of
P5,016,954.00 representing the overpayment of taxes in the first and second quarters of 1985.
On July 25, 1988, PBCom then 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.
Based on its net losses, PBCom’s claims for refund and tax credit are P5,299,749.50 for the year 1985 and
P234,077.69 for the year 1986.
CTA: DENIED PBCom’s request for tax refund or credit for the year 1985 on the ground that it was filed
beyond the two-year reglementary period provided for by law. It also denied the tax refund for the year
1986 was also DENIED on the assumption that it was automatically credited by PBCom against its tax
payment in the succeeding year.
o It later DENIED PBCom’s motion for reconsideration for lack of merit.
CA: PBCom filed a petition for review of said decision and resolution of the CTA with the Court of Appeals.
However, it AFFIRMED IN TOTO the CTA’s resolution.
PBCom argues that its claims for refund and tax credits are not yet barred 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 with the BIR with ten (10)
years under Article 1144 of the Civil Code.
ISSUE: W/N 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 period of two years to ten years? – NO.
HELD:
After a careful study of the records and applicable jurisprudence on the matter, we find that, contrary to
the petitioner's contention, the relaxation of revenue regulations by RMC 7-85 is not warranted as it
disregards the two-year prescriptive period set by law.
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. 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 NIRC 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.
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 quarterly income tax payments, such circular created a clear
inconsistency with the provision of Sec. 230 of 1977 NIRC. In so doing, the BIR did not simply interpret the
law; rather it legislated guidelines contrary to the statute passed by Congress.
Fundamental is the rule that the State cannot be put in estoppel by the 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 Internal Revenue is an administrative interpretation which is not in harmony 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.
WHEREFORE, the petition is hereby DENIED. The decision of the Court of Appeals appealed from is AFFIRMED,
with COSTS against the petitioner.
