Commissioner of Internal Revenue v. CA

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   G.R. No. 106611. July 21, 1994. COMMISSIONER OF INTERNAL REVENUE, Petitioner vs. COURT OF APPEALS,CITYTRUST BANKING CORPORATION and COURT OF TAX APPEALS, Respondents. D E C I S I O NREGALADO, J.:The judicial proceedings over the present controversy commenced with CTA Case No.4099, wherein the Court of Tax Appeals ordered herein petitioner Commissioner of InternalRevenue to grant a refund to herein private respondent Citytrust Banking Corporation (Citytrust)in the amount of P13,314,506.14, representing its overpaid income taxes for 1984 and 1985, butdenied its claim for the alleged refundable amount reflected in its 1983 income tax return on theground of prescription.(*1) That judgment of the tax court was affirmed by respondent Court of Appeals in its judgment in CA-G.R. SP No. 26839.(*2) The case was then elevated to us in thepresent petition for review on certiorari wherein the latter judgment is impugned and sought tobe nullified and/or set aside.It appears that in a letter dated August 26, 1986, herein private respondent corporationfiled a claim for refund with the Bureau of Internal Revenue (BIR) in the amount of P19,971,745.00 representing the alleged aggregate of the excess of its carried-over totalquarterly payments over the actual income tax due, plus carried-over withholding tax paymentson government securities and rental income, as computed in its final income tax return for thecalendar year ending December 31, 1985.(*3)Two days later, or on August 28, 1986, in order to interrupt the running of the prescriptiveperiod, Citytrust filed a petition with the Court of Tax Appeals, docketed therein as CTA CaseNo. 4099, claiming the refund of its income tax overpayments for the years 1983, 1984 and1985 in the total amount of P19,971,745.00.(*4)In the answer filed by the Office of the Solicitor General, for and in behalf of thereinrespondent commissioner, it was asserted that the mere averment that Citytrust incurred a netloss in 1985 does not ipso facto merit a refund; that the amounts of P6,611,223.00,P1,959,514.00 and P28,238.00 claimed by Citytrust as 1983 income tax overpayment, taxeswithheld on proceeds of government securities investments, as well as on rental income,respectively, are not properly documented; that assuming arguendo that petitioner is entitled torefund, the right to claim the same has prescribed with respect to income tax payments prior toAugust 28, 1984, pursuant to Sections 292 and 295 of the National Internal Revenue Code of 1977, as amended, since the petition was filed only on August 28, 1986.(*5)On February 20, 1991, the case was submitted for decision based solely on the pleadingsand evidence submitted by herein private respondent Citytrust. Herein petitioner could notpresent any evidence by reason of the repeated failure of the Tax Credit/Refund Division of theBIR to transmit the records of the case, as well as the investigation report thereon, to theSolicitor General.(*6)However, on June 24, 1991, herein petitioner filed with the tax court a manifestation andmotion praying for the suspension of the proceedings in the said case on the ground that the  claim of Citytrust for tax refund in the amount of P19,971,745.00 was already being processedby the Tax Credit/Refund Division of the BIR, and that said bureau was only awaiting thesubmission by Citytrust of the required confirmation receipts which would show whether or notthe aforestated amount was actually paid and remitted to the BIR.(*7)Citytrust filed an opposition thereto, contending that since the Court of Tax Appealsalready acquired jurisdiction over the case, it could no longer be divested of the same; and,further, that the proceedings therein could not be suspended by the mere fact that the claim for refund was being administratively processed, especially where the case had already beensubmitted for decision. It also argued that the BIR had already conducted an audit, citingtherefor Exhibits Y, Y-1, Y-2 and Y-3 adduced in the case, which clearly showed that there wasan overpayment of income taxes and for which a tax credit or refund was due to Citytrust. Theforegoing exhibits are allegedly conclusive proof of and an admission by herein petitioner thatthere had been an overpayment of income taxes. (*8)The tax court denied the motion to suspend proceedings on the ground that the case hadalready been submitted for decision since February 20, 1991. (*9)Thereafter, said court rendered its decision in the case, the decretal portion of whichdeclares: WHEREFORE, in view of the foregoing, petitioner is entitled to a refund butonly for the overpaid taxes incurred in 1984 and 1985. The refundable amount asshown in its 1983 income tax return is hereby denied on the ground of prescription.Respondent is hereby ordered to grant a refund to petitioner Citytrust Banking the amount of P13,314,506.14 representing the overpaid income taxes for 1984and 1985, recomputed as follows:1984 Income tax due P 4,715,533.00Less: 1984 Quarterlypayments P16,214,599.00*984 Tax Credits -W/T on int. ongov't. sec. 1,921,245.37*W/T on rentalinc. 26,604.30* 18,162,448.67Tax Overpayment (13,446,915.67)Less: FCDU payable 150,252.00Amount refundable for 1984 P(13,296,663.67)1985 Income tax due (loss) P - 0 -Less: W/T on rentals 36,716.47*Tax Overpayment (36,716.47)*Less: FCDU payable 18,874.00Amount Refundable for 1985 P (17,842.47)*Note:These credits are smaller than the claimed amount because  only the above figures are well supported by the variousexhibits presented during the hearing.No pronouncement as to costs.SO ORDERED. (*10)The order for refund was based on the following findings of the Court of Tax Appeals: (1)the fact of withholding has been established by the statements and certificates of withholdingtaxes accomplished by herein private respondent's withholding agents, the authenticity of whichwere neither disputed nor controverted by herein petitioner; (2) no evidence was presentedwhich could effectively dispute the correctness of the income tax return filed by hereinrespondent corporation and other material facts stated therein; (3) no deficiency assessmentwas issued by herein petitioner; and (4) there was an audit report submitted by the BIRAssessment Branch, recommending the refund of overpaid taxes for the years concerned(Exhibits Y to Y-3), which enjoys the presumption of regularity in the performance of officialduty.(*11)A motion for the reconsideration of said decision was initially filed by the Solicitor Generalon the sole ground that the statements and certificates of taxes allegedly withheld are notconclusive evidence of actual payment and remittance of the taxes withheld to the BIR. (*12) Asupplemental motion for reconsideration was thereafter filed, wherein it was contended for thefirst time that herein private respondent had outstanding unpaid deficiency income taxes.Petitioner alleged that through an inter-office memorandum of the Tax Credit/Refund Division,dated August 8, 1991, he came to know only lately that Citytrust had outstanding tax liabilitiesfor 1984 in the amount of P56,588,740.91 representing deficiency income and business taxescovered by DemandAssessment Notice No. FAS-1-84-003291-003296. (*13)Oppositions to both the basic and supplemental motions for reconsideration were filed byprivate respondent Citytrust. (*14) Thereafter, the Court of Tax Appeals issued a resolutiondenying both motions for the reason that Section 52 (b) of the Tax Code, as implemented byRevenue Regulation 6-85, only requires that the claim for tax credit or refund must show thatthe income received was declared as part of the gross income, and that the fact of withholdingwas duly established. Moreover, with regard to the argument raised in the supplemental motionfor reconsideration anent the deficiency tax assessment against herein petitioner, the tax courtruled that since that matter was not raised in the pleadings, the same cannot be considered,invoking therefor the salutary purpose of the omnibus motion rule which is to obviate multiplicityof motions and to discourage dilatory pleadings. (*15)As indicated at the outset, a petition for review was filed by herein petitioner withrespondent Court of Appeals which in due course promulgated its decision affirming the judgment of the Court of Tax Appeals. Petitioner eventually elevated the case to this Court,maintaining that said respondent court erred in affirming the grant of the claim for refund of Citytrust, considering that, firstly, said private respondent failed to prove and substantiate itsclaim for such refund; and, secondly, the bureau's findings of deficiency income and businesstax liabilities against private respondent for the year 1984 bars such payment. (*16)After a careful review of the records, we find that under the peculiar circumstances of thiscase, the ends of substantial justice and public interest would be better subserved by theremand of this case to the Court of Tax Appeals for further proceedings.  It is the sense of this Court that the BIR, represented herein by petitioner Commissioner of Internal Revenue, was denied its day in court by reason of the mistakes and/or negligence of itsofficials and employees. It can readily be gleaned from the records that when it was hereinpetitioner's turn to present evidence, several postponements were sought by its counsel, theSolicitor General, due to the unavailability of the necessary records which were not transmittedby the Refund Audit Division of the BIR to said counsel, as well as the investigation report madeby the Banks/Financing and Insurance Division of the said bureau, despite repeated requests.(*17) It was under such a predicament and in deference to the tax court that ultimately, saidrecords being still unavailable, herein petitioner's counsel was constrained to submit the casefor decision on February 20, 1991 without presenting any evidence.For that matter, the BIR officials and/or employees concerned also failed to heed the order of the Court of Tax Appeals to remand the records to it pursuant to Section 2, Rule 7 of theRules of the Court of Tax Appeals which provides that the Commissioner of Internal Revenueand the Commissioner of Customs shall certify and forward to the Court of Tax Appeals, withinten days after filing his answer, all the records of the case in his possession, with the pages dulynumbered, and if the records are in separate folders, then the folders shall also be numbered.The aforestated impasse came about due to the fact that, despite the filing of theaforementioned initiatory petition in CTA Case No. 4099 with the Court of Tax Appeals, theRefund Division of the BIR still continued to act administratively on the claim for refundpreviously filed therein, instead of forwarding the records of the case to the Court of TaxAppeals as ordered. (*18)It is a long and firmly settled rule of law that the Government is not bound by the errorscommitted by its agents. (*19) In the performance of its governmental functions, the Statecannot be estopped by the neglect of its agent and officers. Although the Government maygenerally be estopped through the affirmative acts of public officers acting within their authority,their neglect or omission of public duties as exemplified in this case will not and should notproduce that effect.Nowhere is the aforestated rule more true than in the field of taxation. (*20) It is axiomaticthat the Government cannot and must not be estopped particularly in matters involving taxes.Taxes are the lifeblood of the nation through which the government agencies continue tooperate and with which the State effects its functions for the welfare of its constituents. (*21)The errors of certain administrative officers should never be allowed to jeopardize theGovernment's financial position, (*22) especially in the case at bar where the amount involvesmillions of pesos the collection whereof, if justified, stands to be prejudiced just because of bureaucratic lethargy.Further, it is also worth noting that the Court of Tax Appeals erred in denying petitioner'ssupplemental motion for reconsideration alleging and bringing to said court's attention theexistence of the deficiency income and business tax assessment against Citytrust. The fact of such deficiency assessment is intimately related to and inextricably intertwined with the right of respondent bank to claim for a tax refund for the same year. To award such refund despite theexistence of that deficiency assessment is an absurdity and a polarity in conceptual effects.Herein private respondent cannot be entitled to refund and at the same time be liable for a taxdeficiency assessment for the same year.The grant of a refund is founded on the assumption that the tax return is valid, that is, thefacts stated therein are true and correct. The deficiency assessment, although not yet final,
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