CIR V SC JOHNSON INC

Facts: Respondent is a domestic corporation organized and operating under the Philippine Laws, entered into a licensed agreement
with the SC Johnson and Son, USA, a non-resident foreign corporation based in the USA pursuant to which the respondent was
granted the right to use the trademark, patents and technology owned by the later including the right to manufacture, package and
distribute the products covered by the Agreement and secure assistance in management, marketing and production from SC
Johnson and Son USA.

For the use of trademark or technology, respondent was obliged to pay SC Johnson and Son, USA royalties based on a percentage of
net sales and subjected the same to 25% withholding tax on royalty payments which respondent paid for the period covering July
1992 to May 1993 in the total amount of P1,603,443.00.

On October 29, 1993, respondent filed with the International Tax Affairs Division (ITAD) of the BIR a claim for refund of overpaid
withholding tax on royalties arguing that, the antecedent facts attending respondents case fall squarely within the same
circumstances under which said MacGeorge and Gillette rulings were issued. Since the agreement was approved by the Technology
Transfer Board, the preferential tax rate of 10% should apply to the respondent. So, royalties paid by the respondent to SC Johnson
and Son, USA is only subject to 10% withholding tax.

The Commissioner did not act on said claim for refund. Private respondent SC Johnson & Son, Inc. then filed a petition for review
before the CTA, to claim a refund of the overpaid withholding tax on royalty payments from July 1992 to May 1993.

On May 7, 1996, the CTA rendered its decision in favor of SC Johnson and ordered the CIR to issue a tax credit certificate in the
amount of P163,266.00 representing overpaid withholding tax on royalty payments beginning July 1992 to May 1993.

The CIR thus filed a petition for review with the CA which rendered the decision subject of this appeal on November 7, 1996 finding
no merit in the petition and affirming in toto the CTA ruling.

Issue: Whether or not tax refunds are considered as tax exemptions.

Held: It bears stress that tax refunds are in the nature of tax exemptions. As such they are registered as in derogation of sovereign
authority and to be construed strictissimi juris against the person or entity claiming the exemption. The burden of 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. Private
respondent is claiming for a refund of the alleged overpayment of tax on royalties; however there is nothing on record to support a
claim that the tax on royalties under the RP-US Treaty is paid under similar circumstances as the tax on royalties under the RP-West
Germany Tax Treaty.
 Belle Corporation v. CIR

G.R. No. 181298, January 10, 2011

FACTS:

Petitioner Belle, a domestic corporation engaged in the real estate and property business, filed with the BIR its income tax return
(ITR) for the first quarter of 1997. Subsequently, it filed with the BIR its second quarter ITR, declaring an overpayment of taxes. In
view of the overpayment, no taxes were paid for the second and third quarters of 1997. Instead of claiming the amount as a tax
refund, petitioner decided to apply it as a tax credit to the succeeding taxable year by marking the tax credit option box in its 1997
ITR. On April 12, 200, petitioner filed with the BIR an administrative claim for refund its unutilized excess income tax payments for
the taxable year 1997. Notwithstanding the filing of the administrative claim for refund, petitioner carried over the excess amount to
the taxable year 1999. Due to the inaction of the respondent CIR and in order to toll the running of the two-year prescriptive period,
petitioner appealed its claim for refund of unutilized excess income tax payments for the taxable year 1997 via petition for review.
The CTA denied the petition.

ISSUE: Whether petitioner is entitled to a refund of its excess income tax payments for the taxable year 1997

RULING:

No. In case the corporation is entitled to a refund of the excess estimated quarterly income taxes paid, the refundable amount
shown on its final adjustment return may be credited against the 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 tax refund or issuance of tax credit certificate shall be allowed therefor. Under Section 76 of the NIRC, in case
of overpayment of income taxes, the remedies are still the same; and the availment of one remedy still precludes the other. The
carry-over of excess income tax payments is no longer limited to the succeeding taxable year. Unutilized excess income tax
payments may now be accrued over to the succeeding taxable years until fully realized.

In this case, since the petitioner carried over its 1997 excess income tax payments to the succeeding taxable year 1998, it may no
longer file a claim for refund of unutilized tax credits for taxable year 1997. Once the option to carry over excess income tax
payments to the succeeding years has been made, it becomes irrevocable. Thus, applications for refund of the unutilized excess
income tax payments may no longer be allowed.
 University Physicians Services, Inc. – Management, Inc vs Commissioner of Internal Revenue

G.R. No. 205955 March 7, 2018

Is the Irrevocabilty Rule Under Sec. 76 Applicable to Tax Refund

FACTS:

On 16 April 2007, University Physicians Services, Inc. – Management, Inc. (UPSI-MI) filed its Annual Income Tax Return (ITR) for the
year ended 31 December 2006. UPSI-MI chose the option, and marked the corresponding box, “To be issued a tax credit certificate”
with respect to the unutilized excess creditable taxes for the taxable year ending 31 December 2006 amounting to ₱2,927,834.00..

In 2007, University Physicians Services, Inc. – Management, Inc. (UPSI-MI) changed its taxable period from calendar year to fiscal
year ending on the last day of March. Thus, UPSI-MI filed on 14 November 2007 an Annual Income Tax Return (ITR) covering the
short period from 01 January 2007 to 31 March 2007. The Annual ITR reflected an income tax overpayment of ₱5,159,341.00 as
“Prior Year’s Excess Credit” consisting of the following items:

Taxable Year 2005 – ₱2,231,507.00

Taxable Year 2006 – ₱2,927,834.00

On the same day, UPSI-MI amended the Annual ITR for the short period by excluding the sum of ₱2,927,834.00 under the line “Prior
Year’s Excess Credits”.

On 10 October 2008, UPSI-MI filed with the office of the Commissioner of Internal Revenue (CIR) a claim for refund and/or issuance
of a Tax Credit Certificate (TCC) in the amount of ₱2,927,834.00, representing the alleged excess and unutilized creditable
withholding taxes for taxable year 2006.

For failure of the CIR to act on the claim for refund/tax credit, UPSI-MI filed a Petition for Review before the Court of Tax Appeals on
14 April 2009.

Ruling of the Court of Tax Appeals

The CTA Division denied the petition for review for lack of merit. It reasoned that UPSI-MI effectively exercised the carry-over option
under Section 76 of the National Internal Revenue Code of 1997 (NIRC). On motion for reconsideration, UPSI-MI argued that the
irrevocability rule under Section 76 of the NIRC is not applicable for the reason that it did not carry over to the succeeding taxable
period the 2006 excess income tax credit. UPSI-MI added that the subject tax credits were inadvertently included in its original 2007
ITR, and such mistake was rectified in the amended 2007 ITR. Thus, UPSI-MI insisted that what should control is its election of the
option “To be issued a Tax Credit Certificate” in its 2006 ITR.

The CTA Division ruled that UPSI-MI’s alleged inadvertent inclusion of the 2006 excess tax credit in the 2007 original ITR belies its
own allegation that it did not carry over the said amount to the succeeding taxable period. The amendment of the 2007 ITR cannot
undo UPSI-MI’s actual exercise of the carry over option in the original 2007 ITR, for to do so would be against the irrevocability rule.

The CTA En Banc

The CTA En Banc ruled that UPI-MI is barred by Section 76 of the NIRC from claiming a refund of its excess tax credits for the taxable
2006. The barring effect applies after UPSI-MI carried over its excess tax credits to the succeeding quarters of 2007, even is such
carry-over was allegedly done inadvertently. The CTA En Banc emphasized that the prevailing law and jurisprudence admit of no
exception or qualification to the irrevocability rule.

UPSI-MI appealed to the Supreme Court contending, in part, that the irrevocability rule applies not only to the carry-over option but
also to the option of refund or tax credit. Thus, considering that it originally opted to be issued a tax credit certificate, its inadvertent
inclusion of the subject excess tax credit in its short period ITR has no effect.
ISSUE:

Whether UPSI-MI is entitled to the refund of its 2006 excess tax credits, for which it originally chose the option of refund/tax credit
in its 2006 ITR, when it thereafter indicated the option of carry-over in its ITR for the short period ending 31 March 2007

RULING: NO!

Section 76 of the NIRC provides:

“SEC. 76. – Final Adjustment Return. – Every corporation liable to tax under Section 27 shall file a final adjustment return covering
the total taxable income for the preceding calendar or 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 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.” (emphasis
supplied)

The irrevocability rule applies only to the option of carry over and not to the option of cash refund/tax credit.

The law is very clear. The irrevocability rule is limited only to the option of carry-over such that a taxpayer is still free to change its
choice after electing a refund of its excess tax credit. The law does not prevent a taxpayer who originally opted for a refund or tax
credit certificate from shifting to the carry-over of the excess creditable taxes to the taxable quarters of the succeeding taxable
years.

The Irrevocability Rule Applies to the Subsequent Election of the Option to Carry Over

Once the taxpayer opts to carry over such excess creditable tax, after electing refund or issuance of tax credit certificate, the carry-
over option becomes irrevocable. Accordingly, the previous choice of a claim for refund, even if subsequently pursued, may no
longer be granted.

Application of the Irrevocability Rule to UPSI-MI

Despite its initial option to refund its 2006 excess creditable tax, UPSI-MI subsequently indicated in its 2007 short period FAR that it
carried over the excess creditable tax and applied the same against its 2007 income tax due. By doing so, UPSI-MI constructively
chose the option of carry-over, for which reason, the irrevocability rule forbade it to revert to its initial choice. It does not matter
that UPSI-MI had not actually benefited from the carry over on the ground that it did not have a tax due in the 2007 short period.
Neither may it insist that the insertion of the carry-over in the 2007 FAR was by mere mistake or inadvertence. The irrevocability rule
admits of no qualifications or conditions.

Hence, UPSI-MI is barred from recovering the subject excess creditable tax through refund or TCC.
 Commissioner of Internal Revenue vs. TMX Sales, Inc.
G.R. No. 83736

Nature: Petition for review of the CTA decision granting the tax refund of TMX Sales for fiscal year 1981

Facts:

 May 15, 1981 – TMX Sales, Inc. (TMX) declared income of P571,174.91 and income tax of P247,010.00 for the 1st Quarter of
1981. However, TMX suffered losses in subsequent quarters.
 April 15, 1982 – TMX declared income of P904,122.00 with total deductions of P7,060,647.00 amounting to a net loss of
P6,156,525.00 for the year ending December 31, 1981.
 July 9, 1952 – TMX filed with the Appellate Division of BIR a claim for refund in the amount of P247,010.00 representing
overpaid income tax.
 The claim was not acted upon by the Commissioner of Internal Revenue (CIR).
 March 14, 1984 – TMX filed a petition for review before the Court of Tax Appeals (CTA) praying that CIR be ordered to refund
TMX the overpaid income tax.
 CIR answered that even if the amount is refundable, the petitioner is already barred from claiming the amount because the 2
year prescription period for erroneous tax collections has elapsed. TMX filed the questioned income tax on May 15, 1981 but
the claim is on March 14, 1984.
 April 29, 1988 – CTA granted the petition on the ground that the income tax paid is an installment of the total annual income tax
due and that under Section 292 of the Revenue Code the 2 year prescription should be counted from the date of the final
payment or last installment.
 CIR seeks the reversal of the CTA decision by contending that the basis for computing the 2 year prescription period should be
the date when the 1st quarterly income tax was paid (May 15, 1981) and not on the day when the Final Adjustment Return for
the year 1981 was filed (April 15, 1982).

Doctrine/Topic: Aids to Construction - Generally

Issue: WON the 2 year prescription period is based on the day the Final Adjustment Return was filed.

Ruling/Ratio Decidendi:

YES. Section 292, as interpreted using other provisions of the NIRC, supports the conclusion that the 2 year prescription period
should commence on the day the Final Adjustment Return was filed.

When there is ambiguity in a provision of the law, such interpretation that will avoid inconvenience and ambiguity is to be adopted .
Also, courts must give effect to the general legislative intent by considering the whole statute and not just certain provisions. In the
instant case, it is important to consider not only Section 292 but Sections 85, 86, 87 and 321 of the NIRC as well.

Section 292 provides that there is a 2 year prescription period to file suit for the refund of tax erroneously or illegally paid based on
the day the tax was paid. Section 85 provides that the method for computing corporate income tax return is on a cumulative basis .
Section 87, on the other hand, requires the filing of an adjustment returns and final payment of income tax. The P247,010.00 tax
refund prayed for by TMX according to its Final Adjustment Return is equal to the 1st quarter income tax paid by the said company.
Using Section 87 on cumulative method of filing, it is reasonable to find that the proper basis of the 2 year prescription period
should be at the time of filing the Final Adjustment Return when it can finally be ascertained if the taxpayer has additional tax to pay
or is entitled to a refund of overpaid income tax. Furthermore, Section 321 requires corporations with more than 25k gross quarterly
sales to be audited by an independent CPA yearly and that their income tax returns be certified by balance sheets and financial
statements. Only when the Adjustment return is filed that the taxpayer would know whether a tax is still due or a refund can be
claimed. Therefore, the payment of quarterly income tax should be considered as mere installments and that the 2 year prescriptive
period should commence at the date of the last installment. The same ruling was held in CIR vs. Antonio Prieto and CIR vs. Carlos
Palanca.

Decision: Petition is DENIED. The CA decision is AFFIRMED.