CIR Vs CTA Digest

T31
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.
REGALADO, J.:
I. Facts:
On August 26, 1986, private respondent Citytrust Banking Corporation filed a claim for refund with the BIR
in the amount of P19,971,745.00 representing the aggregate of the excess of its carried-over total quarterly payments
over the actual income tax due, plus carried-over withholding tax payments on government securities and rental
income, for the calendar year ending December 31, 1985.
Two days later, in order to interrupt the running of the prescriptive period, Citytrust filed a petition with the
Court of Tax Appeals, claiming the refund of its income tax overpayments for the years 1983, 1984 and 1985 in the
total amount of P19,971,745.00.
OSG filed an answer in behalf of the commissioner. It asserted that the mere averment that Citytrust incurred
a net loss 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, taxes withheld on proceeds of government securities
investments, as well as on rental income, respectively, are not properly documented; that assuming arguendo that
petitioner is entitled to refund, the right to claim the same has prescribed with respect to income tax payments prior to
August 28, 1984, pursuant to Sections 292 and 295 of the NIRC, since the petition was filed only on August 28, 1986.
On June 24, 1991, petitioner filed with the tax court a manifestation and motion praying for the suspension
of the proceedings in the said case on the ground that the claim of Citytrust for tax refund was already being processed
by the Tax Credit/Refund Division of the BIR, and that said bureau was only awaiting the submission by Citytrust of
the required confirmation receipts which would show whether or not the aforestated amount was actually paid and
remitted to the BIR.
Citytrust filed an opposition, contending that since the CTA already acquired jurisdiction over the case, it
could no longer be divested of the same and that the case had already been submitted for decision.
It also argued that the BIR had already conducted an audit which clearly showed that there was an
overpayment of income taxes.
The tax court denied the motion to suspend proceedings on the ground that the case had already been
submitted for decision since February 20, 1991.
CTA rendered its decision declaring that Citytrust is entitled to a refund but only for the overpaid taxes
incurred in 1984 and 1985. The refundable amount as shown in its 1983 income tax return is denied on the ground of
prescription.
The OSG filed a motion for the reconsideration.
A supplemental motion for reconsideration was thereafter filed, wherein it was contended that private
respondent had outstanding tax liabilities for 1984 in the amount of P56,588,740.91 representing deficiency income
and business taxes covered by Demand/Assessment Notice.
Citytrust filed oppositions to both the basic and supplemental motions for reconsideration.
The CTA denied both motions for the reason that Section 52 (b) of the Tax Code, as implemented by Revenue
Regulation 6-85, only requires that the claim for tax credit or refund must show that the income received was declared
as part of the gross income, and that the fact of withholding was duly established. With regard to the argument raised
in the supplemental motion for reconsideration anent the deficiency tax assessment against herein petitioner, the tax
court ruled that since that matter was not raised in the pleadings, the same cannot be considered.
A petition for review was filed by petitioner with CA which affirm judgment of the CTA.
Hence this petition.
II. Issue: Whether or not the CA erred in affirming the grant of the claim for refund of Citytrust despite of
having deficiency income and business tax liabilities for the year 1984.
III. Ruling:
WHEREFORE, the judgment of respondent Court of Appeals in CA-G.R. SP No. 26839 is hereby SET
ASIDE and the case at bar is REMANDED to the Court of Tax Appeals for further proceedings and appropriate action,
more particularly, the reception of evidence for petitioner and the corresponding disposition of CTA Case No. 4099
not otherwise inconsistent with our adjudgment herein.
IV. Ratio Decidendi:
The BIR officials and/or employees concerned failed to remand to the CTA the records of the case pursuant
to Sec. 2, Rule 7 of the Rules of the CTA which provides that the Commissioner of Internal Revenue and the
Commissioner of Customs shall certify and forward to the Court of Tax Appeals, within ten days after filing his
answer, all the records of the case in his possession, with the pages duly numbered, and if the records are in separate
folders, then the folders shall also be numbered.
It is axiomatic that 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 to operate and with which the
State effects its functions for the welfare of its constituents. The errors of certain administrative officers should never
be allowed to jeopardize the Government's financial position.
The CTA erred in denying petitioner's supplemental motion for reconsideration alleging the existence 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.
The private respondent cannot be entitled to refund and at the same time be liable for a tax deficiency assessment for
the same year.
Section 82, Chapter IX of the NIRC of 1977, which was the applicable law when the claim of Citytrust was
filed, provides that "when an assessment is made in case of any list, statement, or return, which in the opinion of the
Commissioner of Internal Revenue was false or fraudulent or contained any understatement or undervaluation, no tax
collected under such assessment shall be recovered by any suits unless it is proved that the said list, statement, or
return was not false nor fraudulent and did not contain any understatement or undervaluation; but this provision shall
not apply to statements or returns made or to be made in good faith regarding annual depreciation of oil or gas wells
and mines."
To avoid multiplicity of suits and unnecessary difficulties or expenses, the issue of the deficiency tax
assessment against Citytrust must be resolved jointly with its claim for tax refund, to determine correct amount of tax
due or refundable.
As conceded by CTA, it would be only just and fair that the taxpayer and the Government be given equal
opportunities to avail of remedies under the law to defeat each other's claim and to determine all matters of dispute
between them in one single case. It is important to note that in determining whether or not petitioner is entitled to the
refund of the amount paid, it would necessary to determine how much the Government is entitled to collect as taxes.
This would necessarily include the determination of the correct liability of the taxpayer and, certainly, a determination
of this case would constitute res judicata on both parties as to all the matters subject thereof or necessarily involved
therein.
V. Doctrine/Principle:
It is a long and firmly settled rule of law that the Government is not bound by the errors committed by its
agents. In the performance of its governmental functions, the State cannot be estopped by the neglect of its agent and
officers. Although the Government may generally 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 not
produce that effect.
Digested by: Abie dela Cruz

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T31

G.R. No. 106611 July 21, 1994

The OSG filed a motion for the reconsideration.

Hence this petition.

IV. Ratio Decidendi:

Digested by: Abie dela Cruz

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