Commissioner of Internal Revenue vs Court of Appeals

FACTS: On April 2, 1986, Paramount Acceptance Corporation (Paramount for brevity) filed its Corporate Annual Income Tax Return, for calendar year ending December 31, 1985, declaring a Net Income of P3,324,802.00 (Exh. A). The income tax due thereon is P1,153,681.00. However, Paramount paid the BIR its quarterly income tax. After deducting Paramounts total quarterly income tax payments of P1,218,940.00 from its income tax of P1,153,681.00, the return showed a refundable amount of P65,259.00. The appropriate box in the return was marked with a cross (x) indicating To be refunded the amount of P65,259.00. On April 14, 1988, petitioner BPI, as liquidator of Paramount, through counsel filed a letter dated April 12, 1988 reiterating its claim for refund of P65,259.00 as overpaid income tax for the calendar year 1985. The following day or on April 15, 1988, BPI filed the instant petition with this Court in order to toll the running of the prescriptive period for filing a claim for refund of overpaid income taxes.

ISSUE: Whether the two-year period of prescription for filing a claim for refund, as provided in 230 of the National Internal Revenue Code, is to be counted from April 2, 1986 when the corporate income tax return was actually filed OR from April 15, 1986 when, according to 70(b) of the NIRC, the final adjustment return could still be filed without incurring any penalty.

RULING: We agree with the respondent courts ruling that the date of payment of the tax as prescribed under the Tax Code is the date when the corporate income tax return is required to be filed. . . .

The Supreme Court has laid down the rule regarding the computation of the prescriptive period that the two-year period should be computed from the time of filing of the Adjustment Returns or Annual Income Tax Return and final payment of income tax; it is only when the Adjustment Return covering the whole year is filed that the taxpayer would know whether a tax is still due or a refund can be claimed based on the adjusted and audited figures. The two-year prescriptive period within which to claim a refund commences to run, at the earliest, on the date of the filing of the adjusted final tax return.

In this case, BPI filed its final adjustment return on April 2, 1986. No taxes were paid then because the returns showed that the quarterly taxes already paid exceeded the income tax due by P65,259.00. As correctly put by BPI, it is only on April 15 that the previous years income tax becomes due and payable and the taxpayer is still free to make amendments or adjustments on its return, without penalty, until April 15, 1986 (See Section 80, N.I.R.C.). Thus the final payment of income tax should be deemed to be on April 15, 1986, when the previous years income tax became due and payable and when the quarterly corporate income taxes may be considered paid. Accordingly the administrative claim and court proceeding for tax refund were timely filed.