**Facts:**
The Philippine Bank of Communications (PBCom), a commercial banking corporation, filed its quarterly income tax returns for the first and second quarters of 1985, paid a total income tax of P5,016,954.00, and later reported significant losses leading to no income tax liability for the years ended December 31, 1985, and December 31, 1986. Despite incurring losses, PBCom earned rental income for which creditable taxes were withheld by the lessees in 1985 and 1986. PBCom requested a tax credit/refund from the Commissioner of Internal Revenue (CIR) for the overpayment of taxes in 1985 and filed a claim for refund of creditable taxes withheld from property rentals in 1985 and 1986.
After the CIR’s lack of response, PBCom filed a Petition for Review with the Court of Tax Appeals (CTA) contesting the denial of their claims for the refund and tax credit. The CTA denied the claims, ruling that the 1985 tax refund was filed beyond the regulatory period, and the 1986 claim was denied on the presumption of automatic crediting against tax payments for the succeeding year. PBCom’s motion for reconsideration was dismissed, prompting an appeal to the Court of Appeals (CA), which affirmed the CTA’s decision. Consequently, PBCom filed a petition for review with the Supreme Court.
**Issues:**
1. Whether PBCom, relying on Revenue Memorandum Circular No. 7-85, which revised the prescriptive period for filing tax refunds/credits from two years to ten years, can be prejudiced by the CIR’s subsequent rejection applied retroactively.
2. Whether the Court of Appeals erred in affirming the CTA’s decision denying PBCom’s 1986 tax refund claim based on speculation that PBCom availed of the automatic tax-crediting for the year.
**Court’s Decision:**
The Supreme Court denied PBCom’s petition, affirming the decision of the Court of Appeals. It held that Revenue Memorandum Circular No. 7-85 could not extend the prescriptive period for filing tax refund claims from two to ten years, as this would be contrary to the tax statute set by Congress. It further held that administrative issuances must be consistent with the law they seek to apply and cannot amend the statute. Regarding PBCom’s 1986 claim, the court found no error in the CTA and CA’s finding that PBCom opted for an automatic tax credit for the subsequent year, precluding a refund claim.
**Doctrine:**
1. The prescriptive period for filing a tax refund or credit claim is governed by statute and cannot be extended by administrative issuance.
2. An administrative issuance that contradicts statutory provisions is invalid.
3. Choices between tax refund and credit are mutually exclusive under the tax code.
**Class Notes:**
– Prescriptive period for tax refund claims: Must be filed within two years from the date of payment of the tax.
– Revenue Memorandum Circulars cannot amend or extend statutory provisions.
– Tax refunds and credits: Election of an automatic tax credit for the succeeding taxable year precludes the taxpayer from claiming a tax refund for the same amount.
**Historical Background:**
This case highlights the tension between administrative flexibility and statutory adherence within tax law. It underscores the limitations of administrative agencies in extending or modifying clear statutory mandates, emphasizing the primacy of legislative intent in the interpretation and application of tax laws. The denial of PBCom’s claims reaffirms the principle that rules for tax administration and relief must be strictly construed, reflecting the careful balance between the state’s revenue collection needs and taxpayers’ rights.
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