SAN CARLOS MILLING, CO., INCORPORATED, PETITIONER, VS. COMMISSIONER OF INTERNAL REVENUE AND COURT OF APPEALS, RESPONDENTS.

Assailed in this petition
for review on certiorari is the decision* of the Court of Appeals in CA-G.R. Sp No.
22346, dated 23 December 1991, the dispositive part of which reads:

“WHEREFORE, in view of the foregoing consider­ation, the
petition is hereby DISMISSED, without pronouncement as to costs.”^[1]

The undisputed facts, as
succinctly stated by the Court of Tax Appeals and adopted by the Court of
Appeals in its decision under review, are as follows:

“Petitioner domestic corporation had for the taxable year 1982
a total income tax overpayment of P781,393.00 reflected as a creditable income
tax in its annual final adjustment return. The application of the amount for the 1983 tax liabilities remained
unutilized in view of petitioner’s net loss for the year and still yet had a
credible income tax of P4,470.00 representing the 3% of 15% withholding tax on
storage credits. Accordingly the final
adjustment income tax return for the taxable year 1983 reflected the amount of
P781,393.00 carried over as tax credit and P4,470.00 creditable income tax.

In a May 17, 1984 letter to the respondent, petitioner signified
its intention to apply the total creditable amount of P785,863.00 against its
1984 tax dues consistent with the provision of Section 86, ibid, coupled with a
comforting alternative request for a refund or tax credit of the same.

Respondent disallowed the proffered automatic credit scheme but
treated the request as an ordinary claim for refund/tax credit under Section
292 in relation to Section 295 of the Tax Code and accordingly subjected the
same for verification/ investigation.

No sooner than the respondent could act on the claim, petitioner
filed a petition for review on July 18, 1984. And before this Court could formally hear the case, petitioner filed a
supplemental petition on March 11, 1986, after having unilaterally effected a
set-off of its creditable income tax vis a vis income tax liabilities, earlier
denied by the respondent.”^[2]

On 28 February 1990, the
Court of Tax Appeals dismissed the petition and held that prior investigation
by and authority from the Commissioner of Internal Revenue were necessary
before a taxpayer could avail of the provisions of Section 86 (now Section 69)
of the Tax Code.^[3] A motion for reconsideration was then filed
but was denied in a resolution dated 25 June 1990 without prejudice, however,
to any administrative claim for tax refund or tax credit.

Thereafter, petitioner
appealed the adverse decision of the Court of Tax Appeals to the Court of
Appeals. On 23 December 1991,
respondent Court dismissed the
appeal.

Hence, this recourse.

The main issue to be
resolved in the petition at bench is whether or not prior authority from the
Commissioner of Internal Revenue is necessary before a corporate taxpayer can
credit excess estimated quarterly income taxes paid against the estimated
quarterly income tax liabilities for the succeeding taxable year, under Section
86 (now Section 69) of the Tax Code.

It is the contention of
petitioner, among others, that in the aforecited provision of the Tax
Code, nowhere is it stated that the “imprimatur” or
approval of the Commissioner of
Internal Revenue must be secured prior to crediting a refundable tax amount. Petitioner further posits that neither does
Revenue Regulation No. 10-77 implementing the Tax Code provision require prior
approval of the Commissioner of Internal Revenue to avail of the automatic tax
credit scheme.

After a careful study of
the records of the present petition, we find the petition to be devoid of
merit.

We begin with the subject
Tax Code provision under
scrutiny, thus:

“Sec. 86. Final
Adjustment Return. – Every corporation liable to tax under Section 24 shall
file a final adjustment return covering the total net 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 net income of that year the corporation shall either:

(a) Pay the excess tax
still due; or

(b) Be refunded the excess
amount paid, as the case may be.

In case the corporation is entitled to refund of the excess
estimated quarterly income tax paid, the refundable amount shown on its final
adjustment return may be credited against the estimated
quarterly income tax liabilities for the taxable quarters of the succeeding
taxable year.” (Under­scoring supplied)

On 7 October 1977, the
Commissioner of Internal Revenue issued the implementing rules and regulations
pertaining to the subject provision. The procedure laid out in said rules is found in Revenue Regulation No.
10-77, section 7 thereof, which reads:

“Sec. 7. Any excess of
the total quarterly payments over the actual income tax computed and shown in
the adjustment or final corporate income tax return shall either (a) be refunded
to the corporation, or (b) may be
credited against the estimated quarterly income tax liabilities for the
quarters of the succeeding taxable year. The corporation must signify in its annual corporate adjustment return
its intention whether to request for the refund of the overpaid income tax or
claim for automatic tax credit to be
applied against its income tax liabilities for the quarters of the succeeding
taxable year, by filling up the appropriate box on the corporate tax return,
BIR Form No. 1702.”

The case of Commissioner of Internal Revenue vs. ESSO Standard
Eastern, Inc., et al.,^[4] cited
by petitioner, while not squarely in point, has touched on a significant aspect
directly related to the issue at hand. There it was said:

The Commissioner’s position is that income taxes are determined and
paid on an annual basis, and that such determination and payment of annual
taxes are separate and independent transactions; and that a tax credit could
not be so considered until it has been finally approved and the taxpayer duly
notified thereof. x x x.”
(underscoring supplied)

In  other words, far from bolstering its position, petitioner’s
citation of the above case only serves to weaken the same. What petitioner obviously seeks is judicial
sanction of its act of unilaterally declaring as tax credit its excess
estimated quarterly income taxes paid in a given year against its tax
liabilities for the quarters of the succeeding taxable year. If petitioner’s theory were to be sustained,
this could wreak havoc and confusion in the tax system.

The respondent Court held that the choice of a corporate taxpayer
for an automatic tax credit does not ipso facto confer on it the
right to immediately avail of the same. Respondent court went on to emphasize the need for an investigation to
ascertain the correctness of the corporate returns and the amount sought to be
credited. We agree.

It is difficult to see by what process of ratiocination
petitioner insists on the literal interpretation of the word
“automatic.” Such literal interpretation has been discussed and precluded
by the respondent court in its decision of 23 December 1991 where, as
aforestated, it ruled that “once a taxpayer opts for either a refund or the automatic tax credit scheme, and
signified his option in accordance with the regulation, this does not ipso facto confer on him the right to avail of the same
immediately. An investigation, as a
matter of procedure, is necessary to enable the Commissioner to determine the
correctness of the petitio­ner’s returns, and the tax amount to be
credited.”^[5]

Prior approval by the Commissioner of Internal Revenue of the tax
credit under then section 86 (now section 69) of the Tax Code would appear to
be the most reasonable interpretation to
be given to said section. An
opportunity must be given the internal revenue branch of the government to
investigate and confirm the veracity of the claims of the taxpayer. The absolute freedom that petitioner seeks
to automatically credit tax payments against tax liabilities for a succeeding
taxable year, can easily give rise to confusion and abuse, depriving the
government of authority and control over the manner by which the taxpayers
credit and offset their tax liabilities not to mention the resultant loss of
revenue to the government under such a scheme.

Petitioner points out that the automatic tax credit scheme
under the law refers to the amount “shown” in the final adjustment return of the corporate taxpayer and not
as determined by the Commissioner, thereby recognizing the computation made by
the taxpayer. This contention is not
impressed with merit. To reiterate,
Section 7 of Revenue Regulation No. 10-77 provides that “(a)ny excess x x
x computed and shown x x x shall either (a) be refunded to the corporation, or
(b) may be credited against the estimated quarterly income tax liabilities x x
x.”

The above rule is clear. It does not mean that reference to the amount “shown” in the
final adjustment return prepared by the taxpayer implies that the taxpayer need
not seek approval of the Commissioner prior to its effective availment of the
tax credit scheme, it cannot simply credit an amount it deems as correct. Rather, it provides two (2) remedies, that
is, the excess may either be refunded or credited, and, insofar as the option of
tax credit is concerned, this right should not be construed as an absolute
right which is available to the taxpayer at his sole option. It is our view that tax credit under the
cited provision should be construed as an alternative remedy (to a refund) subject
to the fulfillment of certain requirements, i.e., prior verification and
approval by the Commissioner of Internal Revenue.

Further, the cited legal provision itself employs the word
“may” in the phrase “may be credited”, implying that the
availability of the remedy of tax credit is not absolute and mandatory; it does
not confer an absolute right on the taxpayer to avail of the tax credit scheme
if it so chooses; neither does it impose a duty on the part of the government
to sit back and allow an important facet of tax collection to be at the sole
control and discretion of the taxpayer.

As aptly held by this
Court in In re Guarina:^[6]

“Whether the word ‘may’ in a statute is to be construed as
mandatory and imposing a duty, or merely permissive and conferring discretion,
is to be determined in each case from the apparent intention of the statute as
gathered from the context, as well as from the language of the particular
provision. The question in each case is
whether, taken as a whole and viewed in the light of surrounding circumstances,
it can be said that a purpose existed on the part of the legislator to enact a
law mandatory in character. If it can,
then it should be given a mandatory effect; if not, then it should be given its
ordinary permissive effect. x x
x.”

Anent the issue on
petitioner’s entitlement to a refund/credit under Sections 292 and 295 (now
Sections 230 and 204 of the Tax Code) – since automatic tax credit
without prior approval of the Commission of Internal Revenue under then Section
86 would not be available to the taxpayer – it must be stressed that the remedy
of a refund/credit has never been denied the petitioner. On the contrary, the Commissioner of
Internal Revenue has long informed petition­er that its request for automatic
tax credit has been treat­ed as an ordinary claim for refund/tax credit under
Section 292 in relation to Section 295 of the Tax Code, and that the same has
been referred for investigation, report and recom­mendation to the Chief,
Agriculture and Natural Resources Division
of the Bureau of Internal Revenue. All
that petitioner has to do, therefore, is to inquire regarding the status
of its claim for refund/credit and await the decision in regard thereto.

WHEREFORE, the petition is hereby DENIED. The decision of the Court of Appeals
appealed from is AFFIRMED with costs against the petitioner.

SO ORDERED.

Narvasa, C.J., (Chairman), Regalado, Nocon, and Puno, JJ., concur.

* Penned by Associate Justice Consuelo Ynares-Santiago with the
concurrence of Associate Justices Ricardo Pronove, Jr. and Nicolas Lapena, Jr.

^[1]
Decision, Court of Appeals, p. 7; Rollo, p. 46

^[2]
Id., pp. 1-2; Rollo, pp. 40-41

^[3]
Petitioner’s brief, p. 10

^[4]
G.R. No. L-28503, April 18, 1989, 172
SCRA 364

^[5]
Decision, Court of Appeals, p. 4; Rollo, p. 43

^[6]
24 Phil. 37, 41 (1913)