Doctrine: Once the taxpayer opts to carry-over the excess income tax against the taxes due for the succeeding taxable years, such option is irrevocable for the whole amount of the excess income tax, thus, prohibiting the taxpayer from applying for a refund for that same excess income tax in the next succeeding taxable years. The unutilized excess tax credits will remain in the taxpayer’s account and will be carried over and applied against the taxpayer’s income tax liabilities in the succeeding taxable years until fully utilized.
Facts: Petitioner Asiaworld Properties Philippine Corporation (petitioner) is a domestic corporation engaged in the business of real estate development.
- For the calendar year ending 31 December 2001, petitioner filed its Annual Income Tax Return (ITR) on 5 April 2002.
- In its 2001 ITR, petitioner stated that the amount of P7,468,061.00 representing Prior Year’s Excess Credits was net of year 1999 excess creditable withholding tax to be refunded in the amount of P18,477,144.00.
· Petitioner also indicated in its 2001 ITR its option to carry-over as tax credit next year/quarter the overpayment of P6,473,959.00.
- On 9 April 2002, petitioner filed with the Revenue District Office No. 52, BIR Region VIII, a request for refund in the amount of P18,477,144.00, allegedly representing partial excess creditable tax withheld for the year 2001.
· Petitioner claimed that it is entitled to the refund of its unapplied creditable withholding taxes.
- Petitioner filed a Petition for Review with the Court of Tax Appeals to toll the running of the two-year prescriptive period provided under Section 229 of the NIRC.
- CTA: denied the petition for lack of merit.
- CA:
· under Section 76 of the NIRC of 1997, when the income tax payment is in excess of the total tax due for the entire taxable income of the year, a corporate taxpayer may either carry-over the excess credit to the succeeding taxable years or ask for tax credit or refund of the excess income taxes paid.
· Section 76 explicitly provides that once the option to carry-over is chosen, such option is irrevocable for that taxable period and the taxpayer is no longer allowed to apply for cash refund or tax credit.
· In this case, petitioner chose to carry-over the excess tax payment it had made in the taxable year 1999 to be applied to the taxes due for the succeeding taxable years. The Court of Appeals ruled that petitioner’s choice to carry-over its tax credits for the taxable year 1999 to be applied to its tax liabilities for the succeeding taxable years is irrevocable and petitioner is not allowed to change its choice in the following year. The carry-over of petitioner’s tax credits is not limited only to the following year of 2000 but should be carried-over to the succeeding years until the whole amount has been fully applied.
Issue: Whether the exercise of the option to carry-over the excess income tax credit, which shall be applied against the tax due in the succeeding taxable years, prohibits a claim for refund in the subsequent taxable years for the unused portion of the excess tax credits carried over. – Yes, claim for refund is now prohibited.
Ratio:
The resolution of the case involves the interpretation of Section 76[1] of the NIRC of 1997. The confusion lies in the interpretation of the last sentence of the provision which imposes the irrevocability rule.
The Court cannot subscribe to petitioner’s view. Section 76 of the NIRC of 1997 clearly states: “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 therefore.” Section 76 expressly states that “the option shall be considered irrevocable for that taxable period” – referring to the period comprising the “succeeding taxable years.” Section 76 further states that “no application for cash refund or issuance of a tax credit certificate shall be allowed therefore” – referring to “that taxable period” comprising the “succeeding taxable years.”
Under Section 76 of the NIRC of 1997, the application of the option to carry-over the excess creditable tax is not limited only to the immediately following taxable year but extends to the next succeeding taxable years. The clear intent in the amendment under Section 76 is to make the option, once exercised, irrevocable for the “succeeding taxable years.” Thus, once the taxpayer opts to carry-over the excess income tax against the taxes due for the succeeding taxable years, such option is irrevocable for the whole amount of the excess income tax, thus, prohibiting the taxpayer from applying for a refund for that same excess income tax in the next succeeding taxable years. The unutilized excess tax credits will remain in the taxpayer’s account and will be carried over and applied against the taxpayer’s income tax liabilities in the succeeding taxable years until fully utilized.
In this case, petitioner opted to carry-over its 1999 excess income tax as tax credit for the succeeding taxable years. As correctly held by the Court of Appeals, such option to carry-over is not limited to the following taxable year 2000, but should apply to the succeeding taxable years until the whole amount of the 1999 creditable withholding tax would be fully utilized.
[1] 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 therefore. (Emphasis supplied)
