Law and Jurisprudence

Irrevocability Rule Under Section 76 of the Tax Code and Its Applicability to Refund and Tax Credit Options

RHOMBUS ENERGY, INC., PETITIONER, VS. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.; G.R. No. 206362, August 01, 2018

In the case of UPSI-MI vs. CR, G.R. No. 205955, the Supreme Court ruled that the irrevocability rule under Section 76 of the Tax Code does not apply to the option of cash refund or issuance of tax credit certificate. The Supreme Court stressed:

“A perfunctory reading of the law unmistakably discloses that the irrevocable option referred to is the carry-over option only. There appears nothing therein from which to infer that the other choice, i.e., cash refund or tax credit certificate, is also irrevocable. If the intention of the lawmakers was to make such option of cash refund or tax credit certificate also irrevocable, then they would have clearly provided so.”

 In the later case, however, of Rhombus Energy vs. CIR, the Court took the opposite view.

RHOMBUS ENERGY, INC., PETITIONER, VS. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.; G.R. No. 206362, August 01, 2018 

In the case of Rhombus, therefore, its marking of the box “To be refunded” in its 2005 annual ITR constituted its exercise of the option, and from then onwards Rhombus became precluded from carrying-over the excess creditable withholding tax...

Facts:

The Annual Income Tax Return (Annual ITR) for the year 2005 of Rhombus Energy, Inc. (Rhombus) reflected a tax overpayment ₱1,500,653.00. In said Annual ITR for taxable year 2005, Rhombus indicated that its excess creditable withholding tax (“CWT”) for the year 2005 was “To be refunded”. Its Quarterly Income Tax Returns for the first three quarters of 2006, however,  showed prior year’s excess credits of ₱1,500,653.00.

On December 29, 2006, respondent filed with the Revenue Region No. 8 an administrative claim for refund of its alleged excess/unutilized CWT for the year 2005 in the amount of ₱1,500,653.00.

On April 2, 2007, respondent filed its Annual Income Tax Return for taxable year 2006 showing prior year’s excess credits of ₱0.00.

Issue:

Whether or not Rhombus Energy,Inc. is entitled to be refunded of the excess tax credits for the taxable year 2005.

Ruling:

Yes.

Although the CTA En Banc recognized that Rhombus had actually exercised the option to be refunded, it nonetheless maintained that Rhombus was not entitled to the refund for having reported the prior year’s excess credits in its quarterly ITRs for the year 2006.

The CTA En Banc thereby misappreciated the fact that Rhombus had already exercised the option for its unutilized creditable withholding tax for the year 2005 to be refunded when it filed its annual ITR for the taxable year ending December 31, 2005. Based on the disquisition in Republic v. Team (Phils.) Energy Corporation (G.R. No. 188016), the irrevocability rule took effect when the option was exercised. In the case of Rhombus, therefore, its marking of the box “To be refunded” in its 2005 annual ITR constituted its exercise of the option, and from then onwards Rhombus became precluded from carrying-over the excess creditable withholding tax. The fact that the prior year’s excess credits were reported in its 2006 quarterly ITRs did not reverse the option to be refunded exercised in its 2005 annual ITR.

😕 Did the Supreme Court overturn the ruling in the UPSI-MI v. CIR case?