G.R. No. 103379 November 23, 1993
SAN CARLOS MILLING, CO., INCORPORATED, petitioner, vs. COMMISSIONER OF INTERNAL REVENUE and COURT OF APPEALS, respondents.

FACTS

Petitioner San Carlos Milling Co., Inc., a domestic corporation, had an income tax overpayment of P781,393.00 for the taxable year 1982, reflected as a creditable income tax in its annual final adjustment return. For the taxable year 1983, this amount remained unutilized due to a net loss, and petitioner additionally had a creditable income tax of P4,470.00 from withholding taxes. Thus, its final adjustment return for 1983 showed a total creditable amount of P785,863.00 to be carried over. In a letter dated May 17, 1984, petitioner informed the respondent Commissioner of Internal Revenue of its intention to apply this total amount against its 1984 tax dues under Section 86 of the Tax Code, with an alternative request for a refund or tax credit. The respondent disallowed the proposed automatic credit and instead treated the request as an ordinary claim for refund/tax credit under Sections 292 and 295 of the Tax Code, subjecting it to verification and investigation. Before the Commissioner could act, petitioner filed a petition for review with the Court of Tax Appeals on July 18, 1984. Later, on March 11, 1986, petitioner unilaterally effected a set-off of its creditable income tax against its income tax liabilities. The Court of Tax Appeals dismissed the petition on February 28, 1990, ruling that prior investigation and authority from the Commissioner were necessary before availing of the tax credit under Section 86. This decision was affirmed by the Court of Appeals on December 23, 1991.

ISSUE

Whether 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.

RULING

The Supreme Court ruled that prior approval from the Commissioner of Internal Revenue is necessary. The petition was denied, and the decision of the Court of Appeals was affirmed. The Court held that the automatic tax credit scheme under Section 86 of the Tax Code does not confer an absolute right on the taxpayer to unilaterally credit excess payments without prior verification and approval by the Commissioner. The word “may” in the provision, stating the excess “may be credited,” implies the remedy is not mandatory or absolute but is an alternative to a refund, subject to certain requirements, including prior investigation to ascertain the correctness of the returns and the amount claimed. The Court emphasized that allowing unilateral credit by taxpayers could lead to confusion, abuse, and loss of government revenue, and that the government must retain authority and control over the crediting and offsetting of tax liabilities. The Court also noted that the petitioner’s claim had been properly treated as an ordinary claim for refund/tax credit subject to investigation, and that remedy was not denied.