Commissioner of Internal Revenue v. Citytrust Banking Corporation G.R. No. 150812, 22 August 2006 FACTS: 28 May 1991
The Court of Tax Appeals (CTA) ordered the Commissioner of Internal Revenue (CIR) to grant Citytrust Banking Corporation (Citytrust) a refund in the amount of around Php13.3 million, representing Citytrust’s overpaid income taxes for 1984 and 1985. In its supplemental MR, the CIR alleged an additional ground: that Citytrust had outstanding deficiency income and business tax liabilities of around Php4.5 million for 1984, thus, the claim for refund was not in order.
CA and SC proceedings
The Court of Appeals (CA) affirmed the CTA’s ruling. On petition for review on certiorari to the Supreme Court (SC), however, the SC ruled that there was an apparent contradiction between the claim for refund and the deficiency assessments against Citytrust, and that the government could not be held in estoppel due to the negligence of its officials or employees, especially in cases involving taxes. For that reason, the case was remanded to the CTA for further reception of evidence for Citytrust.
CTA proceedings
One of the exhibits presented and offered by the CIR in the CTA hearings was a letter dated 28 February 1995, signed by the CIR, where the CIR demanded the following sums from Citytrust for 1984: 1. deficiency income tax of around Php3.3 million 2. deficiency gross receipts tax of around Php1.2 million 3. deficiency fixed tax as real estate dealer of Php14,625 Citytrust paid these deficiency tax liabilities. Thus, Citytrust considered all its deficiency tax liabilities for 1984 fully settled. The CIR objected to Citytrust’s above allegation, arguing that Citytrust still had unpaid deficiency income, business and withholding taxes for the year 1985, as evidenced by Exhibit 5 of the CIR.
16 Oct 1997
The CTA set aside the CIR’s objections and granted the refund.
21 May 2001
CA affirmed the CTA’s decision.
G.R. No. 150812
On petition for review on certiorari before the SC, the CIR contended that Citytrust is not entitled to the refund of Php13.3 million as alleged overpaid income taxes for 1984 and 1985. The CIR claims that the CA erred in not holding that payment by Citytrust of its deficiency income tax was an admission of its tax liability and, thus, a bar to its entitlement to a refund of income tax for the same taxable year. Due to the 1985 deficiency assessments, the CIR insists that Citytrust is not entitled to any tax refund.
ISSUE: Is Citytrust entitled to a tax refund despite the 1985 deficiency tax assessments contained in Exhibit 5? In other words, should there be a set-off or legal compensation of the taxes involved? HELD/RATIO: No. In resolving this case, the CTA, as affirmed by the SC, did not allow a set-off or legal compensation of the taxes involved, reasoning: 1. The SC directed the CTA to conduct further proceedings for the reception of Citytrust’s evidence, and the disposition of the present case. Thus, the evidence presented should pertain only to the 1984 assessments which were the only assessments raised as a defense on appeal to the CA and the SC. The assessments in Exhibit 5 of the CIR were never raised on appeal to the higher courts. Hence, evidence related to said assessments should not be allowed. 2. The CTA has no jurisdiction to try an assessment case which was never appealed to it. In hearing a refund case, the CTA cannot hear in the same case an assessment dispute even if the parties involved are the same parties.
