Irrevocability rule applies only on the option to carry over

Under Section 76 of the Tax Code, a corporate taxpayer whose total excess quarterly income tax payments in a given taxable year exceeds its total income tax due is given two options: first, to carry-over such excess credits and, second, to claim for a refund of the same or issuance of a tax credit in the amount of the excess credit. Once the option to carry over and apply the excess tax credit against income tax due for 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 TCC shall be allowed.

The CTA maintained that the irrevocability rule under Section 76 of the Tax Code applies only to the option to carry over the excess income tax, and not to the claim for refund or issuance of TCC. Thus, based on this interpretation, a taxpayer who initially opted to claim for refund or issuance of its unutilized tax credits in its income tax return may amend its return and change its option to carry over its excess tax credit. However, once the option to carry over excess income tax is made, it shall become irrevocable.

The CTA explained that the Supreme Court (SC) ruling in the case of Commissioner of Internal Revenue v. McGeorge Food Industries, Inc. (GR 174157, October 20, 2010) where the irrevocability rule was applied to both the option to carry over and the option to refund, being an obiter dictum, i.e., said in passing, should not be given weight. It held that in the long line of cases promulgated after the McGeorge Case, the SC has consistently held that the irrevocability rule applies solely to the option to carry over. Hence, such ruling in the more recent decisions is reflective of the SC’s sentiments regarding the issue.

Applying this rule in the instant case, although the taxpayer made the initial choice to claim a refund of its excess creditable tax payments when it marked the option to be issued a TCC in its first and second amended income tax returns, its choice was negated when it actually exercised its option to carry over its excess credits in the subsequent quarters.

Considering that the taxpayer actually carried over its excess tax credit, it can no longer turn back on its later choice and revert to its first option, i.e., to claim for refund of its excess tax credit following the irrevocability rule under Section 76 of the Tax Code.

(United Coconut Planters Bank v. Commissioner of Internal Revenue, CTA EB Case No. 725, August 23, 2012)

Tax Brief – September 2012

Punongbayan and Araullo