TO PIC: PIC: DOCTRINE OF EQUITABLE RECOUPMENT
Collector v. UST (1958) MONTEMAYOR, MONTEMAYOR, J. THECOURTHELDTHATTHECTAERREDINAPPLYINGTHEDOCTRINEOFEQUITABLE RECOUPMENTINITSDECISION.Such isnotbindinginthiscountry,andtheCourtrefusedto introducethesameinthisjurisdictionbyvirtueofthisdecision.Itsacceptanceandadoptionshouldbe lefttothesounddiscretionoftheLegislature.Thus,theCIRmaystillcollecttheamountofP2,451.04 aspercentagetaxandsurchargeagainstUST. The meansthat
Thesamethingwouldhavebeentrue
EFFECT:mitigatestheeffectofprescriptionandthestatuteoflimitations Notesfromreviewer: Common law doctrine to the effect that a claim for refund barred by prescription may be allowed to offset unsettled tax l iabilities should be pertinent only to taxes arising from the same transaction on which an overpayment is made and underpayment is due. It finds no application where the taxes involved are totally unrelated. (Invocation of equity rather than law)
FACTS 1948 -June 30, 1950, UST paid on its gross receipts derived 1. During the period from January 1, 1948-June from its printing and binding jobs for the public a nd the different departments of the University, the aggregate amount of Php13,590.03, representing the 2% tax on its gross receipts during the period in question 2. On October 17,1950, UST requested in writing from the res pondent the refund of the sum of Php 8,293.31, on account of the following: by the other departments to the UST Press was a. The amount of Php 359,972.45 for the purposes of accounting onlyand does not legally constitute gross receipts subject to the percentage tax b. The printing and binding of the annuals THOMASIAN and VERITAS fall under the exception provided for in Section 191 in relation to Section 183(a) of the Tax Code 3. COLLECTOR OF INTERNAL REVENUE: UST’s claim for refund in the sum of Php 8,293.31 (representing business printer’s percentage tax pursuant to Section 191 of the Tax Code , in relation to Section 183(a)) is denied; also, the amount of Php 2,452.04, representing deficiency percentage tax and surcharge on the undeclared receipts derived from the printing and binding of the subject annuals, is hereby a ssessed and demanded from UST; also, petitioner is ordered to pay Php 100 as compromise penalty 4. Court of tax appeals: Modified the decision of the CIR a. UST’s claim for refund to the extent of Php 5, 842.27 is DENIED, the same being BARRED BY PRESCRIPTION a nd surcharges b. The deficiency tax assessment of Php 2, 451.04 for percentage taxes and is RECOGNIZED, but the amount is DEEMED PAID, , to the extent of the amount of Php 2, 451.04 which UST erroneously paid for the period from January 1948 to Jun 1950 i. Respondent is thus ordered to desist from further collecting said deficiency assessment
SUPREME COURT 1. W/N THE CTA ERRED IN APPLYING THE DOCTRINE OF EQUITABLE RECOUPMENT IN THE CASE? a. YES. b. With this doctrine available and enforceable to both parties,
1. And this is not without its resulting danger,
ii.
c. the Court found that:
i. The aforementioned sections do not contain any right of a taxpayer to a set
d.
off or credit, where because of the expiration of the period of prescription, his right to a refund is already barred credit or refund taxes ii. It is true that under Section 309, the Collector “ erroneously or illegally received,” but the word clearly . 1. He may or he may not exercise the authority granted him by the law to make the refund or credit 2. Under the circumstances, he may not be compelled or ordered by the courts, as the Tax Court is compelling him and ordering him to do so, especially when the Collector himself not only refuses to make the refund or set off, but also denies the authority of the Tax Court to order it. The Tax Court, in applying such doctrine, reasoned that the same serves as a cushion to the harsh and iniquitous effects of the s tatute of limitations, because it would be oppressive to leave the taxpayer without any remedy to s et off taxes erroneously collected, which are barred by prescription. i. SUPREME COURT: 1. Prescription may be rigorous and at times may be a little harsh, but certainly there could be no oppression, much less iniquity WHERE THE SAME LAW IS APPLIED EQUALLY TO THE GOVERNMENT AND THE TAXPAYER a. On the contrary, that statute of limitations has a salutary and wholesome effect because under the same, the tax collecting agency of the Government, and the taxpayer
would be alert and vigilant, and would be constrained to make assessment and collection, and demand the refund of taxes illegally or erroneously collected, respectively, ON TIME. 2. Also, when a tax is illegally or erroneously collected, or an overpayment is made by a taxpayer, and the latter fails to ask for the refund thereof within the time prescribed by law, which under the tax law is also two years, then the Government would feel free to appropriate the same for its purposes… a. And when the taxpayer years afterward remembers and decides to ask for the refund, by way of equitable recoupment, the Government may find itself financially embarrassed, because it had already spent the m oney 3. The same thing would be true for a taxpayer, when the Government fails to collect the tax within the statute of limitations, the taxpayer would feel free, and in all probability would dispose of the amount... a. And when the Government finally wakes up and demands the tax by way of recoupment, the taxpayer might be unable to meet the demand without detriment to its business ii. HALL V. US (1942): 1. We are not unmindful of the merits of the principle of recoupment nor of the measure of justice which it permits…but there is also a reason behind limitation statutes. Frequently, records are lost and memories fade as to the transactions long past… Limitation statutes…operate to terminate what otherwise be almost endless litigation and consequent confusion.
OTHER ISSUES DISCUSSED 1. USTS’S CLAIM FOR REFUND IS BARRED BY PRESCRIPTION The amount of PHP 8,293.31, which the university seeks to be refunded was paid during the period from January 1, 1948 to June 30, 1950, the
b. On the other hand, c.
d.
Thus, the action for refund was filed more than four years from last payment, and is therefore already barred by the statute of limi tations i. Section 306 provides that no suit or proceeding for the recovery of any internal revenue tax alleged to have been erroneously or illegally assessed or collected, shall be begun after the expira tion of TWO YEARS from the date of payment of tax UST contends that its claim has not yet pre scribed because in the course of its negotiations with the CIR, the latter allegedly stated in a letter that a refund will be granted i. WRONG ii. The mere mention of a possible grant is not a grant in itself, and thus, does not bind the government iii. In the letter, the CIR, spoke of arrangements being made, hence, there was as yet no favourable action taken on the petitioner’s claim for refund
2. THE TAX OF PHP7,199.45, CORRESPONDING TO THE GROSS RECEIPTS AMOUNTING TO PHP359,572.45 HAD BEEN ERRONEOUSLY COLLECTED BY THE CIR a. Although the UST Press is a distinct department, separate and independent from the other departments of the university, I T IS NEVERTHELESSAN INTEGRAL PART THEREOF
i. And thus, for purposes of taxation, IT IS THE UNIVERSITYAS A LEGAL ENTITY WHICH SHOULDER TAXES THAT MAY BE DUE FROM ANY OF ITS DEPARTMENTS 1. Because the individual existence or personality of the various departments are merged into one taxable being UST 3. THE CIR’S ASSESSMENT IN THE AMOUNT OF PHP 2,451.04 AS DEFICIENCY IN TAX
PERCENTAGE AND SURCHARGES WAS VALID a. The university was liable under this tax because it did not come under the exemption provided for under Section 191 of the Internal Revenue Code, because: i. The subject annuals do not have fixed prices ii. It was not shown that the UST Press is the publisher of these annuals iii. It is also unclear whether such annuals fall within the purview of the term newspaper, magazine, review, or bulletin
4. THE COMPROMISE PENALTY WORTH PHP 100 WAS IMPROPER a. Compromise implies mutual agreement between the parties, thus, one party cannot exact from or impose upon another a compromise i. In this case, THE COMPROMISE SOUGHT BY CIR WAS REJECTED BY UST (so walang mutual agreement)
