J.A.B. Bulao & Associates

BPI FAMILY SAVINGS BANK INC. VS. GOLDEN POWER DIESEL SALES CENTER, INC. and RENATO C. TAN, G.R. NO. 176019, 12 JANUARY 2011, CARPIO, J.) SUBJECTS: MORTGAGES, WRIT OF POSSESSION. (BRIEF TITLE: BPI FAMILY SAVINGS BANK VS. GOLDEN POWER DIESEL SALES CENTER, INC. ET AL.)

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D E C I S I O N

CARPIO, J.:

The Case

This is a petition for review¹ of the 13 March 2006 Decision² and 19 December 2006 Resolution³ of the Court of Appeals in CA-G.R. SP No. 78626. In its 13 March 2006 Decision, the Court of Appeals denied petitioner BPI Family Savings Bank, Inc.ʼs (BPI Family) petition for mandamus and certiorari. In its 19 December 2006 Resolution, the Court of Appeals denied BPI Familyʼs motion for reconsideration.

The Facts

On 26 October 1994, CEDEC Transport, Inc. (CEDEC) mortgaged two parcels of land covered by Transfer Certificate of Title (TCT) Nos. 134327 and 134328 situated in Malibay, Pasay City, including all the improvements thereon (properties), in favor of BPI Family to secure a loan of P6,570,000. On the same day, the mortgage was duly annotated on the titles under Entry No. 94-2878. On 5 April and 27 November 1995, CEDEC obtained from BPI Family additional loans of P2,160,000 and P1,140,000, respectively, and again mortgaged the same properties. These latter mortgages were duly annotated on the titles under Entry Nos. 95-6861 and 95-11041, respectively, on the same day the loans were obtained.

Despite demand, CEDEC defaulted in its mortgage obligations. On 12 October 1998, BPI Family filed with the ex-officio sheriff of the Regional Trial Court of Pasay City (RTC) a verified petition for extrajudicial foreclosure of real estate mortgage over the properties under Act No. 3135, as amended.⁴

On 10 December 1998, after due notice and publication, the sheriff sold the properties at public auction. BPI Family, as the highest bidder, acquired the properties for P13,793,705.31. On 14 May 1999, the Certificate of Sheriffʼs Sale, dated 24 February 1999, was duly annotated on the titles covering the properties.

On 15 May 1999, the one-year redemption period expired without CEDEC redeeming the properties. Thus, the titles to the properties were consolidated in the name of BPI Family. On 13 September 2000, the Registry of Deeds of Pasay City issued new titles, TCT Nos. 142935 and 142936, in the name of BPI Family.

However, despite several demand letters, CEDEC refused to vacate the properties and to surrender possession to BPI Family. On 31 January 2002, BPI Family filed an Ex-Parte Petition for Writ of Possession over the properties with Branch 114 of the Regional Trial Court of Pasay City (trial court). In its 27 June 2002 Decision, the trial court granted BPI Familyʼs petition.⁵ On 12 July 2002, the trial court issued the Writ of Possession.

On 29 July 2002, respondents Golden Power Diesel Sales Center, Inc. and Renato C. Tan⁶ (respondents) filed a Motion to Hold Implementation of the Writ of Possession.⁷ Respondents alleged that they are in possession of the properties which they acquired from CEDEC on 10 September 1998 pursuant to the Deed of Absolute Sale with Assumption of Mortgage (Deed of Sale).⁸ Respondents argued that they are third persons claiming rights adverse to CEDEC, the judgment obligor and they cannot be deprived of possession over the properties. Respondents also disclosed that they filed a complaint before Branch 111 of the Regional Trial Court of Pasay City, docketed as Civil Case No. 99-0360, for the cancellation of the Sheriffʼs Certificate of Sale and an order to direct BPI Family to honor and accept the Deed of Absolute Sale between CEDEC and respondents.⁹

On 12 September 2002, the trial court denied respondents’ motion.¹⁰ Thereafter, the trial court issued an alias writ of possession which was served upon CEDEC and all other persons claiming rights under them.

However, the writ of possession expired without being implemented. On 22 January 2003, BPI Family filed an Urgent Ex-Parte Motion to Order the Honorable Branch Clerk of Court to Issue Alias Writ of Possession. In an Order dated 27 January 2003, the trial court granted BPI Familyʼs motion.

Before the alias writ could be implemented, respondent Renato C. Tan filed with the trial court an Affidavit of Third Party Claim¹¹ on the properties. Instead of implementing the writ, the sheriff referred the matter to the trial court for resolution.

On 11 February 2003, BPI Family filed an Urgent Motion to Compel Honorable Sheriff and/or his Deputy to Enforce Writ of Possession and to Break Open the properties. In its 7 March 2003 Resolution, the trial court denied BPI Familyʼs motion and ordered the sheriff to suspend the implementation of the alias writ of possession.¹² According to the trial court, “the order granting the alias writ of possession should not affect third persons holding adverse rights to the judgment obligor.” The trial court admitted that in issuing the first writ of possession it failed to take into consideration respondents’ complaint before Branch 111 claiming ownership of the property. The trial court also noted that respondents were in actual possession of the properties and had been updating the payment of CEDECʼs loan balances with BPI Family. Thus, the trial court found it necessary to amend its 12 September 2002 Order and suspend the implementation of the writ of possession until Civil Case No. 99-0360 is resolved.

BPI Family filed a motion for reconsideration. In its 20 June 2003 Resolution, the trial court denied the motion.¹³

BPI Family then filed a petition for mandamus and certiorari with application for a temporary restraining order or preliminary injunction before the Court of Appeals. BPI Family argued that the trial court acted with grave abuse of discretion amounting to lack or excess of jurisdiction when it ordered the suspension of the implementation of the alias writ of possession. According to BPI Family, it was the ministerial duty of the trial court to grant the writ of possession in its favor considering that it was now the owner of the properties and that once issued, the writ should be implemented without delay.

The Court of Appeals dismissed BPI Familyʼs petition. The dispositive portion of the 13 March 2006 Decision reads:

WHEREFORE, the instant Petition for Writ of Mandamus and Writ of Certiorari with Application for a TRO and/or Preliminary Injunction is hereby DENIED. The twin Resolutions dated March 7, 2003 and June 20, 2003, both issued by the public respondent in LRC Case No. 02-0003, ordering the sheriff to suspend the implementation of the Alias Writ of Possession issued in favor of the petitioner, and denying its Urgent Omnibus Motion thereof, respectively, are hereby AFFIRMED.

SO ORDERED.¹⁴

BPI Family filed a motion for reconsideration. In its 19 December 2006 Resolution, the Court of Appeals denied the motion.

The Ruling of the Court of Appeals

The Court of Appeals ruled that the trial court did not commit grave abuse of discretion in suspending the implementation of the alias writ of possession because respondents were in actual possession of the properties and are claiming rights adverse to CEDEC, the judgment obligor. According to the Court of Appeals, the principle that the implementation of the writ of possession is a mere ministerial function of the trial court is not without exception. The Court of Appeals held that the obligation of the court to issue an ex parte writ of possession in favor of the purchaser in an extrajudicial foreclosure sale ceases to be ministerial once it appears that there is a third party in possession of the property who is claiming a right adverse to that of the debtor or mortgagor.

The Issues

BPI Family raises the following issues:

A.

The Honorable Court of Appeals seriously erred in upholding the finding of the Honorable Regional Trial Court that despite the fact that private respondents merely stepped into the shoes of mortgagor CEDEC, being the vendee of the properties in question, they are categorized as third persons in possession thereof who are claiming a right adverse to that of the debtor/mortgagor CEDEC.

B.

The Honorable Court of Appeals gravely erred in sustaining the aforementioned twin orders suspending the implementation of the writ of possession on the ground that the annulment case filed by private respondents is still pending despite the established ruling that pendency of a case questioning the legality of a mortgage or auction sale cannot be a ground for the non-issuance and/or non-implementation of a writ of possession.¹⁵

The Ruling of the Court

The petition is meritorious.

BPI Family argues that respondents cannot be considered “a third party who is claiming a right adverse to that of the debtor or mortgagor” because respondents, as vendee, merely stepped into the shoes of CEDEC, the vendor and judgment obligor. According to BPI Family, respondents are mere extensions or successors-in-interest of CEDEC. BPI Family also argues that the pendency of an action questioning the validity of a mortgage or auction sale cannot be a ground to oppose the implementation of a writ of possession.

On the other hand, respondents insist that they are third persons who claim rights over the properties adverse to CEDEC. Respondents argue that the obligation of the court to issue an ex parte writ of possession in favor of the purchaser in an extrajudicial foreclosure sale ceases to be ministerial once it appears that there is a third party in possession of the property who is claiming a right adverse to that of the judgment obligor.

In extrajudicial foreclosures of real estate mortgages, the issuance of a writ of possession is governed by Section 7 of Act No. 3135, as amended, which provides:

SECTION 7. In any sale made under the provisions of this Act, the purchaser may petition the Court of First Instance (Regional Trial Court) of the province or place where the property or any part thereof is situated, to give him possession thereof during the redemption period, furnishing bond in an amount equivalent to the use of the property for a period of twelve months, to indemnify the debtor in case it be shown that the sale was made without violating the mortgage or without complying with the requirements of this Act. Such petition shall be made under oath and filed in form of an ex parte motion in the registration or cadastral proceedings if the property is registered, or in special proceedings in the case of property registered under the Mortgage Law or under section one hundred and ninety-four of the Administrative Code, or of any other real property encumbered with a mortgage duly registered in the office of any register of deeds in accordance with any existing law, and in each case the clerk of the court shall, upon the filing of such petition, collect the fees specified in paragraph eleven of section one hundred and fourteen of Act Numbered Four hundred and ninety-six, as amended by Act Numbered Twenty-eight hundred and sixty-six, and the court shall, upon approval of the bond, order that a writ of possession issue, addressed to the sheriff of the province in which the property is situated, who shall execute said order immediately.

This procedure may also be availed of by the purchaser seeking possession of the foreclosed property bought at the public auction sale after the redemption period has expired without redemption having been made.¹⁶

In China Banking Corporation v. Lozada,¹⁷ we ruled:

It is thus settled that the buyer in a foreclosure sale becomes the absolute owner of the property purchased if it is not redeemed during the period of one year after the registration of the sale. As such, he is entitled to the possession of the said property and can demand it at any time following the consolidation of ownership in his name and the issuance to him of a new transfer certificate of title. The buyer can in fact demand possession of the land even during the redemption period except that he has to post a bond in accordance with Section 7 of Act No. 3135, as amended. No such bond is required after the redemption period if the property is not redeemed. Possession of the land then becomes an absolute right of the purchaser as confirmed owner. Upon proper application and proof of title, the issuance of the writ of possession becomes a ministerial duty of the court.¹⁸ (Emphasis supplied)

Thus, the general rule is that a purchaser in a public auction sale of a foreclosed property is entitled to a writ of possession and, upon an ex parte petition of the purchaser, it is ministerial upon the trial court to issue the writ of possession in favor of the purchaser.

There is, however, an exception. Section 33, Rule 39 of the Rules of Court provides:

Section 33. Deed and possession to be given at expiration of redemption period; by whom executed or given. – x x x

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Upon the expiration of the right of redemption, the purchaser or redemptioner shall be substituted to and acquire all the rights, title, interest and claim of the judgment obligor to the property as of the time of the levy. The possession of the property shall be given to the purchaser or last redemptioner by the same officer unless a third party is actually holding the property adversely to the judgment obligor. (Emphasis supplied)

Therefore, in an extrajudicial foreclosure of real property, when the foreclosed property is in the possession of a third party holding the same adversely to the judgment obligor, the issuance by the trial court of a writ of possession in favor of the purchaser of said real property ceases to be ministerial and may no longer be done ex parte.¹⁹ The procedure is for the trial court to order a hearing to determine the nature of the adverse possession.²⁰ For the exception to apply, however, the property need not only be possessed by a third party, but also held by the third party adversely to the judgment obligor.

In this case, BPI Family invokes the general rule that they are entitled to a writ of possession because respondents are mere successors-in-interest of CEDEC and do not possess the properties adversely to CEDEC. Respondents, on the other hand, assert the exception and insist that they hold the properties adversely to CEDEC and that their possession is a sufficient obstacle to the ex parte issuance of a writ of possession in favor of BPI Family.

Respondentsʼ argument fails to persuade the Court. It is clear that respondents acquired possession over the properties pursuant to the Deed of Sale which provides that for P15,000,000 CEDEC will “sell, transfer and convey” to respondents the properties “free from all liens and encumbrances excepting the mortgage as may be subsisting in favor of the BPI FAMILY SAVINGS BANK.”²¹ Moreover, the Deed of Sale provides that respondents bind themselves to assume “the payment of the unpaid balance of the mortgage indebtedness of the VENDOR (CEDEC) amounting to P7,889,472.48, as of July 31, 1998, in favor of the aforementioned mortgagee (BPI Family) by the mortgage instruments and does hereby further agree to be bound by the precise terms and conditions therein contained.”²²

In Roxas v. Buan,²³ we ruled:

It will be recalled that Roxasʼ possession of the property was premised on its alleged sale to him by Valentin for the amount of P100,000.00. Assuming this to be true, it is readily apparent that Roxas holds title to and possesses the property as Valentinʼs transferee. Any right he has to the property is necessarily derived from that of Valentin. As transferee, he steps into the latterʼs shoes. Thus, in the instant case, considering that the property had already been sold at public auction pursuant to an extrajudicial foreclosure, the only interest that may be transferred by Valentin to Roxas is the right to redeem it within the period prescribed by law. Roxas is therefore the successor-in-interest of Valentin, to whom the latter had conveyed his interest in the property for the purpose of redemption. Consequently, Roxasʼ occupancy of the property cannot be considered adverse to Valentin.²⁴

In this case, respondentsʼ possession of the properties was premised on the sale to them by CEDEC for the amount of P15,000,000. Therefore, respondents hold title to and possess the properties as CEDECʼs transferees and any right they have over the properties is derived from CEDEC. As transferees of CEDEC, respondents merely stepped into CEDEC’s shoes and are necessarily bound to acknowledge and respect the mortgage CEDEC had earlier executed in favor of BPI Family.²⁵ Respondents are the successors-in-interest of CEDEC and thus, respondentsʼ occupancy over the properties cannot be considered adverse to CEDEC.

Moreover, in China Bank v. Lozada,²⁶ we discussed the meaning of “a third party who is actually holding the property adversely to the judgment obligor.” We stated:

The exception provided under Section 33 of Rule 39 of the Revised Rules of Court contemplates a situation in which a third party holds the property by adverse title or right, such as that of a co-owner, tenant or usufructuary. The co-owner, agricultural tenant, and usufructuary possess the property in their own right, and they are not merely the successor or transferee of the right of possession of another co-owner or the owner of the property.²⁷

In this case, respondents cannot claim that their right to possession over the properties is analogous to any of these. Respondents cannot assert that their right of possession is adverse to that of CEDEC when they have no independent right of possession other than what they acquired from CEDEC. Since respondents are not holding the properties adversely to CEDEC, being the latterʼs successors-in-interest, there was no reason for the trial court to order the suspension of the implementation of the writ of possession.

Furthermore, it is settled that a pending action for annulment of mortgage or foreclosure sale does not stay the issuance of the writ of possession.²⁸ The trial court, where the application for a writ of possession is filed, does not need to look into the validity of the mortgage or the manner of its foreclosure.²⁹ The purchaser is entitled to a writ of possession without prejudice to the outcome of the pending annulment case.³⁰

In this case, the trial court erred in issuing its 7 March 2003 Order suspending the implementation of the alias writ of possession. Despite the pendency of Civil Case No. 99-0360, the trial court should not have ordered the sheriff to suspend the implementation of the writ of possession. BPI Family, as purchaser in the foreclosure sale, is entitled to a writ of possession without prejudice to the outcome of Civil Case No. 99-0360.

WHEREFORE, we GRANT the petition. We SET ASIDE the 13 March 2006 Decision and the 19 December 2006 Resolution of the Court of Appeals in CA-G.R. SP No. 78626. We SET ASIDE the 7 March and 20 June 2003 Resolutions of the Regional Trial Court, Branch 114, Pasay City. We ORDER the sheriff to proceed with the implementation of the writ of possession without prejudice to the outcome of Civil Case No. 99-0360.

SO ORDERED.

ANTONIO T. CARPIO

Associate Justice

WE CONCUR:

ANTONIO EDUARDO B. NACHURA

Associate Justice

DIOSDADO M. PERALTA ROBERTO A. ABAD

Associate Justice Associate Justice

JOSE C. MENDOZA

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

ANTONIO T. CARPIO

Associate Justice

Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

RENATO C. CORONA

Chief Justice

1 Under Rule 45 of the 1997 Rules of Civil Procedure.

2 Rollo, pp. 8-17. Penned by Associate Justice Noel G. Tijam, with Associate Justices Elvi John S. Asuncion and Mariflor P. Punzalan Castillo concurring.

3 Id. at 19.

4 An Act To Regulate The Sale Of Property Under Special Powers Inserted In Or Annexed To The Real Estate Mortgages. Approved on 6 March 1924.

5 Rollo, pp. 58-61.

6 Respondent Renato C. Tan is the President and Chief Executive Officer of Golden Power.

7 Rollo, pp. 62-64.

8 Id. at 133-135.

9 Id. at 65-77. Entitled “Golden Power Diesel Sales Center, Inc. and Renato C. Tan v. BPI Family Savings Bank, Inc., Elvira A. Lim, CEDEC Transport Corporation, Pepito S. Celestino as Clerk of Court of the Regional Trial Court of Pasay City and as Ex-officio Sheriff, and Deputy Sheriff Severino DC Balubar, Jr.”

10 Id. at 80-83.

11 Id. at 85-88.

12 Id. at 89-93.

13 Id. at 94-98.

14 Id. at 17.

15 Id. at 32.

16 China Banking Corporation v. Lozada, G.R. No. 164919, 4 July 2008, 557 SCRA 177, citing IFC Service Leasing and Acceptance Corporation v. Nera, 125 Phil. 595 (1967).

17 Id.

18 Id. at 196.

19 Philippine National Bank v. Court of Appeals, 424 Phil. 757 (2002), citing Barican v. Intermediate Appellate Court, 245 Phil. 316 (1988).

20 Unchuan v. Court of Appeals, 244 Phil. 733 (1988).

21 Rollo, p. 135.

22 Id.

23 249 Phil. 41 (1988).

24 Id. at 47-48. Citations omitted.

25 Spouses Paderes v. Court of Appeals, 502 Phil. 76 (2005).

26 Supra note 16.

27 Id. at 202-204. Citations omitted.

28 Fernandez v. Espinoza, G.R. No. 156421, 14 April 2008, 551 SCRA 136; Idolor v. Court of Appeals, 490 Phil. 808 (2005); Samson v. Rivera, G.R. No. 154355, 20 May 2004, 428 SCRA 759.

29 Idolor v. Court of Appeals, supra.

30 Spouses Ong v. Court of Appeals, 388 Phil. 857 (2000).

THE HERITAGE HOTEL MANILA, ACTING THROUGH ITS OWNER, GRAND PLAZA HOTEL CORPORATION VS. NATIONAL UNION OF WORKERS IN THE HOTEL, RESTAURANT AND ALLIED INDUSTRIES-HERITAGE HOTEL MANILA SUPERVISORS CHAPTER (NUWHRAIN-HHMSC) (G.R. NO. 178296, 12 JANUARY 2011, NACHURA, J.) SUBJECTS: JURISDICTION OF BUREAU OF LABOR RELATIONS; POWER OF CONTROL OF DOLE SECRETARY; UNION REGISTRATION. (BRIEF TITLE: HERITAGE HOTEL VS. NATIONAL UNION OF WORKERS.)

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DECISION

NACHURA, J.: 

          Before the Court is a petition for review on certiorari of the Decision^[1][1] of the Court of Appeals (CA) dated May 30, 2005 and Resolution dated June 4, 2007. The assailed Decision affirmed the dismissal of a petition for cancellation of union registration filed by petitioner, Grand Plaza Hotel Corporation, owner of Heritage Hotel Manila, against respondent, National Union of Workers in the Hotel, Restaurant and Allied Industries-Heritage Hotel Manila Supervisors Chapter (NUWHRAIN-HHMSC), a labor organization of the supervisory employees of Heritage Hotel Manila.

          The case stemmed from the following antecedents:

On October 11, 1995, respondent filed with the Department of Labor and Employment-National Capital Region (DOLE-NCR) a petition for certification election.^[2][2]  The Med-Arbiter granted the petition on February 14, 1996 and ordered the holding of a certification election.^[3][3] On appeal, the DOLE Secretary, in a Resolution dated August 15, 1996, affirmed the Med-Arbiter’s order and remanded the case to the Med-Arbiter for the holding of a preelection conference on February 26, 1997. Petitioner filed a motion for reconsideration, but it was denied on September 23, 1996.

          The preelection conference was not held as initially scheduled; it was held a year later, or on February 20, 1998. Petitioner moved to archive or to dismiss the petition due to alleged repeated non-appearance of respondent. The latter agreed to suspend proceedings until further notice. The preelection conference resumed on January 29, 2000.

          Subsequently, petitioner discovered that respondent had failed to submit to the Bureau of Labor Relations (BLR) its annual financial report for several years and the list of its members since it filed its registration papers in 1995. Consequently, on May 19, 2000, petitioner filed a Petition for Cancellation of Registration of respondent, on the ground of the non-submission of the said documents. Petitioner prayed that respondent’s Certificate of Creation of Local/Chapter be cancelled and its name be deleted from the list of legitimate labor organizations. It further requested the suspension of the certification election proceedings.^[4][4] 

          On June 1, 2000, petitioner reiterated its request by filing a Motion to Dismiss or Suspend the [Certification Election] Proceedings,^[5][5] arguing that the dismissal or suspension of the proceedings is warranted, considering that the legitimacy of respondent is seriously being challenged in the petition for cancellation of registration. Petitioner maintained that the resolution of the issue of whether respondent is a legitimate labor organization is crucial to the issue of whether it may exercise rights of a legitimate labor organization, which include the right to be certified as the bargaining agent of the covered employees.

          Nevertheless, the certification election pushed through on June 23, 2000. Respondent emerged as the winner.^[6][6]

On June 28, 2000, petitioner filed a Protest with Motion to Defer Certification of Election Results and Winner,^[7][7] stating that the certification election held on June 23, 2000 was an exercise in futility because, once respondent’s registration is cancelled, it would no longer be entitled to be certified as the exclusive bargaining agent of the supervisory employees. Petitioner also claimed that some of respondent’s members were not qualified to join the union because they were either confidential employees or managerial employees. It then prayed that the certification of the election results and winner be deferred until the petition for cancellation shall have been resolved, and that respondent’s members who held confidential or managerial positions be excluded from the supervisors’ bargaining unit.

         Meanwhile, respondent filed its Answer^[8][8] to the petition for the cancellation of its registration. It averred that the petition was filed primarily to delay the conduct of the certification election, the respondent’s certification as the exclusive bargaining representative of the supervisory employees, and the commencement of bargaining negotiations. Respondent prayed for the dismissal of the petition for the following reasons: (a) petitioner is estopped from questioning respondent’s status as a legitimate labor organization as it had already recognized respondent as such during the preelection conferences; (b) petitioner is not the party-in-interest, as the union members are the ones who would be disadvantaged by the non-submission of financial reports; (c) it has already complied with the reportorial requirements, having submitted its financial statements for 1996, 1997, 1998, and 1999, its updated list of officers, and its list of members for the years 1995, 1996, 1997, 1998, and 1999; (d) the petition is already moot and academic, considering that the certification election had already been held, and the members had manifested their will to be represented by respondent.

          Citing National Union of Bank Employees v. Minister of Labor, et al.^[9][9] and Samahan ng Manggagawa sa Pacific Plastic v. Hon. Laguesma,^[10][10] the Med-Arbiter held that the pendency of a petition for cancellation of registration is not a bar to the holding of a certification election. Thus, in an Order^[11][11] dated January 26, 2001, the Med-Arbiter dismissed petitioner’s protest, and certified respondent as the sole and exclusive bargaining agent of all supervisory employees.

          Petitioner subsequently appealed the said Order to the DOLE Secretary.^[12][12] The appeal was later dismissed by DOLE Secretary Patricia A. Sto. Tomas (DOLE Secretary Sto. Tomas) in the Resolution of August 21, 2002.^[13][13] Petitioner moved for reconsideration, but the motion was also denied.^[14][14]

          In the meantime, Regional Director Alex E. Maraan (Regional Director Maraan) of DOLE-NCR finally resolved the petition for cancellation of registration. While finding that respondent had indeed failed to file financial reports and the list of its members for several years, he, nonetheless, denied the petition, ratiocinating that freedom of association and the employees’ right to self-organization are more substantive considerations. He took into account the fact that respondent won the certification election and that it had already been certified as the exclusive bargaining agent of the supervisory employees. In view of the foregoing, Regional Director Maraan—while emphasizing that the non-compliance with the law is not viewed with favor—considered the belated submission of the annual financial reports and the list of members as sufficient compliance thereof and considered them as having been submitted on time. The dispositive portion of the decision^[15][15] dated December 29, 2001 reads:

WHEREFORE, premises considered, the instant petition to delist the National Union of Workers in the Hotel, Restaurant and Allied Industries-Heritage Hotel Manila Supervisors Chapter from the roll of legitimate labor organizations is hereby DENIED.

SO ORDERED.^[16][16]

          Aggrieved, petitioner appealed the decision to the BLR.^[17][17] BLR Director Hans Leo Cacdac inhibited himself from the case because he had been a former counsel of respondent.

          In view of Director Cacdac’s inhibition, DOLE Secretary Sto. Tomas took cognizance of the appeal. In a resolution^[18][18] dated February 21, 2003, she dismissed the appeal, holding that the constitutionally guaranteed freedom of association and right of workers to self-organization outweighed respondent’s noncompliance with the statutory requirements to maintain its status as a legitimate labor organization.

Petitioner filed a motion for reconsideration,^[19][19] but the motion was likewise denied in a resolution^[20][20] dated May 30, 2003. DOLE Secretary Sto. Tomas admitted that it was the BLR which had jurisdiction over the appeal, but she pointed out that the BLR Director had voluntarily inhibited himself from the case because he used to appear as counsel for respondent. In order to maintain the integrity of the decision and of the BLR, she therefore accepted the motion to inhibit and took cognizance of the appeal.

          Petitioner filed a petition for certiorari with the CA, raising the issue of whether the DOLE Secretary acted with grave abuse of discretion in taking cognizance of the appeal and affirming the dismissal of its petition for cancellation of respondent’s registration.

          In a Decision dated May 30, 2005, the CA denied the petition. The CA opined that the DOLE Secretary may legally assume jurisdiction over an appeal from the decision of the Regional Director in the event that the Director of the BLR inhibits himself from the case. According to the CA, in the absence of the BLR Director, there is no person more competent to resolve the appeal than the DOLE Secretary. The CA brushed aside the allegation of bias and partiality on the part of the DOLE Secretary, considering that such allegation was not supported by any evidence.

          The CA also found that the DOLE Secretary did not commit grave abuse of discretion when she affirmed the dismissal of the petition for cancellation of respondent’s registration as a labor organization. Echoing the DOLE Secretary, the CA held that the requirements of registration of labor organizations are an exercise of the overriding police power of the State, designed for the protection of workers against potential abuse by the union that recruits them. These requirements, the CA opined, should not be exploited to work against the workers’ constitutionally protected right to self-organization.

          Petitioner filed a motion for reconsideration, invoking this Court’s ruling in Abbott Labs. Phils., Inc. v. Abbott Labs. Employees Union,^[21][21] which categorically declared that the DOLE Secretary has no authority to review the decision of the Regional Director in a petition for cancellation of union registration, and Section 4,^[22][22] Rule VIII, Book V of the Omnibus Rules Implementing the Labor Code.

          In its Resolution^[23][23] dated June 4, 2007, the CA denied petitioner’s motion, stating that the BLR Director’s inhibition from the case was a peculiarity not present in the Abbott case, and that such inhibition justified the assumption of jurisdiction by the DOLE Secretary.

          In this petition, petitioner argues that:

I.

The Court of Appeals seriously erred in ruling that the Labor Secretary properly assumed jurisdiction over Petitioner’s appeal of the Regional Director’s Decision in the Cancellation Petition x x x.

A.             Jurisdiction is conferred only by law. The Labor Secretary had no jurisdiction to review the decision of the Regional Director in a petition for cancellation. Such jurisdiction is conferred by law to the BLR.

B.              The unilateral inhibition by the BLR Director cannot justify the Labor Secretary’s exercise of jurisdiction over the Appeal.

C.              The Labor Secretary’s assumption of jurisdiction over the Appeal without notice violated Petitioner’s right to due process.

II.

The Court of Appeals gravely erred in affirming the dismissal of the Cancellation Petition despite the mandatory and unequivocal provisions of the Labor Code and its Implementing Rules.^[24][24]

The petition has no merit.

          Jurisdiction to review the decision of the Regional Director lies with the BLR. This is clearly provided in the Implementing Rules of the Labor Code and enunciated by the Court in Abbott. But as pointed out by the CA, the present case involves a peculiar circumstance that was not present or covered by the ruling in Abbott. In this case, the BLR Director inhibited himself from the case because he was a former counsel of respondent. Who, then, shall resolve the case in his place?

In Abbott, the appeal from the Regional Director’s decision was directly filed with the Office of the DOLE Secretary, and we ruled that the latter has no appellate jurisdiction. In the instant case, the appeal was filed by petitioner with the BLR, which, undisputedly, acquired jurisdiction over the case. Once jurisdiction is acquired by the court, it remains with it until the full termination of the case.^[25][25]

Thus, jurisdiction remained with the BLR despite the BLR Director’s inhibition. When the DOLE Secretary resolved the appeal, she merely stepped into the shoes of the BLR Director and performed a function that the latter could not himself perform. She did so pursuant to her power of supervision and control over the BLR.^[26][26]

          Expounding on the extent of the power of control, the Court, in Araneta, et al. v. Hon. M. Gatmaitan, et al.,^[27][27] pronounced that, if a certain power or authority is vested by law upon the Department Secretary, then such power or authority may be exercised directly by the President, who exercises supervision and control over the departments. This principle was incorporated in the Administrative Code of 1987, which defines “supervision and control” as including the authority to act directly whenever a specific function is entrusted by law or regulation to a subordinate.^[28][28] Applying the foregoing to the present case, it is clear that the DOLE Secretary, as the person exercising the power of supervision and control over the BLR, has the authority to directly exercise the quasi-judicial function entrusted by law to the BLR Director.

          It is true that the power of control and supervision does not give the Department Secretary unbridled authority to take over the functions of his or her subordinate. Such authority is subject to certain guidelines which are stated in Book IV, Chapter 8, Section 39(1)(a) of the Administrative Code of 1987.^[29][29] However, in the present case, the DOLE Secretary’s act of taking over the function of the BLR Director was warranted and necessitated by the latter’s inhibition from the case and the objective to “maintain the integrity of the decision, as well as the Bureau itself.”^[30][30]

          Petitioner insists that the BLR Director’s subordinates should have resolved the appeal, citing the provision under the Administrative Code of 1987 which states, “in case of the absence or disability of the head of a bureau or office, his duties shall be performed by the assistant head.”^[31][31] The provision clearly does not apply considering that the BLR Director was neither absent nor suffering from any disability; he remained as head of the BLR. Thus, to dispel any suspicion of bias, the DOLE Secretary opted to resolve the appeal herself.

          Petitioner was not denied the right to due process when it was not notified in advance of the BLR Director’s inhibition and the DOLE Secretary’s assumption of the case. Well-settled is the rule that the essence of due process is simply an opportunity to be heard, or, as applied to administrative proceedings, an opportunity to explain one’s side or an opportunity to seek a reconsideration of the action or ruling complained of.^[32][32] Petitioner had the opportunity to question the BLR Director’s inhibition and the DOLE Secretary’s taking cognizance of the case when it filed a motion for reconsideration of the latter’s decision. It would be well to state that a critical component of due process is a hearing before an impartial and disinterested tribunal, for all the elements of due process, like notice and hearing, would be meaningless if the ultimate decision would come from a partial and biased judge.^[33][33]  It was precisely to ensure a fair trial that moved the BLR Director to inhibit himself from the case and the DOLE Secretary to take over his function.

          Petitioner also insists that respondent’s registration as a legitimate labor union should be cancelled. Petitioner posits that once it is determined that a ground enumerated in Article 239 of the Labor Code is present, cancellation of registration should follow; it becomes the ministerial duty of the Regional Director to cancel the registration of the labor organization, hence, the use of the word “shall.”  Petitioner points out that the Regional Director has admitted in its decision that respondent failed to submit the required documents for a number of years; therefore, cancellation of its registration should have followed as a matter of course.

          We are not persuaded.

Articles 238 and 239 of the Labor Code read:

ART. 238. CANCELLATION OF REGISTRATION; APPEAL

            The certificate of registration of any legitimate labor organization, whether national or local, shall be canceled by the Bureau if it has reason to believe, after due hearing, that the said labor organization no longer meets one or more of the requirements herein prescribed.^[34][34]

            ART. 239. GROUNDS FOR CANCELLATION OF UNION REGISTRATION.

            The following shall constitute grounds for cancellation of union registration:

            x x x x

            (d) Failure to submit the annual financial report to the Bureau within thirty (30) days after the closing of every fiscal year and misrepresentation, false entries or fraud in the preparation of the financial report itself;

            x x x x

            (i) Failure to submit list of individual members to the Bureau once a year or whenever required by the Bureau.^[35][35]

          These provisions give the Regional Director ample discretion in dealing with a petition for cancellation of a union’s registration, particularly, determining whether the union still meets the requirements prescribed by law. It is sufficient to give the Regional Director license to treat the late filing of required documents as sufficient compliance with the requirements of the law. After all, the law requires the labor organization to submit the annual financial report and list of members in order to verify if it is still viable and financially sustainable as an organization so as to protect the employer and employees from fraudulent or fly-by-night unions. With the submission of the required documents by respondent, the purpose of the law has been achieved, though belatedly.

          We cannot ascribe abuse of discretion to the Regional Director and the DOLE Secretary in denying the petition for cancellation of respondent’s registration. The union members and, in fact, all the employees belonging to the appropriate bargaining unit should not be deprived of a bargaining agent, merely because of the negligence of the union officers who were responsible for the submission of the documents to the BLR.

           Labor authorities should, indeed, act with circumspection in treating petitions for cancellation of union registration, lest they be accused of interfering with union activities. In resolving the petition, consideration must be taken of the fundamental rights guaranteed by Article XIII, Section 3 of the Constitution, i.e., the rights of all workers to self-organization, collective bargaining and negotiations, and peaceful concerted activities. Labor authorities should bear in mind that registration confers upon a union the status of legitimacy and the concomitant right and privileges granted by law to a legitimate labor organization, particularly the right to participate in or ask for certification election in a bargaining unit.^[36][36] Thus, the cancellation of a certificate of registration is the equivalent of snuffing out the life of a labor organization. For without such registration, it loses – as a rule – its rights under the Labor Code.^[37][37] 

          It is worth mentioning that the Labor Code’s provisions on cancellation of union registration and on reportorial requirements have been recently amended by Republic Act (R.A.) No. 9481, An Act Strengthening the Workers’ Constitutional Right to Self-Organization, Amending for the Purpose Presidential Decree No. 442, As Amended, Otherwise Known as the Labor Code of the Philippines, which lapsed into law on May 25, 2007 and became effective on June 14, 2007. The amendment sought to strengthen the workers’ right to self-organization and enhance the Philippines’ compliance with its international obligations as embodied in the International Labour Organization (ILO) Convention No. 87,^[38][38] pertaining to the non-dissolution of workers’ organizations by administrative authority.^[39][39]  Thus, R.A. No. 9481 amended Article 239 to read:     

          ART. 239. Grounds for Cancellation of Union Registration.—The following may constitute grounds for cancellation of union registration:

            (a) Misrepresentation, false statement or fraud in connection with the adoption or ratification of the constitution and by-laws or amendments thereto, the minutes of ratification, and the list of members who took part in the ratification;

            (b) Misrepresentation, false statements or fraud in connection with the election of officers, minutes of the election of officers, and the list of voters;

            (c) Voluntary dissolution by the members.

          R.A. No. 9481 also inserted in the Labor Code Article 242-A, which provides:

          ART. 242-A. Reportorial Requirements.—The following are documents required to be submitted to the Bureau by the legitimate labor organization concerned:

            (a) Its constitution and by-laws, or amendments thereto, the minutes of ratification, and the list of members who took part in the ratification of the constitution and by-laws within thirty (30) days from adoption or ratification of the constitution and by-laws or amendments thereto;

            (b) Its list of officers, minutes of the election of officers, and list of voters within thirty (30) days from election;

(c) Its annual financial report within thirty (30) days after the close of every fiscal year; and

            (d) Its list of members at least once a year or whenever required by the Bureau.

            Failure to comply with the above requirements shall not be a ground for cancellation of union registration but shall subject the erring officers or members to suspension, expulsion from membership, or any appropriate penalty.

          ILO Convention No. 87, which we have ratified in 1953, provides that “workers’ and employers’ organizations shall not be liable to be dissolved or suspended by administrative authority.” The ILO has expressed the opinion that the cancellation of union registration by the registrar of labor unions, which in our case is the BLR, is tantamount to dissolution of the organization by administrative authority when such measure would give rise to the loss of legal personality of the union or loss of advantages necessary for it to carry out its activities, which is true in our jurisdiction. Although the ILO has allowed such measure to be taken, provided that judicial safeguards are in place, i.e., the right to appeal to a judicial body, it has nonetheless reminded its members that dissolution of a union, and cancellation of registration for that matter, involve serious consequences for occupational representation. It has, therefore, deemed it preferable if such actions were to be taken only as a last resort and after exhausting other possibilities with less serious effects on the organization.^[40][40]

          The aforesaid amendments and the ILO’s opinion on this matter serve to fortify our ruling in this case. We therefore quote with approval the DOLE Secretary’s rationale for denying the petition, thus:

It is undisputed that appellee failed to submit its annual financial reports and list of individual members in accordance with Article 239 of the Labor Code. However, the existence of this ground should not necessarily lead to the cancellation of union registration. Article 239 recognizes the regulatory authority of the State to exact compliance with reporting requirements. Yet there is more at stake in this case than merely monitoring union activities and requiring periodic documentation thereof.

            The more substantive considerations involve the constitutionally guaranteed freedom of association and right of workers to self-organization. Also involved is the public policy to promote free trade unionism and collective bargaining as instruments of industrial peace and democracy. An overly stringent interpretation of the statute governing cancellation of union registration without regard to surrounding circumstances cannot be allowed. Otherwise, it would lead to an unconstitutional application of the statute and emasculation of public policy objectives. Worse, it can render nugatory the protection to labor and social justice clauses that pervades the Constitution and the Labor Code.

            Moreover, submission of the required documents is the duty of the officers of the union. It would be unreasonable for this Office to order the cancellation of the union and penalize the entire union membership on the basis of the negligence of its officers. In National Union of Bank Employees vs. Minister of Labor, L-53406, 14 December 1981, 110 SCRA 296, the Supreme Court ruled:

            As aptly ruled by respondent Bureau of Labor Relations Director Noriel: “The rights of workers to self-organization finds general and specific constitutional guarantees. x x x Such constitutional guarantees should not be lightly taken much less nullified. A healthy respect for the freedom of association demands that acts imputable to officers or members be not easily visited with capital punishments against the association itself.”

            At any rate, we note that on 19 May 2000, appellee had submitted its financial statement for the years 1996-1999. With this submission, appellee has substantially complied with its duty to submit its financial report for the said period. To rule differently would be to preclude the union, after having failed to meet its periodic obligations promptly, from taking appropriate measures to correct its omissions. For the record, we do not view with favor appellee’s late submission. Punctuality on the part of the union and its officers could have prevented this petition.^[41][41]

           WHEREFORE, premises considered, the Court of Appeals Decision dated May 30, 2005 and Resolution dated June 4, 2007 are AFFIRMED.

SO ORDERED.

                                      ANTONIO EDUARDO B. NACHURA

                                      Associate Justice

WE CONCUR:

ANTONIO T. CARPIO

Associate Justice

Chairperson

JOSE CATRAL MENDOZA

Associate Justice

A T T E S T A T I O N

          I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

                                      ANTONIO T. CARPIO

                                      Associate Justice

                                      Chairperson, Second Division

C E R T I F I C A T I O N

          Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

                                      RENATO C. CORONA

                                      Chief Justice

BELLE CORPORATION VS.  COMMISSIONER OF INTERNAL REVENUE (G.R. No. 181298, 10 JANUARY 2011,  DEL CASTILLO, J.) SUBJECT: REFUND OF EXCESS INCOME TAX PAYMENTS. BRIEF TITLE: BELL CORP VS. CIR

x – – – – – – – – – – – – – – – – – – — – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – x

D E C I S I O N

DEL CASTILLO, J.:

Section 69 of the old National Internal Revenue Code (NIRC) allows unutilized tax credits to be refunded as long as the claim is filed within the prescriptive period.  This, however, no longer holds true under Section 76 of the 1997 NIRC as the option to carry-over excess income tax payments to the succeeding taxable year is now irrevocable.

This Petition for Review on Certiorari^[1][1] under Rule 45 of the Rules of Court seeks to set aside the January 25, 2007 Decision^[2][2] and the January 21, 2008 Resolution^[3][3] of the Court of Appeals (CA).

Factual Antecedents

Petitioner Belle Corporation is a domestic corporation engaged in the real estate and property business.^[4][4] 

On May 30, 1997, petitioner filed with the Bureau of Internal Revenue (BIR) its Income Tax Return (ITR) for the first quarter of 1997, showing a gross income of P741,607,495.00, a deduction of P65,381,054.00, a net taxable income of P676,226,441.00 and an income tax due of P236,679,254.00, which petitioner paid on even date through PCI Bank, Tektite Tower Branch, an Authorized Agent Bank of the BIR.^[5][5]

On August 14, 1997, petitioner filed with the BIR its second quarter ITR, declaring an overpayment of income taxes in the amount of P66,634,290.00.  The computation of which is reproduced below:

In view of the overpayment, no taxes were paid for the second and third quarters of 1997.^[7][7]  Petitioner’s ITR for the taxable year ending December 31, 1997 thereby reflected an overpayment of income taxes in the amount of P132,043,528.00, computed as follows:

Instead of claiming the amount as a tax refund, petitioner decided to apply it as a tax credit to the succeeding taxable year by marking the tax credit option box in its 1997 ITR.^[9][9]

For the taxable year 1998, petitioner’s amended ITR showed an overpayment of P106,447,318.00, computed as follows:

Gross Income                                                                                        P  1,279,810,489.00

Less: Deduction                                                                         1,346,553,546.00

Taxable Income (Loss)                                                                        (P     66,743,057.00)

Tax Rate                                                                                                                          34%

Tax Due (Regular Income Tax)                                   –                                      NIL

Minimum Corporate Income Tax                                       P       25,596,210.00

Tax Due                                                                                          25,596,210.00

Less: Tax Credits/Payments

                   (a) Prior year’s excess Tax Credits                                  (P   132,041,528.00)

                   (b) Quarterly payment                                               –

                   (c) Creditable tax withheld                         –                                                                                  

Tax Payable/Overpayment                                                  (P   106,447,318.00)^[10][10] 

On April 12, 2000, petitioner filed with the BIR an administrative claim for refund of its unutilized excess income tax payments for the taxable year 1997 in the amount of P106,447,318.00.^[11][11]

Notwithstanding the filing of the administrative claim for refund, petitioner carried over the amount of P106,447,318.00 to the taxable year 1999 and applied a portion thereof to its 1999 Minimum Corporate Income Tax (MCIT) liability, as evidenced by its 1999 ITR.^[12][12]  Thus:

Gross Income                                                                                            P  708,888,638.00

Less: Deduction                                                                           1,328,101,776.00

Taxable Income                                                                       (P  619,213,138.00)

Tax Due                                                                                                            –                  

Minimum Corporate Income Tax                                            P   14,185,874.00

Less: Tax Credits/Payments

   (a) Prior year’s excess Credit                            P 106,447,318.00

   (b) Tax Payments for the 1st & 3rd Qtrs.        0

   (c) Creditable tax withheld                                               0                     P  106,447,318.00

TAX PAYABLE/REFUNDABLE                                   (P   92,261,444.00)^[13][13]

Proceedings before the Court of Tax Appeals (CTA)

On April 14, 2000, due to the inaction of the respondent Commissioner of Internal Revenue (CIR) and in order to toll the running of the two-year prescriptive period, petitioner appealed its claim for refund of unutilized excess income tax payments for the taxable year 1997 in the amount of P106,447,318.00 with the CTA via a Petition for Review,^[14][14] docketed as CTA Case No. 6070.

In answer thereto, respondent interposed that:

4.     Petitioner’s alleged claim for refund/tax credit is subject to administrative routinary investigation/examination by respondent’s Bureau;

5.     Petitioner failed miserably to show that the total amount of P106,447,318.00 claimed as overpaid or excess income tax is refundable;

6.     Taxes paid and collected are presumed to have been paid in accordance with law; hence, not refundable;   

7.     In an action for tax refund, the burden is on the taxpayer to establish its right to refund, and failure to sustain the burden is fatal to the claim for refund;

8.     It is incumbent upon petitioner to show that it has complied with the provisions of Section 204 (c) in relation to Section 229 of the tax Code;

9.     Well-established is the rule that refunds/tax credits are construed strictly against the taxpayer as they partake the nature of tax exemptions.^[15][15]

To prove entitlement to the refund, petitioner submitted, among others, the following documents: its ITR for the first quarter of taxable year 1997 (Exhibit “B”),^[16][16] its tentative ITRs for taxable years 1997 (Exhibit “D”)^[17][17] and 1998 (Exhibit “H”),^[18][18] its final ITRs for taxable years 1997 (Exhibit “E”),^[19][19] 1998 (Exhibit “I”)^[20][20] and 1999 (Exhibit “J”),^[21][21] its Letter Claim for Refund filed with the BIR (Exhibit “K”)^[22][22] and the Official Receipt issued by PCI Bank showing the income tax payment made by petitioner in the amount of P236,679,254.00  for the first quarter of 1997 (Exhibit “C”).^[23][23]

On April 10, 2001, the CTA rendered a Decision^[24][24] denying petitioner’s claim for refund.  It found:

[T]hat all the allegations made by the Petitioner as well as the figures accompanying Petitioner’s claim are substantiated by documentary evidence but noticed some flaws in Petitioner’s application of the pertinent laws involved.

It bears stressing that the applicable provision in the case at bar is Section 69 of the old Tax Code and not Section 76 of the 1997 Tax Code. Settled is the rule that under Section 69 of the old Tax Code, the carrying forward of any excess/overpaid income tax for a given taxable year is limited only up to the succeeding taxable year.

A painstaking scrutiny of Petitioner’s income tax returns would show that Petitioner carried over its 1997 refundable tax of P132,043,528.00 to the succeeding year of 1998 yielding an overpayment of P106,447,318.00 (Exhibit I-1) after deducting therefrom the minimum Corporate Income tax of P25,596,210.00.  However, Petitioner even went further to the taxable year 1999 and applied the Prior Year’s (1998) Excess Credit of P106,447,318.00 to its income tax liability.

True enough, upon verification of Petitioner’s 1999 Corporate Annual Income Tax Return (Exh. I), this Court found that the whole amount of P106,447,318.00 representing its prior year’s excess credit (subject of this claim) was carried forward to its 1999 income tax liability, details of the 1999 Income Tax Return are shown below as follows:

Gross Income                                                                                                 P     708,888,638.00

Less: Deduction                                                                                                 1,328,101,776.00

Taxable Income                                                                                            (P     619,213,138.00)

Tax Due                                                                                                                            –                   

Minimum Corporate Income Tax                                                                 P       14,185,874.00

Less: Tax Credits/Payments

   (a) Prior year’s excess Credit                                 P  106,447,318.00

   (b) Tax Payments for the 1st & 3rd Qtrs.                             0

   (c) Creditable tax withheld                                                      0                 P   106,447,318.00

TAX PAYABLE/REFUNDABLE                                                         (P     92,261,444.00)

It is an elementary rule in taxation that an automatic carry over of an excess income tax payment should only be made for the succeeding year. (Paseo Realty and Dev’t. Corp. vs. CIR, CTA Case No. 4528, April 30, 1993) True enough, implicit from the provisions of Section 69 of the NIRC, as amended, (supra) is the fact that the refundable amount may be credited against the income tax liabilities for the taxable quarters of the succeeding taxable year not succeeding years; and that the carry-over is only limited to the quarters of the succeeding taxable year. (citing ANSCOR Hagedorn Securities Inc. vs. CIR, CA-GR SP 38177, December 21, 1999) To allow the application of excess taxes paid for two successive years would run counter to the specific provision of the law above-mentioned.^[25][25]   (Emphasis supplied.)

Petitioner sought reconsideration^[26][26] of the CTA’s denial of its claim for refund, but the same was denied in a Resolution^[27][27] dated June 5, 2001, prompting petitioner to elevate the matter to the CA via a Petition for Review^[28][28] under Rule 43 of the Rules of Court.

Ruling of the Court of Appeals

On January 25, 2007, the CA, applying Philippine Bank of Communications v. Commissioner of Internal Revenue,^[29][29] denied the petition.  The CA explained that the overpayment for taxable year 1997 can no longer be carried over to taxable year 1999 because excess income payments can only be credited against the income tax liabilities of the succeeding taxable year, in this case up to 1998 only and not beyond.^[30][30]  Neither can the overpayment be refunded as the remedies of automatic tax crediting and tax refund are alternative remedies.^[31][31]  Thus, the CA ruled:

[W]hile BELLE may not have fully enjoyed the complete utilization of its option and the sum of Php106,447,318 still remained after it opted for a tax carry over of its excess payment for the taxable year 1998, but be that as it may, BELLE has only itself to blame for making such useless and damaging option, and BELLE may no longer opt to claim for a refund considering that the remedy of refund is barred after the corporation has previously opted for the tax carry over remedy. As a matter of fact, the CTA even made the factual findings that BELLE committed an aberration to exhaust its unutilized overpaid income tax by carrying it over further to the taxable year 1999, which is a blatant transgression of the “succeeding taxable year limit” provided for under Section 69 of the old NIRC.^[32][32]  (Emphasis supplied)

Hence, the fallo of the Decision reads:

WHEREFORE, premises considered, the instant Petition for Review is DENIED, and accordingly, the herein impugned April 10, 2001 Decision and June 5, 2001 Resolution of the CTA are hereby affirmed.

SO ORDERED.^[33][33]

Petitioner moved for reconsideration.^[34][34]  The CA, however, denied the same in a Resolution^[35][35] dated January 21, 2008.

Issues

Aggrieved, petitioner availed of the present recourse, raising the following assignment of errors:

A.          THE CA COMMITTED SERIOUS ERROR OF LAW IN APPLYING THE PBCOM CASE.

        A.1.    THE [DECISION IN THE] PBCOM CASE HAS ALREADY BEEN REPEALED.

        A.2.    ASSUMING ARGUENDO THAT THE [DECISION IN THE] PBCOM CASE HAS NOT BEEN REPEALED, IT HAS NO APPLICATION TO BELLE.

B.    THE CA COMMITTED SERIOUS ERROR OF LAW IN FINDING THAT BELLE’S REFUND CLAIM IS NOT ON ALL FOURS WITH THE CASES OF BPI FAMILY AND AB LEASING.

B.1.     BELLE’S ‘CARRYING-OVER’ OF ITS EXCESS INCOME TAX PAID FOR 1997 TO 1999 (BEYOND THE SUBSEQUENT YEAR) IS IMMATERIAL.

B.2.     BELLE’S PARTIAL USE OF ITS EXCESS INCOME TAX PAID IN 1998 (THE SUBSEQUENT YEAR) DOES NOT PRECLUDE BELLE FROM ASKING FOR A REFUND.^[36][36]

In a nutshell, the issue boils down to whether petitioner is entitled to a refund of its excess income tax payments for the taxable year 1997 in the amount of P106,447,318.00.

Petitioner’s Arguments

Petitioner insists that it is entitled to a refund as the ruling in Philippine Bank of Communications v. Commissioner of Internal Revenue^[37][37] relied upon by the CA in denying its claim has been overturned by BPI-Family Savings Bank, Inc. v. Court of Appeals,^[38][38] AB Leasing and Finance Corporation v. Commissioner of Internal Revenue,^[39][39] Calamba Steel Center, Inc. v. Commissioner of Internal Revenue,^[40][40] and State Land Investment Corporation v. Commissioner of Internal Revenue.^[41][41]  In these cases, the taxpayers were allowed to claim refund of unutilized tax credits.^[42][42]  Similarly, in this case, petitioner asserts that it may still recover unutilized tax credits via a claim for refund.^[43][43] 

And while petitioner admits that it has committed a “blatant transgression” of the “succeeding taxable year limit” when it carried over its 1997 excess income tax payments beyond the taxable year 1998, petitioner believes that this should not result in the denial of its claim for refund but should only invalidate the application of its 1997 unutilized excess income tax payments to its 1999 income tax liabilities.^[44][44] Hence, petitioner postulates that a claim for refund of its unutilized tax credits for the taxable year 1997 may still be made because the carry-over thereof to the taxable year 1999 produced no legal effect, and is, therefore, immaterial to the resolution of its claim for refund.^[45][45]

Respondent’s Arguments

            Respondent, on the other hand, maintains that the cases of BPI-Family Savings Bank^[46][46] and AB Leasing^[47][47] are inapplicable as the facts obtaining therein are different from those of the present case.^[48][48]  What is controlling, therefore, is the ruling in Philippine Bank of Communications,^[49][49] that tax refund and tax credit are alternative remedies; thus, “the choice of one precludes the other.”^[50][50]  Respondent, therefore, submits that since petitioner has already applied its 1997 excess income tax payments to its liabilities for taxable year 1998, it is precluded from carrying over the same to taxable year 1999, or from filing a claim for refund.^[51][51]

Our Ruling

The petition has no merit.

Both the CTA and the CA erred in applying Section 69^[52][52] of the old NIRC.  The law applicable is Section 76 of the NIRC.

Unutilized excess income tax payments may be refunded within two years from the date of payment under Section 69 of the old NIRC

Under Section 69 of the old NIRC, in case of overpayment of income taxes, a corporation may either file a claim for refund or carry-over the excess payments to the succeeding taxable year.  Availment of one remedy, however, precludes the other.^[53][53] 

Although these remedies are mutually exclusive, we have in several cases allowed corporations, which have previously availed of the tax credit option, to file a claim for refund of their unutilized excess income tax payments.  

In BPI-Family Savings Bank,^[54][54] the bank availed of the tax credit option but since it suffered a net loss the succeeding year, the tax credit could not be applied; thus, the bank filed a claim for refund to recover its excess creditable taxes.  Brushing aside technicalities, we granted the claim for refund.

Likewise, in Calamba Steel Center, Inc.,^[55][55] we allowed the refund of excess income taxes paid in 1995 since these could not be credited to taxable year 1996 due to business losses.  In that case, we declared that “a tax refund may be claimed even beyond the taxable year following that in which the tax credit arises x x x provided that the claim for such a refund is made within two years after payment of said tax.”^[56][56]

In State Land Investment Corporation,^[57][57] we reiterated that “if the excess income taxes paid in a given taxable year have not been entirely used by a x x x corporation against its quarterly income tax liabilities for the next taxable year, the unused amount of the excess may still be refunded, provided that the claim for such a refund is made within two years after payment of the tax.”^[58][58] 

Thus, under Section 69 of the old NIRC, unutilized tax credits may be refunded as long as the claim is filed within the two-year prescriptive period.

The option to carry over excess income tax payments is irrevocable under Section 76 of the 1997 NIRC

This rule, however, no longer applies as Section 76 of the 1997 NIRC now reads:

Section 76.  Final Adjustment Return. – Every corporation liable to tax under Section 24 shall file a final adjustment return covering the total net income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable net income of that year the corporation shall either:   

(a)  Pay the excess tax still due; or

(b)  Be refunded the excess amount paid, as the case may be.

In case the corporation is entitled to a refund of the excess estimated quarterly income taxes paid, the refundable amount shown on its final adjustment return may be credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years. Once the option to carry over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for tax refund or issuance of a tax credit certificate shall be allowed therefor.   (Emphasis supplied)

Under the new law, in case of overpayment of income taxes, the remedies are still the same; and the availment of one remedy still precludes the other.  But unlike Section 69 of the old NIRC, the carry-over of excess income tax payments is no longer limited to the succeeding taxable year. Unutilized excess income tax payments may now be carried over to the succeeding taxable years until fully utilized.  In addition, the option to carry-over excess income tax payments is now irrevocable.  Hence, unutilized excess income tax payments may no longer be refunded.

In the instant case, both the CTA and the CA applied Section 69 of the old NIRC in denying the claim for refund.  We find, however, that the applicable provision should be Section 76 of the 1997 NIRC because at the time petitioner filed its 1997 final ITR, the old NIRC was no longer in force.  In Commissioner of Internal Revenue v. McGeorge Food Industries, Inc.,^[59][59] we explained that:

Section 76 and its companion provisions in Title II, Chapter XII should be applied following the general rule on the prospective application of laws such that they operate to govern the conduct of corporate taxpayers the moment the 1997 NIRC took effect on 1 January 1998. There is no quarrel that at the time respondent filed its final adjustment return for 1997 on 15 April 1998, the deadline under Section 77 (B) of the 1997 NIRC (formerly Section 70(b) of the 1977 NIRC), the 1997 NIRC was already in force, having gone into effect a few months earlier on 1 January 1998. Accordingly, Section 76 is controlling.

The lower courts grounded their contrary conclusion on the fact that respondent’s overpayment in 1997 was based on transactions occurring before 1 January 1998. This analysis suffers from the twin defects of missing the gist of the present controversy and misconceiving the nature and purpose of Section 76. None of respondent’s corporate transactions in 1997 is disputed here. Nor can it be argued that Section 76 determines the taxability of corporate transactions.  To sustain the rulings below is to subscribe to the untenable proposition that, had Congress in the 1997 NIRC moved the deadline for the filing of final adjustment returns from 15 April to 15 March of each year, taxpayers filing returns after 15 March 1998 can excuse their tardiness by invoking the 1977 NIRC because the transactions subject of the returns took place before 1 January 1998. A keener appreciation of the nature and purpose of the varied provisions of the 1997 NIRC cautions against sanctioning this reasoning.^[60][60]

Accordingly, since petitioner already carried over its 1997 excess income tax payments to the succeeding taxable year 1998, it may no longer file a claim for refund of unutilized tax credits for taxable year 1997.

To repeat, under the new law, once the option to carry-over excess income tax payments to the succeeding years has been made, it becomes irrevocable.  Thus, applications for refund of the unutilized excess income tax payments may no longer be allowed.

WHEREFORE, the petition is hereby DENIED.  The Decision dated January 25, 2007 and the Resolution dated January 21, 2008 of the Court of Appeals are hereby AFFIRMED only insofar as the denial of petitioner’s claim for refund is concerned.

            SO ORDERED.

MARIANO C. DEL CASTILLO 

Associate Justice 

WE CONCUR:

RENATO C. CORONA

Chief Justice

Chairperson

JOSE PORTUGAL PEREZ

Associate Justice

C E R T I F I C A T I O N

            Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

RENATO C. CORONA

Chief Justice