CIR vs ESSO Standard Eastern (G.R. No. L-28502-03. April 18, 1989)

17 Apr


Ponente: NARVASA


Respondent overpaid its 1959 income tax by P221,033.00. It was granted a tax credit by the Commissioner accordingly on 1964. However, ESSOs payment of its income tax for 1960 was found to be short by P367,994.00. The Commissioner (of Internal Revenue) wrote to ESSO demanding payment of the deficiency tax, together with interest thereon for the period from 1961 to 1964. ESSO paid under protest the amount alleged to be due, including the interest as reckoned by the Commissioner. It protested the computation of interest, contending it was more than that properly due. It claimed that it should not have been required to pay interest on the total amount of the deficiency tax, P367,994.00, but only on the amount of P146,961.00—representing the difference between said deficiency, P367,994.00, and ESSOs earlier overpayment of P221,033.00 (for which it had been granted a tax credit). ESSO thus asked for a refund. The Internal Revenue Commissioner denied the claim for refund. ESSO appealed to the Court of Tax Appeals  which ordered payment to ESSO of its refund-claim representing overpaid interest.

The Commissioner argued the tax credit of P221,033.00 was approved only on year 1964, it could not be availed of in reduction of ESSOs earlier tax deficiency for the year 1960; as of that year, 1960, there was as yet no tax credit to speak of, which would reduce the deficiency tax liability for 1960. In support of his position, the Commissioner invokes the provisions of Section 51 of the Tax Code.


Whether or not the interest on delinquency should be applied on the full tax deficiency of P367,994.00 despite the existence of overpayment in the amount of P221,033.00.


NO. Petition was denied. Decision of CTA was affirmed.


The fact is that, as respondent Court of Tax Appeals has stressed, as early as 1960, the Government already had in its hands the sum of P221,033.00 representing excess payment. Having been paid and received by mistake, as petitioner Commissioner subsequently acknowledged, that sum unquestionably belonged to ESSO, and the Government had the obligation to return it to ESSO That acknowledgment of the erroneous payment came some four (4) years afterwards in nowise negates or detracts from its actuality. The obligation to return money mistakenly paid arises from the moment that payment is made, and not from the time that the payee admits the obligation to reimburse.The obligation to return money mistakenly paid arises from the moment that payment is made, and not from the time that the payee admits the obligation to reimburse. The obligation of the payee to reimburse an amount paid to him results from the mistake, not from the payee’s confession of the mistake or recognition of the obligation to reimburse.

A literal interpretation is to be rejected if it would be unjust or lead to absurd results. Statutes should receive a sensible construction, such as will give effect to the legislative intention and so as to avoid an unjust or absurd conclusion.


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