CIR v.

ESSO (Set-off) 172 SCRA 369; April 18, 1989 Facts: ESSO overpaid its 1959 income tax by P221, 033.00. It was accordingly granted a tax credit. However, ESSOs payment of its i n c o m e t a x f o r 1 9 6 0 w a s f o u n d t o b e s h o r t b y P 3 6 , 9 9 4 . S o t h e Commissioner demanded payment of the deficiency, with interest. ESSO paid under protest, including the interest as reckoned by the Commissioner. ESSOs contention: The interest was more than that properly d u e . I t s h o u l d n o t h a v e b e e n r e q u i r e d t o p a y i n t e r e s t o n t h e t o t a l amount of the deficiency tax, P367,994.00, but only on theamount of P146,961.00 representing the difference between saiddeficiency and ESSOs earlier overpayment. ESSO thus asked for a refund. CIRs contention: It denied the claim for refund. Income taxes are determined and paid on an annual basis, such determination and payment are separate and independent transactions; and a tax credit could not be considered until it has been finally approved and the taxpayer notified. Since in this case, the tax credit was approved only on August 5, 1964, it could not be availed of in reduction of ESSOs earlier tax deficiency for 1960; as of that year there was no tax credit to speak of. In support of this, the Commissioner invokes the Section 51 of the Tax Code: (d) Interest on deficiency. Interest upon the amount determined as deficiency shall be assessed at the same time as the deficiency and shall be paid upon notice and demand from the Commissioner of Internal Revenue; and shall be collected as a part of the tax. ESSO appealed to the Court of Tax Appeals, which in turn ordered payment to ESSO of its "refundclaim. Hence, this appeal by the Commissioner. ISSUE: Was it proper to apply ESSOs tax credit in reducing the total deficiency subject to interest? HELD: Yes, regardless of CIRs assertions, the fact is that as early as July 15, 1960, the Government already had in its hands the sum representing excess payment. Having been paid and received by mistake, that sum unquestionably belonged to ESSO, and the Government had the obligation to return it to ESSO. The obligation to return money mistakenly paid arises from the moment that payment is made, and not from t h e t i m e t h a t t h e p a y e e a d m i t s t h e o b l i g a t i o n t o reimburse. The obligation of the payee to reimburser e s u l t s f r o m t h e m i s t a k e , n o t f r o m t h e p a y e e ' s c o n f e s s i o n o f t h e m i s t a k e o r r e c o g n i t i o n o f t h e obligation to reimburse. In other wor d s , s i n c e t h e amount of P221,033.00 belonging to ESSO was already in the hands of the Government as of July, 1960, it wasn e i t h e r l e g a l l y n o r l o g i c a l l y p o s s i b l e f o r E S S O t h e r e a f t e r t o b e c o n s i d e r e d a d e b t o r o f t h e Government; and whatever other obliga t i o n E S S O might subsequently incur in favor of the Government would have to be reduced by that sum, in respect of which no interest could be charged. Nothing is better settled than that courts are not to give w o r d s a m e a n i n g w h i c h w o u l d l e a d t o a b s u r d o r unreasonable consequences. "Statutes should receive a s e n s i b l e c o n s t r u c t i o n , s u c h a s w i l l g i v e e f f e c t t o t h e legislative intention and so as to avoid an unjust or absurd conclusion."