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During pendency of said case, respondent denied PHILAMLIFE’s The Management Services Agreement falls under the expanded
claim for refund of Php643,125.00 as withholding tax at source meaning of “royalties” as it provides for the supply of a non-
for 1980. Respondent also cancelled the tax credit memo in the resident foreign corporation of technical and commercial
amount of Php643,125.00 previously issued to PHILAMLIFE on information, knowledge, advice, assistance or services in
November 18, 1980 and requested the latter to pay the amount connection with technical management or administration of an
of Php643,125.00 as deficiency withholding tax at source for insurance business – a commercial undertaking. Therefore, the
1979 plus increments. income derived for the services performed by AIGI for
PHILAMLIFE under the said agreement contract shall be
Without protesting the assessment, petitioners filed a petition considered as income from services within the Philippines. AIGI,
with CTA on June 14, 1985, docketed as CTA Case No. 3943, being a non-resident foreign corporation not engage in trade
seeking the annulment of said assessment. and business in the Philippines shall pay tax equal to 35% of the
gross income received during each taxable year from all sources
After trial on the merits, respondent tax court rendered the within the Philippines as interest, dividends, rents, royalties
decision dated March 10, 1993 denying both petitions for (including remuneration for technical services), salaries,
review and subsequent motions for reconsiderations. premiums, annuities, emoluments, or other fixed or
determinable annual, periodical or casual gains, profits and
Both parties filed motion for reconsideration on the March 10, income.
1993 decision wherein the respondent tax court issued a
resolution dated May 19, 1993 which modified the dispositive On the second issue, this Court believes that the rule on
portion of the said decision ordering the PHILAMLIFE to pay prescription of assessment and the filing of formal protest will
respondent the amount of Php643,125.00 with interest at the not apply.
Pursuant to Section 229 of NIRC, no such suit or proceeding
shall be begun after the expiration of two years from the date
of payment of tax penalty regardless of any supervening cause
that may arise after payment. Although counting from the
original date of payment of the tax on December 3, 1979, the
filing of the instant Petition for Review on June 14, 1985 would
appear to have been filed out of time, nevertheless, justice and
equity demand that the period during which respondent
approved the herein claim for refund up to the time it was
subsequently cancelled should be deducted from the counting
of the two years prescriptive period. By deducting the period
when Petitioner received the tax credit memo on March 9,
1981 to May 15, 1985 when the same was cancelled by the
respondent only one year and four months had elapsed from
the two year period of prescription when petitioner filed CTA
3943 on June 4, 1985.
In like manner, CIR’s failure to raise before the CTA the issue
relating to the real party in interest to claim the refund cannot,
and should not, prejudice the government. It is axiomatic that
the government can never be in estoppel, particularly in
matters involving taxes. The errors or omissions of certain
administrative officers should never be allowed to jeopardize
the government’s financial position.