Case Digest: CIR v. ESSO Standard Eastern, Inc., 172 SCRA 364, G.R. Nos. L-28502-03, April 18, 1989

Taxation | Taxation Distinguished from Other Inherent Powers and Impositions

Facts: 
  • In 1959, ESSO Standard Eastern, Inc. overpaid its income tax by P221,033.00 and was granted a tax credit for this amount by the Commissioner on August 5, 1964.
  • However, Esso's payment of its income tax for 1960 was short by P367,994.00, as determined by the Commissioner.
  • The Commissioner demanded payment of the deficiency tax along with interest for the period from April 18, 1961, to April 18, 1964.
  • Esso paid under protest, including the interest as calculated by the Commissioner, but contested the interest amount, arguing that it should only be charged interest on the difference between the deficiency tax and its earlier overpayment.
  • The Internal Revenue Commissioner denied the claim for refund. 
  • The Court of Tax Appeals ordered a refund of P39,787.94 to Esso as overpaid interest.
Issue: Whether Esso should be charged interest on the full deficiency tax amount. NO

Held:
The fact is that, as respondent Court of Tax Appeals has stressed, as early as July 15, 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 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. In other words, since the amount of P221,033.00 belonging to ESSO was already in the hands of the Government as of July, 1960, although the latter had no right whatever to the amount and indeed was bound to return it to ESSO, it was neither legally nor logically possible for ESSO thereafter to be considered a debtor of the Government in that amount of P221,033.00; and whatever other obligation ESSO 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. 


To interpret the words of the statute in such a manner as to subvert these truisms simply can not and should not be countenanced. "Nothing is better settled than that courts are not to give words a meaning which would lead to absurd or unreasonable consequences. That is a principle that goes back to In re Allen (2 Phil. 630) decided on October 29, 1903, where it was held that a literal interpretation is to be rejected if it would be unjust or lead to absurd results." 6 "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." 7

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