CCT Constructors Corp. v. Commissioner of Internal Revenue

[C.T.A. CASE NO. 5266. March 23, 1999.] CCT CONSTRUCTORS CORPORATION , petitioner , vs . THE COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N This is a petition seeking for the refund or issuance of tax credit certificate amounting to Four Million Eight Hundred Twenty Seven Thousand Two Hundred Seventy Nine Pesos (P4,827,279.00), representing unutilized creditable taxes withheld for the fiscal years ended March 31, 1993 and March 31, 1994. The factual backdrop of the case are as follows: Petitioner is a corporation organized and existing under the laws of the Republic of the Philippines and is primarily engaged in construction and engineering. For the fiscal year ended March 31, 1993, Petitioner's Annual Income Tax Return which was filed on July 17, 1993 reflected a gross income of P 188,983,360.00, broken down as follows: Contract income P183,279,038.00 Rental income 5,400,450.00 Miscellaneous income 9,291.00 Others (sales/exchanges of property) 294,581.00 Gross income P188,983,360.00 ============ For the said year, however, Petitioner allegedly ended into a net loss position as its expenses amounted to P191,247,647.00. Petitioner, therefore, was not able to utilize the creditable taxes withheld from its contract and rental income totalling P2,218,270.00. Pursuant to Section 69 of the Tax Code which provides that "(i)n 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 year," Petitioner carried over the amount of P2,218,270.00 to the succeeding year. For the fiscal year ended March 31, 1994, Petitioner's Annual Income Tax Return filed on July 15, 1994 showed a gross income of P256,486,806.00, detailed as follows: Contract income P248,063,452.00 Rental income 7,171,100.00 Miscellaneous income 1,052,418.00 Others (sales/exchanges of property 199,836.00 P256,486,806.00 ============ However, while Petitioner reported a gain for the said year amounting to P352,277.00, its income tax payable was only P123,297.00 and because of this condition, Petitioner was not able to apply in full its creditable taxes withheld for the year in the amount of P2,732,306.00 as well as its creditable taxes withheld which were carried over from the previous fiscal year. Invoking the provisions of Section 204 (3) of the Tax Code, to wit: "SECTION. 904. Authority of the Commissioner to Compromise, Abate, and Refund/Credit Taxes. The Commissioner may xxx xxx xxx (3) Credit or refund taxes erroneously or illegally received, penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two years after the payment of the tax or penalty." LibLex Petitioner filed a claim for refund with the Bureau of Internal Revenue on June 27, 1995 in the total amount of P4,827,279.00, representing the unutilized creditable taxes withheld for the fiscal years ended March 31, 1993 and March 31, 1994, broken down as follows: Creditable tax withheld for FY 1993 P2,218,270.00 Add: Creditable tax withheld for FY 1994 2,732,306.00 Total P4,950,576.00 Less: Income tax for FY 1994 (123,297.00) P4,827,279.00 ========== Since there was no action on the part of herein Respondent and the two-year prescriptive period was about to expire, the instant petition was filed on July 14, 1995. Respondent, in his Answer, set up the following Special and Affirmative Defenses: "6. Petitioner's claim for tax refund is still undergoing the usual routinary investigation/examination by the respondent's Bureau; 7. The alleged creditable withholding taxes were collected and paid pursuant to law and its pertinent implementing rules and regulations, hence, not refundable. Moreover, petitioner has to prove that the creditable withholding taxes were actually paid, remitted to and received by respondent's Bureau and that, the income from which the alleged creditable taxes were withheld must be declared and included in its gross income during the year under review; 8. Petitioner must likewise prove that the alleged creditable withholding taxes were neither automatically applied as tax credit against its tax liability for the succeeding quarter/s of the succeeding taxable year nor included as creditable taxes declared in the succeeding taxable year/s; 9. Petitioner's allegation that it sustained losses does not ipso facto warrant the refund. Petitioner must prove that the deductions claim (sic) by it from its gross income are allowable deductions under the Tax Code and its pertinent BIR implementing rules and regulations. The same must be supported by evidence; 10. Claims for tax refund are construed strictly against the claimant as it partakes of the nature of an exemption from tax, and it is incumbent upon petitioner to prove the same. Petitioner must prove that it is entitled thereto. Failure of petitioner to prove entitlement to the subject claim for refund is fatal to its claim; 11. Moreover, petitioner must prove that it has complied with the provision of Section 230 of the Tax Code, as amended." The sole issue to be resolved is whether or not Petitioner is entitled to the refund sought on the basis of the evidence presented. Petitioner, to prove its case, submitted the following exhibits: Exhibit Description A Corporation Annual Income Tax Return of Petitioner for Fiscal Year Ended March 31, 1993 B Corporation Annual Income Tax Return of Petitioner for Fiscal Year Ended March 31, 1994, including Attachments C Administrative claim for refund filed by Petitioner D to HH Various certificates of creditable income tax withhold at source Respondent, on his part, contended that the instant action for refund should be denied due course for failure on the part of the Petitioner to submit the required documents necessary for the settlement of the case. Furthermore, Respondent argued that Petitioner even had an income tax deficiency in the amount of P73,960,150.00 for fiscal year 1994. To support his case, Respondent offered the following in evidence: Exhs. Particulars 1 Letter of Authority dated June 30, 1995 (p. 80, BIR rec.) 2 Letter dated November 15, 1996 sent to the petitioner (p. 190, BIR rec.) 3 Letter of petitioner dated December 3, 1996 (p. 191, BIR rec.) 4 Memo-report dated December 9, 1996 addressed to the Revenue District Officer, RD No. 47, East Makati (p. 194, BIR rec.) (inadvertently marked as Exh. "5") 5 Memorandum dated June 15, 1990 sent by the Commission on Audit to the Chief, Tax Credit/Refund Division (inadvertently marked as Exh. "6") stating therein the documents which the latter should require taxpayers to submit before claims for tax credit/ refund may be granted. 6 Memo-report dated February 7, 1997 relative to the claim for tax credit/refund of alleged excess creditable withholding tax paid for fiscal year ended March 31, 1994 (inadvertently marked as Exh. "7") 10 Letter of the Revenue District Officer, Revenue District No. 47, East Makati addressed to the petitioner informing the latter that respondent's investigating revenue examiner has already submitted his report recommending the denial of the herein claim for tax credit/refund and that petitioner is being invited for a conference to go over the findings of said revenue officer and present objection thereto if necessary. After a careful scrutiny of the facts and evidence attendant to the case at bar, Petitioner has indeed failed to convince this Court of its entitlement to the refund sought. It bears emphasis that aside from the two-year prescriptive period required under Sections 204 and 230 of the Tax Code and the presentation of the Certificates of Creditable Income Tax Withheld at Source which Petitioner was able to satisfy, it is likewise required that the income upon which the taxes were withheld at source were included as part of the income declared in the income tax return of the recipient. Petitioner's Income Tax Returns for the fiscal years ended March 31, 1993 and March 31, 1994, reflected a total contract and rental income of P443,914,040.00 computed as follows: Fiscal year ending March 31, 1993 Contract income P183,279,038.00 Exh. A (Schedule 2) Rental income 5,400,450.00 Exh. A (Schedule 4) Fiscal year ending March 31, 1994 Contract income P248,063,452.00 Exh. B (Schedule 2) Rental income 7,171.100 Exh. B (Schedule 4) Total P443,914,040.00 ============ A detailed computation, however, of the Certificates of Creditable Tax Withheld at Source submitted by Petitioner revealed a total contract and rental income of P462,987,654.78 (net of adjustments) or a difference of P19,073,614.78, thus: Exhibit Withholding Agent Income Tax Withheld D EDS Mfg. Inc. P 20,320,152.34 P 203,201.53 E (6/92) Kawasaki Heavy Industries, Ltd. 2,780,700.00 27,807.00 F (7/92) Industries, Ltd. 3,648,068.40 36,480.69 G (10/92) Industries, Ltd. 4,762,160.00 47,621.60 H (1-12/92) Matsushita Elec. Phil. Corp. 3,482,298.00 34,822.98 J Rohm Electronics Phils. Inc. 31,967,472.27 319,674.72 I (4/92-3/93) Matsushita Communication Industrial Corp. of the Phils. 122,190,317.00 1,221,903.17 K (1993) Rohm Electronics Phils. Inc. 14,545,454.54 145,454.54 L (1993) Toyo Construction Co., Ltd. 2,040,450.00 20,404.50 M (1993) Toyo Construction Co., Ltd. 4,800,000.00 240,000.00 N Toyo Construction Co., Ltd. 1,860,000.00 85,800.00 O (1993) Eds Mfg. Inc. 15,108,545.98 151,085.46 P Eds Mfg. Inc. 392,100.00 3,921.00 Q (Oct. '93)- Eco-Formwork System (Mar. '94) Phil., Inc. 13,636.36 681.82 R (1/1- 12/31/93) Fels Energy, Inc. 57,930,016.00 579,300.16 S (1/1-3/94) Fels Energy, Inc. 3,545,454.55 35,454.55 T (1993- Kawasaki Heavy 2nd Q) Industries, Ltd. 7,016,752.92 70,167.55 U (1993- Kawasaki Heavy 3rd Q) Industries, Ltd. 18,552,325.23 185,523.26 V (1993- Kawasaki Heavy 4th Q) Industries, Ltd. 30,908,677.19 309,086.79 W (1994- Kawasaki Heavy 1st Q) Industries, Ltd. 17,278,859.60 172,788.60 X (April '93- Matsushita March '95) Communication Industrial Corp. of the Phil. 4,096,457.00 40,964.57 Y (April- Matsushita Sept. '93) Communication Industrial Corp. of the Phils. 27,591,056.00 275,910.56 Z (Oct. '93- Matsushita Mar. '94) Communication Industrial Corp. of the Phils. 10,978,421.00 109,784.21 AA 1993 Precision Engineered Components Corporation 217,541.82 2,175.42 BB 1993 Rohm Electronics Phil., Inc. 43,687,345.52 439,063.46 CC (Jan.- Rohm Electronics Mar. 1994) Phils., Inc. 4,183,323.00 41,833.23 DD Rohm Electronics Phils., Inc. 4,692,000.00 46,920.00 EE 1993 Sagara Metro Plastics Industrial Corp. 5,763,698.00 57,636.98 FF (Jan.- Toyo Construction Mar. 1994) Co., Ltd. 5,191,100.00 259,555.00 GG (Jan.- Dec. 1993) Alpha Core, Inc. 2,340,000.00 23,400. 00 HH (Jan.- Dec. 1993) Yakult Phils. Inc. 27,380.00 273.80 Total 471,911,762.78 5,111,046.83 Less: Adjustments Exh. D-2 P5,145,454.00 J-2 2,394,700.00 P-2 334,900.00 X-2 224,878.00 Z-2 1,159,076.00 9,259.008.00 Balance P462,652,754.78 Per returns 443,914.040.00 Difference P18,738,714.78 ============ With this result, we may infer that not all the contract and rental income of Petitioner were reflected in its 1993 and 1994 returns. Consequently, if we are to consider the difference of P18,738,714.78, Petitioner might have ended into a relatively higher gain position which could give rise to a tax liability rather than a refund. For Petitioner's failure to declare in its returns all the income payments received as part of its gross income, this claim for refund cannot be given due course. WHEREFORE, in view of the foregoing, Petitioner's claim for refund or issuance of tax credit certificate is hereby DENIED. No pronouncement as to costs. SO ORDERED. (SGD.) RAMON O. DE VEYRA Associate Judge WE CONCUR: (SGD.) ERNESTO D. ACOSTA Presiding Judge (SGD.) AMANCIO Q. SAGA Associate Judge