Citytrust Finance Corp. v. Commissioner of Internal Revenue

[C.T.A. CASE NO. 5402. January 20, 2000.] CITYTRUST FINANCE CORPORATION , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N This case involves a claim for refund or issuance of a tax credit certificate in the amount of P866,509.19, allegedly representing overpaid gross receipts tax for the calendar year ended December 31, 1994. The facts of the case are simple. Petitioner, Citytrust Finance Corporation, is a domestic corporation duly organized and existing under the laws of the Philippines with principal office located at 10th Floor Stock Exchange Building, Exchange Road, Ortigas Center, Pasig City. For the calendar year 1994, Petitioner seasonably filed its Quarterly Percentage Tax Returns reflecting gross receipts (pertaining to 5% GRT rate) in the total amount of P230,565,352.30 with corresponding gross receipts tax payments in the sum of P11,528,267.61, broken down as follows: Period Covered Exh. Gross Receipts Gross Receipts Tax January to March 1994 A P68,390,939.08 P3,419,546.95 April to June 1994 B 48,217,132.69 2,410,856.63 July to September 1994 C 61,687,170.61 3,084,358.53 October to December 1994 D 52,270,110.08 2.613.505.50 Total P230,565,352.30 P11,528,267.61 Petitioner alleges that the gross receipts in the amount of P230,565,352.30 included the sum of P17,330,183.76, representing final withholding taxes derived from passive income. cdlex On January 30, 1996, this Court rendered a decision in CTA Case No. 4720 entitled Asian Bank Corporation vs. Commissioner of Internal Revenue wherein it was held that the 20% final withholding tax on a bank's interest income should not form part of its taxable gross receipts for purposes of computing the gross receipts tax. On July 19, 1996, on the strength of the aforementioned decision, Petitioner filed with the Bureau of Internal Revenue a letter-request for the refund or issuance of tax credit certificate in the aggregate amount of P866,509.19, allegedly representing overpaid gross receipts tax for the year 1994. Without waiting for an action from the Respondent, Petitioner on the same day filed the instant petition for review in order to toll the running of the two-year prescriptive period to judicially claim for the refund of overpaid internal revenue tax pursuant to Section 230 of the Tax Code, as amended. By way of Special and Affirmative Defenses, Respondent avers that Petitioner's right to file a judicial action for refund of all taxes paid before July 19, 1994 has already prescribed; Petitioner's claim for refund is still undergoing administrative routinary investigation; the amount claimed by Petitioner as alleged overpaid gross receipts tax for the year 1994 is not properly documented; the alleged refundable gross receipts tax was collected and paid pursuant to law and pertinent BIR implementing rules and regulations, hence, the same is not refundable; Petitioner's allegation that it excessively paid gross receipts tax during the period under review does not ipso facto warrant the tax refund; Petitioner must prove that the exclusion being claimed from its gross receipts are allowed under the Tax Code and its implementing regulations; claims for refund are construed in strictissimi juris against the taxpayer; and Petitioner must prove that it has complied with the provisions of Section 230 of the Tax Code, as amended. In order to support its claim for refund, Petitioner presented the following evidence: 1. The Quarterly Percentage Tax Returns for the year 1994 and the 1994 Amended Fourth Quarter Percentage Tax Return (Exhs. A to E, Inclusive of sub-markings); 2. The administrative claim for refund with the Bureau of Internal Revenue (Exh. F); 3. Computation of Petitioner's gross receipts for each quarter of 1994 (Exhs. G, H, I and J); LibLex 4. Letter from Bangko Sentral ng Pilipinas dated November 6, 1991 (Exh. L); 5. Certifications from SGV and Co. signed by Mr. Renato J. Galve, the commissioned independent CPA, who conducted the examination on Petitioner's documents relative to the instant claim for refund (Exhs. P and Q, inclusive of sub-markings); 6. 1994 Audited financial statement and the 1994 corporate annual income tax return (Exhs. R and S, inclusive of sub-markings); 7. Certifications from the Treasury Department and Government Securities Department of Bangko Sentral ng Pilipinas with respect to final taxes withheld on treasury bills and remittances to the Bureau of Internal Revenue for the years 1994 and 1995 (Exhs. T and V); and 8. Schedule of treasury bills purchased by Petitioner in 1994 from the secondary market with various outright purchase documents (Exhs. U, U-1 to U-15). Respondent, on the other hand, elected not to submit controverting evidence. This case was submitted for decision after both parties presented their respective memorandum. The Court is now confronted with the following issues: a. Whether or not the 20% final withholding tax on bank's interest income should form part of the taxable receipts for purposes of computing the gross receipts tax; and b. Whether or not Petitioner has proven its claim with sufficient evidence. Anent the first issue, this Court finds Petitioner's cause to be meritorious. The final taxes derived by Petitioner on its passive income should no longer form part of the gross receipts for purposes of computing the gross receipts tax, as we have already ruled in the case entitled Asian Bank Corporation vs. Commissioner of Internal Revenue, CTA Case No. 4720, dated January 30, 1996 , pertinent portions of which read as follows: " We agree with the petitioner that the 20% final withholding tax on its interest income should not form part of its taxable gross receipts . xxx xxx xxx This conclusion is in accord with the interpretation of the Supreme Court in the case entitled Collector of Internal Revenue vs. Manila Jockey Club, 108 Phil. 821, as quoted by this Court in disposing of a similar issue in the case entitled Compania Maritima vs. Acting Commissioner of Internal Revenue, CTA Case No. 1426 dated November 14, 1996, thus: In the second place, the highest tribunal of the land interpreted the term: "gross receipts" to mean all receipts of a taxpayer excluding those which have been especially earmarked by law or regulation for the government or some person other than the taxpayer. Thus, it was held: ". . . The Government could not have meant to tax as gross receipt of the Manila Jockey Club the % which it directs same Club to turn over to the Board of Races. The latter being a Government institution, there would be double taxation, which should be avoided unless the statute admits of no other interpretation. In the same manner, the Government could not have intended to consider as gross receipt the portion of the funds which it directed the Club to give, or know the Club would give, to winning horses and Jockeys admitted 5%. It is true that the law says that out of the total wager funds 12% shall be set aside as the commission' of the track owners but the law itself takes official notice, and virtually approves or directs payment of the portion that goes to owners of horses as prized and bonuses of jockeys, which portion is admittedly 5% out of the 12% commission. As it did not at that time contemplate the application of gross receipts' revenue principle, the law in making a distribution of the total wager funds, took no trouble of separating one item from the other; and for convenience, grouped three items under one common denomination. LexLib "Needless to say, gross receipts of the proprietor of the amusement place should not include any money which although delivered to the amusement place has been especially earmarked by law or regulation for some person other than the proprietor." (The Commissioner of Internal Revenue vs. Manila Jockey Club, Inc. G.R. Nos. L-13890 and L-13887, June 30, 1960) It is to be noted that, under Section 260 of the Tax Code, a race-track is subject to an amusement tax of 20% of its gross receipts and the term gross receipts' embraces all the receipts of the proprietor, lessee, or operator of the amusement place. "Notwithstanding the broad and all-embracing definition of the term "gross receipts" found in our amusement tax law, our Supreme Court did not adopt a literal interpretation of the said term in the case of the Manila Jockey Club, Inc., supra. " prcd In fact Our ruling in the above decision has already been affirmed by the Court of Appeals in the case entitled Commissioner of Internal Revenue vs. Citytrust Investment Phils., Inc . CA-G.R. SP No. 52707, dated August 17, 1999 when it ruled, thus: "Accordingly, the 20% final tax withheld against the Respondent's passive income was already remitted to the Bureau of Internal Revenue for the corresponding year that the same was actually withheld and considered final withholding taxes under Section 50 of the same Code. Indubitably, to include the same to the Respondent's gross receipts for the year 1994 would be to tax twice the passive income derived by the Respondent for the said year, which would constitute double taxation anathema to our taxation laws." The legal issue having been settled, We now delve on the factual aspect of this case which is the second issue at bar. LexLib Section 230 of the Tax Code, as amended, provides that a claim for refund, both with the Bureau of Internal Revenue and with this Court, must be filed within two years from the date of payment of the tax. Furthermore, in counting for the two-year prescriptive period, the filing of the quarterly percentage tax return should be considered as the "date of payment of the tax" ( Solid Bank Corporation vs. Commissioner of Internal Revenue, CTA Case No. 5408, April 14, 1999 ; and Citytrust Investment Philippines, Inc. vs. Commissioner of Internal Revenue, CTA Case No. 5403, April 19, 1999 ). The records show that Petitioner filed its Quarterly Percentage Tax Return for the first quarter of 1994 on April 20, 1994 , while the instant petition for review was filed on July 19, 1996 . Considering that the quarterly percentage tax return is required to be filed and paid on or before the 20th day after the end of each quarter, clearly, it can be concluded that the portion of the claim for refund of overpaid gross receipts tax for the first quarter of 1994 can no longer be considered due to prescription as it was filed beyond the two year period provided by law. The remaining claim for refund of Petitioner for the three quarters of 1994 is well within the two-year period. What is now left for the Petitioner to prove is its compliance with the following requisites: 1. that it paid the gross receipts tax; 2. that it erroneously overpaid its gross receipts tax by including the 20% final withholding tax on its passive income as part of the gross receipts declared in the quarterly percentage tax returns for the year 1994; and 3. that the withholding agent certifies that there is 20% final withholding tax remitted on such passive income. (Bank of the Philippine Islands vs. Commissioner of Internal Revenue, CTA Case No. 5458, February 15, 1999; and BPI Capital vs. Commissioner of Internal Revenue, CTA Case No. 5457, March 1, 1999, cited in Solid Bank Corporation vs. Commissioner of Internal Revenue, CTA Case No. 5408, April 14, 1999, supra). A meticulous examination of all the evidence at hand reveals that Petitioner was able to show that it paid gross receipts tax for the year 1994 as evidenced by the machine validations appearing on the lower portion of Petitioner's quarterly percentage tax returns (Exhs. "A" to "D", inclusive of sub-markings). The evidence also established that the 20% final withholding taxes in the total amount of P17,324,469.00 on the following passive income were included in the gross receipts reflected in Petitioner's quarterly percentage tax returns, to wit: Income Final Tax Interest Income TAS/GS P78,242,865.00 P15,648,573.00 Deposit of Banks 22,861.00 4,572.00 Interbank Call Loans Receivable 1,366,500.00 273,300.00 Trading Gain 6,147,749.00 1,229,550.00 Others 842,370.00 168,474.00 Total P86,622,345.00 P17,324,469.00 ========= ========== This was attested to by the commissioned independent CPA, Mr. Renato J. Galve, and verified by the Court (Exhs. P and Q, inclusive of sub-markings). From the above passive income, only the interest income on treasury bills were supported by certifications of withholding and remittance of 20% final taxes by Bangko Sentral ng Pilipinas (Exhs. T and V). The rest of the passive income were not similarly substantiated by evidence. Thus, Petitioner appears to be entitled to a partial refund of overpaid gross receipts tax on treasury bills. However, the documents presented by Petitioner are not sufficient to enable us to compute the amount of final taxes on treasury bills that was subjected to gross receipts tax. It is evident from the records of the case that Petitioner purchased treasury bills direct from Bangko Sentral ng Pilipinas and from secondary market, Citytrust Banking Corporation (Exhs. T, U, U-1 to U-15) in the total amount of P109,431,921.34 with corresponding withholding tax of P21,885,785.26. This total final tax of P21,885,785.26 is greater than the amount reflected in the quarterly percentage tax returns in the sum of P15,648,573.00 (Exhs. Q-4 and Q-5) which is composed of interest income on trading account securities (TAS) and government securities (GS). We would like to emphasize the Trading Account Securities (TAS) include not only treasury bills but also other commercial papers while Government Securities (GS) are of two kinds, namely: treasury bills and treasury notes. These treasury bills are bearer securities that can be passed on to subsequent buyers. In charging the documents submitted by Petitioner, this Court mulls over the possibility that a portion of these treasury bills are included in the claim that is already barred by prescription (as discussed earlier). We therefore cannot rely on the figures presented by Petitioner (P75,072,935.00 representing TAS and P3,169,930.00 representing GS) (Exh. G-4) as the bases of the interest income on treasury bills without knowing the said amounts' detailed composition. The failure of the Petitioner to show how much 20% final withholding taxes were withheld on treasury bills prevents this Court from granting the claim for refund. Finally, We find the procedures followed by the auditing firm, SGV and Co., insufficient in so far as ascertaining the correctness of Petitioner's claim for refund is concerned because their report merely concentrated on the amount of P17,324,469.00 representing the final taxes paid on passive income for 1994. No information was given by said auditing firm on the amount of final taxes remitted to the BIR which will correspond with this amount of P17,324,469.00. The Central Bank Certifications on the remittance of final withholding taxes (Exhs. T and V) contained the totality of remittances made by Central Bank for all purchases of Treasury bills, by petitioner from 1994 to 1995 which turned out to be bigger. However, the amount of P17,324,469.00 includes not only treasury bills but also interest income on deposits with banks, interbank call loans, receivables, trading gain and others (Exh. Q-4). No evidence of remittance were introduced to prove payment of the above final withholding taxes to the BIR, the only evidence presented is that of the Central Bank Certification which failed to prove the amount being claimed on the present case for reasons explained above. Well-settled is the rule that a claim for refund is in the nature of a claim for exemption, hence should be construed in strictissimi juris against the taxpayer ( Commissioner of Internal Revenue vs. Tokyo Shipping Company , Ltd ., 244 SCRA 332 ). WHEREFORE, in view of the foregoing, the instant petition for review is hereby DENIED due to prescription and insufficiency of evidence. SO ORDERED. (SGD.) ERNESTO D. ACOSTA Presiding Judge I CONCUR: (SGD.) RAMON O. DE VEYRA Associate Judge Separate Opinions SAGA , J ., dissenting : The majority opinion is to the effect that the final withholding tax on certain passive income of a bank should be excluded from its gross receipts for purposes of computing the gross receipts tax. This ruling has been adopted in several other cases resulting in the refund of an already substantial amount of money. In the instant case, however, the claim for refund was denied due to prescription and insufficiency of evidence. Nevertheless, I still maintain my dissent to the legal basis of this decision. With all due respect to the majority opinion, I strongly believe that tax refunds based on the aforementioned ruling should no longer be sanctioned because it is based on a revenue regulation which has already been superseded and abandoned by another revenue regulation. The case of Asian Bank Corporation vs. Commissioner of Internal Revenue, CTA Case No. 4720 promulgated on January 30, 1996 which established a precedent for cases having a similar issue, has as its legal basis Section 4(e) of Revenue Regulations No. 12-80 (November 7, 1980) which states, thus: "Section 4. . . . (e) Gross receipts tax on banks, non-bank financial intermediaries, financing companies, and other non-bank financial intermediaries not performing quasi-banking activities. The rates of taxes to be imposed on the gross receipts of such financial institutions shall be based on all items of income actually received. Mere accrual shall not be considered, but once payment is received on such accrual or in cases of overpayment then the amount actually received shall be included in the tax base of such financial institutions, as provided hereunder." Note that in the Asian Bank case, said bank was being assessed for deficiency gross receipts tax for 1986 and at that time the aforequoted Section 4(e) of Revenue Regulations No. 12-80 was already amended by Section 7(c) of Revenue Regulations No. 17-84 dated October 12, 1984, which provides: "Section 7. . . . (c) If the recipient of the above-mentioned items of income are financial institutions, the same shall be included as part of the tax base upon which the gross receipts tax is imposed ." (Emphasis supplied) In fact the exact provision of the aforequoted Section 7(c) of Revenue Regulations No. 17-84 is also found in the earlier issued Revenue Regulations No. 12-80 under Section 8(c) and that the provisions found in Section 4 of Revenue Regulations 12-80 is no longer a part of RR 17-84. By quoting a superseded revenue regulation, petitioner in the Asian Bank case, led this Court to believe that indeed the gross receipts of banks shall be based on all items of income "actually received", thus an erroneous ruling resulted. As I have repeatedly discussed in several other cases involving similar issues, the Asian Bank case' reliance on the ruling of the Supreme Court in Commissioner of Internal Revenue vs. The Manila Jockey Club, 108 Phil . 821 is misplaced and erroneous. In the Manila Jockey Club, Inc. case, the Club was authorized to operate horse races in which betting was made through the sale of tickets to the public. The total amount of bets called "wager fund" were distributed pursuant to Executive Order No. 320 and Republic Act No. 309, as follows: 87% as dividends to holders of winning tickets 12% as "commissions" of the Manila Jockey Club, of which % was assigned to the Board on Races and 5% was distributed as prizes for owners of winning horses and authorized bonus for jockeys. According to the above-mentioned distribution of the "wager fund", the then Collector of Internal Revenue assessed the Club on the whole amount of its "commission" of 12%. But since the Club had already paid the amusement tax based on its 7% share of the "commission", the amount assessable pertains only to the 5% for the period from November 1946 to October 1950. On various instances, the Club protested the proposed assessments and was sustained by the opinions of the Secretary of Justice rendered on three different occasions (Opinion No. 345, series of 1941; Opinion No. 249, series of 1952 and Opinion No. 340, series of 1955). Notwithstanding the opinions of the Secretary of Justice to the effect that the amount corresponding to the 5% was held only by the Club in trust for the owners of winning horses and authorized bonuses of jockeys, the then Collector of Internal Revenue demanded payment of amusement taxes for the period November 1946 to October 1950. Said demand letter was timely appealed to the Court of Appeals wherein a unanimous judgment was obtained reversing the Collector's stand on the matter. In the High Court, the position of the Secretary of Justice was sustained thereby upholding the Court of Tax Appeals' decision. llcd Accordingly, gross receipts of the proprietor of the amusement place should not include any money which, although delivered to the amusement place was " especially earmarked " by law or legal rule or regulation for some persons other than the proprietor. Undeniably, they are money received by the racing club but they are moneys earmarked by law or regulations for winning horse owners and jockeys and never for a minute become the property of the race track. The same is true in the case of the % which the law directs the club to deliver to the Board on Races. The High Court therefore agrees with the stand of the Court of Tax Appeals that such funds representing 5% of the 12% "commissions" of the race track do not form part of the gross receipts, hence not subject to the amusement tax of 20%. The above-mentioned decision of the High Court was also applied in the case of Visayan Cebu Terminal Co., Inc. vs. Commissioner of Internal Revenue, 13 SCRA 357, Nos. L-19530 and L-19444, February 27, 1965. The legal issue involved in this case is the interpretation of the management contract entered into by and between the Bureau of Customs and Visayan Cebu Terminal Co., Inc. whereby the latter as contractor was appointed the sole manager of the Arrastre Service at the Port of Cebu City. In the said Management Contract, it was further agreed and understood that in consideration of the rights and privileges granted the Contractor for the management of the Arrastre Service, the Bureau of Customs shall receive twenty eight (28%) percent of the total monthly gross income derived from whatever source in connection with the operations of the Arrastre Service, payable within ten (10) days of the succeeding month. The main legal issue involved in this case is whether or not the gross receipts corresponding to the 28% of the total gross income of the Service Contractor delivered to the Bureau of Customs within ten (10) days of the following month should form part Or the gross receipts subject to 3% contractor's tax under Section 191 of the Tax Code. The Court of Tax Appeals ruled in favor of the petitioner, holding the view that the said 28% payment by the Arrastre Contractor based on its monthly gross income should not form part of the gross receipts subject to 3% contractors tax and that paragraph 23 of the said Management Contract can legally be construed as a " regulation ". As the learned trial court has aptly observed: ". . . the government could not have intended to consider as gross receipts the 28% that went to one of its institutions, the Bureau of Customs, and thereby collect percentage tax on it from petitioner. To hold petitioner liable for the payment of percentage tax is unquestionably unjust and not contemplated by Section 191 of the Tax Code." cdll All the above-mentioned decisions of the High Court made specific reference to gross receipts which are especially " earmarked by law or legal rule or regulation " as not forming part of the taxable gross receipts for purposes of the gross receipts tax under the Tax Code. For this purpose, it is pertinent to define the word "earmark" as a mark put upon a thing to distinguish it from another. Originally and literally, a mark upon the ear, a mode of marking sheep and other animals. Property is said to be earmarked when it can be identified or distinguished from other property of the same nature. To set apart from others (Black's Law Dictionary, 6th Edition, p. 508). In the case of the Manila Jockey Club, Inc. Executive Order No. 320 and Republic Act No. 309 made the specific "earmarking" for distribution of the total wager fund to different persons other than the proprietor. The same is true in the case of Visayan Cebu Terminal Co., Inc. where the specific earmarking of the 28% of the total monthly gross income to be delivered to the Bureau of Customs by the Contractor was provided in paragraph 23 of the Management Contract. Such specific earmarking of the twenty (20%) percent final income tax as not includible in the gross receipts for purposes of the gross receipts tax was not provided by any law or legal rule or regulation, hence the non-applicability of the above-cited High Court decisions to the Asian Bank Corporation case. This legal observation is also in point in the case of Compaia Maritima case where the non-inclusion of the 10% reserve from the total cash collection to avoid claim for refund on freight and passengers tickets not taken is not provided by any law or legal rule or regulation. In the Asian Bank Corporation case, petitioner bank alleges that subjecting the gross receipts to the 20% final withholding income tax and later to the 5% gross receipts tax is not only oppressive and obnoxious but even a confiscatory form of double taxation. Double taxation has been defined "as the taxing of the same item or piece of property twice to the same person, or taxing it as the property of one person and again as the property of another, but this does not include the imposition of different taxes concurrently on the same property or income (e.g. federal and state income taxes), nor the taxation of the same piece of property to different persons when they hold different interests in it or when it represents different values in their hands, as when both the mortgagor and mortgagee of property are taxed in respect to their interests in it, or when a tax is laid upon the profits of the corporation and also upon the dividends paid to its stockholders" (Black's Law Dictionary, 6th Edition, p. 491). This acceptable form of double taxation is reflected in BIR Ruling No. 223 dated November 2, 1989, thus: "The 5% gross receipts tax under Section 120 of the Tax Code is collectible on all finance companies doing business in the Philippines from interests, discounts, and all other items treated as gross income under the Tax Code. Accordingly, your income derived from investing the excess funds in short-term market placements through commercial banks constitutes income hence, subject to the 5% gross receipts tax under said Section. The fact that it has been subjected to the 20% final withholding income tax under Section 50(a) is immaterial. Besides, the withholding tax is imposed under Title II of the Tax Code while the finance tax is provided under Title V thereof." (BIR Ruling No. 223, November 2, 1989) For as long as the basis for the claim for refund or tax credit certificate is based on the non-inclusion of the amount representing the final withholding income tax under Section 50(a) as part of the gross income subject to (gross receipts tax, this dissenting opinion will stand. The fact that petitioner-claimant is able to establish by competent documentary and testimonial evidence is of no moment. For purposes of the amusement tax under Section 260 of the Tax Code, the term 'gross receipts' embraces all the receipts' of the proprietor, lessee, or operator of the amusement place. The words all the receipts' refer to the total amount of cash received which becomes part of the funds of the taxpayer and does not include any money which has been specially earmarked by any law or legal rule or regulation for some other person other than the proprietor, lessee or operator of the amusement place. Receipts means actually received ( Philippine Long Distance Telephone Co . vs . Collector of Internal Revenue, G . R . No . L-3222, January 21, 1952 ) for itself and not for others, for otherwise they would not be receipts ( Manila Jockey Club, Inc . vs . Collector of Internal Revenue, CTA Case No. 205, April 15, 1958 ; Jai Alai Corporation of the Philippines vs . Araneta , CTA Case No. 108, July 31, 1956 ( Annotated, NIRC by Commissioner Jose Araas, 1988 Edition, p . 687 )). WHEREFORE, in view of the foregoing, I am constrained to vote for the denial of the instant claim for refund on the ground of lack of legal basis.