Citibank N.A.-Philippine Branch v. Commissioner of Internal Revenue

[C.T.A. CASE NO. 5434. April 7, 1999.] CITIBANK N.A.-Philippine Branch , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N Before Us for consideration is a Petition for Review filed by the Petitioner on October 18, 1996 seeking for a refund or issuance of tax credit certificates in the amount of P2,319,130.36 representing allegedly overpaid gross receipts tax for the second semester of 1994. The antecedent facts of this case are undisputed. Petitioner is a resident foreign corporation duly organized and registered under the laws of the State of New York, USA and authorized by the Securities and Exchange Commission to engage in business in the Philippines with principal office at 8741 Paseo de Roxas, Makati City. Records show that Petitioner filed on October 20, 1994 and January 20, 1995 its Quarterly Percentage Tax Return for the third and fourth quarter, respectively, of taxable year 1994 (Exhs. A and B). Petitioner alleges that in its computation of its total gross receipts for each of the last two quarters of the year 1994, it included the final withholding tax on its passive income in the amounts of P31,836,718.24 and P14,545,888.96. Claiming that it had overpaid its gross receipts tax for the second semester of 1994 to the extent of the gross receipts tax imposed on its final withholding tax on its passive income, Petitioner, through its counsel, filed on October 17, 1996, with the Bureau of Internal Revenue an administrative claim for refund (Exhibit "E") of overpaid GRT for the second semester of 1994 in the total amount of P2,319,130.36 computed as follows: Final Withholding Tax 3rd Quarter, 1994 P31,836,718.24 4th Quarter, 1994 14,545,888.96 Total 46,382,607.20 Gross Receipts Tax Rate 5% P2,319,13.36 ========== On October 18, 1996, Petitioner filed the instant Petition for Review before this Court lest it be barred by the mandatory two (2) year prescriptive period under Section 230 of the Tax Code (now Section 229 of the NIRC of 1997). In his Answer filed through registered mail on December 13, 1996, the Respondent maintained the following Special and Affirmative Defenses: 8.) The application for tax credit/refund was filed only a day prior to the filing of the instant petition for review, thus depriving Respondent sufficient time to examine the Quarterly Percentage Tax Return of Petitioner for the second semester, which is a standard procedure before any grant of refund/tax credit is still under investigation. 9.) The tax in question was collected in accordance with law. 10.) In an action for refund, it is incumbent upon Petitioner to show that it is entitled thereto. Failure on the part of the Petitioner to prove the same is fatal to its claim for refund. 11.) The allegations regarding refundability does not ipso facto merit the refund claimed. 12.) Claims for refund of taxes are construed strictly against the claimant, the same being in the nature of an exemption from taxation. Upon the other hand, to prove its entitlement for refund, Petitioner anchored its argument on the decision of this Court in the case of Asian Bank Corporation vs. Commissioner of Internal Revenue, CTA Case No. 4720, dated January 30, 1996 where We declared that the final withholding tax on certain passive income of a bank is excluded from its gross receipts for purposes of computing its gross receipts tax (GRT). To substantiate its claim, petitioner formally offered the following evidence: 1.) Quarterly Percentage Tax Return of Petitioner for the third Quarter of 1994 (Exh. "A"); 2.) Rubber Stamp Received dated October 20, 1994 of the authorized agent bank of the Bureau of Internal Revenue and portion of Exhibit "A" (Exh. A-1); 3.) Machine validation reflecting the payment of the percentage tax liability of Percentage for the period in the amount of P46,855,272.62 and portion of Exhibit "A" (Exh. A-2); 4.) Quarterly Percentage Tax Return of Petitioner for the Fourth Quarter of 1994 (Exh. B); 5.) Rubber Stamp Received dated January 20, 1995 of the authorized agent bank of the Bureau of Internal Revenue (Exh. B-1); 6.) Machine validation reflecting the payment of the percentage tax liability of Petitioner for the period in the amount of P48,832,415.91 and portion of Exhibit "B" (Exh. B-2); 7.) Gross Receipts Tax Computation of Petitioner for the Quarter September 30, 1994 (Exh. C, C-2); 8.) Gross Receipts Tax Computation of Petitioner for the Quarter ended December 31, 1994 (Exh. D, D-2); 9.) SGV letter dated October 17, 1996 addressed to the Bureau of Internal Revenue RDO No. 50-South Makati (Exh. E, E-1, E-2, E-3, E-4); 10.) Rubber Stamp Received dated October 17, 1996 of the Bureau of Internal Revenue and Portion of Exhibit "E" (Exh. E-5). On June 16, 1998, the Respondent filed through registered mail, its Comment to the Formal Offer of Evidence stating that he interposed no objection to the admission in evidence of the exhibits but took exception to the veracity and purpose for which the said exhibits were offered for being erroneous conclusions of fact and law. The sole issue to be resolved in this case is whether or not Petitioner is entitled to a refund or issuance of tax credit certificates in the amount of P2,319,130.36 representing gross receipts taxes alleged to have been paid erroneously by Petitioner for the period covering the 3rd and 4th Quarters of 1994. In focus once again is the decision of this Court in the case of Asian Bank Corporation vs. Commissioner of Internal Revenue, CTA Case No. 4720, January 30, 1996 from which the Petitioner heavily relied, and we quote, thus: xxx xxx xxx "We agree with the Petitioner that the 20% final withholding tax on its interest income should not form part of its taxable gross receipts. Revenue Regulations No. 12-80, dated November 7, 1980, on taxation of Certain Income Derived from Banking Activities provides that the rates of tax to be imposed on the gross receipts of such financial institutions shall be based on all items of income actually received; thus: "SECTION 4. . . . (e) Gross receipts or tax on banks, 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 or prepayments, then the amount actually received shall be included in the tax based of such financial institutions, as provided hereunder. (Emphasis supplied) From the foregoing, it is but logical to infer that the final tax, not having been received by the Petitioner but instead went to the coffers of the government, should no longer form part of its gross receipts for the purpose of computing the GRT. 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 similar issue in the case entitled Compania Maritima vs. Acting Commissioner of Internal Revenue, CTA Case No. 1426, dated November 14, 1966, 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 that of the taxpayer . (Emphasis Ours) . . . 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 Investment. The latter being a government institutions, there would be double taxation which should be considered unless the statute admits of no other interpretation. . . "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 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). In its memorandum filed on October 26, 1998, Respondent stresses that the exclusion of the final withholding tax from the gross receipts in computing the GRT has no legal basis. To buttress his stance, Respondent cites the gist of the Dissenting opinion in the case of China banking Corporation vs. CIR, CTA Case No. 5405 (September 30, 1998), thus: "With due respect to the Opinion of the Majority, I hereby express my dissent to the exclusion of the 20% final withholding tax on certain passive income as no longer forming part of the taxable base of the bank's gross receipts for purposes of the 5% gross receipts tax under Section 119 of the Tax Code, as bereft of any legal bases. It is true, however, that all passive gross income of corporations which are subject to the final withholding tax at source under Section 50 (a) of the Tax Code, as amended by Executive Order No. 37 on July 31, 1986, should no longer form part of the gross income under Section 28 (a) of the same Code. Inasmuch as the enumeration of gross income under the aforestated Section of the Tax Code is global in concept, the corporate income tax is computed on the basis of its taxable income consisting of the pertinent items of gross income specified in the Tax Code less deductions, if any, authorized by such types of income by said Code or other special laws. LibLex There is no provision in the Tax Code or any special laws which excludes the 20% final income tax withholding under Section 50 (a), as no longer forming part of the gross receipts for purpose of the 5% gross receipts tax. On the other hand, Section 8 (c) of Revenue Regulations No. 12-80, dated November 7, 1980, as amended by Section 7 (c) of Revenue Regulations No. 17-84, dated October 12, 1984 have the same provisions, thus: '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) Clearly, there is no doubt that the 20% final withholding tax is legally includible as part of the gross receipts for purposes of computing the gross receipts tax." Additionally, Respondent contends that the Petitioner failed to prove that the final tax on its passive income was actually withheld and remitted to the Bureau of Internal Revenue. Thus, Respondent claims that there is no basis for such exclusion. The issue in the case at bar as to whether or not Final Income Tax Withheld forms part f the gross receipts of the taxpayer for GRT purposes has already been resolved in the negative by this Court. In the cases of China Banking Corporation vs. Commissioner of Internal Revenue, CTA Case No. 5433 and Equitable Banking Corporation vs. CIR, CTA Case No. 4720, this Court confronted with an identical issue held that the 20% Final Income Tax Withheld no longer forms part of the gross receipts for purposes of the 5% gross receipts tax pursuant to the construction of the term "gross receipts" enunciated in the cases of Collector of Internal Revenue vs. Manila Jockey Club and Compania Maritima vs. Acting Commissioner of Internal Revenue, as " all receipts of a taxpayer excluding those which have been especially earmarked by law or regulations for the government or some person other than the taxpayer ". Thus, the 20% final taxes withheld on the bank's interest income should no longer form part of its gross receipts since it was not actually received by the bank, having been specially earmarked for the government. At this point, We do not see that this case should compel a different ruling. However, after a careful perusal of the evidence on records, this Court finds no cogent reason to grant the petition on the ground of Petitioner's failure to substantiate its claim for refund. As correctly pointed out by the Respondent, Petitioner failed to prove that the said 20% final withholding taxes were actually paid and remitted to the Bureau of Internal Revenue. To substantially prove its entitlement to the refund/credit sought, Petitioner should have presented, aside from the quarterly returns, copies of Certificates of Final Income Tax Withheld issued by its withholding agents or any proof whatsoever sufficient enough to show payment of the 20% Final Withholding Tax and which would justify its exclusion from Petitioner's gross receipts. Having fallen short in its obligation to submit a vital document which would have worked to Petitioner's advantage, We cannot sustain its claim following the time tested doctrine that claims for refund are in the nature of tax exemption and as such, it must be construed in strictissimi juris against the claimant ( Commissioner of Internal Revenue vs . Ledesma, January 30, 1970, 31 SCRA 95 ). WHEREFORE, in view of all the foregoing, Petitioner's claim for issuance of tax credit certificate or refund of overpaid gross receipts tax for the second semester of 1994 in the aggregate amount of P2,319,130.36 is hereby DENIED. SO ORDERED. (SGD.) ERNESTO D. ACOSTA Presiding Judge WE CONCUR: (SGD.) RAMON O. DE VEYRA Associate Judge Separate Opinions The Petition for Review was denied due to insufficiency of evidence. The conclusion of the majority however, agreed with the theory of Petitioner that the 20% final withholding tax on certain passive income should no longer form part of the gross receipts for purposes of computing the 5% gross receipts tax based on the ruling enunciated by this Court in the case of Asian Bank Corp . vs . Commissioner of Internal Revenue, CTA Case No . 4720, dated January 30, 1993 . I humbly submit that the aforesaid ruling in the Asian Bank case is erroneous. As I have reiterated in several cases involving refund of gross receipt taxes, there is no provision in the Tax Code or any special law which excludes the 20% final withholding tax from the total gross receipts for purposes of computing the 5% gross receipts tax. prcd Let me quote my dissenting opinion in the case of China Banking Corporation vs . Commissioner of Internal Revenue, CTA Case No . 5405, dated September 30, 1998 , where I stated: "Section 8(c) of Revenue Regulations No. 12-80, dated November 7, 1980, as amended by Section 7(c) of Revenue Regulations No. 17-84, dated October 12, 1984 have the same provisions, thus: " 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) Clearly, there is no doubt that the 20% final withholding tax is legally includible as part of the gross receipts for purposes of computing the gross receipts tax. The petitioner cited the case of Asian Bank Corporation vs . Commissioner of Internal Revenue, CTA Case No . 4720, dated January 30, 1996 , where this Court has upheld the petitioner's contention that the interest income included as part of such gross receipts should be computed minus the 20% final tax already withheld and deducted by various withholding agents for the reason that the amount did not go to its funds, hence, was not actually received by them. And the Court approved the petitioner's citation of Section 4(e) of Revenue Regulations No. 12-80, dated November 7, 1980, thus: "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." This Court Concluded in said case that from the aforestated provisions it can logically be inferred that the amount representing the final tax, not having been received by the petitioner but instead went to the coffers of the government, should no longer form part of its gross receipts for purposes of computing the gross receipts tax. Such conclusion in law is legally objectionable for two (2) reasons, to wit: 1) Section 4(e) of Revenue Regulations No. 12-80 is not a computation determinative of the amount of gross receipts as basis of the gross receipts tax under Section 119 of the Tax Code. Said revenue regulations merely authorized the determination of the amount of gross receipts on the basis of the method of accounting being used by the taxpayer under Section 37 of the tax Code. Such accounting methods for tax purposes comprise a set of rules for determining when and how to report income and deductions ( Consolidated Mines, Inc . vs . CTA, L-18843, August 29, 1974 ). The two principal accounting methods expressly and impliedly recognized by the Tax Code and the Income Tax Regulations are: (a) Cash receipts and disbursement method or cash basis . Income earned by the taxpayer is not included in gross income until received and expenses are not deducted until paid within the taxable year; and (b) Accrual basis . Income is included in gross income when earned, whether received or not, and expenses are allowed as deductions when incurred although not yet paid within the year. 2) That the non-inclusion of the 20% final withholding income tax from the gross interest income for purposes of the gross receipts tax operates as an exemption from tax. Being an exemption from tax, the same must be construed strictly not against the government but against the one who asserts the claim of exemption. Tax exemption can only be given effect when the grant is clear and categorical inasmuch as taxation is the rule and exemption is the exception, Section 26, Tax Code. The holding therefore in the Asian Bank Corporation to the effect that the non-inclusion of the 20% final withholding income tax from the gross receipts can logically be inferred from the wordings of said Section 4(e) of Revenue Regulations No. 12-80, is misplaced. Tax statutes are to receive a reasonable construction with a view to carrying out their purpose and intent ( 51 Am Jur 361 ). It should not be construed as to permit the taxpayer to easily evade the payment of the tax ( Cabon Steel Co . vs . Lewelyn, 251 U . S . 501 ). Thus, the good faith of the taxpayer is not sufficient justification for exemption from the payment of surcharges imposed by law ( Commissioner vs . Royal Interocean Lines and CA, L-26506, July 30, 1970 ). A tax statute should be construed to avoid the possibilities of tax evasion ( Lorenzo vs . Posadas, 64 Phils . 353 ) The High Court's decision in the case of Commissioner of Internal Revenue vs. The Manila Jockey Club, Inc. 108 Phils. 821, June 30, 1960, which was reaffirmed by the said Court in the case of Visayan-Cebu Terminal Co . , Inc . vs . Commissioner of Internal Revenue, 13 SCRA 357, February 27, 1965 cannot be considered as precedent cases, hence, inapplicable to the two cases decided by this Honorable Court in the cases of Compania Maritima vs. Acting Commissioner of Internal Revenue, CTA Case No. 1426 dated November 14, 1966 and Asian Bank Corporation vs. Commissioner of Internal Revenue, CTA Case No. 4720 dated January 30, 1996, for the following reasons: 1) 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 has 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 Appeal's decision. 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 regulations 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 of 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." 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 regulations, 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 Compania 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 regulations. 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 interest, 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 an 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). IN VIEW OF ALL THE FOREGOING, I hereby register my dissent to the majority opinion and vote for the denial of the entire claim for refund for lack of legal bases. WHEREFORE, I vote to DENY the petition for lack of legal bases. (SGD.) AMANCIO Q. SAGA Associate Judge