Anscor Insurance Brokers, Inc. v. Commissioner of Internal Revenue

[C.T.A. CASE NO. 5481. April 21, 1999.] ANSCOR INSURANCE BROKERS, INC. , petitioner , vs . THE COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N This is a Petition for Review seeking for the refund or issuance of a tax credit certificate in the amount of P4,174,451.00 representing overpaid income tax for 1994 and 1995. The facts of the case are as follows: Petitioner is a domestic corporation organized and existing under and by virtue of Philippine laws and is primarily engaged in insurance brokerage. Its income is derived mainly from commissions subject to the 5% expanded withholding tax under Revenue Regulations No. 6-85, which, in turn, is allowed as tax credit against its income tax liability in the taxable quarter or year in which the income was earned or received. On April 15, 1994, Petitioner filed with the Bureau of Internal Revenue (BIR) its corporate annual income tax return for the calendar year ended December 31, 1993, reflecting a refundable income tax of P368,755.00, computed as follows: Gross Income P53,490,354 Less: Deductions 41,278,201 Net Income P12,212,153 Tax Due P4,274,254 Less: A. Quarterly payments: First Quarter P338,251 Second Quarter 2,017,701 Third Quarter 236,557 (2,592,509) B. Creditable Taxes Withheld At source (2,050,500) (4,643,009) Tax Refundable P(368,755) ======== This amount was carried over to the succeeding taxable year, however, since Petitioner's income tax liability for 1994 was only P719,482.00, and after applying its prior year's excess tax credit of P368,755.00, there remained a tax due of only P350,727.00, thus resulting again in overpayment of P1,688,273.00, as the total taxes withheld at source for the year totalled P2,039,000.00. Petitioner again carried over and applied its excess income tax credit for 1994 against its income tax liability for the succeeding taxable year. But since Petitioner's creditable taxes withheld at source for 1995 far exceeded its income tax payable even after deducting the prior year's excess credit, there resulted an overpayment of P4,174,451.00, computed as follows: Gross: Income P45,608,608 Less: Deductions 44,761,684 Net Income P846,924 35% Income Tax Due Thereon P296,423 Less: Prior year's (1994) excess credit (P1,688,273) Less: Creditable Taxes Withheld at Source in 1995 (P2,782,601) Total Overpaid Income Tax as of December 31, 1995 [P4,174,451] ========= On February 21, 1997, Petitioner filed with the BIR a claim for the refund of the aforesaid amount, citing Section 204 (3) in relation to Sec. 230 of the Tax Code, which provides: " Authority of the Commissioner to compromise, abate, and refund/credit taxes . The Commissioner may xxx xxx xxx (3) Credit of refund taxes erroneously or illegally received , penalties 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 shall be allowed unless the taxpayer has filed in writing with the Commissioner a claim for credit or refund within the two years after the payment of the tax or penalty." On the other hand, Section 230 of the Tax Code states: " Recovery of Tax Erroneously or illegally Collected . No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner, but such suit or proceeding may be maintained, whether or not such tax, penalty or sum has been paid under protest or duress . llcd There being no action on the part of herein Respondent, the instant petition was filed on April 2, 1997. Respondent, in her Answer, raised the following Special and Affirmative Defenses: 4. Assuming arguendo that the alleged refundable income taxes were paid by petitioner, the same were collected pursuant to law and pertinent BIR implementing rules and regulations; hence, the burden of proof lies upon the petitioner to establish that the taxes sought to be refunded or collected were erroneously and/or illegally collected by respondent. 5. Petitioner's allegation that it excessively paid its annual corporate income taxes during the years under review does not ipso facto warrant refund/credit. Petitioner must prove that the exclusions claimed by it from its income taxes are allowable exclusions claimed by it from its income taxes are allowable exclusions under the Tax Code and its implementing rules and regulations (sic). Moreover, the same must be supported by evidence. 6. Claims for tax refund or tax credit are construed in strictissimi juris against the taxpayer as they partake of the nature of an exemption from tax; hence, it is incumbent upon petitioner to prove that it is entitled thereto under the law. Failure on the part of petitioner to prove the same is fatal to its claim for tax refund or tax credit. 7. Lastly, petitioner must prove that it has complied with the provisions of Section 230 of the Tax as amended (sic). Upon manifestation of respondent's counsel, she submitted he case for decision on the basis of the pleadings and available record. The sole issue brought before Us is whether or not petitioner is entitled to the refund sought on the basis of the evidence presented. Petitioner, in support of its claim, submitted the following documents: Exhs. Description Purpose A Certificate of Filing of To prove that petitioner Amended Articles of is a domestic corporation Incorporation, S.E.C. duly organized and existing Reg. No. 44693, issued under the laws of the to Petitioner by the Republic of the Philippines Securities and Exchange Commission on July 14, 1981 B. Amended Articles of To prove that petitioner Incorporation of Petitioner is principally engaged in the insurance brokerage business C, E & G Corporate Annual To prove that petitioner Income Tax Returns duly filed with the BIR and Audited Financial its Income Tax Returns Statements for and audited financial Calendar years 1994, statements for the said 1995 and 1996, years respectively D-1 to Certificates of To prove that for D-45 Creditable Income the years 1994 and F-1 to Tax Withheld at 1995, petitioner had F-45 Source total creditable tax withheld in the amounts of P2,039,000.00-(1994) & P2,782,600.56 (1995) H Letter-claim for To prove that petitioner refund addressed to filed with the BIR an BIR dated February administrative claim for 20, 1997 refund of its excess withholding tax credits for the years 1994 and 1995 within the two year period prescribed by law After examining the evidence presented, We rule in favor of Petitioner. To be entitled to a refund, the following requirements have to be met: 1. That the claim for refund was filed within the two (2) year period prescribed under Section 230 of the National Internal Revenue Code; 2. That the fact of withholding is established by a copy of statement (BI Form 1743.1) duly issued by the payor (withholding agent) to the payee, showing the amount paid and the amount of tax withheld therefrom; and 3. That the income upon which the taxes were withheld were included in the return of the recipient. Petitioner's claim for refund filed with the Bureau of Internal Revenue on February 21, 1997 (Exh. H) as well as its Petition for Review filed with this Court on April 2, 1997, are both within the two-year period, that is, from April 12, 1995 and April 13, 1996, the dates when Petitioner's 1994 and 1995 Income Tax Returns were respectively filed. Petitioner has likewise complied with the second requirement by its submission of the various certificates of creditable income tax withheld at source (Exhs. D-1 to D-45, F-1 to F-45). As regards to the third requirement, however, the Court arrived at different summations for the years involved. For 1994, while the income reflected in Petitioner's income tax return may have included the sum total of the income reported in the certificates of creditable taxes withheld at source, the following adjustments were made so that the total taxes withheld for the year was reduced to P2,022,811.74, computed as follows: Creditable Taxes Withheld P2,039,000.63 at Source (1994) as appears in ITR and summary Less: No Certificates (45,052.55) of Creditable Tax Withheld at Source No Certificate (1,187.28) of Creditable Tax Withheld at Source Trans-East Asia Ins. Co. (427.41) No Certificate of Creditable Tax Withheld at Source Add: Exh. D-29 Not in summary 30,478.34 Adjusted total P2,022,811.74 =========== For 1995, Petitioner's certificates of creditable taxes withheld at source revealed a total income of P54,733,682.90, which is P9,643,018.90 more than the income stated in schedule 2 of the annual income tax return submitted by Petitioner. Thus, We infer that Petitioner did not include in its return all the income upon which the taxes were withheld. In view of the foregoing, We are constrained to grant a refund only for such amount as Petitioner has substantially proven, detailed as follows: For Taxable Year 1994 Gross income P47,274,262.00 Less: Deductions 45,218,600.00 Net Income P2,055,662.00 Tax rate 35% Income Tax Due P719,482.00 Less: Prior year's (1993) excess credit P(368,755) Balance P350,727.00 Less: Creditable Taxes Withheld at Source 2,022,811.74 Overpaid income tax for 1,672,084.74 1994 ========== For Taxable Year 1995 Gross income P45,608,608.00 Less: Deductions 44,761,684.00 Net Income P846,924.00 Tax rate 35% Income Tax Due P296,423.00 ============ Less: Prior year's (1994) excess credit 1,672,084.74 Balance (P1,375,661.74) Less: Creditable Taxes Withheld at Source for 1995 (45091664 x 5%) (2,254,583.00) Total Overpaid Refundable Amount P3,630,244.74 =========== WHEREFORE, Respondent is hereby ORDERED to REFUND or in the alternative, ISSUE a TAX CREDIT CERTIFICATE, to Petitioner in the reduced amount of P3,630,244.74 representing overpaid income tax for the calendar years ended December 31, 1994 and December 31, 1995. SO ORDERED. (SGD.) RAMON O. DE VEYRA Associate Judge WE CONCUR: (SGD.) ERNESTO D. ACOSTA Presiding Judge (SGD.) AMANCIO Q. SAGA Associate Judge