Citytrust Finance Corp. v. Commissioner of Internal Revenue

[C.T.A. CASE NO. 5505. July 7, 1999.] CITYTRUST FINANCE CORPORATION , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N This is an action for the refund of the sum of P2,835,425.00 representing excess income tax payments for calendar year ended December 31, 1994. Petitioner CITYTRUST FINANCE CORPORATION is a domestic corporation, duly organized and existing under the laws of the Philippines, with business address located at 10th Floor, Philippine Stock Exchange Center, Ortigas Center Exchange Road Pasig, Metro Manila. It is registered with the Securities and Exchange Commission having been issued Certificate of Registration No. 36021 (Exh. "K"). prcd On April 17, 1995, Petitioner filed its Corporate Annual Income Tax Return for the year 1994 reflecting a taxable income of P4,582,117 and a tax liability of P1,603,741 (Exh. "D"). In its Corporate Quarterly Income Tax Returns. Petitioner, reported and paid the amount of P1,233,699.64 and P3,205,496.30 for the first and second quarters of taxable year 1994, respectively (Exhibits "A" and "B"). Petitioner alleges that the payments made for the first and second quarters of 1994 resulted to a refundable income tax in the amount of P2,835,425.00 computed as follows: (CTA rec. p. 2) Taxable Net Income P4,582,117 Amount of Tax Due (at 35%) 1,603,741 Less: Tax Credits/Payments 4,439,166 Amount Refundable P2,835,425 ======== Petitioner opted to apply this refundable amount for the succeeding year (1995) as shown by the "x" mark indicated in the box "To Be Applied As Credit To Next Year" in their 1994 annual Income Tax return (Exh. "D"). Or April 11, 1996, Petitioner filed its 1995 Annual Income Tax return showing a net loss of P10,327,340 (Exh. "E") thus, the 1994 overpaid income tax of P2,835,425 remains unutilized. Believing that it is entitled to the refund, Petitioner, thru its tax consultant, filed a letter-claim with the Respondent on August 5, 1996 requesting for a tax refund/tax credit of P2,835,425.00 representing its overpaid income tax for 1994 (Exh. "F"). Thereafter, that is, on April 14, 1997, Petitioner filed the instant Petition for Review before this Court (CTA rec. p. 1). On May 27, 1997, Respondent filed an Answer, admitting allegations in paragraphs 2 and 9 of the petition and partially admitting paragraphs 8 and 10, but specifically denying the rest of the allegations contained in the petition, either for lack of knowledge or information sufficient to form a belief as to the truth thereof, or for being mere opinion, speculation and erroneous conclusions of fact and law (CTA rec. p. 45-46). The following were alleged by the Respondent as special and affirmative defenses: 1. The application for tax credit/refund is pending investigation by the BIR; 2. Granting arguendo that payment of the tax sought to be refunded has been made, the same is presumed to have been paid by the taxpayer pursuant to law; 3. The burden of proof is upon the taxpayer to show that the taxes paid as remitted were erroneously or illegally collected; 4. Claims for refund are construed strictly against the claimants, the same being in the nature of tax exemptions. To sustain its contention that it is entitled to the refund or tax credit sought for, Petitioner presented the following documentary evidence, to wit: 1. 1994 Annual Corporate Income Tax Return including reconciliation of Net Income and Analysis of changes in Retained Earnings, Schedule of taxes and licenses and report of their external auditor (Exh. "D"). 2. The Quarterly Corporate Income Tax Returns for the 1st, 2nd, 3rd quarters of 1994 (Exhs. A, B, C respectively). 3. 1995 Annual Corporate Income Tax Return including reconciliation of Net Income and Analysis of changes in Retained Earnings, Schedule of taxes and licenses and report of their external auditor (Exh. "E") 4. 1996 Annual Corporate Income Tax Return (Exh. "J"). 5. The Quarterly Corporate Income Tax Returns for the 1st, 2nd, 3rd quarters of 1996 (Exhs. G, H, I, respectively) 6. Letter claim for refund dated August 1, 1996 sent to respondent (Exh. "F") 7. SEC certified machine copy of Petitioner's Amended Articles of Incorporation (Exh. "K"). This Court admitted all the documentary exhibits, as well the testimony of the witness presented by the Petitioner, (Resolution, dated April 7, 1998, CTA rec. pp. 124-125). This Court likewise considered Respondent to have waived the presentation of its evidence. (Resolution, June 1, 1998, CTA rec. p. 130). Both parties submitted their respective memorandum to substantiate their positions. The sole issue to be resolved by this Court is whether or not Petitioner is entitled to the refund sought for. The legal basis of Petitioner in claiming for the refund of overpaid income tax is Section 69 of the 1994 Tax Code, is amended, which reads as follows: "SECTION 69. Final Adjustment Return Every corporation liable to tax under Section 24 shall file a final adjustment return covering the total taxable income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable income of that year the corporation shall either. (a) Pay the excess tax still due; or (b) Be refunded the excess amount paid as the case may be; In 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 quarter of the succeeding taxable year. It is clear from the aforequoted law that the refundable income payment of a given year can only be credited against income tax liabilities for the taxable quarters of the succeeding taxable year. In case at bar, the refundable amount of tax for 1994 was not credited to the succeeding year and since it remained unutilized, Petitioner now claims for the refund of the total amount excessively paid. The position taken by Petitioner is correct. Although it intended to carry over the 1994 creditable withholding tax to the succeeding taxable year 1995, as shown by putting an "x" mark in the box "to be applied as credit to next year" in its 1994 annual income tax return, this did not materialize because Petitioner suffered a net loss in 1995. Thus, Petitioner's application of the overpayment of tax in the year 1994 became nugatory since there was no income tax liability where the excess income tax payment can be applied for (Exh. "E"). But is there really a net loss for 1995? In its memorandum, Respondent takes issue with the net loss claimed to have been incurred by Petitioner for the taxable year 1994. She maintains that Petitioner failed to show adequate proof of loss. We find these arguments without merit. This particular issue has already been settled by this Court in the case of Citytrust Banking Corporation vs . CIR, CTA Case No . 4099, May 28, 1991 , when We ruled: "Respondent's contention that a mere allegation of loss in 1985 does not ipso facto merit a refund is likewise unmeritorious. As stated, respondent did not present any evidence which will effectively dispute the correctness of the returns and other material facts therein. Neither did respondent issue any deficiency assessment for said year. Hence, in the absence of contrary evidence, the income tax return should be given credence and thus, coupled by the fact that petitioner was able to present documents to substantiate its income tax return, provide sufficient proof of a loss sustained by petitioner in the year. In the case at bar, absent any proof offered by the Respondent to dispute the alleged net loss, the Petitioner's Income Tax return and other supporting documents be given credence by this Court. We will now tackle the main issue of whether or not Petitioner is entitled to the refund based on the evidence presented. Fundamental is the rule that in simple claims for refund of excess income tax payment, the following requisites must be complied with, to wit: (1) The claim must be in writing, stating clearly the basis or grounds for such claim; (2) It must be filed with the Commissioner within (2) years after the payment of the tax or penalty; (3) The subsequent appeal for refund or credit must also be filed within the said two year period. (De Leon. The National Internal Revenue Code Annotated. 5 ed. 1994 p. 607). A perusal of the records of the case reveals that Petitioner sent a letter-claim to Respondent, through its independent auditor, stating categorically the basis of their claim for refund, accompanied by financial statements and other reports. (Exh. F) Petitioner likewise proved its compliance within the prescriptive period. As held in the Citytrust Banking Corporation case, excess payment of quarterly corporate income tax falls under the provisions of Sec. 230 of the NIRC (CTA Case No. 4099 May 28, 1991). Thus, the claim for refund with the BIR and with this Court was timely filed within 2 years from the date of payment of the tax as prescribed in 230 of the Tax Code, to wit: "SECTION 230. 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 of Internal Revenue, but such suit or proceeding may be maintained, whether or not such tax, penalty or sum has been paid under protest or duress. In any case, no such suit or proceeding shall be begun after the expiration of (2) years from the date of payment regardless of any supervening event" . . . The letter-claim for refund/tax credit was filed with the BIR on August 5, 1996 (Exh. F, CTA records p. 100) and the Petition For Review with this Court was filed on April 14, 1997. The two (2) year period, in the instant case, commences to run on April 17, 1995, (Exh. "A-3") the actual date of filing of petitioner's 1994 Annual Income Tax Return or final adjusted Return (CIR vs. TMX Sales, Inc. G.R. 837736 January 15, 1992). The Respondent further contends that the documents presented by the Petitioner are not conclusive proof of the fact of remittance of the subject taxes to the coffers of the government and that the income tax returns have no probative value and materiality for being insufficient. This Court finds this contention to be untenable. llcd The pertinent provision of the Revenue Memorandum Circular No. 7-85, dated April 1, 1985 implementing Section 69 of the Tax Code (formerly Section 79), relative to the processing of refund states that: "In the above provision of the Regulations (Sec. 7 of the Revenue Regulations No. 10-77), the corporation may request for the refund of the overpaid income tax as claim for automatic tax credit. To insure prompt action on corporate annual income tax return showing refundable amounts arising from overpaid quarterly income taxes, the office has promulgated Revenue Memorandum Order No. 32076 dated June 11, 1976, containing the procedures, the returns are merely pre-audited which consist mainly of checking mathematical accuracy of the figures in return. After which, the refund or tax credit is granted; and, this procedure was adopted to facilitate immediate action on cases like this, . . . In the case at bar, the Petitioner has overcome the burden of proof, insofar as the excess 1994 quarterly corporate income tax payment of P1,233,670.00 for the first quarter and P3,205,496.00 for the second quarter are concerned. The machine validation found on the lower portion of the returns (Exh. A-4, B-4) could attest to the fact of payment. The income tax return of Petitioner for 1994 reflected a net income of P4,582,117.00, the 35% of which will yield a tax due of P1,603,740.95. It made a payment of P4,439,165.94 for the 1st and 2nd quarters of 1994. Thus, these quarterly payments, if credited to the 1994 tax due, will result to a refundable amount of P2,835,424.99. This Court gives these returns a presumption of validity. Thus, as held in the case Citytrust Banking Corporation vs. CIR (CTA Case No. 4980) "the returns duly presented by petitioner enjoy the presumption of validity in the absence of any evidence refuting the same." Records likewise reveal that these returns were supported by various documentary evidence, such as report of Petitioner's independent public accountant, the company's balance sheet, the statement of income and retained earnings and the statement of cash flows, among others. Absent any evidence pointing to its falsity and superfluity, this Court gives credence to these financial statements as vouched by its independent auditor under pain of perjury. From the records of the case, it appears that the Respondent did not present any evidence controverting the correctness of the returns and other material facts offered by the petitioner. Neither did it issue any deficiency assessment. It just contended that the returns are insufficient without any basis to support such contention. Thus, as held by this Court in the case of Ateneo de Manila University vs. CIR, CTA Case No. 3213, dated July 28, 1989: "No controverting evidence was presented by respondent. Neither was any evidence disputing petitioner's entitlement to its claim for refund was presented by respondent and this case having been submitted for decision on the pleadings and on the face of the unrebutted evidence of petitioner showing that it is entitled to refund . . ., respondent may be considered to have no serious objection or opposition to petitioner's entitlement to the refund. The circumstances obtaining . . . compels Us therefore to sustain . . . the petitioner's right to the refund . . . based on the evidence and pleadings." WHEREFORE, in view of the foregoing, the instant Petition for Review is hereby GRANTED . Accordingly, Respondent is ORDERED to REFUND or ISSUE a tax credit certificate in the amount of P2,835,424.00 to the Petitioner immediately. SO ORDERED. (SGD.) RAMON O. DE VEYRA Associate Judge WE CONCUR: (SGD.) ERNESTO D. ACOSTA Presiding Judge (SGD.) AMANCIO Q. SAGA Associate Judge