Rizal Commercial Banking Corp. v. Commissioner of Internal Revenue

[C.T.A. CASE NO. 5516. January 26, 2000.] RIZAL COMMERCIAL BANKING CORPORATION , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N This is a petition seeking for the refund or issuance of a tax credit certificate in the amount of P3,531,051.03 representing alleged overpaid gross receipts tax for the four quarters of 1995. LexLib The factual backdrop of the case are as follows: Petitioner is a corporation duly organized and existing under and by virtue of Philippine laws and is engaged in general banking business. During the year 1995, Petitioner, pursuant to Section 119 of the Tax Code imposing a tax on gross receipts derived from sources within the Philippines by all banks and non-bank financial intermediaries, filed its Quarterly Percentage Tax Returns detailed as follows: Exhibit Date Filed Period Covered Gross Receipts Tax Paid A April 20, 1995 Jan. - March 1995 P541,537,248.06 P24,083,728.50 B July 20, 1995 Apr. - June 1995 850,678,408.12 39,799,657.71 C October 20, 1995 July - Sept. 1995 789,957,154.13 36,938,561.29 D January 22, 1996 Oct. - Dec. 1995 755,339,549.73 35,175,811.39 TOTAL P2,937,512,360.04 P135,997,758.89 ============== ============= Part of Petitioner's gross receipts subjected to the gross receipts tax included interest income or yield derived from passive investments amounting to P353,105,103.33 (Exh. F), inclusive of the 20% final withholding tax. Petitioner, citing this Court's decision in CTA Case No . 4720 entitled Asian Bank Corporation vs. Commissioner of Internal Revenue promulgated last January 30, 1996 , where We ruled that the 20% final withholding tax on interest income should not form part of taxable gross receipts, it filed on April 16, 1997 a claim for refund with the Bureau of Internal Revenue of its overpaid gross receipts tax for the year 1995 in the amount of P3,531,051.03 (Exh. E), computed as follows: Gross receipts derived from passive investments subjected to the final tax P353,105,103.33 x 20% 20% Final Tax Withheld at Source P70,621,020.66 x 5% Overpaid 5% Gross Receipts Tax P3,531,051.03 =========== The following day, that is, on April 17, 1997, the instant Petition for Review was filed in order to toll the running of the two-year prescriptive period. In his Answer, Respondent claimed by way of Special and Affirmative Defenses that: xxx xxx xxx 6. Petitioner has no clear right to a refund. 7. In an action for refund of taxes, it is incumbent upon the taxpayer to show that the taxes paid were erroneously or illegally collected. Failure to meet this burden is fatal to the action for refund. In the instant case, petitioner has not shown any evidence that the tax claimed was erroneously or illegally collected. 8. Moreover, as a claim for refund partakes of the nature of an exemption, it cannot be allowed unless granted in the most explicit and categorical language. The issues We are tasked to resolve are: 1. Whether or not the 20% final withholding tax derived from passive investments form part of gross receipts subject to the gross receipts tax; and 2. Whether or not Petitioner is entitled to the amount of P3,531,051.03 representing alleged overpaid gross receipts tax paid for the year 1995 on the basis of the evidence presented. prcd As regards the first issue, this Court has already ruled in a number of cases involving claims for refund of overpaid gross receipts tax that the 20% final withholding tax on interest income should not form part of taxable gross receipts . As aptly cited by Petitioner, in the case of Asian Bank Corporation vs. Commissioner of Internal Revenue , ( CTA Case No. 4720 ) this Court ruled: "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 Compaia 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 Jockeysadmitted 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. LibLex "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." In fact this aforequoted ruling was affirmed by the Court of Appeals in the case entitled Commissioner of Internal Revenue vs. Citytrust Investment Philippines, 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. cdll In support of its case, Petitioner presented the following: Exhibits Description A to D Quarterly Percentage Tax Returns of Petitioner for the four (4) quarters of 1995. E Letter-claim for refund dated April 16, 1997 filed with the BIR G & J Debit Advice Memos issued to Petitioner by the Central Bank H & K Credit Advice memos issued to Petitioner by the Central Bank I, P-1 to P-2, Certificates of Tax Withheld issued by the Central Bank for U-1 to U-5, various investments of Petitioner L, M-1, N, V Letter-reports prepared by the duly commissioned independent CPA O-1 to O-3, Z-1 Trading Sheets of Fixed Rate Treasury Notes Q-1 to Q-3 Trading Sheets of Commercial Papers S-1 to S-7, Trading Sheets of CB Bills (Liquidity Floor) W-1 to W-10 T-1 to T-10, Trading Sheets of CB Bills (Trading Account Securities) X-1 to X-55 Y-1 to Y-4 Trading Sheets of CB Bills (Trust Duties) Respondent, on his part, manifested that no investigation was conducted on this case and so, there being no evidence to present, he submitted his case for decision based on the pleadings. After examining the evidence adduced by Petitioner, this Court finds that a refund to be in order but in a reduced amount. According to SGV & Co., the independent auditing firm engaged by Petitioner and commissioned by the Court to conduct an examination of the documents relative to the instant claim for refund, out of the amount of P70,621,020.71 of final withholding tax claimed to be included in its gross receipts for the year 1995, only the amount of P30,373,374.84 was verified to have been included in its gross receipts subjected to the 5% gross receipts tax. Thus, the report shows that only P1,518,668.74 out of the total claim of P3,531,051.03 represent overpayment of gross receipts tax for the year 1995, summarized as follows: Per Bank's Claim Per SGV Verification Difference 1995 Index FWT GRT FWT GRT FWT GRT 1st qtr N-3 17,708,471.80 885,423.59 8,906,950.43 445,347.52 8,801,521.37 440,076.07 2nd qtr. N-8 24,351,933.80 1,217,596.69 10,719,782.17 535,989.11 13,632,151.63 681,607.58 3rd qtr N-13 13,426,009.54 671,300.48 6,146,309.87 307,315.49 7,279,699.67 363,984.99 4th qtr N-18 15,134,605.57 756,730.27 4,600,332.37 230,016.62 10,537,273.20 526,713.65 70,621,020.71 3,531,051.03 30,373,374.84 1,518,668.74 40,250,645.87 2,012,382.29 ============ =========== ============ =========== ============ ========== A review, however, of Petitioner's supporting documents revealed that out of the P1,518,668.74 overpaid gross receipts tax per SGV verification, only the amount of P797,929.70 was duly substantiated. Petitioner failed to establish the fact of withholding as to the balance of P720,739.08. The certifications coming from the issuers of the securities (see Annex A) in order to confirm the amounts of withholding taxes reflected in its domestic trading sheets as well as certifications of interest rates for commercial papers issued by secondary market were not submitted by Petitioner. In view thereof, this Court is constrained to reduce further the amount of refund/tax credit of Petitioner to P797,929.70, detailed as follows: Overpaid 5% GRT Disallowances Per SGV Verification Per Court's Verification Amount 1995 (Exh. V) (Annex A) Refundable 1st Quarter P445,347.52 P153,753.32 P291,594.20 2nd Quarter 535,989.11 239,080.81 296,908.30 3rd Quarter 307,315.49 167,236.59 140,078.90 4th Quarter 230,016.62 160,668.32 69,348.30 Total: P1,518,668.74 P720,739.04 P797,929.70 =========== =========== =========== WHEREFORE, in view of the foregoing, judgment is hereby rendered ordering the Respondent to REFUND or ISSUE a tax credit certificate in the reduced amount of P797,929.70 representing overpaid GRT payment for the four quarters of 1995. The remaining amount claimed is DENIED for insufficiency of evidence. SO ORDERED. (SGD.) RAMON O. DE VEYRA Associate Judge WE CONCUR: (SGD.) ERNESTO D. ACOSTA Presiding Judge (SGD.) AMANCIO Q. SAGA Associate Judge ANNEX A Schedule of Court's Disallowances on Petitioners Excess 1995 GRT Payment as Verified by SGV Disallowances Particulars 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. Total 1.) Final taxes on interest income from commercial papers without certificates of final taxes withheld 1st Qtr. Month Exh. 20% FWT January N-6-a P340,325.83 February N-6-b 415,428.66 March N-6-c 383,854.59 Subtotal P1,139,609.08 Multiply by GRT rate x 5% P56,980.45 P P P P56,980.45 2nd Qtr. Month Exh. 20% FWT April N-11-a P523,517.01 May N-11-b 511,691.68 June N-11-c 492,914.79 Subtotal P1,528,123.48 Multiply by GRT rate x 5% 76,406.17 P76,406.17 3rd Qtr. Month Exh. 20% FWT July N-16-a P8,728.39 August N-16-b 26,138.96 Sept. N-16-c 162,105.53 Subtotal P196,972.88 Multiply by GRT rate x 5% 9,848.64 9,848.64 4th Qtr. Month Exh. 20% FWT Oct. N-21-a P1,452.41 Nov. N-21-b 14,380.57 Subtotal 15,832.98 Multiply by GRT rate x 5% 791.649 791.65 2.) Final taxes on interest income from CB treasury bills without certificates of final taxes withheld 1st Qtr. Month Exh. Ref. Series 20% FWT January N-7-a 16369 4A-D-05 P642,300.36 January N-7-a 16769 4A-D-05 60,552.82 February N-7-b 16369 4A-D-05 873,528.48 February V-6-a 17140 4A-D-05 23,643.77 February V-6-a 17141 4A-D-05 14,418.73 February V-6-a 17155 4A-D-05 20,340.99 March N-7-d 17474 5A-J-02 194,115.64 March N-7-d 17492 5A-J-02 14,397.98 March V-7-a 17509 5A-J-01 69,207.45 March V-7-a 17510 5A-J-02 22,951.11 Subtotal P1,935,457.33 Multiply by GRT rate x 5% 96,772.87 96,772.87 2nd Qtr. Month Exh. Ref. Series 20% FWT April N-12-a 17547 5A-1-02 111,815.30 April N-12-a 17474 5A-J-02 1,203,516.99 April N-12-a 17492 5A-J-02 111,584.32 April V-13-a 17509 5A-J-01 49,882.72 April V-13-a 17510 5A-1-02 74,825.80 April V-13-a 17510 5A-1-02 132,479.95 June N-12-c 17547 5A-1-02 111,815.30 June N-12-c 17474 5A-J-02 1,203,516.99 June N-12-c 17492 5A-J-02 111,584.32 June N-12-d 17815 5A-1-02 26,006.89 June V-14-a 18199 5A-G-35 14,317.86 Subtotal P3,151,346.44 Multiply by GRT rate x 5% 157,567.32 157,567.32 3rd Qtr. Month Exh. Ref. Series 20% FWT Aug. N-17-a 17547 5A-I-02 P111,815.30 Aug. N-17-a 17474 5A-J-02 1,203,516.99 Aug. N-17-a 17492 5A-J-02 111,584.32 Aug. V-20-a 18980 5A-E-36 16,552.57 Aug. V-20-a 18986 5A-E-36 26,042.89 Aug. V-20-a 19007 5A-E-36 17,515.62 Aug. V-20-a 19007 5A-E-36 47,217.20 Aug. V-20-a 18530 5A-F-11 20,218.05 Aug. V-20-a 18532 5A-E-37 72,806.53 Aug. V-20-a 18962 5A-F-23 10,891.43 Sept. N-17-a 17547 5A-I-02 111,815.30 Sept. N-17-a 17474 5A-J-02 1,203,516.99 Sept. N-17-a 17492 5A-J-02 111,584.32 Sept. V-21-a 18453 5A-F-23 14,957.01 Subtotal P3,080,034.52 Multiply by GRT rate x 5% 154,001.73 154,001.73 4th Qtr. Month Exh. Ref. Series 20% FWT Oct. N-22-a 17474 5A-J-02 1,164,693.87 Oct. N-22-a 17492 5A-J-02 107,984.83 Oct. V-24 19821 5A-D-33 34,806.77 Nov. N-22-c 17474 5A-J-02 1,164,693.87 Nov. N-22-c 17492 5A-J-02 107,984.83 Nov. V-25 19821 5A-D-33 74,585.95 Subtotal P2,654,750.12 Multiply by GRT rate x 5% 132,737.51 132,737.51 3.) Final taxes on interest income from treasury notes without certificates of final taxes withheld 2nd Qtr. Month Exh. Series 20% FWT May V-10 9 54,658.15 June V-11 9 47,488.19 Subtotal P102,146.34 Multiply by GRT rate x 5% 5,107.32 5,107.32 3rd Qtr. Aug . V-17 9 P9,547.50 Sept. N-14-a 10 37,224.31 Sept. V-18 9 20,952.59 Subtotal 67,724.40 Multiply by GRT rate x5% 3,386.22 3,386.22 4th Qtr. Oct. N-19-a 10 P101,520.84 Nov. N-19-b 10 101,520.84 Subtotal 542,783 16 Multiply by GRT rate x 5% 27,139.16 27,139.16 Total P153,753.32 239,080.81 167,236.59 P160,668.31 720,739.04 ====================================================== Separate Opinions SAGA , J ., dissenting : The majority opinion granted the claim for refund but in a reduced amount. The conclusion of the majority is based on an earlier decision of this Court entitled Asian Bank Corporation vs. Commissioner of Internal Revenue, CTA Case No. 4720 promulgated on January 30, 1996. LibLex With all due respect to the majority opinion, I believe that the said conclusion is based on an erroneous premise. The decision in the Asian Bank case which established a precedent for cases having a similar issue, has as its legal basis Section 4(e) of Revenue Regulations No. 12-80 dated 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." (Emphasis supplied) LexLib Note that in the Asian Bank case, said bank was being assessed for deficiency gross receipts tax of 5% for taxable year 1986 which at that time the aforequoted Section 4(e) of Revenue Regulations No. 12-80 had already been amended, superseded and omitted in the amendatory Revenue Regulations No. 17-84 dated October 12, 1984. In other words, the citation of Section 4(e) of Revenue Regulations No. 12-80 by Petitioner's counsel was erroneous in the sense that it misled this Court to adopt Petitioner's legal basis. The legal basis that should have been cited is Section 8(c) of Revenue Regulations 12-80 which became Section 7(c) of Revenue Regulations No. 17-84 which provides, thus: "Section 8. . . . (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." Petitioner's counsel purposely did not cite said section because certainly it won't be able to get a refund or tax credit for the alleged overpaid gross receipts tax for obvious reasons. Section 4(e) of Revenue Regulations No. 12-80, as worded, is not a computation which is determinative of the amount to be used as basis of the 5% gross receipts tax. Rather, said Section is reflective of the method of accounting being adopted by the taxpayer, such as the cash receipts and disbursement method or the accrual method of accounting. Said methods of accounting comprise a set of rules for determining when and how to report income and deduction ( Consolidated Mines, Inc . vs . Court of Tax Appeals, L-18843, August 29, 1974 ). Thus, under the cash receipts and disbursements method, 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 in the case of the accrual method, income is included in gross income when earned, whether received or not, and expenses are allowed as deductions when incurred although not paid (BIR Ruling No. 35-98, April 13, 1998). The 5% gross receipts tax under Section 120 of the Tax Code is collectible from all finance companies doing business in the Philippines from interests, discounts and all other items treated as gross income under the Tax Code. Accordingly, its income derived from investing the excess funds in short-term market placements through commercial banks constitute income, hence, subject to the 5% gross receipts tax under said section. The fact that it has been subjected to the 20% final withholding 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). The fact that the same income is subjected to two (2) different kinds of taxes would not make such payments a case of double taxation. cdlex By quoting a superseded revenue regulation, Petitioner in the Asian Bank case, led this Court to believe that indeed the basis of the gross receipts tax is total gross receipts exclusive of the 20% final withholding tax deducted and withheld under Section 50(a) of the Tax Code. Section 7(c) of Revenue Regulations No. 17-84 clearly and categorically provides that the basis of such tax is inclusive of the final withholding tax. 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.