Investment & Capital Corp. of the Philippines v. Commissioner of Internal Revenue

[C.T.A. CASE NO. 5643. October 17, 2000.] INVESTMENT & CAPITAL CORPORATION OF THE PHILIPPINES, as withholding agent of Development Bank of Singapore (DBS) , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N This is a claim for the issuance of tax credit certificate in the name of the Development Bank of Singapore ("DBS" for brevity) amounting to P575,000.00 which allegedly represents erroneously withheld tax on cash dividends. Petitioner is an investment banking corporation duly organized and existing under and by virtue of Philippine laws, with office address located at the 15th Floor of Solidbank Building, 777 Paseo de Roxas, Makati City, Metro Manila. The facts are simple. Sometime in April 1996, Petitioner declared a twenty (20%) percent cash dividend payable to its stockholders of record, one of which is the Development Bank of Singapore ("DBS" for brevity) which holds a share holding of 20% of its authorized capital stock. Based on its share holding, the sum of P4,400,000.00 representing cash dividend was made payable to DBS. On May 13, 1996, Petitioner as withholding agent, subjected said sum to an expanded withholding tax rate of 25% and correspondingly remitted the amount of P1,100,000.00 to the Bureau of Internal Revenue. Again in October 1996, Petitioner declared another five (5%) percent cash dividend payable to its stockholders of record. This time, the cash dividend of DBS in the amount of P1,500,000.00 was subjected to 35% expanded withholding tax and the tax due thereon in the amount of P525,000.00 was duly remitted on November 20, 1996 to the Bureau of Internal Revenue. Upon realizing, however, that the tax on cash dividends paid by a Philippine corporation to its Singaporean stockholder corporation owning at least 15% of its outstanding capital stock should only be 15% pursuant to the provisions of the RP-Singapore Tax Treaty and not, on the erroneous 25% and 35% tax rates it has previously applied, Petitioner filed on April 1, 1998, a written claim for the refund of P575,000.00, with the Bureau of Internal Revenue's Revenue District No. 50 located at Makati City. Due to alleged inaction of Respondent however on its claim for refund, Petitioner instituted the present appeal on May 14, 1998. At bar, Petitioner reasserts its stance a quo . As evidence to prove its claim for refund, Petitioner submitted, from among others, the following exhibits, to wit: 1. Exhibit C Secretary's Certificate issued by the Assistant Corporate Secretary of Petitioner, dated August 27, 1997, attesting to the 20% ownership by DBS of its issued and outstanding common capital stock. 2. Exhibits D to D-3 & E to E-3 Monthly Remittance Return of Income Taxes Withheld (BIR Form 1743 W) for the months of April and October of 1996 with corresponding lists of payees showing DBS as having been subjected to 25% and 35% withholding taxes on the cash dividends it had received in the amount of P4,400,000.00 and P1,500,000.00, respectively. 3. Exhibit G Written claim for refund filed on April 1, 1998. While acknowledging the provisions of the RP-Singapore Tax Treaty under Section 12(2)(a) thereof and thus the validity of the amount of Petitioner's claim for refund, Respondent nonetheless interposes that Petitioner is liable for penalties in the form of surcharges and interests for late filing of withholding tax returns and payment of withholding taxes totalling P563,428.29, net of Petitioner's amount of claim. Thus: "Taking into account the foregoing provisions, it is clear that the rate used by ICCP in the withholding of the tax, 25% and 35% respectively, in its dividend payment last April and October 1996 exceeded the 15% tax rate as stipulated in the treaty. All in all, the excess amount is P740,000.00 computed as follows: 15% Tax Rate Dividends Rate Withholding (RP-Singapore Excess Date Paid Used Tax Treaty Payment April 1, 1996 P4,400,000.00 25% P1,100,000.00* P660,000.00 P440,000.00 October 26, 1996 1,500.000.00 35% 525,000.00** 225,000.00 300,000.00 TOTAL P5,900,000.00 P1,625,000.00 P885,000.00 P740,000.00 =========== =========== ========== ========== * Payment and filing of return made on May 13, 1996 (Last day of filing and payment is May 10, 1996; subject to penalties) ** Payment and filing of return made on November 20, 1996 (Last day of filing and payment is November 10, 1996; subject to penalties) Considering that the returns were filed and paid late, nevertheless they are subject to penalties computed as follows: Withholding tax due for April 1996 paid and filed on May 13, 1996 (P1,100,000.00 tax on dividend included) P4,317,597.89 (Verified paid by Revenue Accounting Division per Certification dated 5-19-99) Penalties due thereon: 25% surcharge - late payment P1,079,399.47 20% interest - May 11 to 13, 1996 (3 days) 8,871.78 Compromise penalty late payment 25,000.00 P1,113,271.25 Withholding tax due for October 1996 paid and filed on November 20, 1996 (P525,000.00 tax on dividend included) P678,051.38 (Verified paid by Revenue Accounting Division per Certification dated 5-19-99) Penalties due thereon: 25% surcharge - late payment P169,512.85 20% interest - Nov. 11 to 20, 1996 (10 days) 4,644.19 Compromise penalty late payment 16,000.00 P190,157.04 Total penalties due from ICCP, as withholding agent P1,303,428.29 ========== Accordingly, investment and Capital Corporation of the Philippines (ICCP), the claimant of the refund, is at the same time liable for penalties on late filing and late payment. It will appear that ICCP is still liable for P563,428.29, if offsetting is permitted, computed as follows: Amount of refund requested P740,000.00 Less: Amount of penalties due for late filing and late payment of withholding tax (1,303,428.29) Amount still due from ICCP (P563,428,29) =========== (Memorandum, dated July 1, 1999, Exhibit 2; Docket, pp. 102-103) Records bear that with respect to Petitioner's claim for refund in the amount of P740,000.00, this Court in a Resolution, dated November 18, 1998, denied the same together with the admission of its amended petition for review in view of the fact that in accordance with Section 229 of the Tax Code, as amended, only the amount of P575,000.00 has been claimed at the administrative level. Any increase beyond P575,000.00 would fall short of the requirement under said section that what is claimed judicially should have been first subjected to an administrative claim for refund. The issue confronting Us is limited to whether or not Petitioner is entitled to its claim for refund in the amount of P575,000.00. We rule in the negative . Petitioner has failed to surmount the evidence required to prove entitlement to its claim for refund. Notwithstanding the fact that it has sufficiently offered in evidence documents which tend to establish the amount of its claim, both in fact and in law, it has however been remiss in disproving the countervailing evidence adduced by the Respondent. We are referring to the failure of the Petitioner to rebut the specific finding of Respondent revenue examiners in the above quoted memorandum that despite the validity of its claim for refund, Petitioner is still liable for penalties on account of late filing and payment of withholding taxes. There is a basis for the finding arrived at by the revenue examiners. Under BIR Revenue Regulations No. 12-93 as amended by Revenue regulations No. 18-93, taxes withheld are required to be remitted within 10 days after the end of each calendar month, with the exception of large taxpayers who are required to remit taxes so withheld within 25 days after the end of each calendar month. In the abovesaid memorandum, Petitioner has not been categorized as a large taxpayer. Consequently, it was found to be liable to remit taxes within 10 days after the end of each calendar month. Since it has filed the returns for the months of April and October beyond the ten-day period, it has been assessed the corresponding penalties which amounts bigger than its present claim at bar. To this Court's dismay, however, Petitioner never bothered to make any kind of refutation. It is to be noted that public officers, like Respondent's revenue examiners, enjoy the presumption of regularity in the performance of their official duty of investigating taxpayers liabilities [Section 3(m), Rule 131, Rules of Court]. Unrebutted thus, the aforequoted memorandum is superior in probative value than Petitioner's quantum of proof. Petitioner's silence on the subject is tantamount to acquiescence of Respondent's finding, most especially that it knew for a fact that it was supposed to make a comment thereon (Minutes, July 7, 1999; Docket, p. 97). Petitioner is reminded that claims for tax refund are in the nature of tax exemptions. As such, they are regarded as in derogation of sovereign authority and are to be construed in strictissimi juris against the person or entity claiming refund. The burden of proof is upon the taxpayer who claims the refund in his favor. It cannot be permitted to exist upon vague implications. ( Insular Lumber Co. vs. Court of Tax Appeals, 104 SCRA 710; Commissioner of Internal Revenue vs. Rio Tuba Nickel Mining Corporation, 207 SCRA 549; Emmanuel & Zenaida Aguilar vs . Commissioner, CA-GR No . Sp . 16432, March 30, 1990 ). With respect to the liability of the Petitioner for the amount of P563,528.29 representing interests and surcharges, as found in the above memorandum, this Court is not bound to grant the same in view of the fact that herein Petition is solely an action for a claim for refund; and that it is not based on a final and demandable assessment which Respondent has the right to collect, but rather on an investigative report that is recommendatory in nature only. WHEREFORE in view of the foregoing, the instant Petition for Review is hereby DENIED for lack of merit. SO ORDERED. (SGD.) ERNESTO D. ACOSTA Presiding Judge I CONCUR: (SGD.) RAMON O. DE VEYRA Associate Judge Separate Opinions The majority opinion denied the instant claim for refund on the ground that the penalties incurred by Petitioner on account of late filing and payment of withholding taxes far exceed the amount claimed. My esteemed colleagues however believed that if not for the obligation to pay penalties, the claim for refund should have been granted as it rests on a sound legal foundation. I disagree with the aforementioned conclusions held by the majority for the simple reason that Development Bank of Singapore (DBS), as a government controlled bank of Singapore, is EXEMPT from the payment of income tax pursuant to Section 28(b)(8)(A) of the 1996 Tax Code which clearly states, thus: SECTION 28. Gross Income . . . . (b) Exclusions from gross income. . . . (8) Miscellaneous items . (A) income received from their investments in the Philippines in loans, stocks, bonds or other domestic securities, or from interest on their deposits in banks in the Philippines by (I) foreign governments, (ii) financing institutions owned, controlled, or enjoying refinancing from them, and (iii) international or regional financing institutions established by governments. It must be remembered that this claim for refund involves income taxes withheld by Petitioner from the dividends it remitted to DBS. Under the aforequoted provision of law, the Petitioner has no obligation to withhold income taxes from DBS because the latter is exempt from the payment of income tax. The controversy presented by Petitioner as to what tax rate should be imposed upon the dividends it paid to DBS is misplaced and veers away from the reality that it should not have withheld income taxes from DBS in the first place. While I subscribe to the view that a court should base its decision on the evidence presented by both parties, I believe that even if Petitioner did not raise the issue of tax exemption, this Court should categorically rule on the same under the principle of judicial notice provided by Section 1 of Rule 129 of the Rules of Court and I quote: SECTION 1. Judicial Notice . The existence and territorial extent of states, their forms of government and symbols of nationality, the law of nations, the admiralty and maritime courts of the world and their seals, the political constitution and history of the Philippines, the official acts of the legislative, executive, and judicial departments of the Philippines , the laws of nature, the measure of time, the geographical divisions and political history of the world, and all similar matters which are of public knowledge, or are capable of unquestionable demonstration, or ought to be known to judges because of their judicial functions, shall be judicially recognized by the court without the introduction of proof; but the court may receive evidence upon any of the subjects in this section stated, when it shall find it necessary for its own information, and may resort for its aid to appropriate books or documents of reference. (Emphasis supplied) As discussed earlier, the law [Section 28(b)(8)(A) of the 1996 Tax Code] is clear when it exempted foreign government controlled financing institutions from the payment of income tax on income received by them from their investments in the Philippines. The Petition for Review even alleges that DBS is a government-controlled banking corporation (please see page 1 of CTA records). The dividends remitted by Petitioner to DBS constituted income to the latter hence falls squarely within the ambit of said provision. As Judges, we should not limit ourselves to the issues presented to us by the parties in the face of an existing law which should propel us to apply it in the instant case. Furthermore, in the case entitled National Housing Authority vs . Court of Appeals 121 SCRA 777 , the Supreme Court ruled: "a case should be decided in its totality, resolving all interlocking issues in order to render justice to all concerned and to end litigation once and for all." Lastly, the RP-Singapore Tax Treaty invoked by counsel of Petitioner is also not applicable to the instant case because Article 10 on Dividends embodied in the RP Singapore Tax Treaty pertains only to private corporations while DBS is a government controlled corporation. To my mind, it was erroneous for Petitioner to base its claim for refund on the provisions of the RP-Singapore Tax Treaty. While I am in favor of granting the entire amount withheld by Petitioner from DBS due to the latter's tax exempt status, I am constrained to vote only for the grant of the refund in the amount of P740,000.00 corresponding to the amount claimed in the Petition for Review. (SGD.) AMANCIO Q. SAGA Associate Judge