Equitable Banking Corp. v. Commissioner of Internal Revenue

[C.T.A. CASE NO. 5661. March 30, 2000.] EQUITABLE BANKING CORPORATION , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N The instant petition seeks for the refund or issuance of a tax credit certificate in the amount of P1,066,044.57 allegedly representing overpaid gross receipts tax for the quarter ended June 30, 1996. LexLib Petitioner is a banking corporation duly organized and existing under the laws of the Philippines with principal office at 262 Juan Luna St. Binondo, Manila. cdlex On July 22, 1996, Petitioner filed with the Bureau of Internal Revenue (BIR) its various 1996 quarterly percentage tax returns, covering those of its Head Office and branches, and paid a total amount of P44,745,960.19 as gross receipts tax (GRT) (Exhs. A, A-1). Of the said amount, P23,844,310.06 pertained to the GRT paid by Petitioner's Head Office on taxable gross receipts of P524,442,111.65, as shown by its Quarterly Percentage Tax Return for the same period (Exhs. B to B-3). On September 26, 1996, on the strength of 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 held that the twenty percent (20%) final withholding tax on bank's passive income should not form part of the bank's taxable gross receipts for the purpose of computing Gross Receipts Tax, Petitioner filed a claim for refund with the Bureau of Internal Revenue in the amount of P2,369,379.37 computed as follows: LibLex Gross Receipts Subjected to Tax P498,375,415.75 Less: 20% Portion of Tax Paid Income 1,128,948.75 Investment Income subject to 20% final tax booked at gross 20,191,942.63 Adjusted Gross Receipts Tax base P477,054,524.37 ============= Computation of Adjusted Gross Receipts Tax: Gross Receipts Tax Due 0% P26,066,695.90 P0.00 1% 9,075,070.48 90,750.70 3% 35,572,895.57 1,067,186.87 5% 406,339,862.42 20,316,993.12 P477,054,524.37 P21,474,930.69 Gross Receipts Tax Paid P23,844,310.06 Adjusted Gross Receipts Tax 21,474,930.69 Tax Refund P2,369,379.37 ============= Petitioner's claim was likewise premised on the principle that no one shall unjustly enrich himself at the expense of another and on Section 230 of the National Internal Revenue Code which allows for recovery of any national internal revenue tax erroneously and illegally collected by the BIR. As there was no action on the part of herein Respondent, the instant Petition was filed on July 22, 1998 to toll the running of the two-year prescriptive period. In his Answer filed on August 26, 1998, Respondent raised the following Special and Affirmative Defenses: xxx xxx xxx 11. The decision in Asian Bank Corporation vs. Commissioner of Internal Revenue (CTA Case No. 4720) is pending appeal with the Court of Appeals. Hence, invocation thereof at this point in time is premature. cdlex 12. Revenue Regulations No. 13-80 dated November 7, 1980 governs the taxation of minerals and mineral products and, therefore, it is irrelevant to this case since petitioner is a banking institution. 13. The petition does not state a cause of action as there is no allegation that the tax sought to be refunded was actually paid to the Bureau of Internal Revenue in accordance with the provisions of the Tax Code. 14. The claim for refund is pending administrative investigation. cdll 15. Taxes are presumed to have been collected in accordance with law. Hence, petitioner must prove that the taxes sought to be refunded were erroneously or illegally collected. 16. Petitioner must show that it has complied with the provisions of Section 204(3) and Section 229 of the 1997 Tax Code (R.A. 5424). prcd 17. Claims for refund of taxes are construed strictly against claimants, the same being in the nature of an exemption from taxation (Manila Electric Co. vs. Commissioner of Internal Revenue, 67 SCRA 351). Through a letter dated October 5, 1998, Petitioner followed-up its letter request of September 26, 1996 and decreased the amount of refund for the quarter ended June 30, 1996 to only P1,066,044.57 after finding an error in the computation of its claim. On October 30, 1998, Petitioner likewise filed an Amended Petition for Review before this Court in order to amend its claim to the lesser amount of P1,066,044.57, recomputed as follows: Gross Receipts Subjected to Tax P524,442,111.65 Less: 20% Portion of Tax Paid Income 1,128,948.75 Investment Income subject to 20% final tax booked at gross 20,191,942.63 Adjusted Gross Receipts Tax base P503,121,220.27 ============= Computation of Adjusted Gross Receipts Tax: Gross Receipts Tax Due 0% P26,066,695.90 P0.00 1% 9,075,070.48 90,750.70 3% 35,572,895.57 1,067,186.87 5% 432,406,558.32 21,620,327.92 P503,121,220.27 P22,778,265.49 Gross Receipts Tax Paid P23,844,310.06 Adjusted Gross Receipts Tax 22,778.265.49 Tax Refund P1,066,044.57 ============= Since there was no substantial change in the Amended Petition as only the amount was modified, Respondent opted not to file an Amended Answer and merely adopted his Original Answer (p. 57, CTA Records). In their Joint Stipulation of Facts, the parties admitted that Revenue Regulations No. 13-80, dated November 7, 1980, as cited by Petitioner in its Petition for Review should actually read as Revenue Regulations No. 12-80, dated November 7, 1980. Revenue Regulations No. 13-80 governs the taxation of minerals and mineral products and therefore, irrelevant to this case since Petitioner is a banking institution. On the other hand, Respondent's argument that the decision in the Asian bank case is pending appeal with the Court of Appeals and that invocation thereof at this point in time is premature, is untenable. This Court has already given its position on the matter. Inevitably, the taxpayers affected cannot be expected to wait for the decision of the Court of Appeals as their claims for refund may in the meantime be barred by prescription. cdll In the Joint Stipulation of Facts admitted by this Court in its Resolution dated March 1, 1999, the parties agreed to limit the issues to be resolved on the following: cdll 1. Whether or not EBC Head Office actually included in the computation of its GRT Base for the Quarter ended June 30, 1996 the amounts of (a) P1,128,948.75 (representing 20% tax withheld on income received and booked net of 20% final tax during the Quarter ended June 30, 1996), and (b) P20,191,942.63 [representing 20% final tax withheld on tax paid income booked at gross (100%) subjected to gross receipts tax for the Quarter ended June 30, 1996]; prcd 2. Whether or not the said amounts represented the twenty percent (20%) final tax on certain passive income of EBC for the said quarter; LibLex 3. Whether or not the said amounts were received by EBC as part of its gross receipts for the said quarter; 4. Whether or not the respective withholding agents of EBC have paid the said amounts to the BIR; and 5. Whether or not EBC is entitled to its claim for refund covering the said quarter and for how much ((pars. D[1] to D[5], pp. 3-4, EBC's Pre-Trial Brief which were all admitted by Respondent's counsel). Petitioner, to support its case, presented the following: Exhibits Description A EBC's Transmittal Sheet of Percentage Tax of Head Office and Branches/Units of Large Taxpayers for the Quarter Ended June 30, 1996 B EBC Head Office Quarterly Percentage Tax Return for the quarter ended June 30, 1996 C Written claim for refund dated September 26, 1996 by EBC, thru its then Senior Manager Maritess B. Antonio, with supporting documents, requesting the Commissioner of Internal Revenue for refund of, or issuance of credit certificate for, among other figures, the amount of P2,369,379.37 for the excess GRT for the quarter ended June 30, 1996 and paid on July 22, 1996. D Written follow up dated October 5, 1998 of request for refund by EBC, thru its Assistant Vice President Maritess B. Antonio, lowering the refund claim for the Quarter ended June 1996 from P2,369,379.37 to P1,066,044.57. E, E- 1 EBC Head Office Income and Expense Statement for the period ended June 1996, consisting of seven (7) pages. Respondent, on his part, presented no evidence and submitted the case for decision based on the pleadings (p. 145, CTA records). In order to be entitled to the refund of overpaid gross receipts tax based on the Asian Bank decision, Petitioner must prove: llcd 1.) that it actually paid the 20% final withholding taxes on its gross receipts from passive income; prcd 2.) that the 20% final withholding tax on passive income formed part of its gross receipts subjected to the gross receipts tax; and cdll 3.) that it actually paid the GRT due on its gross receipts from passive income inclusive of the 20% final withholding taxes. After an examination of the evidence adduced by Petitioner, this Court finds that the above requirements were not met. prcd Petitioner's 1996 Second Quarterly Percentage Tax Return and Transmittal Sheet of Percentage Tax of Head Office and Branches/Units of Large Taxpayers showed that Petitioner's head office paid a gross receipts tax of P23,844,310.06 on taxable gross receipts of P524,442,111.65 (Exhs. A-2, B-2 & B-3). Petitioner allegedly included in its taxable gross receipts of P524,442,111.65 the amounts of P1,128,948.75 representing 20% final tax withheld on income received and booked net of 20% final tax and P20,191,942.63 representing 20% final tax withheld on tax paid income booked at gross for which a 5% gross receipts tax of P1,066,044.57 was allegedly paid. However, Petitioner failed to present proof of actual withholding of the 20% final taxes of P1,128,948.75 and P20,191,942.63, respectively. The certificates of final taxes withheld issued by the withholding agents or issuers of the investment securities showing the amount of interest income payment and the corresponding 20% final withholding tax were not presented. Petitioner likewise failed to substantiate that the 20% final withholding taxes formed part of its gross receipts subjected to the gross receipts tax. While Petitioner's 1996 second quarter taxable gross receipts (passive and non-passive) and the corresponding gross receipts tax appearing in its 1996 second quarterly percentage tax return (Exh. B) tally with those appearing in its computation sheet and general ledger (Exhs. B-3, C-3 & E) the amounts of passive income shown in the computation sheet and general ledger, however, cannot be verified as to whether these were recorded at gross or net of the 20% withholding taxes. Petitioner failed to submit supporting documents, such as detailed transaction records, confirmation of purchase, confirmation of sale, trading sheets, credit/debit advices, accounting tickets, certificates of final taxes withheld, etc., to show the actual receipt of income and the withholding of the corresponding 20% final tax. Contrary to Petitioner's assertion, the general ledger balances are not sufficient proof of Petitioner's claim for refund. Entries in the general ledger cannot substitute for the aforecited source documents since said entries are based on information found in the said documents. Without supporting documents, entries in the ledger, merit very little weight and therefore are not the best evidence. Finally, inasmuch as Petitioner failed to prove the inclusion of the 20% final withholding taxes of P1,128,948.75 and P20,191,942.63 in its 1996 second quarter gross receipts from passive income subjected to 5% GRT, it follows then that it failed to show that the corresponding 5% GRT of P1,066,044.57 was included in its 1996 second quarter total GRT payment of P23,844,310.06. prcd WHEREFORE, in view of all the foregoing, the instant Petition for Review is hereby DISMISSED for insufficiency of evidence. SO ORDERED. (SGD.) RAMON O. DE VEYRA Associate Judge I CONCUR: (SGD.) ERNESTO D. ACOSTA Presiding Judge Separate Opinions The majority opinion denied the claim for refund of gross receipts taxes due to insufficiency of evidence but upheld the legal basis of the claim. I humbly disagree with the opinion of my esteemed colleagues. cdlex 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: LexLib "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) prcd 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: LexLib " 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." llcd 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). cdlex 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. llcd 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. 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 Compaia 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: prcd 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 1/2% was assigned to the Board on Races and 5% was distributed as prizes for owners of winning horses and authorized bonus for jockeys. llcd 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 1/2. But since the Club had already paid the amusement tax based on its 7% share of the "commission", the amount assessable pertains only to the 5 1/2% 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 1/2% 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 Appeals' 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 and 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 1/2% 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 1/2% of the 12 1/2% "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 percent (20%) 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 regulation, 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 Compaia 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 regulation. LibLex 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 interests, 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. 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 Aranas, 1988 Edition, p. 687 ). cdll WHEREFORE, in view of the foregoing, I hereby register my dissent to the majority opinion and vote for the denial of the claim for refund for lack of legal basis. (SGD.) AMANCIO Q. SAGA Associate Judge