ASB Realty Corp. v. Commissioner of Internal Revenue

[C.T.A. CASE NO. 5803. October 24, 2001.] ASB REALTY CORPORATION , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N Before Us for consideration is a Petition for Review, seeking for a refund of the amount of P61,813,719.00, representing alleged excess unutilized creditable income taxes for the taxable years 1996 and 1997. The antecedent facts are as follows: Petitioner is a domestic corporation duly organized and existing under and by virtue of the laws of the Philippines. It is primarily engaged in the business of selling and leasing real estate properties and condominiums and management of the condominium corporations for its finished projects. Records show that on April 15, 1997, Petitioner filed its Annual Corporate Income Tax Return for calendar year 1996 declaring therein the amount of P15,748,586.00 as excess and/or unutilized creditable income tax (Exhibit "A"), computed as follows: Taxable Income P1,588,484.00 =========== Tax Due 555,969.00 Less: Tax Credits (a) Prior year's excess credit P1,409,265.00 (b) Creditable tax withheld 14,895,290.00 16,304,555.00 Total Amount Refundable P15,748,586.00 =========== In the said return, Petitioner indicated its intention to carry over and apply its unutilized creditable income tax for the succeeding taxable year 1997. On April 15, 1998, Petitioner filed its Annual Corporate Income Tax Return for calendar year ended December 31, 1997. The said return was subsequently amended on April 30, 1998 (Exhibit "C"). In the amended return, Petitioner declared a net loss of P10,539,728.00 and total tax credit/payments of P61,813,719.00 broken down as follows: a) Prior Year's Excess Credits P15,748,585.00; and b) Creditable Tax Withheld P46,065,134.00 Since Petitioner was at a net loss position at the end of taxable year 1997, it decided to claim a refund of the aforesaid excess creditable income tax in the amount of P61,813,719.00. Accordingly, an administrative claim for refund was filed by the Petitioner with the Bureau of Internal Revenue on September 16, 1998 (Exhibit "F") Considering that the two-year prescriptive period within which to file a judicial claim for refund was about to expire, Petitioner elevated its case to this Court by way of a Petition for Review filed on April 15, 1999. Respondent, in his Answer, advanced the following Special and Affirmative Defenses, to wit: "5. Petitioner's claim for refund is under investigation by respondent Commissioner of Internal Revenue; 6. Petitioner's claim has partially, if not totally, prescribed; 7. In an action for tax refund, petitioner must show that taxes were paid erroneously or collected illegally. Failure to sustain this burden is fatal to the action for refund; 8. Well-settled is the rule that claims for refund are construed strictly against claimants, since they partake of the nature of an exemption from taxation (Resin, Inc. vs. Auditor General, 25 SCRA 754); 9. Claims for refund are construed strictly against the claimants since they are in the nature of exemption from taxation (Manila Electric Co. vs. CIR, 67 SCRA 351); 10. Taxes are presumed to have been paid in accordance with law, hence not refundable." The sole issue in this case is whether or not Petitioner was able to substantiate its claim for refund of alleged unutilized creditable taxes withheld at source in the amount of P61,813,719.00 for taxable years 1996 and 1997. Anent the aforesaid issue, this Court has in several cases, namely: Citytrust Finance Corporation vs. The Honorable Commissioner of Internal Revenue, CTA Case No. 4134, November 11, 1991; affirmed by the Court of Appeals in Citytrust Finance Corporation vs. Court of Tax Appeals and the Commissioner of Internal Revenue, C.A. G.R. SP No. 28239, March 14, 1994; and Citytrust Finance Corporation (formerly Investor's Finance Corporation/FNCB Finance) vs. Commissioner of Internal Revenue, CTA Case No. 4046, February 24, 1993; affirmed by the Court of Appeals in Commissioner of Internal Revenue vs. Citytrust Finance Corporation (formerly Investor's Finance Corp./FNCB Finance) and the Court of Tax Appeals, C.A. G.R. SP No. 31104, April 18, 1994 , laid down the following guidelines for the grant of the claim for refund, viz: (1) That the claim for refund is filed within the two-year reglementary period pursuant to Section 230 of the Tax Code, as amended; (2) That the income upon which the taxes were withheld were included as part of the gross income declared in the income tax return of the recipient; (3) That the fact of withholding is established by a copy of the statement duly issued by the payor to the payee showing the amount paid and the amount of tax withheld therefrom. The foregoing requirements were affirmed by the Supreme Court in the case of Citibank, N.A. vs. Court of Appeals and Commissioner of Internal Revenue, 280 SCRA 459 . We now discuss Petitioner's compliance with the aforesaid requisites ad seriatim . It is beyond cavil that Petitioner seasonably filed its claim for refund since the records of this case show that the administrative and the judicial claims for refund were filed on September 16, 1998 (Exhibit F.) and April 15, 1999, both within the two-year period of prescription reckoned from April 15, 1997 and April 15, 1998, the dates when Petitioner's final adjustment returns for the years 1996 and 1997, respectively, were filed. However, We found out that Petitioner's claim of prior year's excess credit of P1,409,265.00 for the year 1995, which was included in the present claim, is already barred by prescription, the claim having been filed beyond two years from the date it filed its final Adjustment Return on July 1996. Proceeding now to the second requirement, the documents submitted by the Petitioner disclose that it derived income from its sales of real properties, rental and management services from which creditable taxes were withheld. During the trial, Petitioner presented in evidence the annual income tax returns for taxable years 1991 to 1997. In order to prove that the income on its sales of real properties upon which the taxes were withheld were declared as part of its gross income in its income tax returns, Petitioner, in support of the return, offered in evidence schedules of prepaid taxes and the sales summaries for the years 1996 and 1997 (Exhibits ZZZZZZ and AAAAAAA) indicating therein the year when the income was reported. This Court disallows the creditable withholding taxes corresponding to the income allegedly included in the 1991 to 1995 income tax returns for failure of the Petitioner to present any sales summary or schedule for the aforesaid years from which this Court could verify the amount included by the Petitioner in its return. Anent its income derived from rental of properties in the amount of P11,251,572.40 and P14,907,005.20 during taxable years 1996 and 1997, respectively, we are convinced that Petitioner properly declared the aforesaid income in its income tax returns. The income for 1996 was included as part of Petitioner's gross income declared in its 1996 annual income tax return under the heading "Other income" while its rental income for the year 1997 was reported under Section C, Schedule 3 (Exhibit C-4) of its 1997 annual income tax return. With regard to its income from management services, Petitioner, likewise declared in its return for 1996 as part of its gross income the amount of P1,393,920.00 from which taxes were correspondingly withheld. The said amount was declared under the caption "Other income". However, We disallowed the amount of P93,765.00, the creditable taxes corresponding to Petitioner's 1997 income from management services amounting to P1,875,312.00, since the latter amount was not reflected in its 1997 income tax return. Finally, to establish the fact of withholding, Petitioner presented in evidence various Monthly Remittance Returns of Income Taxes Withheld (BIR Form No. 1743 W) (Exhibits W to Z, AA to ZZ, AAA to III, CCC to ZZZ, AAAAA to ZZZZZ, AAAAAA to QQQQQQ) with the attached List of Income Taxes Withheld stating the names of the buyers of the real properties, the amount paid and the corresponding taxes withheld but this Court is still not inclined to grant the entire claim due to the absence of Certificates of Creditable Tax Withheld at Source which We consider as the best evidence to prove the fact of withholding. Hence, We disallowed those creditable taxes withheld without the corresponding certificates in the total amount of P12,474,844.91 for taxable years 1996 and 1997. Likewise disallowed were income payments in which the Petitioner failed to fully substantiate the inclusion of the income in the corresponding internal revenue tax returns. This amounts to P29,403,284.86. (see Annexes "A" and "B" forming part of this Decision). Prescinding from all of the above, We grant the claim but only in a reduced amount of P18,432,558.63, computed as follows: Amount Claimed P61,813,719.00 Less: Disallowances (a) Barred by prescription P1,409,265.00 (b) Non-declaration of 1997 management fees (Annex B) 93,765.60 (c) No supporting document 1996 (Annex A) P1,806,440.96 1997 (Annex B) 10,668,403.95 12,474,844.91 (d) Inclusion of income in 1991 to 1995 ITRs not fully substantiated 1996 (Annex A) P9,483,726.91 1997 (Annex B) 19,919,557.95 29,403,284.86 43,381,160.37 Amount Refundable P18,432,558.63 =========== WHEREFORE, in view of all the foregoing, Respondent is hereby ORDERED to REFUND or in the alternative to ISSUE A TAX CREDIT CERTIFICATE in the amount of P18,432,558.63 in favor of the Petitioner representing excess unutilized creditable withholding taxes for taxable years 1996 and 1997. SO ORDERED. (SGD.) ERNESTO D. ACOSTA Presiding Judge WE CONCUR: (SGD.) AMANCIO Q. SAGA Associate Judge (SGD.) JUANITO C. CASTAEDA, JR. Associate Judge ANNEX A SCHEDULE OF ALLOWABLE CREDITABLE TAXES WITHHELD ANNEX B SCHEDULE OF ALLOWABLE CREDITABLE TAXES WITHHELD