Sterling Products International, Inc. v. Commissioner of Internal Revenue

[C.T.A. CASE NO. 5807. June 6, 2001.] STERLING PRODUCTS INTERNATIONAL, INC. , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N Before this Court is a Petition for Review seeking for the refund of the amount of P6,078,207.00 representing alleged unutilized income tax credits for taxable years ended December 31, 1996 and 1997. Petitioner is a resident foreign corporation duly organized and existing under the laws of the State of Delaware, U.S.A. with it's Philippine branch located at No. 74 E. de los Santos Avenue, Mandaluyong City, Philippines. On April 15, 1997, Petitioner's Annual Corporate Income Tax Return for the calendar year ended December 31, 1996 reported a loss of P12,456,242.00. It likewise, reflected the amount of P2,317,325.00 representing prior year's (1995) excess credits and creditable taxes withheld for the year 1996 in the amount of P1,937,013.00 (Exhibit A). For the taxable year ending December 31, 1996, Petitioner had an overpaid income tax of P4,254,338.00 computed as follows: Tax Due Less: Prior year's Excess Credit P2,317,325.00 Creditable Taxes Withheld 1,937.013.00 Refundable/Creditable (P4,254,338.00) =========== Petitioner's Annual Corporate Income Tax Return for the calendar year ending December 31, 1997 was filed on April 15, 1998. It reported a taxable income of P3,644,117.00 and income tax due in the amount of P1,275,441.00. The return likewise reflected prior year's (1996) excess tax credits of P4,254,338.00, quarterly corporate income tax in the amount of P721,677.00 and creditable tax withheld for the year 1997 in the amount of P2,377,633.00 (Exhibit "II"). Consequently, based on its return, Petitioner had an income tax overpayment of P6,078,207.00 computed as follows: Tax Due P1,275,441.00 Less: Prior Year's Excess Credit P4,254,338.00 3rd Qtr. Income Tax Payment 721,677.00 Creditable Taxes Withheld 2,377,633.00 7,353,648.00 Refundable/Creditable (P6,078,207.00) (Exhibit II) Anchored on the provisions of Section 69 of the Tax Code (now Section 76 of the Tax Reform Act of 1997), Petitioner filed a claim for refund or the issuance of a tax credit certificate with the Respondent, Bureau of Internal Revenue (BIR), in the amount of P6,078,207.00 representing unutilized tax credits for the taxable years ending December 31, 1996 and 1997. The next day or on April 15, 1999, Petitioner filed its judicial claim for refund with this Court. In his Answer to the Petition for Review, Respondent raised the following Special and Affirmative Defenses: "5. That the herein Petitioner is not entitled to the refund of the amount prayed for in the instant Petition for Review; 6. That as Respondent is still in the process of investigating Petitioner's claim for refund, the herein Petition for Review is premature as Petitioner has not exhausted the administrative remedies required by law and jurisprudence on action of this nature as no decision has as yet been rendered by the Respondent; 7. Such being the case this Honorable Court has no jurisdiction over the Petition for Review." To support its claim for refund, Petitioner submitted the following documents: Exhibit Description A Annual Income Tax Return for 1996 B to HH Various Certificates of Creditable Tax Withheld at Source for 1996 II Annual Corporate Income Tax Return for 1997 JJ to UUU Various Certificates of Creditable Tax Withheld at Source for 1997 XXX Letter Claim for Refund Respondent, on the other hand, did not submit any controverting evidence to substantiate its defenses. The sole issue to be resolved is WHETHER OR NOT PETITIONER IS ENTITLED TO THE REFUND OF P6,078,207.00 representing unutilized income tax credits for the years 1996 and 1997. cCTAIE We rule in favor of Petitioner. In order that Petitioner may be granted its claim for refund, the following basic requirements provided under Revenue Regulations No. 12-94 and the prevailing jurisprudence on the matter must be complied with: 1. That the claim for refund was filed within the two-year prescriptive period provided under Section 230 of the National Internal Revenue Code; 2. That the fact of withholding is established by a copy of a statement duly issued by the payor (withholding agent) to the payee, showing the amount paid and the amount of tax withheld therefrom; and 3. That the income upon which the taxes were withheld were included in the return of the recipient [ Revenue Regulations No. 12-94 amending Revenue Regulations No. 6-85; Citibank, NA vs. Court of Appeals and CIR, 280 SCRA 459; ACCRA Investment Corporation vs. CA, 204 SCRA 957 ]. Petitioner filed its claim for refund for the years 1996 and 1997 on April 14, 1999 and the instant Petition for Review with this Court on April 15, 1999. Hence, both the administrative and judicial claims for refund were filed within the two-year prescriptive period, as provided under Section 230 of the National Internal Revenue Code (now Section 229). Anent the contention of the Respondent that the Court has not yet acquired jurisdiction over the instant Petition due to the fact that Respondent is still in the process of investigating Petitioner's claim for refund and a decision has yet to be rendered by the Respondent, the same is not tenable. While it is true that the Court of Tax Appeals cannot take cognizance over petitions for review prior to a decision of the Commissioner of Internal Revenue, Commissioner of Customs and Secretary of Finance, an exception to this rule arises when in a written claim for the refund of taxes, the silence or inaction of the government may justify the filing of the Petition of for Review with the Court of Tax Appeals before the lapse of the 2-year period of limitation prescribed in Section 230 of the National Internal Revenue Code as ruled by the Supreme Court in the case of Commissioner of Internal Revenue vs. Victorias Milling Co., Inc. and the Court of Tax Appeals 22 SCRA 12, thus: ". . . The claim for refund with the Bureau of Internal Revenue and the subsequent appeal to the Court of Appeals must be filed within the two year period. If, however, the Collector takes time in deciding the claim, and the period of two years is about to end, the suit or proceeding must be started in the Court of Tax Appeals before the end of the two-year period without awaiting the decision of said Collector." Petitioner's Annual Corporate Income Tax Return for the year 1996, reported a gross income of P88,371,650.00 with total expenses of P100,827,892.00 resulting to a net loss of P12,456,242.00. The same return reflected the amount of P4,254,378.00 as tax refund consisting of creditable taxes withheld amounting to P2,317,325.00 and P1,937,013.00 for the years 1995 and 1996, respectively (Exhibit A). However, a careful scrutiny of the evidence submitted by Petitioner compel us to disallow certain amounts from the final computation. For instance, Petitioner failed to present the documents necessary to prove the creditable taxes withheld for the year 1995, thus the creditable taxes pertaining to the same year are therefore excluded. Moreover, a perusal of the corresponding certificates for the taxable year 1996, disclosed that only the amount of P988,790.16, out of the total amount of P1,937,013.00, was duly supported by certificates of creditable tax withheld at source, which income was declared in Petitioner's Annual Income Tax Return for 1996 (See Annex "A" of this Decision). For the taxable year 1997, only the amount of P1,937,831.16 was substantiated by certificates of creditable tax withheld at source out of the claimed total creditable taxes withheld in the amount of P2,377,633.00 (See Annex "B" of this Decision). In compliance with the basic requirements enumerated earlier, the creditable taxes withheld for the taxable year 1997 were declared in Petitioner's 1997 Annual Corporate Income Tax Return which reported an income tax liability of P 1,275,441.00 (Exhibit II). Gleaned from Petitioner's 1998 Annual Income Tax Return, the alleged overpaid income tax of P6,078,207.00 was not carried-over to the succeeding year as shown in Petitioner's 1998 Annual Income Tax Return (Exhibit YYY). In sum, Petitioner has sufficiently substantiated its claim for refund of overpaid income tax for the taxable years 1996 and 1997 but only to the extent of P1,651,180.32, computed as follows: Allowable Tax Credit for Taxable year 1996 (Annex A) P 988,790.16 Allowable Tax Credit for Taxable year 1997 (Annex B) 1,937,831.16 Total Allowable Tax Credits P2,926,621.32 Less: Tax Credit Applied to the 1997 Income Tax Liability 1,275,441.00 Overpaid/Excess Income Taxes P 1,651.180.32 =========== WHEREFORE, in view of all the foregoing, Respondent Commissioner is hereby ORDERED to REFUND to the Petitioner the amount of P1,651,180.32 representing overpaid/excess income taxes for taxable years 1996 and 1997. SO ORDERED. (SGD.) ERNESTO D. ACOSTA Presiding Judge I CONCUR: (SGD.) AMANCIO Q. SAGA Associate Judge STERLING PRODUCT INTERNATIONAL, INC. SCHEDULE OF ALLOWABLE INCOME TAXES WITHHELD PER COURT'S VERIFICATION FOR THE YEAR ENDED DECEMBER 31, 1996