Phelps Dodge Philippines, Inc. v. Commissioner of Internal Revenue

[C.T.A. CASE NO. 6051. February 22, 2002.] PHELPS DODGE PHILIPPINES, INC. , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N This case involves a claim for refund in the amount of P4,630,506.00 representing alleged unutilized tax credits for the calendar year 1997. Petitioner is a corporation duly organized under and existing by virtue of the laws of the Republic of the Philippines with office address at No. 2 Pioneer Street, Mandaluyong City. On April 15, 1997, Petitioner filed its 1996 Annual Income Tax Return (Exhibit A) which declared the following: Gross Income P353,454,111.00 Less: Deductions 336,976,406.00 Taxable Income 16,477,705.00 Tax Due 5,767,197.00 Less: Tax Credits 4,124,019.00 Tax Payable P1,643,178.00 =========== Petitioner made a check payment of the tax still due in the amount of P1,643,178.00 as evidenced by the BPI check deposit slip and the BPI Certification dated August 11, 2000 (Exhibits L and M). On November 24, 1998, Petitioner amended its 1996 Annual Income Tax Return (Exhibit B) reflecting the following: Gross Income P353,454,111.00 Less: Deductions 336,976,406.00 Taxable Income 16,477,705.00 =========== Tax Due 5,767,197.00 Less: Tax Credits 17,333,970.00 Tax Payable (P11,566,773.00) ============ Petitioner's tax credits for the year 1996 in the amount of P17,333,970.00 consisted of the following: Prior Year's Excess Credit P7,160,242.00 Quarterly Payments for 1996 1,643,178.00 Creditable Tax Withheld for 1997 8,530,550.00 Total Tax Credits P17,333,970.00 ============ A second amendment of the 1996 Annual Income Tax Return was later filed by Petitioner on May 28, 1999 (Exhibit C), showing a net loss of P33,522,295.00 and a refundable amount of P10,173,728, computed as follows: Gross Income P303,454,111.00 Less: Deductions 336,976,406.00 Taxable Income (P33,522,295.00) ============ Tax Due NIL Less: Tax Credits/Payments 1.) Income tax paid per original 1996 ITR (Exhibits A & L) P1,643,178.00 2.) Creditable taxes withheld for 1996 8,530,550.00 P10,173,728.00 Income Tax Refundable P10,173,728.00 ============ Petitioner opted to apply the above refundable amount of P10,173,728.00 as tax credit to the succeeding taxable year, 1997. On April 15, 1998, Petitioner filed its 1997 Annual Income Tax Return showing a taxable income of P51,104,351.00 and tax payable of P9,775,156.00 (Exhibit D) computed as follows: Gross Income P231,004,443.00 Less: Deductions 179,900,092.00 Taxable Income P51,104,351.00 ============ Tax Due 17,886,523.00 Less: Tax Credits 1.) Quarterly Income Payments P347,201.00 2.) Creditable Taxes Withheld for 1997 7,764,166.00 8,111,367.00 Tax Payable P9,775,156.00 ============ On November 24, 1998, Petitioner amended its 1997 Annual Income Tax Return (Exhibit E) declaring a taxable income of P51,104,351.00 and a tax refundable of P6,023,551.00, computed as follows: Gross Income P231,004,443.00 Less: Deductions 179,900,092.00 Taxable Income P51,104,351.00 ============ Tax Due 17,886,523.00 Less: Tax Credits 1.) Prior Year's Excess Credits P11,566,773.00 2.) Quarterly Income Payments 347,201.00 3.) Creditable Tax Withheld for 1997 11,996,100.00 23,910,074.00 Tax Refundable (P6,023,551.00) ============ A second amendment of the 1997 Annual Income Tax Return was later filed by Petitioner on May 28, 1999 (Exhibit F), showing a taxable income of P51,104,351.00 and a refundable tax of P4,630,506.00, computed as follows: Gross Income P231,004,443.00 Less: Deductions 179,900,092.00 Taxable Income P51,104,351.00 ============ Tax Due 17,886,523.00 Less: Tax Credits 1.) Prior Year's Excess Credits P10,173,728.00 2.) Quarterly Income Payments 347,201.00 3.) Creditable Tax Withheld 1st Quarter P3,423,442.00 2nd Quarter P1,058,965.00 3rd Quarter P1,233,341.00 4th Quarter P6,280,352.00 11,996,100.00 22,517,029.00 Income Tax Refundable (P4,630,506.00) ============ The prior year's excess credit in the amount of P10,173,728.00 represents the excess or unutilized withholding tax credit for taxable year 1996 which Petitioner carried over to the taxable year 1997 due to its loss position for taxable year 1996 (Exhibit C). On June 2, 1999, Petitioner filed an administrative claim for refund or issuance of a tax credit certificate corresponding to the alleged 1997 excess tax credits of P4,630,506.00 (Exhibit I). On April 4, 2000, Petitioner filed a Petition for Review with this Court since Respondent did not act on the administrative claim. Respondent, in his Answer filed on May 25, 2000, raised the following Special and Affirmative Defenses: "4.) In an action for refund, the taxpayer has the burden to show that the taxes paid were erroneously or illegally collected and failure to do so is fatal to the action; 5.) Claims for tax refund are strictly construed against the taxpayer. Petitioner has no cause of action." To prove his case, Petitioner presented the following exhibits: The sole issue for our consideration is whether or not Petitioner is entitled to a refund or issuance of a tax credit certificate in the amount of P4,630,506.00 representing unutilized creditable withholding tax for the year 1997. Revenue Regulations No. 12-94 (amending Revenue Regulations No. 6-85) as affirmed by jurisprudence laid down the following three basic requirements for the refund of excess creditable withholding taxes, thus: 1) That the claim for refund was filed within the two-year prescriptive period provided under Section 204 (3) [now Section 204 (C)] in relation to Section 230 [now Section 229] of the Tax Code, as amended; 2) That the fact of withholding is established by a copy of a statement (BIR Form 1743.1) duly issued by the payor (withholding agent) to the payee showing the amount paid and the amount of tax withheld therefrom. 3) That the income upon which the taxes were withheld were included in the return of the recipient; 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; Citibank, N.A. vs. Court of Appeals and Commissioner of Internal Revenue, 280 SCRA 459; ACCRA Investments Corporation vs. Court of Appeals, 204 SCRA 957 ] Records reveal that Petitioner satisfactorily complied with the aforementioned requirements. The administrative claim for refund was filed on June 2, 1999 and the judicial claim was filed on April 4, 2000. Both dates are well-within the two-year prescriptive period referred to in requirement No. 1. Reckoned from the date when Petitioner filed its original 1997 Annual Income Tax Return on April 15, 1998, both the administrative and judicial claims filed by Petitioner fall within the two-year prescriptive period provided under Section 204(3) [now 204(C)] in relation to Section 230 [now 229] of the Tax Code, as amended. Petitioner presented Certificates of Creditable Tax Withheld at Source issued by various withholding agents in order to comply with the second requirement and to establish the fact of withholding of the reported creditable taxes withheld for the years 1996 and 1997, in the amounts of P8,530,550.00 and P11,996,100.00 (Section E of both Exhibits C and E), respectively. However, only the amounts of P8,444,319.77 and P11,996,100.83 for the years 1996 and 1997, respectively, were substantiated by Certificates of Creditable Tax Withheld, to wit: Upon further verification, it was noted that the creditable taxes withheld for the year 1995 in the amounts of P1,216,456.19 and P316,591.75 were included in the creditable taxes withheld for the years 1996 and 1997, respectively, detailed as follows: Pursuant to Section 69 of the Tax Code, as amended, the excess tax credits of a given taxable year may only be credited or applied to the succeeding year ( Paseo Realty and Development Corporation vs. Commissioner of Internal Revenue and the Court of Tax Appeals, CA-G.R. SP No. 33589 promulgated on October 14, 1994 and reiterated in the case of Belle Corporation vs. Commissioner of Internal Revenue, CTA Case No. 6070, dated April 10, 2001 ). It follows then that the excess creditable withholding taxes for the year 1995 can only be applied against Petitioner's 1996 income tax liability. Considering that Petitioner incurred a net loss and had no income tax liability for the year 1996, it should have filed a claim for refund of the 1995 excess creditable withholding taxes within the two year prescriptive period provided under Section 230 (now 229) of the Tax Code, as amended. The creditable value added tax (VAT) of P6,745.14 which was withheld in 1996 by the Cavite College of Arts and Trade (Exhibit K-73) was likewise, disallowed and reduced from Petitioner's claim. The said creditable VAT must be credited against its output VAT liability as provided under Section 110 (C) [now 114(C)] of the Tax Code, as amended, and not against its income tax liability. Thus, only the amounts of P7,221,118.44 and P11,679,509.08 corresponding to the taxable years 1996 and 1997, respectively, were properly supported by Certificates of Withholding Taxes, to wit: For taxable year 1996 Income Payment Tax Withheld Creditable taxes withheld w/ certificates P837,639,636.01 P8,444,319.77 Less: Creditable taxes withheld in 1995 (122,053,270.88) (1,216,456.19) Creditable VAT withheld (224,838.00) (6,745.14) Creditable taxes withheld w/ proper certificates P715,361,527.13 P7,221,118.44 ============ ============ For taxable year 1997 Creditable taxes withheld w/ certificates P1,201,654,149.27 P11,996,100.83 Less: creditable taxes withheld in 1995 -31,659,176.33 (316,591.75) Creditable taxes withheld w/ proper certificates P1,169,994,972.94 P11,679,509.08 ============ ============ Anent the third requirement, Petitioner has sufficiently complied with the same. The income corresponding to the substantiated amounts of creditable withholding taxes of P7,221,118.44 and P11,679,509.08, for the years 1996 and 1997, respectively, were proven to be included as part of the gross sales of P2,830,126,895.00 for 1996 and P2,772,729,521.00 for 1997. Moreover, the income tax payments of P1,643,178.00 and P347,201.00 for the years 1996 and 1997, respectively, were actually paid as evidenced by the 1996 original income tax return (Exhibit A), BPI Certification (Exhibit M) and the machine validated 3rd quarterly income tax return for the year 1997 (Exhibit H). In sum, Petitioner has sufficiently substantiated its claim for refund of unutilized creditable withholding taxes for the taxable year 1997 but only to the extent of P3,004,483.52, computed as follows: Taxable year 1997 Gross Income P231,004,443.00 Less: Deductions 179,900,092.00 Taxable Income P51,104,351.00 =========== Income Tax Due P17,886,523.00 Less: Tax Credits/Payments 1) Prior year's (1996) excess credits a) Income tax paid per original 1996 ITR P1,643,178.00 b) Creditable taxes withheld in 1996 7,221,118.44 2) 1997 3rd qtr income tax payment 347,201.00 3) Creditable taxes withheld in 1997 11,679,509.08 20,891,006.52 Income Tax Refundable P3,004,483.52 =========== WHEREFORE, in the light of all the foregoing, the instant Petition for Review is PARTIALLY GRANTED. Respondent is hereby ORDERED to REFUND in favor of Petitioner the amount of P3,004,483.52 representing unutilized creditable withholding taxes for the taxable year 1997. SO ORDERED. (SGD.) ERNESTO D. ACOSTA Presiding Judge WE CONCUR: (SGD.) AMANCIO Q. SAGA Associate Judge (SGD.) JUANITO C. CASTAEDA, JR. Associate Judge