Philippine National Bank v. Commissioner of Internal Revenue

[C.T.A. CASE NO. 6061. February 8, 2002.] PHILIPPINE NATIONAL BANK , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N At bar is a Petition for Review filed by the Petitioner on April 12, 2000, seeking for a refund of alleged excess creditable withholding taxes for taxable years 1997 and 1998 in the aggregate amount of P12,796,904.47. The antecedent facts giving rise to the controversy at bar are as follows: Petitioner is a corporation organized and existing under and by virtue of the laws of the Philippines. On April 15, 1998, Petitioner filed its annual income tax return for the year 1997. It was amended on January 5, 2000 where Petitioner reflected a net loss of P3,271,957.49 and excess creditable taxes withheld of P12,796,904.47 which it opted to be refunded (pre-marked as Exhibit B-1.1). Allegedly unable to utilize the aforesaid excess creditable withholding taxes, Petitioner filed an administrative claim for refund or issuance of a tax credit certificate corresponding to its alleged excess creditable withholding taxes on April 12, 2000 (page 6, CTA records). To comply with the two-year period of prescription, Petitioner on even date, filed its Petition for Review with this Court. On May 15, 2000, Respondent filed his Answer to the Petition for Review and advanced the following Special and Affirmative Defenses: "3. Petitioner's alleged claim for refund is subject to administrative routinary investigation/examination by Respondent's Bureau; 4. The amount of P12,796,904.47 being claimed by petitioner representing the alleged creditable taxes withheld from PNB's income from sale of real property, rental income and professional fees for taxable year 1997 was not properly documented; 5. In an action for refund/credit, the burden of proof is on the taxpayer to establish its right to refund and failure to adduce sufficient proof is fatal to the claim for tax refund/credit; 6. Petitioner must show that it has complied with the provisions of Sections 204(c) and 229 of the Tax Code, as amended; 7. Petitioner miserably failed to demonstrate that the tax subject of the case at bar was erroneously or illegally collected; 8. Claims for refund are construed strictly against the claimant for the same partake the nature of exemption from taxation (Commissioner of Internal Revenue vs. Ledesma, 31 SCRA 95) and as such, they are looked upon with disfavor (Western Minolco Corp. vs. Commissioner of Internal Revenue, 124 SCRA 121). On October 5, 2001, after the parties have submitted their respective memorandum, this case was considered submitted for decision. Central to the dispute is whether or not Petitioner was able to substantiate its claim for refund of its alleged excess unpaid creditable withholding taxes in the amount of P12,796,904.47. After thoroughly evaluating the evidence forwarded to this Court by the Petitioner coupled with Respondent's failure to present any rebuttal evidence, We find merit in the petition. In numerous cases decided by this Court, entitlement to a refund of excess creditable withholding taxes is dependent upon the taxpayer's compliance with the following requirements: 1) That the claim for refund was filed within two years as prescribed under Section 230 of the Tax Code; 2) That the income upon which the taxes were withheld were included in the return of the recipient; 3) 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. [Section 10, Rev. Regs. No. 6-85; see 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 ]. This Court now discusses Petitioner's compliance with the aforesaid requirements ad seriatim . First, records of this case disclose that Petitioner filed its administrative and judicial claims for refund on April 12, 2000, well within the two-year prescriptive period provided under Section 204(3) in relation to Section 230 of the Tax Code, counted from April 15, 1998, the date when Petitioner filed its tentative 1997 annual income tax return. Second, Petitioner was able to sufficiently prove the fact of withholding by presenting in evidence various Certificates of Creditable Tax Withheld at Source issued to it by various withholding agents for the year 1997 (Exhibits G to I, inclusive) which were summarized in Appendix A of Exhibit A (CTA records, pages 290-295). The said certificates showed a total amount of P12,796,904.47 creditable income taxes withheld from Petitioner's sale of real properties, rental income and underwriting/management fees. In several cases, We have ruled that Certificates of Creditable Tax Withheld at Source serve as the best evidence to prove the fact of withholding. Proceeding now to the third requirement, this Court gives weight to the report of the commissioned independent auditing firm SGV & Co. that the income related to the creditable withholding taxes of P12,641,203.30 was declared as part of Petitioner's gross income subjected to income tax in 1996 and 1997 or prior years. With respect to the remaining creditable withholding taxes of P155,701.17, the auditing firm of SGV reported that it was not able to verify the reported income corresponding to the creditable withholding taxes, hence, disallowed. However, after a scrutiny of the documents supporting the SGV report, We find that the creditable withholding taxes in the amount of P573,125.00 included in the SGV recommended amount of P12,641,203.30 should also be disallowed. This is because We cannot trace with certainty the related prior year's recorded income against the subsidiary ledgers of the branches which sold/disposed the real properties. Hence, the disallowance of the following creditable withholding taxes: Pre-marked Withholding Agent Income Tax Exhibit Withheld H-1.1 Sps. Eugenio & Jocelyn Dychioco P140,000.00 H-2.4 Marcelino Doret D. Tombo 38,250.00 H-3.11 Augusto F. Del Rosario 48,000.00 H-4.17 Edna Tomias 4,455.00 H-5.18 Amado T. Dizon 342,420.00 Total: P573,125.00 ========== Petitioner was able to prove that the income corresponding to the creditable withholding taxes of P11,864,325.38 was the only amount included as part of Petitioner's 1997 declared income from service charges, fees and commissions of P1,201,346,356.00 and miscellaneous income of P1,311,360,789.00. Having complied with the aforesaid requisites and after considering the above disallowances, the claim for refund is hereby GRANTED but in a reduced amount of P12,068,078.30, computed as follows: Gross Income P14,460,935,685.00 Less: Deductions P17,732,893,164.00 Net Loss P3,271,957,479.00 Income Tax Due P Less: Creditable Taxes Withheld per 1997 ITR P12,796,904.47 Less: Disallowances 1.) Per SGV & Co. Report (155,701.17) 2.) Per this Court's Further Verification (573,125.00) 12,068,078.30 Income Tax Refundable P12,068,078.30 =========== WHEREFORE, in view of all the foregoing, the Respondent is hereby ORDERED to REFUND or in the alternative to ISSUE A TAX CREDIT CERTIFICATE in the amount of P12,068,078.30, in favor of the Petitioner representing overpaid creditable withholding taxes for the taxable years 1997 and 1998. SO ORDERED. (SGD.) JUANITO C. CASTAEDA, JR. Associate Judge WE CONCUR: (SGD.) ERNESTO D. ACOSTA Presiding Judge (SGD.) AMANCIO Q. SAGA Associate Judge