Philippine Realty & Holdings Corp. v. Commissioner of Internal Revenue

[C.T.A. CASE NO. 6066. January 27, 2003.] PHILIPPINE REALTY & HOLDINGS CORPORATION , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N This case involves a claim for refund of overpaid creditable withholding taxes in the amounts of P5,913,663.00 and P28,874,007.00 for the taxable years 1996 and 1997, respectively. Petitioner is a domestic corporation duly organized and existing under and by virtue of the laws of the Philippines, with principal office and business address at 5/F Philippine Stock Exchange Centre, Exchange Road, Ortigas Center, Pasig City. On April 15, 1997, petitioner filed its Annual Income Tax Return for the taxable year 1996, declaring an income tax due of P115,152,618.00 and creditable withholding tax of P121,066,281.00, resulting to an excess creditable withholding tax in the amount of P5,913,663.00. In said return, petitioner indicated its option to apply this excess creditable withholding tax as tax credit to the succeeding taxable year 1997. (Exhibits "J 8 ", "J 8 -1" to "J 8 -3") For the taxable year 1997, petitioner filed its Annual Income Tax Return on April 15, 1998, declaring a net loss of P265,731,215.00 and creditable withholding tax of P28,874,007.00. Due to the net loss incurred during the taxable year 1997, petitioner was not able to apply its 1996 excess creditable withholding tax. Thus, in 1997, petitioner had an accumulated excess creditable withholding tax amounting to P34,787,670.00 consisting of its prior year's excess credit in the amount of P5,913,663.00 and its current creditable withholding tax of P28,874,007.00. The return showed that petitioner opted to claim for the refund of its accumulated creditable withholding tax. (Exhibits "K 8 ", "K 8 -1" to "K 8 -3") On November 23, 1998, petitioner filed with the respondent's Bureau a letter-claim for the refund of its overpaid creditable withholding tax for the taxable years 1996 and 1997 in the aggregate amount of P34,787,670.00 ( Paragraph 3, Unconditionally Admitted Facts ). On November 26, 1998, the Chief of the Appellate Division of the Bureau of Internal Revenue (BIR) informed petitioner that its claim for refund was referred to the Revenue District Officer of Revenue District Office No. 43, Pasig City, "for factual investigation, report and recommendation" ( Paragraph 4, Unconditionally Admitted Facts ). In a Memorandum dated February 15, 1999, the BIR Revenue District Officer of Revenue District Office No. 43, Pasig City, assigned petitioner's claim for refund to Revenue Officer R. Porlas and Group Supervisor G. Prado for "comment and/or observation" ( Paragraph 5, Unconditionally Admitted Facts ). Upon termination of the examination and investigation of petitioner's corporate income tax return for the taxable year 1996, petitioner was assessed for deficiency tax in the amount of P59,394.57. ( paragraph 7, Unconditionally Admitted Facts; TSN, December 6, 2000, pp. 24-25 ) On July 6, 1999, petitioner paid said deficiency assessment. (Exhibit "L- 8 ") aHCSTD For the year 1997, petitioner was assessed the amount of P20,008.07 representing deficiency expanded withholding tax. Payment for the said assessment was made on February 23, 2001. ( pp. 6-8, 8-14, TSN, May 29, 2001 ; Exhibits I- 23 and J- 23 ) Due to respondent's inaction over petitioner's claim for refund, the latter filed its judicial claim with this court on April 13, 2000. In his Answer filed on May 15, 2000, respondent raised the following Special and Affirmative Defenses, to wit: "3. The claim for refund is subject to investigation by the Bureau of Internal Revenue; 4. Taxes paid and collected are presumed to have been made in accordance with laws and regulations, hence, not refundable. Claims for tax refund are construed strictly against the claimant as they partake of the nature of an exemption from tax ( Commissioner Internal Revenue vs. Ledesma, G.R. No. L-13509, January 30, 1979, 31 SCRA 95 ) and it is incumbent upon the petitioner to prove that it is entitled thereto under the law ( Western Minolco Corp. vs. Commissioner of Internal Revenue, 124 SCRA 121 ) and he who claims exemption must be able to justify his claim by the clearest grant of organic or statutory law. 5. Moreover, petitioner must prove that it has complied with the governing rules with reference to tax recovery or refund, which are found in Sections 204 (C) and 229 of the Tax Code, as amended, which are quoted as follows: "Section 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes . The Commissioner may . . . (C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction. No credit of refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after payment of the tax penalty: Provided, however, That a return filed showing an overpayment shall be considered a written claim for credit or refund." "Section 230. Recovery of tax erroneously or illegally collected. No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress. In any case, no such suit or proceeding shall be begun after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided , however, That the Commissioner may, even without written claim therefor, refund or credit any tax, where on the face of the return upon which payments was made, such payment appears clearly to have been erroneously paid." The sole issue to be resolved is: Whether or not on the basis of the evidence presented, petitioner is entitled to the refund of the amounts of P5,913,663.00 and P28,874,007.00 representing excess creditable withholding taxes for the taxable years 1996 and 1997, respectively. 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 204 (C)] in relation to Section 230 [now 229] of the Tax Code, as amended; 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 Citytrust Finance Corporation vs. The 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; Citytrust Finance Corporation (formerly Investors 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 Investors Finance Corp./FNCB Finance) and the Court of Tax Appeals, CA G.R. SP No. 31104, April 18, 1994; Ayala Life Assurance, Inc. vs. Commissioner of Internal Revenue, CTA Case No. 5631, dated May 11, 2000; Stock Transfer Service Inc. vs. Commissioner of Internal Revenue, CTA Case No. 5796, dated May 3, 2000; Union Bank of the Philippines vs. Commissioner of Internal Revenue, CTA Case No. 5623, dated April 12, 2000; 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] . CaAcSE As to whether or not petitioner's claim for refund of excess creditable withholding tax for the taxable year 1996 was filed within the two-year prescriptive period, the court rules in the negative. Section 230 (now 229) of the NIRC provides, viz : "SEC. 229. Recovery of Tax Erroneously or Illegally Collected . xxx xxx xxx In any case, no such suit or proceeding shall be begun after the expiration of two years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid." Based on the aforequoted provision of law, petitioner had until April 15, 1999 within which to file both its administrative and judicial claims for refund, its 1996 Annual Income Tax Return having been filed on April 15, 1997. While petitioner's letter claim for refund was filed on November 23, 1998, its judicial claim was filed only on April 13, 2000 or after the lapse of the two-year prescriptive period. Since petitioner's claim for refund in the amount of P5,913,663.00, representing its excess creditable withholding tax for the taxable year 1996 has been barred by prescription, we find it no longer necessary to discuss petitioner's compliance with the second and third requirements. We proceed to petitioner's claim for refund of its excess creditable withholding tax for the taxable year 1997. For the said taxable year, petitioner filed its Annual Income Tax Return on April 15, 1998. The administrative and judicial claims for refund were filed on November 23, 1998 and April 13, 2000, respectively. Clearly, petitioner was able to meet the first requirement since both the administrative and judicial claims for refund were filed within the two-year prescriptive period. To prove the fact of withholding, petitioner submitted various certificates of creditable withholding taxes. However, out of the total 1997 creditable withholding taxes of P28,874,007.00, petitioner was only able to substantiate the amount of P28,744,808.15, to wit: Finally, with regard to the third requirement, petitioner was able to establish that the income corresponding to the 1997 creditable withholding taxes was declared as part of its gross income in its 1997 Annual Income Tax Return. It bears stressing that the 1997 Income Tax Return of petitioner was examined by respondent's revenue examiner who found no finding of discrepancy of income except for the amount of P20,008.07, representing deficiency expanded withholding tax and penalties which, as stated earlier, was settled by petitioner ( page 841-C, BIR records ). In sum, petitioner is entitled to the refund of the amount of P28,744,808.15, representing its excess creditable withholding taxes for the year 1997, computed as follows: Total Excess Creditable Withholding Taxes for 1997 & 1998 P34,787,670.00 Less: Exceptions 1. 1996 Excess Creditable Withholding tax P5,913,663.00 2. Not validly supported by certificates of creditable withholding tax 129,198.85 6,042,861.85 Refundable Amount P28,744,808.15 ========== WHEREFORE, in view of all the foregoing, the instant petition is PARTIALLY GRANTED. Accordingly, respondent is hereby ORDERED to REFUND to petitioner the amount of P28,744,808.15 representing its overpaid creditable withholding taxes for the taxable year 1997. SO ORDERED. (SGD.) ERNESTO D. ACOSTA Presiding Judge WE CONCUR: (SGD.) JUANITO C. CASTAEDA, JR. Associate Judge (SGD.) LOVELL R. BAUTISTA Associate Judge