JS Steel Corp. v. Commissioner of Internal Revenue

[C.T.A. CASE NO. 6071. February 19, 2002.] JS STEEL CORPORATION , 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 P3,633,447.00 allegedly representing excess or overpaid income tax for taxable year 1997. Petitioner is a domestic corporation engaged in the manufacture of steel blanks for use by various manufacturers of automotive, electrical, electronics, industrial and household appliances with address at Km. 21, Quirino Highway, Novaliches, Quezon City. On April 15, 1998, Petitioner filed its 1997 annual income tax return (Exhibit A) reflecting a net loss of P68,380,390.00 and a refundable amount of P10,250,857.00 which consisted of the prior year's excess credits of P6,617,410.00 and creditable taxes withheld in 1997 of P3,633,447.00 (Exhibit A-3-a), shown as follows: Gross Income P44,049,491.00 Less: Deductions 112,429,881.00 Net Loss P68,380,390.00 =========== Income Tax Due Less: Tax Credits/Payments 1.) Prior year's excess credits P6,617,410.00 2.) Creditable taxes withheld during the year 3,633,447.00 10,250,857.00 Income Tax Refundable P10,250,857.00 =========== Petitioner carried-over the above excess tax credits of P10,250,857.00 in its 1998 income tax return filed on April 15, 1999 (Exhibit C). Also, Petitioner reported the amounts of P2,927,842.00 and P563,173.00 as creditable taxes withheld for the first three quarters and last quarter of 1998, respectively. Thus, as of December 31, 1998, Petitioner had accumulated tax credits of P13,741,872.00. Although Petitioner reflected again a net loss of P110,514,763.00 and had no income tax due at the normal tax rate, however, it was liable to pay a minimum corporate income tax (MCIT) due of P710,523.00 (Exhibit C-2). Shown below is Petitioner's 1998 income tax overpayment of P13,031,349.00 as computed in its 1998 ITR: Gross Income P35,526,132.00 Less: Deductions 146,040,895.00 Net Loss P110,514,763.00 =========== Minimum Corporate Income Tax Due P710,523.00 Less: Tax Credits/Payments 1.) Prior year's excess credits P10,250,857.00 2.) Creditable taxes withheld for the first three quarters of 1998 2,927,842.00 3.) Creditable taxes withheld for the fourth quarter of 1998 563,173.00 13,741,872.00 Income Tax Refundable P13,031,349.00 =========== According to Petitioner, the 1998 MCIT of P710,523.00 was paid using its 1998 creditable withholding taxes so that the entire prior year's excess credits of P10,250,857.00 which included the 1997 excess creditable withholding taxes of P3,633,447.00 remained unutilized as of December 31, 1998. On April 11, 2000, Petitioner filed an administrative claim for refund corresponding to the alleged unutilized 1997 creditable withholding taxes of P3,633,447.00 (Exhibit NNN) As the two-year prescriptive period for the filing of a judicial claim was about to lapse, Petitioner elevated its case before this Court on April 14, 2000. Petitioner cited as legal bases of its claim the following provisions of Section 69 in relation to Sections 204(3) and 230 of the Tax Code, as amended: "Sec. 69. Final Adjustment Return . Every corporation liable to tax under Section 24 shall file a final adjustment return covering the total income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable income of that year the corporation shall either: a.) Pay the excess tax still due; or b.) Be refunded the excess amount paid, as the case may be. In case the corporation is entitled to a refund of the excess estimated quarterly income taxes paid, the refundable amount shown on its final adjustment return may be credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable year." "SEC. 204. Authority of the Commissioner to compromise, abate and refund/credit taxes The Commissioner may xxx xxx xxx "(3) 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 or 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 the payment of the tax or penalty:. . . " "SEC. 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 excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner;. . . " "In any case, no such suit or proceeding shall be filed 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 therefore, 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." Respondent, in his Answer, raised the following as Special and Affirmative Defenses: "4.) The Petitioner's claim for tax refund/credit is still undergoing administrative routinary investigation/examination by the Respondent's Bureau; 5.) The alleged tax sought to be refunded was collected pursuant to law and pertinent BIR implementing rules and regulations; hence, the same is not refundable; 6.) Petitioner's allegation that it erroneously and excessively paid the tax during the year under review does not ipso facto warrant the refund/credit; 7.) Claims for tax refund or tax credit are construed in strictissimi juris against the taxpayer as they partake the nature of an exemption from tax, and it is incumbent upon the Petitioner to prove that it is entitled thereto under the law. Failure on the part of the Petitioner to prove the same is fatal to its claim for refund/credit; 8.) Petitioner must show that it has complied with the provisions of Sections 204(C) and 229 of the 1997 Tax Code." To support its claim, Petitioner presented testimonial and documentary evidence. Respondent, on the other hand, did not present any controverting evidence. The sole issue submitted for Our determination is whether or not Petitioner is entitled to the refund of P3,633,447.00 representing excess or overpaid income tax for taxable year 1997. We rule against the Petitioner. Petitioner's 1997 income tax return proves that it indeed suffered a net loss in 1997 and the claimed creditable taxes withheld in 1997 of P3,633,447.00 were unutilized as of December 31, 1997. However, Petitioner carried-over the said 1997 excess tax credits of P3,633,447.00 to the succeeding year 1998. It is thus clear that Petitioner intended to apply the amount of P3,633,447.00 against its 1998 minimum corporate income tax due of P710,523.00. While Petitioner also had creditable taxes withheld in 1998 of P3,491,015.00 (the sum of P2,927,842.00 and P563,173.00), nonetheless, the prior year's excess (1997) tax credits of P3,633,447.00 shall be utilized first to pay-off its 1998 MCIT of P710,523.00 under the first-in first-out principle, i.e. the oldest credits are to be applied first [ Prodigy Distributors, Inc. (Currently HAVI Food Services Philippines, Inc.) vs. Commissioner of Internal Revenue, CTA Case No. 5344, Resolution dated August 6, 1998 ]. Contrary to Petitioner's allegations, the 1998 creditable withholding taxes can be applied only when the 1997 excess tax credits are not enough to fully absorb its 1998 income tax liability. In the instant case, the 1997 excess amount of P3,633,447.00 far exceeds the 1998 MCIT of P710,523.00. Hence, Petitioner's 1997 excess tax credits as of December 31, 1998 amounted only to P2,922,924.00 (P3,633,447.00 less P710,523.00) A scrutiny of Petitioner's 1998 ITR (Exhibit C) shows that Petitioner opted once more to carry-over the 1997 excess tax credits of P2,922,924.00 (included in the P13,031,349.00 income tax overpayment) to the succeeding year 1999 as evidenced by the "x" mark in the box corresponding to the option "To be carried as tax credit next year". Since Petitioner failed to submit its 1999 annual income tax return, this Court cannot verify with certainty whether or not the 1997 excess tax credits of P2,922,924.00 were applied/credited against Petitioner's 1999 income tax liability. Petitioner cannot at the same time claim for refund and apply the 1997 excess tax credits of P2,922,924.00 to its succeeding year's income tax liability. The two remedies of refund and tax credit as provided for in Section 69 [now 76] of the Tax Code, as amended, are alternative and the choice of one precludes the other ( Philippine Bank of Communications vs. CIR, G.R. No. 112024, dated January 28, 1999). Therefore, Petitioner's non-presentation of its 1999 income tax return is fatal to its claim (Filinvest Development Corp. vs. Commissioner of Internal Revenue and Court of Tax Appeals, CA-G.R. SP No. 56800, August 18, 2000 ). WHEREFORE, in the light of the foregoing, the instant Petition for Review is hereby DENIED for insufficiency of evidence. SO ORDERED. (SGD.) JUANITO C. CASTAEDA, JR. Associate Judge WE CONCUR: (SGD.) ERNESTO D. ACOSTA Presiding Judge (SGD.) AMANCIO Q. SAGA Associate Judge