Commissioner of Internal Revenue v. Philippine Bank of Communications

EN BANC [C.T.A. EB CASE NO. 1085. March 23, 2015.] (C.T.A. Case No. 8084) COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . PHILIPPINE BANK OF COMMUNICATIONS , respondent . DECISION FABON-VICTORINO , J p : With the theory that respondent Philippine Bank of Communications is not entitled to refund/tax credit even in the reduced amount of P903,106.89, petitioner Commissioner of Internal Revenue is now before the Court En Banc praying to reverse and set aside the Decision 1 dated August 12, 2013 and the Resolution 2 dated November 7, 2013, rendered by the Special Third Division (Court in Division) of this Court in CTA Case No. 8084, entitled Philippine Bank of Communications vs. Commissioner of Internal Revenue. The dispositive portions of the impugned Decision and Resolution read as follows: cSTHaE Assailed Decision : WHEREFORE , premises considered, the instant Petition for Review is hereby PARTIALLY GRANTED . Accordingly, respondent is hereby ORDERED TO ISSUE A TAX CREDIT CERTIFICATE in the reduced amount of NINE HUNDRED THREE THOUSAND ONE HUNDRED SIX PESOS AND 89/100 (P903,106.89) in favor of petitioner, representing its unutilized creditable withholding taxes for calendar year 2007. SO ORDERED. Assailed Resolution: WHEREFORE , there is no cogent reason or overwhelming justification to disturb the assailed Decision. Accordingly, respondent's "Motion for Reconsideration" and petitioner's "Motion for Partial Reconsideration (Re: Decision dated 12 August 2013)" are DENIED for lack of merit. SO ORDERED. THE PARTIES Petitioner Commissioner of the Bureau of Internal Revenue (BIR) is authorized to refund overpaid and erroneously or illegally collected internal revenue taxes. She holds office at the BIR National Office Building, Diliman, Quezon City. Respondent Philippine Bank of Communications, on the other hand, is a duly organized and existing domestic corporation, with principal office address at PBCOM Tower, 6795 Ayala Avenue, corner V.A. Rufino Street, Makati City. It is engaged in commercial banking business with BIR Tax Identification Number (TIN) 000-263-340-000. THE FACTS The undisputed facts are as follows: On April 15, 2008, respondent filed its Tentative Annual Income Tax Return (BIR Form No. 1702) for calendar year 2007, through the Electronic Filing and Payment System (EFPS), reporting a net loss of P822,409,440.00 and creditable taxes withheld at source in the amount of P29,007,058.38 for calendar year 2007. 3 cITCAa On May 2, 2008, respondent filed its Final Annual Income Tax Return (ITR) for calendar year 2007, through the EFPS, reporting a net loss of P772,866,753.00 and unutilized creditable taxes withheld at source in the amount of P29,076,156.00. 4 On April 5, 2010, respondent filed with the BIR an administrative claim for issuance of a tax credit certificate. 5 Alleging inaction on the part of petitioner, respondent elevated its claim for refund before the Court in Division via a Petition for Review 6 on April 15, 2010, praying that judgment be rendered granting its claim for the issuance of tax credit certificate in the amount of P29,076,156.00, representing its unutilized creditable withholding taxes for the calendar year 2007. In her Answer 7 filed on June 4, 2010, petitioner in the main invoked that claims for refund are strictly construed against the claimant, and that respondent must first prove by clear and convincing evidence its entitlement to the refund sought. During trial, only respondent presented evidence in support of its case. Petitioner did not. On August 12, 2013, the Court in Division rendered the assailed Decision partially granting respondent's Petition for Review in the reduced amount of P903,106.89. The Court in Division ratiocinated that respondent has sufficiently complied with the requisites for the refund of unutilized creditable withholding taxes, but only to the extent of P903,106.89 out of the total claimed Creditable Withholding Tax of P29,076,156.00. Petitioner moved for reconsideration but it was denied in the similarly assailed Resolution of November 7, 2013. Hence, this Petition for Review filed on December 5, 2013, with the following lone issue: "WHETHER OR NOT THE SPECIAL THIRD DIVISION OF THIS HONORABLE COURT ERRED IN HOLDING THAT RESPONDENT IS ENTITLED TO ITS CLAIM FOR REFUND/TAX CREDIT IN THE REDUCED AMOUNT OF P903,106.89, REPRESENTING ITS UNUTILIZED CREDITABLE WITHHOLDING TAXES FOR CALENDAR YEAR 2007." cCSHET Petitioner contends that contrary to the finding of the Court in Division, the absence of any entry in the "Creditable Tax Withheld" column in respondent's 2007 Annual ITR means that no part of the gross income indicated therein were ever subjected by respondent to creditable withholding tax. Thus, the income payments subject of the present claim to which taxes were withheld cannot be deemed declared as part of respondent's gross income in its 2007 Annual ITR. Further, respondent failed to present the source documents, such as official receipts, sale/rental/loan and service agreements/contracts, and sales register to prove that the income payments related to the claimed creditable taxes withheld formed part of its taxable gross income in its 2007 Annual ITR. This lapse is fatal to respondent's claim. Respondent failed as well to prove through the testimonies of the payors and withholding agents the actual remittance to the BIR of the income taxes withheld. LLphil Finally, petitioner invokes the principle that tax refunds being in the nature of tax exemption is construed strictissimi juris against the respondent. In its Comment , 8 respondent contends that petitioner merely rehashed her arguments all of which were thoroughly considered, and found wanting by the Court in Division. In any event, respondent argues that: 1) the income tax payments were declared as part of respondent's gross income; 2) respondent properly presented before the Court the documents to substantiate its claims; 3) there is no requirement to present the proof of remittance in order to be entitled to a refund; and 4) the Court correctly found that respondent strictly complied with all requirements insofar as the grant of tax refund to the respondent in the amount of P903,106.89 is concerned. On March 31, 2014, after respondent filed its Comment , the Court En Banc gave due course to the instant Petition for Review and directed the parties to submit their respective Memorandum , within thirty (30) days from notice. 9 In compliance with the Court's directive, respondent filed its Memorandum 10 on May 22, 2014 while petitioner filed her Manifestation & Motion 11 on April 29, 2014, stating that she is adopting all her factual and legal arguments found in her Petition for Review dated December 2, 2013. RULING OF THE COURT EN BANC The Petition is denied. Indeed, respondent's petition is a mere rehash of her arguments in her Motion for Reconsideration filed in C.T.A. Case No. 8084. It does not present new matter or argument which merits a fresh discussion or determination by the Court. In other words, the matters raised by petitioner before the Court En Banc have all been duly considered and passed in the assailed Decision and Resolution of August 12, 2013 and November 7, 2013, respectively. Be that as it may, and if only to put petitioner's mind to rest and to emphasize lack of merit of her appeal, the Court En Banc will discuss them anew in seriatim . The failure to fill up the entry in the "Creditable Tax Withheld" column in page 2 of the Annual ITR is not fatal to a claim for refund of unutilized creditable withholding tax. To be entitled to the issuance of tax credit certificate for excess/unutilized creditable withholding tax, a taxpayer-claimant must satisfy the following requisites: DTIaHE 1. The claim for refund was filed within the two-year prescriptive period as provided under Section 204(C) in relation to Section 229 of the 1997 NIRC; 2. 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. The income upon which the taxes were withheld were included in the return of the recipient. 12 In addition to the foregoing, it is also required of the taxpayer-claimant to prove that it did not carry-over its claimed excess CWT to the succeeding taxable year. This additional requirement is an offshoot of the "irrevocability rule" introduced in Section 76 of the NIRC of 1997, which states: SEC. 76. Final Adjustment Return. Every corporation liable to tax under Section 27 shall file a final adjustment return covering the total taxable 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 balance of tax still due; or (B) Carry-over the excess credit; or (C) Be credited or refunded with the excess amount paid, as the case may be. In case the corporation is entitled to a tax credit or refund of the excess estimated quarterly income taxes paid, the excess amount shown on its final adjustment return may be carried over and credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years. Once the option to carry-over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for cash refund or issuance of a tax credit certificate shall be allowed therefor . (Emphases supplied) Thus, failure to fill up the entry in the "Creditable Tax Withheld" column in Schedule 1 of the Annual ITR is not fatal to a claim for refund as neither law nor jurisprudence requires it. Section 2.58.3 of Revenue Regulations No. 2-98 and the applicable jurisprudence merely require that the taxpayer declares as part of its gross income in the Annual ITR the income payment from which the withholding was made. IDTSEH An entry into the "Creditable Tax Withheld" column found in page 2 of the Annual ITR, specifically Schedule 1 or the "Schedule of Sales/Revenues/Receipts/Fees" may expedite the determination of respondent's compliance with the requirement that the income payments from which the withholding of taxes were made formed part of its gross income declared in its Annual ITR. However, it does not follow that the Court should readily jump into conclusion that respondent failed to satisfy the legal requirements for refund/tax credit for the record is pregnant with other evidence showing respondent's compliance with the requirements for the grant of the relief sought. Besides, the Court En Banc cannot ignore the fact that respondent made entries on the space for "Creditable Tax Withheld for the First Three Quarters" (Line 30C) and "Creditable Tax Withheld Per BIR Form No. 2307 for the Fourth Quarter" (Line 30D) on page 1 of the same Annual ITR, 13 which basically elicit the same information as that found in the "Creditable Tax Withheld" column on page 2 of the Annual ITR. Respondent submitted in evidence source documents to prove that the income payments related to the claimed creditable taxes withheld formed part of its taxable gross income in its 2007 Annual ITR. A revisit of respondent's Formal Offer of Documentary Exhibits with Motion to Admit Secondary Evidence 14 dated February 29, 2012, the Supplemental Formal Offer of Documentary Exhibits 15 dated June 22, 2012, and the Court in Division's Resolutions dated April 10, 2012, 16 June 21, 2012 17 and July 17, 2012, 18 admitting the evidence show that respondent submitted, among others, the ICPA's Final and Consolidated Report 19 and the ICPA's Supplemental Reports, 20 with attached supporting documents. IcDESA As correctly pointed out by respondent, the record will show that the supporting source documents admitted by the Court in Division include, among others, the Photocopies of Bank Validated Deposit Slips, Photocopies of Sales Offering Tickets, Photocopies of Deeds of Absolute Sale, Contracts to Sell and Deeds of Conditional Sale, Photocopies of Official Receipts duly issued by PBCom, Photocopies of General Debit/Credit Tickets, Photocopies of Instruction Sheets for Domestic Operations Interest Income on Commercial Loans, Photocopies of Promissory Notes, Photocopies of Memoranda to Book/Instruction Sheets for Domestic Operations/Outgoing Inter-Branch Transactions, Photocopies of Accounting Tickets, Photocopy of Schedule of Prepaid Expenses, Photocopy of Schedule of Summary of Lease Rental, Photocopy of Schedule of Composition of Relevant Account Balances, Photocopy of Profit/Loss from Assets Sold/Exchanged Account General Ledger (2004), Photocopy of Profit/Loss from Assets Sold/Exchanged Account General Ledger (2005), Photocopy of Profit/Loss from Assets Sold/Exchanged Account General Ledger (2006), Photocopy of Profit/Loss from Assets Sold/Exchanged Account General Ledger (2007), Photocopy of Rental Income ROPA General Ledger, Photocopy of Income from Assets Acquired Account General Ledger, Photocopy of Miscellaneous Income/Loss Regular Account General Ledger, Photocopy of Interest Income L&D Time Loans Regular Account General Ledger, Photocopy of Interest Income AGRA/AGRI Account General Ledger, Photocopy of Interest Income L&D Disc. Earned Regular Account General Ledger, Certifications from the BIR, Sales Offering Ticket, Deed of Absolute Sale, Instruction Sheets/Transaction Tickets/Accounting Ticket, Schedule of Composition of Relevant Account Balances, Official Receipts, Schedule of Unrealized Profit on Asset Sold, System Generated Accounting Tickets Rental Income Account, 2007 Rental Income PBCom Tower Building Account General Ledger, 2007 Rental Income PBCom Tower Parking Account General Ledger, and respondent's 2007 advanced rental account General Ledger. Significantly, Section 8 of Republic Act No. 1125 21 categorically provides that the Court of Tax Appeals is a court of record and as such shall conduct a formal trial where the parties must present their evidence accordingly if they desire the Court to take such evidence into consideration. 22 As cases filed before this Court are litigated de novo, party-litigants are mandated to prove every minute aspect of their cases. 23 Without any doubt, respondent had sufficiently substantiated its claim justifying the grant of refund, albeit partially. Proof of actual remittance to the BIR of the income taxes withheld and testimonial evidence of the payors are not required. In the case of Commissioner of Internal Revenue vs. Philippine National Bank , 24 the Supreme Court in no uncertain terms declared that the certificate of creditable tax withheld at source is the competent proof to establish the fact that taxes are withheld. It is not necessary for the person who executed and prepared the certificate of creditable tax withheld at source to be presented and to testify personally in court to prove the authenticity of the certificates. 25 In an earlier case of Commissioner of Internal Revenue vs. Asian Transmission Corporation, 26 the Supreme Court quoted with approval the ruling of this Court's En Banc , in this wise: cIECTH ". . . proof of actual remittance by the respondent is not needed in order to prove withholding and remittance of taxes to petitioner. Section 2.58.3 (B) of Revenue Regulations No. 2-98 clearly provides that proof of remittance is the responsibility of the withholding agent and not of the taxpayer-refund claimant. It should be borne in mind by the petitioner that payors of withholding taxes are by themselves constituted as withholding agents of the BIR. The taxes they withhold are held in trust for the government. In the event that the withholding agents commit fraud against the government by not remitting the taxes so withheld, such act should not prejudice herein respondent who has been duly withheld taxes by the withholding agents acting under government authority. Moreover, pursuant to Sections 57 and 58 of the NIRC of 1997, as amended, the withholding of income tax and the remittance thereof to the BIR is the responsibility of the payor and not the payee. Therefore, respondent, . . . has no control over the remittance of the taxes withheld from its income by the withholding agent or payor who is the agent of the petitioner. The Certificates of Creditable Tax Withheld at Source issued by the withholding agents of the government are prima facie proof of actual payment by herein respondent-payee to the government itself through said agents. We stress that the pertinent provisions of law and the established jurisprudence evidently demonstrate that there is no need for the claimant, respondent in this case, to prove actual remittance by the withholding agent (payor) to the BIR. (Boldfacing Supplied) WHEREFORE , the Petition for Review filed by petitioner Commissioner of Internal Revenue on December 5, 2013 is hereby DENIED , for lack of merit. Accordingly, the assailed Decision and Resolution dated August 12, 2013 and November 7, 2013, respectively, are AFFIRMED in toto . SO ORDERED. (SGD.) ESPERANZA R. FABON-VICTORINO Associate Justice Roman G. del Rosario, P.J., Juanito C. Castaeda, Jr., Lovell R. Bautista, Erlinda P. Uy, Caesar A. Casanova, Cielito N. Mindaro-Grulla, Amelia R. Cotangco-Manalastas and Ma. Belen M. Ringpis-Liban, JJ., concur. Footnotes 1. En Banc docket, pp. 26-44. 2. En Banc docket, pp. 46-51. 3. Exhibit "A". 4. Exhibit "B". 5. Exhibit "E". 6. Rollo, pp. 1-5. 7. Rollo, pp. 43-45. 8. En Banc docket, pp. 55-69. 9 Resolution dated March 31, 2014, En Banc docket, pp. 72-73. 10. En Banc docket, pp. 77-99. 11. En Banc docket, pp. 74-75. 12. Section 2.58, Revenue Regulations No. 2-98, as amended; Citibank N.A. vs. Court of Appeals, et al. , G.R. No. 107434, October 10, 1997; ACCRA Investments Corporation vs. The Honorable Court of Appeals, et al. , G.R. No. 96322, December 20, 1991. 13. Exhibit "B", Rollo, pp. 293-298. 14. Rollo, pp. 273-289. 15. Rollo, pp. 504-507. 16. Rollo, pp. 465-466. 17. Rollo, pp. 501-503. 18. Rollo, p. 521. 19. Exhibit "G-36". 20. Exhibits "P" and "R". 21. An Act Creating the Court of Tax Appeals. 22. Commissioner of Internal Revenue vs. Manila Mining Corporation , G.R. No. 153204, August 31, 2005. 23. Dizon vs. Court of Tax Appeals, et al. , G.R. No. 140944, April 30, 2008. 24. G.R. No. 180290, September 29, 2014. 25. Commissioner of Internal Revenue vs. Team (Philippines) Operations Corporation, G.R. No. 179260, April 2, 2014. 26. G.R. No. 179617, January 19, 2011.