Commissioner of Internal Revenue v. Wels Fargo Philippines Solutions, Inc.

EN BANC [C.T.A. EB CASE NO. 2332. March 8, 2022.] (C.T.A. Case No. 9578) COMMISSIONER OF INTERNAL REVENUE , petitioner , vs. WELLS FARGO PHILIPPINES SOLUTIONS, INC. , respondent . DECISION BACORRO-VILLENA , J p : At bar is a Petition for Review 1 pursuant to Section 2 (a), 2 Rule 4 of the Revised Rules of the Court of Tax Appeals ( RRCTA ) filed by petitioner Commissioner of Internal Revenue ( petitioner/CIR ) against respondent Wells Fargo Philippines Solutions, Inc. ( respondent/WFPSI ). The petition seeks the reversal of the Court's Third Division's Decision dated 12 November 2019 3 ( assailed Decision ) and Resolution dated 23 June 2020 4 ( assailed Resolution ) in CTA Case No. 9578 entitled Wells Fargo Philippines Solutions, Inc. v. Commissioner of Internal Revenue . The antecedent facts follow. Petitioner is the Commissioner of the Bureau of Internal Revenue ( BIR ) and is vested with the authority, among others, to refund any internal revenue tax erroneously and illegally assessed or collected. On the other hand, respondent is a domestic corporation with principal office address at 8 Campus Place, McKinley Hill Cyberpark, Fort Bonifacio, Taguig City, Philippines. It is registered with the BIR Revenue District Office ( RDO ) No. 44-Taguig-Pateros, with Tax Identification Number ( TIN ) 006-804-354-000. 5 Respondent sold its business assets to Wells Fargo Enterprise Global Services, LLC ( Wells Fargo ) for a net book value of P931,323,707.87 through a Deed of Absolute Sale of Assets dated 06 June 2014 6 and Supplemental Deed of Absolute Sale of Assets dated 11 July 2014. 7 Among the assets sold were certain leasehold improvements with a net book value of P527,375,326.86 for which Wells Fargo withheld six percent (6%) of the purchase price in the form of Creditable Withholding Tax ( CWT ) amounting to P31,642,519.61. Through a Withholding Tax Return, this amount was later on remitted to the BIR on 10 July 2014. 8 On 15 April 2015, respondent filed its Annual Income Tax Return 9 ( AITR ) for the taxable year ( TY ) 2014 showing CWT credits for P33,066,535.00, P7,575,620.00 of which was utilized to pay its income tax liability for TY 2014. Thus, leaving an excess of CWT credits for P25,490,915.00. On 03 November 2016, respondent filed with BIR RDO No. 44-Taguig-Pateros an Application for Refund of Excess Creditable Withholding Tax dated 28 October 2016 10 for its alleged CWT credits. In connection with its application, respondent received two (2) letters on 10 January 2017 11 and 27 January 2017, 12 respectively, from Revenue Officer ( RO ) Grace Manuel ( Manuel ), requiring it to submit additional documents. On 17 January 2017 13 and 03 March 2017, 14 respectively, respondent complied with both demands. Later, on 17 April 2017, citing inaction on the part of the BIR, respondent filed a Petition for Review 15 before the Court in Division. Its case was raffled to the Court's First Division. 16 On 22 June 2017, petitioner filed his Answer 17 to the above petition claiming that respondent's application for refund was still under investigation by the BIR. On 13 July 2017, the First Division issued a Notice of Pre-Trial Conference. 18 During the pendency of the proceedings before the First Division, respondent discovered that it overstated the net book value of its business assets that were sold to Wells Fargo. Consequently, on 05 October 2017, respondent filed with the BIR its Amended Audited Financial Statement 19 ( AFS ) for the year ended 31 December 2014 to reflect its assets' actual net book value. Respondent claimed that the net book value of the assets sold and retired at the end of TY 2014 amounted to P917,112,188.00; P909,787,211.00 of which represented the value of assets sold to Wells Fargo while P7,324,977.00 pertained to the retired assets according to its manual book of accounts. 20 Given the discrepancy in the purchase price in the Deeds of Sale in the aggregate amount of P931,323,707.87 and the lower net book value of the assets declared in the amended 2014 AFS, Regional Director Glen A. Geraldino ( RD Geraldino ) of BIR Revenue Region ( RR ) No. 8 issued an undated Preliminary Assessment Notice 21 ( PAN ) requiring respondent to pay a total of P9,745,049.47 in deficiency taxes, inclusive of interest, as a result of the declared change in net book value. On 25 October 2017, respondent received the PAN. On 26 October 2017, respondent immediately settled the alleged tax deficiency, as evidenced by BIR Payment Form 22 (BIR Form No. 0605). Still later, or on 15 February 2018, respondent filed a "Motion for Leave to File and to Admit Attached Supplemental Petition for Review." 23 The First Division granted the same in its Order 24 dated 22 February 2018. On 27 February 2018, petitioner filed a "Supplemental Answer (To Supplemental Petition for Review)." 25 On 13 March 2018, the parties filed their Joint Stipulation of Facts and Issues 26 ( JSFI ) which the First Division approved in a Resolution dated 26 March 2018. 27 Thereafter, a Pre-Trial Order 28 was issued on 23 May 2018. During the trial proper, respondent presented the testimony of its lone witness, Siegfred A. Sorbito ( Sorbito ), who testified through his Judicial Affidavit. 29 According to Sorbito, he is Wells Fargo's current tax accountant and was respondent's accountant when the sales of its assets to Wells Fargo occurred. He further testified to having personal knowledge of respondent's allegations given that he had assisted in the preparation of documents relating to respondent's claim for refund and the audit investigation conducted by the BIR against it for TY 2014 pursuant to Letter of Authority 30 ( LOA ) eLA201200036649 dated 05 May 2016. With no other witnesses to present, respondent filed its Formal Offer of Evidence 31 ( FOE ) on 13 June 2018 and rested its case. In a Resolution dated 04 September 2018, 32 the First Division admitted all of respondent's exhibits. On 05 September 2018, petitioner filed a Manifestation 33 that he would not be presenting any evidence. In the interim, the case was transferred to the Court's Third Division. 34 Upon the filing of respondent's Memorandum 35 on 10 October 2018 and petitioner's Memorandum 36 on 29 October 2018, the petition was submitted for decision in the Order dated 05 November 2018. 37 On 12 November 2019, the Third Division promulgated the assailed Decision, 38 partially granting respondent's claim for refund. The dispositive portion of the assailed Decision reads: xxx xxx xxx WHEREFORE , the instant Petition for Review filed by petitioner Wells Fargo Philippines Solutions, Inc. on April 17, 2017 is hereby PARTIALLY GRANTED . Accordingly, respondent is hereby DIRECTED TO REFUND in favor of petitioner, the amount of P24,116,899.61, representing petitioner's excess payment of creditable withholding taxes for the taxable year 2014. SO ORDERED. xxx xxx xxx In deciding to partially grant respondent's petition, the Third Division found that it was able to fully substantiate its claim of excess CWT in the amount P31,642,519.61. However, after applying the same against its income tax due for TY 2014 amounting to P7,525,620.00, its refundable excess CWT would only amount to P24,116,899.61. Unsatisfied with the Third Divisions' ruling, petitioner filed a Motion for Reconsideration 39 ( MR ) of the assailed Decision dated 12 November 2019. In its MR, petitioner argued that respondent failed to prove that it remitted to the BIR the income tax due on the sales of its assets. In the now assailed Resolution dated 23 June 2020, 40 the Third Division denied petitioner's MR. According to the Third Division, respondent was not required to prove actual remittance of the tax withheld since such burden remained with the withholding agent which, in this case, is Wells Fargo. Nevertheless, the Third Division found the Certificate of Taxes Withheld at Source (BIR Form No. 2307) to be sufficient to prove this fact. Hence, the present petition. On 25 January 2021, respondent filed its Comment 41 to the petition. Thereafter, the Court submitted the petition for decision in a Resolution dated 23 February 2021. 42 Petitioner raises a single issue, to wit: WHETHER THE THIRD DIVISION ERRED IN PARTIALLY GRANTING A REFUND OF RESPONDENT WELLS FARGO PHILIPPINES SOLUTIONS, INC.'S EXCESS CREDITABLE WITHHOLDING TAX (CWT) FOR THE TAXABLE YEAR 2014 DESPITE THAT IT FAILED TO SHOW THAT THE INCOME IT RECEIVED FROM THE SALE OF ITS ASSETS WAS DECLARED AS PART OF ITS GROSS INCOME. In support of the above issue, petitioner argues that respondent's claim for refund should not have been granted since it failed to prove the inclusion of the proper value of its assets sold to Wells Fargo as part of its gross income in its 2014 AITR. In its brief discussion, petitioner maintains that respondent failed to prove every aspect of its case (which is required under the circumstances), all the more so that he contends that claims for refund should be strictly construed against the taxpayer. Petitioner also cites this Court's ruling in the case Jardine Lloyd Thompson Insurance Brokers, Inc. v. Commissioner of Internal Revenue 43 ( Jardine ), wherein the Court denied the taxpayer's claim for refund on the ground of lack of evidence to substantiate its claim. On the other hand, respondent maintains that it has satisfactorily substantiated its claim for refund. It agrees with the findings of the Third Division that it had effectively included in its gross income the gain realized from its sales of assets when it paid deficiency income taxes pursuant to the BIR's assessment. The Court's ruling follows below. After a careful review of the records, We find the petition to be lacking in merit. At the onset, it must be pointed out that petitioner's arguments lie solely in determining whether respondent's evidence falls short of the Court's standard for it to successfully be refunded of the tax being claimed. Petitioner does not deny the Court's jurisdiction over the matter nor the fact that respondent paid the CWT from which the tax refund is being claimed. Rather, petitioner only calls on this Court to be more stringent in its appreciation of respondent's evidence; particularly in relation to the proof of its declaration of the income derived from its sales of assets to Wells Fargo as part of its gross income. In Republic of the Philippines v. Team (Phils.) Energy Corporation (formerly Mirant (Phils.) Energy Corporation) 44 ( Team Energy ), the Supreme Court listed the requirements that must be proved by a taxpayer to successfully claim a tax refund or issuance of credit certificate, to wit: xxx xxx xxx The requirements for entitlement of a corporate taxpayer for a refund or the issuance of tax credit certificate involving excess withholding taxes are as follows: 1. That the claim for refund was filed within the two-year reglementary period pursuant to Section 229 of the NIRC; 2. When it is shown on the ITR that the income payment received is being declared part of the taxpayer's gross income; and, 3. When the fact of withholding is established by a copy of the withholding tax statement, duly issued by the payor to the payee, showing the amount paid and income tax withheld from that amount. xxx xxx xxx Respondent's compliance with the first and third requisites as provided for in Team Energy is undisputed. The only point of contention remaining is whether respondent was able to comply with the second requirement . In this regard, although respondent was admittedly not able to include the gains realized from the subject sales in its 2014 AITR, the Third Division deemed respondent to have effectively declared the said gains as part of its gross income. It will be recalled that during the pendency of the proceedings before the Third Division, respondent filed with the BIR an amended AFS for TY 2014 to reflect the actual value of its properties that were sold to Wells Fargo upon finding out that the values previously declared in its 2014 AITR were overstated due to an alleged accounting error. However, respondent was unable to amend the said AITR given that the BIR had an ongoing audit investigation against it. Consequently, respondent immediately paid any deficiencies deemed due by the BIR upon the latter's issuance of a PAN. In resolving the matter, the Third Division stated: xxx xxx xxx Considering that there was no excess amount realized from the sale over the net book value of the leasehold improvements, no gain was declared by petitioner in its AITR for TY 2014. However, notwithstanding the amendment of its AFS for 2014, petitioner was still not able to file an amended ITR for 2014 due to the pending BIR tax audit for the said TY 2014. Accordingly, the gain from the sale was not reported in petitioner's AITR for TY 2014, yet, the income tax on the gain of P21,536,496.87 had been duly paid. In any event, by virtue of its payment of the deficiency income tax which arose from the difference between the purchase price in the Deeds of Sale and the net book value of the assets per the Amended AFS for 2014, the income payment upon which the CWT was withheld was effectively included as part of petitioner's gross income, thereby, complying with the [second] requisite. 45 xxx xxx xxx The Third Division found that any issue as regards the proper amount of respondent's declared gross income was already settled with the BIR's subsequent assessment of respondent. It thus considered the second requirement stated in Team Energy effectively complied with when respondent paid the tax deficiencies corresponding to TY 2014, as the BIR so demanded. Even after a repeated and careful scrutiny of the records, We could not find any cogent ground to disagree with the Third Division's appreciation of the evidence in the case at bar. Although its ruling requires that income payments must be declared as part of the gross income, the same does not limit the evidence required to prove such fact to the taxpayer's initial ITR. As correctly found by the Third Division, respondent did not record an initial gain from its sale of certain leasehold improvements since, among the assets sold with a total value of P931,323,707.87, the leasehold improvements valuing P527,375,326.86 equalled its net book value. It is noted that it was only later on, when respondent submitted the Amended 2014 AFS to correct the overstatement, that petitioner discovered the discrepancy. As earlier stated, due to the then ongoing audit of the BIR, respondent was unable to amend its 2014 AITR. Nevertheless, it immediately paid the tax deficiencies resulting from the amendment of the lease improvements' net book value pursuant to the PAN issued by the BIR. On account of respondent's admission of the discrepancy, the BIR released an assessment reflecting WFPSI's actual gain from the sale of its assets. Without protest, respondent paid the tax due on the gain thus putting an end to any issue regarding respondent's income tax deficiencies for TY 2014. The BIR's assessment of respondent for taxes due on the gain realized from the sale (coupled with the latter's subsequent payment of deficiency taxes) rectified any discrepancy as regards the declaration of respondent's gross income in its 2014 AITR. At present, respondent's 2014 AITR, along with its subsequent payment of deficiency taxes pursuant to the PAN, would show that its income tax payments for TY 2014 reflect the inclusion of the income gained from its sale of assets to Wells Fargo. Furthermore, petitioner's reliance on the case of Jardine is misplaced. There, this Court denied the claim for refund on account of the unsubstantiated discrepancy between the income declared in the taxpayer's AITR vis--vis its client's recognition of CWTs during the same year. Such circumstances are unavailing in this case. As previously discussed, the amount of P527,375,326.86, representing the value of respondent's leasehold improvements, was included in its 2014 AITR and the CWT due thereon was equally reflected in the Certificate of Taxes Withheld at Source (BIR Form No. 2307). On the other hand, any discrepancy as regards the declared value of the assets sold to Wells Fargo was subsequently addressed with the issuance of the PAN and respondent's payment of taxes due thereon. Besides, the expertise of this Court on tax matters notwithstanding, Our rulings are not binding precedent. The principle of stare decisis only applies to decisions promulgated by the Supreme Court pursuant to Article 8 46 of the New Civil Code of the Philippines. Lastly, anent petitioner's insistence that strict construction of the law must be applied against respondent, it must be remembered that not all claims for refund are construed strictissimi juris against the taxpayer. The Supreme Court in Commissioner of Internal Revenue v. Mirant Pagbilao Corporation (formerly Southern Energy Quezon, Inc.) 47 explained, thusly: xxx xxx xxx . . . Where the rule of strict interpretation against the taxpayer is applicable as the claim for refund partakes of the nature of an exemption, the claimant must show that he clearly falls under the exempting statute. On the other hand, a tax refund may be, as usually it is, predicated on tax refund provisions allowing a refund of erroneous or excess payment of tax. The return of what was erroneously paid is founded on the principle of solutio indebiti , a basic postulate that no one should unjustly enrich himself at the expense of another. The caveat against unjust enrichment covers the government. And as decisional law teaches, a claim for tax refund proper, as here, necessitates only the preponderance-of-evidence threshold like in any ordinary civil case. xxx xxx xxx Respondent's claim for refund properly belongs to the second category as it is based on an excess payment and not one derived from a legal exemption. With that said, the austerity invoked by petitioner cannot be applied to the case at bar. Judging on the prevailing circumstances and the evidence on record, the Court En Banc finds no reversible error in the conclusions reached by the Third Division in the assailed Decision and Resolution. WHEREFORE , premises considered, the instant Petition for Review filed by petitioner Commissioner of Internal Revenue on 16 September 2020 is hereby DENIED for lack of merit. Accordingly, the Third Division's Decision and Resolution dated 12 November 2019 and 23 June 2020, respectively, in CTA Case No. 9578 entitled Wells Fargo Philippines Solutions, Inc. v. Commissioner of Internal Revenue are hereby AFFIRMED . SO ORDERED. (SGD.) JEAN MARIE A. BACORRO-VILLENA Associate Justice Roman G. del Rosario, P.J., Juanito C. Castaeda, Jr., Erlinda P. Uy, Catherine T. Manahan, Maria Rowena Modesto-San Pedro, Marian Ivy F. Reyes-Fajardo and Lanee S. Cui-David, JJ. , concur. Ma. Belen M. Ringpis-Liban, J. , inhibited. Footnotes 1. Filed on 16 September 2020, Rollo , pp. 7-15. 2. SEC. 2. Cases within the jurisdiction of the Court en banc. The Court en banc shall exercise exclusive appellate jurisdiction to review by appeal the following: (a) Decisions or resolutions on motions for reconsideration or new trial of the Court in Divisions in the exercise of its exclusive appellate jurisdiction over: (1) Cases arising from administrative agencies Bureau of Internal Revenue, Bureau of Customs, Department of Finance, Department of Trade and Industry, Department of Agriculture; xxx xxx xxx 3. Penned by Associate Justice Esperanza R. Fabon-Victorino, with Associate Justice Erlinda P. Uy, concurring, and Associate Justice Ma. Belen M. Ringpis-Liban, inhibiting. Division Docket, Volume IV, pp. 1866-1884. 4. Id. , pp. 1921-1923. 5. Exhibit "P-3", id. , Volume III, p. 1098. 6. Exhibit "P-13", id. , Volume IV, pp. 1614-1617. 7. Exhibit "P-14", id. , pp. 1618-1620. 8. Exhibit "P-15", id. , pp. 1621-1623. 9. Exhibit "P-17", id. , p. 1648. 10. Exhibit "P-4", id. , Volume III, pp. 1099-1103. 11. Exhibit "P-5", id. , p. 1218. 12. Exhibit "P-7", id. , p. 1236. 13. Exhibit "P-6", id. , p. 1219. 14. Exhibit "P-8", pp. 1237-1238. 15. Id. , Volume I, pp. 10-26. 16. Composed of Hon. Presiding Justice Roman G. Del Rosario, as Chairperson, Hon. Associate Justice Erlinda P. Uy and Hon. Associate Justice Cielito N. Mindaro-Grulla (Ret.), as Members. 17. Division Docket, Volume I, pp. 273-275. 18. Id. , pp. 277-278. 19. Exhibit "P-10", id. , Volume III and IV, pp. 1567-1570. 20. Exhibit "P-9", id. , Volume III, pp. 1295-1566. 21. Exhibit "P-11", id. , Volume IV, pp. 1606-1607. 22. Exhibit "P-12", id. , pp. 1611-1612. 23. Id. , Volume II, pp. 794-797. 24. Id. , pp. 909-911. 25. Id. , pp. 1019-1021. 26. Id. , pp. 1025-1030. 27. Id. , p. 1032. 28. Id. , pp. 1048-1055. 29. Exhibits "P-24" and "P-24-a", id. , Volume I, pp. 296-320. 30. Exhibit "P-1", id. , Volume III, p. 1072. 31. Id. , pp. 1061-1071. 32. Id. , Volume IV, pp. 1822-1823. 33. Id. , pp. 1824-1825. 34. See Order dated 26 September 2018, id. , p. 1820. The Third Division is composed of Hon. Associate Justice Erlinda P. Uy, as Chairperson, Hon. Associate Justice Esperanza R. Fabon-Victorino (Ret.) and Hon. Associate Justice Ma. Belen M. Ringpis-Liban, as Members. 35. Id. , pp. 1826-1829. 36. Id. , pp. 1834-1847. 37. Id. , p. 1848. 38. Supra at note 3. 39. Filed on 14 December 2019. Division Docket, Volume IV, pp. 1893-1895. 40. Supra at note 4. 41. Rollo , pp. 63-68. 42. Id. , pp. 85-86. 43. CTA Case No. 7916, 23 September 2011. 44. G.R. No. 188016, 14 January 2015; Citation omitted. 45. Supra at note 3; Citation omitted. 46. Art. 8. Judicial decisions applying or interpreting the laws or the Constitution shall form a part of the legal system of the Philippines. 47. G.R. No. 172129, 12 September 2008; Citations omitted.