Commissioner of Internal Revenue v. Court of Tax Appeals

[CA-G.R. SP No. 26925. April 24, 1992.] (C.T.A. Case No. 4041 & 4125) COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . THE HON. COURT OF TAX APPEALS, ET AL. , respondents . D E C I S I O N CAMPOS , JR ., J p : This is a case is a Petition for Review filed by the Commissioner of Internal Revenue pursuant to Section 9 of Batas Pambansa Bilang 129 vesting this Court with exclusive appellate jurisdiction to review judgments of the respondent Court. Here, petitioner questions the decision rendered by the respondent Court on October 31, 1991 in CTA Cases Nos. 4041 and 4125 granting to Jardine Fleming (Phils.), Incorporated a tax refund in the aggregate amount of P39,304.00. Upon a review of this case, We adopt the following facts as found by the respondent Court and in so far as they are supported by the evidence on record: ". . . petitioner domestic corporation filed its corporate (final adjustment) income tax return for the taxable year 1984 on April 12, 1985 which reflected a net loss of P334,076.00 after deducting P585,341.00 from a gross income of P251,265.00 and a "nil" tax liability (Exhs. A, A-1, and A-3). However, petitioner had a creditable withholding tax of P10,451.05 on its income from management advisory services (Exhs. B, C, D, and E) which remained loss for the said year. As a consequence, petitioner filed an administrative claim on March 17, 1986 and instituted a judicial action on March 31, 1986 (C.T.A. Case4041) for the refund thereof. Before any resolution can be had on the claim petitioner applied the same against income tax liabilities of the succeeding year scheme that "the refundable amount shown on its final adjustment return may be credited against the estimated quarter income tax liabilities for the taxable quarter of succeeding taxable year" (Sec. 69, Tax Code). Again, on April 9, 1986, petitioner filed its corporate annual (final adjustment) income tax return for the taxable year 1985 which likewise reflected a net loss of P196,712.00 and a "nil" tax due (Exhs. A, A-1, A-3 and A-6).," (Rollo, pp. 1-2). On October 2, 1986, private respondent requested confirmation from the Bureau of Internal Revenue for it to automatically apply the total amount of its income tax refundable per its 1985 corporate annual income tax return against any income tax liability for 1986 and the succeeding years. The amount claimed by private respondent was P39,304.00 inclusive of the P10,451.05 reported creditable withholding tax for the year 1984. The request was pursuant to Section 79 (now Section 69) of the Tax Code, with said provision likewise allowing a refund in the alternative. On December 20, 1986, private respondent filed a petition for review when neither a confirmation nor a denial was received by it as regards its request. This case was docketed as CTA Case No. 4125. Considering that both cases filed by private respondent revolve around "identical factual back-grounds and a common issue on a claim for refund/tax credit", both cases were consolidated and on October 31, 1991, the respondent Court came out with a decision, disposing of both cases, granting private respondent's claim for refund in the aggregate amount of P39,304.00. The respondent Court commented that "It does not appear that the respondent presented any evidence controverting the correctness of the returns and other material facts. . . . respondent submitted the cases for decision on the basis of the pleadings and records after petitioner rested its cases." (Rollo, p. 40). Petitioner comes before Us to question the respondent Court's grant of refund in the amount of P39,304.00 raising the following arguments: 1. There is no showing that the income from which taxes were withheld was declared as part of private respondent's gross income in its income tax returns. 2. Amount of tax withheld is less than the amount sought to be refunded. 3. Statements and certificates of tax withheld presented and offered by private respondent as proof of withholding are not conclusive evidence of payment and remittance to the Bureau of Internal Revenue. 4. In some instances, findings of fact of the trial court may be reviewed on appeal. The only issue which has to be resolved in this decision is whether or not private respondent is entitled to a tax refund/tax credit, and if so, up to what amount. We resolve this in the affirmative. This stand is borne out by the findings of the respondent Court with respect to the outcome of private respondent's business operations during the years in question. What is left to be determined is the amount which private respondent is legally allowed to refund or have as tax credit. There is no question that during that tax year 1984, private respondent had a creditable withholding tax of P10,451.15 which was derived from the following management and advisory fees: Payor Amount Tax Withheld Anscor Hagedorn P122,901.00 P6,145.05 (Exh. D) Securities, Inc. Papa Securities Corporation P61,401.00 P3,070.05 (Exh. E) Cabarrus-Lim Securities, Inc. P19,319.00 P965.95 (Exh. C) Jardine Davies, Inc. P60,000.00 P270.00 (Exh. B) TOTAL P10,451.05 ========= The aggregate amount of P39,304.00 claimed by private respondent in 1985 which was granted by the respondent Court already included the P10,451.05 tax refund for 1984. It was likewise disclosed that this total amount, P19,798.98 constituted private respondent's overpaid and unapplied creditable withholding tax for the years 1981 and 1982 covered by Tax Credit Memorandum No. 5356 dated may 11, 1988. For 1985, private respondent submitted Exhibits BB to J of CTA Case No. 4125 in order to prove the amount of management and advisory fees earned and the corresponding taxes withheld. It appears, however, that Exhibits G to J are the same as Exhibits B to E of CTA Case No. 4041 which were the fees earned and the taxes withheld in 1984. While the taxes withheld on those management and advisory fees are sought to be counted in the creditable withholding tax for the year, the corresponding fees from which these withholding taxes were derived were however not included as part of income for 1985. Private respondent argues that the has something to do with its accrual method of accounting. This is not so. The accrual method of accounting reports as income anything earned although it has not yet been actually received and considered as deductible any expense incurred even when this has not yet been paid. While in the application of this kind of accounting method, a portion of the fees earned in the present year becomes part of actual receipts in the succeeding year in the form of accounts receivable, still private respondent cannot rely on this as basis for its inclusion of Exhibits B to E, representing management and advisory fees earned in 1984 in his fees earned in 1985. The method of accounting used by a firm has no bearing on figures which do not appear on the Balance Sheet. Thus, it has nothing to do with the firm's income earned and the corresponding taxes withheld therefrom. Therefore, for 1985, the management advisory fees earned and the taxes accordingly withheld by each payor of said fees, as found in Exhibits B to E of CTA Case No. 4125 should be as follows: Payor Amount Tax Withheld Jardine Davies, Inc. P100,000.00 P4,090.00 (Exh. B) Belson Securities, Inc. 6900.00 345.00 (Exh. C) General Credit Corporation 4,717.20 235.86 (Exh. D) Anscor Hagedorn 76,348.00 3,817.40 (Exh. E) Securities, Inc. Papa Securities Corporation 1,065.00 53.25 (Exh. F) TOTAL P8,541.51 ======== Adding up all the creditable withholding taxes private respondent, the components would be: P19,798.98 Approved and unapplied creditable withholding taxes for the years 1981 and 1982 as contained in Tax Credit Memorandum No. 5356 dated May 11, 1988. 10,451.05 Creditable withholding taxes for 1984 as per Exhibits B to E of CTA CaseNo.4021 8,541.51 Creditable withholding taxes for 1985 as per Exhibits B to F of CTA CaseNo.4125 P38,791.54 TOTAL Creditable withholding taxes or refundable amount Under Section 69 of the present National Internal Revenue Code, this P38,791.54 could neither be refundable to private respondent or be credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable year. WHEREFORE, with the foregoing analysis based on the documentary evidence presented and the applicable law on the matter, the decision of the Court of Tax Appeals is hereby AFFIRMED in so far as it found private respondent Jardine Fleming (Phils.), Incorporated entitled to a tax refund. The amount should however be P38,791.54 instead of P39,304.00 as claimed. IT IS SO ORDERED. Marigomen and Vailoces, JJ ., concur.