City Trust Finance Corp. v. Court of Tax Appeals

[CA-G.R. SP No. 28239. March 14, 1994.] (C.T.A. Case No. 4134) CITY TRUST FINANCE CORPORATION , petitioner , vs . COURT OF TAX APPEALS and THE COMMISSIONER OF INTERNAL REVENUE , respondents . D E C I S I O N BUENA , J p : This is a Petition for Review of the decision dated November 11, 1991 of the Court of Tax Appeals in CTA Case No. 4134 entitled "City Trust Finance Corporation vs. The Commissioner of Internal Revenue", denying the petitioner's claim for refund at excess withholding tax payments and the resolution of the same court dated June 11, 1992 denying petitioner's Motion for Reconsideration of said decision. The facts of the case as called from the records are as follows: Petitioner, Citytrust Finance Corporation (formerly Investors Finance Corporation) is a domestic corporation engaged primarily in the financing and leasing business, with principal office at V. Esguerra Bldg. II, Amorsolo Street, Legaspi Village, Makati, Metro Manila. In the course of its business operations it derived rental as well as interest income from various clients and tenants. In a letter to the Bureau of Internal Revenue, thru its Appellate Division dated February 3, 1987, petitioner filed a claim for refund of income tax overpayments in the amounts of P138,216.12 and P31,569.84 representing the excess taxes withheld on its incomes for 1984 and 1985, respectively. On February 18, 1987, in order to fall the running of the prescriptive period, petitioner filed with the Court of Tax Appeals a petition for refund of the excess withholding tax payments in the amount of P138,216.12 and P31,569.84 for the calendar years ending December 31, 1984 and December 31, 1985, respectively, or a total of P169,785.96 which was docketed as CTA Case No. 4134, alleging, among others, that "4. During the taxable year 1984 petitioner had a gross income of P118,605,696.00 and with a total deduction of P120,247,689.00 giving a net loss of P1,641,993.00. Petitioner had a prior year's excess credit in the amount of P343,392.00 and a withholding tax credit of P86,207.00 or a total creditable amount of P429,599.00 as reflected in its Annual Income Tax Return for 1984. This creditable and/or withheld amount had been in turn remitted and paid to the Respondent. Xerox copy of Petitioner's Annual Income Tax Return for 1984 is hereto attached and made a part of this Petition as Annex "A". 5. After filing the Income Tax Return for the taxable year 1984, Petitioner received and/or was furnished with additional Certification of creditable income taxes withheld at sources by various clients and tenants the total amount of which amounted to P52,009.12 aside from the withholding tax credit of P86,207.00. Thus, when added the total amount of P138,216.12 was withheld for the taxable year 1984. This total amount was in fact remitted and paid to the Respondent. Inasmuch as the Petitioner incurred loss for 1984, it had a total creditable amount of P138,216.12 for the 1984. Xerox copies of the Certificates of Creditable Income Tax Withheld at Source, Confirmation Receipt and Statements of Tax Withheld at Source are hereto attached and made parts of this Petition as Annexes "B", "C", "D", "E", "F", "G", "H", "I", "I-1", "I-2", "J", "J-1", "J-2", "K", "K-1", "K-2", "L", "M", "N", "O", "P", "P-1", "Q", "Q-1", "R", "R-1", "S", and "S-1". 6. During the taxable year of 1985, petitioner had a gross income of P63,439,463.00 and with a total deduction of P68,461,438.00 giving a net loss of P5,021,975.00. Petitioner had a prior years' excess credit of P429,599.00 and a withholding tax credit of P20,260.00 for said year or a total creditable amount of P449,859.00 as reflected in its Annual Income Tax Return for 1985. This creditable and/or withheld amount had been in run remitted and paid to the Respondent. Xerox copy of Petitioner's Annual Income Tax Return for 1985 is hereto attached and made a part of this Petition as Annex "T". 7. After the Income Tax Return for the taxable year 1985, Petitioner received and/or was furnished with additional Certification of Creditable Income Tax Withheld at Source by various clients and tenants the total amount of which amounted to P11,309.84 aside from the withholding tax credit of P20,260.00. Thus, when added the total amount of P31,569.84 was withheld for the taxable year 1985. This total amount was in fact remitted and paid to the Respondent. Inasmuch as the Petitioner incurred loss for the 1985, it had a total creditable amount of P31,569.84 for 1985. Xerox copies of the Certifications and Certificates of Tax Withheld at Source 1985 are hereto attached and made parts of this Petition as Annexes "U", "V", "W", "X", and "Y". ( Rollo, pp . 51-52 ). In his answer dated March 27, 1987 ( Rollo, pp . 82-84 ) respondent, Commissioner of Internal Revenue, denied all the material allegations of the petition and by way of Special and Affirmative Defenses alleged, among others, that a mere allegation that petitioner suffered a loss does not ipso facto merit a refund; that petitioners right to claim the refund has prescribed as the petition for review was filed beyond the two (2) year period from the dates of payment pursuant to Section 292 of the Tax Code; that it is incumbent upon petitioner to show that it has complied with the provisions of Sections 292 and 295 of the Tax Code of 1977, as amended; that the amounts sought to be refunded were paid in accordance with law and regulations on the matter and therefore, not refundable; and that claims for refund are strictly construed against the claimants since they are in the nature of exemption from taxation. Trial ensued and on November 11, 1991, the respondent Court of Tax Appeals rendered a decision denying petitioners claim for refund, the dispositive portion of which reads as follows: "WHEREFORE, in view of all the foregoing, petitioner's claim for refund is here denied. SO ORDERED," ( CTA Decision, p . 14; Rollo, p . 38 ). On January 03, 1992, petitioner filed a Motion for Reconsideration of the decision. In a Resolution dated June 11, 1992, the Court of Tax Appeals found no merit in the motion for reconsideration and affirmed its findings in the decision dated November 11, 1992. Hence, this petition for review assigning the sole issue of: WHETHER THE PETITIONER FAILED TO SHOW THAT THE INCOME FROM WHICH THE WITHHOLDING TAX HAS BEEN WITHHELD IS INCLUDED IN THE GROSS INCOME DECLARED THIS INSPITE OF THE ADMISSION AS FOUND BY THE RESPONDENT COURT THAT THERE HAVE BEEN EXCESS CREDITABLE WITHHOLDING TAXES APPLIED AGAINST ITS 1984 AND 1985 INCOME TAX RETURNS. ( Petition for Review, p . 7; Rollo, p . 13 ). The petition is devoid of merit. The case at bar involves a claim for refund of the alleged excess withholding tax payments. Let it be stressed at the outset that since a refund undoubtedly partakes of a nature of an exemption, it cannot be allowed unless granted in the most explicit and categorical language ( Resins Incorporated vs . Auditor General, 25 SCRA 754 ). And as ruled by the Supreme Court, exemptions from taxation are construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority ( Phil . Petroleum Corp . vs . Municipality of Pililia, Rizal, 198 SCRA 82; Floro Cement Corp . vs . Gorospe, 200 SCRA 480 ). For it is well known that taxes are the lifeblood of the nation. Their primary purpose is to generate funds for the State to finance the needs of the citizenry and to advance the common weal ( National Power Corp . vs . Province of Albay, 186 SCRA 198 ). Petitioner would like us to believe that the income from which the withholding tax has been withheld is included in the gross income declared by it in its 1984 and 1985 Income Tax Returns. It also pointed out the court a quo ' s admission that there have been excess creditable withholding taxes applied against petitioner's 1984 and 1985 returns showing loss. The existence of an excess creditable withholding taxes alone does not per se entitle petitioner to a refund. The court a quo correctly laid down the three (3) conditions for the grant of tax refund when the creditable withholding tax is in excess of the amount of the tax due, namely: (1.) that the claim is filed with the Commissioner of Internal Revenue within the two year period from the date of payment of the tax as required under Section 295 of the Tax Code ( now Section 204 ); (2.) it must be shown on the return of the recipient that the income payment received was declared as part of the gross income; and (3.) the fact of withholding is established by a copy of the statement duly issued by the payor to the payee showing the amount paid and the amount of tax withheld therefrom. The first two requirements are embodied in Section 54 (f) of the Tax Code ( now Section 51 (f) ) while the last is a requirement under Section 54(c) now Section 51 (c). We uphold the findings of the respondent court that petitioner failed to comply with the second requirement. As aptly ruled by the court a quo , petitioner failed to present documentary evidence to show that for the taxable years 1984 and 1985 petitioner included in its Income Tax Return the particular income from which the various creditable taxes were withheld. Under Section 54 (f) of the 1984 Tax Code nor Section 51 (f) of the Tax Code, quoted hereunder, provides: "Sec. 54(f) Income of Recipient . Income upon which any creditable tax is required to be withheld at the source under section 53 shall be included in the return of its recipient but any excess of the amount of tax so withheld over the tax due on his return shall be refunded to him subject to the provisions of Section 295 (now 294); if the income tax collected at source is less than the tax due on his return, the difference shall be paid in accordance with the provisions of Sections 51." ( As amended, by BP 41; underscoring supplied ). Moreover, Section 10 of Revenue Regulation 6-85, provides, thus: "Sec. 10. Claims for tax credit or refund of income tax deducted and withheld on income payments shall be given due course only when it is shown on the return that the income payment received was declared as part of the gross income and the fact of withholding is established by a copy of statement duly issued by the payor to the payee (BIR Form No. 1743.1) showing the amount paid and the amount of tax withheld therefrom." ( Emphasis supplied ). The above-mentioned provisions shall be construed strictissimi juris without defeating however the intent of the law in allowing refund as long as the foregoing provisions are complied with. The requirement for refund is clear from the cited provisions. There shall be a refund of the income tax deducted and withheld on income payments only if the same is included or shown to have been included in the return of the recipient. As the court a quo aptly stated: ". . . This requirement of the law is fair and just, if the taxpayer is claiming tax credit from those withholding taxes, it is but equitable that he should likewise prove that he has included in his income tax return the particular income from which the taxes are withheld." ( CTA Decision, p . 6; Rollo, p . 46 ). A perusal of the records before us, referring likewise to the 1984 and 1985 income tax returns fails to reveal that the various incomes from which the excess withholding tax payments were made is included or shown therein. Petitioner may be right in stating that unlike in the case of insurance companies, where the BIR form (1702-B) requires details of Income and Expenses, no such details are required in BIR Form 1702. Nevertheless, petitioner should have presented in evidence its Schedule of Income Producing Properties or any other documentary evidence which may at least show that the income from which the withholding tax were withheld and paid are included in the gross income of its income tax returns. We are not persuaded by petitioners allegation that it had, by the testimony of Mrs. Erlinda Cruz, petitioners Manager of its Financial Report and Planning Division in the Income Tax Returns consists in part of rentals derived from its real and personal properties that it had let out to various lessees. We share the respondent court's view that: "For it is incorrect to say as petitioner does, that since part of its income comes from the rentals earned from leasing out motor vehicles, buildings and office space, then the rentals from which the additional withholding tax reported was withheld has been reported ads part of its income. The court does not follow the logic in such argument, which is equivalent to saying that since a dog is an animal, then all animals are dogs." ( CTA Resolution, p . 8; Rollo, p . 48 ). Petitioner failed to persuade Us that it has substantially complied with the requirements of the law and the revenue regulation earlier cited. It has failed to convince Us that the various incomes from which the withholding taxes had been withheld is included in the gross incomes of its returns. It has failed to discharge the burden of proof to show that it is entitled to a refund. On the contrary, We find no abuse or improvident exercise of authority or discretion on the part of the respondent court in rendering the decision under review. Moreover, it has been the long standing policy and practice of the courts to respect the conclusions of quasi-judicial agencies, such as the Court of Tax Appeals which, by the nature of its functions, is dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise on the subject. Unless there has been an abuse or improvident exercise of its authority ( Commissioner of Internal Revenue vs . Court of Tax Appeals, 204 SCRA 182 ) which, as above stated, is absent in this case. WHEREFORE, the instant petition for review is hereby DISMISSED and the assailed decision is AFFIRMED. Costs against the petitioner. SO ORDERED. Luna and Lagamon, JJ ., concur.