Commissioner of Internal Revenue v. Jardine Davies, Inc.

[CA-G.R. SP No. 32376. January 25, 1994.] (C.T.A. Case No. 4324) COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . JARDINE DAVIES, INC. and COURT OF TAX APPEALS , respondents . D E C I S I O N MARTIN , JR ., J p : Assailed in this petition for review is the decision of the Court of Tax Appeals in C.T.A. Case No. 4324 entitled "Jardine Davies, Incorporated, petitioner, versus, The Commissioner of Internal Revenue, respondent", the dispositive portion of which reads: "WHEREFORE, respondent Commissioner of Internal Revenue is hereby ordered to refund/issue tax credit to petitioner Jardine Davies, Incorporated the amount of P244, 174.35 representing overpaid capital gains tax for taxable year ended December 1987. SO ORDERED." (p.7, C.T.A. Decision p. 41, Rollo) No reply having been filed by petitioner despite receipt of this Court's resolution of November 16, 1993, the Court, therefore, considers such failure as a waiver to file a reply. The factual and procedural antecedents, as disclosed by the pleadings and the record of the court below, are as follows: Jardine Davies, Incorporated (hereinafter referred to as JDI) is a domestic corporation duly licensed to engage in the business of selling shares of stocks with principal office at 222 Sen. Gil J. Puyat Avenue, Makati, Metro Manila (p. 2, Petition: p. 17, Rollo). In the course of the firm's stock transactions for the taxable year ended December 31, 1987, JDI was able to sell 90,000 shares of stock of the Eternit Corporation at a unit selling price of P36.957 for a total selling price of P3,245,130.00 minus the cost of sales of P1,974,258.27, thereby resulting in a capital gain of P1,270,871.73. Having filed with the Bureau of Internal Revenue the Stock Transaction Capital Gains Tax Return on the sale of Eternit Corporation's shares, JDI paid the corresponding capital gains tax in the sum of P244,174.35 in compliance with Section 45 (d) of the Tax Code. It also sold 240,649 shares of stock of the Aircon and Refrigeration Industries, Incorporated at the total selling price of P1.00 and after deducting the cost of sales of P6,143,965.00, a capital loss amounting to P6,143,964.00 was incurred. Accordingly, the JDI incurred a net capital loss for the taxable year ending December 31, 1987 in the total amount of P4,873,092.27 (p. 3, Petition for Review). On April 15, 1988, JDI filed with the Bureau of Internal Revenue (BIR for brevity) its final Adjustment Stock Transaction Capital Gains Tax Return showing a refundable amount of P244, 174.35 (Exhibit B; p. 27, id .) on the capital gains tax overpaid with the BIR under CBP Confirmation Receipt No. B10600587 and BIR Payment Order No. B959493B both dated January 19, 1987 (Exhibits D and D-1; p. 61, id .). On January 31, 1989, JDI, thru its Tax Manager J.D. Casteeda Jr., filed with the BIR a claim for refund or tax credit contending substantially that since it had a new capital loss of P4,873,092.27, there was no capital gains tax due from it for the taxable year 1987 and therefore the amount of P244,174,35 representing the capital gains tax paid on the sale of shares of stocks of Eternit Corporation should be refunded pursuant to Section 24(e) (2) (a) in relation to Sections 33(a) (2) and 45(d) of the National Internal Revenue Code (Exhibit A; pp. 30-31, id ., p. 2, Petition for Review). While the claim for refund and/or tax credit was still pending before the BIR and the prescriptive period of two (2) years pursuant to Section 230 of the National Internal Revenue Code was about to expire, JDI filed with the court a quo a petition for review on the same allegations contained in its earlier request for such refund and/or tax credit, considering that there was no action yet on tits aforesaid claim. In his answer, the Commissioner of Internal Revenue (CIR for short) admitted some of the material allegations of the petition but denied the veracity of the alleged net capital loss of P4,873,092.27 reflected in the Final Adjustment Sock Transaction Capital Gains Tax Return for the calendar year ended December 31, 1987 as the same is still subject to the usual verification and/or investigation by the BIR's Refund Audit Division. By way of special and affirmative defenses, he alleged inter alia that the taxes paid and collected are presumed to have been made in accordance with law and its implementing regulations; that it is incumbent upon JDI to prove that the incurred capital loss did not arise or were sustained from wash sales of shares of stocks pursuant to Section 33(a), (b) and (d) of the Tax Code, as implemented by Section 6(c) of Revenue Regulations No. 2-82 enacted on March 29, 1982, that the capital loss sustained by JDI from the sales of shares of stocks of Aircon and Refrigeration Industries, Incorporated, should only be allowed to the extent of the gains from such sale under Section 34(c) of the Tax Code; and that claims for tax refund/credit are construed strictly against the claimants since they are in the nature of a exemption from taxation. There in respondent CIR prayed for the dismissal of the petition for lack of factual and legal basis, as well as for other reliefs and costs of the suit (Annex B, Petition; pp. 1-3, Answer) At the trial, JDI formally offered its documentary and testimonial evidences to support its claim for tax refund/credit (p. 25, Rollo). The Commissioner of Internal Revenue, on the other hand, considering the unavailability of the BIR's investigative report on JDI's claim for refund and/or tax credit and having postponed the hearing several times, manifested that he would just file a memorandum in support of his case, JDI was granted fifteen (15) days to file a reply thereto (p. 95, Rollo). In due time, the court a quo handed down its decision earlier adverted to. The CIR moved to reconsider the aforesaid decision (pp. 143, Rollo) but the court a quo , after the opposition filed by the JDI, denied the motion for lack of merit (pp. 151-152, Rollo). Hence, the instant petition for review ascribing to the court a quo the alleged error of granting the JDI a tax refund or credit in the amount of P244,174.35 representing supposedly overpaid capital gains tax for the taxable year ending December 31, 1987. After a through review of the records and the evidence, we find the instant petition not impressed with merit. Petitioner CIR avers that respondent JDI should not be entitled to any tax refund or tax credit because the letter did not adduce preponderant evidence to support its claim for the alleged overpaid capital gains tax for the taxable year which ended December 31, 1987 considering that the net capital loss indicated in the Final Stock Transaction Capital Gains Tax Return should still be subject to the routine audit and investigation to be conducted by the BIR's Refund and Audit Division. The petitioner's contention fails to impress Us. The provisions of the National Internal Revenue Code applicable on the matter are reproduced as follows: "SECTION 24. (E) (2) Capital gains from sales of shares of stock Capital gains realized from the sale, exchange or disposition of shares of stock in any domestic corporation shall be taxed as follows: (A) Net capital gains as defined in Section 33(a) (2) realized during each taxable year from sale or exchange or other disposition of shares of stock not traded through a local stock exchange: Not over P100,000 10% Over P100,000 20% xxx xxx xxx SECTION 33. Capital gains and losses (a) Definitions As used in this Title (2) Net capital gain The term "net capital gain" means the excess of the gains from sales or exchanges of capital assets over the losses from such sales or exchanges. xxx xxx xxx SECTION 45. Corporation returns (a) Requirements (d) Return on capital gains realized from sale of shares of stocks Every corporation deriving capital gains from the sale or exchange of shares of stock not trade thru a local stock exchange as prescribe under Sections 24 (a) (2) (A), 25 (a) (6) (C) (1) and 25 (b) (5) (C) (1), shall file a return within thirty days after each transaction and a final consolidated return of all transactions during the taxable year on or before the fifteenth day of the fourth month following close of the taxable year ." (Emphasis supplied, Tabios, Action Guides for Tax Management, Revised National Internal Revenue Code Annotated, Volume I, 1989 Edition, pp. 60-61, pp. 113-114, pp. 183-184) and in applying the aforequoted provisions, they shall be complemented by the following rules and regulations set forth in Revenue Regulations No. 2-82 enacted on March 29, 1982, to wit: "SECTION 7. Payment of Tax and Manner of Filing Returns . The tax imposed by Section 5 of these Regulations shall be collected as follows: (b) Manner of Filing Returns (2) Taxpayers subject to the net capital gains tax shall, within 30 days following each sale or other disposition of shares of stock, file in duplicate a capital gains tax return on BIR form No. ______ showing, among others, the name of seller and buyer; amount realized (selling price or fair market value of other property received) and contract price; cost or adjusted basis; date of acquisition; sale or disposition. The return shall be accompanied with a copy of the instrument of sale. A final consolidated return or an adjustment return (BIR Form No,) covering all stock transactions during the taxable year shall be filed on or before the fifteenth day of the fourth month following the close of the taxable year . The return shall include all stock transactions resulting in capital gains or capital losses for the whole year. The tax shown on the final or adjustment return after deducting therefrom the taxes paid during the taxable year shall be paid upon filing or refunded as the case may be ." (Emphasis supplied; De Leon, The National Internal Revenue Code Annotated, 1991 Edition, p. 682) Conformably with the foregoing provision of the National Internal Revenue Code. We find that respondent JDI had fully complied with the requirements set forth therein. It must be noted that during the trial in the court a quo , respondent JDI adduced documentary evidence (Exhibits A to E and their sub-markings: pp. 26-29, Original Records) to establish its claim for tax refund/credit which were touched upon at length by its Tax Manager Juanito C. Castaeda, Jr. in his testimony (pp. 1-13, TSN, December 13, 1989). On the other hand, petitioner CIR failed to present any evidence. Petitioner CIR cannot claim that there was no preponderance of evidence adduced by private respondent JDI to substantiate its claim for such tax refund/credit. The allegation that the incurred capital loss was still subject to further audit and investigation by the BIR's Refund and Audit Division to Our mind is merely an internal procedure of the BIR in reexamining and re-evaluating the submitted returns and their annexes on the basis of the best evidence obtainable. In the case at bar, the capital loss was evidenced by closed and completed transaction disclosed in the required BIR documents with supporting papers. On the other hand, the CIR failed, notwithstanding the ample opportunities given by the respondent court, to present at least the investigation report to refute some of the material averments embodied in the documents filed with the BIR. Moreover, the cited tax provisions do not state that the routinary audit and investigation is a condition sine qua non to the admissibility of private respondent's documentary evidence. Neither do we find merit in petitioner's invocation of our decision in the case of Commissioner of Internal Revenue versus Citibank, N.A., Philippine Branches and the Court of Tax Appeals, CA-G.R. SP No. 26555, May 27, 1992, which has a different factual setting as what was involved therein was merely an ordinary loss arising from the rentals received from tenants and did not involve capital loss from the sale or exchange of capital assets pursuant to our tax laws. Moreover, the weight of evidence in the case at bar is different, JDI presented testimonial and documentary evidence. As respondent court observed at one point: "Respondent's act of having been remissed in their duty to prove their claim, is fatal to their cause. This court even noted the fact that evidence formally offered (Exhibits A-E inclusive ) were neither commented on nor objected to by respondent, such evidences having been considered, have probative materiality in this case. The report of investigation on petitioner's claim was likewise not presented hence, respondent's counsel submitted this case solely on the basis of the pleadings." (Annex "E" of Petition; pp. 47-48, Rollo) Well-settled is the rule that factual findings of quasi-judicial agencies, which have acquired expertise because their jurisdiction is confined to specific matters, are generally accorded not only respect but at times even finality if such findings are supported by substantial evidence. As we have earlier mentioned, the records show that respondent JDI adduced evidence in support of its case. On the other hand, petitioner CIR through counsel submitted his case on the basis of the records and pleadings, without offering any evidence to rebut taxpayer JDI's evidence, testimonial and documentary, Thus, the respondent court in its decision dated June 22, 1993 made the findings of fact that unquestionably the respondent JDI was entitled to a tax refund/credit, to wit; "In summary, We find that petitioner has clearly proven entitlement to the refund being sought. A net capital loss of P4,873,964.00 on all of its stock transactions for 1987 was incurred by petitioner. Capital gains tax of P244,174.35 was undisputedly paid in 1987. There is no finding of deficiency capital gains tax against petitioner for the year under review. Claim for refund was seasonably filed and amply substantiated." (pp. 6-7, CTA Decision; pp. 40-41, Rollo) In view of all the preceding disquisitions. We find no cogent reason to deviate from the well-entrenched rule that the findings of fact and conclusions of the tax court are entitled to respect in the absence of showing of gross error or an abuse or improvident exercise of its authority (Commissioner vs. Ayala Securities Corporation and C.T.A., 70 SCRA 204, Nasiad and Lozada vs. Court of Tax Appeals, 61 SCRA 238, 244) and can only be disturbed on appeal if not supported by substantial evidence (Sy Po vs. Court of Tax Appeals, 164 SCRA 524, Parag. No. 8, Supreme Court Circular No. 1-91, CIR vs. Cadwallader Pacific Company, 73 SCRA 59, 75). WHEREFORE, finding no error of fact or law committed by the respondent court that will warrant a reversal or modification of the decision sought to be reviewed, the petition for review is DENIED DUE COURSE and is DISMISSED for lack of merit. No pronouncement as to costs. SO ORDERED. Elbinias and Guerrero, JJ ., concur.