Commissioner of Internal Revenue v. Court of Tax Appeals

ELEVENTH DIVISION [CA-G.R. SP No. 35515. April 12, 1995.] (CTA Case No. 4518) COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . THE HON. COURT OF TAX APPEALS & AQUATIC FARMS, LTD. , respondents . D E C I S I O N GONZAGA-REYES , J p : This is a petition for review filed by the Commissioner of Internal Revenue from the decision of the Court of Tax Appeals in C.T.A. Case No. 4518, the dispositive portion of which reads: "WHEREFORE, judgment is hereby rendered directing respondent Commissioner of Internal Revenue to refund to petitioner Aquatic Farms, Ltd. the amount of P166,456.24." C.T.A Case No. 4518 is a claim for judicial refund of overpaid withholding tax payments at source in the amount of P166,456.24 for calendar years 1988 and 1989. Aquatic Farms, Ltd. (Aquatic), private respondent herein, is a resident foreign corporation duly organized under the laws of the State of Hawaii, U.S.A. which provides technology transfer and consultancy services in the design, construction, operation and management of Hatcheries and grow-out facilities. In 1988 and 1989, Aquatic generated income of P3,334,523.09 in the form of consulting services from Hawaiian Hatcheries, Inc. (HHI) and Jamandine Hatcheries, Inc. (JHI) for which HHI and JHI withheld and remitted to the Bureau of Internal Revenue the 5% withholding tax broken down as follows: Year Withholding Agent Consultancy Fees 5% Tax Withheld 1988 HHI P2,184,736.00 P109,236.80 JHI P400,000.00 P20,000.00 1989 HHI P650,589.09 P32,529.44 JHI P99,200.00 P4,960.00 Total P3,334,525.09 P166,456.24 ========== ========= However, Aquatic claimed that since it started its Philippines Operations, it sustained continued annual losses from 1987 up to December 1989. In fact, it temporarily stopped its operations in January 1990 because of continuous operating losses arising from the absence of contract job projects. On April 17, 1988 Aquatic filed its corporate income returns with the Bureau of Internal Revenue for the year ending December 31, 1988 (Exh. "C"), and on April 16, 1990 for the year 1989 indicating a refundable amount for both years in the total of P166,456.04. On December 3, 1990 Aquatic filed with the Commissioner on Internal Revenue, petitioner herein, a claim for tax refund in the amount of P166,456.24 for the years 1988 and 1989 (Exh. "G"), on the ground that it suffered losses in its operations for said years, and thus had no liability against which the creditable withholding taxes could be applied. Said claim was not acted upon by the Commissioner of Internal Revenue; hence, an appeal was filed with the Court of Appeals on December 7, 1990 in order to interrupt the running of the prescriptive period of two (2) years. The Commissioner of Internal Revenue raised the following special and affirmative defenses in its Answer: "a. That the petition does not state a cause of action; b. that the petitioner who has the burden of proving that it is entitled to tax refund, has not shown that it had complied with the mandatory provisions of Section 230 of the TaxCode; c. Granting that the amount of tax sought to be refunded had actually been paid by petitioner the claim for refund has already prescribed with respect to the tax paid two (2) years prior to December 7, 1990, pursuant to Section 230 of the TaxCode; d. That the tax amount sought to be refunded is in the nature of a creditable income tax withheld at source. Since the certificate does not specify a refundable income tax withheld, the same is deemed to be lost when the petitioner does not have any income tax due against which the creditable income tax withheld at source could be applied; e. The claims for the refund being in the nature of an exemption from taxation, cannot be made to rest on vague implications and must be construed strictly against petitioner." The Court of Tax Appeals ruled that the claims for refund were timely filed, and granted petitioner's claim, finding that the evidence in support of the claim was not controverted. The Commissioner of Internal Revenue submits the following assignment of errors in this petition for review: "I. THE RESPONDENT COURT OF TAX APPEALS IN RENDERING A DECISION IN FAVOR OF PRIVATE RESPONDENT AND AS AGAINST PETITIONER HAS DECIDED A QUESTION OF SUBSTANCE NOT IN ACCORDANCE WITH LAW AND EVIDENCE AS IT FAILED TO CONSIDER THAT THE CASE DOES NOT INVOLVE ILLEGALLY OR ERRONEOUSLY COLLECTED TAXES. II. THE RESPONDENT COURT OF TAX APPEALS IN RENDERING A DECISION IN FAVOR OF PRIVATE RESPONDENT AND AS AGAINST PETITIONER FAILED TO CONSIDER THAT PRIVATE RESPONDENT WHO HAS THE BURDEN OF ROOF HAS NOT SUFFICIENTLY SHOWN THAT THE CLAIM FOR TAX REFUND WAS DULY SUBSTANTIATED AND THAT THE WITHHOLDING TAXES SUBJECT OF THIS CASE WERE ACTUALLY PAID AND REMITTED TO PETITIONER'S BUREAU. III. THE RESPONDENT COURT OF TAX APPEALS IN RENDERING THE SAID DECISION IN FAVOR OF PRIVATE RESPONDENT AND AS AGAINST PETITIONER DESPITE FAILURE OF PRIVATE RESPONDENT TO MAINTAIN BURDEN OF PROOF REQUIRED IN THIS CASE HAS DISREGARDED THE WELL-SETTLED PRINCIPLE THAT CLAIMS FOR TAX REFUND ARE CONSTRUED STRICTLY AGAINST CLAIMANT." Petitioner submits that the claim of private respondent is bereft of factual and legal basis; the case does not involve illegally or erroneously collected taxes, and the claim for refund was not fully substantiated. It is alleged that the evidence submitted by respondent did not prove the fact of overpayment of withholding taxes, or that it actually suffered a net loss in the years in question. Petitioner argues as follows: "Other than the quarterly income tax returns, corporate annual income tax return and certificates of withholding which were objected to by petitioner, the fact of overpayment of withholding taxes were not duly proved by private respondent. The tax return showing the amount sought to be refunded are the very facts to be established by competent evidence. Said certificates of withholding and tax returns are mere self-serving statement and merely presented only to prove the income declared and not the fact on which the refund was based and arrived at resulting to overpaid taxes withheld and paid. Petitioner's income tax returns are insufficient and unconvincing proof of refundability of the amount sought to be refunded. Obviously, amount sought to be refunded is based on private respondent's own computation, the claim is self-serving. The law provides that the taxes withheld from income shall be credited against the amount of income tax due as computed in the income tax return. If the taxes withheld exceed the amount of tax due on the return, the excess shall be refunded. The refund, however, is subject to the condition that the income tax pursuant to Section 10 of Revenue RegulationNo.6-85, Revised andConsolidatedExpandedWithholdingTaxRegulations, which reads as follows: 'SEC. 10. Claims for tax refund of income tax deducted and withheld on income payments shall be given due course only when it shows 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. 174311) showing the amount paid and the amount of tax withheld therefrom (Emphasis ours.)" In the instant case, there is no showing that the income from with the taxes were withheld was declared as part of private respondent's gross income in its income tax return." Petitioner cites the principle that claims for tax refund are construed strictly against the claimant. In its comment, private respondent stated that its claim is not a claim for erroneous or illegal payment of taxes. It is an application for refund of overpaid income tax based on Section 230 of the National InternalRevenueCode, which likewise covers excessive payment of any national internal revenue taxes. The basis for the overpaid income tax is that in the years 1988 and 1987 private respondent suffered business losses; hence the 5% tax withheld by and remitted by its clients to the Commissioner of Internal Revenue can no longer be credited or applied against any income tax liability. Respondent claims that there was substantial evidence presented to support its claim. The Petitioner filed Reply arguing that the private respondent failed to prove the payment or remittance of amounts allegedly withheld. The statements and certificates of withholding taxes accomplished by withholding agents are mere proof of withholding taxes and not proof of payment or remittance thereof. We find no logic in petitioner's belaboring the point that the respondent Court of Tax Appeals should have considered that this case "does not involve illegally or erroneously collected taxes". The instant case is a claim for refund of withholding tax payments for calendar years 1988 and 1989 when Aquatic Farms Ltd. incurred losses in its business operations, and consequently had no tax liability. Although the withholding of taxes was not illegal, as it was made pursuant to law, the taxes are erroneously paid if on the basis of the corporate income tax return filed by the corporation, there is a net loss. In ACCRA Investment Corporation vs. Court of Appeals (204 SCRA 957), a claim for refund of overpaid income taxes withheld at source which was filed on the ground that it had no tax liability against which to credit the amounts withheld for the taxable years in question for which the corporate taxpayer reported a net loss in its final income tax adjustment return, was upheld by the Supreme Court, which ruled that the two-year prescriptive period fixed in Section 230 of the National Internal Revenue Code should be counted from the filing of the corporation's final adjustment tax return. The respondent Court correctly held that Aquatic had until April 15, 1991 and April 15, 1992 within which to file its claim for refund for the taxable years 1988 and 1989; the claims for refund filed on December 3, 1990 and the petition for review filed on December 7, 1990 was timely filed. The issue raised by petitioner in the petition and the reply appears to be whether Aquatic has discharged its burden of proving that the withholding taxes were actually paid and remitted to the Commissioner of Internal Revenue and whether there was sufficient evidence that it actually suffered a net loss. Petitioner alleges that the certificates of withholding and tax returns presented are mere self-serving statements and do not constitute convincing proof of refundability. We agree with respondent Court that Aquatic's evidence to support its claims for refund was not controverted by the petitioner. Aquatic presented to the Court documentary evidence, which were all admitted by the Court, clearly indicating the specific refundable tax withheld at source, as well as certificates of creditable income tax withheld at source, as shown in the accomplished BIR Forms 1743 and 1743-B. Petitioner did not offer proof to support her allegation that the tax sought to be refunded had not been proven to have been paid, nor seriously opposed Aquatic's entitlement to a refund. Similarly, Aquatic's audited financial statements (Exhs. B, D and F) were presented to substantiate its claim that it incurred actual net loss. Audited financial statements constitute the normal method of proof of profit and loss performance of a company (Lopez Sugar Corp. vs. Federation of Free Workers, 189 SCRA 179). We find no cogent reason to set aside or modify the respondent Court's findings as follows: ". . . The records show that the petitioner submitted the following documentary evidences particularly exhs. 'C-2', 'E-2', 'H', 'L', 'L-1', and 'M' wherein specific refundable tax withheld at source were clearly indicated. "Moreover, petitioner has submitted as evidence certificate of creditable income tax withheld at source (BIR Form 1743; Annual Return of Creditable Income Tax Withheld (Expanded withholding tax system (BIR Form 1743-B); and petitioner's Corporate Income Tax Return for the year in question. (Exhibit 'H', 'I', 'K', 'M', 'J', 'L', and exhs. 'C', 'E'), to support its claim for refund. "We agree with respondent that claim for refund being in the nature of tax exemption must be strictly construed against the claimant. However, where the law is clear and unambiguous the law must be taken as it is devoid of judicial addition or subtractions (Acting Commissioner of Customs vs. Manila Electric Company, 77 SCRA 469). In the case at bar we believe that petitioner has ably presented and defended its claim for refund with valid support leaving no room for any other interpretation but to grant the same. "It must also be stressed that after petitioner submitted its evidence which were all admitted by this court, respondent submitted her case on the basis of records and pleadings, without offering proof as to the truth of her own allegation in the answer. Respondent failed to present her evidence, oral or otherwise in support of her case. (Warner-Lambert Philippines, Inc. vs. Commissioner of Internal Revenue, CTA CASE No. 3925, April 21, 1992 Respondent, therefore, may be considered to have no serious objection or opposition to petitioner's entitlement to the refund (Data prep [Phil], Inc., vs. Commissioner on Internal Revenue, CTA CASE No. 3600 March 20, 1984. "Well settled is the rule that one who prays for judgment on the pleadings without offering proof as to the truth of his pleading must be understood to have admitted the truth of all the material and relevant allegations of the opposing party and to rest his motion for judgment on the allegation taken together with such of his own as admitted (Bauerman vs. CASA, 10 Phil. 386; Evangelista vs. De La Rosa, Et Al., 76 Phil. 15) "The fact that petitioner suffered losses form 1987 up to December 1989 remained uncontroverted and as it appears, Jamandine Hatcheries, Inc., withheld from the petitioner the amount of P166,456.24 and remitted to the Bureau of Internal Revenue. Hence, nothing is left for this court to do but to grant to petitioner the amount claimed. In fact we believe that cases of this nature should have been already resolved in the administrative level." The petitioner has not disputed the correctness or veracity of the accomplished BIR Forms submitted in evidence, nor alleged specifically why the audited financial statements are not competent to prove losses in operations. The Court aptly pointed out that the Commissioner of Internal Revenue was furnished pertinent returns and other related papers both in the administrative and judicial trials, and had competence to determine the correctness of the returns and supporting documents, and the means of information concerning the same is readily accessible to him. Thus the fact that the Commissioner merely alleged in the Answer that it lacks knowledge or information sufficient to form a belief as to the truth of the allegations in the petition for review that Aquatic suffered annual losses in its Philippine operations from 1987 to 1989, and is entitled to a refund on the taxes withheld on income tax derived from consultancy services from 1988 to 1989, did not amount to a specific denial, and should be considered an admission of the truth of all the material allegations of the opposing party. In appreciating the evidence presented it must be borne in mind that in quasi-judicial and administrative proceedings, proof beyond reasonable doubt is not required. Not even a preponderance of evidence is necessary. Substantial evidence is deemed sufficient (Manalo vs. Confesor, 215 SCRA 808). Substantial evidence has been defined as such relevant evidence as a reasonable mind might accept as adequate to support a conclusion (Velasquez vs. Nery, 211 SCRA 28). It must also be emphasized that factual findings of the Court of Tax Appeals are binding on appellate courts and can only be disturbed on appeal if not supported by substantial evidence (C.I.R. vs. Tours Specialists, Inc., 183 SCRA 402). Where petitioner has failed to show that there was gross error or abuse these findings of fact shall not be reversed. Accordingly, this Court is of the opinion that the Court of Tax Appeals did not err in finding that respondent satisfactory substantiated its claim for refund. WHEREFORE, the petition for review is DENIED DUE COURSE and is hereby DISMISSED for lack of merit. SO ORDERED. Montenegro and Dela Rama , JJ ., concur.