Commissioner of Internal Revenue v. Manila Electric Co.

NINTH DIVISION [CA-G.R. SP No. 37170. August 23, 1995.] (C.T.A. Case No. 4435) COMMISSIONER OF INTERNAL REVENUE , petitioner , vs. MANILA ELECTRIC COMPANY , respondent . D E C I S I O N CALLEJO, SR ., J p : This is a Petition for the Review of the Decision of the Respondent Court in " Manila Electric Company versus Commissioner of Internal Revenue , C.T.A. Case No. 4435" (Annex "A", Petition). The private Respondent filed its Comment on the Petition on July 4, 1995. We also required the Respondent Court to elevate to this Court the records of the aforesaid case, including the testimonial and documentary evidence therein. The Petition at bench stemmed from the following factual backdrop, as found by the Respondent Court in its Decision, which we hereby approve and reproduce: "Manila Electric Company (MERALCO) is a domestic corporation duly organized and existing under the laws of the Philippines. It is a grantee of a legislative franchise under Act No. 484, as amended by R.A. 4159 and P.D. No. 551 dated September 1974. In line with its legislative franchise, MERALCO pays a 2% franchise tax based on its gross receipts which tax shall be in lieu of all other taxes and assessments of whatever nature. However, upon effectivity of E.O. No. 72 on February 10, 1987, petitioner became subject to regular corporate income tax. Thus, on April 15, 1988, petitioner filed its tentative income tax return for the calendar year 1987 showing an overpayment of income taxes in the amount of P77,931,812.00 (Exh. 'G') and eventually the final income tax return on April 17, 1989 together with that of 1988 showing a cumulative overpayment as of December 31, 1988 in the amount of P107,649,729.00 (Exhs. 'N' & 'O'). On March 30, 1990, petitioner filed a letter claim for refund or credit with the Bureau of Internal Revenue in the amount of P107,649,729.00, representing alleged overpaid income taxes for the years 1987 and 1988. (Exh. 'P'). Since respondent has not acted on its request, petitioner on April 6, 1990 filed a judicial claim for refund or credit pursuant to Sec. 230 of the National Internal Revenue Code, as amended." (pages 1-2, Annex "B", Petition) After due proceedings, the Respondent Court rendered its aforementioned Decision, the decretal portion of which reads as follows: "WHEREFORE, finding the petition meritorious, respondent is hereby ordered to refund or, in the alternative, issue a tax credit certificate in favor of petitioner the sum of P107,649,729.00 representing overpaid income taxes for the years 1987 and 1988." (page 9, annex "B", supra) Dissatisfied with the Decision of the Respondent Court, the Petitioner therein, the Commissioner of Internal Revenue, filed her Petition with this Court, interposing, for our resolution, the following: "THE SOLE ISSUE IS WHETHER RESPONDENT HAS SUBSTANTIALLY PROVED ENTITLEMENT TO ITS ALLEGED CLAIM FOR TAX REFUND/CREDIT FOR THE YEARS 1987 TO 1988 IN THE AMOUNT OF P107,649,729.00." (page 12, Petition) In the assailed Decision, the Respondent Court resolved the issue now posed by the Petitioner and the amount of Private Respondent's entitlement to a refund, in this language: "xxx xxx xxx As can be gleaned from the 1987 final income tax return (Exh. 'N'), petitioner had an income tax liability of P142,088,822.00 which was set-off against three quarter payments in the total sum of P243,986,563.00 (Exhs. 'A', 'A-1'. 'B', 'B-1', 'C', 'C-1'). Thus, what remains was a refundable amount of P101,897,741.00 which petitioner opted to be applied as tax credit to succeeding taxable year (i.e. 1988). However, in the year 1988 only the amount of P77,931,812.00 was utilized as tax credit therefore leaving an unapplied balance of P23,965,929.00 for 1987. For the year 1988, an annual income tax payable of P62,498,902.00 was due from the petitioner. This liability was settled by crediting the 1987 excess tax payment in the amount of P77,931,812.00 plus payments of P53,333,376.00 (Exhs. 'I' & 'J') and P14,917,514.00 (Exh. 'M') for the first and third quarters of 1988. Thus, petitioner in turn overpaid the income tax due by P83,683,800.00 It should be noted that petitioner in the 1988 income tax return (Exh. 'O') opted the preceding sums (P23,965,929.00 and P83,683,800.00) to be carried-over as tax credit in 1989 and eventually the 1989 to 1990 (Exh. 'U'). However, upon examination of the records of the case, the business operation in 1989 bears unfruitful result. On the other hand, the 1990 income tax liability of P16,257,472.00 was paid by petitioner (Exh. 'AA'). Hence, the sums sought to be refunded herein were not utilized in both years. This Court would like to emphasize that an excess income tax payment of one year should only be credited automatically in succeeding year. To allow the application of excess income taxes for more than a succeeding year would run counter to the specific provision of Sec. 69 of the Tax Code (Paseo Realty and Development Corporation v. Commissioner of Internal Revenue, CTA Case No. 4528, April 30, 1993) which reads: Sec. 69. Final Adjustment Return . Every Corporation liable to tax under Section 24 shall file a final adjustment return covering the total taxable income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable income of that year the corporation shall either: (a) Pay the excess tax still due; or (b) Be refunded the excess amount paid, as the case may be. In case the corporation is entitled to a refund of the excess estimated quarterly income taxes paid, the refundable amount shown on its final adjustment return may be credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable year ." (pages 4-5, Annex "B", Petition) We have minutiousely examined and evaluated the testimonial and documentary evidence marshalled by the Private Respondent, through Renato Barieta, its accountant, and its documentary evidence, Exhibits "A" to "AA" , as well as the Petitioner's testimonial evidence and lone documentary evidence, Exhibit "1" , We find that the findings of the Respondent Court and its conclusions evolved from said findings in accord with the aforesaid evidence. Well-settled is the rule that: "xxx xxx xxx The first two errors are factual in character. No further attention need be paid them. 'This Court is bound by the finding of facts of the Court of Tax Appeals, especially so, where as here, the evidence in support thereof is more than substantial, only questions of law thus being left open to it for determination.' Such an approach to problems of this character does not only have a legal basis but is dictated by the realities of the situation. A tribunal like the Court of Tax Appeals necessarily develops expertise, dealing as it does with one particular branch of the law; it can be relied upon, therefore, at least on factual matters to make full and judicious use of the knowledge that it has acquired through such long years of experience. It is in a position to appreciate fully the manifold complexities usually associated with tax problems and thus to come up with the correct solutions. It has been the invariable policy of the Court therefore, not to substitute its discretion for that of respondent Court of Tax Appeals. Petitioner has not shown any reason why there should be a deviation from such a norm." (Chu Hoi Horn versus Court of Tax Appeals, et al., 25 SCRA 809, 813-814) Petitioner's advertence to preliminary findings of Private Respondent's liability for deficiency internal revenue taxes liabilities amounting to millions has reference to her claim, before the Respondent Court, of a deficiency income tax of P2,265,490.00 and the amount of P37,573,630.00 covered by Central Bank Confirmation Receipt No. 11855918 dated June 6, 1987 under Exhibit "1" of the Petitioner herein: "Moreover, as verified and examined by respondent's Revenue Accounting Division, the amount of P37,573,630.00 alleged covered by Central Bank Confirmation Receipt No. 11855918 dated June 6, 1987 cannot be determined that said payment refers to income tax as the same is not included in the Alpha List on file with their office, but the said payment may refer to other kind of tax due from it. This is shown in the Certification issued by Revenue Accounting Division of Respondent's Bureau dated March 4, 1993 (p. 8, Exh. '1' Respondent; p. 316 and 336, BIR records). Hence, should be deducted from the amount sought to be refunded by herein petitioner." (pages 5-6, Memorandum for Respondent, pages 190-191, Record) However, the aforesaid issue posed by the Petitioner in the Court a quo was resolved by the Respondent Court, which We find in accord with law, thus: "xxx xxx xxx Respondent stressed in her memorandum that the payment made by petitioner in the amount of P37,573,630.00 alleged covered by CBCR No. 11855919 dated June 6, 1987 (Exh. 'A'), although received, cannot be determined as to what kind of tax payment it refers. The same does not bear the tax coding required nor included in the Alpha List on file with the Revenue Accounting Division. Hence, should be deducted from the amount sought to be refunded. However, after careful examination of respondent's contention against the evidence presented by petitioner, this Court ascertained that said alleged payment represents an income tax payment for the first quarter of 1987. This kind of tax payment was written in the Payment Order No. 0372476 issued by the bureau (Exh. 'A-1'). Therefore, the amount that can be refunded is computed as follows: For 1987 Payments made: Qtr. CR/ROR No. Date Amount Exh 1st B11855919 06/01/87 P 37,575,630.00 A 2nd B12442862 09/01/87 105,927,467.00 B 3rd B13093885 12/01/87 100,483,466.00 C Total P243,986,563.00 Less: income tax liability 142,088,822.00 N-2 Excess: payment to be carried as tax credit in 1988 P101,897,741.00 Less; applied in 1988 77,931,812.00 Excess payment P23,965,929.00 For 1988 Payments made: Qtr. CR/ROR No. Date Amount Exh. 1st B11446769 05/30/88 P53,333,376.00 1 3rd B15511077 11/29/88 14,917,514.00 M Total P68,250,890.00 Add: tax credit from 1987 77,931,812.00 Total P146,182,702.00 Less: income tax liability 62,498,902.00 0-2 Excess payment P 83,683,800.00 Total P107,649,709.00 (pages 7-8, Decision, Annex "B", Petition) Anent Private Respondent's deficiency income tax, the same had already been the subject of " Manila ElectricCompanyversus Commissioner ofInternal Revenue, CTA-5005 " which case was withdrawn by the Petitioner herself in the heels of a "Compromise Agreement" between the parties therein which was the basis of the Resolution of the Respondent Court dated May 17, 1994, quoted as follows: Confirming the order in open court on May 12, 1994, Petitioner's 'Motion to Withdraw Petition for Review', filed on May 4, 1994, is GRANTED considering that Petitioner's application for compromise settlement of its tax deficiency in the amount of P1,206,592.00 subject matter of the case, has been approved and granted by Respondent Commissioner of Internal Revenue (see pp. 35-36 37 CTA Rec.) Accordingly, let Petitioner's Petition for Review be considered withdrawn and this case deemed closed and terminated. So ordered." (page 222, Record) Indeed, in its Decision, the Respondent Court declared: "xxx xxx xxx While there may be some basis for the assessment of deficiency income tax, we cannot uphold the same in the view of the compromise settlement entered into by the parties. To deduct said deficiency to the instant claim for refund would cause injustice to the taxpayer." (page 3, supra) IN THE LIGHT OF THE FOREGOING, the Petition is DISMISSED for lack of merit. The assailed Decision is AFFIRMED, in toto . SO ORDERED. Caizares-Nye and Imperial , JJ ., concur.