Banco Filipino Savings and Mortgage Bank v. Commissioner of Revenue

THIRD DIVISION [CA-G.R. SP No. 38807. September 30, 1996.] (C.T.A. Case No. 4122) BANCO FILIPINO SAVINGS AND MORTGAGE BANK , petitioner , vs . COMMISSIONER OF REVENUE and COURT OF TAX APPEALS , respondents . D E C I S I O N SANDOVAL-GUTIERREZ , J p : Petition for review of the decision of the Court of Tax Appeals in CTA Case No. 4122, "Banco Filipino Savings and Mortgage Bank vs. Commissioner of Internal Revenue," involving a claim for refund. The facts as can be gleaned from the records are: Petitioner Banco Filipino Savings and Mortgage Bank (bank for brevity) is a banking corporation organized and existing under the laws of the Philippines, and is authorized to engage in commercial banking. On January 23, 1985, the Monetary Board of the Central Bank of the Philippines issued MB Resolution No. 75 ordering the closure of the bank on the ground that "the continuance of business of the bank would involve probable loss to the depositors and creditors" based on the examination conducted by the Central Bank on its financial condition. The resolution designated Mrs. Carlota Valenzuela, Deputy Governor of the Central Bank, as receiver. In a subsequent resolution, the Monetary Board declared the bank insolvent and ordered its liquidation. Mrs. Valenzuela was appointed liquidator. For the year 1984, Mrs. Valenzuela, on December 21, 1986, filed an income tax return 1 in behalf of the bank, declaring therein that it incurred a net loss of P501,326,838.00. On December 24, 1986, she filed an amended income tax return 2 with a claim for refund of P2,501,263.07 representing the total various taxes withheld by the bank's agents from income payments due to the bank, such as rentals of properties and interest from government securities. On the same day, she filed with the Court of Tax Appeals (CTA) a petition for review against the Bureau of Internal Revenue (BIR) praying for the refund of creditable withholding taxes in the amount of P2,501,263.07. The petition was docketed as CTA Case No. 4122. Earlier, on April 15, 1985, the bank, through its officers, filed a separate income tax return 3 for 1984 declaring a net income of P59,776,226.00 and a tax due of P20,911,679.00. A tax credit was also claimed by the officers in the amount of P2,498,736.00 reflecting therefore a total tax due of P18,412,943.00. On April 16, 1985, the bank, through its officers, wrote the Bank of Philippine Islands to pay the BIR the amount of P18,412,943.00 4 Mrs. Valenzuela, who was in control of all assets, properties and accounts of the bank, objected to such payment on the ground that the filing of income tax return by the bank officers was without authority and that no income tax was due from the bank because it incurred a net loss of P501,326,838.00. On June 14, 1985, then Acting BIR Commissioner Ruben Ancheta issued Assessment No. SARD 84-17-85 5 against the bank assessing the latter in the sum of P20,838,010.79 as delinquency taxes for 1984 based on the income tax return filed by its officers. However, he recognized their claim of tax credit of P2,498,736.00. Meantime, in its answer to the petition for review filed by the bank, through Mrs. Valenzuela, respondent BIR raised the following special and affirmative defenses: "5. Petitioner's claim for refund is pending investigation; "6. The petition states no cause of action as the petition for refund does not allege the date when the tax was paid (Manufacturer's Bank and Trust Co. as trustee for Gem Trust Plan vs. The Commissioner of Internal Revenue, CTA Case No. 1659, November 29, 1965); "7. The mere averment that petitioner suffered a net loss of P501,326,838.00 during the year involved does not ipso facto merit a refund; "8. The amount of P2,501,263.07 alleged to have been withheld for 1984 was collected in accordance with law and regulations, hence, not refundable; "9. It is incumbent upon the petitioner to show compliance with the provisions of Sec. 292 and 295 (now Sections 243 and 246) of the National Internal Revenue Code of 1977 as amended; "10. A claim for refund is construed strictly against claimants, since a claim for refund partakes of the nature of an exemption from taxation (Coll. of Int. Rev. vs. Ledesma, G.R. L-17509, 31 SCRA 95, 1970)" During the pendency of the case with the CTA, the Supreme Court came out with a decision in "Banco Filipino Savings and Mortgage Bank vs. Monetary Board, Central Bank of the Philippines" dated December 11, 1991 6 declaring the closure of the bank by the Central Bank as null and void because it was done in an arbitrary manner tantamount to a grave abuse of discretion. Pursuant to the Supreme Court decision, Mrs. Valenzuela ceased to be the liquidator of the bank and her powers and functions reverted to the bank officials. Pursuing the petition for review filed by Mrs. Valenzuela, the bank officials, on March 30, 1985, filed with the CTA a memorandum stating that the said petition was based on a spurious return to make it appear that the bank was then insolvent; that in 1984, the bank has an income of P59,776,226.00 with an income tax due of P20,911,679; that they attempted to pay this amount, less a tax credit of P2,498,736, through the Bank of Philippine Islands, but they were prevented from doing so by the liquidator; that the tax credit of P2,498,736.00 already recognized by the BIR should be increased to P2,604.23 because additional certifications for creditable taxes withheld were gathered by the bank and were formally offered in evidence. On July 28, 1995, the Court of Tax Appeals rendered a decision, the dispositive portion of which states: "WHEREFORE, in view of the foregoing, this Court denies petitioner's claim for refund/tax credit. The instant petition for review is hereby DISMISSED for lack of merit." In dismissing the bank's petition, the CTA held: ". . . The controversy lies in the amount of tax credit it is entitled to arising from the creditable taxes withheld from its income by the various withholding agents in 1984. The tax credit will serve to reduce the amount to be paid by the petitioner and it is their contention that the tax credit already recognized by respondent should be increased from P2,498,736.00 to P2,604,753.23 because additional certifications for creditable taxes withheld were gathered by the petitioner and these were formally offered in evidence. "The records of this case belie the claim of the petitioner. "In a letter dated June 14, 1985, the then Acting Commissioner of Internal Revenue, Ruben Ancheta issued a letter addressed to petitioner informing them of its delinquency income tax for the taxable year 1984 detailed as follows: Gross revenue per return P542,188,201.00 Less: Deductions/Tax free income 582,412,565.00 Net income per return 59,776,220.00 Income tax due thereon 20,911,679.00 Less: Tax credit 2,498,736.00 Delinquency income tax 18,412,943.00 Add: 10% Surcharge 1,841,294.30 20% Int. fr. 4/15/83-6/14/85 633,773.49 TOTAL AMOUNT DUE AND COLLECTIBLE P20,838,010.00 "The delinquency income tax was based on the income tax return filed by the petitioner on April 15, 1985 which specifically reflected the amount of P2,498,736.00 as tax credit representing creditable taxes withheld in 1984 (see Exhibit "A", page 415, CTA Records). This same amount was recognized by respondent when it issued the abovementioned letter as can be gleaned from the details aforecited so petitioner by its own admission embodied in the income tax return cannot now allege that a different amount should be granted as tax credit . . . ." Hence, this petition for review by the bank. The petitioner bank ascribes to respondent CTA the following errors: 1. In holding that the bank abandoned the allegations of the petition in CTA Case No. 4122; and 2. In denying its claim for tax credit. The main issue to be resolved is whether or not the tax credit of P2,498,736.00 already recognized by the Commissioner of Internal Revenue in favor of the bank should be increased to P2,604,753.23 considering that additional taxes in the sum of P106,017.23 were withheld from the bank's other income in 1984. 7 In Commissioner of Internal Revenue vs. Court of Tax Appeals, 8 the Supreme Court pertinently held that the grant of a refund is founded on the assumption that the tax return is valid . It bears reiterating that the petition filed by Mrs. Valenzuela with the CTA is based on the bank's income tax return for 1984 declaring that the bank has no income tax due and is therefore entitled to a refund of P2,501,263.07 representing withholding taxes. In pursuing the said petition by asking for an increased tax credit of P2,604,753.23, the bank officials alleged in their memorandum that in 1984, the bank acquired additional income from which creditable taxes were withheld. We observe, however, that this additional income and the corresponding withholding taxes were not declared in the bank's income tax return for 1984. They were only raised in the memorandum submitted by the bank officials to the CTA in relation to the petition for review filed by the liquidator. Just why the bank officials failed to file on time an amended income tax return declaring those items intrigues Us no end. For sure, they must be aware that in the absence of such amended income tax return, the BIR has no basis in determining whether or not the bank is entitled to a tax credit of P106,017.23 in addition to P2,498,736.00 tax credit already recognized by the BIR. We quote with approval the Resolution of the CTA dated December 18, 1995 9 which states in part: ". . . More importantly, if there were additional creditable taxes withheld and claimed by petitioner, this would necessarily mean that the gross income of the petitioner for that year would increase, thus changing the taxable income to be paid by the petitioner. It is important to note that to increase the tax credit being asked for is not as simple as adding on the amount by a mere statement in the memorandum that is so entitled, rather, this entails a total change of the income statement of petitioner reflecting therein the added income from which creditable taxes were withheld, the technicalities of which are best left to the expertise of the petitioner's accountants. . . ." WHEREFORE, this petition for review is hereby DISMISSED. The assailed decision of the CTA is AFFIRMED. Costs against the petitioner bank. SO ORDERED. Buena and Vasquez , Jr ., JJ ., concur. Footnotes 1. Exhibit "F", Records, p. 438. 2. Exhibit "G", Records, p. 443. 3. Exhibit "A", Records, p. 415. 4. Exhibit "D", Records, p. 423. 5. Exhibit "1", Records, p. 516 6. 204 SCRA 767 7. Exhibits "Y" to "Y-53" and "SS" and "RR", Records, pp. 451-495. 8. 234 SCRA 348. 9. Denying the bank's motion for reconsideration of the CTA decision now subject of Our review.