Bank of the Philippine Islands v. Commissioner of Internal Revenue

SPECIAL THIRD DIVISION [CA-G.R. SP No. 40320. August 25, 1997.] BANK OF THE PHILIPPINE ISLANDS, as Trustee of the Mobil Philippines, Inc., Retirement Fund, et al. , petitioners , vs . COMMISSIONER OF INTERNAL REVENUE and the COURT OF TAX APPEALS , respondents . [CA-G.R. SP No. 40640. August 25, 1997.] BANK OF THE PHILIPPINE ISLANDS, as Trustee of the Mobil Philippines, Inc., Retirement Fund, et al. , petitioners , vs . COMMISSIONER OF INTERNAL REVENUE and the COURT OF TAX APPEALS , respondents . D E C I S I O N PARAS , G. , J p : The subject of the "PETITION FOR REVIEW" in CA-G.R. SP No. 40320 are the October 11, 1995 decision and March 21, 1996 resolution of the respondent Court of Tax Appeals in CTA cases Nos. 4898, 4900 up to 4940. In CA-G.R. SP No. 40640, the subject of the Petition for Review is the April 22, 1996 decision of the respondent court in consolidated CTA Cases Nos. 4730 to 4770. In the Resolution dated May 27, 1996 of the then Thirteenth Division, the petitioners in CA-G.R. SP No. 40320 and CA-G.R. SP No. 40640 were consolidated as they "xxx xxx xxx . . . involve the same parties and the same subject-matters; that the decision and resolution of the Court of Tax Appeals in this case (CA-G.R. SP 40640), is also the subject matter of CA-G.R. SP 40320; and that the witnesses who testified in the consolidated cases leading to the decision in CA-G.R. SP 40320, were the same witnesses who testified in the consolidated cases that is the subject of the present petition for review. xxx xxx xxx." As shown from the pleadings and their annexes, the herein petitioner, as trustee of the employees' retirement fund of the various companies, uniformly prayed in the petitions before the respondent court in CTA Cases Nos. 4730 to 4770 for the refund of final taxes withheld by the Central Bank of the Philippines and paid to respondent Commissioner of Internal Revenue in connection with the petitioner's purchases of government securities, specifically treasury bills, for the period beginning January 8, 1990 to December 12, 1990 of the year 1990 for each of these forty one (41) retirement plans. The amount claimed by each of the retirement plans covered by these consolidated cases is stated in each of the petitions. In CTA Cases Nos. 4898, 4900 to 4940, the herein petitioner similarly asked for the refund of the aggregate amount of P9,672,325.02 allegedly representing fixed taxes withheld from interest income earned on government securities purchased by the petitioner covering the period from January 1, 1991 up to December 31, 1991. In her answer to each of the petitions, the respondent Commissioner consistently argued that while qualified retirement plans under Section 54 (b) of the National Internal Revenue Code (NIRC) were exempt from the payment of final taxes on earnings derived from interest on bank deposits and/or deposit substitutes, pursuant to Section 21 (d) and 24 (cc) of the National Internal Revenue Code ("NIRC"), this exemption was deleted upon the promulgation on October 15, 1984 of Presidential Decree No. 1959. Her other argument is that the petitioner failed to show that the tax which was the subject of the claim for refund was erroneously or illegally collected. During the trial proper in CTA Cases Nos. 4898, 4900 to 4940, the petitioner introduced in evidence as Exhibit "A" for each of these consolidated cases, the Schedule of Investments in Government Securities made in the year 1991 by the petitioner for the retirement plans subject of said consolidated cases. At the hearing on May 10, 1994, the forty-two (42) schedules were identified by Mr. Eugenio Lotho, the person who ordered the preparation of said schedules. The Schedules indicate, among other things, the face value and maturity dates of the government securities purchased (Exhibit "A-1"), the prepaid final taxes on the purchases of these government securities (Exhibit "A-2") and the Confirmation of Sale Document Numbers (Exhibits "A-3") which show that such final taxes were withheld and paid by the Central Bank of the Philippines to the respondent commissioner. The petitioner also presented in evidence, at the hearings held on June 15, 1994 and August 9, 1994, the worksheets (Exhibits "D", "D-1" up to "D-2") and Official Certification (Exhibits "F", "F-1" up to "F-5") prepared by the Government Securities Department of the Central Bank of the Philippines and identified and explained by Mrs. Muriel Joy Caubang, a responsible officer of said department of the Central Bank. This Official Certification indicated that the Central Bank, as authorized withholding agent, actually withheld and remitted to the respondent commissioner, final taxes on purchases of treasury bills made by the petitioner through its Treasury Department. In support of the Schedule of Investments earlier mentioned, the petitioner marked and offered, as Exhibits "B-1" up to "B-65", Confirmation of Sale Documents issued by the Treasury Department of petitioner in favor of the Trust Department of petitioner. These documents were identified by Mr. Eugenio Lotho at the hearing of May 10, 1994 and the appropriate confirmation documents were appended to each of the Schedule of Investments (Exhibit "A") which had been offered earlier. Mr. Lotho explained that the Confirmation of Sale Documents, appended to the schedules, confirmed the date of sale of treasury bills between the two departments, the serial numbers of treasury bills sold, the maturity dates, face amount, yields, prepaid taxes, and selling price of the treasury bills sold by the Treasury Department to the Trust Department of the petitioner for the account of the various retirement plans subject of these cases (tsn., pp. 8-12, hearing of 10 May 1994). The petitioner considered Mr. Lotho's testimony as significant because it allegedly explained the relation of the said certifications with the bookkeeping practices of the Central Bank for government securities sold to banks (including petitioner), which participate in the daily auction of treasury bills issued by the Government. His testimony on this point was corroborated by Mrs. Muriel Joy Caubang when she testified before the respondent court (tsn., pp. 8-10). The petitioner added that the testimonies of Lotho and Caubang, and the documents offered in support of their testimonies, were significant because they showed the manner in which government securities purchased by the Treasury Department of petitioner from the Central Bank were allocated to the various retirement plans that were the subject of these cases and how final taxes were withheld and paid to the Government for the purchase of these government securities. In further support of its claims for refund, the petitioner marked and offered before the respondent court as Exhibit "C", for each one of these cases, Certifications issued by the respondent herself confirming the tax exempt status (under Republic Act No. 4917 and pertinent BIR regulations) of the retirement plans subject of these cases. The respondent Commissioner did not question the authenticity and due execution of these certifications. At the hearing on April 4, 1995, the petitioner submitted in evidence the claim for refund itself (Exhibits "G", "G-1", "G-2") and a summary of refundable taxes for each of the retirement plans that were the subject of these consolidated cases. The claim and summary were identified by Cynthia G. Makasiar, the person who caused the claim to be prepared and filed with respondent Commissioner. These exhibits were formally offered to show that the petitioner filed a timely claim for refund for each of these forty-two (42) retirement plans and counsel for the respondent commissioner manifested in open court that he did not object to the admission of said documents. The respondent commissioner neither debunked the exhibits presented nor discredited the witnesses summoned to testify on the petitioner's behalf. When the commissioner was required to present evidence for her defense, she manifested, through counsel, that she was submitting these consolidated cases for resolution based on the records thereof. On October 11, 1995, the respondent court in CTA Cases Nos. 4898, 4900 to 4940, rendered decision denying the claims for refund of each of the retirement plans subject of these consolidated cases on the ground of "insufficiency of evidence". The petitioner moved for reconsideration of the aforesaid decision. The motion for reconsideration was denied by the respondent court in its resolution of March 21, 1996. In CTA Cases Nos. 4730 to 4770, the respondent court rendered decision finding absence of evidence to show that the assets of the various trust fund were actually used in the purchase of treasury bills; that what was established was the transaction between the Treasury Department and Trust Department, but not the one between the Trust Department and the individual trust fund. Thus, before this Court is the petitioner in the present consolidated petitions assailing the aforesaid decisions of the respondent court on the grounds that I CONTRARY TO THE RULING OF THE RESPONDENT COURT, THE EVIDENCE ON RECORD CLEARLY ESTABLISHES THE FACT THAT WHEN PETITIONER, AS TRUSTEE OF VARIOUS RETIREMENT PLANS IN THESE CASES, PURCHASED GOVERNMENT SECURITIES IN THE YEAR 1991 FOR SAID RETIREMENT PLANS, TWENTY PER CENT FINAL TAXES WERE WITHHELD BY THE CENTRAL BANK AND PAID TO RESPONDENT COMMISSIONER CONSISTENT ONLY WITH THE GENERAL PRACTICE FOLLOWED BY THE CENTRAL BANK, ALL PRIVATE BANKS AND RESPONDENT COMMISSIONER. II CONTRARY TO THE RULING OF RESPONDENT COURT, THE COMMISSIONER FAILED, AS SHE REFUSED, TO PRESENT EVIDENCE TO REBUT THE TESTIMONIAL AND DOCUMENTARY EVIDENCE MARKED AND OFFERED BY PETITIONER, WHICH EVIDENCE CONCLUSIVELY SHOWS THAT PETITIONER IS ENTITLED TO THE REFUNDS CLAIMED. III CONTRARY TO THE ERRONEOUS CLAIM OF RESPONDENT COURT, THE EVIDENCE PRESENTED BY THE PETITIONER IN THESE CONSOLIDATED CASES ARE OF THE SAME NATURE AS THAT WHICH WAS SUBMITTED IN CTA CASES NOS. 4533 to 4566 AND CA-G.R. SP NOS. 40320 and 40640 FAVOR OF SAME PETITIONER AND HAVE NOW BECOME FINAL; CONSEQUENTLY, TO BE CONSISTENT WITH RESPONDENT COURT'S 01 JULY 1994 DECISION IN SAID EARLIER CASES, RESPONDENT COURT SHOULD HAVE RULED IN FAVOR OF PETITIONER. Since all these assignments of error are interrelated, they shall be discussed jointly. Both parties readily concur with the ruling of the Supreme Court in the case of Commissioner of Internal Revenue v . Court of Appeals ( 207 SCRA 487 , 495 ) that tax exemption is likewise to be enjoyed by the income of the pension trust. Otherwise, taxation of those earnings would result in a diminution of accumulated income and reduce whatever the trust beneficiaries would receive out of the trust fund. This would run afoul of the very intendment of the law." The question now posed is whether or not the petitioner was able to sufficiently prove that the funds used to buy the government securities came directly from the pension trusts. It is the contention of the petitioner that it has presented sufficient evidence in the form of the Schedule of Investments in Government Securities made in the year 1991 and the Confirmation of Sale Documents and the testimony of Eugenio Lotho, the person who caused the preparation of said documents. The respondent Commissioner counters that the petitioner's evidence did not substantiate its claim that it actually used the funds of the various trust funds involved herein in the purchase of government securities and that final taxes were actually paid for and in behalf of said trust funds and not by their Trustee Bank, petitioner herein, in its own juridical capacity as a banking institution. In short, even though petitioner was able to prove its bulk purchase of government securities and that final taxes on these purchases have been withheld, it was not able to prove that these purchases were for the account of the subject tax-exempt retirement plans. In the case of Commissioner of Internal Revenue v . Philippine American Life Insurance Co . ( 244 SCRA 446 , 453 ), the Supreme Court has said that since the petitioner had also raised the issue of whether or not private respondent had satisfactorily shown by competent evidence that it was entitled to the amount sought to be refunded, the same being a question of fact, the Highest Court of the land was bound by the findings of the Court of Tax Appeals. Moreover, in the case of Misamis Oriental Association of Coco Traders , Inc . v . Department of Finance Secretary ( 238 SCRA 63 ), the Supreme Court had the occasion to state that as the government agency charged with the enforcement of the law, the opinion of the Commissioner of Internal Revenue, in the absence of any showing that it is plainly wrong, is entitled to great weight." Again, in the case of Commissioner of Internal Revenue v . Court of Appeals ( 242 SCRA 289 , 304 ), it was similarly stated that as a matter of practice and principle, the Supreme Court will not set aside the conclusion reached by an agency such as the Court of Tax Appeals, which is, by the very nature of its function, 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 authority on its part." An examination of the findings of the respondent court as expressed in its decision in CTA Cases Nos. 4730 to 4770, shows no such abuse or improvident exercise of discretion on its part. Indeed, the respondent court properly reached its conclusion when it said: "From the foregoing, it shows that the Treasury Department sold treasury bills to BPI Investment Banking and not to the Trust Department per se as claimed by petitioner. The records do not reveal that they are one and the same entity. It can be said that the former could be catering to other non-trust clients with either tax-exempt or taxable status, or a combination of both. "It can very well be concluded that even though the individual sale of treasury bills was actually made to petitioner's Trust Department, it does not necessarily follow that such sale was intended for a particular trust fund involved herein. It could be that the sale was for the account of individuals and corporations aside from retirement plans" In regard to CTA Cases Nos. 4898, 4900 to 4940, the respondent court found no evidence to pinpoint the fact that the assets of the various trust funds were actually used in the purchase of the treasury. What the said court found to have been proven by the petitioner was the transaction between the Treasury Department and Trust Department, but not the one between the Trust Department and the individual trust fund. The respondent court elucidated further on the matter in its March 21, 1996 resolution in CTA Cases Nos. 4898, 4900 to 4940 in this wise: "It must be observed that the confirmations and the Schedules are not the best evidence of actual payment by the individual trust funds. They do not even remotely suggest any of the original contents of any supposed document evidencing such transaction with said funds. As we have stated in our questioned decision, the best evidence of actual payment by the individual trust funds is the documentary proof of such payments. We quote: 'Evidently, the deposit accounts of the trust funds will have to be debited in the purchase of the treasury bills and the corresponding receipt of acknowledgment. In any convenient form, will have to be issued as proof of payment. Petitioner must have documented or made entries, on such transactions.' (Decision, p. 17)'. At most, the Conformations only tended to establish the fact of payment made by the named buyer therein which is "BPI Investment Banking for various tax exempt accounts" or "BPI Investment Banking for various taxable accounts". (Decision, p. 13, p. 103, CTA records) Petitioner must be able to show proof of the actual payment of the sale of treasury bills by each of the individual trust funds. In their respective account name, before this Court can be finally convinced that indeed payment was made and the final withholding tax on the interest income from the purchase of the treasury bills was in fact deducted. From another point of view, the admission of Mrs. Antonia Y. Palero during her testimony in the hearing of January 31, 1992, that not only retirement plans but as well as individuals and corporations can avail of the trust services of the bank, is a clear indication that the sale of treasury bills to BPI Investment Banking, or Trust Department as alleged by petitioner (Decision, p. 13), could never be imagined to be a limited and exclusive sale to the respective trust funds. As we have already noted above, the treasury bills subject of these cases were bought by the named buyer, BPI Investment Banking for and in behalf of the various taxable or tax exempt accounts. This fact could only mean one thing. The treasury bills were bought by said accounts, which could either be taxable or tax exempt individuals, corporations or retirement plans. In fine, the Confirmation are mere proofs of a general or block sale to BPI Investment Banking with individuals, corporations and retirement funds as possible buyers. (Decisions, pp. 13-15, pp. 103-105, CTA records). It is worth emphasizing that in the instant motion, petitioner failed to controvert the above important findings of this Court in the questioned decision. Its inexplicable omission is thus indicative of the fragility of its resolute obstinacy." The petitioner also argues (1) that inasmuch as its evidences in the instant cases are of the same nature as those which were submitted in the earlier consolidated CTA Cases Nos. 4533 etc., the decision therein in favor of the herein petitioner, is expected in the cases at bench; and (2) that the distinctions set forth by the respondent court between the earlier CTA consolidated cases and those in the instant cases, to wit: "(a) the legal scenario in 1991 was that retirement plans were taxable as to their income or interest and/or yield on deposit instruments, which includes treasury bills, and that it was not hard to imagine that the sale of treasury bills to tax-exempt accounts at the time were really never intended for the trust accounts involved; and (b) the records of Consolidated CTA Cases 4533 to 4566, 4681 to 4685 failed to show that the evidences therein, i.e., Schedules and Confirmations, etc., were actually and directly controverted by the respondent, which was not the situation in the instant cases. "were flimsy if not totally elusory." It bears no little emphasis that a taxpayer has the burden of proving entitlement to a claimed deduction (Paper Industries Corporation of the Philippines vs. Court of Appeals, 250 SCRA 434). This is consistent with the rule that tax exemptions must be strictly construed against the taxpayer and liberally in favor of the state (Misamis Oriental Association of Coco Traders, Inc. vs. Department of Finance Secretary, supra.). Noteworthy is that the respondent court in its resolution in the present consolidated CTA Cases Nos. 4898, 4900 to 4940, detailed out the distinctions in the appreciation of evidences between the earlier consolidated CTA Cases Nos. 4533 etc. and the present cases as follows: "Firstly, the Confirmations in both cases have different buyers. The named buyer in CTA Case No. 4533 is the BPI Trust and Investment Division while in the cases at bar it is the BPI Investment Banking. Because of this, We have ruled that the sale of treasury bills to BPI Investment Banking as contained in the Confirmations is not per se the same sale to the Trust Department as claimed by the petitioner. (Decision, pp. 13-14) Secondly, the treasury bills sold, as indicated in the Confirmations of herein cases, were separately earmarked for either 'taxable accounts' or 'tax-exempt accounts' of BPI Investment Banking. Such designation is absent in CTA Case No. 4533." Concluding, the questioned decisions and resolution in the instant consolidated petitions are found in order. dctai WHEREFORE, THE PRESENT PETITIONS ARE DISMISSED FOR LACK OF MERIT. SO ORDERED. Montenegro and Amin, JJ . , concur. Romeo A . Brawner, J . , is on leave.