Far East Bank & Trust Co. v. Court of Tax Appeals

THIRD DIVISION [CA-G.R. SP No. 41666. May 7, 1997.] FAR EAST BANK AND TRUST COMPANY , petitioner , vs . COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE , respondents . D E C I S I O N CALLEJO , SR. , J p : Claiming that the Decision of the Respondent Court of Tax Appeals, In " Far East Bank and Trust Company versus Commissioner of Internal Revenue , CTA Case No . 4972, promulgated on January 24, 1996 , and the Respondent Court's Resolution , promulgated on July 31, 1996 , were not based on the evidence on record and the law, the Petitioner came to this Court, on a Petition for Review, praying that the aforesaid Decision and Resolution be reversed and another be rendered granting Petitioner's claim for refund. The Respondents, en contrario , averred, in their ' Comment ' to the Petition that the Decision of the Respondent Court of Tax Appeals and its Resolution are in accord with the evidence on record and the law, and prayed that the Petition at bench be denied due course and dismissed. The Petition at bench stemmed from the following factual backdrop, as found by the Respondent Court of Tax Appeals in its Decision: "Petitioner is a domestic banking corporation duly organized and existing under and by virtue of Philippine laws. "In the early part of 1992, the Cavite Development Bank (CDB), also a domestic banking corporation, was merged with the Petitioner with the latter as its surviving entity. With the merger, Petitioner being the surviving entity, acquired all assets of CDB. "During the period from 1990 to 1991, CDB sold some acquired assets in the course of which, it allegedly withheld the creditable tax from the sales proceeds which amounted to P755,715.00. aisadc "In said years, CDB filed income tax returns which reflected that CDB incurred negative taxable income or losses for both years. Since there was no tax against which to credit or offset the taxes withheld by CDB, the result was that CDB, according to Petitioner had excess creditable withholding tax. "Thus, Petitioner being the surviving entity of the merger, filed this Petition for Review after its administrative claim for refund was not acted upon." ( Pages 47-78, Rollo .) After due proceedings, the Court of Tax Appeals promulgated its Decision, Annex " A " of the Petition , denying Petitioner's claim for refund on the ground of Petitioner's failure to establish, with the requisite quantum of evidence, its right to the refund sought by it in its Petition. Petitioner's plea for a reconsideration of the Decision suffered a similar fate when the Court of Tax Appeals denied Petitioner's " Motion for Reconsideration ." cdt The Petitioner intractably insists, in its Petition at bench, that (a) it did adduce sufficient evidence to prove its withholding of the creditable withholding tax on the sale of acquired assets and the remittance thereof to the Bureau of Internal Revenue; and (b) a strict interpretations of Revenue Regulation No. 6-85, as amended, was unwarranted, and the denial of Petitioner's claim for refund anchored thereon was inappropriate. The petition is barren of merit . In its Decision, the Respondent Court of Tax Appeals found and declared, based on the evidence on record, that: "In its Petition for Review and in the Memorandum, Petitioner alleged that CDB withheld the creditable withholding taxes from the sales proceeds of its acquired assets. It would seem therefore, from the allegation that CDB was the taxpayer (recipient of the income) and the withholding agent at the same time of its own transactions . In fine, they are one and the same. Although it can of course, be argued that the Tax Code does not specifically prohibit the taxpayer from withholding its own tax, yet, this Court finds it rather amusing as it is not in accordance with the normal practice. Under the facts presented, CDB as seller of capital assets is really the one liable to pay the creditable withholding tax. Thus, We see no reason why CDB cannot pay for the tax it is responsible to pay in the first place under the expanded withholding tax system. "However, in the case at bar, petitioner did not pass the Court's scrutiny in proving its claim for refund. The documents presented by the Petitioner were not sufficient to warrant that CDB withheld and remitted the withholding taxes corresponding to its own sale of capital assets. The various Central Bank Confirmation receipts and BIR official receipts and payment orders presented by petitioner (Exhs. "I" to "I-36"), although all in the name of CDB, are not conclusive evidence as to the actual payment and remittance of the withholding taxes pertaining to the sale of CDB's capital assets. The existing doubts are due to the following: cd 1. The amount of income payments received by CDB cannot be ascertained by the mere presentation of confirmation receipts. The BIR Form 1743.1 is needed, as required under Sec . 10, Rev . Regs . 6-85 of the expanded withholding tax regulations, for the purpose of at the very least the annual return (i.e., reconciliation statement of quarterly payments and list of payees and income payments, required under Sec. 51(1) of the Tax Code, to be submitted to the Commissioner of Internal Revenue wherein the Court can check it the said payments of tax are indeed done by the CDB for its own account by listing its own name as one of the recipients of the tax it paid. 2. It can not be well said, that the amounts paid and remitted to the CDB were for CDB's account and not for the other possible payees of withholding taxes which CDB may also be liable to remit as a withholding agent. 3. Some confirmation receipts and payment orders even refer to payments of capital gains tax (Exhs. "I-4" to "I-7", inclusive). This contradicts the claim of petitioner that the withholding are for creditable withholding tax at source under the expanded withholding tax system. Revenue Regulations No. 6-85. Moreover, corporations are not even required to pay in advance, by way of withholding, tax on capital gains. "From among the requirements set forth in claiming the refund of excess creditable withholding taxes which are: 1. that it (petitioner) filed a claim for refund within the two (2) year period as prescribed under Section 292 (now 230) of the National Internal Revenue Code; 2. that the income upon which the taxes were withheld were included in the return of the recipient; and 3. the fact of withholding is established by a copy of statement (BIR Form 1743.1) duly issued by the payor (withholding agent) to the payee, showing the amount paid and the amount of tax withheld therefrom. (Sec. 10, Rev. Regs. 6-85; Citytrust Finance Corporation v. The Commissioner of Internal Revenue, CTA Case No. 4134, November 11, 1991; Citytrust Finance Corporation (formerly Investors Finance Corporation/FNCB Finance) v. Commissioner of Internal Revenue, CTA Case No. 4046. February 24, 1993, and Paseo Realty and Development Corporation v. Commissioner of Internal Revenue, CTA Case No. 4254. August 10, 1993; Commissioner of Internal Revenue v. Court of Tax Appeals and Paseo Realty and Development Corporation, CA-G.R. SP No. 32937, February 28, 1994). only requirement number one was satisfactorily met by the Petitioner. The second and third requirements were not. Petitioner failed to show that the income (portion) upon which the taxes (creditable) were withheld were included in its return, Thus, the Court cannot ascertain whether the income pertaining to the alleged creditable withholding taxes were included in the 1990 and 1991 income tax returns of CDB which the Petitioner submitted in evidence. Petitioner also fell short in complying with the third requirement when it did not present the BIR Form 1743.1 required by Revenue Regulations No. 6-85" ( Pages 47-50, supra .) We must pay obeisance to the doctrine enunciated by our Supreme Court and reiterated in " Commissioner of Internal Revenue versus Court of Appeals, 242 SCRA 289 , that: "Furthermore, 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 inclusively 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." ( Page 304, supra .) The Petitioner failed to show abuse or arbitrary or improvident exercise of authority on the paid of the Respondent Court of Tax Appeals. The Petitioner avers that the withholding of the taxes and the remittance thereof to the Bureau of Internal Revenue were duly and sufficiently established by: (1) The various Confirmation Receipts, Payment Orders and Official Receipts issued by the Central Bank and the BIR covering the subject sales transactions on the sales proceeds from which creditable taxes were withheld and paid to the BIR; (2) Income Tax Returns for 1990 and 1991, with the attached financial statements ( Exhibits " F " and " G ") filed by Petitioner with the BIR; and (3) A list prepared by the Accounting Department of the Petitioner indicating the name of the persons to whom the various sales transactions were made and the amount of taxes that were withheld for each transaction ( Exhibit " H "). We do not agree . The confirmation receipts alone, by themselves, will not suffice to prove that the taxes reflected in the income tax returns are the same taxes withheld from CDB's income payments from the sale of its acquired assets. This is because a cursory examination of the said Confirmation Receipts, Payment Orders and Official Receipts will show that what are reflected therein are merely the names of the payors and the amounts of the tax. The nature of the tax paid, or, at the very least, the income payments, from which the taxes paid were withheld, are not reflected therein. If these are the only entries that are found on these proffered documents. We cannot begrudge, the Respondent Court from nurturing veritable doubts on the nature and identity of the taxes withheld, when it declared, in part, in its Decision ( Annex " A " of the petition ) that, "It can not be well said that the amounts paid and remitted to the BIR were for CDB's account and not for the other possible payees of withholding taxes which CDB may also be liable to remit as a withholding agent" ( Page 4, supra .) Buttressing dubiety to the evidentiary value of these documents is the fact that it is Petitioner's name which appears on the confirmation receipts, the payment orders and the official receipts. Under the law, in case of withholding tax, the payor of the income, not the recipient of the income, is the one who withholds the tax thereon and remits the same to the BIR ( Section 50(b), NIRC ). In the case of withholding tax payment, the corresponding confirmation receipt is under the name of the withholding agent, as the taxpayer, not in the name of the recipient of the income from which the tax is withheld. Although the Petitioner offered in evidence its income tax returns for 1990 and 1991, however, in the light of our foregoing disquisitions and the data or entries embodied in the confirmation receipts, it is impossible to ascertain and conclude that the income upon which the tax were withheld were included in the return of the recipient. aisadc With respect to the Schedule of payees, and the respective withholding taxes paid by each ( Exhibit " H "), prepared by the Accounting Division of Petitioner, the same are barren of evidentiary weight because they are self-serving and unverifiable. It is thus clear that Petitioner failed to comply with the requirements of the law, particularly Section 10 of Revenue Regulation No . 6-85 , to establish its right to claim a refund on the subject creditable withholding taxes. Such a regulation, as issued by an implementing agency such as the BIR, pursuant to the provisions of the Tax Code, has likewise the force and effect of law. Rules and regulations governing exemption provisions, which have been adopted by the state officer whose duty it is to administer them have been held valid, unless arbitrary, capricious, or contrary to law. ( 85 C . J . S . Page 767 .) In the Petition at bench, the rationale behind the enforcement of Section 10, Revenue Regulation No. 6-85 is but reasonable and germane to the purpose for which it is being enforced, that is, to insure the proper collection of withholding taxes We do not agree with Petitioner's pose that Revenue Form 1743.1 is superfluous. On the contrary, the same was indispensable to prove Petitioner's claim for a refund. It bears stressing that the ' Certificate of Creditable Income Tax Withheld at Source ' is required, under Section 10 of Revenue Regulation No. 6-85, to be presented to establish the fact of withholding. This Form 1743.1 is prepared by the withholding agent (payor of the income), who furnishes a copy thereof to the Bureau of Internal Revenue and to the taxpayer (payee of the income). Informations or data indicated on the face of Form 1743.1, inter alia , included the name of the withholding agent (payor of the income), the name of the taxpayer (payee of the income), the nature and amount of the property covered by the taxable transaction, the nature and amount of the income payments, as well as the amount of tax withheld. The form thus furnished the taxpayer is attached to the annual returns, with the attached financial statements, so as to enable the Bureau of Internal Revenue to verify the fact of withholding, for purposes of claiming refunds on creditable withholding taxes. The creditable withholding taxes paid, as reflected in the Form 1743.1 (copy furnished the taxpayer), should thus tally with, and correspondent to, the income payments as reflected in the appendages to the annual income tax returns submitted by the taxpayer. These correspond to two (2) of the requirements, the third of which is the prescriptive period requirement, delineated under Section 10 of Revenue Regulation No. 6-85, and as emphasized in the case of " Paseo Realty and Development Corporation versus CIR, CTA Case No . 4254, August 10, 1993 ". The rationale behind the regulation is quite obvious. The government would not want to impose the same tax burden on the same taxpayer twice for the same taxable transaction, which is constitutive of obnoxious double taxation. As earlier adverted to, withholding is initially required as the government has no control over the taxpayer-payee who could easily give false entries, as to the amount of income payments received, to lessen the tax burden. This is why the withholding agent (payor of the income) is made an agent of the government to collect the corresponding tax on the income payments to insure the collection of the tax due. The income upon which the tax is required to be withheld, at source, shall nevertheless be included in the return of the taxpayer recipient of the income payments. However, the amount of the tax withheld is allowed to be credited against the amount of income tax due on such return; and, the amount, if any, by which the tax withheld exceeds the tax due on the return shall be refunded subject to the provisions of Section 204 of the Tax Code. ( Section 5 . 1 (d), NIRC .) The income payments thus reflected in the financial statements attached to the taxpayer's income tax return should thus correspond and must refer to, and tally with, the income payments upon which the taxes were withheld and paid as reflected in the Form 1743.1 required under Section 10, Revenue Regulation No. 6-85. Unless Form 1743.1 required under Section 10, Revenue Regulation No. 6-85, is accomplished and submitted, there is no possible and efficacious way by which the BIR can verify the precise identity of the income payments as reflected in the income tax return vis-a-vis the income payments as reflected in the Form 1743.1. Petitioner's plaint that the strict enforcement by the Respondent Court of Tax Appeals of Revenue Regulation No. 6-85, et sequitur , was unwarranted is an exercise in futility. The Petitioner was burdened with complying with said regulation and if it failed to do so, it only has itself to blame. The Petitioner cannot profit from its own faux pas . It bears stressing that Petitioner's claim was denied by the Respondent Court of Tax Appeals because the evidence adduced by it was utterly insufficient to prove its claim for refund, besides Petitioner's refusal to comply with the revenue regulation. cdta It has been the consistent holding, in this jurisdiction, that tax refunds partake of the nature of tax exemptions. As such, they are regarded as in derogation of sovereign authority and is to be construed in strictissimi juris against the person or entity claiming the exemption. ( Commissioner of Internal Revenue versus Procter and Gamble Philippines Manufacturing Corporation, 204 SCRA 377 ; Commissioner of Internal Revenue versus Rio Tuba Nickel Mining Corporation, 207 SCRA 549 .) In an action for refund, therefore, the burden of proof is upon the claimant to establish a right to refund. Claimant's failure to discharge its burden will result in the denial of the claim for refund. IN THE LIGHT OF ALL THE FOREGOING, the Petition at bench is DENIED DUE COURSE and is DISMISSED. The Decision of the Respondent Court is hereby AFFIRMED IN TOTO. SO ORDERED. Buena and Vasquez (Vice J . ) , Jr . , JJ . , concur.