Planters Products, Inc. v. Commissioner of Internal Revenue

SPECIAL SEVENTH DIVISION [CA-G.R. SP No. 42473. October 31, 2000.] PLANTERS PRODUCTS, INC. , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N GUERRERO , B.J . , J p : Before Us is a petition for review of the decision of the Court of Tax Appeals, dated 09 May 1996 and its resolution, dated 22 October 1996, both denying petitioner Planters Products, Inc.'s (hereafter, Planters) claim for refund or credit of excess creditable withholding taxes on its rental income for the calendar year 1991. The pertinent facts: Planters is a domestic corporation engaged in the business of manufacturing and selling fertilizers and agricultural chemical products. 1 It also owns and leases real properties to various persons. Pursuant to Expanded Withholding Tax Regulations [Revenue Regulations No. 6-85, dated 02 May 1985], the lessees of Planters' real properties withheld creditable income taxes in the amount of P579,306.00 on rentals paid to Planters. 2 On 30 April 1992, Planters filed its Income Tax Return for the calendar year 1991 and reported a net loss of P11,849,519.00. 3 Thus, on 08 February 1993 Planters filed a claim for refund with the Commissioner of Internal Revenue [hereafter, Commissioner] of the said creditable income taxes withheld at the source but in the amount of P696,264.80. 4 It followed-up its claim on 12 August 1993 and 17 September 1993 but the Commissioner failed to act on the matter. 5 This prompted Planters to file, on 18 October 1993, a petition for review with the Court of Tax Appeals [hereafter, CTA]. 6 The parties before the CTA agreed to submit the case for decision based on the pleadings without the filing of memoranda. 7 The CTA noted that Planters had indicated in its ITR for 1991 its choice to apply the creditable income taxes withheld as tax credit for the succeeding taxable year. 8 However, as Planters failed to present its ITR for 1992, the CTA denied the claim for refund on 09 May 1996 because it had no way of knowing whether or not the amount claimed had already been applied as tax credit for the taxable year 1992. 9 On 03 June 1996, Planters moved to reconsider the 09 May 1996 decision of the CTA and denied applying the amount claimed as tax credit because it believed that the same could only be applied as tax credit in the year the loss was incurred, i.e., in 1991 only. 10 Nonetheless, Planters attached its ITR for 1992 to prove that no tax credit was applied on said year. 11 On 22 October 1996, the CTA again denied the refund and ruled that it cannot consider the ITR for 1991 in evidence because it was not formally offered during the trial pursuant to Sec. 34, Rule 132 of the Rules of Evidence. 12 Hence, this petition for review, which relies on the following grounds: "A. The petitioner did not opt to carry-over to the succeeding taxable year the refundable tax withheld; B. The respondent Commissioner was and is aware that the petitioner incurred a loss again in the succeeding taxable year [for which reason, the petitioner did not and could not have applied the refundable tax], having been so informed by the petitioner and having been furnished by the petitioner a copy of the income tax return for said succeeding taxable year when a claim for refund was filed with said respondent Commissioner in fact, that matter, i.e., possibility that the refundable tax may have been applied in the succeeding taxable year, was not even cited as a defense in the Answer nor raised as an issue during the trial of the case; DHEACI C. In the interest of substantial justice, petitioner's income tax return for the succeeding year should have been admitted in evidence; D. As provided in the Revenue Regulation on Expanded Withholding Tax, the tax withheld 'shall be allowed as a tax credit in computing the income tax liability of the payee in the taxable year or quarter in which the income was earned or received;' E. Section 69 of the Tax Code cited by the court a quo applies to excess quarterly income tax paid and not to refundable tax withheld under the Expanded Withholding Tax; F. The only proof needed to grant the tax refund claimed are the "Certificates of Creditable Income Tax Withheld At Source" and the income tax return for the year showing that the tax withheld was not credited or applied." 13 We grant the petition. First . The Court of Tax Appeals should have considered petitioner's ITR for 1991. The CTA is a regular court vested with exclusive appellate jurisdiction over cases arising under the National Internal Revenue Code, the Tariff and Customs Code, and the Assessment law. It is part of the judicial system and not a mere quasi-judicial agency. 14 It has the power to promulgate rules and regulations for the conduct of its business but its proceedings are not strictly governed by the technical rules of evidence. 15 Thus, Section 34, Rule 132 of the Rules of Evidence, which mandates the formal offer of evidence before the same is considered, is inapplicable. In the case of Delos Reyes v. Intermediate Appellate Court , 16 the Supreme Court held that while Section 34, Rule 132 must be strictly interpreted in ordinary trials, such policy is hardly applicable in summary proceedings where no full-blown trial is held. In such case, the decision is based on the pleadings, depositions, admissions, affidavits and documents on file with the court. The context of Sec. 34, Rule 132 clearly points to its applicability in trials. 17 While the ruling in the Delos Reyes case referred to summary proceedings before regular courts, the pronouncement therein regarding the inapplicability of Sec. 34, Rule 132 to such proceedings, by the same vein, equally applies to proceedings before the CTA, as the latter is not governed by ordinary procedure. Moreover, although hearings may be conducted before the CTA, the parties herein agreed to forego the same and submitted the case for decision based on the pleadings. As such, there was not even an opportunity for petitioner to formally offer its ITR for 1992 even if it had wanted to. Documentary evidence is offered after the presentation of a party's testimonial evidence. In the absence of a trial or hearing, the pre-requisite for the offer of petitioner's ITR for 1992, i . e ., the testimony of petitioner's representative, is likewise absent. It makes no sense to require petitioner to formally offer its ITR because the purpose of a formal offer is to allow the opposing party to object and the absence of a hearing deprives the opposing party of such opportunity. Also, petitioner failed to attach its ITR for 1992 to its petition because it was of the conviction, albeit mistaken, that the tax credit due it could only be applied in the year the creditable taxes were withheld. 18 Although it clings to this legal conclusion, petitioner nonetheless attached said ITR to its motion for reconsideration before the CTA. Under the circumstances, the CTA should have considered the ITR. HAaDTE Second . Petitioner's accounting period in 1991 was the calendar year. The following year, however, it shifted to the fiscal year period, with 30 April as the end of said fiscal year. Pursuant to Section 41 of the National Internal Revenue Code, as amended [hereafter NIRC], petitioner filed a separate final return for the period 01 January to 30 April 1992, which is the short period between the close of the last calendar year, i . e ., 31 December 1991, and the date designated as the close of the fiscal year, i . e ., 30 April 1992. Upon examining the ITR for the short period of 01 January to 30 April 1992, which is the taxable year succeeding the 1991 taxable year, We find no tax credits applied in said succeeding taxable year. 19 Section 69 of the NIRC provides, thus: "SEC. 69 Final Adjustment Return . Every corporation liable to tax under Section 24 shall file a final adjustment return covering the total net 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 net 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." Taxes withheld at the source by lessees of real property on rentals received by the lessor are denominated as creditable withholding taxes because they are creditable against the income tax liability of the lessor, if any, for the taxable year. Thus, if the lessor posted net losses for the taxable year, he would not be liable for any income taxes at al. Consequently, the taxes withheld during the taxable year, while collected legally under the Expanded Withholding Tax Regulations, became untenable and took on the nature of erroneously collected taxes at the end of the taxable year. 20 Thus, a claim for refund under Sec. 230 of the NIRC is in order. A claim for refund under the circumstances above-mentioned has two requisites, to wit: 1.] the rentals received by the claimant, from which the taxes were withheld, must be declared in the income tax return for the taxable year; and, 2.] the fact of withholding is established by a copy of the certificate of Creditable Income Tax Withheld at Source [BIR Form No. 1743-1] issued by the withholding agent to the payee-lessor. 21 The said requirements, including the additional requirement of the claimant's ITR for the succeeding taxable year were all submitted by petitioner in the instant case. Upon the submission of these documents, the duty of the Bureau of Internal Revenue [hereafter, BIR] to verify the same arises. 22 Thereafter, the BIR is bound under the quasi-contract of solutio indebiti 23 to refund the taxes withheld. 24 Contrary to the Office of the Solicitor General's [hereafter, OSG] contention that the tax credits in the instant case could only be applied up to 1992, 25 the Supreme Court held that such obligation to return by the government extends beyond such period. 26 The broad principle that a tax refund partakes of the nature of a tax exemption and must thus be construed in strictissimi juris against the taxpayer, 27 which is invoked by both the CTA and the OSG to support their respective positions, must yield to the specific interpretation of the Supreme Court on facts similar to the instant case. WHEREFORE, in view of the foregoing, the decision of the CTA, dated 09 May 1996 and its resolution, dated 22 October 1996 are hereby SET ASIDE and a new one is entered ORDERING the Commissioner of Internal Revenue to grant the tax refund, subject to the computation of the proper amount after verification of the data contained in petitioner's ITRs for 1991 and 1992 and the Certificate of Creditable Income Tax Withheld at Source submitted. No costs. DTESIA SO ORDERED. * Sabio, Jr. and ** Delos Santos, JJ . , concur. Footnotes 1. Rollo , p. 21. 2. Rollo , p. 57. 3. Id. , 4. Id. , p. 80. 5. Id. , pp. 72-73. 6. Id. , pp. 34-37. 7. Id. , p. 25. 8. Id. , p. 57; 25. 9. Id. , p. 25. 10. Id. , pp. 79-80. 11. Id. , p. 84. 12. Id. , p. 31. 13. Rollo , pp. 10-11. 14. Commissioner of Internal Revenue v. Court of Appeals , 242 SCRA 289, 303 [1995]. 15. Sec. 8, R.A. No. 1125, as amended by R.A. No. 3457. 16. 176 SCRA 394 [1989]. 17. See also Ty v. CA , 278 SCRA 836, [1998] 18. Rollo , p. 80. 19. Rollo , p. 57. 20. Citibank, N.A. v. C.A., 280 SCRA 459, 471 [1997]. 21. Supra , pp. 471-472, citing Rev. Reg. No. 13-78. 22. Ibid ., p. 472. 23. Art. 2154, New Civil Code. 24. Id ., p. 475. 25. Rollo , p. 149. 26. Supra ., p. 475 27. Commissioner of Internal Revenue v. Tokyo Shipping Co. Ltd ., 244 SCRA 332 [1995]. * Acting Senior Member. ** Vice J. Demetrio G. Demetria, who is on leave.