Bank of Philippine Islands of the PAL Pilots v. Court of Tax Appeals

FIRST DIVISION [CA-G.R. SP No. 43346. March 6, 2002.] THE BANK OF PHILIPPINE ISLANDS OF THE PAL PILOTS As Trustee of the PAL PILOTS' RETIREMENT BENEFIT PLAN , petitioner , vs . COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE , respondents . D E C I S I O N REYES , B. , J p : BEFORE US is a petition for review filed by petitioner The Bank of the Philippine Islands (BPI for brevity), as Trustee of the PAL PILOTS' RETIREMENT BENEFIT PLAN (PLAN for brevity) seeking to challenge the Resolution promulgated by the Court of Tax Appeals (TAX COURT for brevity) on January 29, 1997 which denied its Motion For Reconsideration dated August 26, 1996 of the Decision promulgated on July 26, 1996 by the said court. Petitioner BPI is the duly appointed trustee of a Retirement Fund (FUND for brevity) set up by Philippine Airlines, Inc. in accordance with the PAL Pilots' PLAN. On May 30, 1972 the PLAN was created to establish a retirement fund for the retirement, death, and disability benefits to the beneficiaries thereof. The PLAN was approved and on September 12, 1973 and declared as exempt from income tax pursuant to the provisions of Republic Act No. 4917, as implemented by Revenue Regulations No. 1-68. In 1990, BPI as trustee and investment manager, entered into transactions with banking and financial institutions by way of deposits, investments and reinvestments of the assets of the Fund in savings and time deposits, money market placements, and in securities such as treasury bills with various banking and financial institutions. These eventually earned income for the FUND. During the first semester of 1990, BPI through its Trust and Investment Division placed nine (9) treasury bills investments for the FUND. These bills earned interest income in the amount of P1,391,386.86. Then in the second trimester of 1990, BPI placed nineteen (19) treasury bills investments for the Fund and this earned income of P8,183,691.34. For both investments, the amounts of P347,846.72 and P1,609,499.68 were withheld as taxes thereon, respectively. From the income and/or yield derived by the FUND during the year 1990, said banking and financial institutions withheld, from February 1, 1990 up to December 31, 1990, the total amount of P1,957,346.40 representing the final tax of 20% provided for under Section 21 (a) in relation to Section 50 (a) and Section 51 (a) of the National Internal Revenue Code (NIRC). In view thereof, on January 7, 1992, BPI filed a written claim for refund in the amount of P1,957,346.40 with the Commissioner of Internal Revenue (CIR for brevity), representing 20% final withholding tax on income from bank deposits, investments in money market placements, deposit substitutes and securities for the year 1990. Within the two-year period prescribed for the recovery and/or refund of the taxes, and without waiting for the CIR to resolve its claim for refund, BPI filed with the TAX COURT a Petition For Review on April 7, 1992. The CIR, in its Answer dated May 20, 1992 alleged that "the provisions granting exemption from the final tax on interest on bank deposits and deposit substitutes to those recipients who are exempt from income taxation previously found in Sections 21 (d) and 24 (cc) of the NIRC was deleted by P.D. No. 1959 which took effect on October 15, 1984. Hence, by virtue of the amendments introduced by P.D. No. 1959, the exemption granted under Sections 21 (d) and 24 (cc) [now Sections 21 (c) (1) and 24 (e) (1), respectively] of the Code has already been revoked or withdrawn (Answer dated May 20, 1992, pp. 3-5: Records, pp. 29 to 35). Moreover, BPI had failed to establish that the tax subject of its claim for refund was erroneously or illegally collected. On July 26, 1996 the TAX COURT rendered the assailed Decision which dismissed the petition for review dated March 23, 1992 ( Rollo , pp. 41-49). The CTA declared that the Fund is fully exempt from income tax notwithstanding the issuance of P.D. No. 1959, but denied petitioner's claim based on insufficiency of evidence. (Decision, p. 5; Rollo, p. 45). The tax court said: ". . . no actual proof of the indubitable participation of the Fund to the purchase of the treasury bills can be found . . . In transactions involving treasury bills, such proof of payment or participation can be demonstrated by the originals of the cash vouchers, purchase tickets, trading orders, fixed income, securities placements, official receipts evidencing payment and debit-credit ledger entries of the Fund. It is unfortunate that none of these were submitted." (Decision, pp. 7-8; Rollo , p. 47-48). Petitioner moved for a reconsideration of the said Decision, which was however denied by the CTA in a Resolution dated January 29, 1997 ( Rollo , pp. 38-40), in this wise: ". . . petitioner was not able to prove that the treasury bills from which the 20% withholding tax was deducted was for its accounts. If at all it was for various accounts. No breakdown was attached to support under whose account was the Confirmation of Sales issued. This is the vital document we are looking for because it is nowhere indicated in the face of the Confirmation of Sales documents submitted to this Court. WHEREFORE, finding petitioner's "Motion for Reconsideration" unmeritorious and not in accordance with law, the same is hereby DENIED. The Court's decision promulgated on July 26, 1996 DISMISSING the instant Petition for Review for lack of merit is hereby REITERATED. SO ORDERED." Hence, this petition. The hub of this controversy elevated by BPI is whether or not it had presented sufficient evidence before the respondent TAX COURT in support of its claim for a refund of taxes which were withheld form the income of the PAL Pilots' Retirement Fund from its investments in treasury bills (Petition, p. 13; Rollo , p. 18). BPI claims that the FUND has a tax-exempt status based on a clear grant by law in favor of the PAL Pilot's Retirement Fund. Thus being so, BPI needs only to prove that it invested in treasury bills for the account of the FUND and that taxes were erroneously and/or illegally withheld from its income and/or yield. Unfortunately, the TAX COURT is in clash with BPI insofar as concerns sufficiency of proof of direct payment in treasury bills as having made by the FUND from its own deposit accounts. The TAX COURT required BPI to submit the best evidence which will show such direct payments in accordance with the "best evidence rule" enunciated under Section 3, Rule 130 of the Rules of Court. BPI submits that it could not have produced the documentary evidence which to the TAX COURT are considered best evidence in support of petitioner's claim for refund. There is really no document which could prove that any direct payment was made by the Fund in treasury bills coming from its own deposit accounts. BPI explains that "all the monies of the various funds, including that of the PAL Pilots' Retirement Benefit Plan, are pooled together by the petitioner and invested in a lump sum amount . . . The different participation and/or contributions of the various funds in such investments are then earmarked by the petitioner in a schedule of investments which will show the amount of investment and the amount of yield pertaining to each Fund." (Petition, pp. 17-18; Rollo , pp. 22-23) BPI asserts that its books and records show that such investments are part of the trust fund. On the other hand, respondents TAX COURT and Commissioner of Internal Revenue in their Comment ( Rollo , p. 227) say that BPI's evidence is self-serving and has no probative value, and do not conclusively prove that BPI's funds were actually used in the purchase of the treasury bills which allegedly are the source of the withheld taxes. Respondents point out that since as admitted by the petitioner, the Funds were co-mingled or mixed with various amounts from different sources in which petitioner was designated as trustee, it could not be certainly determined such funds' participation in the purchase of the treasury bills. In sum, BPI's exhibits merely show the fact of the existence of the treasury bills, interest income and the fact of withholding but do not establish the actual use and participation of the funds in the purchase of said treasury bills. We do not find merit in this petition. Well-settled is the rule in our jurisprudence that the findings of fact of an administrative agency must be respected and are not to be disturbed unless clearly shown to be unsupported by substantial evidence (Rules of Court, Rule 44, Section 2; Aznar vs. Court of Tax Appeals, L-20569, August 23, 1974, 58 SCRA 519; Manila Wine Merchants vs. CIR, L-26145, February 20, 1984, 127 SCRA 483; La Suerte Cigar and Cigarette Factory vs. Court of Tax Appeals, L-36131, January 17, 1985, 134 SCRA 29; Commissioner of Internal Revenue vs. Manila Machinery & Supply Company, 135 SCRA 8 [1985]) . In fact, under the rules governing appeals to the Court of Appeals from a final order or Decision of the Court of Tax Appeals to the Court of Appeals and quasi-Judicial agencies, such findings are accorded not only respect but also finality, as long as these findings are backed up by substantial evidence, or that amount of relevant evidence which a reasonable mind might accept as adequate to justify a conclusion. In Philippine Refining Co. vs. Court of Appeals, Court of Tax Appeals and Commissioner of Internal Revenue (256 SCRA 667) , the Supreme Court had occasion to point out that the Court of Tax Appeals is a highly specialized body specifically created for the purpose of reviewing tax cases. By the very nature of its function, the Court of Tax Appeals is 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 ( Commissioner of Internal Revenue vs. Wander Phils., et al., 160 SCRA 573, April 15, 1988 citing Reyes vs. Commissioner of Internal Revenue, 24 SCRA 198, July 29, 1968 ). The instant petition in effect, controverts the factual findings of the TAX COURT that investments in treasury bills which were made by the petitioner were not, or could not be determined with certainty, to be for the account of the Fund. We cannot, however, deviate from the rule that findings of fact of the respondent TAX COURT are entitled to the highest respect. To depart from this time-honored jurisprudence would be to leave open the doors to appeals on assessments in interminable succession, and there will be no end to tax proceedings before the court. It is not the task of an appellate court to weigh once more the evidence submitted before the administrative body and to substitute its own judgment for that of the administrative agency in respect of sufficiency of evidence ( Rubenecia vs. Civil Service Commission, 244 SCRA 640 [1995] ). In the present case, after a careful examination of the records, We conclude that the TAX COURT, in finding that BPI's evidence was not sufficient to justify entitlement to a refund of taxes, has more than met this quantum of evidence. We find free from any palpable error the ruling of the Court of Tax Appeals that: "While it may be true that the maturity dates in said Confirmation of Sales tally with that of the Schedules prepared by BPI (Exhs. G and H) still this does not prove that the same was for the account of PAL Pilots' Retirement fund. As a matter of fact it was for various tax exempt accounts without any summary for whose account it was (Exh. H-17). Some indicated a Treasury ID 3031 (Exhs. G-3 to G-6, G-9 to G-11); client Code No. 0481-002388-62 (Exhs. H-3, H-5, H-6, H-8, H-14, H-16 and H-19); and Client Code No. 0481-007569-80 (Exhs. H-17 and H-18). To put it in simple terms, petitioner was not able to prove that the treasury bills from which the 20% withholding tax was deducted was for its accounts. No breakdown was attached to support under whose account was the Confirmation of Sales issued. This is the vital document we are looking for because it is nowhere indicated in the face of the Confirmation of Sales documents submitted to this Court."(Resolution dated July 26, 1996; Rollo , p. 39). A careful scrutiny of the records reveals no cogent reason to disturb such findings. Since the documents are not corroborated by any direct evidence on the participation of herein FUND, such documents must of necessity be disregarded. Tax assessments by tax examiners are presumed correct and made in good faith. The taxpayer has the duty to prove otherwise ( CIR vs. Construction Resources of Asia, Inc., L-68230, November 25, 1986, 145 SCRA 671 ). BPI in appealing to the tax court on the ground that the tax assessment against it is erroneous, had the incumbent duty to prove what is the correct and just liability by a full and fair disclosure of all pertinent data in its possession. BPI had been afforded this opportunity and the TAX COURT had ruled that such pertinent data in its possession are not sufficient to justify its claim for a tax refund. Petitioner's evidence had not established in clear and uncontroverted terms the fact that the FUND was actually used to purchase treasury bills through BPI and earned income from which taxes were mistakenly and erroneously withheld. We are cognizant of the powers vested in the Court of Tax Appeals of its original and exclusive jurisdiction to hear and decide case involving tax controversies, most importantly on the question as to what should be considered the best documentary evidence to come up with an accurate basis in the evaluation and consideration of tax refunds on income of tax-exempt entities. In the absence of proof of any irregularities in the performance of duties, an assessment duly made by a Bureau of Internal Revenue examiner and approved by his superior officers will not be disturbed ( Gutierrez vs. Villegas, L-17117, July 31, 1963, 8 SCRA 527 ). All presumptions are in favor of the correctness of tax assessments ( Collector of Internal Revenue vs. Bohol Land Transportation Co., L-13099, and L-13462, April 29, 1960, 58 O.G. 2407 ). Finally, it is well worth to state that a refund of taxes partakes the nature of a tax exemption and are construed in strictissimi juris against the taxpayer and in favor of the taxing authority. PREMISES CONSIDERED, the instant petition is hereby DISMISSED and the assailed decision of the Court of Tax Appeals dated July 26, 1996 and the Resolution dated January 29, 1997 are both hereby AFFIRMED. SO ORDERED. Austria-Martinez and Barrios, JJ . , concur.