Bank of the Philippine Islands v. Commissioner of Internal Revenue

SEVENTH DIVISION [CA-G.R. SP No. 44005. January 29, 2004.] THE BANK OF THE PHILIPPINE ISLANDS as Trustee of the PAL PILOTS RETIREMENT BENEFIT PLAN , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N REYES , R.T. , J p : TAX refunds are in the nature of tax exemptions regarded in derogation of sovereign authority. The burden of proof rests upon the taxpayer to establish by sufficient and competent evidence its entitlement to the claim for refund. We hark back to this legal precept in this petition for review of the Decision 1 of the Court of Tax Appeals denying for insufficiency of evidence a bank's claim for tax refund. The Antecedent Facts Petitioner Bank of the Philippine Islands (BPI) is a duly-organized commercial banking corporation with authority to act as trustee and engage in trust functions and activities. It is the duly-appointed trustee of the Philippine Airlines Pilots Retirement Benefit Fund (Fund for short). The Fund was set up by the air carrier to provide for retirement, death and disability benefits to pilots-beneficiaries. It is exempt from income tax, having met all the requirements of a reasonable benefit plan prescribed by Republic Act No. 4917 and as implemented by Revenue Regulations No. 1-68. 2 As trustee, petitioner was authorized to hold, manage, invest and reinvest the assets of the Fund. From 1988 to 1989, petitioner invested the Fund's assets with various banking and financial institutions in the form of savings and time deposits, money market placements, securities, and treasury bills. From these transactions, the Fund derived P27,018,012.32 in income. However, P5,403,369.44 were withheld from the said income as tax. 3 On May 15, 1990, petitioner lodged a written claim for refund with the Commissioner of Internal Revenue (CIR) to collect the tax withheld. According to petitioner, the withholding of 20% tax on the said income is erroneous and illegal as the Fund is fully exempt from income tax. The following day, or on May 16, 1990, petitioner filed a petition for review with the respondent Court of Tax Appeals (CTA). 4 The instantaneous recourse to the CTA was prompted by the two-year prescriptive period for the commencement of proceedings for the recovery of taxes erroneously or illegally withheld under Section 229 of the National Internal Revenue Code, as amended. In its defense, the CIR contended, inter alia , that claims for refund are construed strictissimi juris against claimants, being in the nature of an exemption from taxation; the taxes sought to be refunded are deemed to have been paid and collected in accordance with law and existing BIR regulations; that an action for refund will not prosper unless the taxpayer overcomes the burden of proving that the taxes were erroneously or illegally withheld. CTA Disposition On July 11, 1996, after a lengthy and protracted trial, the CTA rendered judgment decreeing that "in view of the insufficiency of evidence necessary to support the claim of the petitioner, the instant PETITION FOR REVIEW is hereby DENIED for lack of merit." 5 On August 27, 1996, petitioner moved for reconsideration. It insisted that the CTA committed palpable mistake in failing to recognize that it has established by sufficient evidence its entitlement to a refund. On October 17, 1996, petitioner filed a supplemental motion for reconsideration with similar arguments. The CTA, through a resolution promulgated on April 15, 1997 denied the twin motions, finding "no cogent reason to disturb or modify its decision of July 11, 1996 since no new matters were raised which have not been considered and passed upon exhaustively in our assailed decision." 6 The Issue Unrelenting, petitioner BPI comes to Us and hoists the lone issue of WHETHER THE PETITIONER PRESENTED SUFFICIENT EVIDENCE BEFORE THE RESPONDENT COURT OF TAX APPEALS IN SUPPORT OF ITS CLAIM FOR A REFUND OF TAXES WHICH WERE ERRONEOUSLY AND ILLEGALLY WITHHELD FROM THE INCOME OF THE PAL PILOTS' RETIREMENT FUND FROM ITS INVESTMENTS IN TREASURY BILLS. 7 Petitioner argues that the CTA erred in dismissing the petition for review for dearth of evidence; that adequate documentary and testimonial evidence were presented to show that the tax-exempt PAL Pilots' Retirement Benefit Plan actively took part in the investments; that the documents presented constitute the best evidence obtaining and qualify as exception to the Best Evidence Rule. Our Ruling The petition is unmeritorious. Petitioner Failed To Prove Actual Participation of PAL Pilots Retirement Benefit Plan In Investments Made In 1988 And 1989 It is incumbent upon the petitioner to show proof of the actual and direct participation of the PAL Pilots Retirement and Benefit Plan in the investments made in 1988 and 1989. It failed on this score. Tax refunds are in the nature of tax exemptions regarded in derogation of sovereign authority. 8 Concomitantly, they are to be construed strictissimi juris against the person or entity claiming the exemption. 9 Elsewise stated, the burden of proof rests upon the taxpayer to establish by sufficient and competent evidence its entitlement to the claim for refund. We agree with the CTA ruling on this point: " Crucial to petitioner's claim is the actual proof of the indubitable participation of the Fund to the purchase of the treasury bills . Petitioner mainly relied on the certification of Mr . Eduardo Lim (Exh . "G", supra) to establish the proposition that the Plan (should be "Fund") purchased treasury bills through its trustee's BPI Trust and Investment Division, and that the latter charged the Fund of the 20% withholding tax it priorly paid to the BPI Treasury for said purchase . We are not persuaded . " As we have stated in the case of Bank of the Philippine Islands, as trustee of various retirement funds vs . Commissioner of Internal Revenue, CTA Case Nos. 4898, 4900 and 4940 promulgated on October 11, 1995, proof of participation by the various retirement funds can only be established by a showing of the actual payment made by each of them. We quote : xxx xxx xxx 'Indeed, as correctly posed by respondent, there is no evidence on record to pinpoint the fact that the assets of the various trust funds were actually used in the purchase of the treasury bills. What petitioner has proven is the transaction between the Treasury Department and Trust Department, but not the one between the Trust Department and the individual trust fund.' 10 Petitioner Not Exempt From The Best Evidence Rule Petitioner seeks exemption from the Best Evidence Rule, claiming that it cannot produce the proof required by the CTA without bad faith on its part. The Court cannot take hook, line and sinker petitioner's claim that its Annexes "E" to "F", denominated as Schedule of Withholding Tax on the purchase of treasury bills, are the best evidence obtaining under the circumstances. Section 5, Rule 130 of the Revised Rules on Evidence provides: "Section 5. When Original Document is Unavailable When the original document has been lost or destroyed, or cannot be produced in court, the offeror, upon proof of its execution or existence and the cause of its unavailability without bad faith on his part, may prove its contents by a copy, or by a recital of its contents in some authentic document, or by the testimony of witnesses in the order stated." 11 Before the contents of the original may be proved by secondary evidence, satisfactory proof must be made of the following: (a) the execution or existence of the original; (b) the loss or destruction of the original or its nonproduction in court; and (c) reasonable diligence and good faith in the search for or attempt to produce the original. 12 Petitioner's evidence on the unavailability of the proof required by the Court of Tax Appeals is wanting. Failing to meet the aforestated requisites, petitioner cannot be allowed to introduce secondary evidence. Thus, in rejecting petitioner's secondary proof of the Fund's participation in the investments, the CTA aptly ruled: " Neither can we rely on the confirmation of Sale of Sale documents (Exhs . "H-1" to "H-33" and "I-1" to "I-17", supra) which show the BPI trust and Investment Division as the only indicated buyer therein . They do not reveal or even remotely suggest that the Fund was the real buyer, or that the purchase was for and in-behalf of the Fund . More so, when it is indicated that the purchase was for various accounts (Exhs. "H-1", "H-3", "H-5", "H-9", "H-15" to "H-18", "H-20", "H-21") that are nowhere in the records identified, and verified as to the extent of their participation in the total purchase amount stated in the confirmation of Sale documents, except for the unitary averment of the petitioner that the Fund is a part thereof ." 13 xxx xxx xxx " In like manner, the Schedules of Withholding Tax on the purchase of the treasury bills (Exhs. "H-1" and I-11") cannot substitute for the originals of the transactions evidencing actual participation of the Fund, absent any proof of their unavailability. The schedules are mere outlines or guides for better appreciation of the evidence submitted . " With the finding of this court that the above-mentioned confirmation of sale documents are of no probative value to the issue at hand, the Schedules of Withholding Tax and certification of Mr. Lim have no leg to stand on and are simply treated as self-serving statements. " 14 The documents presented by petitioner do not even remotely show that the PAL Pilots' Retirement Benefit Plan is the real and actual buyer of the treasury bills. Neither do they indicate that the purchases were made in behalf of the Fund. aICHEc WHEREFORE, the petition is DISMISSED for lack of merit. SO ORDERED. Cruz and Tijam, JJ . , concur. Footnotes 1. Penned by Presiding Judge Ernesto D. Acosta, Court of Tax Appeals (CTA), Rollo , pp. 3651. 2. Annex "D". 3. Annexes "E" and "F". 4. Annex "H". 5. Rollo , p. 50. 6. Annex "A". 7. Rollo , p. 16. 8. Commissioner of Internal Revenue vs. Tokyo Shipping Co., Ltd ., 244 SCRA 322. 9. Magsaysay Lines, Inc. vs. Court of Appeals , 260 SCRA 513. 10. Decision, Rollo , pp. 4445. 11. Section 5, Rule 130, Revised Rules of Evidence. 12. Zaldivar vs. Municipality of Talisay , 18 Phil. 262. 13. Rollo p. 182, Emphasis Ours. 14. Rollo p. 185