AB Leasing & Finance Corp. v. Commissioner of Internal Revenue

FIFTH DIVISION [CA-G.R. SP No. 45372. October 29, 1998.] AB LEASING & FINANCE CORP. , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N LUNA , J p : Petitioner, AB Leasing & Finance Corporation assails in this petition for review the decision dated July 2, 1997, and the resolution dated September 2, 1997, of the Court of Tax Appeals, in C.T.A. Case No. 5372, which are quoted in full: DECISION "This is a petition for seeking for the refund or issuance of a tax credit certificate amounting to Nine Hundred Seventy Three Thousand Two Hundred and Fifteen Pesos (P973,215.00) representing alleged overpaid income taxes remitted in 1993. "Petitioner is a domestic corporation organized and existing under and by virtue of the laws of the Philippines. For the taxable year 1993, petitioner had a net income of P1,775,832.00, for which it was liable to pay income taxes in the amount of P621,541.00. Petitioner, however, made income tax payments for the said year totalling P1,594,756.00, broken down as follows: Nature of Tax Payments Amounts 1. By way of quarterly income tax payments Second Quarter P594,484.00 Third Quarter 430,145.00 Sub-Total P1,024,629.00 2. Unused Prior Year's Tax Credits 570,127.00 Grand Total P1,594,756.00 =========== "Since petitioner was liable for income tax only for the amount of P621,541.00 and it made payments totalling P1,594,756.00, petitioner opted to apply its excess payment of P973,215.00 as credit for the following year. In 1994, however, petitioner incurred a net loss of P3,450,916.00. As a consequence, it was not able to apply the excess income taxes it paid in 1993 as payment for its 1994 income tax liabilities. "On April 12, 1996, petitioner filed with the Bureau of Internal Revenue (BIR) a letter-claim for the refund of overpaid income taxes for 1993 amounting to P973,215.00. As said claim was not acted upon immediately, the instant petition for review was filed on April 15, 1996. "The principal issue to be resolved in the instant case is whether or not petitioner is entitled to the refund being sought. "Petitioner, in support of its claim, submitted the following documents: a. Annual Income Tax Return of AB Leasing for calendar year ending December 31, 1993 (BIR Form No. 1702) to prove that petitioner promptly Filed its BIR for the said year together with its audited financial statements (Exhibit A, inclusive of submarkings); b. Quarterly Income Tax Returns to prove that petitioner filed its return for the first, second and third quarters of 1993 (Exhibits B, C and D, inclusive of submarkings); c. Annual Income Tax Return of AB Leasing for calendar year ending December 31, 1994 to prove that petitioner timely filed its annual income tax return for 1994 together with its audited Financial statements (Exhibit E, inclusive of submarkings); dctai d. Amended Annual Income Tax Return of AB Leasing for calendar year ending December 31, 1994 to prove that petitioner suffered a net loss for that year (Exhibit F); e. Letter-claim for refund in the amount of P973,215.00 (Exhibit G). "It is worthy to note that for taxable year 1994, petitioner's Income Tax Return reflected a net loss of P3,450,916.00, the reason why petitioner was not able to utilize as tax credit its 1993 excess tax payment of P973,215.00. However, said 1994 revised Income Tax Return showed a refundable amount of P1,268,498.00 which must have included the sum of P973,215.00 which was declared by the petitioner in the 1994 unamended return. But, petitioner failed to present the components of the P1,288,498.00 excess payment for 1994 so as to apprise the Court that the said amount excludes the P973,215.00 excess payment for 1993 and thus may be a proper subject for refund. The petitioner likewise indicated in its 1994 revised Income Tax Return filed on November 24, 1995 that the entire refundable amount of P1,268,498.00 will be applied as credit to the following year (1995) by marking X on the corresponding box. But petitioner, again, failed to submit its 1995 Income Tax Return for verification whether or not the refundable amount has been actually applied as a tax credit in its income tax liability for the year 1995 or whether it suffered a loss for that year. "The importance of the 1995 Income Tax Return was emphasized by the (sic) Us in the case of AF Holdings and Management Corporation vs. Commissioner of Internal Revenue, C.T.A. Case No. 5099, dated May 9, 1996, having substantially similar acts with those of the above-entitled case, saying: 'The document is vital for the resolution of petitioner's claim for refund having opted to use the remedy of carry-over. As we have ruled in our Resolution dated October 21, 1993, in a Motion for Reconsideration presented by the Commissioner of Internal Revenue, in the case of Paseo Realty Development Corporation vs. Commissioner of Internal Revenue, CTA Case No. 4693, pertinent portion of which are quoted as follows: A punctilious study of the case at bar reveals that indeed there is a cause to reconsider Our previous Decision. We have overlooked the fact that petitioner's 1989 Corporate Income Tax Return (Exh. A) indicated that the amount of P54,104.00 subject of petitioner's claim for refund has already been included as part and parcel of the P172,477.00 which the petitioner automatically applied as tax credit for the succeeding taxable year 1990. xxx xxx xxx Note should be taken that the amount of P54,104.00 is already part and parcel of P172,477.00 which presumptively was already applied as tax credit to the succeeding taxable year 1990. Such presumption, of course, could have been overturned had the petitioner submitted its Corporate Income Tax Return showing that it did not automatically credit the said amount for the said taxable year 1990. Unfortunately, petitioner failed to submit that vital document which could have unlocked his entitlement for the elusive claim for refund sought for. Failure on the part of the petitioner to sustain his claim is fatal to its cause following the time-tested doctrine that claims for refund are construed strictly against claimant (Commissioner of Internal Revenue vs. Ledesma, G.R. No. L-17509, January 30, 1970, 31 SCRA 95). As correctly put by the Respondent, to grant petitioner's refund despite the fact that said amount was applied as tax credit by petitioner in the taxable year 1990 is detrimental to the interest of the government as the same is tantamount to granting petitioner twice the refund of the same amount. 'Thus, the court cannot be left to speculate as to whether the amount of P25,108.00 (Inclusive of P18,608.00) was actually credited or not to the succeeding taxable year [1993]. For if so, then the amount of P18,608.00 cannot be granted in favor of petitioner. Failure on the part of the taxpayer to sustain his claim is fatal to its cause of action. Taxes are presumed to have been collected in accordance with laws and regulations (Caltex Phils. Inc. vs. Commissioner of Internal Revenue, C.T.A. Case No. 2871, January 29, 1986]. A refund partakes of the nature of an exemption, and the same are construed strictly against the claimants (Commissioner of Internal Revenue vs. Ledesma, 31 SCRA 95). "Respondent also contended that petitioner's right to claim for refund is barred by prescription, this petition having been filed on April 15, 1996. While the issue is rendered moot and academic by petitioner's failure to establish its claim, for purposes of clarity, this Court had the occasion to rule in Hongkong Shanghai Hotels, Limited vs. The Commissioner of Internal Revenue, CTA Case No. 4979 dated September 19, 1995, thus: 'Even the argument of respondent that the claim for refund of tax paid two (2) years prior to April 14, 1993 is already barred is untenable. The Supreme Court in the case of Commissioner of Internal Revenue vs. Asia Australia Express Ltd., G.R. No. L-85956, April 10, 1989, held that the two (2) year prescriptive period within which to claim a refund commences to run at earliest on the date of filing of the adjusted final return. As in this case, the taxable year involved is calendar year 1990. Therefore, the prescriptive period shall begin to run, at earliest, from time petitioner is required to file its final tax return, that is April 15, 1991. Hence, petitioner had until April 15, 1993 within which to file its claim for refund. . . .' "Hence, in this particular case, the filing of petition for review on April 15, 1996 was still within the prescriptive period. "WHEREFORE, in view of all the foregoing, the petition is hereby DISMISSED for insufficiency of evidence. Accordingly, petitioner's claim for refund is hereby DENIED, without special pronouncement as to costs. "SO ORDERED." RESOLUTION "Acting on petitioner's Motion for New Trial and Reconsideration filed on July 22, 1997, this Court finds no sufficient and valid reason to reconsider and set aside its decision dated July 2, 1997. "This Court is in conformity with respondent's citation of the case of Palanca vs. The American Food Manufacturing Co., 24 SCRA 819, in asseverating that the mistake of counsel as to his failure to introduce certain evidence is not a proper ground for a new trial, unless the incompetence of counsel be so great that his client is prejudiced and prevented from fairly presenting his case; and that the mistake of one's own attorney is not a ground for granting a new trial. "Petitioner's failure to present is 1995 Corporate Income Tax Return is being offered as additional evidence in the instant motion. It is to be noted that the petition was dismissed likewise due to petitioner's failure to introduce as evidence the breakdown of the excess taxes paid for the taxable year ending 1994. For if the 1994 Corporate Income Tax Return clearly showed that the P973,215.00 claim of petitioner was excluded, then, indeed, there is no need to present the 1995 Annual Corporate Income Tax Return. We reiterate that the court cannot be left to speculate as to whether the amount of P973,215.00 was actually credited or not to the succeeding taxable year. "Lastly, petitioner, in its motion, averred that in its Reply dated April 10, 1977, it already made reservation such that, if required and necessary, the 1995 Income Tax Return can be presented in evidence. "This Court, however, after verification, found no such Reply existing in the Records Section nor incorporated in the records of this case. "WHEREFORE, in view of all the foregoing, the instant Motion for new Trial and/or Reconsideration filed by petitioner is hereby DENIED for lack of merit. "SO ORDERED." Petitioner insists that there is no need to present its 1995 income tax return to prove its claim for refund of its 1993 overpaid income tax, since under Section 69 of the National Internal Revenue Code, tax credits can only be used in its 1994 income tax liabilities. The tax court should have taken judicial notice of the records of C.T.A. Case No. 5513 then pending before said court at the time the questioned decision was rendered, showing that it's 1993 tax credits were not applied for its tax liabilities for 1994 and 1995. It's motion for new trial as are all other rules of procedure should be liberally construed to assist the parties in obtaining a just and speedy determination of their rights. The Office of the Solicitor General, in representation of the Commissioner of Internal Revenue, submits that petitioner failed to show that the factual findings of the CTA in the decision and order in question are not supported by substantial evidence. The rule on judicial notice was improperly invoked. The Rules of Procedure should be strictly construed against the petitioner tax payer. The first and second paragraphs of Section 69 of the National Internal Revenue Code, ordains that petitioner ". . . shall file a final adjustment return covering the total taxable 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 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." The adjustment or final corporate income tax return is likewise required under paragraph 2, Section 7, of Revenue Regulations No. 10-77: " Any excess of the total quarterly payments over the actual income tax computed and shown in the adjustment or final corporate income tax return shall either (a) be refunded to the corporation, or (b) may be credited against the estimated quarterly income tax liabilities for the quarters of the succeeding taxable year . The corporation must signify in its annual corporate adjustment return its intention whether to request for the refund of the overpaid income tax or claim for automatic tax credit to be applied against its income tax liabilities for the quarters of the succeeding taxable year by filling up the appropriate box on the corporate tax return (B.I.R. Form No. 1702)." What petitioner, in its 1994 amended income tax return (Annex H, Petition), claimed is a refund of P1,268,498.00, by indicating therein that said amount be applied to and credited for the 1995 taxable year, which sum includes its claim for overpaid income taxes of P973,215.00 since 1993. Since petitioner opted to apply the amount of P1,268,498.00 as refundable credit to be applied for the taxable year 1995, as shown in it's 1994 amended tax return, petitioner is still obliged to submit a "final adjustment return" on or before the close of said fiscal year for credit purposes for that taxable year. Evidently, the end in view of a final adjustment return is to provide the Commissioner of Internal Revenue to determine whether the claim for tax refund and/or for the purposes of tax credit is in order, to prevent double recovery on the part of the taxpayer, and for the protection of the Government. Petitioner did not do just that. Petitioner, however, asseverates that the Tax Court should have instead took judicial notice of the evidence that it has presented in C.T.A. Case No. 5513, then pending before said court. We do not agree. While Section 1, Rule 129 of the 1995 Revised Rules of Court, in part provides that courts, without the introduction of evidence, can take judicial notice of ". . . acts of the . . . judicial departments . . ., or ought to be known to judges because of their judicial functions . . .", but the same section adds that courts " may received evidence upon any of the subjects . . . when it shall find it necessary for its own information , and may resort for its aid to appropriate books or documents of reference". The use of the phrase " may receive evidence" upon any of the subjects, connotes that the taking of judicial notice by the courts of the judicial department, is not mandatory, but discretionary, and permissive. For this reason, the CTA did not abuse its discretion in not taking judicial notice of the records of C.T.A Case No. 5513, more so when it is still pending adjudication before said court and, therefore, still unresolved and hangs in suspense. It is therefore necessary for petitioner to support its claim for tax credit by presenting evidence in support of its claim. Indeed, Tabuena vs . Court of Appeals , 196 SCRA 650, 655, citing U . S . vs . Claveria , 29 Phil. 527, emphasized that courts are not authorized to take judicial notice, in the adjudication of cases pending before them, of the contents of the records of other cases, even when such cases have been tried or are pending in the same court, and notwithstanding the fact that both cases may have been heard or are actually pending before the same judge (see also Prieto vs. Arroyo, et al., 14 SCRA 549). The CTA's position rests on the wisdom that courts should act with caution on a matter concerning tax collection to see to it that the correct tax is collected, to prevent and detect fraud through the use of pretenses and forbidden devices to lessen or defeat taxes, as tax is the life-blood of the Government for the purpose of defraying the public expenses. A claim for refund of excess payment of tax is in the nature of a claim for exemption and should be construed in strictissimi juris against the taxpayer. The burden of proof rests upon the tax payer to establish the factual basis of its claim for refund (Commissioner of Internal Revenue vs. Tokyo Shopping Co., Ltd., 244 SCRA 332). This Court at this point in time finds no reason to still allow petitioner to present additional evidence before the Tax Court after it has formally rested its case and that a decision had already been rendered. As summarized in the Order in question, the ground invoked in the motion for new trial is the mistake of petitioner's counsel to introduce certain evidence, which is not a ground for new trial. Losing a case on account of one's counsel's negligence is a bitter pill to swallow for the litigant. But then, the Court is duty-bound to observe its rules and procedures. And, in the observance thereof for the orderly administration of justice, it cannot countenance the negligence and ineptitude of lawyers who want only jeopardize the interests of their clients. On his part, a lawyer shall observe the rules of procedure and shall not misuse them to defeat the ends of justice (Vill Transport Services vs. Court of Appeals, 193 SCRA 25). WHEREFORE, the petition for review is hereby DISMISSED, and the questioned decision and order are UPHELD. SO ORDERED. Vidallon-Magtolis and Cosico, JJ . , concur.