Vinzons-Chato v. Nestle Philippines, Inc.

SIXTEENTH DIVISION [CA-G.R. SP No. 47341. October 9, 1998.] HON. LIWAYWAY VINZONS-CHATO, Commissioner of Internal Revenue , petitioner , vs . NESTLE PHILIPPINES, INC., (Formerly MAGNOLIA NESTLE CORP.) , respondent . D E C I S I O N GUERRERO , B.J. , J p : Petition for review under Rule 43 of the Revised Rules of Court assailing the Decision dated 20 January 1998 1 of the Court of Tax Appeals in C.T.A. Case No. 5350 entitled "Nestle Philippines, Inc. (formerly Magnolia Nestle Corporation), Petitioner, versus Hon. Liwayway Vinzons-Chato, Commissioner of Internal Revenue, Respondent, the dispositive portion of which reads: "WHEREFORE, in view of the foregoing, the petition for review is hereby GRANTED. Respondent is ORDERED to REFUND in favor of petitioner the sum of P2,125,900.00, representing overpaid income tax for the calendar year 1993. No pronouncement as to cost." 2 The facts as found by the Court of Tax Appeals (hereafter, "CTA") are as follows: "Petitioner is a domestic corporation duly organized and existing under the laws of the Philippines. It is engaged in the business of manufacturing assorted foods and beverages including ice cream and other chilled products with principal office at Rm. 46 Bgy. Niyugan, Cabuyao, Laguna. "On 19 January 1996, pursuant to the approval of the Security (sic) and Exchange Commission of the Plans of Merger dated 7 September 1995 and 8 January 1996 of the Magnolia Nestle Corporation and Nestle Philippines Inc. with the latter as the continuing and surviving corporation, petitioner Nestle Philippines, Inc. assumes, among others, all the assets, liabilities, claims, cases or actions in the litigation of Magnolia Nestle Corporation (Exhs. A, A-1 and A-2). One of the claims of Magnolia Nestle Corporation is the present claim for refund of overpaid income tax for the calendar year 1993. "The records show that on 15 April 1994, Magnolia Nestle Corporation filed its 1993 Corporation Annual Income Tax Return reflecting a net loss from operations of P24,556,772.00 but with a total amount refundable of P2,125,900.00, representing first quarter income tax payment of P326,451.00 and creditable taxes withheld on service fees and rentals of P1,799,449.00. This overpaid income tax refundable of P2,125,900.00 was opted by Magnolia Nestle Corporation "TO BE APPLIED AS TAX CREDIT TO SUCCEEDING TAXABLE YEAR". However, in the year 1994, petitioner still suffered net loss from operations. Thus, the application of its excess income tax payment in the year 1993 to anticipated income tax liability of 1994 become nugatory. "On 8 November 1994, Magnolia Nestle Corporation filed an administrative claim for refund/tax credit of overpaid income taxes for the calendar year ended 31 December 1993 with the Bureau of Internal Revenue. "On 12 April 1996, petitioner Nestle Philippines, Inc. after acquiring personality of pursuing a suit due to the approved plans of merger, filed the instant judicial action pursuant to Section 230 of the Tax Code. "In her Answer, respondent raised the following special and affirmative defenses: "7. Petitioner's claim for tax refund is still undergoing administrative routinary investigation/ examination by respondent's Bureau; "8. The amount of tax sought by the petitioner to be refunded/credited was collected and paid pursuant to law and BIR implementing rules and regulations, hence, the same is not refundable. Petitioner must prove that the said income tax was actually paid, remitted and received by respondent's Bureau, and that, the income from which the amount of tax was paid, were declared and included in its gross income during the year under review; "9. Petitioner's allegations that it sustained losses during the year under review does not ipso facto warrant the refund. Petitioner must prove that the deductions claimed by it from its gross income must be allowable deduction under the Tax Code and its implementing rules and regulations. Moreover, the same must be supported by evidence; "10. Petitioner must likewise prove that the alleged refundable taxes were neither automatically applied as tax credit against its tax liability for the succeeding quarter/s of the succeeding year nor included as creditable taxes declared and applied to the succeeding taxable year/s; "11. Claims for tax refund are construed strictly against the claimant as it partakes of the nature of an exemption from tax and it is incumbent upon the petitioner to prove that it is entitled thereto under the law. Failure on the part of the petitioner to prove the same is fatal to its claim for tax refund; "12. Moreover, petitioner must prove that it has complied with the provision of Section 230 of the Tax Code, as amended. "In order to support its entitlement to the refund sought, petitioner presented the following evidence which were all admitted by the Court in a Resolution dated 4 February 1997: "1. Certificate of filing of the Articles of Merger, Articles of Merger and the Plan of Merger (Exhs. A, A-1, and A-2) "2. Corporation Quarterly Income Tax Returns for first, second, and third quarters of 1993 (Exhs. B, E, E-1, H, and H-1) "3. The 1993 and 1994 Corporation Annual Income Tax Returns together with the attachments of audited financial statements and certifications of independent CPAs (Exhs. K, K-1, K-2, K-3, K-4, K-5, K-6, K-7, N, N-1, and N-2) "4. Certificates of Creditable Income Tax Withheld at Source (Exhs. C, D, F, G, I, J, L, and M) and "5. The letter-claim for refund with the Bureau of Internal Revenue (Exhs. O, and O-1) "On 8 May 1997, upon oral motion of petitioner, respondent was declared by the Court to have waived her right to present evidence due to the failure of her counsel to appear and present evidence for the fourth time. "This case was submitted for decision after both parties presented their respective memoranda. "The sole issue to be resolved by this Court is whether or not petitioner is entitled to the refund/tax credit of the sum of P2,125,900.00, representing alleged overpaid income tax for the calendar year 1993. "Petitioner believes that it is entitled to the claim for refund contending that it met the following three basic requirements laid down by this Court in numerous cases involving claims for refund of excess creditable withholding tax at source; "1. That it filed a claim for refund within the two (2) year period from date of payment of the tax as prescribed under Section 299 (now 230) of the National Internal Revenue Code, as amended; "2. That the income upon which the taxes were withheld at source under Section 53 were included as part of the income declared in the income tax return of the recipient; and "3. The fact of withholding is established by a copy of the 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. [Section 10, Rev. Reg. 6-85; see Citytrust Finance Corporation v. The Commissioner of Internal Revenue, CTA Case No. 4134, 11 November 1991; affirmed by the Court of Tax Appeals in Citytrust Finance Corporation v. Court of Tax Appeals and the Commissioner of Internal Revenue, CA-G.R. SP No. 28239, 14 March 1994; and Citytrust Finance Corporation (Formerly Investor's Finance Corporation/FNCB Finance) v. Commissioner of Internal Revenue, CTA Case No. 4046, 24 February 1993; affirmed by the Court of Appeals in Commissioner of Internal Revenue v. Citytrust Finance Corporation (Formerly Investor's Finance Corporation/FNCB Finance) and the Court of Tax Appeals, CA-GR SP. No. 31104, 18 April 1994]. "On the other hand, respondent remains firm that petitioner is no longer entitled to the claim for refund arguing that a mere allegation of net loss in the corporate annual income tax return does not ipso facto merit a tax refund/credit. Respondent further reasoned that there was no evidence showing that loss was indeed incurred." 3 On 20 January 1998, the assailed decision was promulgated. Thus, this petition for review, 4 with petitioner-appellant raising the following issue: "WHETHER OR NOT RESPONDENT IS ENTITLED TO THE REFUND/TAX CREDIT OF THE SUM OF P2,125,900.00 REPRESENTING ALLEGED OVERPAID INCOME TAX FOR THE CALENDAR YEAR 1993. " 5 PETITIONER-APPELLANT'S ARGUMENTS: Respondent-appellee is not entitled to the tax refund/credit in the amount of P2,125,900.00. LLphil The CTA failed to observe the requirement of substantiation of loss. The taxpayer bears the burden of proving and substantiating his claim for deduction for losses allowed under (then) Section 30 (d) and should comply with the following substantiation requirements: a) declaration of loss filed with the Commissioner of Internal Revenue or deputies with a certain period prescribed; b) proof of the elements of loss claimed, such as the actual nature and occurrence of events and amount of the loss. The declaration of loss is subject to verification and does not constitute sufficient proof of the loss that will justify its deductibility for income tax purposes. Thus, the mere filing of a declaration of loss does not automatically entitle a taxpayer to deduct the alleged loss from gross income. There is no evidence of actual loss in the records. Although the alleged losses were declared in the income tax returns, how the losses were incurred were not itemized and specified with clarity. RESPONDENT-APPELLEE'S COMMENT: 6 Petition should be dismissed on the following grounds: 1) The issue raised, i.e., whether or not respondent-appellee failed to substantiate its loss, is a question of fact, and in such questions, appellate courts are bound by the findings of the CTA; 2) Assuming that the issue is within the jurisdiction of this Court, petitioner-appellant presents general allegations and makes no reference to any law, jurisprudence, documentary or testimonial evidence to support its arguments; 3) petitioner-appellant overlooks the fact that the basis of the grant of claim for tax refund/credit was the substantiation of the claims by the submission of documentary and testimonial evidence; 4) petitioner-appellant is uncertain of the nature of the loss which according to her requires substantiation as she is of the erroneous impression that respondent-appellee incurred loss subject to deduction as an expense; 5) the nature of respondent-appellee's losses in the taxable years 1993 and 1994, i.e., losses arising from the fact that its expenses exceeded its actual income for the said years, are not those loses which are deductible expenses under the Code; 6) the fact of losses incurred has been substantiated by petitioner-appellant as correctly found by the CTA. COURT'S RULING: The petition for review is without merit. The only argument of petitioner-appellant is that the trial court was wrong when it allowed the tax refund applied for by respondent-appellee because there was allegedly no proof of loss. The question of whether or not there was sufficient proof of loss is a factual matter, and factual findings of the CTA can only be disturbed on appeal if not supported by substantial evidence. 7 It is noteworthy to state that petitioner-appellant herein failed to present her evidence before the CTA despite the opportunity to do so. She was, therefore, declared to have waived her right to present evidence on 08 May 1997. On the other hand, the Court of Tax Appeals, in the exercise of its specialized expertise on the matter and after consideration of all the pleadings, documentary and testimonial evidence submitted by respondent-appellee, and all other circumstances of the case, deemed it legal and just to allow its claim for refund. The ruling of the CTA was reached after it gave credence to the following evidence submitted by the respondent-appellee; Certificate of filing of the Articles of Merger, Articles of Merger, Plan of Merger; 8 Corporation Quarterly Income Tax Returns for the first, second, and third quarters of 1993; 9 1993 and 1994 Corporate Annual Income Tax Returns together with the attachments of audited financial statements and certifications of independent CPAs; 10 Certificates of Creditable Income Tax Withheld at Source; 11 letter claim for refund with the BIR. 12 It then concluded that respondent-appellee sufficiently proved its overpaid income taxes, hence the validity of the claim for refund. Thus, the CTA formulated the following conclusions; 1) the claim for refund with the BIR and the corresponding court action with the CTA were filed within the 2-year period provided in Section 230 of the NIRC; 2) the income on which the creditable withholding taxes were paid were included as part of respondent-appellee's gross income; 3) the fact of withholding was proved with the presentation of the certificate of creditable withholding tax at source (BIR Form No. 1743.1); 4) there was proof that the first quarter income tax was paid to the BIR per the 1993 annual income tax return of the respondent-appellee. We do not see any strong and convincing proof sufficient to overturn the findings of fact made by the CTA. The factual findings of the CTA are entitled to the highest respect and can only be disturbed on appeal if they are not supported by substantial evidence or if there is a showing of gross error or abuse on then part of the tax court. 13 WHEREFORE, the petitioner for review is DENIED . Alio-Hormachuelos and Villarama, Jr . , JJ . , concur. Footnotes 1. Rollo , p. 23. 2. Decision, Rollo , p. 23, at p. 32. 3. Decision, Rollo , p. 23, at p. 27-28. 4. Rollo , p. 15. 5. Petition for Review, Rollo , p. 15, at p. 17. 6. Rollo , p. 51. 7. Sy Po vs. Court of Appeals, 164 SCRA 524 [1988]. 8. Exhs. A, A-1, A-2. 9. Exhs. B, E, E-1, H, H-1. 10. Exhs. K, K-1, K-2, K-3, K-4, K-5, K-6, K-7, N, N-1, N-2. 11. Exhs. C, D, F, G, I, J, L, M. 12. Exhs. O, O-1. 13. Commissioner of Internal Revenue vs. Mitsubishi Metal Corporation, 181, SCRA 214 [1990].