Equitable Banking Corp. v. Commissioner of Internal Revenue

SIXTEENTH DIVISION [CA-G.R. SP No. 48989. May 16, 2002.] EQUITABLE BANKING CORPORATION , petitioner-appellant , vs . COMMISSIONER OF INTERNAL REVENUE , respondent-appellee. D E C I S I O N AQUINO , J p : Sec. 121 of the National Internal Revenue Code imposes a tax upon gross receipts on banks. It provides: "Section 121. Tax on banks and non-bank financial intermediaries . There shall be collected a tax on gross receipts derived from sources within the Philippines by all banks and non-bank financial intermediaries in accordance with the following schedule: (a) On interest, commissions and discounts from lending activities as well as income from financial leasing, on the basis of remaining maturities of instruments from which such receipts are derived. Short-term maturity not in excess of two years 5% Medium-term maturity over two (2) years but not exceeding four (4) years 3% Long-term maturity (i) over four (4) years but not exceeding seven (7) years 1% (ii) over seven (7) years 0% (b) On dividends 0% (c) On royalties, rentals of property, real or personal, profits from exchange and all other items treated as gross income under Section 28 of this Code 5% Provided, however , That in case the maturity period referred to in paragraph (a) is shortened thru pretermination, then the maturity period shall be reckoned to end as of the date of pretermination for purposes of classifying the transaction as short, medium or long-term and the correct rate of tax shall be applied accordingly. Nothing in this Code shall preclude the Commissioner from imposing the same tax herein provided on persons performing similar banking activities." Revenue Regulations No. 12-80 dated November 7, 1980 on Taxation of Certain Income derived from Banking Activities provides the rates of tax to be imposed on the gross receipts of banks based on all incomes actually received, thus: "Sec. 4. . . . (e) Gross receipts tax on banks, non-bank financial intermediaries, financing companies, and other non-bank financial intermediaries not performing quasi-banking activities. The rates of taxes to be imposed on the gross receipts of such financial institutions shall be based on all items of income actually received. Mere accrual shall not be considered, but once payment is received on such accrual or in cases of prepayment, then the amount actually received shall be included in the tax base of such financial institutions, as provided hereunder." Interpreting the above-quoted law, the Court of Tax Appeals on January 30, 1996 rendered a Decision in CTA Case No. 4730 entitled Asian Bank Corporation v. Commissioner of Internal Revenue wherein it was held that the 20% final withholding tax on bank's interest income should not form part of the taxable gross receipts for purposes of computing gross receipts tax. On July 20, 1994, pursuant to the foregoing law and regulation, the Equitable Banking Corporation (EBC) filed its quarterly percentage tax return for the second quarter ending June 1994 reflecting a gross earning of P316,993,388.64 and an aggregate payment of P13,127,707.96 as gross receipt tax. On the basis of said CTA decision, the EBC filed on July 19, 1996 with the Bureau of Internal Revenue (BIR) a letter-request for the refund or issuance of a tax credit for the second quarter ending June 30, 1996 in the amount of P645,180.53 representing alleged overpaid gross receipts tax, computed as follows: "Gross Receipts Subjected to Tax P316,993,318.64 Less: 20% Portion of Tax 4,497,475.22 Paid income (Annex B1 of 2 Investment Income subject to 20% final tax booked at gross (Annex B2 of 2) 8,406,135.31 Adjusted Gross Receipts Tax Base P304,089,708.11 Computation of Adjusted Gross Receipt Tax: Gross Receipts Tax Due 0% P14,830,998.42 P0.0 1% 41,130,567.77 411,305.68 3% 16,759,267.05 502,778.01 5% 231,368,874.87 11,568,443.74 P304,089,708.11 P12,482,527.43 Gross Receipts Tax Paid P13,127,707.96 Adjusted Gross Receipts Tax P12,482,527.43 Tax Refund P645,180.53" =========== To avoid the prescription of its action for refund of unexpired gross receipts tax, the EBC on July 20, 1996 filed a Petition For Review with the Court of Tax Appeals. On June 15, 1998, the Court of Tax Appeals promulgated its Decision (Annex A, Petition) dismissing the petition. Hence, this Petition for Review of the Decision of the Court of Tax Appeals. The petitioner EBC assigned two alleged errors of the Court of Tax Appeals: (a) its denial of EBC's claim for tax refund despite admission by the Commissioner of Internal Revenue that EBC indeed overpaid its gross receipts tax for the second quarter ending June 30, 1994; and (b) its finding that EBC failed to prove the claim for refund in the amount of P645,180.53. The appeal is not meritorious. The issue in this case is not whether the 20% final withholding tax in the interest income should form part of the gross receipts in compiling the gross receipts tax but whether petitioner EBC has sufficiently proven that the amounts of P4,497,475.22 and P8,406,135.31 were indeed payments for the 20% final withholding tax on its interest income . Directly addressing said issue, the Court of Tax Appeals said: "Petitioner in computing for its overpaid gross receipts tax, deducted the amounts of P4,497,475.22 and P8,406,135.31, representing 20% portion of tax-paid income and income subjected to 20% final tax booked at gross, respectively (Exh. G-3). A careful scrutiny of the composition of said amounts reveals that the P4,497,475.22 (Exh. G-4) represents interest income which is net of final tax and the sum of P8,406,135.31 represents petitioner's provision for final tax (Exh. G-5). It should be noted that what the Asian Bank case excluded in the computation of gross receipts tax was the 20% final withholding tax on interest income derived by the bank and not the 20% portion of the tax-paid income net of final withholding tax nor a bank's provision for final tax. Petitioner failed to prove that the amounts of P4,497,475.22 and P8,406,135.31 were payments for 20% final withholding tax on its interest income as what the Asian Bank case excluded in the computation of gross receipts tax. Obviously, petitioner seems to have a wrong basis in its computation of overpaid gross receipts tax, and it is highly possible that this is due to its wrong interpretation of Our decision in the aforequoted Asian Bank case. Since it appears that petitioner has no other evidence to show how much final withholding tax was paid on interest income it received during the calendar quarter ended June 30, 1994, we are constrained, not to grant petitioner's prayer." Refuting the CTA's holding, petitioner submits: "It must be emphasized that there were no factual issues raised by the CIR, but only the legal issue of whether or not EBC is entitled to refund pursuant to the ruling in the Asian Bank case. All facts therefore were deemed to have been admitted, that is, the fact that the amounts of P4,497,475.22 and P8,406,135.31 were payments for 20% final tax in the amount of P645,180.53. The CTA did not even have to belabor itself in discussing whether or not there was sufficient evidence to prove EBC's claim. The records of the case will bear out that counsel for CIR manifested to the CTA during the trial, upon being asked if she will present evidence in her defense that there is only a legal issue to be resolved in the case, which is an admission that EBC indeed included in the computation of the gross receipts tax the 20% final withholding tax on its interest income (the amounts of P4,497,475.22 and P8,406,135.31) which EBC did not actually receive. Furthermore, this admission was reiterated in the Memorandum dated October 14, 1997 (original duplicate copy is hereto attached as Annex 'E') filed by the CIR through counsel." xxx xxx xxx "14. It cannot be said that there was no preponderance of and convincing evidence to prove EBC's claim for tax refund, there being positive and uncontested testimonial and documentary evidence submitted to prove its claim. The documentary exhibits consisting of the: (1) Quarterly Percentage Tax Return for the 2nd quarter of the year ended June 30, 1994, (b) Statement of Quarterly Gross Receipts derived by EBC from interests, discounts dividends, commissions, profits from exchange, rentals of properties, real and personal, and all other items treated as Gross Receipts Tax, (c) Computation of the Gross Receipts Tax paid, (d) Transmittal Sheet of Percentage Tax, (e) Computation Sheet of Gross Income for the Head Office for the year 1994, (f) EBC Head Office Income Statement for the Month ended June 30, 1994 and (g) the demand letters, which prove EBC's claim for tax refund. The said documentary exhibits were supported by the testimonies of EBC's witnesses Ms. Marcelita Geollegue and Maribelle Sta. Maria that for the P316,993,318.64 EBC considered as taxable gross receipts, it paid a gross receipts tax of P13,127,707.96. The taxable base was wrong because EBC (a) added to the actual gross receipts of only P304,089,708.11 the amounts of P4,497,475.22 representing 20% final tax withheld on income received and booked at net of 20% final tax during the quarter ended June 30, 1994; and (b) booked the amount of P8,406,135.31 representing 20% final tax withheld on tax paid income, as part of taxable gross receipts for the quarter ended June 30, 1994. Such erroneous addition and booking bloated the Gross Receipts Tax base from P304,089,708.11 to P316,993,318.64, and thus led EBC to add the amount of P645,180.53 as excess GRT for which the government is not entitled." This Court finds no merit in this appeal. Petitioner vigorously argues that since the respondent Commissioner of Internal Revenue did not dispute the allegation in the petition of petitioner that it had indeed included in its computation of gross receipts tax the 20% final withholding tax on its interest income which it did not receive, the same is, therefore, deemed an admitted fact. The lower court cannot therefore, make a finding at variance with that admitted fact. This Court does not agree. This Court is not unaware of Sec. 4, Rule 129 of the Revised Rules of Court which expressly states that an admission of a party in the course of a proceeding does not require proof. This is not a rule struck on stone. If the admission whether express or implied is made through palpable mistake, the same rule says that such admission may not bind said party. Essentially, the rationale of the rule is found in the doctrine of estoppel in pais . When a party makes an admission in a proceeding, he cannot go back upon his admission to the prejudice of the other party who relied upon it. ( Lazo v. Republic Surety and Insurance Co., Inc. , 31 SCRA 329 ) It must be stressed that in this proceeding, the respondent Commissioner of Internal Revenue acts as an agent of the State. It is in the interest of the State that correct taxes are collected and that is the main task of the CIR. It is a fundamental rule that the government is not estopped by the error of its officials or agents ( Luciano v. Estrella, 34 SCRA 769 ). More specifically, the government is not estopped from collecting taxes due to the error of its agent ( Commissioner of Internal Revenue v. Court of Appeals, 267 SCRA 557 ). Two. This Court has no way of determining the correctness of petitioner's assertion that its documentary exhibits enumerated above sufficiently proved that what it is seeking to be refunded or given a tax credit were indeed payments for the 20% final withholding tax on its interest income, the reason being that these documents are not before it. Additionally, petitioner did not show in a graphic and explicit way how and why the amounts of P4,497,475.22 and P8,406,135.31 were payments for the 20% final withholding tax on its interest income and not for the 20% portion of tax-paid income net of final withholding tax or the bank's provision for final tax. Resultantly, this Court has no option but to sustain the finding of the lower court that petitioner indeed failed to prove its entitlement to said tax credit or tax refund. WHEREFORE, for lack of merit, the Court DISMISSES the petition and AFFIRMS the appealed Decision. SO ORDERED. Cruz and Maambong, JJ . , concur.