Meralco Foundation, Inc. v. Commissioner of Internal Revenue

SEVENTH DIVISION [CA-G.R. SP No. 50599. January 30, 2002.] MERALCO FOUNDATION, INC. , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N VIDALLON-MAGTOLIS , J p : This petition for review seeks the reversal and setting aside of the Decision of the Court of Tax Appeals (CTA) dated September 1, 1998, 1 as well as its Resolution dated December 21, 1998 2 denying for insufficiency of evidence its claim for refund of 5% expanded withholding tax (EWT) in the amount of P810,000.00. THE ANTECEDENT FACTS The petition alleges that on May 4, 1993, the petitioner entered into a Deed of Sale 3 with Aida C. Garcia and Lourdes C. Garcia for the purchase of an agricultural land situated in Brgy. Pulo, Calamba, Laguna for a purchase price of P16,200,000.00. Pursuant to Section 1 (j) (iii) of Revenue Regulations No. 6-85, as amended by Revenue Regulations 1-90 (the withholding tax regulations applicable at that time), the petitioner was required to withhold the 5% EWT from the cross-selling price of the land and remit the amount corresponding thereto to the respondent. As stipulated in Section 1.03 of the aforesaid Deed of Sale, the petitioner obligated itself to pay the Garcias the purchase price of P16,200,000.00 net of applicable taxes in three tranches, particularly: the first tranche of P6,000,000.00 as downpayment; the second tranche of P5,000,000.00 less any amount of applicable tax advanced by the petitioner; and the balance of P5,200,000.00 upon the transfer and delivery of the appropriate transfer certificate of title in the petitioner's name. In compliance with the agreement, the petitioner made the following payments: Date of Payment Amount Description of Payment May 3, 1993 P6,000,000.00 4 Downpayment May 25, 1993 2,500,000.00 5 Partial Payment of 2nd Tranche June 2, 1993 1,690,000.00 6 Full Payment of 2nd Tranche Sept. 22, 1993 5,200,000.00 7 Final Payment Total P15,390,000.00 ============ The second tranche of P5,000,000.00 was paid in two (2) installments on May 25 and June 2, 1993, out of which amount the petitioner withheld the 5% EWT amounting to P810,000.00. Thus, the total payment of P15,390,000.00 was actually net of the 5% EWT in the amount of P810,000.00. On May 27, 1993, the petitioner allegedly remitted to the respondent the above amount of P810,000.00 as 5% EWT on the above-mentioned purchase of agricultural land together with the Monthly Remittance Return of Income Taxes Withheld or BIR Form No. 1743 W. 8 In acknowledgment of such payment, the respondent issued a Certificate Authorizing Registration of real property not subject to capital gains tax on June 10, 1993. 9 Allegedly due to inadvertence, and notwithstanding the above-mentioned remittance of the aforesaid withholding tax, the petitioner again remitted to the respondent on June 7, 1993, another amount of P810,000.00 as 5% EWT on the above-mentioned purchase of agricultural land together with another Monthly Remittance Return of Income Taxes Withheld or BIR Form No. 1743. 10 On May 17, 1995, the petitioner filed with the respondent through her revenue district officer in Revenue District Office No. 43, a written claim for refund or issuance of a tax credit in the amount of P810,000.00 representing erroneously paid taxes to the government. 11 However, the claim remained unacted upon by the respondent; hence this case was filed. On September 1, 1998, the respondent rendered judgment dismissing the petitioner's judicial claim for refund for insufficiency of evidence. The petitioner's motion for reconsideration was likewise denied for lack of merit. Hence, this petition. THE ISSUE The sole issue in this petition is whether or not the petitioner herein is entitled to a refund of the 5% expanded withholding tax amounting to P810,000.00. PETITIONER'S ARGUMENTS The petitioner argues that contrary to the tax court's findings, there was proof showing that the second payment of P810,000.00 on June 7, 1993 was made in connection with the subject Deed of Sale. Allegedly, the tax court failed to consider the following: 1. Petitioner's witness categorically testified that when the payment for the third installment was prepared, they erroneously believed that it had not deducted the 5th EWT from the purchase price and had not paid the same to the respondent. So instead of paying the Garcias P2,500,000.00 as in the case of the second installment, the petitioner deducted the amount of P810,000.00 from the third installment, paid the balance of P1,690,000 to the Garcias, and remitted the P810,000.00 to the respondent as EWT on the sale. 12 2. There was no evidence presented to show that the testimony of witness Morales is merely self-serving and therefore devoid of any credibility. It must be noted that Morales is not a party to the case. And as found by the tax court, she is merely an employee of the petitioner, being the Head of its Financial Services Division. She had no financial interest in the outcome of the case, neither would she have been benefited by a tax refund nor been personally aggrieved by a denial thereof. On the contrary, she could take the risk of criminal sanction if she failed to tell the truth. Moreover, as Head of Financial Services Division, whose responsibility is to supervise the check payments and tax remittances to the government, and as signatory of the questioned second payment of P810,000.00, she was the only one in a position to testify on the matter. 3. Finally, the testimony of witness Morales is supported by no less than the documentary exhibits which were likewise presented in evidence by the petitioner. The testimonial as well as the documentary evidence, according to the petitioner, taken together, are sufficient to prove its case with substantial evidence, which is the quantum of evidence required of the petitioner herein. The respondent, on the other hand, failed to submit its Comment to the Petition despite notice. THE COURT'S RULING The petition merits consideration. A thorough and painstaking examination of the evidence on hand would disclose that the petitioner had indeed paid twice the expanded withholding tax on the subject property. It appears that upon payment of the downpayment of the purchase price to the Garcias in the amount of P6,000,000.00, the petitioner paid in advance to the BIR the 5% expanded withholding tax due thereon in the amount of P810,000.00 under manager's Check No. 042074 dated May 3, 1993. 13 A close scrutiny of the aforesaid manager's check shows that the amount of P810,000.00 was applied and drawn against account no. 520-113-063 of the petitioner with the Citibank payable to the Commissioner of Internal Revenue, 14 although the same was remitted to the BIR together with the Monthly Remittance Return of Income Taxes Withheld (BIR Form No. 1743W) only on May 27, 1993. 15 The tax was paid in the name of the Garcias. As a withholding agent, the petitioner issued BIR Form No. 1743-1 or the Certificate of Creditable Income Tax Withheld at Source in favor of the Garcias amounting to P810,000.00, copies of which shall be attached by the Garcias as payee to their accomplished Income Tax Return. 16 However, during the preparation of the payment for the third installment, they found out that they have not yet deducted the withholding tax from the Garcias so they deducted the P810,000.00 from the P2,500,000.00 and remitted it to the BIR. The second payment of the aforesaid amount of P810,000.00 was covered by DBP Check No. 054914 dated June 2, 1993. This obviously explains why the Garcias received only P1,690,000.00 17 instead of P2,500,000.00. The aforesaid remittance was covered by Monthly Remittance Return of Income Taxes Withheld filed on June 7, 1993 18 in the name of the petitioner. Such payment appears to have been received by the BIR as shown by the Certification dated December 12, 1996 issued by Carmelita SJ. Pascual, Chief Revenue Accounting Division, of the Bureau of Internal Revenue. 19 Although the said certification states that "the kind of tax paid is not indicated in the source documents", the tax paid thereunder appears to have been the same kind of tax covered by the Monthly Remittance Return of Income Taxes Withheld filed on June 7, 1993. As appearing in the said certification the check referred to therein is the same check used by the petitioner in paying the tax on June 7, 1993, i.e., DBP Check No. 054914 dated June 7, 1993, in the amount of P810,000.00. The aforesaid check likewise appears on the face of the Monthly Remittance Return of Income Taxes Withheld filed on June 7, 1993 below the column "Details of Payment". Moreover, it must be noted that the petitioner herein falls within the purview of a corporation operated for scientific purposes as contemplated under Sec. 26 (e) of the National Internal Revenue Code, as amended, and therefore exempt from payment of income tax and the filing of the corresponding income tax return. The petitioner merely acted as withholding agent of the government when it made income payment to Garcias (as a result of the purchase of the subject property from the latter) subject to the expanded withholding tax provided for in Section 50(b) of the Tax Code as amended, as implemented by Revenue Regulations No. 6-85, as amended. 20 There is no disagreement that a claimant has the burden of proof to establish the factual basis of his or her claim for tax credit or refund. Tax refunds, like tax exemptions, are construed strictly against the taxpayer. 21 In the case at bar, the petitioner has proven with substantial evidence that it is entitled to the tax refund being claimed. WHEREFORE, the petition is hereby GRANTED, and the decision of the Court of Tax Appeals dated September 1, 1998 and its Resolution dated December 21, 1998 are hereby REVERSED and SET ASIDE, and a new one entered directing the Commissioner of Internal Revenue to refund the amount of P810,000.00 to the petitioner. SO ORDERED. Rivera and Enriquez, Jr . , JJ . , concur. Footnotes 1. Rollo , p. 34. 2. Id . at p. 37. 3. Exhibit "C", Original Records, pp. 88-94. 4. Exhibit "D", Id . at p. 95. 5. Exhibit "E", Id . at p. 95. 6. Exhibit "F", Id . at p. 96. 7. Exhibit "G", Id . at p. 96. 8. Exhibit "H"-"I", with sub-markings, Id . at pp. 97-101. 9. Exhibit "2", Id . at p. 128. 10. Exhibits "A" & "B", Id . at pp. 86-87. 11. Exhibit "M", Id . at pp. 18-20. 12. TSN, January 18, 1996, pp. 25-27. 13. Exhibits "H", "H-1" & "I", Original Records, pp. 97-101. 14. Ibid . 15. Exhibits "I", "K" & "K-1", Id . at pp. 100-104. 16. TSN, Jan. 18, 1996, pp. 18-26, Exhibits "J" & "K", Id . at pp. 102-103; TSN, April 11, 1996, pp. 7-9. 17. Exhibit "F", Id . at p. 96. 18. Exhibits "A" & "B", Id . at pp. 86-87; TSN, Feb. 26, 1996, pp. 4-10. 19. Exhibit "O", Id . p. 160. 20. Exhibit "L", Id . at pp. 105-106. 21. Citibank, N.A. vs. Court of Appeals, 280 SCRA 459, 471.