Equitable Banking Corp. v. Court of Tax Appeals

FIRST DIVISION [CA-G.R. SP No. 52641. December 29, 2005.] EQUITABLE BANKING CORPORATION , petitioner , vs . THE HONORABLE COURT OF TAX APPEALS and THE COMMISSIONER OF INTERNAL REVENUE , respondents . [CA-G.R. SP No. 55285. December 29, 2005.] EQUITABLE BANKING CORPORATION , petitioner, vs. THE COMMISSIONER OF INTERNAL REVENUE, respondent . D E C I S I O N REYES , R.T ., P.J p : THESE are consolidated petitions 1 filed by Equitable Banking Corporation (EBC) questioning the following dispositions of the Court of Tax Appeals in CTA Case No. 5440 : "(1) Resolution dated January 5, 1999 2 denying EBC's "motion to reopen case and allow EBC to present additional evidence" and Resolution dated March 17, 1999 3 denying EBC's motion for reconsideration assailed in CA-G.R. SP No. 52641. "(2) Decision dated June 25, 1999 4 denying EBC's claim for refund and Resolution dated September, 16, 1999 5 denying EBC's motion for reconsideration assailed in CA-G.R. SP No. 55285." The Antecedents The CTA summarized the facts of CTA Case No . 5440 as follows: "On October 20, 1994, petitioner filed with the Bureau of Internal Revenue its Quarterly Percentage Tax Return for the quarter ended September 30, 1994 (Exh. B) declaring a gross earning in the amount of P324,166,359.84 and gross receipts tax payment in the sum of P14,256,032.1 (Exh. B-1). "On January 30, 1996, this Court rendered a decision in the case of Asian Banking Corporation versus Commissioner of Internal Revenue , CTA Case No. 4720, declaring that the 20% final withholding tax on bank interest should not form part of its taxable gross receipts for purposes of computing gross receipts tax. "Thus, on the strength of said decision, petitioner filed on September 26, 1996, an administrative claim for the refund or issuance of tax credit certificate (Exh. C) in the total amount of P14,125,699.10 from which the P1,242,252.66, subject matter of this petition formed part of (Exh. C-1). "With the two-year reglementary period about to expire, petitioner prudently did not wait for the result of its administrative claim. Hence, this petition on October 19, 1996. "On February 7, 1997, petitioner filed a Motion to Admit Amended Petition which this Court granted "considering that the allegations sought to be incorporated in the amended petition are factual allegations which are supplementary and do not substantially alter or change petitioner's cause of action." (Rec., p. 60). "Petitioner then alleges that for the quarter ending September 30, 1994 it paid to the BIR gross receipts tax in the amount of P27,070,042.69 and P14,256,032.12. of which comprises the aggregate amount of gross receipts tax paid by the following: Head Office P13,589,268.23 Exhibit A-1 Branches: Arranque 19,527.87 Exhibit A-2 Magdalena 9,568.24 Exhibit A-3 Ongpin 27,134.28 Exhibit A-4 Reina Regente 6,129.40 Exhibit A-5 Soler 604,406.10 Exhibit A-6 Total P14,256,032.12 ============ "Petitioner further claims that the amount of P324,166,359.84 included the amounts of P5,118,097.58 (Exh. C-4, C-10 and P19,726,955.50 (Exh. C-5, C-11, D-1, SS-1) which respectively correspond to 20% portion of tax paid income and investment income subjected to final tax booked at gross. The amount claimed to be refundable is arrived at by recomputing the tax base, as follows: Gross Receipts Subjected to Tax P324,166,359.84 Less: 1) 20% Portion of Tax Paid Income 5,118,097.58 2) Investment Income subject to 20% final tax booked at gross 19,726,955.50 Adjusted Gross Receipts Tax Base P299,321,306.76 Computation of Adjusted Gross Receipts Tax Gross Receipts Tax Rate Tax Due P4,605,275.06 0% 0.00 34,584,305.44 1% 345,843.05 16,932,495.29 3% 507,974.86 243,199,230.97 5% 12,159,961.55 P299,321,306.76 P13,013,779.46 ============= ============= Gross Receipts Tax Paid P14,256,032.12 Less: Adjustment Gross Receipts Tax 13,013,779.46 Tax Refund P1,242,252.66 xxx xxx xxx "This case was submitted for decision on August 7, 1998. However, before a decision could be rendered, petitioner filed a "Motion to Reopen Case and Allow EBC to Present Additional Evidence". Said motion was filed mainly to comply the requirements of proof set forth in two cases involving the same parties, namely: Equitable Banking Corporation versus Commissioner of Internal Revenue, CTA Case No. 5411, June 15, 1998 and Equitable Banking Corporation versus Commissioner of Internal Revenue, CTA Case No. 5146, August 8, 1998." 6 Apart from CTA Case No . 5440 , EBC likewise instituted CTA Cases Nos. 5411 and 5146 also for the refund of allegedly overpaid taxes. Both claims, however, were likewise denied by the CTA for want of substantial evidence establishing overpayment. 7 CTA Dispositions On January 5, 1999, the CTA denied the "Motion to Reopen Case and Allow EBC to Present Additional Evidence" (motion to reopen). Citing its earlier resolution in Equitable Banking Corporation vs . Commissioner of Internal Revenue (CTA Case No. 5521, October 29, 1998 , the CTA reasoned out: "The presentation of additional evidence is allowed only when it is newly discovered, or where it has been omitted through inadvertence or mistake, or where the purpose of the evidence is to correct evidence previously offered, [I Moran's Comments on the Rules of Court, 211 Ed., 545, 64 C.J., 160-163; cited in Alegre v. Reyes, 161 SCRA 233 (1988); Agulto v. Court of Appeals, 181 SCRA 80 (1990)] In addition, the Court, for good reasons, in the furtherance of justice, may permit them to offer evidence upon their original case, and its ruling will not be disturbed in the appellate court where no abuse of discretion appears. (Siuliong & Co. v. Ylagan, 43 Phil. 393, U.S. v. Alviar, 36 Phil. 804). "It appears that the reason of petitioner for wanting to reopen this case is based solely in our decisions in the cases of Equitable Banking Corporation vs . Commissioner of Internal Revenue , CTA Case Nos. 5411 and 5416, supra . Petitioner failed to specifically state the facts surrounding the alleged inadvertence or mistake or excusable negligence in the presentation of that alleged additional document except for the fact that it was raised in our previous decisions involving the same parties and subject matter. The Court cannot allow the presentation of piece-meal evidence, otherwise, there will be no end to litigation." 8 After denial of its motion for reconsideration on March 17, 1999, 9 EBC filed a petition for certiorari with this Court docketed as CA-G . R . SP No . 52641 seeking to nullify the denial of the motion to reopen. Pending resolution of that petition in this Court, the CTA finally. decided CTA Case No . 5440 on its merits. In a decision dated June 25, 1999, the CTA denied EBC's claim for refund, ruling in the following tenor: "The legal issue having been dealt with, a determination on whether or not petitioner has established its claim by substantial evidence is apropos. "As already adverted to, petitioner in recomputing its gross receipts tax base, deducted the amounts of P5,118,097.58 and P19,726,955.50 representing the 20% portion of tax-paid income and investment income subjected to 20% final tax booked at gross, respectively. As regards the amount of P5,118,097.58, herein petitioner submitted subsidiary ledgers of the following passive interest income with the exception of the interest income on time Loan Asahi: xxx xxx xxx "Based on the subsidiary ledgers (Exhs. M to Q, V, AA to CC, GG, HH, MM to OO) and the income & Expense Summary (Exh. D), petitioner was able to show that the interest income was booked net of final withholding tax. In other words, petitioner's computation of overpaid gross receipts tax on this tax-paid income appears to be correct (Exh. C-9). Nevertheless, petitioner failed to prove that the final tax was indeed withheld and remitted to the BIR. The subsidiary ledgers are not conclusive evidence of payment of final tax. They are insufficient to check the accuracy of the amounts so indicated. Petitioner should have submitted the corresponding certificate of income tax withheld. acIHDA "With respect to the amount of P19,726,955, this represents the 20% final tax on interest income from trading accounts securities which was booked at gross, inclusive of the 20% final tax (Exhs. G to L, W to Z, II to LL) and recorded under Provision for tax- final tax (Exhs. R to U, DD to FF, PP to SS). Petitioner deducted this amount to derive its adjusted gross receipts tax base. Petitioner alleges that this amount had been withheld and therefore should not longer form part of the gross receipts for the purpose of computing the gross receipts tax (TSN, September 24, 1997, pp. 34-35). Yet, petitioner failed to support this allegation. No evidence has been presented to prove that indeed the 20% final tax on trading accounts securities has been withheld and remitted to the BIR." 10 Its motion for reconsideration having been denied, 11 EBC filed a petition for review, this time docketed as CA-C . R . SP No . 55285 . On February 24, 2000, CA-G . R . SP No . 52641 and CA-G . R . SP No . 55285 were consolidated upon EBC's motion. 12 Issues In CA-G.R. SP No. 52641, EBC presents a seven-point argument in support of its petition assailing the denial of its motion to reopen: "A. The CTA Doctrine in Asian Bank Corporation vs. Commissioner of Internal Revenue, CTA Case No. 4720, has no precedent. It involved a difficult and perplexing question of what law applies and what manner or quantum of proof to support the claim. It was by reason of honest mistake on a difficult legal or procedural question that EBC was not able to present proof of payment of the final tax by its withholding agents. CHTAIc "B. The CTA's grave abuse of discretion is even emphasized by (1) the obvious simplicity of EBC's motion to reopen to comply with a declared CTA requirement; (2) the basic unfairness of penalizing EBC's honest mistake by altogether barring it from presenting evidence that its withholding agent paid the final taxes; (3) the inequity of reducing EBC to a helpless supplicant waiting the release of a decision which will only dismiss its claim for lack of the very evidence it intends to present, and; (4) the CTA's failure to consider that EBC's motion to reopen was filed before, and not after, any decision in the case. C. Contrary to the statement by the CTA, the Petitioner has not consumed a great deal of time trying to present its case before said Court. D. The CTA's exercise of judicial discretion is circumscribed by the dictates of justice and reason and the basic requirement of soundness. Granting EBC's very simple Motion to Reopen case (before judgment) is well within the paramount interest of justice, sound judicial discretion, and the liberal construction of the rules of procedure. Denial of the motion constitutes grave abuse of discretion, considering furthermore than allowing the reopening will not prejudice the substantial rights of respondent Commissioner of Internal Revenue. HcTIDC "E. The concern that granting this simple and reasonable motion by EBC would result in unending litigation and undue delay, is speculative and baseless. "F. Alegre v. Reyes, (161 SCRA 226, 231 [1988]), and not People v. Castro-Bartolome (204 SCRA 38), applies to the present case. "G. The Honorable Court of Tax Appeals Acted With Grave Abuse Of Discretion in Denying EBC's Motion to Reopen and Reconsideration Motions; and there is no appeal or any plain, speedy, and adequate remedy in the ordinary course of law." 13 On the other hand, in CA-G.R. SP No. 55285, EBC ascribes two-fold errors to the CTA in its decision in CTA Case No. 5440: "1. The CTA erred in holding that EB's evidence to prove its claim for refund of excess gross receipts tax is insufficient; and "2. The CTA erred in not granting EB's motion to reopen the case to present additional evidence, assuming arguendo that its already submitted evidence is, indeed, insufficient." 14 Tersely put, the issues presented by the consolidated petitions are as follows: 1. Whether or not the CTA gravely abused its discretion in denying the motion to reopen. 2. Whether or not the CTA erred in denying the EBC claim for refund. Our Ruling Both petitions fail in merit. There Was No Grave Abuse Of Discretion In The Denial Of The Motion To Reopen EBC essentially argues that its motion to reopen should have been granted because it had no other available recourse under the circumstances. It maintains: "4. Moreover, it was not too late in the day for EBC to move the Honorable CTA for leave to allow presentation of proof that its withholding agents paid the final taxes on the covered transactions. To continue the CTA to rule on the merits of the present case in petitioner's favor, EBC deemed it appropriate to stand by the CTA's two new decisions (in CTA Case No. 5146 and CTA Case No. 5411) and to comply with the requirements of proof the CTA itself has delineated therein. "5. At that point, the only reasonable thing that remain for EBC to do (in CTA Case No. 5440) was to seek the Court's kind consideration that additional evidence to establish the payment as CTA required in the other related cases (in CTA Case No . 5146 and CTA Case No . 5411) rather than to continue to soldier on with the old evidence which, although arguable, are not favored upon by the tax court ." 15 We are unmoved. A motion to reopen may properly be presented only after either or both parties have formally offered and closed their evidence, but before judgment. 16 The reopening of a case for the reception of further evidence before judgment is not the granting of a new trial. 17 Unlike the latter motion, a motion to reopen is not specifically mentioned and prescribed as a remedy by the Rules of Court. However, it is a recognized procedural recourse or device, deriving validity and acceptance from long and continuous usage. 18 The mere filing of a motion to reopen a case must not in any way automatically vacate an agreement and order submitting the case for decision. While the court may reopen a case for reception of further evidence after the parties have closed their evidence, such action is addressed to the sound discretion of the court, to be exercised only on valid and justifiable reasons. 19 Indeed, its concession, or denial, by said Court in the exercise of that discretion will not be reviewed on appeal unless a clear abuse is shown. 20 In Alegre vs . Reyes , 21 the Supreme Court laid down the discretionary standard for allowing the reopening of a case and the introduction of additional evidence, to wit: "A motion for new trial in civil or criminal actions may be applied for and granted only upon specific, well-defined grounds, set forth respectively in Rules 37 (Section 1) and 121 (Section 2). On the other hand, the reopening of a case for the reception of additional evidence after a case has been submitted for decision but before judgment is actually rendered is, it has been said, controlled by no other rule than that of the paramount interests of justice, resting entirely in the sound judicial discretion of a Trial Court ; and its concession, or denial, by said Court in the exercise of that discretion will not be reviewed on appeal unless a clear abuse thereof is shown ." 22 Using the foregoing standard, We see no grave abuse of discretion in the CTA denial of EBC's motion to reopen. Proof of overpayment had been made available to EBC long ago. The records indicate that EBC had more than enough time to prepare for trial and present its evidence. 23 Too, EBC did not present such additional evidence of overpayment despite its availability during trial. The belated plea to reopen the case is nothing more than a mere afterthought; it was intended to remedy the deficiency that became apparent only after the CTA promulgated the adverse resolutions. Aside from these considerations, We notice that EBC's motion to reopen sorely lacked the necessary specification of evidentiary matters that would be presented. This deficiency deprived the CTA from forming a frame of reference by which reopening of the case could validly be justified. Indeed, the CTA cannot evaluate the merit of the reopening absent particularity of evidence sought to be introduced. Liberality cannot be invoked. It is not a panacea to remedy every omission that a litigant overlooks. Disregard of the rules cannot justly be rationalized by harking on the policy of liberal construction. 24 Petitioner having offered any plausible explanation to justify the reopening, the CTA was well justified in refusing to reopen the case. To allow the reopening would undoubtedly place a premium on belated actions and unjustified invocations of equity. EBC's Claim For Refund Lacks Substantive Evidentiary Basis EBC essentially argues that final withholding taxes that had been paid by it should not form part of its gross receipts as basis for computing the gross receipts tax, hence it is entitled to the return of P1,242,252.66. EBC relies on the CTA ruling in Asian Banking Corporation versus Commissioner of Internal Revenue (CTA Case No. 4720), which held that 20% final withholding tax on bank's interest income should not form part of taxable gross receipts in computing the gross receipts tax. The argument fails to convince Us. It is said that taxes are what people pay for civilized society. Without taxes, the government would be paralyzed for lack of the motive power to activate and operate it. It is the lifeblood of the government and so should be collected without unnecessary hindrance. 25 Because of this, the law frowns upon exemptions from taxation and statutes granting tax exemptions. They are construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority. A claim of refund or exemption from tax payments must be clearly shown to be based on language in the law too plain to be mistaken. 26 The position of EBC has been abandoned by no less than the Supreme Court in Commissioner of Internal Revenue vs . Solidbank . 27 The Solidbank case reiterated China Banking Corporation v . Court of Appeals , 28 where the Supreme Court held that the amount of interest income withheld in payment of the 20% FWT forms part of gross receipts. In Solidbank , filed a similar claim with the commissioner for the refund of overpaid taxes. The bank also based its claim on the Asian Banking Corporation case. In rejecting the claimed refund, the Supreme Court declared: " Since the 20% FWT is constructively received by the banks and forms part of their gross receipts or earnings, it follows that it is subject to the 5% GRT . After all, the amount withheld is paid to the government on their behalf, in satisfaction of their withholding taxes . That they do not actually receive the amount does not alter the fact that it is remitted for their benefit in satisfaction of their tax obligations . "Stated otherwise, the fact is that if there were no withholding tax system in place in this country, this 20 percent portion of the "passive" income of banks would actually be paid to the banks and then remitted by them to the government in payment of their income tax. The institution of the withholding tax system does not alter the fact that the 20 percent portion of their "passive" income constitutes part of their actual earnings, except that it is paid directly to the government on their behalf in satisfaction of the 20 percent final income tax due on their "passive" incomes . 29 With the foregoing precepts in mind, We cannot sustain EBC's claim for refund. The amount that it claims to have been overpaid should actually be included in the computation of its gross receipts for the taxable period. Although the 20% final withholding tax is automatically remitted to the government, the amount paid as taxes is deemed constructively received by EBC and should appropriately form part of its gross receipts. WHEREFORE, both petitions are DENIED for lack of merit. SO ORDERED. De Guia-Salvador, and Santiago-Lagman, JJ., concur. 1. Rollo , CA-G.R. SP No. 52641, p. 2; Rollo , CA-G.R. SP No. 55285, p. 2. 2. Rollo , CA-G.R. SP No. 52641, p. 28. 3. Ibid. , p. 35 4. Rollo , CA-G.R. SP No. 55285, p. 19. 5. Ibid ., p. 42. 6. Decision dated June 25, 1999, Rollo, CA-G.R. SP No. 55285, pp. 19-23. 7. Rollo, CA-G.R. SP No. 52641, pp. 29-31. 8. Rollo , CA-G.R. SP No. 52641, pp. 32-33. 9. Ibid ., p. 35. 10. Rollo , CA-G.R. SP No. 55285, pp. 28-29. 11. Ibid , p. 42. 12. Ibid , p. 99. 13. Rollo , CA-G.R. SP No. 52641, pp. 9-24. 14. Rollo , CA-G.R. SP No. 55285, p. 7. 15. Emphasis Ours; Rollo , CA-G.R. SP No. 52641, p. 11-12. 16. People of the Philippines vs . Tee , G.R. Nos. 140546-47. January 20, 2003. 17. Alegre vs . Reyes , G.R. No. L-56923. May 9,1988. 18. Ibid . 19. People of the Philippines vs . Gole Cruz , G.R. No. 69251. September 13,1989. 20. Agulto vs . People of the Philippines , G.R. No. 52728. January 17, 1990. 21. Supra . 22. Emphasis Ours. 23. Rollo , CA-G.R. SP No. 52641, p. 39. 24. Civil Service Commission vs . Asensi , G.R. No. 160657. December 17, 2004. 25. Commissioner of Internal Revenue vs . Wyeth Suaco Laboratories, Inc ., G.R. No. 76281. September 30,1991. 26. Paseo Realty & Development Corporation vs . Court of Appeals , G.R. No. 119286. October 13, 2004. 27. G.R. No. 148191. November 25, 2003. 28. G.R. No. 146749. June 10, 2003 29. Emphasis Ours.