Commissioner of Internal Revenue v. Citytrust Investment Phils., Inc.

SIXTH DIVISION [CA-G.R. SP No. 52707. August 17, 1999.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . CITYTRUST INVESTMENT PHILS., INC. , respondent . D E C I S I O N CALLEJO , SR. , J p : This is a " Petition for Review " of the Decision of the Court of Tax Appeals which decreed that the 20% final withholding tax on the passive income of Citytrust Investment Phils., the Respondent in the present recourse, does not form part of its gross receipts subject to the 5% gross receipts tax under the National Internal Revenue Code of 1986. We adopt the undisputed findings of facts of the Court of Tax Appeals as follows: "For the four quarters of calendar year 1994. Petitioner reported the amount of P110,788,542.30 as total gross receipts and paid the corresponding 5% GRT in the amount of P5,539,427.11. Such gross receipts allegedly included Petitioner's receipts derived from passive income, inclusive of the 20% final withholding taxes collected therefrom, in the aggregate sum of P32,600,701.25. On July 19, 1996, Petitioner filed with Respondent a written claim for the tax refund/credit of the abovestated amount of P326,007.01 following this Court's decision in CTA Case No. 4270, entitled Asian Bank Corporation vs. Commissioner of Internal Revenue, promulgated on January 30, 1996, wherein it was ruled that the basis for determining the gross receipts tax on banks and non-bank financial intermediaries should be the gross receipts of said institution means the twenty percent (20%) final taxes already withheld by various withholding agents on interest and other passive income of said institutions. Petitioner, thus seeks to be reimbursed of the 5% GRT it paid on the portion of 20% final taxes withheld at source which were included in the aforementioned gross receipts on its passive income. On the same day that Petitioner filed its administrative claim for refund on July 19, 1996, it also filed a Petition for Review with this Court (the Court of Tax Appeals). ( at pages 26-27, Rollo ) The Court of Tax Appeals, on April 19, 1999, granted the Respondent's claim, the dispositive portion of which provides: cdt "WHEREFORE, in view of the foregoing, Respondent is hereby ORDERED to REFUND or to ISSUE a tax credit certificate in favor of Petitioner in the amount of P39,629.44 representing overpaid gross receipts tax for the taxable year 1994. SO ORDERED." ( at page 36, Rollo ) Dissatisfied, the Commissioner of Internal Revenue filed the present recourse, under Rule 43 of the 1997 Rules of Civil Procedure, purchased on the following lone issue. "The sole issue for adjudication in this case is whether or not petitioner is entitled to the refund of gross receipts tax corresponding to the 20% final withholding tax on us passive income paid for the taxable year 1994." ( at page 10, Rollo ). The Petitioner asseverates that there is no provision of law which excludes the 20% final tax withheld on passive income, earned by financial institutions in the computation of the 5% gross receipts tax ( at page 11, Rollo ) The Petitioner likewise contends that the Court of Tax Appeals, in arriving at its decision in CTA Case No . 4720 , entitled " Asian Bank Corporation vs . Commissioner of Internal Revenue ," erred when it relied upon Section 4(e) of Revenue Regulation No. 1280, which provides, in part, that the rates of taxes to be imposed on the gross receipts of banking institutions shall be based only on items of income actually received. We find Petitioner's pose unmeritorious. There can be no debating on the basic principle that taxes are the lifeblood of the nation. The primary purpose is to generate funds for the State to finance the needs of the citizenry and to advance the common weal ( Phil . Bank of Communication vs . Commissioner of the Internal Revenue, G . R . No . 112024, January 28, 1999 ). Parenthetically, claims for tax refund or tax credit should be exercised with utmost caution. As repeatedly ruled by the Supreme Court, a claim for refund is in the nature of a claim for exemption and should be construed in strictissimi juris against the taxpayer. ( litem . , supra ). However, if the grounds upon which the claim for tax refund are based clearly show the grant of the said claim justice and equity demands that refund or tax credit should necessarily be allowed. Petitioner avers that the gross receipts of the Respondent which are subject to a 5% Gross Receipts Tax under Section 119 of the National Internal Revenue Code of 1986 (now Section 121 of the Tax Reform Act of 1997), include all its entire receipts undiminished by any amount regardless of whether the same were allocated or "earmarked" for a specific purpose, including the 20% final tax imposed on its passive income withheld at source. However, the Court of Tax Appeals, in granting the refund found Petitioner's pose barren of merit in this language: LexLib "The legal aspect of Petitioner's claim for refund is not a case of first impression. As adverted to above, the case of Asian Bank Corporation vs. Commissioner of Internal Revenue, CTA Case No. 4720, promulgated on January 30, 1996, has already enunciated the rule that the 20% final taxes already withheld by various withholding agents on the passive income of banks and non-banking intermediaries are to be excluded in the computation of the latter's obligation on the payment of gross receipts tax. We do not intend to depart from the rationale of said decision, with a pertinent quotation hereunder: "The assessment for GRT is based on Section 119 of the Tax Code, quoted hereunder thus. SECTION 119. 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 (2) years 5% Medium-term maturity over two (2) years but not in 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) 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. The aforequoted provision of the law speaks of gross receipts as the basis of the 5% bank tax or GRT, and it is petitioner's contention that the interest income included as part of such gross receipts should be computed minus the final tax already withheld by various withholding agents for the reason that such amount did not actually go to its funds, hence was not actually received by them. We agree with the petitioner that the 20% final withholding tax on its interest income should not form part of its taxable gross receipts. Revenue-Regulations No. 12-80 dated November 7, 1980 on Taxation of Certain income Derived from Banking Activities provides that the rates of tax to be imposed on the gross receipts such financial institution shall be based on all items of income actually received . xxx xxx xxx From the foregoing, it is but logical to inter that the final tax, not having been received by the petitioner but instead went to the coffers of the government, should no longer form part of its gross receipts for the purpose of computing the GRT. . . ." ( at pages 29-32 , Rollo ). We are in full accord with the findings and disquisitions of the Court of Tax Appeals in line with the ruling of the Supreme Court in " Commissioner of Internal Revenue vs . Tours Specialists, Inc . 183 SCRA 402 " thus. "The petitioner opines that the gross receipts which are subject to the 3% contractor's tax pursuant to Section 191 (Section 205 of the National Internal Revenue Code of 1977) of the Tax Code include the entire gross receipts of a taxpayer undiminished by any amount. According to the petitioner, this interpretation is in consonance with B.I.R. Ruling No. 68-027, dated 23 October, 1968 (implementing Section 191 of the Tax Code) which states that the 3% contractor's tax prescribed by Section 191 of the Tax Code is imposed on the gross receipts of the contractor, "no deduction whatever being allowed by said law". The petitioner contends that the only exception to this rule is when there is a law or regulation which would exempt such gross receipts from being subjected to the 3% contractor's tax citing the case of Commissioner of Internal Revenue v . Manila Jockey Club, Inc . (108 Phil. 8821[1960]). Thus the petitioner argues that since there is no law or regulation that money entrusted, earmarked and paid for hotel room charges should not form part of the gross receipts then the said hotel room charges are included in the private respondent's gross receipts for purpose of the 3% contractor's tax. In the case of Commissioner of Internal Revenue v. Manila Jockey Club, (supra) , the Commissioner appealed two decisions of the Court of Tax Appeals disapproving in levy of amusement taxes upon the Manila Jockey Club a duly constituted corporation authorized to hold horse races in Manila. The facts of the case show that the monies sought to be taxed never rally belonged to the club. The decision shows that during the period November 1946 to 1950 the Manila Jockey Club paid amusement tax on its commission but without including the 12-% which pursuant to Executive Order 320 and Republic Act 309 went to the Board races, the owner of horses and jockeys Section 260 of the Internal revenue Code provides that the amusement tax was payable by the operator on its "gross receipts". The Manila Jockey Club, however, did not consider as part of its "gross receipts" subject to amusement tax the amounts which it had deliver to the Board on Races, the horse owners and the jockeys. This view was fully sustained by three opinions of the Secretary of Justice, to wit: "There is not question that the Manila Jockey, Inc., owns only 7-% of the total bets registered by the Totalizer. This portion represents its share or commission in the total amount of money it handles and goes to the funds thereof as its own property which it may legally disburse for its own purposes. The 5% does not belong to the club. It merely held in trust for distribution as prizes to the owners of winning horses. It is destined for no other object that the payment of prizes and the club cannot otherwise appropriate this portion without incurring liability to the owners of winning horses. It cannot be considered as a item of expense because the sum used for the payment of prizes is not taken from the funds of the club but from a certain portion of the total bets especially earmarked for that purpose. "In view of all the foregoing, I am of the opinion that in the submission of the returns for the amusement tax of 10% (now it is 20% of the 'gross receipts', provided for in Section 260 of the National Internal Revenue Code), the 5% of the total bets that is set aside for prizes to owners of winning horses should not be included by the Manila Jockey Club Inc." The Collector of the Internal Revenue, however had a different opinion on the matter and demanded payment of amusement taxes. The Court of Tax Appeals reversed the Collector. We affirmed the decision of the Court of Tax Appeals and stated. LexLib "The Secretary's opinion was correct. The Government could not have meant to tax as gross receipt of the Manila Jockey Club the 1"25 which it directs same Club to turn over to the Board on Races. The latter being a Government institution there would be double taxation, which should be avoided unless the statute admits of no other interpretation in the same manner, the Government could not have intended to consider as gross receipt the portion of the funds which it directed the Club to give, or know the Club would give to winning horses and jockeys admitted 5%. It is true that the law says that out of the total wages funds 12-% shall be set aside as the 'commission' of the race track owner, but the law itself takes official notice, and actually approves or directs payment of the portion that goes to owners of horses as prizes and bonuses of jockeys which portion is admittedly 5% out of that 12-% commission. As it did not at that time contemplate the application of 'gross receipts' revenue principle, the law in making a distribution of the total wager funds, took no trouble of separating one item from the other and for convenience grouped three items under one common denomination. Needless to say, gross receipts of the proprietor of the amusement place should not include any money which although delivered to the amusement place has been especially earmarked by law or regulation for some person other than the proprietor." (The situation thus differs from one in which the owner of the amusement place, by a private contract, with the employees or partners, agrees to reserve for them a portion of the proceeds of the establishment.) (See Wong & Lee v. Coll. 104 Phil. 469; 55 Off. Gaz. [5] 10539: Sy Chuico v. Coll. 107 Phil., 428; 59 Off. Gaz. [6] 896). In the second case, the facts of the case are: "The Manila Jockey Club holds once a year a so called special Novato race wherein only 'novato' horses, (i.e. horses which are running for the first time in an official [of the club] race), may take part. Owners of these horses must pay to the Club no inscription fee of P1.00, and a declaration fee P1.00 per horse. In addition, each of them must contribute to a common fund (P10.00 per horse). The Club contributes an equal amount of (P10.00 per horse) to such common fund the total amount of which is added to the 3% participation of horse owners already described herein above in the first case. "Since the institution of this yearly special novato race in 1950, the Manila Jockey Club never paid amusement tax on the moneys then contributed by horse owners (P10.00 each) because it entertained the belief that in accordance with the three opinions of the Secretary of Justice herein above described, such contributions never formed part of its gross receipts. On the inscription fee of P1.00 per horse, it paid the tax. It did not on the declaration Fee of P1.00 because it was imposed by the Municipal Ordinance of Manila and was turned over to the City Officers. "The Collector of Internal Revenue required the Manila Jockey Club to pay amusement tax on such contributed fund P10.00 per horse in the special novato race, holding they were part of its gross receipts. The Manila Jockey Club protested and resorted to the Court of Tax Appeals, where it obtained favorable judgment on the same grounds sustained by said Court in connection with the 5% of the total wages funds in the herein-mentioned first case they were not receipts of the Club." We resolved the issue in the following manner: "We think the reason for upholding the Tax Court's decision in the first case apply to this one. The ten-peso contribution never belonged to the Club. It was merely held by it as a trust fund. And then after all when it received the ten peso contribution, it of the same time contributed ten pesos out of its own pocket, and thereafter distributed both amount as prizes to horse owners. It would seem unreasonable to regard the ten-peso contribution of the horse owners as taxable receipt of the Club, since the latter at the same moment it received the contribution necessarily lost ten pesos too." As demonstrated in the above-mentioned case gross receipts subject to tax under the Tax Code do not include monies or receipts entrusted to the taxpayer which do not belong to them and do not redound to the taxpayer's benefit ; and it is not necessary that there must be a low or regulation which would exempt such monies and receipts within the meaning of gross receipts under the Tax Code . Parenthetically, the room charges entrusted by the foreign travel agencies to the private respondent (a local travel agency) do not form part of its gross receipts within the definition of the Tax Code. The said receipts never belonged to the private respondent. The private respondent never benefited from their payment to the local hotels. As stated earlier, this arrangement was only to accommodate the foreign travel agencies." ( supra, at pages 409-412, Rollo ) ( emphasis supplied ). Patently, as expostulated by our Supreme Court, monies or receipts that do not redound to the benefit of the taxpayer are not part of its gross receipts for the purpose of computing its taxable gross receipts. In " Manila Jockey Club ," a portion of the wager fund and the ten-peso contribution, although actually received by the Club, was not considered as part of its gross receipts for the purpose of imposing the amusement tax. Similarly, in " Tours Specialists ," the room or hotel charges actually received by them from the foreign travel agency was, likewise, not included in its gross receipts for the imposition of the 3% contractor's tax. In both cases, the fees, bets or hotel charges, as the case may be, were actually received and held in trust by the taxpayers. On the other hand the 20% final tax on the Respondent's passive income was already deducted and withheld by various withholding agents. Hence, the actual or the exact amount received by the Respondent, as its passive income in the year 1994, was less the 20% final tax already withheld by various withholding agents. The various withholding agents at source were required under Section 50, (a), of the National Internal Revenue Code of 1986, to withhold the 20% final tax on certain passive income as follows: "SECTION 50. Withholding of tax at source . (a) Withholding of final tax on certain incomes The tax imposed or prescribed by Sections 21 (c), . . . , 24 (c) (Tax on certain incomes derived by domestic corporations.), . . . , of this Code on specified items of income shall be withheld by payor-corporation and/or person and paid in the same manner and subject to the same conditions as provided in Section 51 of the National Internal Revenue Code, as amended." (emphasis supplied ) Moreover, under Section 51, (g) of the said Code, all taxes withheld pursuant to the provisions of this Code and its implementing regulations are considered trust funds and shall be maintained in a separate account and not commingled with any other funds of the withholding agent. Accordingly, the 20% final tax withheld against the Respondent's passive income was already remitted to the Bureau of Internal Revenue, for the corresponding year that the same was actually withheld and considered final withholding taxes under Section 50 of the same Code. Indubitably, to include the same to the Respondent's gross receipts for the year 1994 would be to his twice the passive income derived by the Respondent for the said year, which would constitute double taxation anathema to our taxation laws. We are likewise in accord with the findings of the Court of Tax Appeals as to the determination of the actual amount subject to refund, as follows: "It must be declared at the outset that Petitioner's claim for refund corresponding to the first quarter of 1994 has already prescribed, hence cannot be included in the final computation. Petitioner filed its Quarterly Percentage Tax Return for the first quarter of 1994 on April 19, 1994 while the administrative as well as the judicial claims for refund were both filed on July 19, 1996. Section 230 of the 1994 Tax Code prescribes a two (2) year period from payment of the tax within which to file both the administrative and judicial claims for refund. The payment of the gross receipts tax for the first quarter of 1994 was deemed to have been made on April 19, 1994, the date when Petitioner filed its Quarterly Percentage Tax Return, so when Petitioner filed the claims for refund on July 19, 1996, the claim corresponding to the first quarter of 1994 had fallen outside the two-year prescriptive period. As to the rest of the claims relating to the other three quarters of 1994, the evidence presented by the Petitioner only proved the amount of P39,629.44. A careful analysis of the various documents presented by the Petitioner revealed that only the Petitioner's passive income on interbank loans were properly substantiated by complete documents which tally with the amounts reflected in the quarterly percentage return tax returns. . . ." ( at pages 32-33, Rollo ) It is axiomatic that in the absence of a clear showing of palpable error or grave abuse of discretion as in the present recourse, this Court is prescribed from tampering with the factual findings of the Court of Tax Appeals Afisco Insurance Corp . et al . , vs . Court of Appeals, G . R . No . 112675, January 25, 1999 ). Factual findings of the Court of Tax Appeals are binding upon this Court and can only be disturbed on appeal if not supported by substantial evidence. (Commissioner of Internal Revenue vs. Tours Specialists, Inc. 183 SCRA 402, at page 407). IN VIEW OF ALL THE FOREGOING, the Petition is hereby DISMISSED and the Decision, dated April 19, 1999, of the Court of Tax Appeals is hereby AFFIRMED. SO ORDERED. Abad Santos, Jr . and Umali, JJ . , concur.