CCT Contructors Corp. v. Commissioner of Internal Revenue

SEVENTH DIVISION [CA-G.R. SP No. 53690. May 24, 2007.] CCT CONTRUCTORS CORPORATION , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N TIJAM , J p : This is a Petition for Review of the Decision 1 dated March 23, 1999 and the Resolution 2 dated June 22, 1999 rendered by the Court of Tax Appeals in CTA Case No. 5266, which denied: (a) petitioner's application for refund or the issuance of tax credit certificate in the amount of P4,827,279.00, representing unutilized creditable taxes withheld for the fiscal years ended March 31, 1993 and March 31, 1994, and (b) petitioner's Motion for Reconsideration , 3 respectively. The undisputed facts, as found by the Court of Tax Appeals ("CTA"), are as follows: Petitioner is a corporation organized and existing under the laws of the Republic of the Philippines and is primarily engaged in construction and engineering. For the fiscal year ended March 31, 1993, petitioner's Annual Income Tax Return, filed on July 17, 1993, reflected a gross income of P188,983,360.00, broken down as follows: Contract income P183,279,038.00 Rental income 5,400,450.00 Miscellaneous income 9,291.00 Others (sales/exchanges of property) 294,581.00 Gross income P188,983,360.00 ============= For the said year, however, petitioner allegedly ended in a net loss position as its expenses amounted to P191,247,647.00. Thus, petitioner was not able to utilize the creditable taxes withheld from its contract and rental income totaling P2,218,270.00. cADaIH Petitioner carried over the amount of P2,218,270.00 to the succeeding year on the strength of Section 69 of the Tax Code which provides that "(i)n case the corporation is entitled to a refund of the excess estimated quarterly income taxes paid, the refundable amount shown on its final adjustment return may be credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable year." For the fiscal year ended March 31, 1994, petitioner's Annual Income Tax Return, filed on July 15, 1994, showed a gross income of P256,486,806.00, broken down as follows: Contract income P248,063,452.00 Rental income 7,171,100.00 Miscellaneous income 1,052,418.00 Others (sales/exchanges of property) 199,836.00 P256,486,806.00 ============= However, while petitioner reported a gain for the said year amounting to P352,277.00, its income tax payable was only P123,297.00. Consequently, petitioner was not able to apply in full its creditable taxes withheld for the same year in the amount of P2,732,306.00 as well as its creditable taxes withheld which were carried over from previous fiscal year. On June 27, 1995, petitioner filed before the Bureau of Internal Revenue a claim for refund or the issuance of a tax credit certificate in the total amount of P4,827,279.00, representing the unutilized creditable taxes withheld for the fiscal years ended March 31, 1993 and March 31, 1994, broken down as follows: Creditable tax withheld for FY 1993 P2,218,270.00 Add: Creditable tax withheld for FY 1994 2,732,306.00 Total P4,950,576.00 Less: Income tax for FY 1994 (123,297.00) P4,827,279.00 =========== Petitioner filed the said claim on the strength of Section 204 (3) of the Tax Code, to wit: "SEC. 204. Authority of the Commissioner to Compromise, Abate, and Refund/Credit Taxes . The Commissioner may AHCaES xxx xxx xxx (3) Credit or refund taxes erroneously or illegally received, penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two years after the payment of the tax or penalty." Since there was no action on the part of respondent Commissioner of Internal Revenue (or "respondent") and the two-year prescriptive period was about to expire, petitioner filed a Petition for Review 4 with the CTA on July 14, 1995. In his Answer, 5 respondent set up the following Special and Affirmative Defenses: "6. Petitioner's claim for tax refund is still undergoing the usual routinary investigation/examination by the respondent's Bureau; 7. The alleged creditable withholding taxes were collected and paid pursuant to law and its pertinent implementing rules and regulations, hence, not refundable. Moreover, petitioner has to prove that the creditable withholding taxes were actually paid, remitted to and received by respondent's Bureau and that, the income from which the alleged creditable taxes were withheld must be declared and included in its gross income during the year under review; 8. Petitioner must likewise prove that the alleged creditable withholding taxes were neither automatically applied as tax credit against its tax liability for the succeeding quarter/s of the succeeding taxable year nor included as creditable taxes declared in the succeeding taxable year/s; 9. Petitioner's allegation that it sustained losses does not ipso facto warrant the refund. Petitioner must prove that the deductions claim ( sic ) by it from its gross income are allowable deductions under the Tax Code and its pertinent BIR implementing rules and regulations. The same must be supported by evidence; 10. Claim 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 petitioner to prove the same. Petitioner must prove that it is entitled thereto. Failure of petitioner to prove entitlement to the subject claim for refund is fatal to its claim; 11. Moreover, petitioner must prove that it has complied with the provision of Section 230 of the Tax Code, as amended." cHaCAS On March 23, 1999, the CTA rendered a Decision 6 denying petitioner's claim for refund or issuance of tax credit certificate. The CTA reasoned thus: "After a careful scrutiny of the facts and evidence attendant to the case at bar, Petitioner has indeed failed to convince this Court of its entitlement to the refund sought. It bears emphasis that aside from the two-year prescriptive period required under Sections 204 and 230 of the Tax Code and the presentation of the Certificates of Creditable Income Tax Withheld at Source which Petitioner was able to satisfy, it is likewise required that the income upon which the taxes were withheld at source were included as part of the income declared in the income tax return of the recipient. Petitioner's Income Tax Returns for the fiscal years ended March 31, 1993 and March 31, 1994, reflected a total contract and rental income of P443,914,040.00 computed as follows: Fiscal year ending March 31, 1993 Contract income P183,279,038.00 Exh. A (Schedule 2) Rental income 5,400,450.00 Exh. A (Schedule 4) Fiscal year ending March 31, 1994 Contract income P248,063,452.00 Exh. B (Schedule 2) Rental income 7,171,100 Exh. B (Schedule 4) Total P443,914,040.00 ============= A detailed computation, however, of the Certificates of Creditable Tax Withheld at Sources submitted by Petitioner revealed a total contract and rental income of P462,987,654.78 (net of adjustments) or a difference of P19,073,614.78, thus: Exhibit Withholding Agent Income Tax Withheld xxx xxx xxx Total 471,911,762.78 5,111,046.83 Less: Adjustments Exh. D-2 P5,145,454.00 J-2 2,394,700.00 P-2 334,900.00 X-2 224,878.00 Z-2 1,159,076.00 9,259,008.00 Balance 462,652,754.78 Per returns 443,914,040.00 Difference P18,738,714.78 ============ With this result, we may infer that not all the contract and rental income of Petitioner were reflected in its 1993 and 1994 returns. Consequently, if we are to consider the difference of P18,738,714.78, Petitioner might have ended into a relatively higher gain position which could give rise to a tax liability rather than a refund. For Petitioner's failure to declare in its returns all the income payments received as part of its gross income, this claim for refund cannot be given due courses." EcDTIH Petitioner's Motion for Reconsideration 7 was denied by the CTA in its June 22, 1999, Resolution . 8 Petitioner, thus, filed the instant Petition for Review , arguing that the CTA "grossly abused its discretion in denying the claim for refund on the alleged reason that the Petitioner did not declare as gross income for the periods covered the whole amount of income from which the creditable tax withheld at source of Petitioner for the period arose." The petition lacks merit. At the outset, it should be stressed that the findings of facts by the CTA, a special court exercising particular expertise on the subject of tax, are accorded great weight and will not be disturbed unless there has been an abuse or improvident exercise of authority. 9 We find no such abuse or improvident exercise of authority on the part of the CTA in denying petitioner's claim for refund. Claims for refund of creditable withholding tax shall be given due course only when: (a) the income upon which the taxes were withheld at source were included as part of the gross income declared in the income tax return of the recipient/taxpayer; 10 (b) the fact of withholding is established by a copy of the withholding tax statement duly issued by the payor (withholding agent) to the payee, showing the amount paid and the amount of tax withheld therefrom; 11 and (c) the claim for refund was filed within the 2-year period from date of payment of the tax. 12 Evidence on record supports the CTA's conclusion that not all the contract and rental income of petitioner, from which taxes were withheld at source, were declared in its 1993 and 1994 income tax returns. While petitioner's income tax returns for the years involved reflected a total contract and rental income of P443,914,040.00, the Certificates of Creditable Tax Withheld at Source yielded a total income (net of adjustments) of P462,652,754.78, or a difference of P18,738,714.78. Petitioner, however, argued that the CTA overstated the contract and rental income by interpolation achieved by dividing the creditable tax withheld by 1%. DHSaCA The argument is untenable. There was no interpolation to speak of. The total contract and rental income was computed by the CTA based on the very entries of income appearing on the Certificates of Creditable Tax Withheld at Source. These entries of income payments, added together, net of adjustments, yielded a total of P462,987,654.78, which is higher than the total contract and rental income reflected in petitioner's income tax returns for the years in question. As the CTA correctly ratiocinated when it denied petitioner's Motion for Reconsideration, the difference of P18,738,714.78 was not arrived at by interpolation but gathered from the evidence presented by petitioner itself. Indeed, there was no need for the CTA to interpolate since the gross income are reflected on the certificates themselves. Petitioner also argued that some of the income from which the creditable tax withheld arose, particularly those appearing in the Certificates of Creditable Tax Withheld at Source marked as Exhibits "H", "L", "Y" and "Z", 13 were rental income subject not to 1%, but 5% or the withholding tax rate on rental of equipment. Petitioner, thus, asserted that the withholding agents erroneously computed the rental income, and the CTA overstated the total contract and rental income of P462,652,754.78, based on the withholding tax rate of 1%. By interpolation of the amounts of creditable tax withheld to the alleged applicable withholding tax rate of 5% for equipment rental, petitioner reduced the income in Exhibits "H", "L", "Y" and "Z" by P35,183,779.20, computed 14 as follows: Exhibit Rental Income Amount per Decision Difference "H" P696,459.60 P3,482,298.00 P2,785,838.00 "L" 408,090.00 2,040,450.00 1,632,360.00 "Y" 5,518,211.00 27,591,056.00 21,982,844.80 "Z" 2,195,684.20 10,978,421.00 8,782,736.80 P35,183,779.20 =========== As adjusted (interpolated) by petitioner, its total contract and rental income for the years ended March 31, 1993 and March 31, 1994 is the reduced amount of P427,468,975.58. Petitioner, thus, disputed the CTA's finding that it failed to declare all its contract and rental income, arguing that the total contract and rental income of P443,914,040.00 it reported in its Annual Income Tax Returns is even higher than the adjusted income of P427,468,975.58. It is interesting to note that the petitioner comes to this Court challenging the CTA for allegedly rendering its Decision based on interpolation when petitioner itself is using interpolation as the basis of its Petition . SDEHCc In any case, petitioner's arguments must fail. Claimants of refunds bear the burden of proving the factual basis of their claims. 15 Petitioner's allegation that the withholding agents erroneously computed the rental income is not supported by any evidence. It is settled that the party alleging a fact has the burden of proving it and a mere allegation is not evidence. 16 Furthermore, under Revenue Regulation 6-85, as amended, the 5% rate applies to rentals of real property and not to rentals of equipment. More importantly, we see no need for interpolation to arrive at the total rental income because the income had been clearly specified in the Certificates of Creditable Tax Withheld at Source. No use computing or working back to arrive at amounts (of income) that are already available to begin with. We are, thus, hard put accept that petitioner's total contract and rental income amounted only to P427,468,975.58. Indeed, even without interpolation, the very evidence presented by petitioner show that its income payments from which taxes were withheld at source totaled P462,652,754.78, which is P18,738,714.78 higher than the income payments reflected in petitioner's income tax returns (P443,914,040.00). Undeniably, therefore, petitioner failed to declare all contract and rental income in its 1993 and 1994 income tax returns. Its claim for tax refund, therefore, cannot be given due course. Tax refunds are in the nature of tax exemptions. As such, they are regarded as in derogation of sovereign authority and are to be strictly construed against the person or entity claiming the exemption. The burden of proof is upon him who claims the exemption and he must be able to justify his claim by the clearest grant under Constitutional or statutory law, and he cannot be permitted to rely upon vague implications. 17 WHEREFORE, the petition is hereby DENIED and the assailed Decision dated March 23, 1999 and the Resolution dated June 22, 1999 are AFFIRMED. SO ORDERED. CDESIA Dacudao and Villon, JJ., concur. Footnotes 1. Rollo , pp. 18-28. 2. Id., pp. 29-32. 3. Id., pp. 33-42. 4. Id., pp. 43-52. 5. Id., pp. 53-56. 6. Supra , note 1. 7. Supra, note 3. 8. Supra, note 2. 9. Sea-Land Service, Inc. v. Court of Appeals , 357 SCRA 441, 445-446 (2001). Far East Bank and Trust Company vs. Court of Appeals , 477 SCRA 49, 52-53 (2005). CIR vs. General Foods (Phils.), Inc., 401 SCRA 545, 553, (2003). CIR vs. The Philippine American Accident Insurance Co., Inc., 453 SCRA 668, 690 (2005). 10. Sec. 10, Revenue Regulation 6-85, amended by Section 5 of Revenue Regulation 12-94. Philam Asset Management, Inc. vs. CIR , 477 SCRA 761, 773-774 (2005). 11. Ibid. 12. Sec. 204 (3) in relation to Sec. 230, Tax Code. 13. Rollo , pp. 57, 58, 61 & 63, respectively. 14. Petition for Review, p. 9; Rollo , p. 10. 15. CIR vs. Seagate Technology (Philippines), 451 SCRA 132, 152 (2005). 16. Public Estates Authority vs. Chu , 470 SCRA 495, 505 (2005). LBC Express, Inc. vs. Ado , 468 SCRA 216, 226 (2005). 17. BPI Leasing v. Court of Appeals , 416 SCRA 4, 14 (2003).