Equitable PCI Bank v. Commissioner of Internal Revenue

SPECIAL SIXTEENTH DIVISION [CA-G.R. SP No. 56541. April 6, 2001.] EQUITABLE PCI BANK (formerly EQUITABLE BANKING CORPORATION) , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N SALAZAR-FERNANDO , J p : This is a Petition for Review under Rule 43 of the Revised Rules of Court seeking to set aside the Decision 1 dated September 10, 1999 of the Court of Tax Appeals in CTA Case No. 5547 entitled " Equitable Banking Corporation, Petitioner, versus Commissioner of Internal Revenue, Respondent ," the dispositive portion of which reads: "WHEREFORE, in view of all the foregoing, the instant Petition for Review is hereby DISMISSED for insufficiency of evidence. SO ORDERED." The facts are: On July 20, 1995, petitioner filed with the Bureau of Internal Revenue (BIR) its various quarterly percentage tax returns, covering those of its Head Office and branches, for the period ending June 30, 1995. It submitted its "TRANSMITTAL SHEET OF PERCENTAGE TAX OF THE HEAD OFFICE AND BRANCHES/UNITS OF LARGE TAXPAYERS FOR THE QUARTER ENDED JUNE 30, 1995" 2 totaling Thirty Five Million One Hundred Ninety One Thousand Nine Hundred Thirty Nine Pesos and 32/100 (P35,191,939.32) gross receipt tax (GRT). Of the said amount, the combined amount of GRT paid by petitioner's Head Office 3 and its Arranque, 4 Magdalena, 5 Ongpin, 6 Reina Regente, 7 and Soler 8 branches pertaining to their percentage tax was nineteen million ninety two thousand seven hundred ninety one pesos and 83/100 (P19,092,791.83). These figures were reflected in petitioner's "Quarterly Percentage Tax Return" for the quarter ended June 30, 1995 9 , which was also filed on the same date, July 20, 1995. The return specifically states under oath that the aforesaid Head Office and branches accumulated a total gross receipt of four hundred five million six hundred ninety six thousand eighty one pesos and 99/100 centavos (P405,696,081.99) 10 for the quarter ended June 30, 1995, broken down as follows: Head Office P388,884,504.74 Arranque 433,524.01 Magdalena 171,188.85 Ongpin 564,152.40 Reina Regente 200,688.78 Soler 15,442,023.21 TOTAL P405,696,081.99 11 ============ Based on the above amount petitioner paid a total percentage tax of P19,092,791.83 detailed as follows: Head Office P18,252,795.28 Arranque 21,676.20 Magdalena 8,559.45 Ongpin 28,207.62 Reina Regente 10,034.44 Soler 771,518.84 TOTAL P19,092,791.83 12 =========== While the application for refund was pending, the Court of Tax Appeals on January 30, 1996 rendered a decision in CTA Case No. 4720 entitled Asian Banking Corporation vs. Commissioner of Internal Revenue declaring that the twenty percent (20%) final withholding tax on a bank's passive income should not form part of the bank's taxable gross receipts for the purpose of computing the bank's Gross Receipts Tax (GRT). Relying on the above ruling, petitioner, on September 26, 1996, requested respondent through the Revenue District Office of Binondo, which has jurisdiction over petitioner, for the refund or issuance of a tax credit certificate (TCC) in the amount of one million four hundred forty five thousand five hundred sixty one pesos and 50/100 (P1,445,561.50) 13 representing the difference between the GRT paid by its head office and the above-mentioned branches for the period ending June 30, 1995 and the Adjusted GRT in the amount of seventeen million six hundred forty seven thousand two hundred thirty pesos and 33/100 (P17,647,230.33). Petitioner's request for a refund was based on the recomputation of its GRT 14 , following the Asian Banking case, thus: Gross Receipts Subjected to Tax P405,696,081.99 Less: 20% Portion of Tax Paid Income (Annex B1 of 20) 3,061,445.61 15 Investment Income subject to 20% final tax booked at gross (Annex B 2 of 2) 25,849,784.36 16 Adjusted Gross Receipts Tax Base P376,784,852.02 Computation of Adjusted Gross Receipt Tax: Gross Receipts Tax Due 0% P 18,852,985.56 P 0.00 1% 3,771,745.37 37,171.45 3% 19,924,658.88 597,739.77 5% 340,235,462.21 17,011,773.11 P 376,784,852.02 P 17,647,230.33 Gross Receipts Tax Paid P 19,092,791.83 Adjusted Gross Receipts Tax P 17,647,230.33 Tax Refund P 1,445,561.50 In its working paper originally used to arrive at the paid GRT, 17 petitioner added P3,061,445.61 representing 20% portion of income tax paid booked at net of 20% final tax to the taxable gross receipts for said quarter. This amount is broken down follows: Interest Deposit with local bank P 37,521.84 Trading Gain Net of Final Tax 1,506,876.95 Interest in Interbank Loans Net Of final Tax 1,389,930.56 Interest in Commercial Paper Net Of Final Tax .00 Interest on Time Loan Asahi Net Of Final Tax 127,116.27 P 3,061,445.61 =========== In the same original working paper, petitioner likewise booked the amount of P25,849,784.36 18 representing 20% final tax withheld on tax paid income for the quarter ended June 30, 1995. Petitioner initially made this amount a provision for final tax in its books 19 and eventually added as component of the P 405,696,081.99 Gross Receipts Subjected to Tax. Hence, its claim for a refund in the amount P 1,445,561.50. Since the BIR has not acted on petitioner's claim for refund and with the two-year prescriptive period about to expire, petitioner filed on July 18, 1997 a Petition for review before the Court of Tax Appeals (C.T.A. Case No. 5547) praying that judgment be rendered ordering the BIR to refund or issue tax credit in its favor. During the trial, petitioner offered documentary evidence and rested its case on March 13, 1998. By August 4, 1998 the case was deemed submitted for decision. However, petitioner on October 9, 1998 filed a "Motion to Reopen Case and Allow EBC to Present Additional Evidence." 20 The Motion was opposed by the CIR on November 9, 1998. In a Resolution dated January 5, 1999 the Court of Tax Appeals denied petitioner's motion. Petitioner filed a Motion for Reconsideration which was denied in a Resolution dated April 30, 1999. As a result of the denial of its Motion for Reconsideration, petitioner filed before this Court a Petition for Certiorari docketed as CA-G.R. SP No. 53435 which seeks to set aside the January 5, 1999 and April 30, 1999 resolutions of the Court of Tax Appeals. During the pendency of the petition for certiorari, the Court of Tax Appeals rendered the assailed decision on September 10, 1999. Likewise, petitioner's Motion for Reconsideration was also denied in a resolution dated December 3, 1999. 21 Hence, this petition for review raising the following assignment of errors. 22 I. THE COURT OF TAX APPEALS ERRED IN HOLDING THAT EPB'S EVIDENCE TO PROVE ITS CLAIM FOR REFUND OF EXCESS GROSS RECEIPTS TAX IS INSUFFICIENT; II. THE COURT OF TAX APPEALS ERRED IN NOT GRANTING EPB'S MOTION TO REOPEN THE CASE TO PRESENT ADDITIONAL EVIDENCE, ASSUMING ARGUENDO THAT EPB'S EVIDENCE IS INSUFFICIENT aHSTID The petition lacks merit. The Court of Tax Appeals was correct in denying petitioner's "Motion to Reopen Case and Allow EBC to Present Additional Evidence". Section 1, Rule 37 of Rules on Civil Procedure provides that: "SECTION 1. Grounds of and period for filing motion for new trial and reconsideration . "Within the period for taking an appeal, the aggrieved party may move the trial court to set aside the judgment or final order and grant a new trial for one or more of the following causes materially affecting the substantial rights of said party: (a) Fraud, accident, mistake or excusable negligence which ordinary prudence could not have guarded against and by reason of which such aggrieved party has probably been impaired in his rights; or (b) Newly discovered evidence, which he could not, with reasonable diligence, have discovered and produced at the trial, and which if presented would probably alter the result. xxx xxx xxx." A motion based on newly discovered evidence shall be supported by affidavits of the witnesses by whom such evidence is expected to be given, or by duly authenticated documents which are proposed to be introduced in evidence. 23 The requisites for newly discovered evidence to be a ground for new trial are: (a) the evidence is discovered after trial; (b) such evidence could not have been discovered and produced at the trial even with the exercise of reasonable diligence; and (c) the evidence is material, not merely cumulative, corroborative, or impeaching, and of such weight that, if admitted, would probably change the judgment. 24 Petitioner's argument is that respondent court should have granted its motion since the ruling of the Court of Tax Appeals in Asian Bank Corporation vs. CIR (CTA Case No. 4720) would materially affect its case since it would pave the way for a refund as the said case ruled that the twenty percent (20%) final withholding tax on a bank's passive income should not form part of the bank's taxable gross receipts for the purpose of computing a bank's Gross Receipts Tax (GRT). However, CTA Case No. 4720 was decided on January 30, 1996. On the other hand, petitioner's Petition for Review before the CTA (CTA Case No. 5547) was filed on July 18, 1997, or more than a year after the decision in CTA Case No, 4720 was issued. It is clear then that even during the pendency of petitioner's claim for refund before the Bureau of Internal Revenue, CTA Case No. 4720 was already decided. Obviously, it had every reasonable opportunity to cite the ruling, assuming it applies at all, to sustain its claim for a refund. But the petitioner did not do. It was only on October 9, 1998 when petitioner filed a "Motion to Reopen Case and Allow EBC to Present Additional Evidence" when it elevated its case before the CTA. Further, said case invoked by petitioner is still on appeal with the Court of Appeals and cannot, therefore, be considered final. 25 Therefore, We cannot consider the same to be falling under the category of "newly discovered evidence." In Tumang vs. CA 26 the Court held that: "Newly discovered evidence under prevailing jurisprudence need not be newly created evidence; newly discovered evidence in other words, may and does commonly refer to evidence already in existence prior or during the trial but which could not have been secured and presented during the trial despite reasonable diligence on the part of the litigant offering it or his counsel. Newly discovered evidence again, is not limited to evidence which, though already in existence before or during the trial was not known to the offering litigant. So called "forgotten" evidence may, upon the other hand, be seen to refer to evidence already in existence or available before or during trial, which was known to and obtainable by the party offering it and which could have been presented and offered in a reasonable manner were it not for the oversight or forgetfulness of such party or his counsel. In order that a particular piece of evidence may be regarded as "newly discovered" for purposes of a grant of new trial, what is essential is not so much the time when the evidence offered sprang into existence nor the time when it came to the knowledge of the party now submitting it; what is essential is, rather, that the offering party had exercised reasonable diligence in seeking to locate such evidence before or during trial but nonetheless failed to secure it. xxx xxx xxx The grant or denial of a new trial is generally speaking addressed to the sound discretion of the court, a discretion which cannot be interfered with unless a clear abuse thereof is shown." In the same light, We find the petitioner's Motion to be a mere afterthought after the respondent court dismissed its two other cases for insufficiency of evidence. In this Petition for Review petitioner categorically states that he filed the said Motion after the cases were dismissed since "it was the humble submission of EPB's counsel, however, that he is not adept at the very difficult task of weighing whether or not the quantum of evidence presented to the Honorable CTA sufficiently proved petitioner's EPB's claim for the GRT Refund ." 27 This assertion of the counsel binds his client. Mistakes of counsel as to the competency of witnesses, the sufficiency and relevance of evidence, the proper defense, or the burden of proof, his failure to introduce evidence, or to summon witnesses and to argue the case are not proper grounds for a new trial. 28 This being the case, We find that the respondent court did not err when it ruled that petitioner did not present sufficient evidence to grant a refund for payments it allegedly made. Tax refunds are allowed under Section 230 of the National Internal Revenue Code: "SECTION 230. Recovery of tax erroneously or illegally collected . No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or if any penalty claimed to have been collected without authority or of any sum alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress. In any case, no such suit or proceeding shall be begun after the expiration of two years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefore, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid." A claim for tax refund partakes the nature of a tax exemption and therefore must be strictly construed against the taxpayer. 29 Hence, one who claims to be exempted from payment of a particular tax must show exemption under clear and unmistakable terms found in the exempting statute. 30 An exemption cannot be allowed to exist upon a mere vague implication or inference. 31 In the case before Us, petitioner asked the CIR that "We are making the refund on the strength of the decision on CTA Case No . 4720, Asian Bank Corporation vs. Commissioner of Internal Revenue, wherein the Tax Court held that the 20% final withholding tax on the passive income of the bank is excluded from its gross receipts, because gross receipts shall be based on all items of income actually received" and attached copies of their amended returns. 32 In CIR vs. Procter & Gamble Philippine Manufacturing Corporation , 33 the Court held: "Tax refunds are in the nature of tax exemptions. As such, they are regarded as in derogation of sovereign authority and to be construed strictissimi juris against the person or entity claiming the exemption. The burden of proof is upon him who claims the exemption in his favor and he must be able to justify his claims by the clearest grant of organic or statute law . . . and cannot be permitted to exist upon vague implications. Thus, when tax exemption is claimed, it must be shown indubitably to exist, for every assumption is against it, and a well founded doubt is fatal to the claim." As found by the respondent court, evidence offered by the petitioner is not substantial, and as correctly stated: 34 "The subsidiary ledger (Exhs. K, L, X, Y, LL, MM, D, P, DD, G, S, T, GG, and HH) and the Income Statement (Exh. SS) offered by Petitioner in evidence showed that the interest income on these investments were recorded net of final withholding tax. Thus, Petitioner's computation of overpaid gross receipts tax on this tax paid income appears to be correct (Exh. C-10). Petitioner, however, failed to prove the fact of withholding and remittance to the BIR which may be evidenced by the corresponding Certificates of Income Tax withheld. The subsidiary ledgers are not conclusive evidence of payment of final tax. These are self-serving evidence, which if not substantiated by other evidence, merits very little weight. CITaSA As to the amount of P25,849,784.36 allegedly representing investment income from trading accounts securities booked at gross, inclusive of the final 20% final tax (Exhs. E, H, I, J, U, V, W, II, JJ, KK) and recorded under Provision for Tax-Final Tax (M, N, O, Z, AA, BB, CC, NN, OO, PP, QQ and RR), again, Petitioner's allegation that the corresponding final taxes were withheld and, therefore, should no longer form part of the gross receipts for purposes of computing the gross receipts tax, remain to be pure assertions unsupported by any convincing evidence." This conclusion by the respondent court bears a heavy and persuasive effect since by the very nature of its function it is dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise on the subject. 35 Finally, We hold that the claim for refund filed before the BIR is premature. In CIR vs. TMX Sales, Inc ., 36 the Court held: ". . . payments of quarterly income taxes should be considered mere installments on the annual tax due. These quarterly tax payments, which are computed based on the cumulative figures of gross receipts and deductions in order to arrive at a net taxable income, should be treated as advances or portions of the annual income tax due, to be adjusted at the end of the calendar or fiscal year. The same holds true in the case of the withholding of creditable tax at source. Withholding taxes are "deposits" which are subject to adjustments at the proper time when the complete tax liability is determined." In CIR vs. Philippine American Life Insurance Co. 37 and Citibank, N.A. vs. CA, 38 the Court likewise held that: ". . . although quarterly taxes due are required to be paid within 60 days from the close of each quarter, the fact that the amount shall be deducted from the tax due for the succeeding quarter shows that until a final adjustment return shall have been filed, the taxes paid in the preceding quarters are merely taxes due from a corporation. Neither amount can serve as the final figure to quantify what is due. This interpretation may be gleaned from the last paragraph of Section 69 (now Section 76) of the T ax Co de which provides that the refundable amount, in case a refund due a corporation, is that amount which is shown on its final adjustment return and not on its quarterly returns." These rulings find support in Section 76 (formerly Section 69) of the National Internal Revenue Code, to wit: "SECTION 76. Final Adjustment Return . Every corporation liable to tax under Section 27 shall file a final adjustment return covering the total taxable income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable income of that year, the corporation shall either: (A) Pay the balance of tax still due; or (B) Carry-over the excess credit; or (C) Be credited or refunded with the excess amount paid, as the case may be. In case the corporation is entitled to a tax credit or refund of the excess estimated quarterly income taxes paid, the excess amount shown on its final adjustment return may be carried over and credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years. Once the option to carry-over and apply the excess quarterly income tax against income due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for cash refund or issuance of a tax credit certificate shall be allowed therefore." WHEREFORE, the petition is DENIED, and the decision of the Court of Tax Appeals dated September 10, 1999, is hereby AFFIRMED in toto. SO ORDERED. Brawner and Reyes, JJ . , concur. Footnotes 1. Rollo , Decision, pp. 19-38. 2. Rollo , pp. 51-56. 3. Rollo , Exh. A-1, p. 51. 4. Rollo , Exh. A-2, ibid . 5. Rollo , Exh. A-3, p. 52. 6. Rollo , Exh. A-4, ibid . 7. Rollo , Exh. A-5, ibid . 8. Rollo , Exh. A-6, p. 53. 9. Rollo , Exh. B, p. 54. 10. Rollo , Exh. B-3, p. 55. 11. Rollo , Exh. B-5, p. 56. 12. Exh. B-6, ibid . 13. Rollo , Exh. C, pp. 57-62. 14. Rollo , Exhs. C-3C-8, p. 59. 15. This deduction represents the 20% tax withheld on income received and booked net of 20% final tax during the quarter ended June 30, 1995. (Exhibits C-4 to C-10). 16. This deduction represents 20% final tax withheld on tax paid income booked at gross (100%) subjected to gross receipts tax for the quarter ended June 30, 1995. (Exhibits C-5 and C-11). 17. Rollo , Exh. C-10, p. 60. 18. Rollo , Exh. C-11, p. 61. 19. Rollo , Exhibits D-SS, pp. 69-116. 20. While the case was pending before the CTA, petitioner's other cases were decided by the CTA, namely, CTA Case Nos. 5146 and 5411 both entitled " Equitable Banking Corporation vs. CIR" where both petitions were dismissed mainly due to insufficiency of evidence. 21. Rollo , Resolution, pp. 39-43. 22. Rollo , Petition for Review, pp. 2-18. 23. Section 2, par. 2, Rule 37, 1997 Rules of Civil Procedure. 24. People vs. Tirona , 300 SCRA 431 (1998); Tinio vs. Manzano 307 SCRA 460 (1999); Olan vs. CA , 314 SCRA 273 (1999). 25. Rollo, Decision, p. 21. 26. 172 SCRA 328 (1989). 27. Rollo , Petition for Review, p. 12. 28. Palanca vs. American Food Manufacturing , 24 SCRA 819 (1968). 29. CIR vs. Rio Tuba Nickel Mining Corporation , 207 SCRA 549 (1992). 30. Asiatic Petroleum vs. CIR , 20 SCRA 1056 (1967). 31. Floro Cement Corp. vs. Judge Gorrospe, 200 SCRA 480 (1991). 32. Rollo , Exh. C, p. 58. 33. 204 SCRA 377 (1991). 34. Rollo , Decision, p. 28. 35. CIR vs. CA , 242 SCRA 289 (1995). 36. 205 SCRA 184 (1992). 37. 244 SCRA 446 (1995). 38. 280 SCRA 459 (1997).