Commissioner of Internal Revenue v. United International Pictures, AB

FIFTEENTH DIVISION [CA-G.R. SP No. 57156. November 25, 2002.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . UNITED INTERNATIONAL PICTURES AB , respondent . D E C I S I O N GUEVARA-SALONGA , J p : Before us is a Petition for Review under Rule 43 of the 1997 Rules of Civil Procedure of the Decision rendered by the Court of Tax Appeals ("CTA") dated 1 October 1999 in CTA Case No. 5618, entitled " United International Pictures AB vs. Commissioner of Internal Revenue ," which ordered the refund or the issuance of a tax credit certificate in favor of respondent United International Pictures AB ( "Respondent Corporation ") in the amount of Four Million Seven Thousand and Three Hundred Fifty Seven and Eighty Seven Centavos (P4,007,357.87), representing overpaid income tax for the taxable year 1996. The dispositive portion of the assailed decision reads: "WHEREFORE, in view of all the foregoing, Respondent is hereby ORDERED to REFUND or ISSUE a Tax Credit Certificate in favor of Petitioner in the amount of FOUR MILLION SEVEN THOUSAND THREE HUNDRED FIFTY SEVEN AND EIGHTY SEVEN CENTAVOS (P4,007,357.87) representing overpaid income tax for the year 1996." 1 Likewise on review is the Resolution of the CTA dated 20 January 2000, which denied petitioner's motion for reconsideration of the assailed decision. The Facts The pertinent facts and antecedent proceedings in this case, as borne by the records, are undisputed. On 22 March 1996, respondent corporation filed its income tax return for the calendar year ended 31 December 1995, reporting tax credit payments in the amount of Ten Million Sixty Four Thousand and Six Hundred Ten Pesos (P10,064,610.00) and a tax payable of Three Million Nine Hundred Eight Thousand and Four Pesos (3,908,004.00). On 10 July 1996, an Amended Corporation Annual Income Tax Return was filed by respondent corporation, this time declaring the amount of Nine Million Eight Hundred Sixty Five Thousand Seven Hundred Fifty One Pesos (P9,865,751.00) and Three Million Seven Hundred Nine Thousand One Hundred Forty Five Pesos (3,709,145.00) as tax credit payments and tax payable, respectively, for the taxable year 1995. Thereafter, on 8 April 1997, respondent corporation filed with the Bureau of Internal Revenue its Corporate Income Tax Return for the calendar year ended 31 December 1996. Respondent corporation reported a creditable tax withheld in the amount of Eleven Million Six Hundred Twelve Thousand Five Hundred Sixty Five Pesos (P11,612,565.00), which it had applied against its outstanding tax liabilities at that time, in the sum of Five Million Eight Hundred Twenty One Thousand and Three Hundred Seventy One Pesos (P5,821,371.00), thereby leaving a balance of Five Million Seven Hundred Ninety One Thousand One Hundred Ninety Four Pesos (P5,791,194.00) as excess creditable withholding tax for the taxable year 1996. Respondent corporation then filed an administrative claim for refund on 27 February 1998 before the Commissioner of Internal Revenue ( "Petitioner" ) with respect to the abovementioned overpaid income tax payments amounting to Five Million Seven Hundred Ninety One Thousand and One Hundred Ninety Four Pesos (P5,791,194.00), pursuant to Section 229 of the National Internal Revenue Code, as amended ("NIRC"). On 14 April 1998, in view of its failure to obtain an affirmative response from the petitioner with regard to its claim for refund and its apprehension that the two (2) year period of prescription within which to file a judicial claim for refund will lapse, respondent corporation filed a Petition for Review before the CTA, in which it prayed for the refund of the overpaid income tax payments, or in lieu thereof, the issuance of tax credit certificates covering the amount overpaid. In his Answer, petitioner countered respondent corporation's right to a refund and/or tax credit, arguing that the application for refund and/or tax credit was still subject to administrative investigation and resolution and that since taxes are presumed to have been collected in accordance with law, the fact that the taxes sought to be refunded were indeed erroneously or illegally collected must be duly proven. Petitioner further contended that claims for refund of taxes are strictly construed against the claimants the same being in the nature of an exemption from taxation, and this being the case, respondent corporation has the onus to prove that it complied with the provisions of Sections 51(e) and (f), 230 and 240(3) and of the former Tax Code, as amended. The trial of the case ensued and the parties presented their respective evidence, both testimonial and documentary. After the submission of the parties' respective memoranda, the case was submitted for resolution. In its Decision dated 1 October 1999, the CTA granted the respondent corporation's claim for the refund of its overpaid income tax for the taxable year 1996, and decreed in the manner aforequoted. Petitioners then filed a Motion for Reconsideration which was denied by the CTA in its Resolution of 20 January 2000. Hence, the instant petition. The Issues After a careful and judicious review of the arguments interposed by both parties and the records of the case, the issues to be resolved may be summarized as follows: 1. Whether the CTA committed grave abuse of discretion amounting to lack or excess of jurisdiction in granting the refund in favor of the respondent corporation notwithstanding the fact that it's administrative claim before the BIR is merely pro-forma on account of its failure to submit the 1995 and 1996 Book of Accounts and other accounting records, and thus tantamount to its non-filing or non-compliance with the requirements set forth by the Tax Code and other applicable revenue regulations. 2. Whether the CTA committed grave abuse of discretion in automatically approving the carry-over of respondent corporation's excess tax credits for the taxable year of 1995 for purposes of filing its income tax return for the taxable year of 1996 without petitioner's prior approval and without regard to the fact that the said application for tax credit lacks substantial evidence in support thereof. HSaIDc 3. Whether the CTA committed grave abuse of discretion in granting said refund regardless of respondent corporation's failure to present the invoices and vouchers of paid and incurred expenses to validate its 1995 and 1996 Corporate Tax Returns and to establish excess tax payments. The Court's Ruling We find the instant petition devoid of merit. The main contention posed by the petitioner in assailing the grant of tax refund in respondent corporation's favor is the failure of said corporation to submit the requisite accounting records in support of its claims. Petitioner asserts that the administrative claim filed by the respondent corporation is a pro forma claim which in effect is tantamount to its failure to file the same before the BIR. In this light, petitioner berates the respondent corporation's mere compliance with the three (3) requirements under Section 51(e) and (f) of the former Tax Code in relation to Section 10, Revenue Regulation No. 6-85, as amended by Section 5, Revenue Regulation No. 12-94, to wit: 1. That the claim for refund was filed within two years as prescribed under Section 230 of the Tax Code (now Section 229 of the NIRC); 2. That the income upon which the taxes were withheld were included in the return of the recipient; 3. That the fact of withholding is established by a copy of the statement (BIR Form 1743.1) duly issued by the payor (withholding agent) to the payee showing the amount paid and the amount of tax withheld therefrom. We are not persuaded. Even the most cursory perusal of the records of the case clearly reveals that the respondent corporation complied with all the requirements set forth by law for the availment of its right to seek the refund of the excess creditable withholding taxes that it duly paid. The fact that it failed to file its 1995 and 1996 Book of Accounts and other accounting records with the BIR cannot be conveniently, albeit erroneously, made as a flimsy and unfounded excuse to deprive it of its right to a tax refund. For one, the petitioner should have, in the first place, promptly performed his obligation to conduct the necessary audit and examination of the respondent corporation's corporate returns. He is given a wide latitude of power to compel the production of these records. As it is, the petitioner failed to exercise the same. Contrary to the petitioner's insistence that the respondent corporation intentionally and in manifest bad faith withhold its accounting records to deprive the opportunity to verify the same, the records show that he was actually remiss in his duty to require the respondent corporation to submit said books of accounts and other records. In fact, the BIR had already issued two (2) letters of authority for the investigation of respondent corporation's book of accounts dated 11 November 1997 and 29 July 1998. However, despite the issuance of these letters of authority, the BIR continued to neglect its duty to verify the questioned corporate returns. Thus, petitioner cannot belatedly argue his way in devising the submission of the accounting records as another supposed requirement for the validity of administrative claims filed before the BIR. As aptly observed by the CTA in its assailed Resolution of 20 January 2000, the petitioner not only neglected to perform its duty after the respondent corporation had filed its administrative claim but also neglected to timely and dutifully assert his supposed claims against the tax refund of the said excess creditable withholding taxes during the proceedings before the CTA. Thus: "At its inception, the Respondent was given ample opportunity to verify Petitioner's book of accounts and accounting records but failed to do so for no reason at all. Instead, during the hearing of this case, Respondent opted to submit his case without presenting any countervailing evidence, to refute the claim of the Petitioner. Had he filed a motion for the issuance of the subpoena duces tecum , the Petitioner could have been compelled to submit its accounting records and book of accounts which, to the view of the Respondent, may be relevant and material to the issue before this Court. Now that he has "slept" over these remedies, he cannot now validly claim that he was deprived of his right to investigate and to contest the claim, administratively and judicially. Remiss in the performance of his work or duty when the claim was not even attended by him or his representative, respondent now wants to pass upon this Court the duty which the law and by its own regulation has been charged upon his shoulder." 2 For another, petitioner's reliance in the case of San Carlos Milling Co., Inc. vs. Commissioner of Internal Revenue , 3 to buttress his claim which delegates the submission of records in case of administrative claims for tax refunds or tax credits as a mandatory requirement is misplaced, if not erroneous. He cannot take refuge in the ratiocination made by the Supreme Court in the San Carlos case that an investigation, as matter of procedure is necessary to enable him to determine the correctness of the respondent corporation's returns and the tax amount to be credited, as it was based on an entirely different premise and attending facts. He cannot insist that the ruling in the San Carlos case mandates the submission of the claimant's book of accounts as a condition sine qua non in order to validate the administrative claim. A careful reading of the San Carlos case certainly shows that it refers to the illegality of a taxpayer's option to automatically refund or unilaterally avail of the automatic tax credit scheme without the prior approval of the Commissioner of Internal Revenue. It merely requires the Commissioner to investigate and verify the merits of the administrative claims filed before him for its approval. This pronouncement was made to refute the assertion made by the petitioner therein that the claimant may automatically opt to exercise his right to a tax refund without the approval of the Commissioner. Clearly, the San Carlos case does not contemplate a situation, as it is here, wherein the two (2) year period to file a tax refund is due to lapse without any action from the Commissioner being made thereon. It does not, in any way, negate respondent corporation's availment of its right to seek judicial recourse after the petitioner failed to do what was incumbent upon him. True, an opportunity must be given the internal revenue branch of the government to investigate and confirm the veracity of the claims of the taxpayer. However, the respondent corporation rightfully filed the petition for review before the CTA lest his right to claim the tax refund within the two (2) year prescriptive period be barred. Certainly, the taxpayer should not wait for the decision of the Commissioner because the filing of the claim for refund with the Commissioner does not suspend the running of the prescriptive period. If the Commissioner takes time in deciding the claim, and the period of two (2) years is about to end, the suit or the proceeding must be started in the CTA before the end of the two-year period without awaiting the decision of the Commissioner. 4 Thus, this Court is not impressed with petitioner's assertion that the CTA committed grave abuse of discretion in automatically approving the carry-over of respondent corporation's excess tax credits for the taxable year of 1995 for purposes of filing its income tax return for the taxable year of 1996 without his prior approval. The fact that he was remiss in his duty to review and verify the corporate returns of the respondent corporation within the said two-year period should not impede the right of said corporation to seek judicial redress before the CTA. For the petitioner to maintain that his prior approval of the tax refund is a prerequisite thereof would be severely detrimental to the claimant's right to refund the excess taxes that it had duly paid. Indeed, technicalities and legalisms, however, exalted, should not be misused by the government to keep money not belonging to it and thereby enrich itself at the expense of its law abiding citizens. If the State expects its taxpayers to observe fairness and honesty in paying their taxes, so must it apply the same standard against itself in refunding excess payments of such taxes. 5 We likewise give no credence in petitioner's argument that the respondent corporation's failure to present the invoices and vouchers of paid and incurred expenses to verify its 1995 and 1996 Corporate Tax Returns and to establish excess tax payments, invalidates its right to a tax refund. As correctly ruled by the CTA in its assailed resolution, citing the case of Citibank, N.A. vs. Court of Appeals and the Commissioner of Internal Revenue , 6 a detailed proof of the truthfulness of each and every item in the income tax return is not required. Further, We bear to stress that no evidence was ever presented by the petitioner to contest or otherwise taint the reliability and veracity of the corporate returns filed by the respondent corporation. Neither is there any merit in petitioner's bare allegation that said application for tax credit lacks substantial evidence in support thereof. On the contrary, the records are replete with testimonial and documentary evidence which prove that the respondent corporation is in fact entitled to a tax refund or tax credit. In fact, petitioner has not alleged, moreso prove any false declarations or misrepresentation in the questioned corporate returns as a basis for his refutation thereof. Axiomatic is the rule that the claimant has the onus or burden of proof to establish the factual basis of his or her claim for tax credit or refund. It bears stress that tax refunds are in the nature of tax exemptions. As such, they are regarded as a derogation of sovereign authority and to be construed strictissimi juris against the person or entity claiming the exemption. 7 A refund claimant is required to prove the inclusion of the income payments which were the basis of the withholding taxes and the fact of withholding. 8 In the case at bar, respondent corporation has proven by overwhelming and incontrovertible evidence that it is entitled to the tax refund. Finally, well settled is the long standing policy and practice to respect the conclusions of quasi-judicial agencies, such as the Court of Tax Appeals which, by nature of its functions is dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise on the subject, unless there has been an abuse or improvident exercise of its authority. 9 In this case, We find no cogent reason to deviate from this settled rule. WHEREFORE, premises considered, finding no error in the assailed decision, the instant petition is hereby DISMISSED and the assailed decision AFFIRMED in toto . SO ORDERED. aCITEH Buzon and Pine, JJ . , concur. Footnotes 1. Rollo , p. 65. 2. Rollo , pp. 103-104. 3. 228 SCRA 135. 4. Insular Lumber Co. v. Court of Appeals , 104 SCRA 710. 5. BPI-Family Savings Bank, Inc. vs. Court of Appeals, 330 SCRA 507. 6. 280 SCRA 459. 7. Commissioner of Internal Revenue vs. S.C. Johnson & Son, Inc ., 309 SCRA 87. 8. Citibank N.A. vs. Court of Appeals , Supra . 9. Afisco Insurance Corporation vs. Court of Appeals , 302 SCRA 1.