Equitable PCI Bank v. Commissioner of Internal Revenue

EIGHTH DIVISION [CA-G.R. SP No. 59800. May 30, 2003.] EQUITABLE PCI BANK (formerly known as EQUITABLE BANKING CORP). , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N CARANDANG , J p : This is a "Petition for Review" of the Decision of the Court of Tax Appeals which, although decreeing that the 20% final withholding tax on the passive income of Equitable PCI Bank (formerly known as Equitable Banking Corporation) should not form part of its gross receipts subject to the 5% gross receipts tax under the National Internal Revenue Code of 1986, the claim for refund of alleged overpaid gross receipts tax was denied because of lack of factual basis. The facts of the case are as follows: Petitioner is a banking corporation duly organized and existing under the laws of the Philippines. On July 22, 1996, petitioner filed with the Bureau of Internal Revenue (BIR) its various 1996 quarterly percentage tax returns. On September 26, 1996, on the strength of the decision of the Court of Tax Appeals in CTA Case No. 4720 entitled Asian Bank Corporation vs. Commissioner of Internal Revenue promulgated on January 30, 1996, where it was held 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 Gross Receipts Tax, petitioner filed a claim for refund with the BIR in the amount of P2,369,373.37. Petitioner's claim was likewise premised on the principle that no one shall unjustly enrich himself at the expense of another and on Section 230 of the National Internal Revenue Code which allows for recovery of national internal revenue tax erroneously and illegally collected by the BIR. As there was no action on the part of the Commissioner on Internal Revenue, petitioner filed a petition on July 22, 1998 with the Court of Tax Appeals to toll the running of the two-year prescriptive period. Through a letter dated October 5, 1998, petitioner followed up its letter-request with the Commissioner of Internal Revenue and decreased the amount of refund for the quarter ended June 30, 1996 to only P1,066,044.57 after finding an error in the computation of its claim. On October 30, 1998, petitioner likewise filed an Amended Petition for Review before the Court of Tax Appeals in order to amend its claim to the aforesaid amount. The Court of Tax Appeals, on March 30, 2000, upheld the legal basis of the claim but denied the petition for failure of the petitioner to prove that it is entitled to a refund or a tax credit certificate. The Motion for Reconsideration filed by the petitioner was likewise denied. Hence, this petition. The sole issue for resolution in this case is whether or not petitioner is entitled to the refund of alleged overpaid gross receipts tax for the quarter ended June 30, 1996. Before recovery by means of claim for refund or tax credit is allowed, two things must first be established: first, that there is legal basis for granting the refund or credit including the verification of compliance with the legal requirements, and second, that there was an actual collection and receipt by the government of the tax sought to be recovered which requires factual proof. 1 The imposition of gross tax receipts on banks is governed by Section 119 of the National Internal Revenue Code, to wit: "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 years 5% Medium-term maturity over two (2) years but not 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) On 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 of classifying 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 issue in the case at bar as to whether or not final income tax withheld forms part of the gross receipts of the taxpayer for GRT purposes has already been resolved in the negative not only by the Court of Tax Appeals, but this Court as well. The Court of Tax Appeals, in the cases of Citibank N.A.-Philippine Branch vs. CIR 2 , Standard Chartered Bank-Manila Branch vs. CIR 3 , Equitable Banking Corporation vs. CIR 4 , and Equitable PCI Bank (formerly Equitable Banking Corporation) vs. CIR 5 , was confronted with an identical issue and held that the 20% Final Income Tax Withheld no longer forms part of the gross receipts for purposes of the 5% gross receipts tax pursuant to the construction of the term "gross receipts" enunciated in the cases of Collector of Internal Revenue vs. Manila Jockey Club and Compania Maritima vs. Acting Commissioner of Internal Revenue, as "all receipts of a taxpayer excluding those which have been especially earmarked by law or regulations for the government or some person other than the taxpayer". Thus, the 20% final taxes withheld on the bank's interest income should no longer form part of its gross receipts since it was not actually received by the bank, having been specially earmarked for the government. This Court, in the cases of CIR vs. Solidbank Corporation 6 , CIR vs. Citytrust Investment Phils., Inc. 7 , China Banking Corporation vs. CIR 8 , and CIR vs. Bank of Commerce 9 upheld aforesaid rulings of the tax court. At this point, We do not see that this case should compel a different ruling. 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 law or regulation which would exempt such monies and receipts within the meaning of gross receipts under the Tax Code. The 20% final tax on petitioner's passive income was already deducted and withheld by various withholding agents. Accordingly, the tax withheld was already remitted to the Bureau of Internal Revenue for the corresponding quarter that the same was actually withheld and considered final withholding taxes under Section 50 of the National Internal Revenue Code. To include the same to the petitioner's gross receipts for the quarter would be to tax twice the passive income derived by the petitioner for said quarter, which would constitute double taxation anathema to our taxation laws. 10 However, even if the law entities petitioner to a refund of overpaid gross receipts taxes, it does not necessarily follow that there shall be an automatic grant of the claim in the absence of sufficient and convincing factual evidence to prove its entitlement thereto. Thus, in order to be entitled to the refund of overpaid gross receipts tax based on the Asian Bank decision (supra), petitioner must sufficiently prove the following: 1. That it actually paid the 20% final withholding taxes on its gross receipts from passive income; 2. That the 20% final withholding tax on passive income formed part of its gross receipts subjected to the gross receipts tax; and 3. That it actually paid the GRT due on its gross receipts from passive income inclusive of the 20% final withholding taxes. 11 After a thorough examination of the evidence adduced by Petitioner, this Court finds that the above requirements were not satisfactorily met. As regards this issue, We fully agree and hereby adopt the ruling of the tax court, to wit: " . . . petitioner failed to present proof of actual withholdings of the 20% final taxes of P1,128,948.75 and P20,191,942.63, respectively. The certificates of final taxes withheld issued by the withholding agents or issuers of the investment securities showing the amount of interest income payment and the corresponding 20% final withholding taxes were not presented. Petitioner's 1996 Second Quarterly Percentage Tax Return and Transmittal Shoot of Percentage Tax of Head Office and Branches/Units of Large Taxpayers showed that Petitioner's head office paid a gross receipts tax of P23,844,310.06 on taxable gross receipts of P524,442,111.65 (Exhs. A-2, B-2 & B-3). Petitioner allegedly included in its taxable gross receipts of P524,442,111.65 the amounts of P1,128,948.75 representing 20% final tax withheld on income received and booked net of 20% final tax and P20,191,942.63 representing 20% final tax withheld on tax paid income booked at gross for which a 5% gross receipts tax of P1,066,044.57 was allegedly paid. AHaDSI However, Petitioner failed to present proof of actual withholding of the 20% final taxes of P1,128,948.75 and P20,191,942.63, respectively. The certificates of final taxes withheld issued by the withholding agents or issuers of the investment securities showing the amount of interest income payment and the corresponding 20% final withholding tax were not presented. Petitioner likewise failed to substantiate that the 20% final withholding taxes formed part of its gross receipts subjected to the gross receipts tax. While Petitioner's 1996 second quarter taxable receipts (passive and non-passive) and the corresponding gross receipts tax appearing in its 1996 second quarterly percentage tax return (Exh. B) tally with those appearing in its computation sheet and general ledger (Exhs. B-3, C-3 & E) the amounts of passive income shown in the computation sheet and general ledger, however, cannot be verified as to whether these were recorded at gross or net of the 20% withholding taxes. Petitioner failed to submit supporting documents, such as detailed transaction records, confirmation of purchase, confirmation of sale, trading sheets, credit/debit advices, accounting tickets, certificates of final taxes withheld, etc., to show the actual receipt of income and the withholding of the corresponding 20% final tax. Contrary to Petitioner's assertion, the general ledger balances are not sufficient proof of Petitioner's claim for refund. Entries in the general ledger cannot substitute for the aforecited source documents since said entries are based on information found in the said documents. Without supporting documents, entries in the ledger, merit very little weight and therefore are not the best evidence. Finally, inasmuch as Petitioner failed to prove the inclusion of the 20% final withholding taxes of P1,128,948.75 and P20,191,942.63 in its 1996 second quarter gross receipts from passive income subjected to 5% GRT, it follows then that it failed to show that the corresponding 5% GRT of P1,066,044.57 was included in its 1996 second quarter total GRT payment of P23,844,310.06. It is axiomatic that in the absence of a clear showing of palpable error or grave abuse of discretion, this Court is prescribed from tampering with the factual findings of the Court of Tax Appeals. 12 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. 13 WHEREFORE, premises considered, the instant petition is hereby DISMISSED and the Decision, dated March 30, 2000, of the Court of Tax Appeals is hereby AFFIRMED. SO ORDERED. Vasquez, Jr . and Gozo-Dadole, JJ . , concur. Footnotes 1. William Li Yao vs. Collector, 9 SCRA 888 (1963). 2. CTA Case No. 5434, April 7, 1999. 3. CTA Case No. 5435, July 12, 1999. 4. CTA Case No. 5914, June 28, 2000. 5. CTA Case No. 5955, July 20, 2001. 6. CA-G.R. SP No. 54599, July 18, 2000. 7. CA-G.R. SP No. 52707, August 17, 1999. 8. CA-G.R. SP No. 50839, November 15, 2000. 9. CA-G.R. SP No. 52706, August 14, 2001. 10. Commissioner of Internal Revenue vs. City Trust Investment Phils., Inc., CA-G.R. SP No. 52707, August 17, 1999. 11. see Equitable Banking Corporation vs. CIR, CTA Case No. 5661, March 30, 2000; Bank of the Philippine Islands vs. CIR, CTA Case No. 5458, February 15, 1999, Solid Bank Corporation vs. CIR, CTA Case No. 5408, April 14, 1999. 12. Afisco Insurance Corp. et al., vs. Court of Appeals, 302 SCRA 1 (1999). 13. Commissioner of Internal Revenue vs. Tours Specialists, Inc., 183 SCRA 402, 407 (1990).