Commissioner of Internal Revenue v. Pepsi Cola Products Philippines, Inc.

TWELFTH DIVISION [CA-G.R. SP No. 60132. March 29, 2004.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . PEPSI COLA PRODUCTS PHILIPPINES, INC. , respondent . D E C I S I O N REYES, JR., J. C. , J p : Before Us is a Petition for Review filed by herein petitioner questioning the resolutions of the Court of Tax Appeals (Tax Court) dated May 24, 2000 ( Rollo , pp. 7376) and July 19, 2000 ( Rollo , pp. 7879) in CTA Case No. 5497, which granted the claim for refund of Pepsi Cola Products Philippines, Inc. (herein respondent) of the excess income taxes withheld at source in the reduced amount of P23,808,483.22 for the taxable years 1994 and 1995. The facts as can be culled from the records are as follows: On April 12, 1995 respondent Pepsi Cola Products Philippines, Inc., a domestic corporation engaged in the manufacture and distribution of soft drink products, filed its Annual Corporate Income Tax Return ( Rollo , pp. 8789) for the calendar year ended December 31, 1994 declaring the following items: Taxable Income P3,275,732.00 Tax Due 1,146,606.00 Less: Tax Credits Sale of Real Property P42,522,888.00 Quarterly Tax Payment 576,100.00 43,098,988.00 Excess Creditable Taxes P41,952,482.00 It appears from the foregoing 1994 Income Tax Return that respondent had an excess creditable withholding tax in the amount of P41,952,482.00. However, respondent declared in the same 1994 return that the said excess creditable taxes will be applied as tax credit for the succeeding taxable year. On April 15, 1996, respondent filed its Annual Corporate Income Tax Return ( Rollo , pp. 9495) for the period ended December 31, 1995 and an amended return ( Rollo , pp. 9698) on April 10, 1997. The said amended return reflects the following items: Taxable Income Tax Due P123,791,368.00 Less: Tax Credits 43,326,979.00 Creditable Taxes for 1995 P32,276,195.00 Excess Credit from 1994 41,952,482.00 74,228,677.00 Total Excess Tax Credits P30,901,698.00 As can be gleaned from the foregoing, respondent reported an income tax due of P43,326,979.00. The total creditable taxes withheld for 1995 was P32,276,195.00, which were mainly taxes withheld from the income payments arising from the sale of real properties. With the excess tax credits from 1994 of P41,952,482.00, petitioner's total tax credits amounted to P74,228,677.00. After deducting its tax due for the period, there remained a total excess tax credits of P30,901,698.00. On April 10, 1997, respondent filed a written claim for refund ( Rollo , pp. 99103) in the amount of P30,901,698.00 with petitioner Commissioner of Internal Revenue. One day after the filing of the administrative claim for refund and without waiting for petitioner to resolve its claim, respondent filed a Petition for Review ( Rollo , pp. 8086) with the Court of Tax Appeals, seeking for the refund of the aforesaid amount. The Court of Tax Appeals rendered a decision ( Rollo , pp. 6471) denying respondent's claim for refund. On February 10, 2000, respondent filed a motion for reconsideration ( Rollo , pp. 4758) of the said decision. In reversing its earlier findings, the Court of Tax Appeals in a resolution dated May 24, 2000 granted respondent's motion for reconsideration and ordered the refund of respondent's claim in the reduced amount of P23,808,483.23 representing excess income taxes withheld at source for the taxable years 1994 and 1995. On June 14, 2000, petitioner filed a motion for reconsideration ( Rollo , pp. 121125) of the May 24, 2000 resolution of the Court of Tax Appeals. The same was denied by the Court of Tax Appeals in its Resolution dated July 19, 2000. After the denial of its motion, petitioner elevated the matter to this Court via a Petition for Review, raising the following grounds ( Rollo , p. 13), to wit: "I. The Tax Court erred in reversing the decision, thus, granting the respondent a refund in the reduced amount of P23,808,483.23 as excess income tax withheld at source for the taxable years 1994 and 1995. II. The requirements for creditable withholding taxes must be complied with clearly and unequivocally, namely: a) that petitioner filed a claim for refund within the two-year period as prescribed under Section 230 of the Tax Code, as amended; b) that the income upon which the taxes were withheld was included in the return of the recipient; and c) the fact of withholding is established by a copy of 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. ( Citibank, N.A. vs . Court of Appeals and Commissioner of Internal Revenue , 280 SCRA 459). (page 45 of Decision, CTA Case 5497). III. Tax refund partakes the nature of tax exemptions and are strictly construed against the taxpayer." In the said petition, petitioner additionally contended that respondent's claim for refund is premature. Considering that respondent Pepsi Cola has a deficiency tax liability arising from surcharge, interest, penalties in the amount of P4,726,541.61 then the same is yet to be offset against its claim for refund of excess creditable withholding taxes. On November 20, 2000, herein respondent filed a "Comment" ( Rollo , p. 130138) to the instant Petition for Review. This Court is now tasked upon to resolve the following issues: "I. WHETHER OR NOT RESPONDENT DID NOT CARRY-OVER ITS EXCESS CREDITABLE WITHHOLDING TAXES FOR TAXABLE YEARS 1994 TO SUCCEEDING' YEAR 1995. II. WHETHER OR NOT RESPONDENT COMPLIED WITH THE REQUIREMENT THAT THE INCOME UPON WHICH THE TAXES WERE WITHHELD WAS INCLUDED IN ITS RETURN IN ORDER FOR THE CLAIM FOR REFUND TO BE GRANTED. III. WHETHER OR NOT THE CLAIM FOR REFUND IS PREMATURE AS THE DEFICIENCY ASSESSMENT FOR THE LATE REMITTANCE OF RESPONDENT'S TAX LIABILITIES ARISING FROM INTEREST, SURCHARGE CAN BE OFFSET AGAINST RESPONDENT'S CLAIM FOR REFUND. Petitioner contends that the claim for refund should not be granted considering that respondent has already made an option in its income tax return that he intends to carry-over the excess creditable tax for the year 1994 to the succeeding year 1995. Petitioner cited as its legal basis the case of Philippine Bank of Communication vs. Commissioner of Internal Revenue , 302 SCRA 241, 255 (1999), which held: "The corporation must signify in its annual corporate adjustment return (by marking the option box provided in the BIR form) its intention, whether to request for a refund or claim for an automatic tax credit for the succeeding taxable year. To ease the administration of tax collection, these remedies are in the alternative, and the choice of one precludes the other ." (Emphasis supplied) Perusing the records in the case at bar, it is not disputed that respondent has excess creditable withholding tax for the year 1994 in the amount of P41,952,482.00. This fact was established by respondent's 1994 corporate income tax return (Exhibit "A", Rollo , p. 87). After applying the 1994 excess tax credit to the taxable year 1995, there remained a total excess tax credit of P30,901,698.00 as evidenced by petitioner's 1995 amended return (Exhibit "C", Rollo , p. 96). Income tax returns, being public documents, until controverted by competent evidence, are prima facie correct with respect to the entries therein ( Ropali Trading Corporation vs. National Labor Relations Commission , 296 SCRA 309, 316 [1998]). Since petitioner never presented controverting evidence to dispute the contents of respondent's tax return, the court gives credence to each and every item contained therein. ESTCDA Thus, Section 69 of the 1977 Tax Code, then applicable when the claim for refund was filed (now Section 76 of the 1997 Tax Code), provides: "Section 69. Final Adjustment Return . Every Corporation liable to pay tax under Section 24 shall file a final adjustment return covering the total net income for the preceding calendar year 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 net income of that year the corporation shall either: a) Pay the excess tax still due; or b) Be refunded the excess amount paid, as the case may be. In 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 (italics supplied)." From the foregoing, there are two remedies available to the taxpayer when there is an excess creditable tax withheld the remedy of refund and the remedy of carry over or tax credit. In the case at bar, respondent in its 1994 tax return originally opted for the remedy of automatic tax credit of the excess creditable tax withheld to the succeeding year. However, for the next succeeding taxable year of 1995 the respondent's income tax liability was less than its 1994 tax credit. Thus, there remained an excess creditable tax for the year 1995. The remedy of refund was then resorted to by the respondent which in this case was disputed by herein petitioner. Petitioner argues that respondent is no longer entitled to the refund of the excess creditable withholding tax as it has already opted to avail of the tax credit as indicated in its 1994 tax return, citing the afore-quoted Philippine Bank Philippine Bank of Communication case , supra , that the remedy of refund and the remedy of tax credit as provided in Section 69 are alternative and the choice of one precludes the other. Thus Court is not persuaded by the arguments of the Petitioner. Petitioner's reliance in the case of Philippine Bank of Communication vs. CIR , supra , is misplaced. In the said case, petitioner originally intended to avail of the automatic tax credit of its 1986 excess creditable withholding tax to be carried-over to the succeeding year's tax liability. However, the automatic tax credit was not effected because of the loss it incurred in its business operation, hence it filed a claim for refund. The Supreme Court, in upholding the findings of the Tax Court, denied the claim for refund for the reason that petitioner failed to present as evidence its 1987 income tax return. This failure on the part of the petitioner to present the succeeding year's tax return is fatal to its case since it is only through this succeeding tax return could there be a determination of whether the original option of the taxpayer to carry over its 1986 excess tax credit was not actually exercised. Without the succeeding income tax return, there is no other way to ascertain whether a taxpayer has already credited its excess creditable withholding tax to the succeeding taxable year. The scenario besetting the case at bar is different. In this case, herein respondent was able to present all pertinent income tax returns that could serve as bases to ascertain whether the automatic tax credit was effected. As clearly reflected in respondent's 1995 tax return (Exhibit "B", Rollo , p. 9495), respondent has actually exercised its option by carrying-over its prior year's excess tax credit to its income tax liability for that year, thus: Taxable Income P123,791,368.00 Tax Due 43,326,979.00 Less: Tax Credits Prior Year's Excess Tax Credit P41,952,482.00 Creditable Tax withheld 32,276,195.00 74,228,677.00 Total Tax payable/(refundable) P30.901,698.00 However, respondent was not able to "fully" exercised its option to carry-over its 1994 excess tax credit to the succeeding year 1995 as the tax liability for that year was less than the prior year's (1994) excess tax credit. As a result, there remained an excess tax credit of P30,901,698.00 in respondent's 1995 Income Tax Return. Respondent now opted to seek a refund of this excess income tax for the reason that this excess tax credit, which was derived from the taxable year 1994 cannot be carried over to the taxable year 1996. As can be inferred from Section 69 of the afore-cited 1977 Tax Code, the remedy of carry-over is merely limited to the next succeeding taxable year and not to the taxable years thereafter. Thus: "The carrying forward of any excess or overpaid income tax for a given taxable year then is limited to the succeeding taxable year only. This, the CTA and the CA have repeatedly held. Since the case at bar involves a claim for refund of overpaid taxes for 1993, petitioner could only have applied the 1993 excess tax credits to its 1994 income tax liabilities. To further carry-over to 1995 the 1993 excess tax credits is violative of above-quoted Section 69 of the old National Internal Revenue Code" ( AB Leasing and Finance Corporation vs. Commissioner of Internal Revenue , G.R. No. 138342, July 8, 2003). True enough, if the option to carry-over cannot be effected, there is no other remedy available but the remedy of refund. To deprive the taxpayer of the remedy of refined would result to the unjust enrichment of the government at the expense of the taxpayer. As sufficiently held by the Supreme Court in the case of BPI-Family Savings Bank, Inc. vs. Court of Appeals (330 SCRA 507, 516 [2000]): ". . . . 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. Indeed, the State must lead by its own example of honor, dignity and uprightness." We proceed now to the issue of whether or not respondent complied with the requirement that the income upon which the taxes were withheld was included in its return. Said requirement which has already been adopted by the Supreme Court in the case of Citibank, NA vs. Court of Appeals, 280 SCRA 459, 474 [1997] was actually derived from Section 10 of Revenue Regulations No. 12-94, which provides: "Section 10. Claim for Tax Credit or Refund. (a) Claims for Tax Credit or Refund of income tax deducted and withheld on income payments shall be given due course only when it is shown on the return that the income payment received has been declared as part of the gross income and the fact of withholding is established by a copy of the withholding tax statement duly issued by the payor to the payee showing the amount paid and the amount of tax withheld therefrom (emphasis supplied). In its earlier decision, the CTA denied respondent's claim for refund for not complying with the said requirement. It was found out that the denial was brought about by the alleged discrepancy found between the income declared in respondent's 1994 tax return and the income per the certificates of tax withheld for 1994. In its 1994 income tax return, petitioner declared as part of its gross income the amount of P400,638,878 and from which income of tax withheld for 1994, the total income payments declared was P661,220,000.00. This means that not all income payments reflected in the certificates of creditable taxes withheld were included as part of the income declared in respondent's ITR. In its motion for reconsideration, the respondent has explained the reason, which caused the discrepancy between the amount of income as per the tax return vis-a-vis the certificates of creditable taxes withheld. Thus, the respondent's explanation may be summarized as follows: According to respondent, the CTA, in its earlier decision has considered the amount of P400,638,878 as the declared gross income in the 1994 ITR. However, this amount was actually the net gain, where all the corresponding expenses were already deducted. What was actually the gross income is the gross selling price of the property sold, which is P568,397,584 See: Schedule 5, Rollo , p. 88). As to the income declared in the certificates of creditable withholding taxes withheld for the year 1994, an error was again committed when the CTA considered the income as per the Certificates of Withholding tax to be P661,220,000. The CTA erroneously considered the income gained from the sale of the Cebu property to Sanderville amounting to P94,406,000.00 for 1994 because of the typographical error made by the withholding tax agent in the preparation of the withholding tax certificates. Instead of indicating in the certificate that the period covered pertained to the year 1995, there was an apparent error committed with the indication of "1994" as the period when the transaction occurred. Thus, the total income declared as per the certificate of creditable withholding tax should only be P566,814,000 (after deducting the gain from the sale of real property in Cebu to Sanderville amounting to P94,406,000), computed as follows: Withholding Income Taxes Agent Payment Withheld Phil. Realty & P350,000,000.00 P26,250,000.00 Holding Corp. Sanders Ville Realty & Devt 216,814,000.00 16,261,050.00 Corp P566,814,000.00 P42,511,050.00 Similarly, for the year 1995, the income which was considered by the CTA is the gain from the sale of the real property amounting to P420,727,689.00, when what should properly be considered is the gross selling price of the property which is P528,834,618.00 (See Schedule 5, Rollo , p. 97). And as to the certificates of creditable tax withheld submitted by respondent, the same should be sum up to include now the income gained from the sale of Cebu property to Sanderville Realty and the denied certificate bearing the income gained from MCI Duty Free Dist Corp. (Exhibit "J") which was later on found to be compared with their original amounting to P2,926,795.36, and if computed will yield the amount of P467,832,256.36, thus: Withholding Income Taxes Agent Payment Withheld PLDT Co. P125,000,525.00 6,250,026.25 Photokina Mktg. 105,984,936.00 5,299,247.00 Josefina O. Chua 10,000,000.00 1,500,000.00 Jose Cano Chua 116,238,000.00 10,897,312.50 Jose Cano Chua 13,276,000.00 663,800.00 MCI Duty Free Dist. 2,926,795.36 585,359.07 Sandersville Realty 94,406,000.00 7,080,450.00 P467,832,256.36 P32,216,194,82 Consequently, the Tax Court made a complete reversal of its earlier findings and accordingly granted respondent's claim for refund. However, the Tax Court, in the assailed resolution dated May 24, 2000, did not consider the 1995 certificate of income tax withheld issued by Sandersville Realty which reflects an income payment of P94,406,000.00 and an income tax withheld of P7,080,450.00, because of the ambiguity in the indication of the applicable taxable period. Thus, the total income declared as per the certificates of creditable taxes is computed by the Tax Court as follows: Withholding Income Taxes Agent Payment Withheld PLDT Co. P125,000,525.00 P6,250,026.25 Photokina Mktg. 105,984,936.00 5,299,247.00 Josefina O. Chua 10,000,000.00 1,500,000.00 Jose Cano Chua 116,238,000.00 10,897,312.50 Jose Cano Chua 13,276,000.00 663,800.00 MCI-Duty Free Dist. 2,926,795.36 585,359.07 P373,426,256.36 P25,195,744.82 With the foregoing findings of the Tax Court, it can readily be concluded that all of respondent's 1994 and 1995 income subjected the creditable withholding tax were actually declared as part of respondent's gross income in its 1994 and 1995 income tax returns. It is to be noted that for the taxable years 1994 and 1995, respondent, in its ITR, declared as part of its gross income the amount of P568,397,584 (See: Schedule 5, Rollo , p. 88) and P528,834,618.00 (See: Schedule 5, Rollo , p. 97), respectively. These amounts of declared income appearing in the ITR now include the total income appearing in the 1994 and 1995 certificates of creditable taxes which, earlier computed, were P566,814,000 and P373,426,256.36 (after deducting the certificate of tax withheld issued by Sandersville Realty), respectively. Clearly, this debunked petitioner's contentions that respondent failed to comply with the requirement that the income upon which the taxes were withheld was included in its return as provided for in Section 10 of Revenue Regulations No. 12-94. As the apparent discrepancies were all resolved and aptly explained by the Tax Court, this Court, finding them to be sufficiently supported by substantial evidence, upholds the Tax Court's findings. This rule upholding the factual findings of the Tax Court, which possesses an expertise in tax cases, is not without jurisprudential basis. Thus, in the case of Commissioner of Internal Revenue vs. Court of Appeals , 303 SCRA 508, 517 (1999), the Supreme Court enunciated thus: "Then, too, it has been the long standing policy and practice of this Court to respect conclusions arrived at by quasi-judicial agencies, especially the Court of Tax Appeals which, by the nature of its functions, is dedicated exclusively to the study and consideration of tax problems, and which has thus developed an expertise on the subject, unless an abuse or improvident exercise of its authority is shown." And in Commissioner of Internal Revenue vs. B.F. Goodrich Philippines , 303 SCRA 546, 552 (1999), the Supreme Court likewise held: "True, the factual findings of the Court of Tax Appeals are generally not disturbed on appeal when supported by substantial evidence and in the absence of gross error or grave abuse of discretion." It is likewise petitioner's contention that the filing of the petition claiming for the refund of the excess creditable taxes withheld at source is premature. According to petitioner, since respondent has deficiency tax liability owing to the government arising from surcharge, interest penalties for the late remittance of its 1994 and 1995 withholding taxes, then this must be offset against its claim for refund, for both involved the same items of income and covers the same taxable years 1994 and 1995. We do not agree with petitioner's view. As correctly pointed out by the respondent, what is owing to the government by a taxpayer cannot be set-off against any claim by the taxpayer from government, notwithstanding the fact that both involved the same nature of tax. Thus, in the case of Philex Mining Corporation vs. Commissioner of Internal Revenue , 294 SCRA 687, 695 (1998), the Supreme Court held: "In several instances prior to the instant case, we have already made the pronouncement that taxes cannot be subject to compensation for the simple reason that the government and the taxpayer are not creditors and debtors of each other. There is a material distinction between a tax and a debt. Debts are due the Government in its corporate capacity, while taxes are due to the government in its sovereign capacity. We find no cogent reason to deviate from the aforementioned distinction." At any rate, we cannot altogether allow a setting-off of petitioner's claim for refund against the deficiency tax assessed by the government. In the same manner, any taxpayer cannot defer the payment of taxes by raising the defense that it still has a pending claim for refund or credit, otherwise, it would adversely affect the government revenue system. Taxes, being the lifeblood of the government, must be collected without delay and unnecessary hindrance. Besides, as pointed out by the tax court, the said deficiency assessments arising from surcharge, interest and penalties were being protested by respondent with the Bureau of Internal Revenue (BIR). Considering that no final decision yet has been rendered by the BIR on the protest against the assessment, then at this stage we cannot determine whether respondent is indeed liable for the said deficiency tax. It would be unfair on the part of the respondent Pepsi Cola if we would deprive it of its rightful claim for refund only because of the existence of a deficiency tax assessment case which is still under protest and is still pending administrative action with the BIR. Even if we are to assume that the setting-off of respondent's claim for refund vis-a-vis petitioner's tax liability is allowed, it cannot still be actually effected, as the tax liability is not yet due and demandable as it has not yet been finally decided upon by the BIR. And even if there is already a final decision rendered by the BIR finding the taxpayer liable for the deficiency tax assessment, the same is still appealable to the CTA, which by the exercise of its appellate jurisdiction, may affirm or reverse the findings of the BIR. aECSHI WHEREFORE, in view of the foregoing, the instant Petition for Review is hereby DENIED for lack of merit. The resolutions of the Court of Tax Appeals dated May 24, 2000 and July 19, 2000, in so far as they allowed the refund of the excess creditable withholding tax in the amount of P23,808,483.23 for the taxable years 1994 and 1995 in favor of respondent Pepsi Cola Product Philippines, Inc., are AFFIRMED. SO ORDERED. Brawner and Guia-Salvador, JJ . , concur.