Feb Investments, Inc. v. Commissioner of Internal Revenue

FIRST DIVISION [CA-G.R. SP No. 60784. January 31, 2006.] FEB INVESTMENTS, INC. , petitioner , vs . THE COMMISSIONER OF INTERNAL REVENUE and THE COURT OF TAX APPEALS , respondents . D E C I S I O N REYES , R.T. , P.J p : BROUGHT to Us on a petition for review 1 by petitioner FEB Investments, Inc. (FII) is the Decision 2 of the Court of Tax Appeals denying its claim for tax refund due to insufficiency of evidence. 2uptax06 The Antecedents The CTA summarized the factual antecedents of CTA Case No. 5589, as follows: "Petitioner is a corporation organized and existing under and by virtue of the laws of the Philippines. It is principally engaged in financing activities. "For the four quarters of taxable year 1996, petitioner reported gross receipts in the total amount of P346,027,897.77 for which it allegedly paid P14,973,087.41 as gross receipts tax detailed as follows: Quarter Exhibit Gross Receipts Gross Receipts Tax 1st A/A-1 P64,735,851.80 P3,2236,792.59 2nd B/B-1 131,021,901.70 5,642,578.28 3rd C/C-1 89,271,102.46 3,554,016.23 4th D/D-1 60,999,023.81 2,539,700.31 "Petitioner asseverates that of the total gross receipts of P346,027,897.77, the amount of P40,765,149.04 corresponds to the 20% final tax withheld on passive income and which was further subjected to the 5% gross receipts income tax amounting to P2,038,257.46, detailed as follows: SECURITY FINAL TAX GROSS RECEIPTS TAX Long term commercial papers P17,703,717.74 P885,185.89 Fixed rate treasury notes 10,598,196.31 529,9019.82 Treasury bills 8,414,760.79 420,738.04 Investment in savings deposit 2,535,236.12 126,761.81 Floating rate treasury notes 899,131.07 44,956.55 Blue fund 595,000.00 29,750.00 Savings deposit 19,107.02 955.35 "Relying on this Court's ruling in the case of Asian Bank Corporation versus Commissioner of Internal Revenue , CTA Case No. 4720, promulgated on January 30, 1996 , where this Court ruled that the 20% final tax should be excluded in the computation of the 5% gross receipts tax, petitioner filed its administrative claim for refund with the respondent on September 5, 1997 (Exh. E) and on March 27, 1998 (Exh. F). ACaTIc "Failing to obtain relief from the respondent Bureau, petitioner elevated its grievance to this Court on March 31, 1998 to toll the running of the two-year prescriptive period provided under Section 230 of the Tax Code. "On May 20, 1998, respondent filed his Answer to the Petition for Review and maintained his stance that petitioner is not entitled to the refund sought there being no basis in fact and in law. In addition thereto, respondent advanced the following Special and Affirmative Defenses: '8. In computing the gross receipts tax (GRT) of financial institutions, such as the petitioner in the above-entitled case, the interest on deposits and yield on deposit substitutes shall be included as part of the tax base upon which the GRT is imposed as provided in Section 8(c) of Revenue Regulations No. 12-80, as amended, which reads: 'Sec. 8. Nature and treatment of interest on deposits and yield on deposit substitutes. xxx xxx xxx (c) If the recipient of the above-mentioned items of income are financial institutions, the same shall be included as part of the tax base upon which the gross receipts tax is imposed.' '9. The definition of the term 'gross receipts' in Section 123(b) of the National Internal Revenue Code is intended 'for the purpose of the amusement tax' while the interpretation given by the Supreme Court to said term in the case of Collection of Internal Revenue vs. Manila Jockey Club (MCJ and other companies similarly situated since the money sought to be taxed from the MCJ never really belonged to the club but went to the Board of Races, the owner of horses and jockey, thus, the exclusion thereof from its gross receipts is justified unlike in the instant case of the petitioner even if not actually received by the petitioner, in the strict sense of the word, since the same is withheld by the payee. '10. The imposition of the gross receipts tax based on all items of income actually received, if interpreted to mean the net of the 20% final withholding tax, will be contrary to law since this will result to an unauthorized reduction of the tax which is fixed by law or regulation, or worst, its effect will result to a subtle amendment of the law or regulation. '11. The petition states no cause of action since it does not allege the date/s when the taxes sought to be refunded were actually paid; '12. In an action for tax credit/refund, the burden of proof is on the taxpayer to establish its right to the refund and failure to sustain the burden is fatal to the action for tax refund; '13. Well-settled is the rule that claims for refund are construed in strictissimi juris against the claimants since it partakes of the nature of an exemption from taxation. "On January 10, 2000, this case was considered submitted for decision sans the memorandum of the respondent." 3 CTA Dispositions On June 16, 2000, the CTA resolved CTA Case No. 5589. While ruling that amounts withheld as taxes do not form part of gross receipts in computing gross receipts tax, the CTA denied FII's claim for refund for insufficiency of evidence. It explained: "On the basis of the report of Mr. Ruben Rubio, an independent certified public accountant duly commissioned by this Court to examine petitioner's books of accounts and other pertinent documents, and who testified that petitioner made an overstatement of its final withholding tax in the amount of P3,203,958.95, this Court was initially inclined to grant petitioner's claim but in a reduced amount. cHCaIE "However, despite the certification of the independent certified public accountant, a meticulous examination of the evidence in this case does not sustain the petitioner's position; accordingly, for insufficiency of evidence, the petition must fail. "Petitioner alleged that it purchased the treasury bills from lead underwriter as evidenced by confirmation receipts. However, upon this Court's examination of the said documents, We found out that the exhibits supporting such purchases were not confirmation of purchase but father confirmation of sale, hence, it could be safely inferred that petitioner is the seller and not the purchaser of the securities. While it is true that petitioner has presented, as proof of its purchase, the treasury bills' certificate of Final Withholding Tax Withheld at Source issued by Far East Bank and Trust Co., We find the same insufficient for there is no way by which this Court could ascertain petitioner's interest income and the corresponding 20% final withholding tax. "The same holds true with petitioner's documents supporting its withholding tax on floating rate treasury notes since this Court could not decipher with accuracy, petitioner's income from the detailed transaction of sales alone. Instead, petitioner should have offered in evidence the confirmation of purchase receipts aside from the confirmation of sales to prove the interest income and the 20% withholding tax. "In the same breadth, We found the Schedule of Interest Income and Trading Gain Certification of the 20% final withholding tax and the manual entries and computation submitted by the petitioner as wanting in probative value for there are no supporting documents for these schedules, hence, violative of Court of Tax Appeals Circular No. 1-95, as amended which provides in part thus: xxx xxx xxx '1. The party who desires to introduce as evidence such voluminous documents must present (a) Summary containing the total amount/s of the tax account or tax paid for the period involved and a chronological or numerical list of the numbers, dates and amounts covered by the invoices or receipts; . . . '2. The method of individual presentation of each and every receipt or invoice or other documents for marking, identification and comparison with the originals thereof need not be done before the Court of the Commissioner anymore after the introduction of the summary and CPA certification. It is enough that the receipts, invoices and other documents covering the said accounts or payments must be pre-marked by the party concerned and submitted to the Court in order to be made accessible to the adverse party whenever she/he desires to check and verify the correctness of the summary and CPA certification. . . . . (Emphasis Ours) "Clearly, from the afore-quoted provision, petitioner should have presented in evidence, at the very least, its passbook to aid Us in verifying the correctness of the Summary. Absence of such document is for a long time considered in cases bearing the same factual milieu, as fatal to a taxpayer's cause. aHTDAc "With regard to petitioner's claim on its investments in long terms commercial papers, this court likewise rule for its denial on the ground that it was petitioner which certified its own final withholding tax, hence, self-serving." 4 FII filed a motion for reconsideration 5 but the CTA denied it in a Resolution dated August 25, 2000. 6 Hence, the present recourse. Issues FII presents a lone issue for consideration: "WHETHER OR NOT THE RESPONDENT COURT OF TAX APPEALS ERRED IN DENYING THE ENTIRE CLAIM FOR REFUND DESPITE THE DOCUMENTARY EVIDENCE PRESENTED BY THE PETITIONER IN COMPLIANCE WITH THE REQUIREMENTS SET BY THE RESPONDENT COURT IN CASES OF SIMILAR NATURE." 7 Our Ruling FII Cannot Successfully Claim A Tax Refund. No Legal Basis For The Claimed Refund . It is said that taxes are what people pay for civilized society. Without taxes, the government would be paralyzed for lack of the motive power to activate and operate it. It is the lifeblood of the government and so should be collected without unnecessary hindrance. 8 Because of this, the law frowns against exemptions from taxation and statutes granting tax exemptions. They are construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority. Being in the nature of exemptions, a claim of tax refunds must be clearly shown and be based on language in the law too plain to be mistaken. 9 FII argues that the CTA erred in the appreciation of evidence in denying the claim for refund. However, We find this issue already mooted in light of the promulgation of China Banking Corporation vs. Court of Appeals . 10 In China Banking Corporation , the Supreme Court declared that interest income withheld in payment of the 20% final withholding tax forms part of a taxpayer's gross receipts in computing the gross receipts tax. The ruling in that case abrogates the contrary ruling in the CTA case Asian Bank Corporation vs. Commissioner of Internal Revenue 11 on which the FII claim is based. Significantly, the holding in Asian Bank Corporation has since been discarded by the CTA itself in two subsequent rulings, namely Far East Bank and Trust Co. vs. Commissioner of Internal Revenue 12 and Standard Chartered Bank vs. Commissioner of Internal Revenue . 13 No less than this Court has even reversed Asian Bank Corporation in Commissioner of Internal Revenue vs. Asian Bank Corporation . 14 Thus, whether or not evidence is sufficient is now academic. Even if FII's evidence were sufficient, jurisprudence, as it now stands, disallows the claimed refund because amounts withheld as final taxes are included in the computation of gross receipts. In any case, Our rejection of the claimed refund would be inevitable. The Supreme Court justifies the inclusion of the withheld amounts in the gross receipts in this wise: "The concept of a withholding tax on income obviously and necessarily implies that the amount of the tax withheld comes from the income earned by the taxpayer. Since the amount of the tax withheld constitutes income earned by the taxpayer, then that amount manifestly forms part of the taxpayer's gross receipts. Because the amount withheld belongs to the taxpayer, he can transfer its ownership to the government in payment of his tax liability. The amount withheld indubitably comes from income of the taxpayer, and thus forms part of his gross receipts ." 15 The amount used to settle the tax liability is deemed sourced from the proceeds constitutive of the tax base. These proceeds are either actual or constructive. In this situation, the rule on constructive receipt can be easily rationalized, if not made clearly manifest. 16 The principle of constructive receipt was further explained by the Supreme Court in China Banking Corporation : "Actual receipt of interest income is not limited to physical receipt. Actual receipt may either be physical receipt or constructive receipt. When the depository bank withholds the final tax to pay the tax liability of the lending bank, there is prior to the withholding a constructive receipt by the lending bank of the amount withheld . From the amount constructively received by the lending bank, the depository bank deducts the final withholding tax and remits it to the government for the account of the lending bank. Thus, the interest income actually received by the lending bank, both physically and constructively, is the net interest plus the amount withheld as final tax." 17 The above-cited case has been reiterated recently in Commissioner of Internal Revenue vs. Solidbank 18 where it was held that: " Since the 20% FWT is constructively received by the banks and forms part of their gross receipts or earnings, it follows that it is subject to the 5% GRT. After all, the amount withheld is paid to the government on their behalf, in satisfaction of their withholding taxes. That they do not actually receive the amount does not alter the fact that it is remitted for their benefit in satisfaction of their tax obligations . CcEHaI "Stated otherwise, the fact is that if there were no withholding tax system in place in this country, this 20 percent portion of the "passive" income of banks would actually be paid to the banks and then remitted by them to the government in payment of their income tax. The institution of the withholding tax system does not alter the fact that the 20 percent portion of their "passive" income constitutes part of their actual earnings, except that it is paid directly to the government on their behalf in satisfaction of the 20 percent final income tax due on their "passive" incomes ." 19 All told, We see no rhyme or reason to examine the evidence on record and review the appreciation of the CTA. WHEREFORE, the petition is DENIED for lack of merit. SO ORDERED. De Guia-Salvador and Santiago-Lagman, JJ., concur. Footnotes 1. Rollo , p. 50. 2. Dated June 16, 2000 in CTA Case No. 5589 penned by Presiding Judge Ernesto D. Acosta with Associate Judge Ramon O. De Veyra, concurring and Associate Judge Amancio Q. Saga, dissenting, Ibid ., p. 88. 3. Decision dated June 16,1999, Rollo , pp. 60-63. 4. Rollo , p. 66-68. 5. Ibid ., p. 80. 6. Ibid ., p. 97. 7. Petition, p. 4; Rollo , p. 53. 8. Commissioner of Internal Revenue vs. Wyeth Suaco Laboratories , Inc., G.R. No. 76281. September 30, 1991. 9. Paseo Realty & Development Corporation vs. Court of Appeals , G.R. No. 119286. October 13, 2004. 10. G.R. No. 146749. June 10, 2003 11. CTA Case No. 4720. 12. CTA Case No. 5763, 16 November 2001. 13. CTA Case No. 5679, 16 November 2001. 14. CA-G.R. SP. No. 51248. 15. Emphasis Ours. China Banking Corporation vs. Court of Appeals, Supra . 16. Commissioner of Internal Revenue vs. Solidbank , G.R. No. 148191. November 25, 2003. 17. Emphasis Ours. 18. Supra . 19. Emphasis Ours.