Commissioner of Internal Revenue v. Hopewell Tileman Power Systems, Inc.

SPECIAL FIRST DIVISION [CA-G.R. SP No. 60898. March 13, 2002.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . HOPEWELL TILEMAN POWER SYSTEMS, INC. , respondent . D E C I S I O N * BARRIOS , J p : Petitioner Commissioner of Internal Revenue ( or the Commissioner for brevity ) is the official of the Republic of the Philippines charged among others with the duty to assess and collect internal revenue taxes as well as to grant the refund of tax credit. Respondent Hopewell Tileman Power Systems, Inc. ( or Hopewell ) on the other hand is a duly registered domestic corporation primarily engaged in the design, construction, erection, assembly, operation, maintenance, rehabilitation, and management of turbine and other power-generating plants or similar facilities. For its financial transactions, it adopted June 30 as ending of its fiscal years. The Commissioner filed this Petition for Review under Rule 45 of the 1997 Revised Rules of Court against Hopewell praying that the Decision dated July 7, 2000 and Resolution dated September 5, 2000 of the Court of Tax Appeals ( or CTA ) in the case between them entitled Hopewell Tileman Power Systems Inc. vs. Commissioner of Internal Revenue ( CTA Case No. 5682 ) be set aside and reversed. It also prayed that, in the meantime, an order be issued staying the assailed judgment for the reason that an appeal of this nature does not necessarily stay the judgment or final order sought to be reviewed unless the Court of Appeals directs it so. The facts of the case are: Last October 15, 1996, Hopewell filed with the Bureau of Internal Revenue ( or BIR ) its corporate annual/final adjustment income tax return for fiscal year 1996 bearing, among others, a gross income of P177,468,162.00; a taxable income of P2,465,466.00; a tax due of P862,913.00; a tax credit withheld at source of P2,191,983.00; a refundable/excess in withheld tax of P1,329,070.00; and its intention to carry-over and apply the said refundable/excess creditable tax against its next (1997) fiscal year's income tax liability. ( pp. 9 and 31, rollo ) Hopewell also filed on October 15, 1997 its annual final adjustment return for 1997 declaring a gross income of P113,662,126.00; a taxable income of P1,516,792.00; a tax due of P530,877.00; a tax credit withheld at source of P6,609,510.00, inclusive of the 1998 excess creditable withholding tax of P1,329,070.00; and a refundable or excess creditable tax of P6,078,633.00, and manifesting its intention to have this refunded by marking the appropriate box on the return ( pp. 9 and 37, rollo ) Accordingly on October 5, 1998 Hopewell went to the BIR and requested to have the P6,078,633.00 overpaid tax in the last fiscal years 1996 and 1997 be refunded. ( pp. 9 and 37, rollo ) Bothered by the absence of a response from the BIR and believing that its claims were about to lapse, Hopewell filed with the CTA on October 15, 1998 the case subject of this review praying that the Commissioner be ordered to refund the over-paid taxes in 1996 and 1997 or to issue a tax credit certificate therefor. ( pp. 25 to 30, rollo ) Hopewell gave substance to its petition by adducing testimonial and documentary proofs. The Commissioner on the other hand relied merely on the affirmative defenses he set forth that: (a) the application for refund was still the subject of an administrative investigation relative to the verity of the deductions claimed in its return, (b) the withheld taxes which Hopewell sought to be refunded were not illegally or erroneously collected, and (c) in this tax refund case Hopewell bears the burden of proof of its claims and all doubts attending its claims for refund should be construed strictissimi juris because this partakes of the nature of exemption from tax. ( pp. 61 and 62, rollo ) The CTA rendered the appealed Decision on July 7, 2000 disposing that: WHEREFORE, in view of foregoing, the instant Petition for Review is hereby GRANTED. Accordingly, the Respondent is ORDERED to REFUND or ISSUE a Tax Credit certificate in the amount of P6,078,633.00 in favor of the Petitioner. SO ORDERED. Ruling in essence that Hopewell's request for refund of its over-paid taxes in 1996 and 1997 satisfied the basic requirements of Revenue Regulations No. 6-85, as laid down in Citibank N.A. vs. CA & Commissioner ( 280 SCRA 459 ); both its administrative claim and judicial petition for tax refund submitted respectively on October 5, 1998 and October 15, 1998, were obviously filed within the two-year prescriptive period provided under Section 230 of the National Internal Revenue Code ( or NIRC ) because its 1996 and 1997 returns were filed on October 15, 1996 and October 16, 1997 respectively; it did not under-declare its 1996 and 1997 gross income because it declared a total added gross income of P291,124,828.00 which was even higher than the total added income of P262,582,067.80 stated in all the Certificates of Withheld Taxes for the same period while the amount of P7,427,425.00 representing the withheld taxes as declared in the returns and as stated in the Certificates of Withheld Taxes, are the same; and the overpaid taxes sought to be refunded by Hopewell were verily withheld as shown in the three Certificates of Creditable Taxes Withheld at Source ( Exhibits "C", "D" ) which all bear the added amount of P262,582,067.20 as income paid to it and P7,472,425.27 as creditable withheld taxes for 1996 and 1997. ( vide: CTA Decision, pp. 20-21, rollo ) Not satisfied with this disposition, the Commissioner moved for the reconsideration of that part requiring the refund of the 1996 P1,329,070.00 excess creditable tax. He argued that the two remedies of refund and tax credit ( Section 76, NIRC ) are in the alternative, and because Hopewell in 1996 already chose to have the excess tax credited against its 1997 would-be tax liabilities, it should therefore be legally barred from subsequently having it refunded because the choice of one remedy precluded the other. The CTA nonetheless denied the motion reasoning that what the law does not allow is the simultaneous availment of these two remedies within a single taxable year. Still unconvinced, the Commissioner is now before Us on this Petition for Review, asking that the said Decision and Resolution be set aside because of these reversible errors assigned to have been committed by the CTA: ATaDHC 1. THE TAX COURT ERRED IN GRANTING THE REFUND FOR THE REASON THAT HEREIN RESPONDENT UNDERDECLARED ITS INCOME FOR THE FISCAL YEAR ENDED JUNE 30, 1997; and 2. ASSUMING THAT HEREIN RESPONDENT IS ENTITLED TO REFUND, THE EXCESS OF THE CREDITABLE WITHHOLDING TAX FOR FISCAL ENDING JUNE 30, 1996 IN THE AMOUNT OF P1,329,070.00 WHICH WAS APPLIED TO THE INCOME TAX DUE FOR THE FISCAL YEAR ENDING JUNE 30, 1997 IN THE AMOUNT OF P830.877.00 IS NOT REFUNDABLE BECAUSE THE REMEDY OF CARRY-OVER AND REFUND OF THE TAX ARE MUTUALLY EXCLUSIVE OF EACH OTHER. ( pp. 10-11, rollo ) On the first assigned error, the Commissioner alleges that Hopewell underdeclared its gross income for fiscal year 1997 by P65,705,801.80 hence it failed to comply with a requirement of law for its availment. It declared in its return P113,656,666.00 as its gross income while in all its certificates of withheld tax it stated as paid income the sum of P179,362,467.00, and so it did not include in its return all the incomes upon which the supposed taxes to be refunded were withheld. It is also argued that there cannot be a refund of the unused overpaid taxes in 1996 considering that the amount of P1,329,070.00 excess withheld tax for 1996 had been carried over to fiscal year 1997 and applied against the tax due thereon and thereby left a balance of P798,193.00 which can no longer be refunded because such is prohibited by Section 76 of the NIRC. In its Comment, Hopewell contends that it had correctly declared all its income for the fiscal year ending June 30, 1997 and that the alleged P65,705,801.80 which the Commissioner claims to be an underdeclared income had already been included and declared in the return for 1996, which fact usually occurs as a natural consequence of the use of different accounting methods wherein Hopewell is in the accrual basis while its payor Hopewell Power (Phils.) Corp. is in the actual payment method. ( tsn July 28, 1999, pp. 22-23) It added that this issue on discrepancy had been ruled out and passed upon by the CTA when it concluded in its Decision to the effect that there was no false declaration because the total income from sale of services of P291,124,828.00 as declared in the annual income tax returns for both fiscal years 1996 and 1997, was even higher than the amount of P262,582,067.80 representing the total amount of income payments reflected in the Certificates of Creditable Tax withheld at source. In contending against the second assigned error, Hopewell argues that the ruling in the case of Philippine Bank of Communication vs. Commissioner of Internal Revenue ( G.R. No. 112024, January 28, 1999 ) is not apt because in that case the taxpayer tried to avail of both remedies in the same taxable year. While in this case Hopewell first availed of the remedy of carrying-over and applying its P1,329,070.00 excess creditable tax of 1996 against the 1997 fiscal year tax liability, and after fiscal year 1997 it subsequently opted to refund the whole of its 1997 fiscal year excess creditable taxes of P6,078,633.00, inclusive of the said P1,329,070.00, by indicating said option in its annual income tax return for 1997. There is nothing violative of law in applying the two remedies one at a time in different fiscal years. The issue raised is whether or not the CTA breached Section 76 of the NIRC and erred in granting Hopewell's right to refund its 1996 and 1997 overpaid creditable taxes totalling P6,078,633.00. The petition is not meritorious. Section 76 of the NIRC, upon which both parties relied on their respective claims and arguments, further reads: Every corporation liable to tax under Section 24 shall file a final adjustment return covering the total net 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 excess 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 carried-over and credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable year. Once the option to carry-over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable year has been made, such option shall be irrevocable for that taxable period and no application for cash refund or issuance of a tax credit certificate shall be allowed therefore. It does not at all times forbid Hopewell from the refunding of its excess creditable taxes of P1,329,070.00 accrued in fiscal year 1996 or any unutilized portion thereof, because the law itself as worded does not convey the forfeiture of the excess even if this is carried over to the succeeding taxable year. What this provision evidently vests to Hopewell is the right to have refunded all its excess creditable taxes as computed in its final adjustment return, and its option to have this excess either carried-over and applied against the next fiscal year tax liability or to be refunded in cash. One thing that this provision prohibits Hopewell from doing is that once it opts to carry-over and apply the excess tax to the next fiscal year's tax liability, as it did in 1996, it could not have this excess refunded in the meantime during the length of the next taxable year. This is conveyed by the phrase " that such option shall be irrevocable for that taxable period ", referring to fiscal year 1997, the " succeeding taxable year " referred to in the law. There is nothing however in the provision to prohibit the refund of this particular carried-over excess tax following the lapse of the taxable year to which it was carried-over. Hopewell, in accord with this provision, carried-over and applied its fiscal year 1996 excess creditable taxes of P1,329,070.00 by marking the appropriate box in the corresponding income tax return. As such, this amount formed part of the supposed creditable withholding tax for fiscal year 1997. Hopewell did not have this refunded during the whole stretch of this fiscal year. It was only on October 15, 1997 when Hopewell filed its 1997 final income tax return that it signified its intention to refund all its unused creditable taxes for that year, including the excess in 1996. It filed its formal administrative request for refund of these excesses in paid taxes on October 5, 1998 and its Petition For Review before the CTA on October 15, 1998. All these had been resorted to by Hopewell long after this temporary prohibition to refund said tax excesses had lapsed but before the two-year prescriptive period could attach. The said amount of P1,329,070.00 was not even entirely used to pay for the 1997 P530,877.00 tax liability because there was a total of P5,280,440.00 from other creditable withheld taxes for said year, and Hopewell exercised this right to refund. In the absence of any other law further prohibiting the exercise of this. We similarly uphold Hopewell's right to refund both its 1996 and 1997 over-paid taxes, as this coincides with Section 76 of the Tax Code and with the obligation to refund under the principle of solutio indebiti ( Article 2154 of the Civil Code ) on the part of the state or its Government who cannot similarly shield itself from the application of the unjust enrichment doctrine. ( Citibank N.A. vs. Court of Appeals, 280 SCRA 459 ). On the possibility that Hopewell underdeclared its gross income in fiscal year 1997 by P65,705,801.80, this has been substantially negated by the evidence and its explanation advanced to the effect that this amount had already been declared in its 1996 final income tax return. This is fortified by the findings of the CTA which debunked misdeclaration for the reason that Hopewell's income tax returns for 1996 and 1997 showed a higher total of declared gross incomes than that in the Certificate of Withheld Taxes for those years. This finding of the CTA with its expertise in the study and consideration of tax problems, deserves to be respected and sustained, as there are no gross error or abuse and improvident exercise of authority on its part. ( Commissioner of Internal Revenue vs. Court of Appeals, 271 SCRA 605 ). While the Commissioner shoulders the burden of giving substance to his claim of underdeclaration, he nonetheless did nothing to defeat the prima facie legitimacy accorded to the entries made in Hopewell's 1997 income tax return which is a public document. ( Ropali Trading Corp. vs. NLRC, 296 SCRA 309 ) and simply had his case submitted for decision relying solely upon his affirmative defenses. Mere allegation that Hopewell underdeclared the amount of P65,705,801.80 because it only declared P113,656,666.00 in its 1997 return while it had income payments for said year in the amount of P179,362,467.80 as stated in the Certificate of Withheld Taxes, is not sufficient because mere assertions unsubstantiated by evidence are not equivalent to proof under our Rules ( Manzano vs. Perez , Sr., et al., G.R. No. 112485, August 9, 2001 ) and they cannot be relied upon ( Citytrust Banking Corp. vs. Villanueva, G.R. No. 141011, July 19, 2001 ) therefor. All told We find no reason to depart from the finding of the CTA that Hopewell had in fact complied with all the basic requirements of law for the refund of excess unutilized creditable withholding tax and/or to reverse the assailed Decision ordering the Commissioner to grant the refund or issuance of a tax credit certificate in favor of Hopewell in the amount of P6,078,633.00. WHEREFORE, this Petition for Review is DISMISSED for lack of merit and the assailed Decision of the Court of Tax Appeals is AFFIRMED in toto . SO ORDERED. TaSEHC Reyes and De Guia-Salvador, JJ . , concur. Footnotes * per Office Order No. 60-02-AM