Equitable PCI Bank v. Commissioner of Internal Revenue

FIRST DIVISION [CA-G.R. SP No. 61297. July 11, 2002.] EQUITABLE PCI BANK (Formerly known as EQUITABLE BANKING CORPORATION) , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N BUZON , J p : Petitioner seeks a review of the Decision of the Court of Tax Appeals (CTA) in C.T.A. Case No. 5721, denying its claim for refund. On April 21, 1997, petitioner filed with respondent Commissioner of Internal Revenue a request for refund or issuance of a tax credit certificate for the December 31, 1996 quarter in the amount of P2,917,166.20 as alleged overpaid gross receipts tax. The request for refund was made by petitioner on the basis of the decision of the CTA in C.T.A. Case No. 4720, entitled "Asian Bank Corporation vs. Commissioner of Internal Revenue" wherein it was held that the 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 the bank's gross receipts tax. On January 20, 1997, petitioner filed a petition for review with the CTA alleging that respondent has not acted on its claim for refund, which was due to prescribe on said date. While acknowledging that petitioner is legally entitled to the refund, nevertheless, the CTA denied the same for insufficiency of evidence. Said the Court: HAIDcE "In a litany of cases, this Court has invariably held that in a refund of overpaid gross receipts tax, the taxpayer must prove that it has complied with the following requisites: 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. Concededly, Petitioner was able to prove that indeed, it paid its gross receipts tax amounting to P53,096,548.39. However, this Court finds it ineluctable to deny the refund of the amount of P2,917,166.20, allegedly representing the difference between its gross receipts tax paid pertaining to EBC Head Office and the Adjusted Gross Receipts Tax, since there is no way by which We would be able to decipher with accuracy the fact of actual withholding of the 20% final tax on its passive income in the amount of P2,917,166.20. Petitioner should have presented, in evidence the certificates of final taxes withheld issued by its withholding agents or issuers of the investment securities showing the amount of interest income payment and the corresponding 20% final withholding taxes. In the same breath, Petitioner failed to substantiate that the 20% final withholding taxes formed part of its gross receipts subjected to the gross receipts tax. While it is true that Petitioner's 1996 last quarter taxable gross income receipts and the corresponding gross receipts tax appearing on its last quarter percentage tax return tally with those appearing on its general ledger, this Court, however, cannot ascertain whether the passive income reflected thereon were recorded at gross or net of the 20% final withholding taxes. In this respect, the source documents such as the detailed transaction records, confirmation of purchase, confirmation of sale, trading sheets, credit/debit advises, accounting tickets, certificates of final taxes withheld could serve as the best evidence that would merit a weightier probative value. Absence of these documents, therefore, is fatal to the taxpayers cause. With these circumstances in mind and considering that refunds of taxes are in the nature of an exemption and must be construed in strictissimi juris against the taxpayer and in favor of the taxing authority, the instant claim for refund must be denied." Petitioner's motion for reconsideration was likewise denied by the CTA. Hence, the instant petition for review alleging that the court a quo erred in finding that its evidence to prove its claim for refund is insufficient. DacASC Petitioner argues that it has proved, through testimonial and documentary evidence, its claim for refund; that the doctrine of strictissimi juris has no application in the appreciation of evidence; that it is sufficient that the financial institution did not receive the amount corresponding to the 20% final tax for it not to include the same amount in computing the gross receipts tax; and that the fact of remittance of the withheld final tax is presumed under the Rules of Court. The petition is without merit. At the outset, it must be pointed out that the decision of the CTA in Asian Bank Corporation vs. Commissioner of Internal Revenue is still pending appeal before the Supreme Court and the validity of the ruling of said court in this case holding that petitioner is legally entitled to a refund of overpaid gross tax receipts is not an issue herein. The only issue raised in this petition is whether petitioner has sufficiently established its claim for refund. Section 1, Rule 131 of the Revised Rules on Evidence reads: "SECTION 1. Burden of proof . Burden of proof is the duty of a party to present evidence on the facts in issue necessary to establish his claim of defense by the amount of evidence required by law." As held in Li Yao vs. Collector of Internal Revenu e : 1 ". . . The taxpayer has the means of proving the existence of the obligation and it is he that must produce such proof. The procedure followed by the Court of Tax Appeals is that laid down by the rules on evidence; that is, that the taxpayer who alleges that an obligation still exists must prove the existence thereof by preponderance of evidence. This rule is not only a legal one. In the nature of things, the obligor or taxpayer has the means of proving that the obligation does not exist or has been paid; the Government collecting the tax cannot be expected to find the evidence itself, because it is natural. that the taxpayer would try to suppress such evidence as may prove that the obligation still exists. . . " It is interesting to note that petitioner even quoted on pages 11 and 12 of its petition, the statement of the CTA in the Asian Bank case that "it is but logical to infer that the final tax, not having been received by petitioner but instead went to the coffers of the government, should no longer form part of its gross receipts for purposes of computing the GRT." It is, therefore, incumbent on the part of petitioner to prove not only that it did not receive the amount corresponding to the 20% final tax but also that said amount went to the coffers of the government. Thus, the failure of petitioner to prove that the 20% final tax on income that it did not receive went to the coffers of the government is fatal to its claim for refund. Moreover, tax refunds are in the nature of tax exemptions. As such they are regarded as in derogation of sovereign authority and to be construed strictissimi juris against the person or entity claiming the exemption. The burden of proof is upon him who claims the exemption in his favor and he must be able to justify his claims by the clearest grant of organic or statute law. 2 WHEREFORE, the petition for review is DENIED for lack of merit. SO ORDERED. Garcia and De Los Santos, JJ., concur. Footnotes 1. 9 SCRA 888, 897. 2. Commissioner of Internal Revenue vs. S.C. Johnson and Son, Inc. , 309 SCRA 87, 108-109