China Banking Corp. v. Commissioner of Internal Revenue

FIFTH DIVISION [CA-G.R. SP No. 63353. June 16, 2006.] CHINA BANKING CORPORATION , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N BARRIOS , J p : Petitioner China Banking Corporation (or hereafter China Bank) filed a claim for tax refund or credit with the Commissioner of Internal Revenue (or CIR). Without waiting for the CIR's ruling on its claim for refund, China Bank filed a petition for reviews with the Court of Tax Appeals (or CTA). The CTA denied this, decreeing that: IN THE LIGHT OF THE FOREGOING, the instant Petition for Review is DISMISSED for insufficiency of evidence. SO ORDERED. (p. 57, rollo ) China Bank's Motion for Reconsideration having been denied, it went to this Court for relief via this petition, positing these issues for Our resolution: I. WHETHER OR NOT PETITIONER ERRONEOUSLY MADE OVERPAYMENT OF ITS GROSS RECEIPTS COVERING THE PERIOD FIRST QUARTER OF 1996 UP TO THE FOURTH QUARTER OF 1996, INCLUSIVE, IN THE LIGHT OF THE RULING IN " ASIAN BANK CORP. vs. COMMISSIONER OF INTERNAL REVENUE (CTA CASE NO. 4720)". II. WHETHER OR NOT RESPONDENT COMMISSIONER HAS THE OBLIGATION TO RETURN THE OVERPAYMENT. III. WHETHER OR NOT THE COURT OF TAX APPEALS WAS CORRECT IN NOT ALLOWING PETITIONER'S CLAIM. (p. 13, rollo ) During the four (4) quarters of 1996 China Bank paid P93,119,433.50 as gross tax receipts (or GTR) on its income from the interests on loan investments, commissions, service and collection charges, foreign exchange profit and other operating earnings. In computing its taxable gross receipts, China Bank included the 20% final withholding tax on the bank's passive interest income. But on January 30, 1996 the CTA in CTA Case No. 4720 entitled Asian Bank Corporation vs. Commissioner of Internal Revenue ruled that the 20% final withholding tax on a bank's passive interest income does not form part of its taxable gross receipts. In view of this ruling as said China Bank filed a formal claim for refund and/or tax credit of P8,754,346.16 with the CIR on April 17, 1998 and a petition for review with the CTA on April 20, 1998. The CTA however denied its claim. In this recourse, China Bank insists that it erroneously included the 20% final withholding tax on bank's interest income in computing the taxable gross receipts. It is thus entitled as a matter of right to a refund or tax credit. Unfortunately for China Bank, it is flogging a dead horse as this argument has already been shot down in China Banking Corporation vs. Court of Appeals (G.R. No. 146749 & No. 147983, June 10, 2003) where it was ruled the Tax Court, which decided Asia Bank on June 30, 1996 not only erroneously interpreted Section 4(e) of Revenue Regulations No. 12-80, it is also cited Section 4(e) when it was no longer the applicable revenue regulation. The revenue regulations applicable at the time the tax court decided Asia Bank was Revenue Regulations No. 17-84, not Revenue Regulation 12-80. EScHDA The China Banking Corporation case drove the point that the amount of interest income withheld in payment of 20% withholding tax forms part of bank's gross receipts in computing the gross tax of the bank. It is salutary and necessary to apply the ruling therein to the subject petition. Stare decisis et non quita movere ( Estrada vs. Desierto , G.R. No. 156160, December 9, 2004). In fine, China Bank's contention that it can deduct the final withholding tax from the interest income amounts to a claim for tax exemption. The cardinal rule in taxation is exemptions are highly disfavored and whoever claims an exemption must justify his right by the clearest grant of organic or statute law. China Bank must point to specific provisions of law granting the tax exemption. The tax exemption cannot arise by mere implication and any doubt about whether the exemption exists is strictly construed against the taxpayer and in favor of the taxing authority ( China Banking Corporation vs. Court of Appeals, supra ). China Bank has failed to point to any specific of law allowing the deduction, exemption or exclusion, from its taxable gross receipts, of the amount withheld as final tax. Such amount should therefore form part of the China Bank's gross receipts in computing the gross receipts tax ( China Banking Corporation vs. Court of Appeals, supra ). there being no legal basis for China Bank's claim for tax refund or credit, the CTA thus committed no reversible error in denying it WHEREFORE, the instant petition is DENIED DUE COURSE and DISMISSED. SO ORDERED. Guaria III and Romilla-Lontok, JJ., concur.