Commissioner of Internal Revenue v. United International Pictures, AB

EIGHTH DIVISION [CA-G.R. SP No. 65211. January 31, 2005.] THE COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . UNITED INTERNATIONAL PICTURES, AB , respondent . D E C I S I O N VALDEZ, JR. , J p : A petition for review of the Decision of the Court of Tax Appeals in CTA Case No. 6027, entitled: "United International Pictures AB, Petitioner, versus Commissioner of Internal Revenue, Respondent", which was a petition seeking the refund or the issuance of a tax credit certificate representing excess creditable income taxes withheld for the calendar year ended December 13, 1997. The assailed Decision of the CTA went for United International Pictures AB (UIP, for short) and against the Commissioner of Internal Revenue (CIR, for brevity) viz. : "WHEREFORE, in view of all the foregoing, this Court finds the instant Petition meritorious and in accordance with law. (CIR) is hereby ORDERED to REFUND or to ISSUE A TAX CREDIT CERTIFICATE in favor of (UIP) the reduced amount of P6,285,892.05 representing excess creditable taxes withheld for the calendar year ended December 31, 1997. "SO ORDERED." 1 When UPI filed its annual income tax return for the year ended December 31, 1997, he claimed a refundable amount computed as follows: Taxable Income P4,996,197.00 Tax Due 1,748,669.00 Less: Tax Credits/Payments Prior Year's Excess Credit P5,791,194.00 Creditable Tax Withheld 6,327,243.00 12,118,437.00 Refundable amount P10,369,768.00 =========== On April 14, 1998, UIP, filed, also with the CTA, a petition for review docketed as CTA Case No. 5618 claiming the refund or tax credit for the prior year's excess credit of P5,791,194.00. During the pendency of the said case, or on June 23, 1998, it filed with Revenue District Office No. 34 another administrative claim for refund or tax credit for P4,578,574.00 which amount was arrived at after deducting from the total creditable taxes withheld in 1997 in the amount of P6,327,243.00 its income tax liability for the said year amounting to P1,748,669.00. HSATIC On October 1, 1999, the CTA rendered its Decision in CTA No. 5618 in favor of UIP and ordered the refund or issuance of a tax credit certificate but in the reduced amount of P4,007,357.87. In so deciding, the tax liability of petitioner for the year 1997 was charged against its prior year's excess credit of P5,791,194.00. However, since its claim filed with the BIR on April 14, 1998 was already net of its 1997 tax liability, it filed a revised administrative claim on December 29, 1999 adding back the P1,748,669.00 previously deducted from its claim or a total of P6,327,243.00. As the two-year period of prescription was already about to elapse and the BIR had not yet acted on UIP's revised claim, it instituted CTA Case No. 6027 the present case on March 15, 2000. In his answer, the CIR, raised these special and affirmative defenses, to wit: "5. Assuming but without admitting that (UIP) filed an application for refund and/or tax credit with the CIR, the same is subject to administrative investigation and resolution ( San Carlos Milling vs. Comm. of Internal Revenue ). Thus, petition is premature. "6. Taxes are presumed to have been collected in accordance with law. Hence, petitioner must prove that the taxes sought to be refunded were erroneously or illegally collected. "7. (UIP) must show that it has complied with the provision (sic) of Section 51(e) and (f) of the Tax Code, as amended, as enunciated in City Trust Finance Corporation vs. CTA , to wit: "a) That it filed a claim for refund within the two (2) year period as prescribed under Section 230 of the Tax Code: "b) That the income upon which the taxes were withheld were included in the return of the recipients; and "c) That the fact of withholding is established by a copy of statement (BIR Form No. 1743.1) duly issued by the payor (withholding agent) to the payee, showing the amount paid and the amount of tax, withheld therefrom. "8. (UIP) must show that it has complied with the provision (sic) of Section 204(3) and 230 of the Tax Code. "9. Claims for refund of taxes are construed strictly against the claimants, the same being in the nature of an exemption from taxation ( Manila Electric co., vs. CIR 67 SCRA 351)." 2 Whereupon, the parties submitted the following issues for resolution: "(a) Whether or not there were excess creditable income taxes withheld from (UIP) for the year ended December 31, 1997, and "(b) Whether or not the (UIP) is entitled to the refund or tax credit in the amount of P6,327,243.00 representing its unapplied or excess creditable income taxes withheld from the calendar year ended December 31, 1997." 3 As aforesaid, the CTA decided the case in favor of UIP and against the CIR. Hence, this petition for review by the latter wherein he faults the CTA, thus: "GROUNDS FOR THE PETITION "1. THE COURT OF TAX APPEALS COMMITTED ABUSE OF DISCRETION IN GRANTING THE REFUND SINCE RESPONDENT IS ALSO LIABLE TO PAY DELINQUENT VALUE-ADDED TAX AND DELINQUENT ADDITIONAL INCOME TAX (PLUS INCREMENTS) ON THE UNDER-DECLARED INCOME PER INCOME TAX RETURN VIS-A-VIS WITHHOLDING TAX CERTIFICATE "2. THE COURT OF TAX APPEALS COMMITTED ABUSE OF DISCRETION IN GRANTING THE REFUND SINCE THERE WAS NO REMITTANCE OF THE CREDITABLE WITHHOLDING OF TAX AT SOURCE AND RESPONDENT IS THUS LIABLE TO PAY INCOME TAX IN THE AMOUNT OF P1,748,669.00 "3. THE COURT OF TAX APPEALS COMMITTED ABUSE OF DISCRETION IN GRANTING THE REFUND SINCE THERE WAS NO REMITTANCE OF THE CREDITABLE WITHHOLDING TAXES SINCE NO OFFICIAL RECEIPTS WERE PRESENTED PROVING REMITTANCE. AND RESPONDENT IS THUS LIABLE TO PAY EXPANDED WITHHOLDING TAX LIABILITY IN THE AMOUNT OF P6,360,830.59. "4. THE COURT OF TAX APPEALS COMMITTED ABUSE OF DISCRETION IN GRANTING THE REFUND SINCE THE PERSON WHO SIGNED THE ANNUAL CORPORATE RETURN WAS NOT PRESENTED AS WITNESS. "5. THE COURT OF TAX APPEALS COMMITTED ABUSE OF DISCRETION IN GRANTING THE REFUND BECAUSE THE FILING OF THE PETITION FOR REVIEW WITH THE COURT OF TAX APPEALS IS PREMATURE SINCE THE CLAIM FOR REFUND IS STILL UNDER BIR INVESTIGATION AS THE FILING OF THE CLAIM FOR REFUND IS PRO-FORMA" 4 It is worth highlighting that before the case was deemed submitted for resolution at the CTA, UIP presented evidence but the CIR "failed to present any countervailing evidence and submitted his case based on the pleadings." 5 Significantly, in his Memorandum 6 filed with the CTA, the CIR enumerated the grounds why the refund prayed for by the UIP should be denied. The grounds are: 1. No remittance of the withholding taxes . (a) No proof of receipt. (b) No official receipts. (c) Importance of receipts or official receipts. (d) Certificate of withholding tax at source- were scrap of paper. 2. Witness incompetent to testify/corporate action inadmissible . 3. UIP's claim for refund is under BIR investigation, hence instant petition(s) is premature . Quite obviously, therefore, CIR's first assigned error in the instant recourse had not been raised at the CTA and is being raised for the first time in this appeal. Which cannot be tolerated as it is not only blatantly unprocedural and odiously offensive to the norms of fairplay but, more importantly, it frontally collides with settled case law. The CIR tried the stratagem before but did not succeed, as aptly pointed out by the UIP in its Comment. 7 " It will be noted, however, that Petitioner's above-entitled argument is being raised for the first time in this Court. It was never raised at the administrative level, or at the Court of Tax Appeals . To allow a litigant to assume a different posture when he comes before the court and challenge the position he had accepted at the administrative level, would be to sanction a procedure whereby the Court which is supposed to review administrative determinations would not review, but determine and decide for the first time, a question not raised at the administrative forum. Thus, it is well settled that under the same underlying principle of prior exhaustion of administrative remedies, on the judicial level, issues not raised in the lower court cannot be raised for the first time on appeal ( Aguinaldo Industries Corporation vs. Commissioner of Internal Revenue , 112 SCRA 136; Pampanga Sugar Dev. Co., Inc. vs. CIR , 114 SCRA 725; Gracia vs. Court of Appeals , 102 SCRA 597; Matialonzo vs. Servidad , 107 SCRA 726." ( Commissioner of Internal Revenue v. Wander Philippines and the Court of Tax Appeals, G.R. No. L-68375, April 15, 1988; Emphasis supplied .)" 8 The arguments in support of the rest of the assigned errors are a mere rehash of those set forth in the CIR'S aforementioned Memorandum. They had been fully and assiduously discussed and correctly disposed of by the CTA. "We proceed to the second issue. In order to be entitled to a refund of excess creditable withholding taxes, this Court has consistently held in a number of cases involving claims for refund that (UIP) must prove compliance with the following basic requirements provided for under Revenue Regulations No. 12-94: "1.) That the claim for refund was filed within the two-year prescriptive period provided under Section 230 (now Section 229) of the Tax Code; "2.) That the fact of withholding is established by a copy of a statement duly issued by the payor (withholding agent) to the payee, showing the amount paid and the amount of tax withheld therefrom; and "3.) That the income upon which the taxes were withheld were included in the return of the recipient [ Revenue Regulations No. 12-94 (amending Revenue Regulations No. 6-85); Citibank, NA vs. Court of Appeals and CIR, 280 SCRA 459; ACCRA Investment Corporation vs. CA, 204 SCRA 957 ]. tax2005 "The excess creditable withholding taxes subject of the instant Petition were for taxable year ended December 31, 1997 for which (UIP) filed its annual ITR on March 16, 1998 (Exh. A). Counting from this latter date, (UIP's) original and amended administrative claims for refund filed on June 23, 1998 and December 21, 1999 (Joint Stipulation of Facts, p. 35, CTA Records) as well as the Petition for Review filed on March 15, 2000 fall within the two-year prescriptive period under Section 230 (now Section 229) of the Tax Code. "The fact of withholding was also established through (UIP's) presentation of the Certificate of Creditable Tax Withheld at source issued by Warner Bros. (F.E.), Inc. to (UIP) for the year 1997 (Exh. B-2). However, the Court noted that the amount of tax withheld of P6,360,830.59 indicated in the certificate is greater by P33,587.59 when compared with the creditable withholding tax of P6,327,243.00 reflected in the 1997 income Tax Return (Exh. A-2). "As to the third requirement, (UIP's) 1997 ITR showed that out of the gross income from film rentals of P127,216,611.80 from which the creditable withholding taxes of P6,360,830.59 shown in the certificate were withheld, only the amount of P125,717,741.00 was declared, or a difference of P1,498,770.00. Thus, the creditable withholding taxes related to the income of P125,717,741.00 reported in the 1997 Income Tax Return amounted only to P6,285,892.05 computed as follows: Creditable taxes withheld in 1997 by Warner Bros. (Exh. B-2) P6,360,830.59 Less: Creditable taxes withheld pertaining to the Discrepancy in 1997 gross income as reflected in the ITR and in the certificate Gross income (film rentals) per certificate (Exh. B-2) P127,216,611.80 Gross income (film rentals) per 1997 ITR (Exh. A-3) 125,717,841.00 Discrepancy in 1997 gross income (film rentals) P1,498,770.80 % of Discrepancy to gross income (film rentals) per certificate 1.178125% Multiplied by creditable taxes withheld per certificate P6,360,830.59 71,938.54 Creditable taxes withheld in 1997 pertaining to the income Declared in the 1997 ITR P6,285,892.05 "Moreover, since in this case (UIP) is seeking for the refund of its excess creditable taxes withheld in 1997, it submitted its 1998 Income Tax Return to prove that the same were not applied or carried over to the succeeding year (Exh. C-1). "Clearly from the foregoing (UIP) was able to prove that it complied with all the requirements for the refund of excess creditable withholding taxes but in the reduced amount of P6,285,892.05. "In his Memorandum, (CIR) argued that the certificate issued by Warner Bros. has no evidentiary value as it was not duly stamped as "RECEIVED" by the BIR and not supported by official receipts issued by the BIR accredited bank. According to (CIR), the BIR proof/date of receipt is necessary to ascertain the timeliness of the filing of the certificate while the official receipts issued by the BIR accredited banks are essential in determining the withholding and remittance of the corresponding taxes. "We do not agree. "The fact that the certificate was not duly stamped as "Received" by the BIR and not supported by official receipts issued by the BIR accredited bank does not reduce it to a mere scrap of paper. On the contrary, the certificate provides sufficient proof of the creditable income taxes withheld by Warner Bros. From its income payments to (UIP) in 1997. The said certificate, being a statement duly issued by the payor/withholding agent (Warner Bros.) to the payee (UIP) showing the amount of income paid and the corresponding tax withheld therefrom, is the document specifically required by Revenue Regulations No. 12-94 in claiming for the refund of excess creditable withholding taxes. Thus, the submission of official receipts issued by the BIR accredited bank evidencing the remittance of the creditable withholding taxes to the BIR is not necessary. Pursuant to Sections 50(b) & 51 (now Sections 57(b) & 58] of the Tax Code, the withholding of creditable income taxes and the remittance thereof to the BIR is the responsibility of the payor/withholding agent (Warner Bros.) and not the payee (UIP). Consequently, the failure to withhold and make the necessary remittance will make the payor/withholding agent (Warner Bros.) liable and not the payee (UIP). In the case of Citibank, N.A. vs. Court of Appeals and Commissioner of Internal Revenue, G. R. No. 107434, dated October 10, 1997 , the Supreme Court held that a refund claimant, aside from complying with the two-year prescriptive period, need only to prove the inclusion of the income payments which were the basis of the withholding taxes and the fact of withholding . As to the questioned BIR proof/date of receipt of the certificate, (UIP's) witness, Ms. Belina Almeria, during the August 9, 2000 session, testified that not all the time to the BIR accredited agent banks stamp all the attachments of the Income Tax Returns filed (TSN, August 9, 2000, pp. 32-33). "(CIR) also contends that (UIP's) witness, Ms. Belina Almeria, was incompetent to testify on the 1997 ITR since it was Mr. Tristan Leveriza, petitioner's general manager, who affixed his signature on the 1997 ITR, thereby making the said return inadmissible as evidence. "Again, We rule otherwise. "In her testimony during the August 9, 2000 hearing of the instant case, Ms. Belina Almeria stated that pursuant to the sub-distribution agreement between Warner Bros. And herein (UIP), it is among her duties and responsibilities to prepare and file(d) the financial statements and income tax returns of (UIP). She also mentioned in the same hearing that she prepared (UIP's) 1997 ITR in cooperation with the (UIP's) tax lawyer (TSN, August 9, 2000, pp. 6-7, 29-30). "It likewise bears stressing that in his Comment/Objection to the admission of the 1997 ITR (Exhs. A to A-4, inclusive). Consequently, he is estopped from questioning the inadmissibility of the 1997 ITR as Petitioner's evidence. "Finally, as regards (CIR's) allegation that (UIP's) claim for refund is under BIR Investigation thereby making the instant Petition premature, We cite the case of Commissioner of Internal Revenue, vs. Bank of the Philippines Islands , as Liquidator of Paramount Acceptance Corporation and the Court of Appeals , CA-GA SP. No. 34102, dated September 19, 1994. In the said case, the Court of Appeals ruled: "It is clear that a claim for refund should be filed with the Commissioner of Internal Revenue as a prerequisite before court action on tax refund cases can be commenced and that the suit for refund must be filed within two years from the date of payment of the tax. It is also clear from Section 204 that the claim for refund must be filed with the Commission within two years from payment of the tax. When the two-year period is about to prescribe and the claim for refund with the Commissioner of Internal Revenue has not been acted upon by him, for the protection of the interest of the taxpayer, he should file a petition for a review with the Court of Tax Appeals within the said two-year period; otherwise, if the decision of the Commissioner is adverse to the taxpayer and it was made after the two-year period he can no longer appeal the same to the Court of Tax Appeals (Gonzales, National Internal Revenue Code, 1988 ed., p. 384, citing Gibbs vs. Collector of Internal Revenue and Court of Tax Appeals , 107 Phil. 232; Johnston Lumber Co. vs. ACTA , 101 Phil. 151). 'Accordingly, We do not agree with appellant that it is necessary for the Commissioner of Internal Revenue to act unfavorably on the claim for refund before the Court of Tax Appeals may acquire Jurisdiction. This is so because of the positive requirement of Section 230 and the doctrine that delay of the Commissioner in rendering decision does not extend peremptory period fixed by statute.' "Additionally, the Supreme Court in the case of Commissioner of Internal Revenue vs. Victorias Milling Co, Inc. and the Court of Tax Appeals , 22 SCRA 12, also passed upon the same issue, thus: '. . . The claim for refund with the Bureau of Internal Revenue and the subsequent appeal to the Court of Tax Appeals must be filed within the two-year period. If, however, the collector takes time in deciding the claim, and the period of two years is about to end, the suit or proceeding must be started in the Court of Tax Appeals before the end of the two-year period without awaiting the decision of said Collector.' 9 It is all too plain to see that the CIR had to reiterate his discredited posturings in his CTA Memorandum only as a ploy to camouflage his maneuver of introducing a new issue his first assigned error. Which is a neat but futile ruse! WHEREFORE, the petition is DISMISSED for lack of merit and the assailed CTA Decision is AFFIRMED in toto . SO ORDERED. Enriquez, Jr . and Roxas, JJ ., concur. Footnotes 1. Annex "E" Petition, Rollo , pp. 63-73, at p. 73. 2. Petition, Rollo , p. 10. 3. Footnote 1, supra , at p. 66. 4. Petition, Rollo , pp. 11-12. 5. Footnote 1, supra , at p. 67. 6. Annex "D", Petition, Rollo , pp. 57-62. 7. Rollo , pp. 82-94. 8. Commissioner of Internal Revenue vs. Wander Philippines, Inc. , 160 SCRA 573, 576-577. Underscoring supplied. 9. Footnote, supra ., pp. 67-73.