Commissioner of Internal Revenue v. FMF Development Corp.

SEVENTH DIVISION [CA-G.R. SP No. 69622. October 5, 2006.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . FMF DEVELOPMENT CORP. , respondent . D E C I S I O N BERSAMIN , L.P ., J p : Elevated for review are the decision dated November 16, 2001 of the Court of Tax Appeals (CTA), ordering the refund of P416,063.20 to respondent FMF Development Corporation (FMF Development) as its unutilized excess creditable withholding taxes for taxable years 1997 and 1998 and the resolution dated March 1, 2002, denying the motion for reconsideration of petitioner Commissioner of Internal Revenue. The undisputed facts of the case follow. FMF Development filed on April 15, 1998 its tentative 1997 annual income tax return reflecting a net loss of P38,571,675.00 and excess creditable taxes of P407,288.00 withheld in 1997. On June 4, 1998, FMF Development filed an amended 1997 income tax return declaring a lower net loss of P30,616,003.00 but reporting the same amount ( i . e ., P407,288.00) as excess creditable taxes withheld in 1997. On November 3, 1998, FMF Development submitted an administrative claim for refund corresponding to its reported 1997 excess creditable withholding taxes of P407,288.00. On May 25, 1999, FMF Development amended its 1998 annual income tax return, showing a net loss of P16,393,781.00 and a minimum corporate income tax due of P146,163.00 that was offset against its creditable taxes of P417,880.00 withheld in 1998, leaving the balance of P271,717.00 as excess tax credit for taxable year 1998 that was, as indicated therein, to be refunded. Thus, on April 13, 2000, FMF Development presented an administrative claim for refund of P271,717.00, representing its alleged excess creditable taxes withheld in 1998. To arrest the 2-year prescriptive period for filing a judicial claim for refund, FMF Development brought this claim to the CTA. On November 16, 2001, the CTA rendered its assailed decision, partially granting the tax refund of P418,063.20, 1 to wit: In sum, this Court finds Petitioner to have sufficiently proven its entitlement to the refund representing its 1997 and 1998 excess creditable withholding taxes but only insofar as the amount of P418,063.20 computed as follows: For taxable year 1997 Gross Income P 10,041,675.00 Less: Deductions 40,657,678.00 Net Loss P(30,616,003.00) ============= Income Tax Due P Less: Creditable Taxes Withheld 329,522.18 Income Tax Refundable P (329,522.18) ============= For taxable year 1998 Gross Income P 7,310,282.00 Less: Deductions 23,704,063.00 Net Loss P(16,393.781.00 ============ Minimum Corporate Income Tax Due P 146,163.00 Less: Creditable Taxes Withheld 234,704.02 Income Tax Refundable P (88,541.02) ============ Total Income Tax Refundable - P (418,063.20) 1997 & 1998 ============ WHEREFORE, in view of the foregoing premises, the instant Petition for Review is PARTIALLY GRANTED. Respondent is hereby ORDERED TO REFUND in the amount of FOUR HUNDRED EIGHTEEN THOUSAND SIXTY THREE & 20/100 PESOS (P418,063.20) in favor of Petitioner representing its unutilized excess creditable withholding taxes for taxable years 1997 and 1998. SO ORDERED. The petitioner moved for the reconsideration, 2 averring that the entitlement to the refund had not been established for failure to present the required certificates of creditable withholding tax at source or withholding tax statements (BIR Form 2307, formerly BIR Form 1743-750) provided under Sec. 51 (c) of the Tax Code, relying only on the alpha lists of BIR withholding agents to substantiate their other claims. 3 Likewise, the petitioner assailed the validity of the certificates of creditable withholding tax at source marked as Exhibits 8, 8-a, 8-b and 8-c, because the certificates did not indicate the amount paid by the payor to the payee as required by law. FMF Development countered, however, that aside from the alpha lists, the annual information returns pertinent to the claims were submitted in evidence; and that it thereby satisfied the requirement of the law because said documents contained identical facts or information as the required written statements. 4 On March 1, 2002, the CTA denied the petitioner's motion for reconsideration . 5 Hence, in its present appeal, the petitioner submits that the CTA gravely erred: I. . . . IN DECLARING THAT RESPONDENT IS ENTITLED TO THE REFUND OF P418,063.02 ALTHOUGH IT FAILED TO ESTABLISH ITS CLAIM FOR REFUND FOR FAILURE TO PRESENT THE REQUIRED COPIES OF CERTIFICATES OF CREDITABLE TAX WITHHELD AT SOURCE AS STIPULATED UPON BY THE PARTIES AS PER JOINT STIPULATION FACTS AND ISSUES DURING THE PRE-TRIAL HEARING. II. . . . IN RECOGNIZING DEFECTIVE COPIES OF CREDITABLE INCOME TAX WITHHELD AT SOURCE (BIR FORM 1743.1/BIR FORM 2307) IN THE COMPUTATION OF RESPONDENT'S REFUNDABLE CREDITABLE WITHHOLDING TAX FOR TAXABLE YEAR 1998 IN VIOLATION OF SECTION 10 OF REVENUE REGULATIONS NO. 6-85 (NOW SECTION 2.58-3 [B] OF REVENUE REGULATIONS NO. 2-98). III. . . . IN ALLOWING THE RESPONDENT TO CLAIM REFUND OF EXCESS CREDITABLE WITHHOLDING TAX FOR TAXABLE YEAR 1998 ALTHOUGH IT FAILED TO ESTABLISH THAT IT FILED ITS ORIGINAL INCOME TAX RETURN FOR TAXABLE YEAR 1998. The petitioner maintains that due to the failure to present the required certificates of creditable withholding tax at source (BIR Form 1743.1/BIR Form 2307), the following should be excluded from the computation of FMF Development's refundable creditable withholding taxes for taxable years 1997 and 1998, to wit: For taxable year 1997 Exhibits Name of Payor Amount Paid Amount of Tax Withheld a. B-3, B-3-a Biochemica, Inc. P150,040.00 P7,502.00 b. B-4, B-4-a Technomed Int'l, Inc. 369,098.40 18,454.92 c. B-6, B-6-a Aram Enterprise, Inc. 814,862.40 40,743.12 d. B-7, B-7-a Bremenn Industries 649,915.20 32,495.76 e. B-10, B-10-a 1st Quality Apparel Mfg. 766,800.00 38,340.00 137,535.80 For taxable Year 1998 Exhibits Name of Payor Amount Paid Amount of Tax Withheld a. D-3, D-3-a Bremenn Industries, Inc. 714,906.24 35,745.31 b. D-5, D-5-a 1st Quality Apparel Mfg. 1,033,560.00 51,678.00 In addition, the petitioner insists that the certificates of creditable tax withheld at source marked as Exhibits B-8, B-8-1, B-8-b and B-8-c were defective and invalid and should also be excluded. The particulars of said exhibits are as follows: For taxable year 1998 Exhibits Name of Payor Amount Paid Amount of Tax Withheld a. B-8 Siemens, Inc. none P 12,879.90 b. B-8-a Siemens, Inc. none 10,226.70 c. B-8-b Siemens, Inc. none 30,274.20 c. B-8-c Siemens, Inc. none 15,137.10 P 68,517.90 At the core of the controversy is, therefore, the necessity of presenting the certificates of creditable tax withheld at source (BIR Form 1743.1, now BIR Form 2307) in order that the fact of payment of the tax would be established as a predicate for a claim for refund. It is worthwhile to note that taxes withheld for 2 taxable years 1997 and 1998 are involved herein. This fact is significant because of the major revisions and amendments in the National Internal Revenue Code of 1977 brought about by the Tax Reform Act of 1997 , among which is that the Tax Code is now known as the National Internal Revenue Code of 1997, (1997 Tax Code), which took effect on January 1, 1998. The provision of the 1997 Tax Code on claims for refund of erroneously paid or overpaid withholding tax, which was entirely adopted from the National Internal Revenue Code of 1977, reads: Sec. 229. Recovery of Tax Erroneously or Illegally Collected . No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress. In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid. Under the provision, there are 2 requirements for a claim of refund of erroneously paid taxes, to wit: 1. A claim for refund or credit has been duly filed with the Commissioner of Internal Revenue; and 2. The claim is filed within 2 years from the date of payment of the tax or penalty, regardless of any supervening cause that may arise after payment. We note that nothing in the 1997 Tax Code requires the submission of the certificate of creditable withholding tax (Form 2307, formerly BIR Form 1743.1) for the purpose of a refund. On the other hand, Revenue Regulations No. 2-98, which implements the 1997 Tax Code, 6 reads: Sec. 2.58.3. Claim for Tax Credit or Refund . xxx xxx xxx (B) Claims for tax credit or refund on any creditable income tax which was deducted and withheld on income payments shall be given due course only when it is shown that the income payment has been declared as part of the gross income and the fact of withholding is established by a copy of the withholding tax statement duly issued by the payor to the payee showing the amount paid and the amount of tax withheld therefrom. Obviously, Revenue Regulations No. 2-98 does not proscribe the presentation of any other evidence to establish the fact of payment. It provides what will establish a claim for refund particularly for erroneously paid or overpaid withholding taxes, that is: (1) proof that the income payment has been declared as part of the gross income; and (2) proof of withholding. Thus, only when these requirements are complied with shall the claim for refund be given due course. Considering the absence of any provision in the 1997 Tax Code mandating the presentation of the written tax statements for a claim of refund, Revenue Regulations No. 2-98 is to be read only as implying that the presentation of the written tax statement is sufficient to establish the fact of withholding but does not exclude any other evidence to establish said fact. In this connection, we observe that had Revenue Regulations No. 2-98 intended to make the submission of the withholding tax statement mandatory, it should have clearly and unequivocally stated so in the face of its adverse effect on the right of the taxpayer to recover whatever he may erroneously pay. As the CTA aptly stated in denying the petitioner's motion for reconsideration , the various exhibits enumerated in the decision were valid BIR documents clearly establishing the fact of withholding. 7 Indeed, the annual information returns and the alpha lists of payees are official BIR forms (BIR Form No. 1604) filed with the BIR by the withholding agents. As such, they more than serve the requirement of Revenue Regulations No. 2-98 because they reflect all the necessary information required to establish the fact of payment, such as the nature of the income payment, the amount of income paid to the payee, and the amount of tax withheld from such income. Such data conform to the 1997 Tax Code, to wit: Sec. 57. Withholding of Tax at Source . xxx xxx xxx (B) Statement of Income Payments Made and Taxes Withheld. Every withholding agent required to deduct and withhold taxes under Section 57 shall furnish each recipient, in respect to his or its receipts during the calendar quarter or year, a written statement showing the income or other payments made by the withholding agent during such quarter or year, and the amount of the tax deducted and withheld therefrom, simultaneously upon payment at the request of the payee, but not later than the twentieth (20th) day following the close of the quarter in the case of corporate payee, or not later than March 1 of the following year in the case of individual payee for creditable withholding taxes. For final withholding taxes, the statement should be given to the payee on or before January 31 of the succeeding year. (C) Annual Information Return. Every withholding agent required to deduct and withhold taxes under Section 57 shall submit to the Commissioner an annual information return containing the list of payees and income payments, amount of taxes withheld from each payee and such other pertinent information as may be required by the Commissioner. In the case of final withholding taxes, the return shall be filed on or before January 31 of the succeeding year, and for creditable withholding taxes, not later than March 1 of the year following the year for which the annual report is being submitted. This return, if made and filed in accordance with the rules and regulations approved by the Secretary of Finance, upon recommendation of the Commissioner, shall be sufficient compliance with the requirements of Section 68 of this Title in respect to the income payments. The Commissioner may, by rules and regulations, grant to any withholding agent a reasonable extension of time to furnish and submit the return required in this Subsection. 8 Nevertheless, we concur with the petitioner's contention that the certificates of withholding tax (Exhibits B-8, B-8-a, B-8-b, and B-8-c) submitted by FMF Development did not indicate the amount of income paid to it by Siemens, Inc. and are, for that reason, defective. Exhibits B-8, B-8-a, B-8-b, and B-8-c should be excluded from the reckoning of the refund awarded to FMF Development. It is axiomatic that before a tax refund is granted, it is necessary to prove that there were taxes erroneously withheld from income. 9 Hence, the requirement under Revenue Regulation No. 2-98 for the claimant to show that the income payment received was declared as part of the gross income and the fact of withholding. FMF Development did not establish that the income it received from the payor were included in its gross income, considering that its evidence did not show the amount of income paid to it and on which the withholding taxes were based. FMF Development's argument, that the amount of income paid by the payor could have easily been determined from other items found in the challenged certificates, does not hold water. 10 Its earlier suggestion, 11 that the amount of income might be determined by computing backwards by dividing the amount of tax withheld by 5% (the rate for income derived from rental of real property) cannot be countenanced. We stress that the claimant carries the burden to show the amount of income derived from the withholding agent in order to prove its inclusion in its gross income. It is not for the CTA or this Court to deduce or to presume the amount from the withholding tax paid. Moreover, the correctness and exactness of the tax withheld as declared in the certificates could not in fact be relied upon precisely because of the failure to state the amount of income paid by the payor. Truly enough, tax refunds are in the nature of tax exemptions and should be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority. 12 We will not address the third error raised in this appeal considering that it is being raised for the first time in this appeal. 13 WHEREFORE, the PETITION FOR REVIEW is PARTLY GRANTED. The tax refund in the amount of P68,517.90 (taxes withheld corresponding to the defective certificates of creditable withholding tax Exhibits B-8, B-8-a, B-8-b, and B-8-c) is SET ASIDE. The decision dated November 16, 2001 of the Court of Tax Appeals, awarding a tax refund to FMF Development Corporation, is AFFIRMED, with the modification that the total amount of tax refund is reduced to P349,545.30. No costs of suit. SO ORDERED. Villarama, Jr. and Arevalo-Zenarosa, JJ., concur. Footnotes 1. Annex A, Petition; rollo , pp. 19-28. 2. Annex B, Petition; rollo , pp. 29-34. 3. Exhibits B-3-a, B-4-a, B-6-a, B-7-a, B-10-a, D-3-a and D-4-a. 4. Annex G, Petition; rollo , pp. 53-56. 5. Annex C, Petition; rollo , p. 35. 6. The same provision is likewise found in Revenue Regulations No. 6-85, as amended by Revenue Regulations No. 12-94, which implemented the 1977 Tax Code. 7. Annex C, Petition; rollo , p. 35. 8. Similar provision is found in Sec. 51 (c) & (d), 1977 Tax Code. 9. Sec. 230, 1977 Tax Code; Sec. 229, 1997 Tax Code. 10. Comment, rollo , p. 82. 11. Annex G, Petition ( Comment to the Motion for Reconsideration before the CTA ); rollo , p. 55. 12. Commissioner of Internal Revenue v . Seagate Technology Phil ., 451 SCRA 152. 13. Victorias Milling Co . , Inc . v . Court of Appeals , 333 SCRA 663.