Havi Food Services Phils., Inc. v. Commissioner of Internal Revenue

FORMER FIFTEENTH DIVISION [CA-G.R. SP No. 70757. June 28, 2005.] HAVI FOOD SERVICES PHILS., INC. , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , Respondent . D E C I S I O N GUEVARA-SALONGA , J p : Before Us is a petition for review assailing the decision of the Court of Tax Appeals (CTA) partially granting petitioner's claim for refund on its unutilized creditable income taxes for the taxable year 1998. THE FACTS The relevant antecedents of the present controversy, as borne by the records, are undisputed: Petitioner Havi Food Services Philippines, Inc. is a corporation engaged in trading of food, packaging items as well as warehousing and distribution services. On April 6, 1999, petitioner filed with the Bureau of Internal Revenue (BIR) its 1998 Income Tax Return (ITR) showing a taxable income of P543,904.00 and a minimum corporate income tax due of P461,487.00 which was offset against the creditable taxes withheld in 1998 in the amount of P18,162,939.00, leaving a balance of P17,701,452.00, as excess tax credit as of December 31, 1998. The said tax credit was opted by petitioner as "to be refunded". Hence, on April 26, 1999, petitioner filed with the BIR an administrative claim for refund in the amount of P17,701,452.00 corresponding to its reported 1998 excess creditable withholding taxes. For failure of the Commissioner of Internal Revenue to act on the claim for refund, on June 26, 2000, it filed with the CTA a petition for review to recover the said amount pursuant to Section 204 (c) in relation to Section 229 of the National Internal Revenue Code (NIRC) of 1997, as amended. HAaScT The CTA, in its Decision dated January 10, 2002 1 partially granted petitioners' application for refund. In so ruling, the tax court ratiocinated that the summary of the Certificates of Creditable Withheld Tax at Source issued to petitioner by its withholding agents for the year 1998 included the foreign taxes in the total amount of P103,014.09 withheld by Havi Food Services, Thailand, representing 15% of the P686,759.15 royalty payments to petitioner; and that there were discrepancies in the amounts reflected on the tax certificates and the 1998 ITR, particularly the income from the sale of services and rental income which warrant the adjustment to the respective creditable taxes withheld. It disposed of the case as follows: "WHEREFORE, in view of the foregoing premises, the instant Petition for Review is PARTIALLY GRANTED. Respondent is hereby ORDERED TO REFUND the amount of ONE MILLION SIX HUNDRED ELEVEN THOUSAND SEVEN HUNDRED ONE & 89/100 PESOS (P1,611,701.89) in favor of Petitioner representing unutilized creditable withholding taxes withheld for taxable year 1998. SO ORDERED." 2 Dissatisfied, petitioner moved for reconsideration but the same was denied by the CTA in its Resolution dated May 3, 2002. 3 THE ISSUES Hence, this petition raising the following issues for resolution: "I WHETHER OR NOT PETITIONER IS ENTITLED TO THE REFUND OF ITS UNUTILIZED CREDITABLE INCOME TAXES WITHHELD FOR TAXABLE YEAR 1998 IN THE FULL AMOUNT OF P17,701,452.00. II WHETHER OR NOT THE COURT OF TAX APPEALS ERRED IN DENYING PETITIONER'S CLAIM FOR REFUND BASED ON THE CLASSIFICATION OF INCOME PAYMENTS MADE BY THE WITHHOLDING AGENTS WHICH WERE MADE WITHOUT THE CONTROL OR SUPERVISION BY HEREIN PETITIONER, OR STATED SIMPLY, IS THE PETITIONER BOUND BY THE CLASSIFICATION OF INCOME PAYMENTS, ALBEIT ERRONEOUSLY, PREPARED BY ITS WITHHOLDING AGENTS. III WHETHER OR NOT PETITIONER HAS ESTABLISHED BY PREPONDERANCE OF EVIDENCE ITS ENTITLEMENT TO THE APPLICATION FOR REFUND." 4 To sum it up, the lone issue is whether the CTA's decision partially granting petitioner's claim for refund in the amount of P1,611,701.89 is proper. THE COURT'S RULING The petition is bereft of merit. We must emphasize at the outset that this Court will not set aside lightly the conclusion reached by the CTA which, by the very nature of its functions, is dedicated exclusively to the consideration of tax problems and has necessarily developed an expertise on the subject, unless there has been an abuse or improvident exercise of authority. 5 In fact, factual findings of the Court of Tax Appeals are binding and can only be disturbed on appeal if not supported by substantial evidence. 6 Thus, in the absence of strong reasons for this Court to delve into facts, only questions of law are open for determination. 7 Being a highly specialized body specifically created for the purpose of reviewing tax cases, the Court of Tax Appeals, through its expertise, is indubitably able and competent to ascertain, on the basis of the pieces of evidence set before it, whether petitioner is entitled to a refund of the full amount of P17,701,452.00 representing its unutilized creditable withholding taxes for taxable year 1998. To prove entitlement thereof, petitioner presented its Certificates of Creditable Withholding Taxes marked as Exhibits "D to "LLLL" and summarized in Exhibit "QQQQ denoting that the amount of P18,059,924.91 were supported by certificates. To substantiate the discrepancy between the amounts of income reflected in the 1998 ITR and the withholding tax certificates, it was amplified using the Reconciliation Schedule (Exhibit QQQQ) and the testimony of Ms. Nora D. Miguel, Finance Director. It also cited the varying accounting methods it has utilized and its withholding agents. We are not persuaded. The pertinent provisions of Revenue Regulations No. 2-98, Section 2.58.3(B) enumerate the requirements for the grant of refund of excess creditable withholding taxes, viz : 1. The claim for refund was filed within the two-year prescriptive period provided under Section 204 (c) in relation to 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. We therefore abide by the CTA's finding that petitioner is not entitled to the full amount of P17,701,452.00 as creditable withholding taxes for taxable year 1998. The CTA expounds that the alleged income upon which the taxes were withheld were excluded in the 1998 ITR of the petitioner. Specifically, this pertains to the alleged creditable taxes withheld from the sale of services and rental income in the amounts of P17,458,390.18 and P29,634.31, respectively. As found out by the tax court, a comparison of the gross income amounts as shown in the certificates and in the 1998 ITR discloses the following discrepancies: Income Tax Income Payments Withheld Per Certificates Per 1998 ITR Discrepancy Sale of goods 571,900.48 57,194,072.01 2,169,909,726.00 2,112,715,653.99 Sale of services 17,458,390.13 1,742,495,454.16 147,566,711.00 (1,594,928,743.16) Rental income 29,634.31 592,686.20 512,426.00 (80,260.20) As amply elucidated by the CTA, the income of petitioner from the sale of services in the amount of P147,566,711.00 and rental income of P512,426.00 as reflected in its 1998 ITR were significantly less than those appearing in the Certificates. Hence, it can fairly be inferred that petitioner failed to indicate in its 1998, ITR all of its income corresponding to the alleged creditable taxes of P17,458,390.13 and P29,634.31 from the sale of services and rental income, respectively. Otherwise stated, petitioner obviously under-declared its 1998 income from the sale of services and rental of real property. Thus, it is indubitable that the government has the power to make the necessary adjustment to show the correct taxes due from petitioner. Corollarily, the withholding taxes pertaining to the discrepancies in petitioner's income from the sale of services and rental income should be deducted from the creditable taxes withheld in the amounts of P17,458,390.13 and P29,634.31, respectively, as follows: Schedule 1: 1998 Creditable taxes withheld per certificates Sale of goods P571,900.48 Sale of services 17,458,390.13 Rental income 29,634.31 P18,059,924.92 Less: Creditable taxes related to the discrepancies in income Sale of services Income per 1998 ITR P147,566,711.00 Multiply by w/tax rate 1% Creditable taxes related to the declared income P1,475,667.11 Less: Creditable taxes withheld per certificates 17,458,390.13 Creditable taxes related to the discrepancy in income 15,982,723.02 Rental Income Income per 1998 ITR P512,426.00 Multiply by w/tax rate 5% Creditable taxes related to the declared income P25,621.30 Less: Creditable taxes withheld per certificates 29,634.31 Creditable taxes related to the discrepancy in income 4,013.01 1998 Creditable taxes withheld related to the declared income per ITR P2,073,188.89 It appears that only the total amount of P2,073,188.89 pertaining to the creditable taxes withheld was correctly declared by petitioner in its 1998 ITR. From this amount, the Minimum Corporate Income Tax of P461,487.00 could be deducted, thus leaving only a balance of P1,611,701.89, which amount could be properly granted as a tax refund, as correctly found out by the tax court. aAHTDS In fact, the above calculation by the tax court finds justification when the foreign taxes withheld by Havi Food Services, Thailand in the amount of P103,014.08 and Minimum Corporate Income Tax of P461,487.00 were deducted from the initial claim for refund of P18,162,939.00. Said amounts were not contested by petitioner to be deducted from its creditable withholding taxes. A portion of the remaining balance of P17,598,437.92, which is P15,986,736.03 appears to correspond to creditable taxes withheld by McGeorge Food Industries from its income payment to petitioner representing payment to contractor. Said creditable taxes could be accurately deducted from the amount P17,598,437.92, thus leaving only a balance of P1,611,701.89. The said amount was arrived at after it was computed as follows:. Initial claim for refund P18,162,939.00 Less: foreign taxes withheld by Havi Food Services 103,014.08 Amount supported by certificates P18,059,924.92 Less: Minimum Corporate Income Tax 461,487.00 Total P17,598,437.92 Less: Portion of creditable taxes withheld by P15,986,736.03 McGeorge from its income payment representing payment to contractor Total amount refundable P1,611,701.89 ========== To further strengthen its claim that the income upon which the taxes were withheld was included in the 1998 ITR, petitioner relies on the Reconciliation Schedule prepared by its Finance Director, Ms. Miguel and her testimony thereon. As clearly elucidated by the tax court, since the amount of P103,014.09 was withheld by and remitted to the Thailand government, such foreign taxes paid by Havi Food Services, shall not be creditable against petitioner's income tax liability and shall be disallowed from petitioner's initial claim of P18,162,939.00. The court pointed out that the amount of P15,986,736.03 which consists the mass of the disallowed claim for refund originated from the creditable taxes of P17,213,427.54 withheld by McGeorge Food Industries from its income payment to petitioner in the amount of P1,721,342,754.13 for taxable year 1998. This amount represents "payment to contractor", as reflected in the certificate marked as Exhibit D. Said income payment is categorized as warehousing services pursuant to Section 2.57.2 of Revenue Regulations No. 2-98. Specifically, it is income from sale of services or service fees. Contrary to petitioner's claim, the income payment of P1,721,342,754.13 was clearly not included in its 1998 ITR under the account of "Sales of Goods" based on the alleged Reconciliation Schedule. In the absence of proofs, such as billing statements and official receipts issued to McGeorge Food Industries to show that said income payments actually pertains to petitioner's sale of goods, its argument has no leg to stand on. In fact, the income tax withheld therefrom in the sum of P17,213,427.54 is a contractor's tax or a tax on the exercise of a privilege of selling services or labor rather than a sale on products. 8 Granting that the income payment to petitioner in the amount of P1,721,342,754.13 corresponds to income from sale of goods, petitioner could have corrected the entries made by McGeorge Food Industries in the Certificate. Hence, the tabulations incorporated by McGeorge Food Industries, as withholding agent, in the Certificates of Creditable Tax Withheld at Source are deemed true and correct in the absence of sufficient proof to the contrary. Evidently, the disallowed amount of P15,986,736.03 as tax refund by the CTA is correct. Resultantly, We agree with the pronouncement of the tax court that petitioner is entitled only to a refund of unutilized creditable taxes withheld for the year 1998 in the amount of P1,611,701.89. HDTSCc Petitioner insists however that it is entitled to the full amount of the claimed refund alleging that the discrepancy in the amounts reflected in its ITR and the Withholding Tax Certificates was due to the accounting methods used by its withholding agents and the difference in income classifications. We do not agree. Based on the pieces of evidence presented by petitioner, the tax court, in view of its expertise in reviewing tax cases, has correctly arrived at the amount of P1,611,701.89 as refundable. This notwithstanding the failure of the Commissioner of Internal Revenue to present any controverting evidence during the trial. In fine, it is incumbent upon the petitioner as taxpayer to establish by substantial evidence that it is entitled to the said refund. For when a tax refund is claimed, it must be shown indubitably to exist, for every presumption is against it, and a well-founded doubt is fatal to the claim. 9 Elsewise stated, taxation is the rule, exemption therefrom is the exception. 10 One final point. The grant of refund privileges must be strictly construed against the taxpayer and in favor of the government. This, has been the ruling in CIR vs. S.C. Johnson and Son, Inc . 11 where it was declared that tax refunds are in the nature of tax exemptions, and 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. 12 Moreover, the highest considerations of public policy dictate that claims for tax refunds be carefully scrutinized: As consistently declared by the High Court, "taxes are the lifeblood of the government and their prompt and certain availability is an imperious need." 13 In light of the above disquisition, We find no reversible error committed by the CTA in granting a tax refund to petitioner in the amount of P1,611,701.89, the same being supported by substantial evidence. SEIcHa WHEREFORE, the foregoing considered, the petition is DENIED and the assailed Decision and Resolution are hereby AFFIRMED in toto . SO ORDERED. Buzon and Pine, JJ., concur. Footnotes 1. Annex "A", pp. 10-21, Rollo . 2. p. 20, ibid . 3. Annex "D", pp. 57-64, ibid . 4. pp. 70-71, ibid . 5. Sea-Land Service, Inc. vs. CA , 357 SCRA 441; Cyanamid Philippines, Inc. vs. CA , 322 SCRA 639; CIR vs. CA, 303 SCRA 614. 6. CIR vs. Tours Specialist, Inc. , 183 SCRA 402. 7. Phil. Refining Coy vs. CA , 256 SCRA 667. 8. CIR vs. Marubeni Corporation , 372 SCRA 576. 9. Commissioner of Internal Revenue vs. Procter and Gamble, Phil. , G.R. No. 66838, December 2, 1991. 10. Paseo Realty and Development Corporation vs. CA , October 13, 2004, G.R. No. 119286. 11. 309 SCRA 87. 12. 309 SCRA 402. 13. Northern Lines, Inc. vs. CTA , June 29, 1988, G.R. No. L- 41376-77.