Philippine Life and General Insurance Co. v. Commissioner of Internal Revenue

SPECIAL FIFTEENTH DIVISION [CA-G.R. SP No. 73427. June 26, 2006.] THE PHILIPPINE LIFE AND GENERAL INSURANCE COMPANY , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N LANZANAS , J p : This is a Petition for Review of the Decision dated June 4, 2002 and Resolution dated October 4, 2002 of the Court of Tax Appeals in CTA Case No. 5978, wherein petitioner the Philippine Life and General Insurance Company sought a refund of its overpaid and unpaid creditable withholding tax on income for the taxable year 1997 in the amount of Nine Million Three Hundred Twenty Six Thousand Nine Hundred Seventy Nine & 35/100 Pesos. The Court of Tax Appeals denied petitioner's claim for refund. The facts of the case as culled from the records are as follows: The Philippine American Life and General Insurance Company, petitioner, is a domestic corporation duly organized under the laws of the Philippines. On April 15, 1998, petitioner filed with respondent Bureau of Internal Revenue (BIR) its Annual Income Tax Return for the taxable year 1997 1 declaring a net loss of One Hundred Sixty Five Million Seven Hundred One Thousand Five Hundred Eighty Pesos (P165,701,508.00). On December 16, 1999, petitioner filed with the BIR-Appellate Division a written administrative claim for refund in the amount of Nine Million Three Hundred Twenty Six Thousand Nine Hundred Seventy Nine & 35/100 Pesos (P9,326,979.35) representing a portion of its accumulated creditable withholding tax. The amount of P9,326,979.35 constitutes creditable taxes withheld and remitted to the BIR by Petitioner's withholding agents from rentals of real property and dividend income. Of the said amount, P8,457,792.35 were the taxes withheld from its monthly rental income payments paid and remitted to respondent by its forty eight (48) withholding agents covering the period from January to December 1997; while the amount of P869,187.00 were the taxes withheld from the dividend income payments also covering the same year. For failure of the BIR-Appellate Division to immediately act on the matter, petitioner seasonably filed with the Court of Tax Appeals (CTA) a petition for review on December 23, 1999 seeking a refund in the amount of Nine Million Three Hundred Twenty Six Thousand Nine Hundred Seventy Nine & 35/100 Pesos (P9,326,979.35) representing a portion of its overpaid and unapplied creditable income tax for the calendar year 1997 docketed as CTA Case No. 5978. aSITDC Petitioner attached to its Memorandum dated 7 January 2002 the 1998 Annual Corporate Income Tax Return which showed that the unapplied creditable income tax for the year 1997 was not applied against its tax liabilities for taxable year 1998. On June 4, 2002, the CTA rendered its Decision the dispositive portion of which reads: "In view of petitioner's failure to present its 1998 Income Tax Return, the Court no longer finds it necessary to dwell on the issues raised by the parties. WHEREFORE, in view of the foregoing premises, petitioner's claim for refund is hereby DENIED for lack of merit. SO ORDERED." Aggrieved, petitioner filed its motion for reconsideration which was also denied in a Resolution dated October 2, 2002. Hence this petition. The only issue for our resolution is whether or not it is necessary to present petitioner's Annual Income Tax Return for the year 1998 in its claim for refund of overpaid and unapplied creditable withholding tax. Assuming that petitioner is duty bound to so present the 1998 Income Tax Return, what would be the legal effect of its attaching to its Memorandum presented before the court such 1998 Income Tax Return without the same being first presented or formally offered during the trial of the case? Petitioner argues that the evidence presented sufficiently proved its claim for refund for the overpaid and unapplied creditable withholding tax paid for the year 1997. For its part, respondent claims that petitioner's failure to present its 1998 Annual Income Tax Return is fatal to its claim for refund. The petition is impressed with merit. Records show that petitioner attached to the Memorandum filed with the Court of Tax Appeals the Annual Income Tax Return for the year 1998. The said return clearly reveals that indeed petitioner suffered a net loss in the amount of One Hundred Sixty Five Million Seven Hundred One Thousand Five Hundred Eighty Pesos (P165,701,508.00) and entitled to claim for a refund in the amount of Nine Million Three Hundred Twenty Six Thousand Nine Hundred Seventy Nine & 35/100 Pesos (P9,326,979.35). The 1998 Income Tax Return showed that the amount of P9,326,979.35 was not utilized nor used as income tax payment for that taxable year. However, the CTA failed to consider the Annual Income Tax Return for the year 1998 attached to petitioner's Memorandum, as well as the other documentary evidence presented during the trial such as Annual Income Tax Return for the year 1997 marked as Annexes "C" to "C-15" where it declared a net loss or negative net taxable income of One Hundred Sixty Five Million Seven Hundred One Thousand Five Hundred Eighty Pesos (P165,701,508.00); and BIR Form No. 2307 otherwise known as the Certificate of Creditable Tax Withheld at Source, BIR Form 1601 known as the Monthly Remittance Return of Income Taxes Withheld covering the period from January to December 1997 and Form 1120-F known as the 1997 U.S. Income Tax Return of Foreign Corporation showing the combined creditable taxes withheld by petitioner's withholding agents from its rental and dividend income receipts in the amount of P9,326,979.35. Significantly, respondent failed to dispute petitioner's claim for refund. DaScHC In BPI Family savings Bank, Inc. vs. Court of Appeals , 2 the Supreme Court held that: "It should be stressed that the rationale of the rules of procedure is to secure a just determination of every action. They are tools designed to facilitate the attainment of justice. But there can be no just determination of the present action if we ignore, on grounds of strict technicality, the Return submitted before the CTA and even before this Court. To repeat, the undisputed fact is that petitioner suffered a loss in 1990; accordingly, it incurred no tax liability to which the tax credit could be applied. Consequently, there is no reason for the BIR or this Court to withhold the tax refund which rightfully belongs to the petitioner." Tax refunds are in the nature of tax exemptions and are to be construed structissimi juris against the claimant. 3 In the case at bar, We hold that petitioner has established its claim. Petitioner may have failed to strictly comply with the rules of procedure. It is entitled to its demand for a refund of the unused creditable withholding tax. Also, respondent's assertion that 1998 Annual Income Tax Return was not offered in evidence during the trial deserves scant consideration. At all events, while the rules of evidence and jurisprudence do not sanction the grant of evidentiary value to evidence which is not formally offered, it must be stressed that technical rules of procedure are not ends in themselves but are primarily designed to help in the administration of justice. Furthermore, Section 8 of Republic Act No. 1125 creating the Court of Tax Appeals expressly provides that it shall not be governed strictly by technical rules of evidence . 4 Moreover, petitioner faithfully complied with the requisites for refund of creditable withholding tax as provided for under Section 10 of Revenue Regulation No. 6-85, thus: "1) That the claim for refund was filed within the two (2) year period as prescribed under Section 230 of the National Internal Revenue Code; 2) That the income upon which the taxes are withheld were included in the return of the receipt; 3) That the fact of withholding is established by a copy of a statement (BIR Form 1743.1) duly issued by the payor (withholding agent) to the payee, showing the amount paid and the amount of tax withheld therefrom." Substantial justice, equity and fair play are on the side of petitioner. Technicalities and legalism, however exalted, should not be misused by the government to keep money not belonging to it and thereby enrich itself at the expense of its law-abiding citizens. If the State expect its taxpayers to observe fairness and honesty in paying their taxes, so it must apply the same standard against itself in refunding excess payments of such taxes. Indeed, the State must lead by its own example of honor, dignity and uprightness. 5 WHEREFORE, the petition is hereby GRANTED. The assailed Decision and Resolution of the Court of Tax Appeals in CTA Case No. 5978 dated 4 June 2002 and 2 October 2002 respectively are REVERSED and SET ASIDE and a new one rendered in favor of the petitioner ordering the refund of the sum of P9,326,979.35 representing the petitioner's overpayment and unapplied creditable withholding tax for the year 1997 to petitioner. EAICTS SO ORDERED. Reyes and Bersamin * , JJ., concur. Footnotes * Per Office Order No. 139-06 RTR dated June 2, 2006 designating J. Bersamin as acting senior member of this division vice J. Jose C. Reyes, Jr. who is on leave. 1. Annex "A", Rollo at 51. 2. 330 SCRA 507, 516. 3. Paseo Realty & Development Corporation vs Court of Appeals , G.R. No. 119286, October 13, 2004 citing AB Leasing and Finance Corporation, CIR , G.R. No. 138342, July 23, 2003; id ., at 517. 4. Supra citing Ong vs. Court of Appeals , 301 SCRA 387 (1999), Candido Candido vs. Court of Appeals , 253 SCRA 78 (1996); Republic vs. Sandiganbayan , 255 SCRA 438 (1996); Vda. De Alvarez vs. Court of Appeals , 231 SCRA 309 (1994); Veran vs. Court of Appeals , 157 SCRA 438 (1988); People vs. Carino , 165 SCRA 644 (1988); People vs. Peralta , 237 SCRA 218 (1994); Also see De los Reyes vs. Intermediate Appellate Court , 176 SCRA 394 (1989); People vs. Matte , 103 SCRA 484 (1981). 5. Supra .