Commissioner of Internal Revenue v. United International Pictures, AB

THIRD DIVISION [CA-G.R. SP No. 76173. August 31, 2004.] THE COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . UNITED INTERNATIONAL PICTURES, AB , respondent . D E C I S I O N CRUZ , J p : On April 15, 1999, United International Pictures, AB (or "respondent") filed with the Bureau of Internal Revenue (or "BIR") its Corporation Annual Income Tax Return (or "ITR") for the calendar year ended December 31, 1998. Said ITR reflected, among others, the following computation: Gross Income P42,905,466.00 Less: Deductions 17,944,266.00 Taxable Income P24,961,200.00 Tax Due P8,486,808.00 Less: Tax Credits/Payments P12,811,960.00 Tax Overpayment P4,325,152.00 Respondent opted to carry-over the excess payment of P4,325,152.00 as tax credit for the succeeding taxable year by putting an "x" mark on the corresponding box in the ITR. On April 17, 2000, respondent filed its Corporation Annual ITR for the calendar year ended December 31, 1999 reporting, among others, the following tax items: Gross Income P25,240,148.00 Less: Deductions 18,168,497.00 Taxable Income P7,071,651.00 Tax Due P2,333,645.00 Less: Tax Credits/Payments a. Prior year's Excess Credits P4,325,152.00 b. Creditable Tax Withheld 7,317,785.00 P11,642,937.00 Tax Overpayment P9,309,292.00 This time, respondent opted to claim a refund for its tax overpayment of P9,309,292.00 by putting an "x" mark on the box corresponding to the phrase "To be refunded". In a letter to the BIR dated April 28, 2000, respondent formally made an administrative claim for tax refund in the amount of P9,309,292.00 pursuant to Sec. 229 of the Tax Code, as amended. As the Commissioner of Internal Revenue (or "petitioner") did not immediately act on its claim, respondent filed a petition for review with the Court of Tax Appeals (or "CTA") on February 27, 2001 to toll the running of the two-year prescriptive period. In answer, petitioner argued that assuming respondent filed an application for tax refund, the same is still subject to administrative investigation and resolution; that taxes are presumed to have peen collected in accordance with law and, hence, respondent must prove that the taxes sought to be refunded were erroneously or illegally collected; that respondent must show compliance with Sec. 51(c) and (d) of the Tax Code, as amended, which requires that: (i) the claim must be filed within two years from date of payment, (ii) the claimant's ITR must show that the income payment received was declared part of gross income and (iii) the fact of withholding is established by a copy of the statement duly issued by the payor to payee showing the amount paid and the amount of tax withheld therefrom; that respondent must show compliance with Secs. 204 (c) and 229 of the Tax Code; and that claims for refund are construed strictly against claimants, the same being in the nature of an exemption from taxation. HCEISc In support of its claim refund, respondent presented the following documentary evidence which were admitted by the CTA on February 1, 2002: 1. Corporation Annual ITR for the years 1998 and 1999, together with the corresponding Certificates of Creditable Tax Withheld at Source and Part II of the Account Information Form; 2. Corporation Annual ITR for the year 2000; and 3. Corporation Annual ITR for the first quarter of 1998. Petitioner, for its: past did not present evidence. Hence, the case was submitted for decision on July 1, 2002. In resolving respondent's petition, the CTA focused on the issues stipulated upon by the parties, to wit: "1. Whether or not (respondent's) excess creditable withholding tax in the amount of Nine Million Three Hundred Nine Thousand Two Hundred Ninety Two Pesos (P9,309,292.00) as of December 31, 1999 are (sic) duly supported by adequate evidence. 2. Whether or not the income from which the excess creditable income tax of Four Million Three Hundred Twenty Five Thousand One Hundred Fifty Two Pesos (P4,325,152.00) were (sic) withheld were (sic) duly reported as part of (respondent's) gross income for calendar year ended December 31, 1998. 3. Whether or not the income from which the current year's (1999) tax credits (sic) of Seven Million Three Hundred Seventeen Thousand Seven Hundred Eighty Five Pesos (P7,317,785.00) were (sic) withheld were duly reported as part of (respondent's) gross income for calendar year ended December 31, 1999. 4. Whether or not (respondent) did not in fact carry over its excess creditable withholding taxes for calendar year ended December 31, 1999 amounting to Nine Million Three Hundred Nine Thousand Two Hundred Ninety Two Pesos (P9,309,292.00) to the succeeding taxable year 2000. 5. Whether or not (respondent) had duly filed both the administrative and judicial claims for refund within the two year prescriptive period pursuant to Sections 204 and 229, respectively, of the Tax Code, as amended." On September 12, 2002, the CTA rendered a decision, the decretal portion of which reads: WHEREFORE, in view of the foregoing, the instant Petition for Review is hereby PARTIALLY GRANTED. Accordingly, respondent is ORDERED to REFUND or in the alternative, ISSUE A TAX CREDIT CERTIFICATE to petitioner in the amount of P7,269,078.40 representing unutilized creditable withholding tax for the year 1999. SO ORDERED." The CTA denied respondent's claim for refund of its 1998 excess creditable withholding taxes. It explained that since respondent opted to carry over the 1998 tax overpayment as tax credit to the succeeding taxable year 1999, the same cannot be refunded pursuant to Sec. 76 of the Tax Code. The CTA pointed out that the option to carry-over, once exercised, is considered irrevocable. STCDaI As for respondent's 1999 creditable withholding taxes, in arriving at the amount of P7,269,078.40 to be refunded to it, the CTA noted that of the total income payment in the amount of P146,355,699.80 reflected in the certificate of creditable withholding tax for the year 1999, only P145,381,568.00 was declared as income by respondent in its 1999 final adjustment return. Hence, the CTA ruled that "the refund of the 1999 excess creditable tax withheld must be correspondingly reduced to the extent of the undeclared income", viz : Excess creditable withholding tax P7,317,784.99 Less: Creditable tax withheld corresponding to the undeclared income [P146,355,699.80 - 145,381,568.00 = P974,131.80] [(P974,131.80/P146,355,699.80) x 7,317,784.99] 48,706.59 Unutilized 1999 Creditable Tax Withheld P7,269,078.40 ========== Petitioner and respondent filed a motion for reconsideration and motion for partial reconsideration, respectively, but the CTA denoted the same per resolution dated March 11, 2003. Aggrieved, petitioner, through the Office of the Solicitor General (or "OSG"), elevated the case to this Court for review under Rule 43 of the 1997 Rules of Civil Procedure. The OSG argues, in the main, that respondent is not entitled to the refund awarded by the CTA because it failed to present sufficient proof that the subject taxes were erroneously or illegally collected. In particular, the OSG points out that the 1998 and 1999 certificates of taxes withheld presented in evidence by respondent are defective and, therefore, should not have been considered as they do not reflect the true and exact amount of income payments from which taxes were withheld; and that without such information, the amount reported in respondent's ITR, allegedly representing the income payment by the withholding agent, cannot be verified or corroborated. DcTSHa Moreover, the OSG observes that respondent's 1999 Certificate of Withholding of Tax at Source does not bear proof of receipt by the BIR, thereby showing that the same was not filed, together with the ITR, in contravention of Sec. 10, Revenue Regulation No. 6-85. The OSG adds that assuming the Certificates of Withholding of Tax deserve credence, respondent should have been held liable for delinquent value-added tax and delinquent additional income taxes plus increments on its undeclared income for the years 1998 and 1999. On a procedural matter, the OSG maintains that since respondent's claim for refund was merely pro-forma , the filing of the petition for review before the CTA is premature. The case was submitted for decision sans the comment required of respondent. The petition is impressed with merit. Claims for tax refund or credit are in the nature of tax exemptions and, therefore, are construed strictissimi juris against the claimant and liberally in favor of the taxing authority ( Nestle Philippines, Inc. vs. Court of Appeals , 360 SCRA 575). Consequently, it is incumbent upon the taxpayer to justify his claim or right to a tax refund. AaCTID In Citybank N.A. vs. Court of Appeals (280 SCRA 459), the Supreme Court emphasized that upon claimant is the burden of proving the factual basis of his claim for tax credit or refund. Thus, for a claim tax credit or refund to be granted, the taxpayer must establish that: (i) The claim for refund was filed within two years as prescribed in Sec. 230 (now 229) of the Tax Code; (ii) The income upon which the taxes were withheld were included in the return of the recipient; and (iii) The fact of withholding is established by a copy of a statement (BIR Form 1743-A) duly issued by the payer (withholding agent) to the payee showing the amount paid and the amount of tax withheld therefrom. In the present case, certain omitted information and inaccuracies in respondent's certificates of taxes withheld for the years 1998 and 1999 cast doubts on the validity of its claim for refund. First, it is not disputed that respondent's certificate of taxes withheld for 1998 does not reflect the amount of income paid by the withholding agent to respondent, contrary to the requirement outlined in (iii), above. Corollarily, since the income, wherefrom the taxes were purportedly withheld, was not stated in the certificate of taxes withheld, it cannot be ascertained or verified if such income was, in fact, included in respondent's ITR for the year 1998 as required in (ii), above. Under the situation, the amount carried over to 1999 as tax overpayment for 1998 has been rendered doubtful and unreliable for purposes of computing the amount of excess taxes withheld against respondent. CDScaT Second, as the CTA itself pointed out, there is a discrepancy between the income earned by respondent as reflected in its 1999 annual ITR. In particular, according to respondent's 1999 certificate of taxes withheld, it earned P146,355,699.80 from Warner Bros., which is bigger than the P145,381,568 gross income from film rentals reflected in its 1999 annual ITR. Curiously, despite such discrepancy, both the certificate of taxes withheld and filed by respondent for the year 1999 indicated the same amount of P7,317,785 as creditable tax withheld. Parenthetically, the CTA's finding that respondent's 1999 income was undeclared necessarily implies that applicable taxes should have been assessed against said undeclared income before determining the amount of tax credit or refund due to respondent. However, the CTA merely reduced respondent's 1999 excess creditable tax withheld to the extent corresponding to the amount of the undeclared income, without taking into account the applicable taxes due on said income. In justifying its actions, the CTA passed on to the BIR the duty of issuing the deficiency assessment on respondent's undeclared income, ignoring the fact that the deficiency assessment is intimately related to and inextricably intertwined with the issue of respondent's entitlement to a tax credit or refund. As the Supreme Court aptly observed in Commissioner of Internal Revenue vs. Court of Appeals (234 SCRA 348): "To award such refund despite the existence of that deficiency assessment is an absurdity and a polarity in conceptual effects. Herein private respondent cannot be entitled to refund and at the same time be liable for a tax deficiency for the same year." All told, the CTA erred in granting respondent's claim for tax refund, albeit in a reduced amount. As earlier discussed, the law specifically outlines the evidentiary requirements for the grant of tax credit or refund and failure on the part of the taxpayer to justify its claim in accordance with said standard is fatal to its cause. Considering the doubts cast on the documentary evidence presented by respondent in support of its claim, said evidence cannot be the basis for the grant of a refund. Indeed, it is the height of absurdity to allow a taxpayer to claim a refund when there is doubt as to whether it had, in fact, paid the correct amount of taxes due to the government. TDCcAE WHEREFORE, the instant petition is GRANTED. The assailed decision of the Court of Tax Appeals is ANNULLED and SET ASIDE and another rendered DISMISSING the claim for tax refund of respondent. SO ORDERED. Jacinto and Mendoza, JJ ., concur.