Commissioner of Internal Revenue v. Philippine Bank of Communications

SECOND DIVISION

[G.R. Nos. 198522 and 199057. March 14, 2018.]

COMMISSIONER OF INTERNAL REVENUE, petitioner,vs. PHILIPPINE BANK OF COMMUNICATIONS, respondent.

NOTICE

Sirs/Mesdames :

Please take notice that the Court, Second Division, issued a Resolution dated14 March 2018which reads as follows: TCAScE

"G.R. Nos. 198522 and 199057 (Commissioner of Internal Revenue vs. Philippine Bank of Communications). — This resolves the Petition for Review filed under Rule 45 of the Rules of Court by petitioner Commissioner of Internal Revenue (CIR) to assail the Decision 1 dated June 1, 2011 and Resolution 2 dated September 7, 2011 of the Court of Tax Appeals (CTA) en banc in C.T.A. EB No. 586 entitled Commissioner of Internal Revenue vs. Philippine Bank of Communications, which affirmed herein respondent Philippine Bank of Communications (PBCom) entitlement to a refund or tax credit in the total amount of P5,799,221.42, representing its unutilized creditable withholding taxes for the taxable year 2003.

The Antecedents

PBCom, a local commercial bank, declared a net loss of P1,388,875,427 for the calendar year ending December 31, 2003, as reflected in its Corporate Income Tax Return filed on April 15, 2004. On different occasions in 2003, PBCom had entered into various business transactions for lease and sale of real properties, and the other parties to the contracts withheld the corresponding creditable withholding taxes due therefrom. Thus, on April 7, 2006, PBCom filed with the Bureau of Internal Revenue (BIR) an administrative claim for refund or tax credit certificate over its unutilized creditable withholding taxes in the amount of P17,578,318.00. 3

Without waiting for the CIR to take action on the administrative claim, PBCom filed on April 11, 2006 a petition for review with the CTA, as it explained that the CIR failed to act upon the claim. 4 Proceedings ensued before the tax court. The CIR argued in part that of the amount being claimed by PBCom, only the amount of P2,926,538.95 was supported by certificates of creditable taxes withheld at source. 5

Ruling of the CTA Second Division

Initially, the CTA Second Division denied PBCom's petition for review for lack of merit. 6 Upon motion for reconsideration filed by PBCom, the CTA later partially reversed its first order via an Amended Decision 7 dated October 29, 2009, with fallo as follows:

WHEREFORE, premises considered, respondent [CIR] is hereby ORDERED TO REFUND OR TO ISSUE A TAX CREDIT CERTIFICATE in favor of [PBCom] the reduced amount of FIVE MILLION SEVEN HUNDRED NINETY NINE THOUSAND TWO HUNDRED TWENTY ONE PESOS AND 42/100 (P5,799,221.42), representing unutilized creditable withholding taxes for taxable year 2003.

SO ORDERED. 8

In declaring PBCom entitled to a tax refund or credit but only in the reduced amount of P5,799,221.42, the CTA Second Division referred to the three requisites in claims for refund or tax credit of excess creditable withholding tax at source, to wit:

1) That the claim for refund was filed within the two-year reglementary period prescribed under Section 204(C), in relation to Section 229 of the NIRC of 1997, as amended;

2) That the fact of withholding is established by a copy of the statement duly issued by the payor (withholding agent) to the payee (BIR Form No. 1743-A), showing the amount paid and the amount of tax withheld therefrom; and

3) That it is shown on the return of the recipient that the income payment received was declared as part of the gross income declared in the income tax return of the recipient. x x x. 9

Specifically cited by the CTA Second Division in its denial of PBCom's full claim was requisite (3), as it explained that the supposed income covered by the creditable withholding tax payments totaling P10,496,972.58 did not appear to be declared as part of PBCom's gross income in its Annual Income Tax Return for taxable year 2003. 10 Of the remaining amount of P7,081,345.42, claimed creditable withholding taxes totaling P1,282,124.00 was still not supported by valid proof of withholding — the amount of P1,084,200.00 was shown to be covered by capital gains tax returns, while the difference was unsupported by documents. 11

The CIR moved for reconsideration, but the motion was denied by the CTA Second Division in its Resolution 12 dated January 8, 2010. Both the CIR and PBCom filed with the CTA en banc their respective petitions for review, which were docketed as C.T.A. EB No. 586 and C.T.A. EB No. 560, respectively. The two petitions were later consolidated.

Before the CTA en banc, PBCom no longer claimed entitlement to the full amount of P17,578,318.00, but insisted that it had complied with all the requisites for a valid tax refund or tax credit even for the disallowed amount of P1,084,200.00. The CIR, on the other hand, reiterated its position on PBCom's failure in the administrative level to substantiate through sufficient evidence the creditable withholding tax payments being claimed by the bank. 13

Ruling of the CTA en banc

On June 1, 2011, the CTA en banc denied both petitions, as it affirmed the findings and conclusion of the CTA Second Division. Accordingly, the dispositive portion of the CTA en banc's Decision 14 reads:

WHEREFORE, the Petition for Review dated December 03, 2009, filed by [PBCom] and the Petition for Review dated February 10, 2010, filed by the [CIR] are hereby DENIED, for lack of merit.

SO ORDERED. 15

The CIR's motion for reconsideration was denied in a Resolution 16 dated September 7, 2011. Hence, this petition for review filed by the CIR.

The Present Petition

The CIR invokes two grounds to support the petition, specifically:

I

IT IS RESPECTFULLY SUBMITTED THAT THE [CTA] HAD NO JURISDICTION OVER THE PETITION FOR REVIEW FILED BY [PBCOM] ASSAILING THE ALLEGED INACTION OF [THE CIR].

II

THE [CTA], EN BANC DECIDED A QUESTION OF SUBSTANCE WHICH IS NOT IN ACCORD WITH LAW AND JURISPRUDENCE.17

As regards the first ground, the CIR faults the CTA for taking cognizance of PBCom's petition for review notwithstanding the fact that she had not yet taken any action on the bank's administrative claim. At the time the petition was filed, there was as yet no decision from the CIR that could be subject of an appeal. She argues that there is no provision in the National Internal Revenue Code (NIRC) that prescribes the specific period within which the CIR should resolve a claim for refund of unutilized creditable withholding taxes, unlike in Section 112 (C) thereof on claims for refunds of input taxes. Furthermore, the CIR could not have acted upon the administrative claim because PBCom failed to submit documents that could substantiate its case.

For the second ground, the CIR argues that PBCom should not have been allowed to present supporting evidence on appeal, especially since the bank failed to submit sufficient documentation in the administrative level.

The Court's Ruling

The Court denies the petition. The CTA en banc did not commit a reversible error in allowing the tax refund or tax credit in favor of PBCom.

With regard to PBCom's immediate recourse to the CTA without first awaiting the CIR's action on the administrative claim, it was adequately explained that the remedy was resorted to so as to allow the bank to meet the two-year prescriptive period for the filing of tax refunds or tax credits. The justification was acceptable. Section 229 of the NIRC pertinent to PBCom's claim reads:

Section 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, 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. cSaATC

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 for refund therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears to have been erroneously paid. (Emphasis ours)

The two-period is crucial in this case because consistent with the afore-quoted provision, jurisprudence cites this among the following basic requirements for a claim for refund of excess creditable withholding tax to prosper:

(1) The claim for refund was filed within two years as prescribed under Section 229 of the NIRC of 1997;

(2) The income upon which the taxes were withheld were included in the return of the recipient (Section 10, Revenue Regulations No. 6-85);

(3) 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 of tax withheld therefrom (Section 10, Revenue Regulations No. 6-85). 18

Had PBCom still further waited for the CIR to act upon the administrative claim that was filed on April 7, 2006, then its judicial remedy would have prescribed.

The present case is different from the strict application of the 120+30-day period in administrative and judicial claims, which was declared by the Court in Commissioner of Internal Revenue vs. San Roque Manpower Corporation19 to be mandatory and jurisdictional. The pronouncement in San Roque applied specifically to tax refunds or tax credits of input taxes, as covered by Section 112 of the NIRC because the law in such incidents always allowed the taxpayers a period of 30 days, counted from the CIR's denial or failure to act upon a claim, within which to seek a judicial remedy, a remedy that was not available in PBCom's case given the nature of its claim. Notably, even in such claims affecting input taxes, an exception to the general rule that requires a taxpayer to wait for the CIR's decision on an administrative claim was recognized in San Roque, such that a failure to strictly observe the 120+30-day periods was deemed excused for the period from December 10, 2003 to October 6, 2010, when BIR Ruling No. DA-489-30 and the Court's decision in CIR vs. Aichi Forging Company of Asia, Inc.20 were issued, respectively.

The Court likewise sustains the CTA's acceptance of the documents submitted by PBCom to substantiate its claim for tax refund or credit. In Filinvest Development Corporation vs. CIR, 21 the Court emphasized that Republic Act No. 1125 (R.A. No. 1125), as amended, which was the statute that created the CTA, provided that proceedings therein should not be governed strictly by technical rules of evidence. Moreover, technicalities should not be used to defeat substantial rights, especially those that have been established as a matter of fact. 22 Citing BPI-Family Savings Bank vs. Court of Appeals23 on the acceptance of evidence even after trial, the Court explained in Filinvest:

True, strict procedural rules generally frown upon the submission of the Return after the trial. The law creating the [CTA], however, specifically provides that proceedings before it "shall not be governed strictly by the technical rules of evidence." The paramount consideration remains the ascertainment of truth. Verily, the quest for orderly presentation of issues is not absolute. It should not bar courts from considering undisputed facts to arrive at a just determination of controversy. 24

R.A. No. 1125 further provides that the CTA is a court of record. Cases before it are litigated de novo, and party-litigants are obliged to prove before it every minute aspect of their cases, 25 and such could be satisfied by the presentation and offer of evidence that could substantiate their claims.

In this case, PBCom was able to establish through documents submitted before the CTA its entitlement to a refund or tax credit certificate corresponding to unutilized creditable withholding taxes in the amount of P5,799,221.42. In CIR vs. United Salvage and Towage (Phils.), Inc., 26 the following doctrine was reiterated:

We reiterate the well-established doctrine that as a matter of practice and principle [we] will not set aside the conclusion reached by an agency, like the CTA x x x. By the very nature of its function, it has dedicated itself to the study and consideration of tax problems and has necessarily developed an expertise on the subject, unless there has been an abuse or improvident exercise of authority on its part x x x. 27

WHEREFORE, the petition for review is DENIED. The Decision dated June 1, 2011 and Resolution dated September 7, 2011 of the Court of Tax Appeals (CTA) en banc in C.T.A. EB No. 586 are AFFIRMED.

SO ORDERED."

Very truly yours,

MA. LOURDES C. PERFECTODivision Clerk of Court

By:

(SGD.) TERESITA AQUINO TUAZONDeputy Division Clerk of Court

 

 

Footnotes

1. Penned by Associate Justice Esperanza R. Fabon-Victorino with Presiding Justice Ernesto D. Acosta and Associate Justices Juanito C. Castañeda, Jr., Lovell R. Bautista, Erlinda P. Uy, Caesar A. Casanova, Olga Palanca-Enriquez, Cielito N. Mindaro-Grulla and Amelia R. Cotangco-Manalastas concurring; rollo, pp. 34-62.

2.Id. at 63-66.

3.Id. at 35-36, 82.

4.Id. at 36.

5.Id. at 37.

6 Penned by Associate Justice Olga Palanca-Enriquez, with Associate Justices Juanito C. Castañeda, Jr. and Erlinda P. Uy concurring; id. at 79-92.

7.Id. at 112-127.

8.Id. at 126.

9.Id. at 119.

10.Id. at 121.

11.Id. at 124-125.

12.Id. at 136-139.

13. Id. at 39-41.

14. Id. at 34-62.

15. Id. at 61.

16. Id. at 63-66.

17. Id. at 15.

18. United International Pictures AB v. CIR, 697 Phil. 312, 319-320 (2012).

19. 703 Phil. 310, 342 (2013).

20. 646 Phil. 710 (2010).

21. 556 Phil. 439 (2007).

22. Id. at 447-448.

23. 386 Phil. 719 (2000).

24. Id. at 726.

25. CIR v. United Salvage and Towage (Phils.), Inc., 738 Phil. 335, 344 (2014).

26. Id. at 344.

27. Id. at 342-343.