BPI-Family Savings Bank, Inc. vs. Court of Appeals

A taxpayer who has shown by undisputed evidence that it suffered a net loss in the succeeding taxable year is entitled to a refund of excess creditable withholding tax, notwithstanding its earlier declaration in the income tax return that the refundable amount would be applied as a tax credit for the succeeding year. The State should not invoke technicalities to keep money not belonging to it, and courts may consider evidence submitted after trial where the law creating the Court of Tax Appeals provides that proceedings before it shall not be governed strictly by the technical rules of evidence.

BPI-Family Savings Bank, Inc. is a domestic corporation subject to the corporate income tax under the National Internal Revenue Code. Under Section 69 of the 1986 Tax Code, a corporation entitled to a refund of excess estimated quarterly income taxes may either obtain such refund or credit the refundable amount against its estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable year. The case concerns the proper interpretation and application of this provision where a taxpayer initially indicated an intention to apply the excess amount as a tax credit but later sought a refund instead.

BPI-Family Savings Bank, Inc. filed its Corporate Annual Income Tax Return for 1989 reflecting income of P1,017,931,831.00, deductions of P1,026,218,791.00, and a net loss of P8,286,960.00. The return showed a total refundable amount of P297,492.00, consisting of the 1988 tax credit of P185,001.00 and the 1989 tax credit of P112,491.00. In the same return, petitioner declared that the total refundable amount of P297,492.00 would be applied as a tax credit to the succeeding taxable year.

On October 11, 1990, petitioner filed a written claim for refund of P112,491.00 with the Commissioner of Internal Revenue, alleging that it did not apply the 1989 refundable amount to its 1990 Annual Income Tax Return or other tax liabilities due to the business losses it incurred for that year. Without waiting for the Commissioner to act on the claim, petitioner filed a petition for review with the Court of Tax Appeals seeking the refund.

During the trial before the CTA, petitioner presented the testimony of Ms. Yolanda Esmundo, manager of its accounting department, who testified that the amount was not applied as a tax credit. Petitioner also presented its claim for refund and a certification issued by Mr. Gil Lopez, petitioner's vice-president, stating that the amount of P112,491 "has not been and/or will not be automatically credited/offset against any succeeding quarters' income tax liabilities for the rest of the calendar year ending December 31, 1990." Petitioner likewise presented its quarterly returns for the first two quarters of 1990. The Bureau of Internal Revenue presented no evidence at all to controvert petitioner's claim.

The CTA denied the petition on the ground that petitioner failed to present its 1990 Annual Income Tax Return to establish that it had not credited the amount of P297,492.00 to its 1990 income tax liability. Petitioner filed a motion for reconsideration, attaching thereto a copy of the Final Adjustment Return for 1990, which showed that petitioner incurred P52,480,173 as net loss in 1990. The BIR did not controvert the veracity of the said return and did not file an opposition to the motion. The CTA nonetheless denied reconsideration, and the Court of Appeals affirmed, ruling that petitioner failed to overcome the presumption that it applied the amount as a tax credit.

• Entitlement to Refund: Petitioner argued that it was entitled to the refund of P112,491.00 representing excess creditable withholding tax for 1989, having presented evidence that it did not apply the amount as a tax credit to its 1990 tax liability.
• Evidence of Net Loss: Petitioner maintained that the 1990 Final Adjustment Return attached to its Motion for Reconsideration before the CTA clearly showed that it incurred a net loss of P52,480,173 in 1990, making it impossible for it to have applied the disputed amount as a tax credit.
• Prior CTA Decision: Petitioner called attention to the Decision in CTA Case No. 4897, involving its claim for refund for the year 1990, wherein the Tax Court held that petitioner suffered a net loss for the taxable year 1990.
• Non-Technical Rules: Petitioner argued that proceedings before the CTA should not be governed strictly by the technical rules of evidence, and that the Final Adjustment Return submitted after trial should have been considered.

• Presumption of Tax Credit: Respondents argued that since petitioner declared in its 1989 Income Tax Return that it would apply the excess withholding tax as a tax credit for the following year, petitioner was presumed to have done so, and it failed to overcome this presumption by not presenting its 1990 Return.
• Strictissimi Juris: Respondents maintained that tax refunds are in the nature of tax exemptions and are to be construed strictissimi juris against the person or entity claiming the exemption, with the burden of proof resting upon the taxpayer to establish entitlement by sufficient and competent evidence.
• Nature of Attached Document: Respondents contended that what was attached to petitioner's Motion for Reconsideration was not the Final Adjustment Return but petitioner's first two quarterly returns for 1990.
• Judicial Notice: Respondents urged the Court not to take judicial notice of CTA Case No. 4897, arguing that courts are not authorized to take judicial notice of the contents of the records of other cases.

• Entitlement to Refund: Whether petitioner is entitled to the refund of P112,491.00 representing excess creditable withholding tax paid for the taxable year 1989.
• Consideration of Evidence Submitted After Trial: Whether the CTA and the CA erred in failing to consider the 1990 Final Adjustment Return attached to petitioner's Motion for Reconsideration, which showed that petitioner suffered a net loss in 1990.
• Judicial Notice of CTA Case No. 4897: Whether the Court may take judicial notice of the Decision in CTA Case No. 4897, which held that petitioner suffered a net loss for the taxable year 1990.

• Entitlement to Refund: Yes. Petitioner is entitled to the refund of P112,491.00 as excess creditable taxes paid in 1989, the undisputed evidence showing that petitioner suffered a net loss in 1990 and thus could not have applied the amount as a tax credit.
• Consideration of Evidence Submitted After Trial: Yes. The CTA and the CA committed reversible error in failing to consider the 1990 Final Adjustment Return, since Section 8 of Republic Act No. 1125 provides that proceedings before the CTA shall not be governed strictly by the technical rules of evidence, and the paramount consideration remains the ascertainment of truth.
• Judicial Notice of CTA Case No. 4897: Yes. Under Section 2, Rule 129, courts may take judicial notice of matters that ought to be known to judges because of their judicial functions, and respondents did not claim that the Decision was fraudulent or nonexistent.

• Entitlement to Refund: The Court found that the factual findings of the appellate court are generally binding, but this rule does not apply where the judgment is premised on a misapprehension of facts or where the appellate court failed to notice relevant facts which, if considered, would justify a different conclusion. Petitioner presented evidence to prove its claim, including the testimony of its accounting department manager, a certification from its vice-president, and its quarterly returns for the first two quarters of 1990. The BIR failed to controvert petitioner's claim and presented no evidence at all. More importantly, the 1990 Final Adjustment Return attached to petitioner's Motion for Reconsideration clearly showed that petitioner incurred P52,480,173 as net loss in 1990, making it impossible for petitioner to have applied the amount as a tax credit. The Court held that there is no reason for the BIR and the Court to withhold the tax refund which rightfully belongs to the petitioner.

• Consideration of Evidence Submitted After Trial: The Court acknowledged that strict procedural rules generally frown upon the submission of evidence after trial. However, Section 8 of Republic Act No. 1125 specifically provides that proceedings before the CTA "shall not be governed strictly by the technical rules of evidence." The paramount consideration remains the ascertainment of truth, and the quest for orderly presentation of issues is not an absolute. The Court held that the rules of procedure are tools designed to facilitate the attainment of justice, and there can be no just determination of the action if the Court ignores, on grounds of strict technicality, the Return submitted before the CTA. The Court also rejected respondents' contention that what was attached to the Motion for Reconsideration was not the Final Adjustment Return but the quarterly returns, noting that an examination of the records showed that the 1990 Final Adjustment Return was indeed attached to the Motion for Reconsideration.

• Judicial Notice of CTA Case No. 4897: The Court acknowledged the general rule that courts are not authorized to take judicial notice of the contents of the records of other cases. However, under Section 2, Rule 129, courts may take judicial notice of matters that ought to be known to judges because of their judicial functions. The Court noted that a copy of the Decision in CTA Case No. 4897 was attached to the Petition for Review, and respondents did not claim that the Decision was fraudulent or nonexistent, nor did they dispute its contents. In any event, the Court held that the Decision in CTA Case No. 4897 is not the sole basis of petitioner's case but merely one more bit of information showing that petitioner did not use its 1989 refund to pay its taxes for 1990.

• Strictissimi Juris Rule on Tax Refunds — Tax refunds are in the nature of tax exemptions and are regarded as in derogation of sovereign authority, to be construed strictly against the person or entity claiming the exemption. The burden of proof rests upon the taxpayer to establish by sufficient and competent evidence its entitlement to the claim for refund. In this case, the Court held that petitioner established its claim notwithstanding its failure to strictly comply with procedural rules, because the undisputed fact that petitioner suffered a net loss in 1990 showed it could not have applied the amount claimed as tax credits.

• Exception to the Binding Effect of Appellate Factual Findings — As a rule, the factual findings of the appellate court are binding on the Supreme Court. This rule, however, does not apply where the judgment is premised on a misapprehension of facts, or when the appellate court failed to notice certain relevant facts which, if considered, would justify a different conclusion. The Court applied this exception because the CA failed to consider the 1990 Final Adjustment Return and other documentary evidence presented during trial.

• Non-Application of Technical Rules of Evidence in the CTA — Section 8 of Republic Act No. 1125 provides that proceedings before the Court of Tax Appeals shall not be governed strictly by the technical rules of evidence. The paramount consideration remains the ascertainment of truth, and the quest for orderly presentation of issues is not an absolute. Courts should not bar consideration of undisputed facts to arrive at a just determination of a controversy.

• Judicial Notice of Matters Ought to Be Known to Judges — Under Section 2, Rule 129 of the Rules of Court, courts may take judicial notice of matters that ought to be known to judges because of their judicial functions. While courts are generally not authorized to take judicial notice of the contents of the records of other cases, the Court may take judicial notice of a CTA Decision attached to the petition where the respondents do not claim that the Decision was fraudulent or nonexistent and do not dispute its contents.

• "If the State expects its taxpayers to observe fairness and honesty in paying their taxes, so must it apply the same standard against itself in refunding excess payments. When it is undisputed that a taxpayer is entitled to a refund, the State should not invoke technicalities to keep money not belonging to it. No one, not even the State, should enrich oneself at the expense of another." — This passage articulates the core principle of the decision: the State must observe the same standard of fairness it demands from taxpayers, and should not use technicalities to retain money that rightfully belongs to the taxpayer.

• "True, strict procedural rules generally frown upon the submission of the Return after the trial. The law creating the Court of Tax Appeals, 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 an absolute. It should not bar courts from considering undisputed facts to arrive at a just determination of a controversy." — This passage establishes the doctrine that the CTA is not strictly bound by technical rules of evidence, and that courts should consider undisputed facts even if submitted after trial to achieve a just determination.

• "Substantial justice, equity and fair play are on the side of petitioner. Technicalities and legalisms, 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." — This passage emphasizes that the government should not misuse procedural technicalities to retain money that does not belong to it, and that substantial justice and equity favor the taxpayer who has established its claim.

• National Steel Corporation vs. Court of Appeals, 283 SCRA 45, December 12, 1997 — Cited as controlling precedent for the rule that factual findings of the appellate court are binding on the Supreme Court, but this rule does not apply where the judgment is premised on a misapprehension of facts or where the appellate court failed to notice relevant facts which, if considered, would justify a different conclusion.

• Fuentes Jr. vs. Court of Appeals, 253 SCRA 430, February 9, 1996 — Cited together with National Steel Corporation for the same exception to the binding effect of appellate factual findings.

• De Guzman vs. Sandiganbayan, 256 SCRA 171, April 11, 1996 — Cited for the proposition that the rationale of the rules of procedure is to secure a just determination of every action, and that they are tools designed to facilitate the attainment of justice.

• Tabuena vs. Court of Appeals, 196 SCRA 650, May 6, 1991 — Cited for the general rule that courts are not authorized to take judicial notice of the contents of the records of other cases, even when such cases have been tried or are pending in the same court.

• Section 69, 1986 Tax Code (Final Adjustment Return) — Provides that a corporation entitled to a refund of excess estimated quarterly income taxes may either pay the excess tax still due or be refunded the excess amount paid, and that the refundable amount shown on its final adjustment return may be credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable year. The Court applied this provision in determining that petitioner had the option to choose between a refund or a tax credit, and that its initial declaration to apply the amount as a tax credit did not bar it from subsequently claiming a refund where it suffered a net loss in the succeeding year.

• Section 8, Republic Act No. 1125 — Provides that proceedings before the Court of Tax Appeals shall not be governed strictly by the technical rules of evidence. The Court applied this provision to justify considering the 1990 Final Adjustment Return attached to petitioner's Motion for Reconsideration, notwithstanding that it was submitted after trial.

• Section 2, Rule 129, Rules of Court — Provides that courts may take judicial notice of matters that ought to be known to judges because of their judicial functions. The Court applied this provision in taking judicial notice of the Decision in CTA Case No. 4897, which held that petitioner suffered a net loss for the taxable year 1990.

Justices Melo, Purisima, and Gonzaga-Reyes concurred. Justice Vitug was abroad on official business.