Winebrenner & Iñigo Insurance Brokers, Inc. vs. Commissioner of Internal Revenue

The presentation of the quarterly income tax returns of the succeeding taxable year is not an absolute requirement to prove that excess creditable withholding tax was not carried over; the annual income tax return of the succeeding year — or any other competent, relevant, and record-based evidence — may suffice to establish the fact of non-carry-over. A taxpayer who has satisfied the statutory requisites for a refund must prove, by preponderance of evidence, that the excess credits were not carried over. Once a prima facie case is made, the burden of going forward with evidence shifts to the Commissioner of Internal Revenue, who must produce contradicting evidence readily available in its own files.

Winebrenner & Iñigo Insurance Brokers, Inc. filed its Annual Income Tax Return for calendar year 2003 on April 15, 2004, reporting an overpayment of ₱7,194,213.00 that included creditable withholding tax of ₱4,073,954.00. In that return, the corporation elected the option “To be issued a Tax Credit Certificate.” On April 7, 2006, nearly two years later, petitioner filed an administrative claim for refund of the excess and unutilized creditable withholding tax with the Bureau of Internal Revenue. The BIR took no action on the claim.

• Nature of the Claim: Petitioner sought a refund of ₱4,073,954.00 in excess and unutilized creditable withholding tax for calendar year 2003. The administrative claim was filed on April 7, 2006; the BIR neither acted upon nor denied it.
• Tax Return Entries: Petitioner’s 2003 Annual Income Tax Return reflected an overpayment of ₱7,194,213.00, with “Creditable Tax Withheld for the 4th Quarter” of ₱4,073,954.00 and the option “To be issued a Tax Credit Certificate” selected. Its 2004 Annual Income Tax Return listed no amount under “Prior Year’s Excess Credits,” indicating that the 2003 excess had not been carried over to any quarter of 2004.
• CTA Division’s Original Ruling: After trial, the CTA Special First Division found that petitioner had timely filed its claim, declared the income as part of gross income, and proved withholding through the appropriate certificates. Because some amounts were not fully substantiated, the refund was partly granted in the reduced sum of ₱2,737,903.34.
• Motions for Reconsideration and the Irrevocability Rule: The CIR moved for reconsideration, invoking the irrevocability rule under Section 76 of the 1997 NIRC and arguing that petitioner was required to present its first, second, and third quarterly income tax returns for CY 2004 to prove that the excess credits were not carried over to the succeeding quarters. Petitioner also sought reconsideration to claim the full amount.
• Amended Decision and CTA En Banc Ruling: The CTA Division reversed itself and denied the entire claim, holding that the quarterly ITRs for 2004 were indispensable. The CTA En Banc affirmed, relying on its own decision in Millennium Business Services, Inc. v. CIR, which held that the presentation of the succeeding quarterly returns and the final adjustment return is indispensable to prove non-carry-over. Two dissenting justices cited the Supreme Court rulings in Philam Asset Management Inc. v. CIR, State Land Investment Corp. v. CIR, and PERF Realty Corp. v. CIR, which declared that quarterly ITRs are not mandatory.

• Non-Indispensability of Quarterly ITRs: Petitioner maintained that the non-presentation of the quarterly ITRs for 2004 was not fatal because the Annual ITR for 2004, which it had offered in evidence, plainly showed that no prior year’s excess credits were carried over — the item “Prior Year’s Excess Credits” was blank.
• Sufficiency of the Annual ITR: Petitioner argued that the annual return integrates the data from all quarterly returns, and the absence of any carry-over entry in that document constituted sufficient proof of non-carry-over.
• Reliance on Supreme Court Precedents: Petitioner invoked Philam, State Land, PERF Realty, and Mirant, which collectively hold that neither the Tax Code nor its implementing regulations require the submission of quarterly ITRs of the succeeding taxable year to prove entitlement to a refund.
• Prospective Application of Millennium: Petitioner urged that even if the CTA’s Millennium ruling were correct, it should be applied prospectively because the claim had been litigated in reliance on contrary Supreme Court doctrines.
• Shifting of the Burden: Once petitioner established a prima facie case of entitlement, the burden of going forward with evidence shifted to the CIR, who failed to produce the quarterly ITRs from its own records to rebut the claim.

• Indispensability of the Quarterly ITRs: The CIR contended that the quarterly ITRs of the succeeding year were necessary to determine whether the excess creditable withholding tax had been carried over to any quarter of 2004, in accordance with the irrevocability rule under Section 76 of the NIRC. Without them, the taxpayer could not discharge its burden.
• Need for Verification: The CIR argued that it must be afforded a full opportunity to investigate the correctness of returns, and the quarterly ITRs were essential instruments for that verification; their absence prevented the CIR from confirming non-carry-over.
• Failure of Proof: The CIR asserted that petitioner’s failure to submit the first three quarterly ITRs for CY 2004 left the claim unsubstantiated, warranting outright denial.

• Indispensability of Quarterly ITRs: Whether the submission and presentation of the quarterly income tax returns of the succeeding quarters of a taxable year is indispensable in a claim for refund of excess creditable withholding tax.

• Indispensability of Quarterly ITRs: The presentation of quarterly ITRs of the succeeding taxable year is not an absolute requirement. Section 76 of the 1997 NIRC does not mandate their presentation; it merely requires that the taxpayer prove prima facie entitlement to a refund, including the fact that no carry-over was made. Section 2.58.3 of Revenue Regulation No. 2-98 likewise imposes no such requirement. Petitioner’s 2004 Annual ITR — which showed zero “Prior Year’s Excess Credits” — constituted competent and sufficient evidence that the excess CWT for 2003 was not carried over to any quarter of 2004. The annual return aggregates the income, deductions, and credits for all quarters; a carry-over would necessarily appear as a prior year’s credit. Consequently, the CTA erred in treating the absence of quarterly ITRs as fatal while disregarding the annual ITR. Once petitioner established a prima facie case, the burden shifted to the CIR to present contrary evidence, including the quarterly ITRs readily available in its own files. The CIR’s failure to do so was fatal to its opposition. The rulings in Philam, State Land, PERF Realty, and Mirant — which hold that quarterly ITRs are not mandatory — were reaffirmed; the CTA’s Millennium decision could not override Supreme Court precedent. The original CTA Division decision granting partial refund was therefore reinstated.

• Burden of Proof in Tax Refund Cases — A claim for refund is in the nature of a claim for exemption and is strictly construed against the claimant. The taxpayer must prove by preponderance of evidence that it has satisfied the statutory requisites: (1) timely filing of the claim; (2) declaration of the income received as part of gross income; and (3) establishment of the fact of withholding. Where excess credits are claimed, the taxpayer must also prove that the credits were not carried over to the succeeding taxable year.
• Irrevocability Rule under Section 76, NIRC — Once a corporation exercises the option to carry over and apply excess quarterly income tax against the estimated tax liabilities of the succeeding taxable year, that option becomes irrevocable for that taxable period, and no application for cash refund or issuance of a tax credit certificate is allowed thereafter. A refund claimant must therefore prove that the carry-over option was not chosen.
• Non-Indispensability of Quarterly ITRs in Proving Non-Carry-Over — The presentation of the quarterly income tax returns of the succeeding taxable year is not a condition sine qua non for a refund. Any competent, relevant, and record-based evidence may be used to prove that excess credits were not carried over. The annual income tax return of the succeeding year, which integrates quarterly data and reflects aggregate prior year’s excess credits, can sufficiently establish the fact of non-carry-over.
• Shifting of the Burden of Evidence — In tax refund proceedings, the taxpayer bears the general burden of proof. Once a prima facie case of entitlement is made, the burden of going forward with evidence shifts to the Commissioner of Internal Revenue, who must produce contrary evidence — including documents in its own files such as quarterly ITRs — to defeat the claim. The CIR’s failure to present such evidence is fatal.
• Duty of the CIR to Verify and Rebut — The verification of a taxpayer’s claim is the duty of the CIR. The CIR cannot passively rely on a supposed deficiency in the taxpayer’s evidence while failing to utilize its own records to ascertain the truth. The principle of solutio indebiti (Article 2154, Civil Code) supports the return of amounts not lawfully due to the government.

• “Proving that no carry-over has been made does not absolutely require the presentation of the quarterly ITRs.”
• “What Section 76 requires, just like in all civil cases, is to prove the prima facie entitlement to a claim, including the fact of not having carried over the excess credits to the subsequent quarters or taxable year. It does not say that to prove such a fact, succeeding quarterly ITRs are absolutely needed.”
• “[A]ny document, other than quarterly ITRs may be used to establish that indeed the non-carry over clause has been complied with, provided that such is competent, relevant and part of the records.”
• “[T]he presentation of the annual ITR would suffice in proving that prior year’s excess credits were not utilized for the taxable year in order to make a final determination of the total tax due.”
• “[T]he CIR’s ‘failure to present [the quarterly ITRs and AFR] to support its contention against the grant of a tax refund to [a claimant] is certainly fatal.’”
• “A claimant who defrauds the government cannot escape liability be it criminal or civil in nature. … [T]he government must keep in mind that it has no right to keep the money not belonging to it, thereby enriching itself at the expense of the law-abiding citizen.”

• Philam Asset Management Inc. v. Commissioner of Internal Revenue, 514 Phil. 147 (2005) — The foundational ruling that requiring the presentation of the income tax return or final adjustment return of the succeeding year has no basis in law; followed and applied.
• State Land Investment Corporation v. Commissioner of Internal Revenue, 566 Phil. 113 (2008) — Reiterated that the presentation of quarterly ITRs of the subsequent year is not mandatory to prove entitlement to a refund; followed.
• Commissioner of Internal Revenue v. PERF Realty Corporation, 579 Phil. 442 (2008) — Affirmed that an annual ITR may supply sufficient proof of non-carry-over and that the verification process is the duty of the CIR; followed.
• Commissioner of Internal Revenue v. Mirant (Philippines) Operations, Corporation, 652 SCRA 80 (2011) — Reiterated the principle that quarterly ITRs are not indispensable; followed.
• Millennium Business Services, Inc. v. Commissioner of Internal Revenue (CTA EB No. 510, September 28, 2010) — A CTA En Banc decision holding that quarterly ITRs are indispensable; deemed inconsistent with Supreme Court rulings and therefore not binding in light of the doctrine of stare decisis.

• Section 76, National Internal Revenue Code of 1997 — Final Adjustment Return; options to pay balance, carry-over excess credits, or claim refund; irrevocability of the carry-over option. Interpreted to require proof of non-carry-over but not to mandate the presentation of quarterly ITRs as the exclusive means of proof.
• Section 2.58.3, Revenue Regulation No. 2-98 — Requirements for claims for tax credit or refund of creditable withholding tax: declaration of income and proof of withholding by a withholding tax statement; does not require presentation of quarterly ITRs of the succeeding year.
• Article 2154, Civil Code — Solutio indebiti; cited to underscore that the government must return money it has no right to retain.

Antonio T. Carpio, Presbitero J. Velasco, Jr., Mariano C. Del Castillo.

N/A (Justice Marvic M.V.F. Leonen registered a dissent, but the separate dissenting opinion is not included in the provided text.)