Expublio of the Fwulifpiny Court of Tax Appea? Aceeye CTV Carmen M. Soriano vs. Commissioner of Internal _ Revenue

DECISION -

CTA CASE NO o 2949 -

2. - f or the year l9 76 o Pursuant to the: pr.ov i sions. of Sec:tions 292 and 295 of the. National I !lte:rnal Re~enue· Code, petitioner fi led with respondent on April 21, 1 97 8 a writ te:n claim f oi: refund of the: amoun t of ~25 , 27 4. 70 ., There be:ing no action seasonably take~n by re: s:ponde~n t on the: said claim , peti tione:r ins.ti tuted t he present pr. oc:e~ding f o r the r.ec:over.y o f the income t ax with- he:ld on t he d i v ide~nd s.

In raising the questi on of refundabili t y of th e~ sum of ~25,274.70 , petit.ioner c:omes·. to~g rip with the: contention that she is a non-I:es;ident alien engaged in trade: or business in t h e Philipp i nes , and under Sec:tion 5.3 (b ) of the. Na tional Inte~rnal Revenue· Code, the dividends ar:e not subjec·t to withholding t ax..

Upon the other hand, quoting! the peJr:tinen t provision o f Section 22 of the same Code , which state·s:

"x.

X.

X

X.

X.

X

x x.

That for purposes of this Title, a non-:r.:e·s ident alien i ndividual who shall come to the Philippines and stay therein f br an aggregate period of more t han one hundred eighty days during any calendar year. shall be deeme:d a non- re·s.ident alien, doing, business. in the Philippines, x.

x

x. " r espondent maintains tha t ,petitioner f ai ls. to qualify as. a non-r.esiden t alien e:ng,aged in busines;s in the (

DECISION -

CTA CASE NO. 2949 - 3 - Philippine:s be'cause· no positive: evid:enc:e' that she had s.tayed i n the c:ountry for.· an agg:re·g,ate period of more than one: hundrerl eighty ( 18 0) _days. dur ing1 the calendar: yeatr 1976 has been presented. Moreo~er, respondent would argue that petitioner failed to show proof or: documentary evidence that she is actually holding~ or:· maintaining em office or a place of business in the Philippine s ; and the~ records reveal that she: did not incur busines.s expenses for office rental, salaries, telephone bills. and the like.

(pp. 79-80, CTA rec:ord.s;. ) .

This. Court realizes, as contended by respondent, that in an action for refund, the burden of proof is; upon the taxpayer to e:s.tablish i ts r ig;ht to the refund and failure: to sus.tain this burden is fatal to the action for refund.

Howeve·r, respondent specifically and unequivocably admitted in his answer to the petition for review "that petitioner is a non-reside,nt u.s. c·itizen eng.aged in trade or business in the Philippines, represented in this claim by A. Soriano~o rp oration, a corporation duly organized and existing under and by virtue of the laws of the Philippines, with off ices at Ao Soriano Bldg,. , Ayala Avenue, Makat~ 1 Metr:·o Manila x x:

x. " (pp. 1 & 23 1 CTA records.)

Under Section 2 1 Rule 129

5 2 1

DECISION -

CTA CASE NO. 294 9 - .4 - o f the Rules of Court, admissions made by the parties in t he pleadings, or in the course of the· t1r:ial or othe'r pr.oc:eedings. do not r.e:quire p.~roof and c:an not be· con tr.adicted unless p1re- viously .shown to have been made through palpable mistake.

There· is nothing in the· re-cords whic:h would show 1 directly or indire:c:tly 1 that the admission of respondent that petitioner is a non- re:sident alien e:ng,aged in t1r:ade~ or bus:ines.s in the Philippines· had been made· thr oug,h palpable· mis.take.

Fac:ts pleaded in the· a nswer are: deemed • admis.sions. of the defe:ndant who is; not pc:rmitted to con t.lc adict them, or subsequently take a: pos:i tion cont.radictory to or inconsistent with, such admis:sions. \Cunanan vs. Amparo, HO Ph i l . 227 a) Again , as pointed out by pe~ ti tione r, respondent is. bound by the testimony of his own witness. Res.- pondent presented as. his. own witne:s.s MJ[. Nathaniel Guarin who categorically testified that pet.itioner is a non-~esident alien engaged in trade or business

in the Philippines:

(pp. 73-74, 97-98, 108 - ~09,

t. s .• n. ) . Whe:n a party i n troduc:es. as evidence the testimony of a person, he i s bound by all the tapt s conta ined there in ..

(Moran, Comments on the Rules.

of Court, 19HO Ectit1on, Vol. v, p. 66, citing uECISION - eTA CASE NO. 2949 - .5 - 2 Chamberlayne, Modern Law on Evidence, Po 1606; 2 Wi9more~. on Evidenc:e, p. 579; Richard v. Morgan, J.O Jur. N.s. 55•9 1 5b4a). To say theTe:fore that petitioner Carmen M. Soriano is non-re·sident alien not engaged in trade or business in the Philippines in 1976 is to i ncur in self-contractic:tion. At any rate·, sufficient evide'nc:e· was. presented to establish that petitioner, during the time mat- erial to this case, maintained and neld oftice at the J.Oth floor. cf the· A. Soriano Bldgo 1 Makati 1 Metro Manila, used in conducting her various business • activities in the Philippines as:

J..

Principal partner of the Soriamont Invest- ment Company, a foreig,n partne:r.ship authorized -and actually engaged in trade or business in the Philip- pines;

2.

~rustee or off1cer of the Ao Soriano cancer Research Foundation, Inc.;

3.

Co-executor of the will of Don Andres ::;or. iano; and 4.

Stockholder. of several domestic c:orpo- . rations, such as the San Miguel Corporation, Atlas Consolidated Mining & Development Corporation, Philippine Oi l Developmen~ Company, and other corporations manag,e:d by the A. Soriano Corpora t i on . 52 :1

DECISION -

~ TA CASE NO. 2949 -

6. - Having arrived at the conclus.ion that peti- tioner i~ a non-r.esident alien e:nglag,e:d in trade or. business. in the Philippines., the di:""Jidends of ' J;l84 1 247.UO r.e:ee~ ive:d by her. in 1976 fr om the Atlas Consolidated Mining and Devel opment Corporation are not subject to withholding tax. at source pursuan t to Section 53 (b) .of the National I nternal

Revenue Codeo

In ask i ng that petitioner' s claim for refund ot the amount of };125 ,2 14.70, which was withheld, remitte:d and paid by the· Atlas. c onsol1dated Mining and Developmen t Corporation t o the Bure·au of .

.

Internal Revenue, be denied, r e~spondent would seem to f all back, however, on the proposition that peti t .i oner is subj e:c t to income t ax on her income aerive:d fr·om the following,:

a.

dividend income bo i nteres t income c.

other income: - ,p roceeds of sale of fractional share~ of st.ock derived from sources within the Philippines because her claim of the .following deduc:t.ions : l o Interest expense

a. First ~ational City Ba nk - ~22,62 7 .3~

b. A. Soriano Corporation - 29,13lo46 ~~~~z~~!:~~ 5.2 · ·~ uECISION - CTA CASE NO. 29 49 - 7 - 2.

Loss

' Loss from partnership .

Soriamont Investment co.- 25~ share in net loss

- - ~~Z~Q~Z~Q~

were: a l l disallowed on the g1round that no sufficient proof or evidence was presented to support the alleged expense: or l oss.

In other words., re:sponden t would seem to imply that even it petitioner is a non-resident alien eng1aged in trade or busine:s.s within the Philippines, her entire net income ~.ec.e : ived from all sources within the: Philippines would be subject to the tax imposed by Sec:tion 2.l of the then in f orce National Internal Revenue Code: pu.1rsuant to Section 22 (a) .of the s.ame Codeo The: case: would thus turn upon the que·s.tion whether pe·ti tioner 's claimed de:duc:tions. for inter.e·s.t. expens:e of ~~1, 7 52.83 and loss of ~47 1 047.03, or a total of ~98,805.86 , should be disallowe'Ci on the g1round that no adequate record was presented to support the s-ameo Revenue Regulations No. 2 require that any claim for deduction must be substantiated, when requested by the Commissioner of Internal Revenue, by record showing in detail the amount and nature of t he~ expenses incurred,.

(See Section 66, Rev • .Keg:s. No. 2. ) . While the me:re alle-g,ation of the

I

Dt:CI:iiON - CTA CASE NO.

~ 94Y

- 8 - taxpayer that an item of expense is o rdinar y and ne'cessar2:' does. not. jus-ti fy i ts deduc.tion (De Vera vs . Colle:ctor of I nter.nal Reve,nue 1 CTA Case' No. J.64 ', March 23, 195.9 ; Basilan Estate~s , Inc. '\PS., c ommissioner of Internal Revenue , L-22 494 , s-eptember 5, 1967, ~1 SCRA 17 ; Atlas Consolidated Min ing1 & Develop- men t C o ~poration vs. Commissioner of Internal Revenue, L- 269 24 , J anuary 21, 1981, 10~ SCRA 246) ~ it seems settled that wher e a taxpayer claime-d deductions for certain e xpenses but n~ records are av-ailable, v ,.

the deduct.ion may be· allowed cons ide r ing1 the tes.ti - • mony o f the accountant as to the nature of those \ expenses, which tes timony is not ~ont radi~ted by the Gove.rnment. (Basilan Estates vs. Commis-~ioner: of Internal Revenue, SUP@•) . And disallowin9 amounts claimed for deduction merely because there is no ctvailable docume'ntar y evidence whi c·h will es-tablish the pr.e·cise amount beyond a reasonable· doubt ignores commonly re~o91nized business pract ic:es- as wel l as the fact that proof may be establisherl by credible ora l test imony., ~ o h an vs. Commissioner of Internal hevenue, 39F.

~d 540, cited in Visayan Cebu Terminal vs. Collector ot In~ernal Rev,enue,

L- 1 ~7 98

, May 30 , 1960, 108 Phil o J2 0 ; Gancayco vs. Collector of I nterna l Revenue, L-1332~, April 20, l9 bl, 1 SCHA

52 G

D.I.!;C II:iiON - C~A CASE NO. 2949 - 9 - 98U ~ Zamora vs. Collector of Internal Revenue, L-15l80 ~ 15289-~ 0, May 31, 1963, 8 SCRA 163.) Here in the case at bar, petitioner · ~ claimed ueductions of interest expense: of E!51,758 .8 3 and Loss of P47,047.U3 were not only substantiated --- by adequate records showing in detail the amoun t and nature of the deductions but also established by credible oral testimony which was not contra- dieted by the Government.

Nathaniel GuaJrin,supeJrvis.or of the accounting depaJrtment of the Ao Soriano Corpo- ration, te:stified that the above i nte·Jre·st expense • of petitioner arose fr om loans s.ec:ured by he:r from the· First National City Bank (pp. ll-22, 33-3.5, ~9-101, 111-~ 15 , 122- 123, t .s.n. ) and the A. Soriano ~orporation (pp. 21-22, 35-~7, 60-~4 , !02-103 , 117- llB, t.s.n . ) ~ The loan from the First National City Bank was evidenced by the debit and cJredit note~ issued by the said bank showing payments of 1nterest by petit.ioner (Exhs. E-2- a; E-2-b; E-2-c:; E-2-d; E-2.- e; E- 2-f & E-2-g,) '· while the loan f rom the A. Soriano Corp9ration was evidenced by its certification that it received from petitioner the amount of P29, 131.46 es interest on her loan (ExhoJ) ~ as well the ag:reement as to the .rate of interest chargeable thereon (Exh. P) ~ In accordance with 52 7

DECISION -

CTA CASE NO. 2949 - 10 - a subpoena ad testificandum and subpoena duces. tecum, witness Nathaniel Gua.rin brought before this Court books of accounts of pe'ti tioner Carmen M. $o.rriano for the· year J.97o, such as disbursement book, vouche·rs on interest payment, c:ash receipts oook, jou.rrnal book and g,eneral ledger e'Jidencing petitione ~r's loans and inte:rest payments .• (pp . 39- 41, CTA records . )

It may be noted that at the time material to this case , no distinction was made be·twee:n interest on business de'bts. and inte- rest on personal debts to justify a deduction of interesL (1955 PH Fed. Taxes, Pur . 13 , UOO.) The loss of ~47,047 . 03 claimed by petitioner as deduction fr om her 1976 gross income represented her share in the net loss of the Soriarnont Invest- men t Company as one of the principal partners thereof.

The Soriamont Investment Company is a foreign partnership organized and existing under the laws of California, u.s.A., with Andres Soriano, petitioner Carmen M. Soriano, Jose M. Soriano and Andres Soriano, Jr; as partners., (Exhs. D & D-2;

pp . 67- 68, t . s.n . )

It is authorized to do busi- ness in the Philippines, thru its agent, t~e A •. Soriano Corporation.

(Ex~s. D1 D-1 to D-6, 0-l;

pp. 23- L_4; 41, /4-/5 & 19 1 98, t.s~.n o) In its

DECISION -

CTA CASE NOu

~94~ - ll - i nccrr.e tax return for. 1976, the Sor iamont Invest- ment Company reported a net loss from it ~ operations of Ell88,188ol0.

(Exhs. F , P-1 & F-2.) Since unde r the partnership agreement (Exhs. D-2) _petitioner ' s snare in the profit or loss is 2~%, she claimed as deduction for 1976 her share in the loss amount- ing to E14 7 ,047.03 or 25% of Eil88,188.10. The share of each partner in the inc:ome of the partnership, whe·ther distributed or not, is taxable to him, while the loss sustained by the partnership is deductible by each partner to t he exte·nt of his • share therein.

(Sec. 26, National Internal Revenue Code ; Sees. 22-23, Revenue Regulations No. 2; Tan Guan vs~ Court of Tax Appeals, L-23676, April ~7 , 1967, 20 SCRA 903.)

In deducting the amount of P47,047.03 representing her 25% share in the net loss. of the s.or iamon t Inve stment. Company, pe ti• . tione r merely picked up her shar~ in the net loss of the partne~:ship which had already been recognized and admitted by respondent when he refunded the income Lax paid by· it for the year 1976 in the amount of E123,217.00.

(Exh. F.)

.

It is thus clear beyond doubt that with a gross i ncome of E191 , 95·1.40 fo r the· year 1976 and a total allowable deductions of P98,805.86 (interes t

DECISION -

CTA C A~E NO. 2949 - 12 - expense of ~51,758o83 and loss of ~47,04 7. 03, or a total of ~98,805.86 ) ~ petitioner Carmen M. Soriano incurred a net l oss of ~6,844.46. Accord- ingly , the withholding and payme:n t of income tax in the s um of ~25,274.70 for 19 76 i s erroneous. WHE.REFORE, respondent Commissioner of I nternal Revenue is hereby ordereu to refund to petitioner Carmen M. Soriano the amount of ~25,274.70, repre - sent.ing err:oneously collected i ncome tax at source for 1976.

Without pr onouncement as to c:osts .

WE

::50 ORDERED.

Quezon City, Met.ro Manila, December 27, 1982• CONCUR: .!

/ > /'

CO~STANTE

.'RoAQUIN ,/ >As soc ia te Judge ;;:[h Jl/~/ . 5) -/ 7J z. REYV

Associate Judge

AMANTE

Presidi

53 (