CTA Case No. 4099

DECISION

1984 Net Inceme P13, 901, 522 Tax Due 4,715, 5%3 Frevious year’s creditable anmxunt P 6,611,223 Quarterly payments. 43214599 _ (22,825,822) Ralance of Tax Due (18,110,289) Tax Credits (W/T on income from Gov’ t. Securities and rental income) ww 1 FBZ 752) (20,098,041) FCDU payable Tax refundable 1985 Net Income P.(46.895, 560)

Tax Due Fo-O-~

Frevicus year’s creditable amount F'19,947,789 Quarterly payments sewn, We Mr avin LP 947 9 TEPD Ralance of Tax due F (19,947,787) Tax Credits (W/T on income from Gow't. Securities and rental income) sew event § FO). (19,990,619) FCDU payable eames wma B74 Tax refundable F (1939714745) Fetitioner filed a claim for refund with the Commissioner of Internal Revenue of August 26, 1986

HHS

and instituted this petition for review on August 28, 1986 in order to prevent ‘the tolling of the ne /~ statute of limitation.

Respondent, in its answer, alleged that a mere averment that petitioner incurred a net loss for 1985 does not gpse facto merit a refunds that the amounts of F6,611,223 (overpaid income tax for 1983), Fi.,989,314 and F28,238 (withheld taxes in 1984) were not properly documented: and, that the right to claim for a refund with respect to income 120

-- 3 - paymen{:s prior to August 28~ 1984 has pn~sc ri.bed pursuant to Sections 292 and 295 of the 1977 Ta>:

Code

as amended (now

Sections

230 and 204) • However~ it did not present the BIR records nor any other evidence and instead submitted this case based on thf? p 1 ead inq s i':l nc:l peti tir.:mer·' ~~ ev idenc:e. Both p<':'rties agreed to submit the case for decillion wit hout memoranda.

The issues prescr·.i be d befot-e this Cour·t for resolution are as follows: (1) Whether or not claim for refund with respect to income payments prior to August 28, 1984 h<':'s prescribed; ( 2)

Whether

or not substantiated its for the period pr·e~:; c r· i bed .

petitioner has c 1 aims for· re·fund which has not Respondent 's conten tion that the claim for r·e 'fund o·f c"i\IT\OUnts paid prior· to ('~uq u r,;t :;~8 ~ .19fl4 has 1 1r·esc: r i bed because the c 1 <'li m 'fm· n ·?'f und thf?n?o ·f wc.~s f iled beyond the two- year pres criptive period under t:-lec:tion 230 o ·f the Ta:: Code is unavai 1 inq. Wi.th r espect to the taxes withheld at so urce~ the

Supreme

Court

held in

Gibbs

v Coaaission•r of Internal R•venue (15 SCRA 318~ November 29. 1965). "A taxpii:\yer ~ resident or resident~ who contributes to withholding tax sys tem~ does so really to deposit an ii:\mount to

I

1?.1.

non -- the not the

- 4 - Commissioner of Inte rnal Rev enue, but, in truth, to perfor·rn i:'\nd e:.:-tingu.i s h his t .on: obligation for t h r-~ y e r.,\r concer·n ed .

In o ther· wor·d s , hr;, i s paying his ta:·:

liabilities f o r t h0 l year.

Consequent l y , <'.":\ ta:-:payer whose i ncome is lfJit hheld at ~;ource ~>Li.ll be de r -~ rn e d to ha ve pai d hi ~:;

i nc ome tax liabili ty when t he same falls due at the t•md o ·f the t .~x year.

I t is from thi s l atter elate thF.m, or lfJhen the ta:-:

J..iabil..ity falls due, t hat the hm-- year presc r iptive period under

Secti on

3(16 of

the Revenue Code

s tarts to r·un with respect to payments effected through the withholding ta:-: system. It is of no consequence whatever t hat a claim for refund or credi t agains t the amount withheld ~t source may have been presentad and may have remained unresol ved sin c e the delay of the

Collector in

r ~.? nd1:>r .in9 dl?r:.:i :.:; ion doe s not ext e nd the perempto r y p e riod fi x ed by t he st· at~lt<.?."

~·.Jh il€~ i n Com mi s ion er o f

Internal

Re~'en ue v. Asia

Australia

~xpre s ( S up r eme Co ur t Re s olutio n,

GR

April

a.t''f .i.

min() t-hi s Court ··:.:::

decisi on in Asia Aus tra l ia Express v. Commiss ioner of Internal Revenue ), th e .High Court stated that, "[Court of Ta:-:

Appea l's] ruling tht?.t the private res pondent's right to claim the refund of excess income taxes (paid by it in quarterly .i.n~stallments) for 198.1 and 1982, had not yet prescribed is supported by Our decision in Collector of Internal

Revenue

v.

Prieto, 2

SCRA

1007 and

Commissioner

of In t ern a 1 R~;~v e nue v.

Palanca, Jr., 18 SCRA 496~ whe re we ruled that "When a ta:-:

i•; paid in quar··t e rly installments~ the pn~scr · iptive period el f two years pr·ov ide d

in Section 306

(now 1??

- 5 -

Section

292) of the

National

Internal

Revenue Code s hould be counted from t he date o ·f f .in al p e.\ yment."

The "finc:\l payment" is the 1 as t quarter payment at the end of the fi sc al year when it is fi.nally ascerta .in a b le t hat the ta:-:p;ay er either made prof its or suffered losses in its bLlS .iness clpt.~na t.i o ns." Fc.1llowing sai d prcmc:~ t.m c:e rn.e nt , thi s Cour·t held in Unibake Inc. v. Commissioner of Internal Revenue

(CT A

Ca:.:::e No.

3987.

July

31.

that "the ta:-:paye r has un ti 1 the fourth mo nth 1'o 11 owing the c lose of the fiscal period within which to file a f inal adjustment return of the preceding fiscal year (Sec.

87 ~

Ta>:

Code)

which may well be the r eckoning date for the 2 -year prescriptive period."

ThLlS ~

the presc r i pt.i v e per· iod for refund of ~ h e o verpa id taxes for the years i n v ol v ed computed .i n ac c ord a nce with thl:! p r·o v i s i r.m o ·f {-'l'"ti c l e 13 of t he New Civil Code are as follows: Final adjustment n:~turn f.i ln:1 on .. - 4/ 16/!34 ?·-year pericld e :·tp.ires on ·- Claim for· refund ·f.i led c:n ... F'r:?t.i tic.n ·for Fleview fil ed on ,_ 4/.15/ l?.h E3/26./!?·6

Ell :'213/ 86

l 9B4

19B5

'1/1~1/B '::.i IJ/.1.5/ 86 4/ .1.4/ 87 4/.13/88 It is clearly seen that the claim for refund of overpaid taxes in 1984 and 1985 were timely filed whereas the claim for 1983 has already prescribed.

Petitioner

cited

BIR

Memorandum

- 6 - Circular '7-85 dated Apr· i l 1 ~ 1985 a:~s au thor i ty to the effect that an income tax overpayment is not an erroneously o r illegally paid t a}:

wi t hin the contempl ation of Sees. 230 and 204 of t he Tax Code. Pertinent: portions <Jf the Memorandum Circular is reproduced below:

REVENUE MEMORANDUM CIRCULAR NO. '7- 85

SUBJECT:

PROCESSING OF REFUND OR TAX

CREDIT OF EXCESS CORPORATE

I NCOME TAX RESULTING FROM THE

FILING OF THE FINAL ADJUSTMENT

RETUr<N

TO:

?'11 In t t·~n \ i:!l l F<eve nlte CJ ·ff.ic:e?ns and Other s Concerned Sec t.ions 85 ancj 86 of the Na tiona 1 Internal Revenue Code provides: The ·foreqo itl<.:l pr·ovisions an?

implemented by Sec .

7 of

Revenue

Regulations Nos. 10 - 77 which prov ide: \ ( \. 1 \ 1 ,., ,,, , It ha E;

been observed ~ howe ve t~ ~ tha t because of the excess tax payments~ corporations file c l aims for recovery of overpai d income tax with the Court of Tax Appea 1 s within the two-year per .iod ·f ,~ o rn the date of payme nt , in accordance ~<~i th

Sections 292

and 295 of

the National

Internal

Revenue

Code .

It is obvious that the f i 1 ing of t he case in court is to preserve the judicial r ight of the corporation to c 1 aim the refund or taH credit.

- 7FJ-

It phar be noted, however, that this is “not a case of erroneously ior illeqally. paid tax under the provisions of Sections 292 and 295 af the Tax Code.

Regulations, the corparatfion may request for the refund of the overpaid income tax or claim for automatic tax credit. To insure prompt action on corporate annual income tax returns (5 ng \ refundable amounts arising from \overpai quarterly income taxes, this Office has promulgated Revenue Memorandum Order ~ 32-76 dated Jume 11, 1976, cantaining the procedure in processing said returns. Under these procedures, the returns are merely pre~- audited which consist mainly of checking mathematical accuracy of the figures in the return. After which, the refund or tax credit is granted: and, this procedure was adopted to facilitate immediate action on cases like this. re is In the above rapion of the In this regard, therefore, no need to file petitions for review in the Court of Tax Appeals in order to preserve the right to claim refund or tax credit within the two-year period. AS already stated, actions hereon by the Bureau are immediate after only a cursory \ pre~audit of the income tax returns. Moreover, a taxpayer may recover from the Bureau of Internal Fevenue excess inceme tax paid under the provisions of Section 86 of the Tax Code within 10 years from the date of payment considering that it is an obligation created by law (Article li4dd of the Civil Code).

KK MMX KM

Tomas C. Toledo

Acting Commissioner

The above Memorandum Circular is contrary

JPA

- 8 - law and thus has n o for ce and eff e ct.

Althouqh the

ra:-: Er-roneously or Illeg<\lly Collected"~ the t itle a lone is not con trol l inq. By t hf?

tenor..

o1' Sec.

2 30 ~ the t wo- year li mit applies to actions to r ecove r· .1.

any na t:i.c:m a 1 errc>neous 1 y or collected;

.i r·, tf·)r·n<·\ 1 n2v ·1nue tc:~ J( illegally assessed or 2.

any pe n a lty c l a imed to have been co ll ected without a uthorityJ or ..,..

~'.

any sum al l eged excessive or in wrongf u ll y col l e cted to have been any manner (Se e

Huller

& Ph i pp s ~'- Corttwlissioner of In ternal Revenue , 1CI.3 Phil :..::

1 ·1!5 .

Narch

2(}, The ove l~pal.d income tr.:u:es in this case "f'all under· # 3 f or although they were l8qally collected by vir tue of the withholding ta:-: system and the r·equirement for qua rterly income t.a :-:

payments~ t 1·1ey wer·e nonetheless "e:-:cessive".

Sections 85 and 86

(r1ow Sees.

68 and · 69 ) of t he Tax Code and Revenue Regu lation 10-77 gi ves the t axpayer the option~ in case of a t a:·: overpayment s hown in its final adjustment return to ask for a r e fund or to have the overpayment cred i ted against t he estimated quarterly tax l ia bil ity for the l?h

- 9 - s ucceeding year.

Nowhere i t i s stated therei n that the re is no longer any nee d t o fi l e a petit i on for r eview with respect to s u c h overpayment. Sec. 86 of t he

Tax

Code

and Sec.

7 of Rev.

Reg.

10-77 me r·e l y gives the peti tiom.H" the right to signify his inte n t ion to opt f or a re fund or aLitomatic ta>: c t-e dit because "the a u thor·ization f or a k i nd of sPt-of f of creditabl e i ncome t ax ~qainst f u ture t a x liabilities con f e r red t he co r po rate ta xp ay e ~ in no II·J.ise lessens or muffl es th~:?

r .. e s po n den t's p o 11-1e r o ·f ascertaining the corr ect~n~s s of an y t. a:: r etur·n " ·for "({.))ny e nt i tlement t her·eof mus;L p i'OVE· complian c e wit h the terms and c o ndit i on s perempto r i l y required by A fortiori, res pond e nt mu s t have to ''~: :a min e th E:?

r e turns a nd d e t e r .. m.ine the taH x:< :·: 11

( San

Carlos Hilling v. Co••i s s ioner of Internal Revenue , • CT A Ca ;r;: e

No *

3811 .• F t:bruar v :28..

1'?'} 0 1 ).

Thu s the

t. .:n :pay€') r· is not ass111 ·ect that bv s i q nifyin q his .i. n tent to have the over p c:\ i d t a:·:

c: red i ted in the s u cceeding year~ and even if he d i d credit the the amount claimed a s refundable (or a portion thereof) would indeed be a llowed as a tin:

credit for the succeeding year by the BIF<.

More

s o , if the refundable amount for one year was not 1 F'ending appeal in the CcxJr t of ApPf~a ls as of Mar ch :20, 1991.

1?7

—- {0 — fully credited in the succeeding year, the excess uncredited amount can no longer be credited in the following year because the law limits the automatic tax credit to the "succeeding year" only.

At the very least then, the automatic tax credit provision acts like a claim for refund for the year of overpayment because it serves the same purpose which is to put the BIR on notice that the collection of the tax is being contested. But, settled is the rule that even when a claim for refund oar tax credit is pending with the Commissioner, when the 2 year periad from the date of payment is about to elapse the taxpayer need not await the Commissioner’s decision and instead must file a petition for review in this court pursuant to Sec. 230 of the Tax Code. To opine therefore that there is no need to file a petition for review to preserve the right to claim for a refund or tax credit is to go against the positive mandate of Sec. 230. An administrative interpretation out of harmeny or contrary to the express provision of a statute can not be given weight for to do s0 would in effect amend the statute (Utah Hotel Co. v.

Industrial Com., 151 P 2d 487, 153 ALR 1176 CIP44]

JPR

-- 11 - as c ited in footnote n o.

4 .

2

Am

Jur

2d 76).

Therefore, the t.a Npayer s hould s till file a claim for a refund or ta}·:

c: n :::-di t and the corresponding petit i on for- t~evievJ 1-'J i thin the periods t~equir- ed in case of overpayment of i ncome tax reflected i n its returns ot herwi se hi ~:;

r·.i.ght. to c:laim ·fot- a refund or tax credit will prescribe. In Che•ical Bank HY Trust Co.

v..

US, ( 275 r: Sup p 26 art· ·· d pe r cu riam .386 F .2d ·.~·:~e;), it was held that ">o:x em over payment may not be credited .;:~ga.i.nst e stimated ta }{ ·for the fol lowing year and be deemed to have paid in following year for the pur·pose of t he s t a tute of limitations unl ess the c l aim for credit itse lf is asserted within the st a h 1t o r·y pe r·iocl."

A

1~or t i or i ~ the s tatement in the me morandum i ncome t.:u:

paid under· ' the pr·o v.i.sions of Se c.

8 6 wi th.in 10 years f t-om da t.:~ o ·f payment becaus e this is an obligation created by law" i s er·roneoL\S. The

Tax

Code

being a special law~ its provisions prevail over those unde r the Civil Code. And since the overpayments arose out of t he a pplic a tion of the provisions of the Tc::,>: Co d e~ the provisions of the same on prescriptive periods s hould necessarily govern.

As held in Com•issioner of

Internal

Revenue v. Insular Lumber Co. (21 SCRA 1237,

Lely

tax L267), "Secs. 206 and 209 of the National Internal Revenue Code govern all kinds of refunds of internal revenue taxes -— those taxes imposed and collected pursuant to the National Internal Revenue Code. Thus, this Court stated that "this provision" referring to Sec. 306 "which is mandatary « is nat subject to qualification, and, hence, it applies regardless of the canditions under which payment has been made (Guagua Electric Light v. Collector of Internal Revenue and Court of Tax Appeals (L-i4421, April 29 (962, S59 OG (CSupp. 273 4207, 4210, cited in Gonzales v. Court of Tax Appeals and Collector of Internal Revenue, L-L45.32-33, May 26, P45).

RAK : AMR NKK

Moreover, public policy demands that tax adjustments be made as early = and expeditiously as possible. The reason is that it is on taxes that the government depends for its operation and that any uncertainty or cantroversy on those matters will somehow impair the smooth functioning aft the governmental machinery. Lengthening, therefore, of the period of limitations on refund from two to ten years would be adverse to public policy. saa Dec.

More importantly, as the circular states the credit or refund is granted after a pre-audit which consists only in checking the mathematical accuracy of the figures in the return. being vital to the sustenance of government, for refund oar tax credit require more than 132

Taxation

claims a

"cursory pre-audit”. The Pureau of Internal Revenue has the duty to determine not only the mathematical accuracy af the figures in the return but also the validity of the claimed deductions and correctness of the expenses claimed as well as the amount of income reported. Fursuant to such duty, it must be noted that under Secs. 235 and 203 of the Tax Code, the taxpayer is required to keep his ~~ a books and records for anly years (3S years prior to 1984). The Comyissiower will then have difficulty in verifying a claim filed after the ard year if indeed claims for refund were allowed to be filed within ten years.

The second issue is whether or not petitioner was able to substantiate its claim for refund.

Respondent alleges that the withholding taxes for the years claimed were not properly documented. On the contrary, petitioner presented statements and certificates of withholding taxes accomplished by its withholding agents. As held in Ateneo de Manila v. Commissioner of [Internal Revenue (CTA Case No, 3213, July 2a, L789), "proof of withholding is established by copies of statements duly issued by the various payors to petitioner".

And in Ateneo de Manila v. Commisstoner of Internal 131

Revenue (CTA Case No. 3656, GQeteber 23, 1220), the withholding taxes claimed thereon were allowed because these were "covered by such requisite statements and certificatians af taxes withheld at SOUT aS consistent with the prescribed revenue requlations." [ Respondent did not object to the existence of statements and certificates which were offered by petitioner as proof of the withholding taxes but took exception to their cantents and purpose. Despite said reservation, up until the submission of this case for decision, respondent was mot heard to complain about the veracity of the cantents of these documents or exhibits nor has it shown any irregularity in the same which will taint their reliability or sufficiency as proofs of the taxes withheld despite the fact that it is well within their competence to do so. Respondent is thereby considered to have admitted the truth of the contents of these ent ibyadee . Hence, those amounts of withheld saat which are supported by corresponding statements or certificates of withholding taxes admitted in evidence shall be allowed as tax credits. | Respondent’ s contention that a mere allegation of loss in 1985 does not ipso facto merit a refund, we 122

X

is likewise unmeritorious. As stated, respondent did not present any pvidence which will effectively dispute the correctness of the returns and other material facts therein. Neither did respondent issue any deficiency assessment for said year. Hence, in the absence of contrary evidence the income tax returns should be given credence and thus, coupled by the fact that petitioner was able to present documents to substantiate 12% icone tax return, provide eufficient proof oft A loss sustained by petitioner in 1965.

More importantly, one of the evidences presented by the petitioner is an audit report submitted by the BIR Assessment Branch and recommended by the Kegional Director, Revenue Region 4-B-2, in connection with the investigation conducted by the BIR pursuant to petitioner’s claim, recommending the refund of overpaid taxes for the years concerned (Exhibits Y to Y-3, Records, pp. 185-188). o this report applies the presumption of regularity of performance of official duty (Rules of Court, Rule i131, Sec. 3) which has not been disputed by the respondent. Therefore, the audit report gives persuasive effect to petitioner’s claim to the refund.

- 16 -

WHEREFORE, in view of the foregoing, p titioner is entitled to a refund but only far t~ overpaid tax&S incurred in 1984 and 1988. The refundable amount as shown in its 1983 incom• taM return i s hereby d . nied on the ground of prescription.

RespondPnt is hereby order d to grant a refund to petitioner Citytrust Banking Corp. in the amount of P13,314,506.14 representing the ov rpaid income t xes for 1984 and 19BS, recomputed as follows:

1984 Income tax O..e l.essl 1994 Cllart:arly payn!nts

1984 Tmc Credits-

WIT CJ'l int. CJ'l gav· t . sa:.

W/T CJ'l nntal inc.

Tax~t l.&sea FtD.J pay.:able Aftl:u'\t I'W'fln::lable fer 1984 1qes lnc:an&P tax cl.m (ltli!SS) l.ses:

WIT CJ'l rantals T&>< Dv&!rpaynl!!!nt Less• FtDJ payable Analnt FWfLndabl e for 1~ P16,214, '5i9 .00* 1,921,24!S.'S7* __ A.._~'!.;'SQ* p 4, 715,533.00 lQ ... ~~ .. ~!!..4Z (13,446,91S.67) - ·--- · 1~ ... ~.99.

P( 13,296,M3.67) p -0- -··-···- ---·~-.. ZJ-..6.!.~~ (36,716.47)* _________ UMlZ4 ~ .QQ p (17 ,942.47) Thlieose credits are smaller them the claimed amoLnt because a1ly th!

above figures> are well SLtpported by the vario.ts exhibits presented dl.lring tte hearing. No pronounc ... nt as to costs.

WE CONCUR:

St AM)

ABER a AL) (\ a A Q Judge

mn CONSTANTE/VC. ROAQUIN ssociate Judge

CERTIFICATION

TI hereby certify that this decision was reached after due consultation among the members of the Court of Tax Appeals in accordance with Section 13, Article VIII of the Constitution.

Z. R Ss fe iding Judge

Court of Tax Appeals

125