BPI Family Savings Bank, Inc., et al. vs. Commissioner of Internal

DECISION —

-oef- Nepomuceno Enterprises 5, 700, 00 285. 00 Maria S. Evangelista 10, 200. 00 510.00 Gul Plaza 20, 325.27 1,016.25 Filinvest Finance and Leasing Corp. 7, 000. 00 350. 00 National Bazaar Marketing Corp. 22, 050, 00 1, 102. 50 Ministry of Trade and Industry 30, 050. 00 1,900. 60 Bank of the Philippine Islands 1, 135. 22 170.28 Sager Realty Company, Inc. 8, 400, 00 420. 00 Charles Lee's Department Store 15, 467.50 648. 38 Lareina Pawnshop 21, 000. 00 1,050. 00 Qrion Radio and Electrical Supply 21,000. 00 1,050, 00 Parana Philippines, Inc. 19, 800. 00 990. 00 P24, 541,41 On October 17, #%1986, petitioner filed its request for a tax credit in the total amount of F2#4,541.41.

For failure on the part of the respondent Commissioner of Internal Revenue to act on petitioner's request, the latter filed the instant petition before this Court on December 29, 1987 claiming that it "suffered a net loss of F4, 206, 932.00 for 1985; Sarees the entire amount of P24, 541. 41 under creditable withholding should be refunded to it." (Petition for Review, p. 1; C.T.A. Records, p. 1).

Respondent, in answer. to the petition, alleged among others as special and affirmative defenses that: 1) the petition states no cause of action as it does not allege the date when the tax sought to be refunded was paid; #2) this case does not involve illegally or erroneously collected taxes, petition for review therefore does not lie; and 35) there is no need to file a petition for review to preserve petitioner’s right within the two-year period because a taxpayer may recover excess income tax paid within ten (10) years from date of payment under Article 1144 of the New Civil Code.

The main issue for consideration of this Court is whether or not the petitioner is entitled to a tax refund or eredit in the amount of FH4,541.41 representing overpaid income tax for the year 1985.

Before deciding on the main issue, it is best to discuss first the points raised by the respondent which this Court has soundly disposed in the recent cases of Jardine Davies, Inc. vs. Commissioner of Internal Revenue (C.T. A Case Nos. 3839, 4013 and 4124; January 20, 1994).

Respondent alleged that the petition states no cause of soto because it does not state the date when. the taxes were paid. Time and again, this Court has ruled that "petitioner is not required to show the date of payment of the tax withheld at source. The ruoe is that a corporate taxpayer pays on a quarterly bawies The final payment is the last quarter payment at the end of the taxable year or an the rivtesith day of the fourth month following the close of the calendar or fiscal period. This is the time when it can finally ascertained that the taxpayer either made profit or suffered a loss in its operations. {Sun Insurance Office Ltd. vs. Acting Commissioner of Internal Revenue, C.T.A. Case No. 3205, June mS, 19895 ‘Ateneo de Manila University VS.

Commissioner of Internal Revenue, C.T.A. Case No. S213, 939

DECI S ION -

C.T.A. CASE NO. 42 12 - 4 - ,htly E:8, l 9B9;

Asia Australia Expre ss Ltd.

vs .

Commissioner of I nt ernal Reven ue, C. T. ~).

Case No.

3975, Oct obe..-~ 18, 1989;

~::\ nd Pas eo Realt y and Development Corp.

vs.

Commissi on er of I n ternal Revenue , C. -r'. A.

Ca se t'-lo.

4528, April 30, 1993. > F~esprJndent also clai me d th at the petition i nvolvE~ d herein does not cover erroneo u sly or illegally col l ected tax p ursuan t to S ection 292 of t he Tax Code. In the case of Cit ytrust Ban k i ng Corporati on vs.

Commi ssioner o f I n ternal Revenue <C. T. n.

Case No.

L~099, IYiay •:::8, 1991 ), thi s Court ru led that: "fC! lth oug h the title of Sect ion ;::~30 of t he Tax Co d e i s ' R e co v e ... ~ y o f Tax E ... ~ ... ~ on e o us 1 y or I 11 ega 11 y Co 1 1 e ct e d' , th e t it 1 e a 1 one i s not contt·' ol1in~_;f.

By the tenot~ of Sectio n 230 , the two-y ear limit applies to actions to recover L any national erroneously or illegally intern al revenue tax a ss essed or collected; 2.

any penalty clai med to have been collected without authority; or 3.

any sum alleged to h ave been exce ssiv e o..-~ in a ny manner~ 1-'n~o ngfully collect-ed." In t hi s particular cas e, the alleged overpaid inco me tax falls und£~~-~ item no.

3 , fot~ although it was legally collected by virtue of the withholding tax s ystem , it was none t heles!; alleged _i::\s " ~?xcessiv ~?"

.

Fl s to the allegation that thE~t~e is no need to file this petit io n to pr~eset~ve the petitionet~'s t~i ght to ax refund o r credit s ince it ha s ten (10) years from date of 8 40 •

- 5 - p a y m e n t t o 1·' e c o v e r·· e >< c e 5 5 i n c o m E~ t .~~ >< p a i d p u r' s u an t ·t o r-·kticle 1.1'+'+ of the New Civil Code, this Cotwt in the same case of Citytrust Banking Corporation (supra>, held: " f-It the ver' Y least then , the automatic tax cl·'edit pr' ovision acts lil<e a clai m fo1·' r' efund for' the yeat' of ovE~r' payment because it s et' Ves thl:?

sa me put' po s e · whi c h i s to put the BIF~ on notice that thr! coll!''ction of the ta>< i s be i ng cont !?sted.

But settled i s the -r' ule that even when a claim for r e fund or tax credit is pend ing ~-Jith tiH? Commissioner', whe n th e two - y e a r' pet"· i o cl f-..-. o m t h e d at e o f pay m en t i s a bo u t to el a p s e th e ta><pa yer need not awai t the Commi s sioner's decision and instead mu s t file a petition f or' t'!?view in thi s Cout' t put'Stla nt to S ection c~30 of the Tax Code.

To opine t her e fo re that th e r e i s no need to f i le a p!?tition for' J·' eview to pt'eser've the t'ight to c l <1im f or' a t' efund <n·· ta>< cr'edit i s to go a~F=t.i n s t the positive mandate of Sec. c~30.

><><><.

Th eref o re , the taxpayer shou ld still file a cl a im for a refund or tax credit and the corr esponding petition for revie w within the periods required in case of overpayment of income tax t'eflected in its r' ettwns oth e t'wise hi s r•ight to clai m for' r'efund or' tax c r·edit wi 11 pr' esc·r'i be.

XXX ><X>< )()(}( The Tax Code being a special li:\w, its pr' ovisions pr·evail ov!?t' those under' the Civil Cod e • (4 n d s i n c e t h e o v e r' pay m en t s. a r' o s e o u t o f the applice:\tion oF the pr' ovisio n s of the Tax Code, the provisions of · the same on prescriptive periods should necessarily govern. X X X. II In the c ase of Servicewide Specialist, Inc.

vs.

Commissioner of Internal Revenue and Court of Tax Appeals ~ippeals held:

this "The r' ul ing Cour't in a was subseque n tly clarified 1 at t e r' c a s e , Co m m i s s i o n e t' by of - 6 - I n t e t·· n a l F< e v e n u e v s • I n s u 1 at~ L u m be t~ C o • , D e c • 11, 1r::J67, ~:;:1

SC F~(-)

1 Z~37.

It was thet~e held that Sections 3 06 and 309 of the Intet~ nal F<evenue Code were intended to govern all kinds of refunds of internal revenue taxes - those taxes imposed and collected put~suant to the National Internal F<eve nu e Code.

In other words the pt~escriptive pet~iod of tii'IO (;;:~) ye at~s thet~£d n provided is the one whi c h s hould govern and not any othet·· pt~ esct~iptive pet~ iod, such c.~s that of ten (10) yea t~s pt~ ovided fat~ in (.h~ticle 11Lf Lf, pc.u~a~F~a ph <~:: >, of the Civil Code.

xxx xxx.

' In fine, ~-Jh 1:~ n the tic~ x s o '-1!~ h t to be t~ e funded is i l leg all y en~ e t~ t~ one o us l y co 1 l E.' ct e d, the pet~ i o d of pt~esct~iption st.::n~ts fl·~o m the date th e tax was paid;

but when the tax is leg .:dly collected, the prescriptive period commences to run from the date of occ urrence of s upervening cause which gavr~ t~ise to the t~i~1ht of t~ef und.

The f•uling in J"Y1ull e t' & Phipps is accot · • din~llY modified."

Going nrJvl to the main issue , Section 53(f) of the 1985 Tax Code, as a mended, provides: "Ot:her' cases ot=· withholding t:ax at sow·'ce. The J"Y1inistet' <Sect~ etat~y) of Finance may upon the recom mendation of the Commissioner of In t e Y' n a l F< even u e, t~ e q tti t~ e c.<.l so the with h o 1 ding of a tax on the same item s of income payabl~ to pet~so n s (natm~al ot~ jt.wid:ical) t~esi ding in the Phi 1 ippines by t he sa me pet~s ons menti oned in pc.<.t~ ayt~ aph (b) (1) of this sPr:tion at the r~a te of not less than two and one - half per centum (2~~ ) but not more than thirty five per centum (35~) thereof which shall be credite4 against the i nco m e t ax J. i a b i 1 i t y o f t h e t ax pay e t~ f o t~ t h e t axc.~b J. e y eat~. "

< Undet'sco t~ i ng s upp 1 i ed) The te1·~ m "taxable ye.::n~", as defined in Section C:~O<p > of the same Tax ·code, me .::l n s the cal E~nd;:n~ yeat~ at~ the fis cal yee:n·· ending clm~ ing such calen dat~ ye e:n~, upon the basis of which thf?

net inco me is c omputed.

"Taxable yea1·~" :i. nc 1 ude s in t he case of a return made fot~ a fractional part of a year the period for which such return is made.

In claiming for a refufid, petitioner offered as part of its evidence the income tax return "for the six months ending December 31, i985". ‘In the auditor’s notes to financial statements, it was represented ‘that the petitioner "was incorporated and started its commercial operations (only) on July 1, 1985". (C.T.A., anetdy; p. 61) .

For the period of six months, petitioner suffered a net loss in the amount of F4,206,932.00 as indicated in its income tax return filed on April 15, 1986.‘ Respondent’ s denial of the claim is based on the argument that the evidence presented by the petitioner “is insufficient to prove that petitioner incurred a net - loss." (Memorandum, p. £3 C.T.A. Records, p. 111) As argued by the respondent:

"The claim for refund is based on petitioner's Allegation that it dancurred a net loss and, therefore, it had no income tax liability for 1985. As claimed, the deductions (F321, 174, 079. 00) exceeded its income (P3116, 967,147.00), hence, a net loss of P4, 206,932.00 (Exh. "AN"). Deductions are a’ matter of legislative grace and aio particular deduction shall he allowed only where there is a clear provision in the statute for the deduction claimed (Tan Chiu vs. Collector of Internal Revenue, C.T.A. Case No. 143, July Gi, 1956).

Pa Here, in its income tax return, petitioner is claiming itemized deductions among which 943

- @& - require proof that they are ordinary and necessary. Other than the return, there is no evidence, oral or documentary, to prove the deductions claimed, particularly the fact that the expenses are ordinary and necessary.

Absent such evidence, the expenses are unallowable. Consequently, it cannot be said that the deductions are over and above the income resulting in a net loss. In other- words, petitioner’s evidence is insufficient to prove that it incurred a net loss.

This Court however rules for the petitioner. It is entitled to a tax refund or credit of overpaid creditable taxes withheld from its rental income.

If indeed the petitioner’s itemized expenses can not be allowed as deductions from its gross income, as alleged by the respondent; then the latter should have issued an assessment against the former. More than seven years have passed and respondent did not even bother to contest the return filed by the petitioner. It is only at this very late hour that the respondent is questioning the validity of the deductions claimed by the petitioner to thé prejudice of the latter. This practice of the respondent cannot be allowed aA Se uiides run counter to the basic tenets of equity, justice and fair play which this Court is tasked to uphold, | | The question that left to be answered therefore is whether or not the pub inienet net complied with the three basic requirements set forth in Section 10 of Revenue Regulations No. 6-85 and in seey heuy cases of BPI Family Savings Bank, Inc. vs. Commissioner of Internal Revenue, 94%

DECISION —-

C.T.A. Case No. 4325, March 17, #1994; Citytrust Finance Corporation formerly Investors Finance Corporation VS. Commissioner of Internal Revenue, C.T.A. Case No. 4046, February £4, 1993; Citytrust Finance Corporation vs. The Commissioner of Internal Revenue, C.T.A. Case Now 4143, November ii, 1991.

The requirements are as follows:

La that petitioner filed a claim for refund within the two (2)-year period as prescribed by Section #292 (now £30) of NIRCs =. that the income upon which the taxes were withheld were included in the return of the recipients; and

3. the. fact of. withholding is established by a copy of the statement duly issued by the payor to the payee (BIR Form 1743.1) showing the amount paid and the amount of tax withheld therefrom.

The return having been filed on April 15, 1986, petitioner had two years from that date to file a claim for a tax refund or credit. The records of this case show that petitioner filed its claim before the respondent on October 17, 1986 (Exhibit "Cc"; C.T.A. Records, p. 3), and this Fetition before this Court on December 29, 1987 (C.7T.A. Records, p. 1), well within the prescribed periad. .

In compliance with the second requirement, petitioner declared the rental income as part of its gross income in its income tax return. (Petition for Reviews; Exhibit "A"; C.T.A. Records, p. 47) ny u4 Cc

As to the third requirement, this Court finds that some of the exhibits were not duly accomplished by the petitioner’s withholding agents to warrant their proper disposition or appreciation. From among the evidence presented by the petitioner, Exhibits "B", "B-2", "B-4", "BS", "B-7", "B-8", "B-9", "B-10", "B11", "B-12", "BR- 14", "B-15", "B-16", "B17", "B-2oO", and "B-23" cannot be given consideration by this Court as the statements submitted did not clearly state some vital Anfatmetden of the withholding, like the complete name of the sayen/petskaaiers its correct tax account number, and the period of withholding. Exhibits "“B-6" and "B-19" were denied since they were not in the prescribed .form (BIR Form 1743.1), while Exhibit "B-16" was disallowed since it pertained to ridet tak withheld Fron interest income.

Tax refund partakes of the nature of a tax exemption and therefore cannot be allowed unless granted in the mand explicit and ‘categorical language. The grant of refund privileges must be strictly sengtroad against the taxpayer. (Insular Lumber Co. vs. Court of Tax Appeals, 104 SCRA 710; Commissioner of Internal Revenue vs. Rio Tuba Nickel Mining Corporatioh, 2O7 SCRA 549) Thus the creditable withholding tax at source left to be refunded or credited in favor of the petitioner is computed as follows:

DECI S ION -

C.T.A. CASE NO. 42 12 - 11 - Lessee Exhibi t lsetann Department Store, Inc. B-1 Doris Hao B-3 Filinvest Finance and Leasing Corp. B-13 Lareina Pawnshop B-21 Orion Radio and Electrical Supply B-22

WHEREFORE, in view of all Pl50,000.00 51,255.00 7,000.00 21 , 000.00 21,000.00 the 5" W/Tax P7,500.00 2,562.75 350.00 1,050.00 1, 05(1, 00 P12, 512. 75 circumstances, t~espondent is het~eby ORDERED to issue a Tax Ct~ edit C et~tificate in the amount of P12,5l.2.75 in favor of the petitioner. WE ;· I / I