Bank of the Philippine Islands as Trustee of the PAL Pilots Retirement Benefit Plan vs. ~ Commissioner of Internal Revenue

DECISION

- 2 - No.

4917 pursuant to the letter o f the former Commiss ioner of Internal Revenue on September 12, 1973.

Petitioner was duly appointed trustee of the funds of the PAL Pilots Retirement Benefit Plan. ·' Pursuant to the trust agreement, petitioner depo s ited and invested the funds of the retirement plan in savings and time depo sits , money market and various securities with various banking and financial institutions. For the years 1985 and 1986, these deposits and investments earned income in the a mount of P12,669,892.99 and P16,883,417.59, respectively.

The c orresponding withholding taxes were withheld on these earnings in ~he total amount of P1,825,483.78 and P2,274,005. 52 for the years 1985 and 1986, respectively or a total of P4,0 99 ,489.30.

On Dec e mber 29 , 1987, peti tio ner through counsel, sent a letter to respondent demanding t he ref und of the amount of P1,825,483. 78 covering its 1985 withholding taxes and at the same time filed a petition for review with this Court in order to meet the two - year prescri ptive period under Section 230 of the Tax Code.

Another claim for refund letter was sent by petitioner on February 19, 1988 659 DECTSION

- 3 - dem a ndi ng fro m resp o ndent th e refun d of t h e a mount of F2,27 4,005 .52 c over in g it s 1986 withh o lding tax. On Febr u ar y 26, 19 88 , petitioner amended the petition for r e view filed ear l ier b y in c luding the 1986 wi thholding t ax for it s ~ l a im f or refund. In its a nsv1e r , respondent adm itted so me materia l allegations of t h e petition but d e nies so me facts such as the filing of th e c l aim within the tvTO·· ye a r p eriod , the ill ega lity of t h e c l a im .

T\ s s p ecial a nd a ffirm at iv e def enses, howeve r, resp o ndent cont e nded that the retirem e nt pl an whic h e nj oys tax e xemption unde r Secti o n s 21 ( d ) a nd 24(cc ) of th e NIRC were withdra wn by impli ed repea l o f t h ese two sect.ions by P . O . No .

1 959 .

Res pondent a ls o a rgu e d that the c ase rel ied up o n by P P. tit io ne r , ·c;. C.~ . B.:~ .:t::.i,re .l!'~'!t: P 1 a n v. Commi ss i o n e r of Inter nal Rev e nue (C.T .A.

Case No.

3888 ,

Dec.

15, 1 988 ) whe rein this Co urt rul ed that em p loyees tr u st are tax exemp, , i s Su p reme Co urt in G. R. still unde r No. L-77 097.

rev i eH by the The i ss u es submitted f or reso lut i on o f this Court are as f ol l o Hs: ( 1) \'lhet h er or not s ub ject c l ai m f or r e fund has already pres cri bed ; / 660 ( _,

_, - 4 - (2) Whether or not petitioner has sufficiently proven the f act of withholding taxes and payment of the same to the Bureau of Internal Revenue as required by law; and ( 3) Whether or not the income tax exemption granted to private retirement benefit plan has already been revoked by Presidential Decree No. 1959. On the first issue, the records of the case show that on December 29, 1987, petitioner filed with the Bureau of Internal Revenue the claim for refund covering its alleged 1985 erroneously withheld taxes in the total amount of P1,8 2 5,483.78.

On the same date, petitioner also filed a petition for review with this Court coveri ng the said 1985 erroneously withheld taxes. On February 16, 1988, petitioner filed with the Bure a u of Internal revenue the claim for refund covering its alleged 1986 erroneously withholding tax in the amount of P2,274,005.52. Consequently, it amended its petition for review to inc 1 ude its 1986 claim for refund and filed the same \-lith the Court on February 26, 1988. / 661 _,

DECTIS TON

The pertinent provisions of rhe National Internal Revenue Code applicable on this particular lesue are as follows:

Section 292 (now Sec. 230). Recavery of tax erroneously or illegally collected. ~- No suit or proceeding shall hea maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any sum alleged to have been collected withovt authority, or of sum alleged to have heen excessive or in any manner wrongfully collected, until a claim for refund or credit has heen duly filed with the Commissioner; but such euit or proceeding may he maintained, whether or not such tax, penalty, or sum has been paid under protest or duress.

In any case, no such suit or proceeding shall be begun after the expiration of two years from the date of payment of the tax or penalty regardless after payment: Provided, however, That the Commissioner may, even without written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have heen erroneously paid. (Underscoring supplied. )

and Section 295 (now Sec. 204). Authority of the Commissioner to compromise, abate, refund/credit taxes. - XXX XXX xXXY and DECTISTON

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(3) Credit or refund taxes erroneously or illegally received, penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction. No credit or refund of taxes or penalties shall be allowed the taxpayer files in writing with refund within two years after the payment of the tax or penalty. (Underscoring supplied. )

Clearly pursuant to said provisions of law, recovery of tax erroneously or illegally collected must be done within two years from the date of payment of the tax in question by filing a timely claim for refund with the Commissioner of Internal Revenue and instituting a suit or proceeding in court within the said period of time. In the case of final withholding tax as in the instant case, pursuant to Section 5t(a) of the National Internal Revenue Code, the filing of the return and the payment of the corresponding taxes withheld should he made within 25 days from the close of each calendar quarter.

The records show that the petitioner filed its claim for refund and the instant petition for review on December 27, 1987. Inasmuch as the 663 a

DECISIO N

CTn c nSE NO. 4217 ·- 7 - pa y mc n t o f Hi thh o ld in g taxes h as t o b e d o ne o n a quarter ly basi s , only th e clai m for refu nd of p eti tioner for th e p e riod starti ng th e l ast quarter of 1985 remain s v a lid and sub s isting. Th e recov e ry of taxes paid for the first, second and t hird -· quarters of 1 985 h ave pres c ribed . He n ce , for the year 198 5, p e titioner may v a lidly c l aim fo r refund onl y payment s of withholding ta x es made during the l i'ls t. quar t er of th e said year.

Con se quently, the cer U . fication of withholding marked Ex h . "J" iss u ed by Ho ngko n g Bank cover ing t h e period f ro m Jun e 198 5 to /\ug u s t 1 985 in the total amount o f P168,830.45 h as a lready prescrib e d. What see ms to be a va lid c laim is t h e amount of P494 , 717. 35 covere d by the ce rtification d a t e d February 21, 1990 i ss u e d by BPI Cr edit Corporat ion mar k ed Exh.

"H" .

no o ther ce rtj_fica ti o n o r statement o f wi t hh o lrling ha s b ee n presente d by p etiti o n er to cover it s 1985 c l a im for tax r e fu nd except th ese two do c ument s. On th e second issue o f wheth er or not pet.itioner has s ufficiently e stabli s hed or proven its c la im for refund, thi s Court b e li eves that petitio ner f ai l e d t o p rove it s clai m as require d by l aw.

The burden of proof is o n the petiti o n e r to 664 DECISION CTA CASE HO. 4217 - 8 - present evidence on the facts in issue necessary to establish his claim.

The applicable provisions of law aside from Section 54(a) (now Sec. 51(a)) whiqh requires the filing of quarterly return are Sections 54 (c) and (d) of the Tax Code (now Sec. •.· 51 (c) and (d) ) .

Pursuant · to said Section 54(c) a written statement of income payments made and taxes withheld shall be furnished each recipient by the withholding agent simultaneously upon payment of the withholding tax at the request of the payee. In case this is not requested by the payee , simultaneously upon withholding, the statement "should be given to the payee on or before January 31 of the succeeding year".

Another related provision of law which will prove the fact of withholding and income payments, is the requirement under Section 54(d) of the same Code for the withholding agent to file an annual return containing a reconciliation statement of quarterly payments, list of payees and income payment. In case of final withholding taxes, the return shall be filed on or before January 31 of the succeeding year.

665 DECISION CTA CASE HO. 4217 - 9 - In other words, pursuant to said provisions of law, the fact of withholding and payment of the withholding tax to the Bureau of Internal Revenue may be proven by presenting copies of the following documents:

.· (1) Quarterly withholding tax return 1,• ' (2) Written statement of income payments made and taxes withheld (3) Annual return containing the reconciliation of quarterly payments, list of payees and income payments. On its 1985 claim, petitioner failed to prove by documentary or testimonial evidence what , particular payments were made during the said last quarter.

Exhibit H, which contains a certification letter dated February 21, 1990 issued by BPI Credit Corporation merely enumerates in general the various taxes withheld for the years 1985 and 1986 without indication as to the date of the remittance or payment of the tax to the BIR.

No other evidence was presented to support the withholding and payment of taxes for the last quarter of 1985. To prove its 1986 claim for refund, petitioner /~ 666

- 10 - presented Exhibits "F" to "J" consisting of various certifications issued by the Bank of the Philippine Islands, BPI Credit Corporation and Bank of AmeriGa as withholding agents.

All the above -' certifications were defective as they were not •.· properly identified and testified as to the truthfulness of their contents by the officers who issued these documents nor by any officer who knows about the same.

The witnesses presented by petitioner merely testified on the identity of the ' signatories to said certifications but never · to their contents.

Granting for purposes of argument that said certifications have probative value, they tend to prove only two basic facts 1 ( 1 ) that there were investments made by BPI as trustee in the form of "deposit substitutes", (2) that the corr esponding taxes due were withheld by the withholding agents.

However, no other evidence was pres ented to prove the fact of payment or remittance of the said withholding taxes to the Bureau of Internal Revenue.

In two instances namely the withholding taxes done by Hongkong Bank and BA Finance Corp., petitioner presented aside from cert~fications of withholding tax, Central 667

- 11 - Bank confirmation receipts, quarterly withholding tax return and BIR Form 17 43-1 "certificate of creditable income tax withheld at source" to prove payment and remittance of the withholding tax.

Unfortunately, as discussed above, the claim •.· covering Hongkong Bank withholding taxes has already prescribed while the claim covering the BA Finance in the amount of P2, 552.08, the documents submitted to prove the claim consisting of BIR Form No. 1743-1, Central Bank · confi.rmation receipts and quarterly returns failed to indicate that the payment was for and in behalf of payee. Not one , witness has testified as to their contents. This only shows that petitioner is well aware of the requ i red documents that have to be presented to prove its claim.

Their failure .to produce will only mean the absence of those documents. In fact, BPI, as trustee and the principal withholding agent for most of the placements made in behalf of the PAL Pilots Retirement Plan failed to present a single document to prove the payment or remittance of the withholding tax. In this respect, this Court agrees with the respondent that claims for refund of taxes are construed strictly against 668 /~ DECISION CTA CASE MO. 4217 - 12 - claimants, the same being in the nature of an exemption from taxation (Manila Electric Co. vs.

CIR 67 SCRA 351, Commissioner of Internal Revenue vs. Ledesma, G.R. Mo. L-17509, January 30, 1970, 31 SCRA 95).

On the third issue of·· whether or not the income tax exemption granted to promote retirement benefit plan has already been · revoked by Presidential Decree No. 1959, this Court would like to inform respondent that the decision of this Court in C.T.A.

Case No.

3888, entitled GCL , .! .. !! .!:.~.E .. ~-~-!-. .B~ .. !.~nE.~ holding the non-repeal of the tax exempt privilege of private retirement plan has already been affirmed by the Supreme Court of the Philippines in its decision in Commissioner of No. L- 95022, March 23, 1992. However, a decision on the legality or illegality of this claim based on this doctrine becomes unnecessary in view of prescription and failure of the petitioner to prove its claim for refund factually by clear and convincing evidence.

669 /~ I _,

- 13 - In view of the foregoing, the Court finds and so holds that petitioner is not entitled to the refund being claimed for taxable years 1985 and 1986.

WHEREFORE, finding the instant petition for review without •erit, the sa•e is hereby dis•issed and petitioner's clai• for refund is hereby denied. With costs against the petitioner.

~~ P~~~

RAMON 0. DE VE A Associate Ju e 670 GRUBA Judge / • ---

- 14 - C E R T I F I C A T I 0 N I 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. 671 ~~Q .. ~ ERNESTO D. ACOSTA Presiding Judge Court of Tax Appeals • )