First Division Js Steel Corporation vs. Commissioner of Internal Revenue

DECISION

ACOSTA, E., PJ.:

Before Us is a case remanded by the Supreme Court for the proper and immediate determination of the amount to be refunded to petitioner on the basis of the latter's 1996 final adjusted return involving excess or overpaid income tax for the calendar year ended December 31, 1995 pursuant to Section 69 of the 1977 National Internal Revenue Code, as amended.

Petitioner calamba Steel Center, Inc. (formerly JS Steel Corporation) is a domestic corporation duly organized under Philippine laws and is engaged in the business of manufacturing steel blanks for use by various manufacturers of automotive, electrical, electronics, industrial and household appliances.

Respondent Commissioner of Internal Revenue is the duly designated authority to collect all taxes under the National Internal Revenue Code (NIRC) of 1977, as amended, grant refunds, issue and abate assessments, among others. On June 4, 1996, petitioner filed an amended Annual Income Tax Return declaring a net taxable income of P9,461,597.00, tax credits of P6,471,246.00 and tax due in the amount of P3,311,559.00. Petitioner likewise reported quarterly payments for the second and third quarters of 1995 in the amounts of P2,328,747.26 and P¹,082,108.00, respectively.

According to petitioner, for the year 1995, several of its clients, including those belonging to the top 5000 corporations, withheld taxes from their income payments to petitioner and remitted the same to the Bureau of Internal Revenue (BIR) in the sum of P3,159,687.00. Due to its loss positions for the three (3) quarters of 1996, petitioner was allegedly not able to utilize the excess tax paid for and its behalf by the withholding agents. Thus, on April 10, 1997, petitioner filed a formal request with the BIR for the refund of the amount of P3,159,687.00. On April 18, 1997, petitioner filed a Petition for Review with this Court.

On January 12, 2000, this Court promulgated a Decision1 denying the Petition for Review due to insufficiency of evidence. This Court ruled that although petitioner appears to have a refundable amount of P3,159,687.00, it could not be determined whether such amount was utilized in 1996 because petitioner failed to submit its Annual Corporate Income Tax Return for 1996.

Petitioner filed a Motion for Reconsideration of the Decision of this Court on February 2, 20002 which was denied in a Resolution of this Court dated April 25, 2000.3

Petitioner then filed a "Petition for Review" with the Court of Appeals on June 21, 2000 (FN Id., pages 614-622.) In his "Comment" thereto, respondent reiterated the importance of the 1996 Annual Income Tax Return in determining petitioner's entitlement to a tax refund.

In response, petitioner filed its "Reply to Comment (Re: Respondent's Comment to Petitioner's Petition for Review)" and therein attached as Annex "A" a certified copy of the "Petition for Review" for CTA Case No. 5799, a case then pending with this Court involving the same parties, together with attachments consisting mainly of petitioner's 1996 Annual Income Tax Return. On January 10, 2002, the Court of Appeals rendered a Decision upholding this Court's ruling and denying petitioner's claim (FN Id., pages 68Q-688). Aggrieved, petitioner appealed to the Supreme Court, on March 14, 2002 (FN Id., pages 690-706).

The High Court subsequently promulgated a Decision on April 28, 2005 setting aside the decisions of the Court of Appeals and the Court of Tax Appeals (CTA). It noted that the 1996 final adjustment return of petitioner was attached to its Reply filed with the Court of Appeals and the same 1996 final adjustment return was also attached in CTA case No. 5799. The Supreme Court held that petitioner is entitled to a refund but the amount must still be proved in proper proceedings before the Court of Tax Appeals. Thus, this case was remanded to Us for the determination of the amount on the basis of petitioner's 1996 final adjusted return.

In accordance with the above Decision trials were conducted before this Court. During the hearing on October 27, 2005, petitioner marked as Exhibits CE, CE-1 and CE-2 its 1996 Annual Income Tax Return. The same were formally offered on November 3, 2005 and admitted by this Court on December 20, 2005.

On August 16, 2006, this case was submitted for decision taking into consideration the respective memoranda filed by the parties and petitioner's reply memorandum. Hence, this Decision.

The sole issue for this Court's determination is whether or not petitioner is entitled to the refund of the amount of P3,159,687.00 allegedly representing its excess/overpaid income tax for the calendar year ended December 31, 1995. In determining the proper amount of tax refund that petitioner may be entitled to receive, it is important to ascertain first petitioner's compliance with the ''Three Basic Requirements on Refund of Excess Creditable Withholding Taxes", to wit:

1. That the claim for refund (or issuance of a tax credit certificate) was filed within the two-year prescriptive period prescribed under Section 204(C), in relation to Section 229 of the NIRC of 1997;

2. That the fact of withholding is established by a copy of a statement duly issued by the payor (withholding agent) to the payee, showing the amount paid and the amount of tax withheld therefrom; and

3. That the income upon which the taxes were withheld was included in the return of the recipient ( Otibank, NA 115. Court of Appeals and GR, 280 SCRA 459; ACCRA Investments Corporation 115. Court of Appeals, 204 SCRA 957). Anent the first requirement, petitioner originally filed its 1995 income tax return on April 15, 1996. Therefore, it had until April 15, 1998 within which to file its administrative and judicial claims. Considering that petitioner filed its letter claim for refund with the SIR on April 10, 1997 and the Petition for Review with this Court on April 18, 1997, the above requirement has been complied with. Moreover, petitioner's compliance with the same had already been put to rest by the Supreme Court itself in its Decision of April 28, 2005, when it declared:

''xxx Petitioner filed its claim in 1997 - well within the two-year prescriptive period. Thus, its unused tax credits in 1995 may still be refunded."

DEOSION

To prove compliance with the second requirement, petitioner submitted various Certificates of Creditable Tax Withheld at Source.4 A review of these documents shows that only the amount of P²,779,547.04 was really withheld by its various customers, detailed are as follows:

Period

Income

Tax

Exhibit

Withholding Agent

Covered

Pavment

Withheld

Saeofgoods

E

Concepcion Industries

Oct-Mel" 1995

p 9,440,413.76 p 94,404.12

F

Concepcion Industries

Jui-Sep 1995

15,668,696.54 156,686.93

G

Concepcion Industries

Oct-Dec 1995

8,426,055.88 84,260.54

H

Dai-ichi Denshi Ind.

Oct-Dec 1995

258,081 .38 2,580.82

I

Dai-ichi Electro!Vcs

Jan-Mar 1995

1,674,419.22 16,744.19

J

Dai-ichi Electronics

Apr-Jun 1995

2,791,760.44 27,917.60

K

Dai-ichi Electronics

Oct-Nov 1995

3,087,337.94 30,873.39

R

Matshusita Electric Phils

Oct-Dec 1995

23,069,441.00 230,694.41 s

Matshusita Electric Phils

Jui-Sep 1995

15,871,093.00 158,710.93

T

Matshusita Electric Phils

Apr-Jun 1995

19,396,411.00 193,964.00 u

Matshusita Electric Phils

Jan-Mar 1995

13,056,745.00 130,567.00 v

MerclX)' Tinsmith Corp

Jan-Mar 1995

426,575.36 3,877.96 w

MerClX)' Tinsmith Corp

Apr-Jun 1995

309,576.38 2,814.33

X

MerClX)' Tinsmith Corp

Jui-Sep 1995

180,895.78 1,644.51 y

MerClX)' Tinsmith Corp

Oct-Dec 1995

248,400.00 2,258.18 z

Mitsuboshi Cutlery

Jan-Mar 1995

34,027.00 340.27

AA

Mitsuboshi Cutlery

Apr-Jun 1995

183,416.82 1,834.17

AB

Mitsuboshi Cutlery

Jui-Sep 1995

155,792.00 1,557.92

AC

Mitsuboshi Cutlery

Oct-Dec 1995

211,256.00 2,112.56

AD

Mitsui Industria Corp

Apr-Jun 1995

27,240.00 272.40

AE

Mitsui Industria Corp

Oct-Dec 1995

1,060,972.00 10,609.72

AF

Mitsui Industria Corp

Jan-Mar 1995

179,082.50 1,790.82

AH

Nissan Motors Phils

Jan-Mar 1995

2,259,204.48 22,592.04

AI

Nissan Motors Phils

Jui-Sep 1995

9,567,892.00 95,678.92

AJ

Nissan Motors Phils

Oct-Dec 1995

13,825,998.39 138,259.98

AK

Norkis Trading Corp

Feb 1995

233,234.00 2,332.34

AL

Norkis Trading Corp

Mar 1995

221,854.00 2,218.54

AM

Norkis Trading Corp

Apr 1995

889,725.00 8,897.25

AN

Norkis Trading Corp

Jun 1995

668,396.00 6,683.96

AO

Norkis Trading Corp

Jui-Sep 1995

824,907.00 8,249.07

AP

Norkis Trading Corp

Oct-Dec 1995

3,156,513.00 31,565.13

AQ

Philippine Appliance Corp

Jan-Dec 1995

65,786,137.00 657,961.37

AR

Saisho Denshi Industries

Apr-Jun 1995

20,316.16 203.16

AS

Saisho Onkyo Inc

AT

Saisho Onkyo Inc

AU

Saisho Onkyo Inc

AV

Sanyo Phils

AW

Sanyo Phils

AX

Sanyo Phils

BB

Sharp (Phils) Corp

BC

Sharp (Phils) Corp

BD

Standard Electric Mfg

BE

Standard Electric Mfg

BF

Standard Electric Mfg

BG

Standard Electric Mfg

Bl

Standard Electric Mfg

BJ

Standard Electric Mfg

BK

Standard Electric Mfg

BL

Standard Electric Mfg

BM

Standard Electric Mfg

BN

Standard Electric Mfg

BO

Suzuki Phils

BP

3D Industries, Inc

BQ

3D lndJst:ries, Inc

BR

3D Industries, Inc

BS

3D Industries, Inc

BT

Tisdall Industrial Corp

BU

Tisdall Industrial Corp

BV

Tisdall Industrial Corp

BX

Universal Stainless Ware

BY

Universal Stainless Ware

BZ

Universal Stainless Ware

Subtotal

Apr-Jun 1995

Oct-Dec 1995

Jan-Mar 1995

Jan-Mar 1995

Apr-Jun 1995

Jui-Sep 1995

Jui-Sep 1995

Oct-Dec 1995

Jan 1995

Mar 1995

Feb 1995

Apr 1995

Jun 1995

Jul1995

Aug 1995

Sep 1995

Nov 1995

Dec 1995

Jan-Mar 1995

Apr-Jun 1995

Oct-Dec 1995

Jui-Sep 1995

Jan-Mar 1995

Jan-Mar 1995

Apr-Jun 1995

Jui-Sep 1995

Apr-Jun 1995

Jui-Sep 1995

Oct-Dec 1995

Sale of Service (Payment to Contractors)

L

Honda Philippines

Jan-Mar 1995

M

Honda Philippines

Jui-Sep 1995

N

Honda Philippines

1995 0

Honda Philippines

Oct-Dec 1995

p

Jacinto Markemg & Trading

1995

AG

Nissan Motors Phils

Apr-Jun 1995

AY

Sharp (Ptils) Corp

Jan-Mar 1995

AZ

Sharp (Phils) Corp

Apr-Jun 1995

BA

Sharp (Phils) Corp

Apr-Jun 1995

Subtotal

Sale of real property

Q

JS Steel Cebu Corporation

Jan-Dec 1995

Total

3, 996,040.90 39,960.39 2,137,729.00 21,377.28 1,949,514.42 19,495.12 1 '622,659. 00 16,226.59 3,194,298.00 31,942.98 4,552,980.00 45,529.80 402,078.00 4,020.78 1,738,910.00 17,389.10 5,121,970.91 51,219.70 1,272,252.45 12,722.53 558,455.63 5,584.56 234,305.32 2,343.05 1,326,057.23 13,260.58 1,513,702.14 15,137.02 1,331,801.97 13,318.02 471,484.38 4,714.85 1,148,273.18 11,482.73 361 ,808.14 3,618.08 237,434.00 2,374.34 3, 905, 133.39 39,051 .33 1,594,780.45 15,947.81 3,523,120.06 35,231.21 2,774,459.99 27,744.61 1,098,439.37 10,984.42 1,338,614.73 13,386.18 1,988,515.72 19,885.20 75,806.00 758.06 160,562.00 1,605.62 168,838.00 1,688.38 P263,011,890.41 P2,629,158.85 p 328,402.54 p 3,284.02 21,280.54 212.80 197,983.18 1,979.83 114,772.73 1,147.73 310,385.00 2,821 .68 5,499,124.18 54,991 .24 387,052.00 3,870.52 1,407,522.00 14,075.22 388,015.00 3,880.15 p 8,654,537.17 p 86,263.19 p 855,000.00 p 6~ 125.00 ~272,§21,427.58 ~2.n9,547,2~

In summary, the amount of P2,779,547.04 (taxes withheld) is composed of the following:

Nature of Income

Sale of Goods

Sale of Services

Sale of Real Property

Total

Income Payment

P263,011,890.41 8,654,537.17 855,000.00

Tax Withheld

P2,629,158.85 86,263.19 64.125.00 P2.779.547.04 Finally, with regard to the last requirement, a review of petitioner's amended 1995 income tax return (pp. 57-58, BIR Records) reveals the following items of income:

Sale of Goods

Processing Service Income

Foreign Exchange Gain

Insurance Claims

Commissions & Others

P553,618,809. 00 4,163,600.00 10,084,489.00 795,984.00 8,499,551.00 Comparing the above items with the composition of the ''taxes withheld" would show that petitioner declared its income from sale of goods and sale of services related to the creditable withholding taxes of P2,629,158.85 and P86,263.19, respectively, but failed to declare the income from its sale of real property related to the creditable withholding taxes of P64,125.00. Petitioner did not indicate any amount of income from sale of real property in its 1995 annual income tax return. Although petitioner reported the amount of P8,499,551.00 as "Commissions & Others", it cannot be verified from the records whether the income referred to as "Others" pertained to its income from sale of real property of P855,000.00.

In other words, petitioner failed to prove that it declared the income of P855,000.00 corresponding to the creditable withholding taxes of P64,125.00. Based on the above discussion, it appears that petitioner is entitled to a refund in the amount of P2,715,422.04 only which is the resulting amount after deducting P64,125.00 (the amount it failed to declare representing income from sale of real property) from P2,779,547 .04 (the amount of taxes proved to have been withheld).

However, this Court is still constrained to deny petitioner's claim for refund because petitioner carried over the subject claim to the succeeding taxable years, particularly 1996 to 1998 and the succeeding years. Section 69 of the 1977 NIRC, as amended, (now Section 76 of the 1997 NIRC) provides:

"Section 69. Rna/ Adjustment Retum.- Every corporation liable to tax under Section 24 shall file a final adjustment return covering the total net income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable net income of that year the corporation shall either:

(a) Pay the excess tax still due: or

(b) Be refunded the excess amount paid. as the case may be. In case the corporation is entitled to a refund of the excess estimated quarterly income taxes paid. the refundable amount shown on its final adjustment return may be credited against the estimated quarterly income tax liabilities for the taxable Quarters of the succeecliog taxable year." (Underlining Supplied) In interpreting this provision, the Supreme Court pronounced that these two options are alternative in nature. The choice of one precludes the other. Indeed, in Philippine Bank of Communications vs. Commissioner of Intemal Revenue,5 the Court ruled that a corporation must signify its intention- whether to request a tax refund or claim a tax credit - by marking the corresponding option box provided in the Final Adjusted Return (FAR). One cannot get a tax refund and a tax credit at the same time for the same excess income taxes paid.

This Court, in deciding this case, undertook to review once more the records of this case. Likewise, justified by the prindple of judidal notice, We also reviewed the records of another decided case involving the same parties (JS Steel Corporation vs. Commissioner of Internal Revenue, CTA case No. 6071, February 19, 2002) wherein petitioner's 1997 and 1998 Annual Income Tax Return were submitted as evidences.6

After a meticulous examination ci all the pertinent documents, We found that petitioner's 1996 Income Tax Return (Exhibit C£-2) shows that the 1995 overpaid income tax in the amount of P³,159,687.00 (subject of claim in the instant case) was carried over to 1996 as "prior year's excess credit'' but remained unutilized since petitioner suffered a loss in 1996.

In 1996, the overpaid income tax of petitioner amounted to P6,617,410.00 comprising of the prior year's excess credit of P3,159,687.00 and current year's tax credits in the amount of P3,457,723.00 which was again carried over to 1997 as "prior year's excess credit''.

The 1997 Income Tax Return of the petitioner reflects that it incurred an overpaid income tax of P10,250,857.00 which comprised of the prior years' excess credit of P6,617,410.00 and the current year's tax credits of P3,633,447.00. The amount of P3,633,447.00 was the subject of a claim for refund in CTA case No. 6071 and this Court found that the amount of P3,633,447.00 was partly utilized to pay for the 1998 Minimum Corporate Income Tax (MCIT) liability of petitioner in the amount of P710,523.00 thereby leaving an excess tax credit of P2,922,924.00. This Court ruled therein that the excess tax credit of P2,922,924.00 could no longer be claimed as refund because it was carried-over to the succeeding year 1999 as evidenced by the "x" mark in the box corresponding to the option "To be carried as tax credit next year'' in its 1998 return. Said decision was affirmed by the Court of Appeals on May 31, 2004 with final judgment on July 28, 2005 and a writ of execution was received by respondent on April4, 2006.8 Clearly from the foregoing, petitioner availed ci the automatic carry-over insofar as its 1995 substantiated excess creditable withholding taxes of P2,715,422.04 is concerned. It follows therefore that petitioner's claim for refund for _the year 1995 must be denied because

petitioner cannot be allowed to avail of a tax refund and a tax credit at the same time for the same excess income taxes.

WHEREFORE, premises considered, petitioner's claim for refund of excess or unutilized creditable withholding taxes for the taxable year 1995 is hereby DENIED.

Associate Justice

CERTIFICATION

~~~ Ut- ~

ERNESTO D. ACOSTA

Presiding Justice

Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. ~ .....__- ltl . 0~ ERNESTO D. ACOSTA

Presiding Justice

Chairman, First Division