Far East Bank & Trust Col\1p Any vs. The Commissioner of Internal Revenue

DECISION

The case at bar seeks for the refund or the issuance of a tax credit certificate in the amount of P15, 591,724.38 allegedly representing Petitioner's overpaidierroneously paid gross receipts taxes for the four qua11ers of 1996. As represented, Petitioner is a banking institution, duly organized and existing under the laws of the Republic of the Philippines, with principal office located at Far East Bank Center, Sen. Gil Puyat A venue, I\1akati City. For the four quatters of 1996, Petitioner filed with Respondent its Quarterly Percentage Tax Returns and paid the corresponding gross receipts tax (GRT) for each of the said quarters, hereunder summarized, the tax bases of which include the passive income which were subjected to twenty percent (20%) fmal withholding taxes (FWT). 1996 1st Qtr 2nd Qtr 3'd Qtr

Date of Filing Return/

Payment ofTax to the BIR Apti1 22, 1996 July 22, 1996 October 21, 1996

Taxable

GRT

Gross Receipts

Paid

Exhibit

Pl,872,688,186.32 p 84,227,257.38

A

1,915,952,342.99 87,666,200.49

B

2, 132,729,197.61 95,892,346.93 c 1 !-, , .) . . f

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January _o, l9Y6 After taking into cotLsideration the decision of thiH Court i11 ,...,TA Case No. 4720 entitled Asian Bank Corporation vs. C01mnissioner q( Jntel·n,:ll Re' em"B promulgated on .kmum:v 30, /996, which ruled that the 20 ,'1 fi.néi wilhlulding i.a,'{ . n intt:t'e@t income should not for n part of the taxable gross receipts, Putitioner! H !>v1a.tch 27, 1998, filed with Respondent a written clain1 for refund of its alleged overpaid ORT fot• the four quarlÝrs of 1996 in the total amount ofP15,591, 724.38 (Exh. E), broken down as follows:

Quarter

1st 2nd 3rd 4th

TOTAL

Interest Income

Subjected to 20% Final Tax

p 56,716,914.65 78,421 ,740.29 82,011,831.06 94.684,001.50 P311,834,487.5Q

GRT

For

Rate

Refund

sê·& p 2,835,845.73 so,:

.• 0 3, 921,087.02 5% 4,100,591.55 5è'0 4, 734,200.08 P15,591, 724.38 (Exhibit F).

On 'March 31, 1998, Petitioner filed with this Com1 the instant Petition for Review for failure of the Respondent to act on the claim for refund. Petitioner presents the proposition that the gwss receipts tax it paid for the four quarters of 1996 were based on the total gross receipts, inclusive of the passive income, which were subjected to the 20% fmal withholding tax at source thus, it argued, that in the light of this Court's tuling in the Asian Bank case, supra, which stales that the 20% final withholding tÞ1x on interest income should not f01m part of the taxable gross receipts, Petitioner oclually overpaid the amount legally due from it, insofar as its GR T obligations are concemed, hence, a refund is in order. 1 t'•, l) ·,

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Respondent on the other hand, rruses m the usual token of a defense that (1) Petitioner's claim for refund is subject to and is still under administrative investigation; (2) in an action for tax refund, the taxpayer has the burden of showing that the taxes paid were enoneously collected and failure to sustŽin said burden is fatal to the action; and (3) claims for refund are construed strictly against claimants since they are in the nature of tax exemption. x x x.

The legal issue to be resolved by the Court is whether or not the 20,o fmal withholding tax on cettain passive income of the Petitioner should be excluded in the total gross receipts of said Petitioner for GRT purposes, and the factual issue is whether or not Petitioner has adduced sufficient evidence for the entitlement of the amount sought to be refunded.

With regard to the legal issue, there is no squabble that Petitioner is entitled to the claimed refund.

This is not a case of frrst impression.

As conectly stated by the Petitioner, tlus Com1 has resolved the same issue in favor of the Petitioner in the case of Asian Bank Corporation vs. Commissioner of Internal Revenue, supra, wruch is anchored on similar factual circumstances and is on all fours with the case at bar.

Said

decision states in part:

"We agree with the Petitioner that the 20% final withholding tax on its interest income should not form part of its taxable gross receipts.

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This conclusion is in accord with the interpretation of the Supreme Cout1 in the case entitled Collector oflntemal Revenue vs. Marula Jockey Club, 108 Pllil. 821, as quoted by this Comt in disposing of a similar issue in the case entitled Compania !vfaritima vs. Acting Commissioner of lntemal Revenue, CTA Case No.)426 dated November 14, 1996, thus:

In the second place, the highest tribunal of the land inteqn·eted the tetm: "gross receipt<;" to mean all receipt<; of a taxpayer excluding those which have been especially earmarked by law or regulation for the government or some person other than the taxpayer.

Moreover, the Court of Appeals in the case of Commissioner of Internal Revenue vs. Citytrust Investment Philippines, Inc., CA G.R. Sp No. 52707, August 17, 1999, affumed our stand that the 20% fmal withholding tax on interest income should not form part of the taxable gross receipts, when it ruled, thus: "Accordingly, the 20% final tax withheld against the Respondent's passive income was already remitted to the Bureau of Intemal Revenue, for the corresponding year that the same was actually withheld and considered final withholding taxes under Section 50 of the same Code.

Indubitably to

include the same to the Respondent's gross receipts for the year 1994 would be to tax twice the passive income derived by the Respondent for the said year, which would constitute double taxation anathema to our taxation laws." The legal issue having been settled, what remains to be resolved by the Cout1 is the factual issue, that is, whether or not Petitioner has established by evidence its claim for refund.

In the case of Equitable Banking Corporation vs. Commissioner qf Internal Revenue, CTA Case No. 5640, promulgated on June 7, 2000, and in a litany of cases, this Court ruled that "aside from proving that the petition for review was timely filed within the two-year reglamentary perioc‡ Petitioner must also prove its compliance with the following requisites:

1.

That it paid the gross receipts tax;

2.

That it erroneously ovetpaid its gross receipts tax by including the 20% final withholding tax derived on its passive income as pat1 of the gross receipts declared in the quatterly percentage tax retums for the period involved; and 1 ,. 1 ()

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3. That the withholding agent cettifies that the 20<?-'o fmal withholding tax was paid on such pa.'isive income (Bank of Philippine lsland'i vs. C!R, CTA Case No. 5458, Feb. 15, 1999; and BPI Capital vs. CIR, CTA Case No. 5457, .Afarch 1, 1999; cited in SolidBank Corp. vs. CIR, CTA Case 1'-lo. 5408, April 14, 1999)''. Evidence on record shows that the administrative claim for refund which was filed with the Respondent's Bureau on I\.1arch 27, 1998 and the instant petition for review which was filed with this Court on March 31, 1998 were within the two-year prescriptive period commencing on April 22, 1996, the date when the gross receipts tax for the first quarter of 1996 wa.'i paid, hence, there is no doubt as to the timeliness of the instant petition. To substantiate its allegations that there was indeed overpayment of GRT for the taxable year 1996 in the total amount P15,591,724.38, Petitioner engaged the services of Sycip Gorres Velayo & Co., an independent auditing firm, represented by Mr. Ruben Rubio, one of its partners, and duly commissioned by the Coutt, pursuant to CT A Circular No. 1-95 as amended by CTA Circular No. 10-97. In his report dated February 16, 1999 (Exh. G), Mr. Rubio informed the Court that out of the total amount ofP311,834,487.60, alleged by Petitioner to be the 20% fmal tax on its passive income which have been included in its gross receipts for the year 1996 (Exl1s. E & F), only the amount of P216,492,600.18 was verified to have been included in the gross receipts for the year 1996 (Exhs. G & G-1). He said that the difference ofP4,767,094.38 was not verified for failure of the Petitioner to submit the supporting documents rela6ve to its investments in debts and other debt securities (TSN, dated Febtuaty 17, 1999, p. 24). Thu'i, !v1r. Rubio recommended to the Court the refund of the amount of P10,824,630.00, allegedly representing Petitioner's oveq)aid GRT for the year 1996.

CTA CASE NO. 35592

A detailed review and verification of the aforesaid report of Mr. Rubio, together with the evidence presented, discloses that not all of Petitioner’s interest income from Treasury Bills (Exh. G-2), Floating Rate Treasury Notes (Exh. G-3), Fixed Rate Treasury Notes (Exh. G-4) and Interbank Loans (Exh. G-5) were properly substantiated. Petitioner failed to submit the Certificate of Final Tax Withheld corresponding to the income mentioned, therefore an obvious non-compliance of requisite No. 3 abovestated which provide “that the withholding agent certifies that the 20% final withholding tax was paid on such passive income”. The Court has no other recourse but to disallow the income allegedly subjected to 20% FWT without the corresponding certificates of final tax, withheld, tabulated below:

1. TREASURY BILLS

(a) Court’s Disallowances of Income from Sale

FINAL

TRADING INTEREST TOTAL W/HOLDING

PERIOD EXHIBIT GAIN INCOME (Net of 20%) TAX

January G3a-1 P (583,007.86) P 4,980,115.38 P 4,397,107.52 P 1,099,276.88 February G-3-a-2 1,785,345.12 3,841 470.84 5,626,815.96 1,406,703.99 March G-3-a-3 346,028.25 3,266,846.46 3,612,874.71 903,218.68 April G-3-a4 716,544.42 3,159,744.87 3,876.289.29 969,072.32 May G-3-a-5, 577,255.46 2,813,086.27 3,390,341.73 847,585.43 June G-3-a-6 (338,944.92) 3,043,471.58 2,704,526.66 676,131.67 July G-3-a-7 569,236.04 3,430,250.89 3,999,486.93 999,871.73 August G3-a-8 1,587,244.45 4,814,973.38 6,402,217.83 1,600,554.46 September G-3-a-9 (201,493.68) 3,707,322.19 3,505,828.51 876,457.13 October G-3-a-10 211,566.04 3,287,226.20 3,498,792.24 874,698.06 November G-3-a-11 897,862.60 3,674,593.46 4,572,456.06 1,143,114.02 December G-3-a-12 1,758,833.87 29,162,465.13 30,921,299.00 7,730,324.75 Total P 7,326,469.79 P 69,181,566.65 P 76,508,036.44 P 19,127,009.11

(b) Court’s Disallowances of Income from Monthly Accruals

INTEREST

FINAL

INCOME

WITHHOLDING

PERIOD

EXHIBIT

(Net of 20%)

TAX

January

G-2-b-1 2,734,195.27 p 683,548.82

February

G-2-b-1 9.383,450.99 2,345,862.75

March

G-2-b-1 11,456' 229.65 2,864,057.41

April

G-2-b-2 4,884,443.23 1,221.110.81

May

G-2-b-2 4,085,076.94 1 ,021 ,269.24

June

G-2-b-2 9,240,450.39 2,31 0,112.60

July

G-2-b-3 9,485, 784.27 2,371 ,446.07

August

G-2-b-3 6,444,525.36 1,611,131.34

September

G-2-b-3 7,883,644.21 1 ,970,911.05

October

G-2-b-4 10.119,763.40 2,529,940.85

November

G-2-b-4 10,119,763.40 2,529,940.85

December

G-2-b-4 15,266,819.50 3,816, 704.88

Total

101,104,146.61 p 25,276,036.65

(See Annex A)

2.

FLOATING RATE TREASURY NOTES

PERIOD

October

November

December

(a) Comt's Disallowances of Income from Sale

FINAL

TRADING

INTEREST

TOTAL

WITHHOLDING

EXHIBIT

GAIN

INCOME

(Net of 20%)

TAX

G-2-a-10

p 12,471.92 p 449,678.36 p 462,150.28 p 115,537.57

G-2-a-11

70,293.85 1,061,097.17 1 '131 ,391.02 282,847.76

G-2-a-12

(341 ,535.39) 2,867,856.75 2,526,321.36 631,580.34

Total

p (258,769.62) p 4,378,632.28 p 4,119,862.66 p 1,029,965.67 (b) Court's Disallowances of Interest Income from Monthly Accmals

INTEREST

FINAL

INCOME

WITHHOLDING

PERIOD

EXHIBIT

(Net of 20%)

TAX

October

G-3-b-2-35 to 43 p 1,143,943.96 p 285,985.99

November

G-3-b-2-44 to 50 1,395,745.41 348,936.35

December

G-3-b-2-51 to 56 1 ,649,552.99 412,388.'.{-i

Total

p 4,189,242.36 p 1,047,310.59

(See Annex B)

»AGE 8

3. FIXED RATE TREASURY NOTES

(a) Court’s Disallowances of Income from Sale

FINAL

PERIOD EXHIBIT INTEREST INCOME W/HOLDING TAX

May G-4-a-5 P 48,368.51 P 12,092.13 June G-4-a-6 47,249.46 11,812.37 July G-4-a-7 465,418.33 116,354.58 August G-4-a-8 2,705,644.74 676,411.19 September G-4-a-9 4,084,375.43 1,021,093.86 October G-4-a-10 2,744,322.15 686,080.54 November G-4-a-11 1.342,537.40 335,634.35 December G-4-a-12 8,789,377.70 2,197,344.43 Total P 20,227,293.72 P 5,056,823.43

(b) Court’s Disallowances of Interest Income from Monthly Accruals

FINAL

WITHHOLDING

PERIOD EXHIBIT DISCOUNT COUPON TOTAL TAX

January G-4-b-1 P 378,388.93 P 84,352.73 P 462,741.66 P 115,685.42 February 551,239.70 116,766.28 668,005.98 167,001.50 March 53,791.43 124,925.57 178,717.00 44,679.25 April 14,458.88 59,288.27 73,747.15 18,436.79 May 36,381.67 149,182.09 185,563.76 46,390.94 June 1,086,530.87 2.406,971.93 3,493,502.80 873,375.70 July 2,898,643.05 5,150,610.83 8,049,253.88 2,012,313.47 August 2,271,697.40 5,938,297.06 8,209,994 .46 2,052,498.62 September 2,034,315.90 4,366,407.52 6,400,723.42 1,600, 180.86 October 5,937,498.13 11,222,362.29 17,159,860.42 4,289,965.11 November 14,679,994.26 21,922,002.22 36,601 ,996.48 9,150,499.12 December 14,621,776.05 29,784,178.90 44,405,954.95 11,101.488.74 81,325,345.69 P 125,890,061.96 P

(See Annexes C & D)

Total P 44,564,716.27 P 31,472,515.49 Likewise, the Court disallowed the amount of P4,324,131.99 pertaining to the gross receipts tax on Interbank Loans (Exh. G-5) for the same reasons aforestated, that is, the failure to present in evidence the Certificates of Final Tax Withheld on the said income.

In sum, after consideration of the above-mentioned disallowances, the Court fmds that Petitioner is entitled to the relief sought, but only in the amount of P2,350,014.96, computed as follows:

FLOATING

FIXED

GOVERNMENT

RATE

RATE

INTERBANK

SECURITIES

TREASURY

TREASURY

LOANS

TOTAL

PER SGV VERIFICATION

Final withholding tax p 45,777,572.68 p 32,573,698.69 p 51 ,658,689.05 p 86,482,639.76 p 216,492,600.18 Gross receipts tax

(FWrx 5%)

2,288,878.63 1 ,628,684.93 2,582,934.45 4,324,131.99 10,824,630.01

LESS:

COURT'S

DISALLOWANCE

Final withholding tax 44,403,045.76 2,077,276.26 36,529,338.92 86,482,639.76 169,492,300.70 Gross receipts tax

(FWrx 5%)

2,220,152.29 103,863.81 1,826,466.95 4,324,131 .99 8,474,615.04

AMOUNT REFUNDABLE

Final withholding tax p 1,374,526.92 p 30,496,422.43 p 15,129,350.13 p - p 47,000,299.48 Gross receipts tax

(FWrx 5%)

68,726.34 1,524,821.12 756,467.50 - p 2, 350,014.96 IN TilE LIGHT OF ALL THE FOREGOING, the instant Petition for Review is partially GRANTED. Respondent is hereby ORDERED to REFlJND or ISSUE A TAX CREDIT CERTIFICATE to herein Petitioner the amount ofP2,350,014.96 representing its proven overpaid GRT for the four quarters of 1996.

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WE CONCUR:

LLQ..a ERNESTO D. ACOSTA

Presiding Judge

(Dissenting)

M1ANCIO Q. SAGA

Associate Judge

CERTIFICATION

I hereby certify that the above decision was reached after due consultation with the members of the Com1 of Tax Appeals in accordance with Section 13, Atticle \fliT of the Constitution.

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 lQ. oc-nl\_ ERNESTO D. ACOSTA

Presiding Judge