Golden Arches Development Corporation vs. Commissioner of Internal Revenue

DECISION

This is a Petition for Review filed by the Petitioner on Ap ·il 14, 1998 seeking for a refund of the amount of ELEVEN . MILLION NINE HUNDRED EIGHTY THREE THOUSAND SEVEN HUNDRED ONE PESOS (P11,983,70l.OO) representing allegedly unutilized withholding tax credits for the year ended December 31, 1995. The factual backdrop of this case is undisputed. Petitioner is a domestic corporation duly organized and exis1 ing under and by virtue of the laws of the Philippines. It is primarily engaged in the leasing o: real prope1iy and derives rental income therefrom. On April 15, 1996, Petitioner filed.its Corporation Annu2l Income Tax Return for calendar year ended December 31, 1995 reflecting a net loss in tht amount ofP8,688,984.00 and excess withholding tax credits amounting to P46, 162,412.00.

CTA CASE NO. _5619

On October 9, 1996, Petitioner filed an Amended Income Ta-< Return for calendar year 1995 (Exh. B) showing a reduction in its total excess tax credits a:; of the year 1995 brought about by two separate cases filed by it with this Court where it S('ught a refund of the total amount of P8,834,545.00, which amount was deducted from its an;:mal income tax return for calendar year 1995. Hence, only the amount of P37,327,867.00, as excess tax credit, is reflected in its Amended Income Tax Return for the year 1995. :-Iowever, when Petitioner filed its amended annual income tax return for calendar year 19·16 (Exh. D), it no longer applied the excess tax credit of the previous year (Exhs. D-1 & D-:2). Instead, Petitioner filed a claim for refund of its unutilized excess tax credit amat·nting to P11,983,701.00 representing its creditable tax withheld from its rental income detailed as follows:

GOLDEN ARCHES DEVELOPMENT CORPORATION

SUMMARY OF RENTAL INCOME & WITHHOLDING

For the year ended, December 31, 1995

WITHHOLDING AGENT

EXHIBIT INCOME TAX PAYMENT WITHHELD McPhilip Food Industries, Inc. C-1 2,784,678.05 139,233.88 McPhilip Food Industries, Inc. C-2 3,978,798.08 198,939.90 Alfonso Ng C-3 3,273,643.53 163,682.15 ABC & G Corporation C-4 3,296,916.29 164,845.80 McPhilip Food Industries, Inc. C-5 2, 771,585.34 138,579.27 McMary Food Center C-6 2,976,706.80 148,835.34 GMC Foods C-7 2,459,114.40 122,955.72 An-cel "A" Corporation C-8 3,970,608.33 198,530.41 Giant Arches Food Corporation C-9 5,541,930. 78 277,096.52 McJola Food Industries C-10 825,941.69 41,297.08 McRey Food Enterprises C-11 2,228,038.57 111,401.92 Golden City Food Industries C-12 1,020,379.48 51,018.99 EDSA Food Industries, Inc. C-13 2,922,611.89 146,130.58 McMighty Corporation C-14 884,208.00 44,210.40 McDaniel's Food Corporation C-15 2,205,296.27 110,264.81 McBros Food Corporation C-16 2,927,118.79 146,355.95 Me DLC Foods Incorporated C-17 722,692.95 36,134.63 Davao City Food Industries C-18' 1,840,954.59 92,047.73 Geneva Food Incorporated C-19 2,145,216.78 107,260.82 McColby's Incorporated C-20 2,025,289.20 101,264.46 McGill Food Industries C-21 1,697,550.61 84,877.53

Mariel Food Industries Blue Dairy Corporation Fun Leisure Incorporated Havi Food Services Phils, Inc. (POl) McGeorge Food Industries, Inc. TOTALS C-22 C-23 C-24 C-25 C-26 p 270,954.69 2,000,000.00 921,955.50 3,056,186.60 180,925,639.20 238,774,016.41* F 13,547.73 100,000.00 46,097.76 152,809.33 9,046,281.96 11,983,700.67 Pursuant to Section 2 30 of the Tax Code (now Section 2: :9), Petitioner filed an administrative claim for refund with the Respondent on March 9, 1998 pertaining to the aforesaid excess tax credits (Exhibit "E"). Failing to obtain an affirmative response from the Respondent and fearing that its claim would be barred by the two year period of prescription within 'vhich to initiate judicial action, Petitioner filed a Petition for Review with this Court on April 14, 1998. In his Answer, Respondent interposed the following Special ar d affirmative Defenses, to wit.:

x x x x

4. The alleged formal application or claim for refund in tl[e amount of P 11, 983, 701.00 as unutilized withholding tax credits for the year ended December 31, 1995 is subject to and yet under administrative investigation by Respondent's bureau personnel tasked to undertake the same;

5. The amount sought to be refunded was not proper!) documented and taxes are presumed collected in accordance with law and regu · ations, hence, not refundable;

6. In an action for tax refund, thY burden of proof is up()n the taxpayer to establish its right thereto and show compliance to the provisic ns in Section 229 of the Tax Code, as amended;

7. Well-settled is the rule that ,claims for refund are construed strictly against the taxpayers/ claimants, since the same partake of the nature of exemption from taxation( Resins, Inc. vs. Auditor General, 25 Z:CRA 754, 1968) \._

The sole issue to be resolved in this case is whether or not th ; Petitioner is entitled to a refund of the amount of P11,983,701.00 representing unutilized creditable withholding tax at source.

In cases of this nature, this Court has repeatedly held th< .t the grant of refund of taxpayer's unutilized creditable withholding tax is dependent u;Jon compliance with the following requisites: 1.)

That the claim for refund was filed withir. two years as· prescribed under Section 230 (now Sec. 229 ) of the l ax Code; 2.)

That the income upon which the taxes were withheld were included in the return of the recipient; 3.)

That the fact of withholding is established by a copy of statement ( BIR Form1743.1) duly issued by the payo,· ( withholding agent ) to the payee showing the amount paid and the amow1t of tax withheld therefrom.

[ Section 10, Rev. Regs. No. 6-85; Citytrust Finance Corporation vs. The Honorable Commissioner of Internal Revenue, CTA Case No. 4134, November 11, 1991; affirmed by the Court of Appeals in Citytrust Finance Corporation Vs Court of Tax Ap_)eals and The Commissioner of Internal Revenue, C.A. G.R. SP No. 28239, March 14, 1994; and Citytrust Finance Corporation V s. Co:nmissioner of Internal revenue, CTA Case No. 4046, February 24, :993; affirmed by the Court of Appeals in Commissioner of Interna ·. Revenue V s. Citytrust Finance Corporation and the Court of Tax Appeals, C.A. G.R. SP No. 31104, April 18, 19941 These requirements were affirmed by the Supreme Court in tx1e case of Citibank, N.A. vs. Court of Appeals and Commissioner oflnternal Revenue, 280 S'yRA 459. Pursuant to Section 230 ( now Section 229) of the Tax Code. Petitioner filed its claim for refund with the Bureau of Internal Revenue on March 9,1998 and with this Court on •j

• J

I {:.. --- t DECISION­

PAGES April 14,1998; both dates are well within the two- year period from April 15, 1996, the date Petitioner filed its Annual Income Tax Return for the year 1995. As regards the second requirement, Petitioner failed to pro' ·e that all of the income reflected in the Certificate of Income Tax Withheld at Source ( Exhs. C-1 to C-26 ) were part of the income declared in its annual income tax return for calendctr year 1995. In its 1995 income tax return, Petitioner declared a gross income in the amot:nt of P 232, 124, 127.00 from income producing properties ( Exhs. B-4 & B-5 ). However, < cross reference with the Summary of Rental Income and Withholding Tax supporting sucl · gross income, reveals a greater amount ofP 238, 774, 016, .41 ( Exh. C). It is also evident that some of the income, [e.g., income from professional fees ( Exhs. C-5, C-17, C- 18)] refkcted in the certificates do not tally with the income stated on the schedule found in Petitic ner' s annual income tax return, to wit:

NAME OF LESSEE/

PER SCHEDULE

PER SUM\IIARY

DISCREPANCY

WITHHOLDING AGENT

EXHIBIT 8-5

EXHIBIT C

McGeorge Food Industries, Inc. 154,773,785.00 p 180,925 639.20 p (26, 151 ,854.20) McPhilip Food Industries, Inc. 9,517,511.00 9,535 061.47 (17,550.47) Alfonso Ng 3,273,924.00 3,273. 643.53 280.47 ABC & G Corporation 3,298,107.00 3,296 916.29 1,190.71 McMary Food Center 3,915,519.00 2,976 706.80 938,812.20 GMC Foods 2,492,104.00 2,459 114.40 32,989.60 An-cel "A" Corporation 3,970.608.33 (3,970,608.33) Giant Arches Food Corporation 5,541,931.00 5,541.930.78 0.22 McJola Food Industries 3,511,984.00 825 941.69 2,686,042.31 McRey Food Enterprises 2,209,633.00 2,228 038.57 (18,405.57) Golden City Food Industries 2,266,432.00 1,020 379.48 1,246,052.52 EDSA Food Industries, Inc. 3,752,163.00 2,922 611.89 829,551.11 McMighty Corporation 1,412,792.00 884 208.00 528,584.00 McDaniel's Food Corporation 2,20.6, 313.00 2,205.296.27 1,016.73 McBros Food Corporation 3,499,721.00 2,927 118.79 572,602.21 Me DLC Foods Incorporated 1,578,091.00 722.692.95 855,398.05 Davao City Food Industries 1 ,988,112.00 1,840 954.59 147,157.41 Geneva Food Incorporated 2,190,657.00 2,145 216.78 45,440.22 2.· 8

CTA CASE No.S619

McColby's Incorporated McGill Food Industries Marie! Food Industries Fun Leisure Incorporated Havi Food Services Phils, Inc. (PDI) Cebu Golden Food Ventures, Inc. McFerry Food Services Arlene Recto McDonald's Clark TOTALS 2,639,258.00 1,669,785.00 272,824.00 10,446,025.00 3,328,619.00 103,239.00 3,986,803.00 248,795.00 2,02!,289.20 1,69'',550.61 270,954.69 92' ,955.50 3,05f\, 186.60 230,124,127.00 p 237,67•.,016.41 p ============= 613,968.80 (27,765.61) 1,869.31 (921 ,955.50) 7,389,838.40 3,328,619.00 103,239.00 3,986,803.00 248,795.00 (15,217,345.4 1) Thus, in view of the aforestated discrepancy, this Court fines it inevitable to disallow the amount of withholding tax corresponding to the income not declared in the final adjustment return computed as follows :

NAME OF LESSEE/

DISCREPANCY RATE or= TAX DISALLOWANCE

WITHHOLDING AGENT

McPhilip Food Industries, Inc. 17,550.47 5% p 877.52 McGeorge Food Industries, Inc. 26,151,854.20 5% 1,307,592.71 An-cel "A" Corporation 3,970,608.33 50/c 198,530.42 McRey Food Enterprises 18,405.57 5°/c 920.28 McGill Food Industries 27,765.61 5% 1,388.28 Fun Leisure Incorporated 921,955.50 5% 46,097.78 TOTALS 31,108,139.68 p 1,555,406.98 As to the third requirement, Petitioner was able to presei 1t various Ce1iificates of Income Tax Withheld at Source ( Exhs. C-1 to C- 26 ) to r rove that the amount of Pll ,983, 700.67 as creditable withholding tax was indeed withheld. However, a careful scrutiny of the said certificates reveal that one such certificate issued by Me Gill Food Industries, Inc. bears no signature ( Exh. C-7), hence, should likewise be disallowed. After taking into account the certificates and the summary/  chedule submitted by the Petitioner, including the certificate left unsigned, the refundable ar·1ount is hereby computed as follows:

CTA CASE NO. 561,

PETITIONER'S CLAIM FOR REFUND

LESS: DISALLOWANCES

(a) Creditable withholding taxes of which Income were not declared in ITR

(b) Certificate with no signature

AMOUNT REFUNDABLE

P11,983,700.67 P1 ,555,406.98 84,877.53 1,640,284.51 P10,343.416.16

WHEREFORE, in view of all the foregoing, Respond,:nt is hereby ordered to REFUND, or in the alternative, to ISSUE a Tax Credit Certific< te in the amount of TEN MILLION THREE HUNDRED FORTY THREE THOUS.& ND FOUR HUNDRED SIXTEEN PESOS AND SIXTEEN CENTAVOS (P10,343,H6.16) in favor of the Petitioner, representing unutilized withholding tax credits for the year ended December 31, 1995.

WE CONCUR:

Q, ERNESTO D. ACOSTA Presiding Judge I 2Ju DECISION­ CTACASENO. S619 PAGES CERTIFICATION I hereby certify that above decision was reached after due consultation with the members of the Court of Tax Appeals in accordance with Section 13, Article VIII of the Constitution.

23i -tsL.o ERNESTO D. ACOSTA Presiding Judge