Ayala Life Assurance, Inc. vs. Commissioner of Internal Revenue

DECISION

This IS a Petition for Review seeking fo r the refund of the amo unt of SEVENTEEN MILLION ONE HUNDRED FIFTY-SEVEN TllOUSAND FOUR HUNDRED EIGHTY-NINE PESOS (P 17, 157,489.00) allegedly representing the excess and unutilizecl creditable withholding taxes withheld at source for the calendar year ended December 31, 1 996.

Petitioner is a corporation duly organized a11d existing under the laws of the Republic of the Philippines, authorized to engage in lik insurance business with principal place of business located at the 9 111 floor, Ayala Life Bldg., Ayala Avenue, Makati City. 1 Records show tlmt on April 23, 1997, Petitioner filed with the Bureau of Internal Revenue (through its BIR-Accredited Bank of the Philippine Islands, Makati 13ranch-OO I) _. . .

its Corporation Annual Income Tax Return (Exhibit II) for the calendar year ended 3 1 1 Joint Stipulation (lFacls, item No.I. CTA docket p.36

/333-A-

December 1996 reflecting the amount of P 24,6 I 5,903.00 as excess and/or unutilized creditable income tax withheld at source, computed as follows:

Gross Income

Less: Deductions

Taxable Income

Tax Due

Less: Tax Credits/Payments

Alleged Refundable Amount

P I ,002,452,399.00 I ,045,504,596.00 ( 43,052,197.00)

NiL

24,615,903.00 p _£24.615.903.00) The breakdown of the aggregate tax credits/payments of P24,615,903.00 as above shown allegedly consists of the following items: (a) Prior Year's Excess Credit of P7,458,414.00; and (b) creditable tax withheld for the calendar year 1996 amounting to P17,157,489.00.

The amount of Pl7,157,489.00 representing a portion of the total refundable excess creditable withholding taxes Jl·om income payments to the Petitioner during the calendar year 1996 comprising of gain from sale of real estate and rental inc<_:>me was carried over to the succeeding year 1997 as prior year's excess credit. However, since Petitioner incurred a net loss during the first quarter of calendar year 1997 (Exhibit C) and for the entire calendar year ended December 31, 1997 (E.x!Jihit D). said amount remained unapplied and unutilized. True enough, for the first quarter of 1997, Petitioner incurred a net loss of P64,676,944.55 and an excess creditable withholding tax of PI ,483,259.87 as evidenced by Petitioner's Quarterly Income Tax Return for the I st Quarter of 1997 (Exhibit C) which was filed with the 81R on May 29, 1997. Fo;· the entire calendar year ended December 31, 1997, Petitioner likewise incurred a net loss in its business operations .... ~,_ ..

amounting toP I ,735,207.00 and an excess creditable withholding lax or'P31, 118,917.00. /333 - 8

These amounts are clearly renccted 111 Petitioner's Corporation Annual Income Tax Return (Exhibit D) for the calendar year ended December 31, 1997, filed on April 15,1998. Said 1997 Annual Income Tax return re1lected the following amounts:

Gross Income

Less: Deductions

Taxable Income (Net Loss)

Tax Due

Less: Tax Credits/Payments

(a) Prior Years Excess Credit

(b) Quarterly Payments

(c) Creditable Tax withheld

Tax Payable/Overpayment

p 1,167,301,353.00 1' 169,036,560.00 24,615,903 .00 1.00 6,503,014.00 p

(P

( 1 ,735,207.00)

NIL

31,118,917.00 31.118.917.00) As can be seen from the foregoing, the amount of P 24,615,903.00 representing prior ye~trs excess credit (1'7,458,414.00 for 1995 and P 17,157,489 for 1996) was neither utilized nor applied in the year 1997 because of the Petitioner's net-loss position in its business operations.

On December 6, 1997 (should be December 3 as per Exhibit "B"), Petitioner filed with the BIR, Revenue Region No. 8, a letter request for tax credit/refund of the amount of P 17,157,489.00 for unutilizecl withholding tax for taxable year 1996.2 1\s the Respondent undertook no action on Petitioner's administrative claim for refund, Petitioner elevated his cause of action to this Court on April 14, 1999 via Petition for Review in order not to be barred from seeking judicial recourse to claim said refund/ tax credit by reason of prescription.

For his part, Respondent, on July I, 1999, filed an Answer and raised therewith the following Special and Affirmative Defense, thus:

1.

Jn an action for tax refund, Petitioner must show that taxes were paid erroneously or collected illegally. Failure to sustain this burden is 1~ttal to the action for refund;

2.

Claims for refund are construed strictly against the claimants since they are in the nature of exemptions from taxation. (Manila Electric Co. vs. Commissioner (~{Jntemal Revenue, ()7 ,)'CRA 351),· 3.

Taxes arc presumed to have been paid and collected in accordance with Jaw.

In order to substantiate its claim for refund, Petitioner presented the following documentary evidence which have been duly admitted by this court in its Resolution dated July 7, 2000 and March 2, 200 I, to wit:

Exhibit

A,D B c E toY AA,CC,

and DD

EE

FF&GG

Description

Petitioner's Corporate Annual Income Tax Returns fur the calendar years ending December 31, I 996 and 1997 Letter-claim for refund to the BIR Corporate Quarterly Income Tax Return for the 1st Quarter

of Calendar Year 1997

Various Certificates of Creditable Taxes Withheld at

Source

for

Taxable

Y car 1996 issued by various withholding agents with Petitioner as payee

Various Monthly Remittance Returns of Jncome Taxes

withheld for the months of September, October & .July 1996 Monthly Remittance Return of Income Taxes withheld for the year I 996 Summary of Petitioner's exhibits regarding creditable taxes withheld at source in I 996 from rental and sale of real property (Supplemental Evidence) Letter request to 'the Chief of the Revenue Accounting Division of BIR and the Cerlilicalion

1 3 33- D

-· attesting that the co llections from Petitioner were veri ficd against the Tax Returns/ AT APs batch Control Sheets on fil e with the Di vision On the other hand, counsel for the Respondent opted not to present any controverting evidence but instead submitted its case based on the pleadings. The case was submitted for decision on Jul y 20,200 I, after the Petitioner presented its memorandum.

The lone issue to be resolved by this Court, as jointly stipulated by the parties is centered on WHETHER OR NOT PETITIONER IS ENTITLED TO A TAX REFUND

OF THE AMOUNT OF P

17, 157,489.00 FOR UN UTILIZED CREDJTA 13LE WITHHOLDING TAX FOR TAXABLE YEAR 1996.

Petitioner cites Section 69 of the old Tax Code (now Section 76 of the 1997 Tax Reform Act ) as its legal basis for the claim lor refund, which is hereunder quoted as follows:

"Section 69. Finaladjustmeut retum. - Every corporation liable to tax under Section 24 shall fil e a final adj ustment return covering the total taxable income for the preceding calendar or !iscal year. Jf the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the enti re taxable 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 tax credit or refund of the excess estimated quarterly income taxes paid, the refundable amount shown on its fi nal adjustment return, may be credited against the estimated quarterly income tax I iabi I i ties for the taxable q uarlers of the succeeding taxable year."

I 3 33 -- E

Page (j We agree with the Petitioner that a refund or tax credit is in order. A perusal of the records would show that the Petitioner's creditable taxes for taxable year 1996 were not applied to the income lax liability of the subsequent year because Petitioner incurred a net operating loss during th <:: taxable year 1997 (Exhihit D). However, since we are dealing with the refund of unutilized creditable withholding taxes, this Court bas laid down three basic requirements [in the following cases: Cilytn1st Finance Corponttion vs. The Honorable Commissioner of Jntemal Revenue, CTA Case No. 4134, November 11, 1991; affirmed by the Com·t of Appeals in Citytmst Finance Coqwr·ation vs. Com·t of Tax Appeals and the Commissiune•· of Internal Revenue, C.A. G.R. SP No, 28239, Ma•·ch 14, 1994; and Citytrust Finance Corporation (formerly Investor's Finance Corporation/FNCB Finance) vs. Commissionct· of lntcmal Revenue, CTA Case No. 4046, February 24, 1993; affinucd by the Court of Appeals in Commissionet· of Intunal Revenue vs. Citytt·ust Finance Coqwration (fonucl"ly Investor's Finance Cor'p./FNCB Finance) and the Com·t of Tax Appeals, C.A. G.R. SP No. 31104, April 18, 1994] hereunder enumerated as follows: 1.

That the claim for refund is filed within the two-year reglcmentary period pursuant to Section 230 of the Tax Code, as amended; 2.

That the income upon which the taxes vcre wi thheld were included as part of the gross income declared in the income tax return of the recipient; 3.

That the fact of withholding is established by a copy of the statement duly issued by the payor to the payee showing the amount paid and the amount of tax withheld thcrefl·om.

/333- {:" , These requirements were arfirmed by the Supreme Court in the landmark case of Citibau/( N.A. vs. Court of Appeals, Commissiouer of Jutemal Revenue, G.R. No. 107434, dated October 10, 1997.

Aller an examination o r all the documents presented in evidence, this Court llnds that Petitioner bas substantially complied with the afo resaid requirements. As to the first requirement, records reveal that Petitioner filed with the 8 1 IZ its written claim for refund on December 3, 1997 and the Petition for Review on April 14, 1999. Since the counting of the two-year period commences to run on April 23, 1997, the date when the final adjustment return lor taxable year 1996 was filed (Commissioner of Juternal Revenue vs. Asia Australia Ltd., G.R. No. L-85956, April/0,1989), clearly Petitioner's action was fil ed well within the two-year period provided by law. As to whether or not Petitioner included the income from which the taxes were withheld in the gross income declared in its income tax return, We are convinced that Petitioner has complied with the second requirement. Petitioner's income was derived from the rental and sale of real properlies. Based on the 1996 ITR, Petitioner declared the gain on sale of real estate, land and building amounting to I' 198,445,995.00 in which the amount of Pl4,192, 11 7.00 has been withheld, and the rental income amounting to P30,394, 168.00 in which the amount of P2,965,372.00 has been withheld by the lessees. The total creditable taxes withheld Jo r the calendar year 1996 amoun ted to PI 7, 157,489.00. However, Petitioner made a typographical error when it interchanged the two amounts of withholding taxes. This was explained by Petitioner's witness, Ms. Maria Carmela L. Toribio, during the hearing held on December 14, 1999, and We quote, thus:

/3 33- G

.·

!'age 8

Q:

Were there any sources of income that were subjected to w ithholding tax, Madame Witness?

A:

Yes.

Q:

Can you please point them out to us i r it is shown in Exhibit "A".

A:

The income subject to withholding tax are shown in Schedule 3 of the Income Tax Return. These are the gain on sale of real estate, latH.! and building of P 198,445,995.00 w ith the corresponding tax withheld o f P 14, 192,117.00; Rental Income of 1'30,394, 168.00 with the corresponding tax withheld of P2,965,372.00. We j ust noted that there was slight typographical error in the Income Tax Return that the amount of Tax Withheld on the Rental Income was typed beside from " Income or Gai n of Sale".

Q:

Do you tell us thalthls lax withheld corresponding lo gain on sale should instead be the tax withheld lo r the rental income?

A:

Yes.

Q:

And, the tax withheld o r· P 14. 192, 11 7.00 should be typed beside and refers to the tax withheld on gain or sale.

A:

Yes.

However, the taxes withheld in the amount o r P32,809.25 from the Bank of the Philippine .Islands (Exhibit H-2) representing Petitioner's income rrom professional (juridical) services of P656, 185.00 were not rellccted in Petitioner's 1996 annual income tax return. Only the taxes withheld from rental income and sale of real properties were declared in the 1996 income tax return, hence, this Court deemed it proper to disallow the creditable withholding taxes referring to prol'essional (juridical) services. Petitioner's submission of the vari ous certi ficates of Creditable Income Tax Withheld at Source indicates compliance with the thi rd requirement. Petitioner presented /333~/~ l

C"l'A Case No. 5793 the various Certificates of Creditable Taxes Withheld at Source-13HZ Form 1743-750 and the payors' Monthly Remittance Returns of Income Taxes Withheld- BIR Form 1743W (Exhibits E to Y, inclusive of sub-markings. A/\, and CC to EE). However, from the abovementioned documents, the certificate of creditable tax withheld at source issued by Radio Communications or the Philippines (Exhibit W) should be disallowed because the certificate has no date. Moreover. a comparison of the taxes withheld from the sale or real properties as reflected in the I 996 annual income tax return amounting to Pl4,192,117.00 is less than the amount of taxes withheld reflected in the monthly remittance returns in the total amount of P 15,789,2 17.50. Onl y the amount declared in the annual income tax return should be allowed . Based on the foregoing, this Court recommends the granting of Petitioner' s claim for refund in the reduced amount of P 14.797,996.97 computed as follows:

CREDITAIJLE TAXES WITHHELD FROM RENTAL INCOME

PERIOD

INCOME

TAX

WITHHOLDING AGENT

EXHIBIT

COVERED

PAYMENT

WITHHELD

AROMIN, SlY & ASSOC.

E

1996 p 1,520,395.00 p 76,019.74

AYALA BAIN INSURANCE

F

Jui-Sep 96

3,240.00 162.00

AYALA INSURANCE

G

Apr-Jun 96

72,900.00 3,645.00 BANK OF THE PHIL IS.

H

Nov 96

:..0,475.00 1,023.75 BANK OF THE PHIL IS.

H-1

1996 81,900.00 4,095.00

BORDEN INTL

I

Feb-96

10,422.20 521 .11

BORDEN INTL

1-1

Jul-96

10,422.20 521 .11

BORDEN INTL

1-2

May-96

10,422.20 521 .11

BORDEN INTL

1-3

Jan-96

222,750.00 11 ,137.50

BORDEN INTL

1-4

Feb-96

222,750.00 11 ,137.50

BORDEN INTL

1-5

Mar-96

222,750.00 11 ,137.50

BORDEN INTL

1-6

Apr-96

222,750.00 11,137.50

BORDEN INTL

1-7

May-96

222,750.00 11 ,137.50

BORDEN INTL

1-8

Jun-96

222,750.00 11 ,138.00

BORDEN INTL

1-9

Jul-96

222,750.00 11 ,137 50

BORDEN INTL

1-10

Nov-96

222,750.00 11 ,137.50

/333 - E

Page /0

CEBAP LENDING HOUSE

J

1996 84,000.00 4,200.00

DEL MONTE FRESH

K

Jan-Mar 96

194,996.40 9,749.82

PRODUCE

DEL MONTE FRESH

K-1

Apr-Jun 96

194,996.40 9,749.82

PRODUCE

DEL MONTE FRESH

K-2

Oct-Dec 96

194,996.40 9,749.82

PRODUCE

DHL PHILIPPINES

L

Jan-Mar 96

44,180.00 2,209.00

DHL PHILIPPINES

L-1

Apr-Jun 96

45,825.00 2,291 .25

EDINET PHILS

N

1996 1,725,605.30 86,280.24

EMPIRE SALES

0 1996 218,700.00 10,935.00 E.B. LOREDO REALTY p 1996 217,728.00 10,886.40

GLOBE TELECOM

Q

1996 105,000.00 5,250.00

JRS BUSINESS CORP

R

Apr-Jun 96

11 5,500.00 5,775.00

JRS BUSINESS CORP

R-1

Jui-Sep 96

122,472 .00 6,006.00 J.P. TOLENTINO s 1996 416,666.25 20,833.31

LBC EXPRESS

T

1996 637,21 1.00 31,860.55

MAKATI ROTARY CLUB

u 1996 256,122.00 12,806.10 MANAGEMENT ASSOC.

v 1996 328,050.00 16,402.50

UNIVERSAL

X

1996 3, 158,965.86 157,948.29

REINSURANCE

UNITED JANITORIAL

y 1996 546,750.00 27,337.55

Subtotal

p 12,119,941 .21 p 605,879.97

ADD: CREDITABLE TAXES WITIIIIELIJ FROM SA~ES OF

REAL PROPERTIES

PERIOD

INCOME

TAX

WITHHOLDING AGENT

EXHIBIT

COVERED

PAYMENT

WITHHELD

AYALA LIFE ASSURANCE

AA

Sep-96

p 41,408,000.00 p 2,070,400.00

AYALA LIFE ASSURANCE

cc

Oct-96

18,092,000.00 904,600.00

AYALA LIFE ASSURANCE

DO

1996 13,850,000.00 692,500.00

AYALA LIFE ASSURANCE

EE

1996 161 ,622,900.00 12, 121,7 17.50

Subtotal

p 234,972,900.00 p 15,789,217.50 Less: Undeclared creditable taxes withheld p 1 597 100.50 A llowab le creditable taxes withheld li·om sa les of real properties p 14 192 117.00

AMOUNT REFUNDABLE

~ :l4,Z9Z,.9llii.ll.Z ,'

/333 - J

Page II

WHEREFORE, 111 v1ew of the !o rcgoing, the instant Petition for Review is PARTIALLY GRANTED. Respondent is hereby ORDERED TO REFUND OR TO ISSUE A TAX CREDIT CERTIFICATE in favor of the Petitioner in the reduced amount of FOURTEEN MILLION SEVEN HUNDRED NINE~Y SEVEN THOUSAND NlNE HUNDRED NINETY SIX & 97/ 100 (P 14,797,996.97) representing unutilized creditable taxes withheld at source for the calendar year ended December 31 , 1996.

WE CONCUR:

Uc.~G C?. ~~-e·.--o0 Q auANJTO C. CASTANEDA, Jkf, Associate .I udge

L~ --C~

ERNESTO D. ACOSTA

Presiding Judge

CERTIFICATION

T hereby certify that the above decision was reached after clue consultation with the members of the Court of Tax Appeals in accordanct with Section 13, Article V fff of the Constitution.

L

--[9. \rl-yyk_ ERN ESTO D. A COST A

Presiding Judge

(333 ~ K