·-·....--- I. V. E~ Ledni, et al. vs. Comlvlissiol..Jeh of Internal Reve Ue, et al.

DECISION -

- 2 - ~4 1 805 . 59 in withholding tax, or a net income tax due and payable of ~31 7,395.41 for the year 1956. (Par.

31 Petition, & Par. 1, Answer; Exho A, pp., 7 & 11 1 BIR rec.)

On April 15, 1959, the petitioners, pursuant to respondent's assessment notice No. A-31462- 56, paid ¥326 , 247 . 41~ as evidenced by Official Receipts Nos. 764592 and 764593 for ~8 , 852.00 and ~3 17 1 395.41, res- pectively.

Hence, the total sum of income tax paid for the year 1956, including the withholding tax of i"4_.805. 59 1 amounted to :il~33 1,053.00. (Par. 4 , Petition, & Par.

1~ Answer.)

On March 17 , 1959 1 the petitioners filed an amended income tax return ~ for 1956 reporting the same gross income of ~1 1 017, 287., 65 reported in their ori- ginal income tax return, but a smaller net income of 527,870.20 on which the sum of 213;809. 51 is due as income tax after deducting ¥4J805.59 as withholding tax.

(Exh. C, pp. 1 & 4 , BIR rec.)

The only difference between the original and the amended income tax r eturns is the claim to a deduction in the amended return of the sum of 205,939.24 paid in 1956 to the u.s. Govern- ment as federal inc ome tax.

Simultaneously with the filing of the amended inc ome tax return for 1956 on March 17, 1959, the pe• titioners also filed a writte n ~ claim for refund of the sum of ~ 112,437. 90, plus six per cent ( 61o) interest a year from the date of payment .

(Exh. B, pp. 5- 6, BIR rec. )

' ,j;)

DECISION ...

- 3 - In view of respondent's failure to answer the claim for refund 1 and inasm~ch as the two-year period prescribed by Section 306 of the National Internal • Revenue Code within which to file the action in court to recover the income tax allegedly erroneously col- lected by the respondent was to expire on April 15, 1960,. the petitioners filed the inst·ant 11Petition for Review and Refund of Inc ome Taxv on April 11 1 1959. As correctly stated by the respondent Commis- sioner of Internal rlevenue, the vlegal issue in this case is identical to that involved in C.T. A. Case No. 570 which is (was then) pending decision by this Honor- able Court 1 L, e., whether or not income tax paid to the U. S. Revenue Service in 1956 is deductible from Phil- ippine gross income earned in the same year by an Ame- rican resident who has no income other than that de- rived from Philippine sourcesv.

(Pe 1, Memorandum for the Respondent; Po 103, CTA rec.)

The case referred to by the respondent (C.T.A. Case No. 570) is between the same parties as in the .. l.nstant case, who are also re- presented by the same attorneys, and involve the same kind of tax and practically the same facts, the only difference being the taxable year under review. The petitioners claim the disputed deduction under Section 30 {c) (1) (B) of the National Internal Revenue Code which provides as follows:

- 4 - ' 1 EC. 30. Deductions from gross in- come.- In computing net income there shall be allowed as deductions -

X

X

X

(c) Taxes:

(1) In general: Taxes paid or accrued within the taxable year, except -

X

X

X

(B) Income , war ... profits , and excess ... profits taxes imposed by the authority of any foreign country; but this deduction shall be allowed in the case of a taxpayer who does not signify in his return his de- sire to have to any extent the benefits of paragraph (3) of this subsection (relating to credit for taxes of foreign countries);" Interpreting and applying the above-quoted pro- vision of the Tax Code to C.T.A. Case No. 570 (V. E. Lednicky and Maria Valero Lednicky vso Collector of In- ternal Revenue) which was decided by this Court on Dec- ember 29, 1960~ we saids "A perusal of the above- quoted codal provision yields the unmistakable conclusion that a taxpayer. Who does not indicate in his return a desire to have the benefits of credit for taxes of foreign countries, shall be entitled to a deduction claim for income , war-profits, and excess-profits taxes im- posed by authority of a foreign country and paid or accrued within the taxable yearo In the case at bar, it is admitted that the petitioners paid U. S. Federal income taxes in 1955 and did not indicate in their 1955 re - amended tax return that they desired to enjoy the benefits of credit for ' the income taxes they paid to the United States govern- ment.

Clearly , they are entitled to deduct from their gross income for the year 1955 the amount of ~471,867.32 paid as U. So Federal income taxes . '1 And we ruled further that:

I

- 5 - 11 X x x even on the assumption arguendo that the petitioners are not entitled to any credit for the taxes paid to the United States gover nment J still, they should be allowed a deduction thereforo11 Considering that no valid and st r ong argument wa s advanced by the re spondent Commissioner of Internal Revenue to justify a departure from our ruling in C. I.A. Case No. 570, supr a., we are of the opinion and so hold that the petitioners in the case at bar are entitled to a deduction in their 1956 inc ome tax return of the amount of i--205 , 939. 24 which wa s paid to the u.s. government as Federal inc ome tax, and as a consequence of said deduction, they should be refunded the sum of ~112 , 437.90 , as er- roneously collected 1956 inc ome tax. HoweverJ with regard to the claim of the peti- tioners for the payment of interest on -t he amount re- fundable , it shall suffice to state that the late st de - cisions of the Supreme Court in point i s to the effect that the government cannot be required to pay interest on national internal revenue taxes which were erroneously or illegally collected by the Commissioner of Internal Revenue.

(Collector of Internal rlevenue vs o Sweeney, G. R. No.

L~l2178 J Aug . 21, 1959; Collector of Internal Revenue vs. St . Paul ' s Hospital of Iloilo,· G.R. No. L- 12127, May 25, 1959. )

WHEREFORE., in view of the foregoing considera- ti-ons, the re spondent Commissioner of Internal rlevenue i s hereby ordered to refund to petitioners v. E. Led-

DECISIOi -

C. T •• SE 1 0. 646 - 6 - nicky and Maria Valero Lednicky the sum of ~ 112,437.9 , without interest, as overpayment of income tax for the year 1956.

v ithout pronouncement as to costs. SO ORDErlED.

Manila , March 2, 1961.

EC

U:

~··~ Pr siding Judge