Metropolitan Bank and Trust Company vs. Commissioner of Internal Revenue

AMENDED DECISION

CASANOVA, J.:

This Court shall resolve petitioner's "Motion for Reconsideration" and "Supplemental Motion for Reconsideration" of this Court's Decision dated August 13, 2007, filed on September 7, 2007 and November 19, 2007, respectively. A recapitulation of the facts is as follows:

On June 5, 1997, Solidbank Corporation (together with other local and foreign banks) forged an Omnibus Agreement with Luzon Hydro Corporation (LHC) wherein the former extended a foreign currency denominated loan with principal amount of US$123,780,000.00 to the latter. Under the agreement, LHC will shoulder all corresponding internal revenue taxes required by law to be deducted or withhel~ on the loan. On September 1, 2000, petitioner became the successor-in-interest of Solidbank Corporation.

On the following dates, LHC made the following payments to petitioner (principal and interest) and the Bureau of Internal Revenue (final tax on interest income):

Peso

Principal

Interest

Final Tax Paid

Equivalent of to BIR

Final Tax

March 2 2001

US$902 545.47 US$635 576.70 U~63 106.40 P3_L_060 029.24

October 31 2001

US$902 545.45 US$430 722.86 US$43 072.29 P2,236 743.81 Petitioner, however, allegedly remitted to the Bureau of Internal Revenue (BIR) the same final withholding taxes when it included the foreign currency denominated interest income in its Monthly Remittance Returns of Final Income

Taxes

Withheld

for the corresponding months. Thus, petitioner filed an administrative claim for refund of the two amounts with the BIR on December 27, 2002 and a "Petition for Review" with this Court on September 10, 2003. On August 13, 2007, the Court promulgated the Decision wherein it denied the petition on grounds of prescription (on petitioner's claim for refund of the amount of P3,060,029.24 for March 2, 2001) and insufficiency of evidence (on petitioner's claim for refund of the amount of P2,236,743.81 for October 31, 2001). Evidence was insufficient because the Court cannot verify whether or not the subject claim for refund of P2,236,743.81 was included in the amount of P1,569,842,417.00; the amount not subjected by petitioner to the 10% final tax and deducted as "Exempt/tax paid income/income wherein counterparty shoulders the related tax" from its gross onshore income.

In the Resolution dated November 14, 2007, the Court resolved petitioner's "Motion for Reconsideration" filed on September 7, 2007, affirming its denial of th~

P3,060,029.24 claim on the ground of prescription, but re-opening the case with respect to the P2,236,743.81 claim to give petitioner an opportunity to present additional evidence.

After a thorough review and examination of the "Motion for Reconsideration" and the documents presented, the Court finds the same meritorious. A perusal of the schedule shows the breakdown of tax exempt/tax paid onshore interest income for the year ended December 31, 2001 1, as follows:

a. Interest Income-Tax Exempt IBODI (ROP/BSP) 1 315 696 871.00

b. Interest Income-Deposit in Local Banks 39 600 398.54

c. Interest Income-Deposit in Foreign Banks 3 578 656.35

d. Interest Income-Due from BSP 123 070 202.44

e. Interest Income where Counterparty Withheld 87,896,288.60

and Directly Remitted Related Tax

TOTAL

1,569,842 416.93 As testified by petitioner's witness and senior manager, Mr. Jesus Pangan, interest income coming from LHC did not form part of interest income-tax exempt IBODI (ROP/BSP)2, deposit in local and foreign banks, and due from BSP. 3

More

importantly, said income did not form part of "Interest Income where Counterparty Withheld and Directly Remitted Related Tax" upon showing by petitioner of the following breakdown4 :

Name of Company

Reference

Date Paid

Tax Base

10°/o Onshore

PLOT

LBP East Ave.

12/1/2001 1 608 617.70 160 861.77

PLOT

Citibank

11/12/2001 5 048 473.20 504 847.32

PLOT

DBP-East Ave.

4/25/2001 3,013,655.10 301 365.51

PLOT

Citibank

3/26/2001 16 780 592.50 1 678 059.25

PLOT

LBP East Ave.

9/25/2001 13 052 331.00 1 305 233.10

PLOT

Citibank

5/25/2001 7 597 442.90 759 744.29

PLOT

6/25/2001 3 481 766.60 348 176.66

Citra Metro Manila

12/26/2001 37,313,409.60 3,731,340.96 Tollways Corp.

TOTAL

87,896,288.60 8,789,628.86 ~ 1 Exhibit "A-Motion for Reconsideration", Rollo, page 389 2 IBODI-Interest in Banks and Other Debt Instrument; ROP-guaranteed by the Republic of the Philippines 3 TSN, February 7, 2008, pages 14 to 17 4 TSN, February 7, 2008, pages 17 to 18 /?

p

Instead, the interest income from LHC can be found in the account of "Loans and Discount-FCDU/EFCDU-Onshore" amounting to P1,481,268,339.72 of the "Schedule of Onshore and Offshore Income For the Year Ended December 31, 2001'15, as shown in the "Breakdown of Interest Earned as of December 31, 2001'16• As testified by Mr. Pangan, petitioner paid the final taxes on all the accounts in the "Breakdown of Interest Earned as of December 31, 2001"7 • However, this Court still maintains its observation in the Decision that there is a discrepancy of $125,428.26 between the interest income of $1,061,786.84 as alleged by petitioner in its pleadings and that contained in the "Loans and Discount- FCDU/EFCDU-Onshore" in the amount of $936,358.58 (or P48,400,375.00). Considering that the basis for the remittance of the final tax is the latter amount of $936,358.58 (or P48,400,375.00), and that petitioner failed to show how much of that amount pertains to the remittances for March and October, this Court is constrained to deduct the entire amount of $635,576.70 pertaining to the March interest income on loan granted to LHC from the $936,358.58. The remaining $300,781.88 (or P15,592,532.66)8 shall become the basis of the refund of the final tax of ten percent (10%) for the October 2001 remittance. Thus, petitioner is entitled to the refund of the amount of P1,559,253.27, representing the final tax on interest income it overpaid for the month of October 2001.

In the light of the foregoing considerations, the Court finds legal and factual bases to render this Amended Decision, pursuant to Section 3, Rule 14 of the Revised Rules of Court of Tax Appeals, partially granting petitioner's "Motion for Reconsideration" and "Supplemental Motion for Reconsideration" of this Court's Decision dated August 13, 2007 ~

WHEREFORE, petitioner's "Motion for Reconsideration" and "Supplemental Motion for Reconsideration" are hereby PARTIALLY GRANTED and this Court's Decision promulgated on August 13, 2007 in the instant case is hereby MODIFIED. Accordingly, respondent is hereby ORDERED to REFUND or in the alternative, to ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner in the reduced amount of P1,559,253.27, representing the overpayment of the final tax on interest income for October 2001.

WE CONCUR:

~~-Q~

ERNEST

D. ACOSTA

CERTIFICATION

CAESAR A. CASANOVA

Associate 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.

~Q-~

ERNESTO D. ACOSTA

Presiding Justice

Chairman, First Division