Upsi Management, Inc. vs. Commissioner of Internal Revenue

DECISION

BAUTISTA, J.:

The Petition for Review seeks the refund or issuance of tax credit certificate in the amount of P2,089,252.00, allegedly representing petitioner's excessjunutilized creditable withholding tax for taxable year 2003. UPSI Management, Inc. (Petitioner) is a corporation duly incorporated and existing under Philippine laws, with business address at 1122 General Luna Street, Paco, Manila. 1 On the other hand, respondent is the duly appointed Commissioner of Internal Revenue, with powers, among others, to act upon and grant claims for refund or tax credit of overpaid internal revenue taxes. He holds office at the 5th Floor, Bureau of Internal Revenue (BIR) National Office Building, BIR Road, Diliman, Quezon City. 1 Par. 1, Stipulation of Facts, Joint Stipulation of Facts, Rollo, p. 93.

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On April 15, 2004, petitioner filed its Annual Income Tax Return (ITR)2 which reflected the following:

Taxable income (net loss) p (1,257 482.00)

Minimum Corporate Income Tax(MCIT)

58 719.00 Prior year Excess Credit 2 546 619.00

Creditable Tax Withheld

2 089 252.00

Total Excess Credit

p 4 577 152.00 Petitioner did not choose an option in the said Return as regards its excess credit. On November 12, 2004, however, petitioner amended its ITR3 reflecting the aforesaid amount, but now with a marking in the option box of "To be issued a Tax Credit Certificate". On June 1, 2005; petitioner filed with the BIR its claim for refund or issuance of tax credit certificate, but limiting the claim in the amount of P2,089,252.00, representing its unutilized creditable income taxes for taxable year 2003. 4 The same remains unacted up to this date. Hence, on April 11, 2006, petitioner filed the instant Petition for Review, pursuant to Section 204(C) and 229 of the National Internal Revenue Code (NIRC). On May 19, 2006, respondent filed his Answer interposing the following Special and

Affirmative Defenses:

"8. The petition does not state a cause of action as there is no allegation that the tax sought to be refunded was actually remitted to the Bureau of Internal Revenue in accordance with the provisions of the Tax Code.

9. The petition is premature considering that the petitioner's application for the refund/tax credit of the alleged excess/unutilized creditable withholding tax for taxable year 2003 in the amount of P2,089,252.00 is still pending investigation with Revenue District Office No. 34, Revenue Region No. 6, Manila.

10. Petitioner's exercise of both options to refund partly and to carry over partly alleged overpayment/excess credit for taxable year 2003 is not in consonance with existing tax laws and regulations giving taxpayers with overpayment/excess credit the option/choice whether to refund the same or to be issued a Tax Credit Certificate or be carried over as tax credit next taxable year, which, once the choice is made, the same is irrevocable. 2 Exhibit "A".

3 Exhibit "B".

4 Exhibit "D".

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11. Claim for refund is construed strictly against the claimant and should not be allowed unless proven explicitly and categorically.

12. The allegations regarding tax refundability do not ipso facto merit the refund claimed."

On September 6, 2007, petitioner filed its Formal Offer of Evidence, while respondent did not present any. Petitioner filed its Memorandum on March 11, 2008; while respondent filed his Memorandum on February 28, 2008. On June 18, 2008, this case was deemed submitted for decision .

. The following are the jointly stipulated issues5 for this Court's resolution: "1.

Wheth~r or not the f~ct of withholding is established by a copy of a statement duly issued by the payors (withholding agents) to UPSIMI, showing the amount paid and the amount of tax withheld therefrom;

2. Whether or not the Annual Income Tax Return and the Amended Annual Income Tax Return, both for the calendar year 2003, show that the income payment received was declared as · part of UPSIMI's gross income; and

3. Whether or not UPSIMI is entitled to be issued a tax credit certificate in the amount of P2,089,252 representing the unutilized creditable tax withheld in taxable year 2003." The foregoing issues boil down to the sole issue of whether or not petitioner is entitled to a refund or issuance of tax credit certificate in the amount of P2,089,252.00, representing alleged excess or unutilized creditable withholding taxes for taxable year 2003 on the basis of the evidence presented. In resolving the aforesaid issue, the Court takes into account the case of Citibank N.A. vs. Court of Appeals and Commissioner of I nternal Revenue6, where the Supreme Court laid down the basic requirements in claiming of refund of excess creditable withholding taxes, as follows:

1. The claim for refund must be filed within the two-year prescriptive period provided under Section 204(C) in relation 'to Section 229 of the NIRC of 1997, as amended;

5 Joint Stipulation of Facts, Rollo, pp. 93-98. 6 G.R. No. 107434, October 10, 1997.

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2. The fact of withholding is established by a copy of statement issued by the payor (withholding agent) to the payee, showing the amount paid and the amount of tax withheld therefrom; and

3. The income upon which the taxes were withheld were included in the return of the recipient. 7 Pertinent to the first requisite are Sections 204(C) and 229 of the NIRC, which state: "SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. -The Commissioner may -

XXX

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(C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion·,· redeem or change u'nused stamped that have been rendered unfit for use ·and refund their value upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty: Provided, howeve0 That a return filed showing an overpayment shall be considered as a written claim for credit or refund."

"SEC.

229. Recovery of Tax Erroneously or Illegally Collected. - No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress. In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, howeve0 That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid."

According to the foregoing provisions, the written claim to the Commissioner (administrative) and the suit Uudicial claim) must be filed within two (2) years from the date of payment of the tax.

In a claim for refund of excess and unutilized creditable withholding 7 Now incorporated in Section 2.58.3(6) of Revenue Regulations No. 2-98.

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357 tax, the two-year period shall commence from the date of filing of the Annual Income Tax In the present case, petitioner filed its Annual Income Tax Return for taxable year 2003 on April 15, 2004.9 Counting from this date, petitioner had until April 17, 200610 within which to file its claim for refund/tax credit certificate for both administrative and judicial levels. And a review of the records reveals that petitioner filed its administrative claim on June 14, 200511 and its Petition for Review o.n April 11, 2006. These periods are both within the two-year prescriptive period prescribed under Section 229 of the NIRC of 1997. Therefore, the first requisite has been satisfied. In compliance with the second requisite, petitioner presented its Certificates of Creditable Tax Withheld at Source12 issued to it by various withholding agents which showed creditable withholding taxes in the total amount of P2,089,252.25, detailed as follows: '· Pa or/Withholdin A ent Exhibit No.

Income Pa ment

Tax Withheld

Yaman Lahi Foundation Inc. - EAC

E

p 115 321.84 p 11 532.18 Yaman Lahi Foundation I nc. - EAC

E-1

236 245.71 23 624.57 Yaman Lahi Foundation Inc. - EAC

E-2

64 672.79 6 467.28 Yaman Lahi Foundation Inc. - EAC

E-3

323 363.95 32 336.40 Yaman Lahi Foundation Inc. - EAC

E-4

881 545.00 8 815.45

F

357 817.92 35 781.79

F-1

359 580.30 35 958.03

F-2

376 450.88 27 658.26

F-2-1

251 615.49 25 161.55

F-3

533 234.53 53 323.45 House of Knowled e ·

G

62 314.95 6 231.51 House of Knowle.d e

G-1

64 606.93 6 460.70 House of Knowled e

G-2

44 048.90 4 404.90 House of Knowled e

G-3

100 005.76 10 000.58 8 ACCRA Investments Corporation vs. Court of Appeals, 204 SCRA 957 (1991); Commissioner of Internal Revenue vs. TMX Sales, Inc., G.R. No. 83736, January 15, 1992. 9 Exhibit "A".

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10 April 15, 2006 being Saturday. 11 Exhibit " 0 ".

12 Exhibits " E" to " N-3".

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Pearl of the Orient Seas Hotel

H

366 656.25 36 665.61

Pearl of the Orient Seas Hotel

H-1

366 656.25 36 665.61

Pearl of the Orient Seas Hotel

H-2

499 872.23 49 987.23

Pearl of the Orient Seas Hotel

H-3

139 971.31 13 997.14

Immaculate Conception Academy

I

58 012.58 5 801.28

Rural Bank of Dasmarinas

J

48 343.83 4 834.38

Lope De Vega Tower Condominium

Association

K-1

48 215.25 4 821.52

Lope De Vega Tower Condominium

Association

K-2

45 985.84 4 598.59

Lope De Vega Tower Condominium

Association

K-3

101 509.42 10 150.95

Lope De Vega Tower Condominium

Association

K

32 143.55 3 214.35 UPSI Property Holdings Inc.-Manila

L

2 400 000.00 240 000.00 UPSI Property Holdings Inc.-Manila

L-1

3 200 000.00 320 000.00 UPSI Property Holdings Inc.-Manila

L-2

2 400 000.00 240 000.00 UPS! Property Holdings Inc. -Manila

L-3

1 600 000.00 160 000.00 UPSI Property Holdings Inc.-Cavite

M

29 006.30 2 900.63 UPS! Property Holdings Inc.-Cavite

M-1

19 337.40 1 933.74 UPSI Pro()ertyHoldings Inc.-Cavite

M-2

38 671.20 3 867.12 UPS! Property Holdings Inc.-Cavite

M-3

29 006.40 2 900.64 UPS! Property Holdings Inc.-Cavite

N

2 010 757.00 201 075.70 UPS! Property Holdings Inc.-Cavite

N-1

1 849 737.60 184 973.76 UPS! Property Holdings Inc.-Cavite

N-2

1486 096.70

148 609.67 UPS! Property Holdings Inc.-Cavite

N-3

1 244 976.90 124 497.69

TOTAL

e..2.1,.185~..96 p 2 089 252.25 While it may be observed that the total amount of tax withheld appearing in the certifiCates corresponds to the Total Tax Credits/Payments appearing in the Annual ffR 13, the certificate marked as Exhibit "E-1 '; with the related withholding taxes in the amount of P23,624.57, was dated outside the subject period of claim; hence, cannot be included. Furthermore, the certificates which show the total amount of P6,767.7614 were issued not in the name of petitioner. Thus, the amount of P30,392.33 must be deducted from the total claimed amount of P2,089,252.25. 13 Exhibit "A-6" . .

14 Exhibits "M-2" and "M-3". 359

As regards the third requirement, the sales revenues reported in petitioner's 2003 ITR15, which were likewise reflected in its Audited Financial Statements as ascertained by the Court-commissioned Independent Certified Public Accountant (!CPA) in his Report16 dated June 20, 2007 involving the same year, was in the amount of P20,555J21.00. The same was lower by P1,230,059.96 when compared with the total income payments reflected in its Certificates of Creditable Tax Withheld in the amount of P21,785,780.96, detailed as follows:

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· Payor/Withholding Agent

Yaman Lahi Foundation Inc. - EAC Yaman Lahi Foundation Inc. - EAC Yaman Lahi Foundation Inc.- EAC Yaman Lahi Foundation Inc.- EAC Yaman Lahi Foundation Inc. - EAC

Sub-Total

Hospital Management Services Inc. Hospital Management Services Inc. Hospital Management Services Inc. Hospital Management Services Inc. Hospital Manaqement Services Inc.

Sub-Total

House of Knowledqe

House of Knowledge

House of Knowledge

House of Knowledge

Sub-Total

Pearl of the Orient Seas Hotel

Pearl of the Orient Seas Hotel

Pearl of the Orient Seas Hotel

Pearl of the Orient Seas Hotel

Sub-Total

Immaculate Conception Academy

Rural Bank of Dasmarinas

Lope De Vega Tower Condominium Asso. Lope De Vega Tower Condominium Asso. Lope De Vega Tower Condominium Asso. Lope De Ve_ga Tower Condominium Asso.

Sub-Total

15 Exhibit "A".

16 Exhibit "RR".

Exhibit

No.

E

E-1

E-2.

E-3

E-4

F

F-1

F-2

F-2-1

F-3

G

G-1

G-2

G-3

H

H-1

H-2

H-3

I

J

K-1

K-2

K-3

K

.,

· Income

Payment Per

Creditable

Withholding

Gross Income

Tax Withheld

Tax Certificates

periTR

Difference

p 11 532..18 p 115 32.1.84 2.3 62.4.57 2.36 2.45.71 6 467.2.8 • 64 672..79

32. 336.40 32.3 363.95 8 815.45 881 545.00 1 621149.29 p 501 752..03 P1119 397.26 35,781.79 357 817.92 35 958.03 359 580.30 27,658.26 376 450.88 25 161.55 251 615.49 53 323.45 533 234.53 1 878 699.12

1496 064.60

382 634.52 6 231.51 62 314.95 6 460.70 64,606.93 4 404.90 44 048.90 10 000.58 100 005.76 270 976.54 269 600.37 1 376.17 36 665.61 366 656.25 36 665.61 366 656.25 49 987.23 499 872.23 13 997.14 139 971.31 1 373 156.04 1 657 545.36 (284 389.32) 5 801.28 58 012.58 58 012.44 0.14 4 834.38 48 343.83 58 012.44 (9,668.61) 4 821.52 48 215.25 4 598.59 45 985.84 10 150.95 101 509.42 3 214.35 32 143.55 227 854.06 207 140.01 20 714.05 360 !

UPSI Property Holdings Inc.-Manila UPSI Property Holdings Inc.-Manila UPS! Property Holdings Inc.-Manila UPSI Property Holdings Inc.-Manila

Sub-Total

UPS! Property Holdings Inc.-Cavite UPS! Property Holdings Inc.-Cavite UPSI Property Holdings Inc.-Cavite UPSI Property Holdings Inc.-Cavite

Sub-Total

UPSI Property Holdings Inc.-Cavite UPSI Property Holdings Inc.-Cavite UPSI Property Holdings Inc.-Cavite UPSI Property Holdings Inc.-Cavite

Sub-Total

L

L-1

L-2

L-3

M

M-1

M-2

M-3

N

N-1

N-2

N-3

240 000.00 2 400 000.00 320 000.00 3 200 000.00 240 000.00 2,400,000.00 160 000.00 1 600 000.00 9 600 000.00 9 600 000.00 - 2,900.63 29 006.30 1 933.74 19 337.40 3 867.12 38 671.20 2 900.64 29 006.40 116 021.30 116 02S.01 (3 .71) 201 075.70 2 010 757.00 184 973.76 1 849 737.60 148 609.67 1 486,096.70 124 497.69 1 244 976.90 6 591 568.20 6 591 568.29 (0.09)

TOTAL

P2 089 252.25 P21,785 780.96 P20 555 720 .55 Pl 230 060.41 From the foregoing table, petitioner failed to prove that all the income reflected in the Certificates of Creditable Tax Withheld at Source were declared as part of its gross income in its Annual Income Tax Return for the year 2003. This conclusion is arrived at since some of the income reflected in its ITR17 had lesser amounts than those stated in the certificates, such as the income received from Yaman Lahi Foundation, Inc., Hospital Management Services Inc., House of Knowledge, and Lope de Vega Tower Condominium Association.

In this regard, it is proper that an adjustment must be made, allowing only the portion of income taxes withheld that corresponds to the income declared in petitioner's Annual Income Tax Return which are properly supported by Certificate of Creditable Tax Withheld at Source.

Accordingly, out of the total creditable withholding taxes of P2,089,252.25, which corresponds to the income payment of P21,785,780.96 per certificate, only the creditable withholding taxes of P2,026,166.25, with the related income payments of P20,555,720.55, were included in the Return of petitioner, as shown b,elow: 17 The details were reflected in the "Schedule of Creditable Withholding Tax that are Declared as Part of UPSIMI's Income" per Exhibit "Q".

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I ncome Payment

Per Creditable

Wit hholding Tax

Tax Withheld of

which the Related Gross I ncome Income w ere

Payor/ Withholding Agent

Tax Withheld

Certificates

oeriTR Reoorted in t he ITR Yaman Lahi Foundation Inc. - EAC p 82 775.88 p 1 621149.29 p 501 752.03 p 50 175.20 * Hospital Management Services Inc. 177 883.08 1 878 699.12

1496 064.60

149 606.46 *

House of KnowledQe

27,097.69 270,976.54 269,600.37 26,960.04 *

Pearl of the Orient Seas Hotel

137 315.59 1 373 156.04 1 657 545.36 137 315.59 **

Immaculate Conception Academy

5 801.28 58 012.58 58 012.44 5,801.24 **

Rural Bank of Dasmarinas

4,834.38 48,343.83 58,012.44 4 834.38 **

Lope De Vega Tower Condominium

Assoc.

22 785.41 227 854.06 207 140.01 20 714.00 * UPS! Property Holdings Inc. -Manila 960,000.00 9 600,000.00 9,600 000.00 960,000.00*/** UPSI Property Holdinqs Inc. -Cavite 11 602.13 116 021.30 116 025.01 11 602.50*/** UPSI Property HoldinQs Inc. -Cavite 659 156.82 6 591 568.20 6 591 568.29 659 156.83*/**

TOTAL

P2 089,252.25 p 21,785 780.96 P20 555 720.55 p 2 0 26,166.25 Note:. * 10% of the Gross Income per ITR ** Taxes withheld per certificate which is lower than the 10% of the Gross Income per ITR and were actually declared in petitioner's Annual ITR · · Based on the foregoing, petitioner have sufficiently complied with the requisites for the refund or issuance of tax credit certificate representing unutilized excess creditable withholding taxes for taxable year 2003 but in the reduced amount of P1,937,054.92, computed as follows:

Tax Withheld of which the Related Income were Reoorted in the ITR p 2 026 166.25

Less:

Creditable Taxes Withheld with certificate dated outside the period of claim (Exhibit ''E-1 ') p 23 624.57 Creditable Taxes Withheld with certificate issued not in the name of the petitioner (Exhibit "M-2'') 3 867.12 Creditable Taxes Withheld with certificate issued not in the name of the petitioner (Exhibit "M-3'') 2 900.64 30 392.33

Substantiated Tax Withheld

p 1,995,773.92

Less:

Minimum Corporate Income Tax Due

58 719.00 Refundable Excess Creditable Taxes. Withheld p 1 937 054.9 2 However, aside from the requisites laid down in Citibank N.A. vs. Court of Appeals, et a/} 8 petitioner must prove that it did not carry-over its excess creditable withholding taxes to the succeeding taxable year in accordance with Section 76 of the NIRC of 1997, which states:

18 Supra.

"SEC. 76. Final Adjustment Ret urn. - Every corporation liable to tax under Section 27 shall fiie a final adjustment return covering the total taxable income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal 362 ., to the total tax due on the entire taxable income of that year, the corporation shall either:

(A) Pay the balance of tax still due; or (B) Carry-over the excess credit; or

(C)

Be credited or refunded with 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 excess amount shown on its final adjustment return may be carried over and credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years. Once the option to carry-over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for cash refund or'issuance of a·tax credit certificate shall be allowed therefor." Based on the aforesaid provision, once a taxpayer chooses the option to carry-over, it shall be irrevocable for that taxable period and no application for a tax refund or tax credit certificate shall be allowed. 19 It is not necessary that said excess tax payment/credit is actually applied against the tax due for the succeeding taxable year. As long as the taxpayer elected to carry-over said amount to the succeeding taxable year, that choice is irrevocable for that taxable period. 20 In the present case, the claim for refund or issuance of tax credit certificate in the amount of P2,089,252.00 covers unutilized creditable withholding taxes for taxable year 2003. A scrutiny of petitioner's 2003 Income Tax Return shows that petitioner reflected the same amount as an unutilized creditable tax withheld. Petitioner's failure to make the appropriate marking in its 2003 Income Tax Return and the fact that the claimed amount was actually carried over -to the succeeding taxable year 200421 manifest petitioner's intention to carry-over the excess credits; thus, rendering its written claim for refund or issuance of tax credit certificate nugatory. 19 Philam Asset Management Inc. vs. CIR, G.R. Nos. 156637 and 162004, December 14, 2005. zo Honda Cars Philippines, Inc. vs. CIR, CA-G.R. SP No. 75365, September 29, 2005. n CTA Case No. 7602, Exhibit "A".

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-·---·- Since petitioner already exercised the option to carry-over its prior year's tax credit in the total amount of P4,577,152.00 (which included the present claim of P2,089,252.00) to its 2004 Annual Income Tax Return, it is already barred from claiming a refund/tax credit certificate corresponding thereto. Its subsequent amendments of its 2003 ITR22 with the intention to request a tax credit certificate by checking the "To be issued a Tax Credit Certificate" option, and of its 2004 ITR23 showing the amended amount of P2,487,900.00, which is actually the prior year's excess credit net of the claimed unutilized taxes withheld in the amount of P2,089,252.00 for the year 2003, do not alter the fact that it had already carried over the excess and unutilized ·creditable withholding tax for the year 2004; therefore, governed by the "irrevocability rule" under Section 76 of the NIRC of 1997. Petitioner's only recourse is to carry-over the amount of P1,937,054.92 to the succeeding taxable years until the same is fully utilized.

WHEREFORE, premises considered, the instant Petition for Review is hereby DENIED for lack of merit.

WE CONCUR:

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~ \$2' ~ ....... ~ ERNESTO D. ACOSTA

Presiding Justice

CAES~OVA

Associate Justice

22 Exhibit " B".

23 Exhibit "C".

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CERTIFICATION

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. 365 L- ~~ D.._..A-- ERNEsTo D. ACOSTA

Presiding Justice

Chairperson, First Division