Winebrenner & I?Igo Insurance Associates Inc, Inc. vs. Commissioner of Internal Revenue

DECISION

CASANOVA,;.:

The Petition for Review seeks the refund or issuance of a tax credit certificate representing alleged excess/unutilized creditable withholding taxes (CWT) for the calendar year (CY) 2003 in the amount of P4,073,954.00. The following are the undisputed facts as recited in the parties' Joint Stipulation of Facts and Issue~, to wit:

Petitioner is a domestic corporation duly organized and existing under Philippine laws, with principal office at Suite 803, 88 Corporate Centre, a- 1 Docket, pp. 1-16, with Annexes 2 Docket, pp. 51-54 '.

''

CfA Case No. 7440

Sedeno cor. Valero Streets, Salcedo Village, Makati City. Respondent is the duly appointed Commissioner of Internal Revenue empowered to perform the duties of said office including, among others, the power to decide, approve and grant refunds or tax credits of erroneously or excessively paid taxes.

Petitioner is registered with the Bureau of Internal Revenue (''BIR'') and was issued Tax Identification Number (''TIN'') 000-251-714-000 and BIR Certificate of Registration bearing RDO Control No. 9RC0000021218. On April 15, 2004, petitioner filed its Annual Income Tax Return · (''ITR") for CY 2003.

On April7, 2006, petitioner filed its BIR Form No. 1914 (Application for Tax Credits/Refunds) and a formal letter reiterating its claim for refund of its excess or unutilized CWT for CY 2003, with the Revenue District Office ("RDO'') No. 50 of the BIR.

To date, no final action has been taken by respondent on petitioner's administrative claim for refund.

Hence, petitioner filed the present Petition for Review on April 11, 2006.

In his Answe? filed on June 5, 2006, respondent cites the following Special and Affirmative Defenses, viz.:

5. Petitioner's claim for refund is still subject to the administrative routinary investigation/examination by the respondent's Bureau. "

6. Taxes paid and collected are presumed to have been made in ~ 3 Docket, pp. 22-24.

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CfA Case No. 7440 accordance with law and implementing regulations, hence, not refundable.

7. Petitioner's claim for refund/issuance of tax credit in the amount of P4,073,954.00, as alleged excess/unutilized creditable withholding taxes for calendar year ending December 31, 2003 were not fully substantiated by proper documentary evidence, such invoices, official receipts and certificates of withholding tax at source.

8. Petitioner failed to prove that the amount of P4,073,954.00, as alleged excess/unutilized creditable withholding taxes for calendar year ending December 31, 2003 were declared in full as part of its gross income for taxable year 2003, and that it did not carry-over to the succeeding taxable quarter/year the subject of its claim, and the same were not fully utilized in payment of its income tax liability for the succeeding taxable/quarter.

9. Petitioner failed to prove that the amount of P4,073,954.00, as alleged excess/unutilized creditable withholding taxes for calendar year ending December 31, 2003 was received in full by the BIR. 10.

Assuming but without admitting the fact that petitioner is entitled to tax refund, it is incumbent upon the latter to show that it has complied with the provisions under Section 204 in relation to Section 230 (now 229) of the Tax Code. Otherwise, its failure to prove the same is fatal to its claim for refund.

11. Claims for refund are construed strictly against the claimant for the same partake the nature of exemption from taxation (Commissioner of Internal Revenue vs. Ledesma, 31 SCRA 95) and as such, they are looked upon with disfavor (Western Minolco Corp. vs. Commissioner of Internal Revenue, 124 SCRA 1211). Trial ensued and both parties presented their respective testimonial and documentary evidence.

Thereafter, the Court directed both parties' counsel to file their respective memorandum.

Only petitioner filed its Memorandum on April 7, 2009 and this case was deemed submitted for decision on April 13, 2009.

The following are the parties' Statement of the Issues for the resolution of the Court:

1.

Whether or not Petitioner has unutilized creditable income taxes ~

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CfA Case No. 7440 withheld for CY 2003, amounting to Four Million Seventy Three Thousand Nine Hundred Fifty Four Pesos (P4,073,954.00). 2.

Whether or not Petitioner's unutilized or excess withholding taxes amounting to Four Million Seventy Three Thousand Nine Hundred Fifty Four Pesos (P4,073,954.00) as of the end of CY 2003 are duly substantiated by documentary evidence.

3.

Whether or not the income from which the subject creditable taxes were withheld were reported as part of Petitioner's income in its ITR for CY 2003.

4.

Whether or not Petitioner's unutilized creditable withholding taxes for the CY 2003 were applied against its income tax liability in the succeeding taxable quarters or years.

5.

Whether or not Petitioner is entitled to the claimed refund in the sum of Four Million Seventy Three Thousand Nine Hundred Fifty Four Pesos (P4,073,954.00) as unutilized creditable income taxes withheld for taxable year 2003.

Petitioner asserts that based on its Annual ITR for the calendar year 2003, it had gross revenues from sales of services in the amount of P35,997,739.00 which accumulated excess and unutilized withholding tax credits in the total amount of P4,073,954.00. It asseverates as well that it had excess unutilized withholding tax credits carried over from prior years in the total amount of P4,379,518.00.

Thus, its total excess and unutilized withholding tax credits amounted to P8,453,472.00. It then claims that it was not able to fully utilize its withholding tax credits for the CY 2003 and the previous years since its income tax liability for the CY 2003 amounted only to P1,259,259.00. It presented the following computation:

Aggregate Income Tax Due

P

Less: Tax Credits/Payments

Prior Year's Excess Credits

Tax Payments for the First Three Quarters

Creditable Tax Withheld for the First Three Quarters

1,259,259.00 4,379,518.00 Creditable Tax Withheld for the 4th Q (BIR Form 2307) 4,073,954.00

Total Tax Credits/Payments

P ----=8L_,4=5=3,'-'4_:_:72=-=-.=oo=-~ 58 7

CfA Case No. 7440

Total Amount Payable/(Overpayment)

p (7,194,213.00) Petitioner claims that its ''Prior Years Excess Credits"in the amount of P4,379,518.00 which was carried from its Annual ITR for the CY 2002 was enough to cover the "Aggregate Income Tax Due" for the CY 2003 in the amount of P1,259,259.00.

Petitioner likewise alleges that the income upon which the subject CWT were withheld was generally reported as part of the revenues declared in its Annual ITR. It notes, however, that the CWT withheld in the amount of P4,073,954.00, when grossed up, would show some difference, when compared with the gross revenue of P35,997,739.00. It then explains that the variation was due to some timing difference resulting from an accepted insurance industry practice reporting revenues, as well as the contingent profit commission received by it from the insurance companies but are recorded as other income in its Annual ITR for the year 2003. Petitioner further points out that it did not choose the option to carry over its excess and unutilized CWT for the CY 2003, as shown in its Annual ITR for 2003.

Based on the evidence presented during trial and the facts that were stipulated during pre-trial, petitioner, thus, posits that it has complied with all the basic requirements for claiming a refund of unutilized CWT. In not a few cases, the Court has pronounced that for a taxpayer to be entitled to a claim for refund or issuance of a tax credit certificate of excess/unapplied creditable withholding tax at source, Section 2.58.3 o.h_ - s...., ~

J

Revenue Regulations No. 2-98 (Withholding Tax Regulations), as amended, provides:

SECTION 2.58.3.

Claim for Tax Credit or Refund. -

(A)

The amount of creditable tax withheld shall be allowed as a tax credit against the income tax liability of the payee in the quarter of the taxable year in which income was earned or received.

(B)

Claims for tax credit or refund of any creditable income tax which was deducted and withheld on income payments shall be given due course only when it is shown that the income payment has been declared as part of the gross income and the fact of withholding is established by a copy of the withholding tax statement duly issued by the payor to the payee showing the amount paid and the amount of tax withheld therefrom.

Proof of remittance is the responsibility of the withholding agent.

(C)

Excess Credits -

An individual or corporate taxpayer's excess expanded withholdin·g . tax credits for the taxable quarter/year shall automatically be allowed as a credit against his income tax due for the taxable quarters/years immediately succeeding the taxable quarters/years in which the excess credit arose, provided he submits with his income tax return, a copy of the first page of his income tax return for the previous taxable period showing the amount of his excess withholding tax credits, and on which return he has not opted for a cash refund or tax credit certificate.

In the case of Banco Filipino Savings and Mortgage Bank v. Court of Appeals/ et. a!./ 4 the Supreme Court provided three conditions for the grant of a claim for refund of creditable withholding tax, to wit: 1) The claim is filed with the CIR within the two-year period from the date of payment of the tax;

2) The fact of withholding is established by a copy of a statement duly issued by the payor to the payee showing the amount paid and the amount of the tax withheld therefrom; and 3) It is shown on the return of the recipient that the income payment received was declared as part of the gross income. In addition thereto, the claimant must also prove that it did not opt tW- 4 G.R. No. 155682, Marth 27, 2007, 519 SCRA 93 . 58 8 carry-over and credit the excess income tax to the taxable quarters of the succeeding taxable years, in accordance with Section 76 of the NIRC of 1997, as amended, 5 which provides:

SEC. 76.

Final Adjustment Return. - Every corporation liable to tax under Section 27 shall file 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 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.

The afore-quoted provision provides for two (2) options to a taxable corporation, namely: (1) to carry-over the excess credit; or (b) to be credited or refunded with the excess amount paid (either in the form of cash or credit certificate).

However, these two options are in the alternative; thus, the choice of one precludes the other.~ 5 Commissioner of Internal Revenue v. Philippine National Bank, C.T.A. EB No. 285 (C.T.A. Case No. 6652), October 1, 2007.

- ·

For the first requisite, Sections 204(C) and 229 of the NIRC of 1997, provide as follows:

SEC. 204. Authority of the Commissioner to Compromise, Abate, and Refund or Credit Taxes. -The Commissioner may -

XXX

XXX

XXX

(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 unused stamps 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, however, That a return filed showing an overpayment shall be considered as a written claim for credit or refund.

XXX

XXX

XXX

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, however, That the Commissioner may, even without a written claim therefore, 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.

It is already well-settled in our jurisprudence that the two-year prescriptive period within whic~ to claim a refund commences to run, at th~ 59 1 earliest, on the date of the filing of the adjusted final tax return. 7 The reason is obvious: it is only when the Adjustment Return covering the whole year is filed that the taxpayer would know whether a tax is still due or a refund can be claimed based on the adjusted and audited figures. 8 In the case at bar, petitioner's claim covers taxable year 2003 for which petitioner filed its Annual ITR on April 15, 2004.9 Counting therefrom, petitioner has until April 15, 2006 within which to file its claim. Based on the records of the case, the administrative claim was filed on April 7, 2006, 10 and the Petition for Review was filed on April 11, 2006. Clearly, both the administrative and judicial claim fall within the two-year prescriptive period. To prove the fact of withholding of the subject claim in compliance with the second requisite, petitioner submitted a Summary of Creditable Withholding Tax Certificates issued to it for the year 2003 11 and the corresponding Certificates of Creditable Tax Withheld at Source (SIR Form No. 2307) Y In the summary, the certificates reflect the creditable withholding taxes in the amount of P3,860,931.79 only as compared to the total claimed amount of P4,073,954.00. Thus, the Court will consider only to the extent of the amount of P3,860,931.79 to have complied with the second requisite .~ 7 Atlas Consolidated Mining and Development Corporation v. Commissioner, G.R. Nos. 141104 & 148763, June 8, 2007, 524 SCRA 73 8 Commissioner of I nternal Revenue v. TMX Sales, I nc., G.R. No. 83736, January 15, 1992, 205 SCRA "184

9 Exhibit "GGGGGGG"

10 Docket, p. 52.

11 Exhibit " HHHHHHH"

12 Exhibits "A" to "FFFFFFF"

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erA Case No. 7440

Anent the third requisite, a perusal of the withholding tax certificates revealed that the creditable withholding taxes of P3,860,931. 79 were withheld from petitioner's commission income of P38,609,317.90, 13 which is higher by P2,611,578.90 as compared to the commission income of P35,997,739.0014 reported in petitioner's 2003 Annual ITR.

Petitioner contends that the variation was due to some timing difference resulting from an accepted insurance industry practice reporting revenues, as well as the contingent profit commission it received from the insurance companies but are recorded as other income in its Annual ITR for the year 2003.

However, this Court as a court of record is required to conduct a formal trial to prove every minute aspect of a claim. 15 At this juncture, it is to be stressed that petitioner as a claimant has the burden of proof to present all that is required for the successful prosecution of its claim. Hence, mere allegation is not evidence16 and is not equivalent to proof. 17 Since petitioner failed to support the discrepancy of P2,611,578.90, the related creditable withholding taxes of P261,157.89 shall be disallowed from petitioner's claim.

Thus, petitioner was able to prove compliance with the requisites for refund of excess creditable withholding taxes for the CY 2003, however, in a_ 13 P3,860,931.79 X 10%

14 Exhibit "GGGGGGG " Line 14

15 Commissioner of I~ternal Revenue v. Manila Mining Corporation, G.R. No. 153204, August 31, 2005, 469 SCRA 571.

16 Martinez v. National Labor Relations Commission, G.R. No. 117495, May 29, 1997, 272 SCRA 793. 17 Philippine National Bank v. Court of Appeals, G.R. No. 116181, April 17, 1996, 266 SCRA 136.

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the reduced amount of P3,599,773.90 out of the total claim of P4,073,954.00; computed below:

Excess creditable withholding taxes per claim p 4,073,954.00

Less:

Creditable withholding taxes without certificates (P4 073 954.00 less P3,860 931.79) 213,022.21 Creditable withholding taxes related to the discrepancy in commission income as reflected in the certificates and as reported in the income tax return 261,157.89 Substantiated creditable withholding taxes p 3,599 773.90 Finally, to determine whether or not petitioner has unutilized creditable withholding taxes in the amount of P3,599,773.90 as of December 31, 2003, arising from its commissions, which has been earlier ascertained to be a proper subject of a claim for refund or issuance of tax credit certificate pursuant to Section 76. of the NIRC of 1997, petitioner indicated its intention to carry-over its unutilized creditable withholding taxes of P4,379,518.00 as shown in its Annual ITR for taxable year 2002, evidenced by a "v" mark in the box corresponding to the choice "To be carried-over as tax credit next year/quarter. /18 In its ITR for the succeeding year 2003, petitioner applied its income tax liability of P1,259,259.0019 against its prior year's excess credits of P4,379,518.00/0 leaving the claimed creditable taxes withheld in 2003 of P4,073,954.0021 unutilized as of December 31, 2003, for which petitioner opted "To be issued a Tax Credit Certificate. /22 In order to prove that no amount of the subject claim was utilized to pay for its 2003 income tax liability of P1,259,259.00, petitioner proffered ~

18 Exhibit "J7 "Line 30

19 Exhibit "GGGGGGG " Line 26

20 Exhibit "GGGGGGG," Line 27A

21 Exhibit "GGGGGGG

1 " Line 270

22 Exhibit "GGGGGGG

1 " Line 30

I

various Certificates of Creditable Tax Withheld at Source for 2002. 23

Albeit

the certificates show creditable withholding taxes in the total amount of P1,454,232.44,24 the Court cannot ascertain whether the entire amount of P1,454,232.44 represents petitioner's unutilized excess creditable withholding taxes for taxable year 2002.

Petitioner has an excess tax credit of P4,379,518.00, 25 as reflected in its 2002 ITR; the said amount being the difference between the income tax liability in the amount of P1,056,844.0026 and the accumulated tax credits in the amount of P5,436,362.00,27 the latter being the sum of the excess credits of P2,675,97l.0028 for the year 2001 and the creditable taxes withheld in the amount of P2,760,391.0029 for the year 2002.

Since petitioner failed to present withholding tax certificates of excess credits in the amount of P2,675,971.00 for the year 2001, the creditable taxes withheld in 2002 in the amount of P1,454,232.44 shall be offset against the 2002 income tax liability of Pl,056,844.00, leaving an unutilized tax credit of P397,388.44 which petitioner may validly apply against the 2003 income tax liability of P1,259,259.00.

The remaining 2003 income tax liability of P861,870.56 shall be deducted from petitioner's substantiated claim of P3,599,773.90. Hence, petitioner shall be entitled to a refund or issuance of a tax credit certificate in the reduced amount of P2,737,903.34, computed a~

23 Exhibits "L7" to "Y10"

24 Exhibit "K7"

25 Exhibit "J7, " Line 30

26 Exhibit "J7 " Line 26

27 Exhibit "/" Line 27G

28 Exhibit'"'/ " Line 27A

29 Exhibit'"'/" Line 27D

' 5 9~ CfA Case No. 7440 follows:

Income Tax Due

Less: I Prior Year's Excess Credits

Income Tax Still Due

Less: I Substantiated Creditable Taxes Withheld

p 1 259 259.00 397,388.44 p 861 870.56 3,599,773.90

Refundable Excess Creditable Taxes Withheld

p 2,737,903.34 In view of the foregoing, the Petition for Review is hereby PARTIALLY GRANTED.

Accordingly, respondent is hereby ORDERED to REFUND or ISSUE A TAX CREDIT CERTIFICATE in favor of the petitioner in the reduced amount of P2,737,903.34 representing its excessjunutilized creditable withholding taxes for the year 2003.

Associate Justice

WE CONCUR:

L~.~ ERNESTO D. ACOSTA

Presiding Justice

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CERTIFICATION

I hereby certify that the above decision was reached after due consultation with the members of the Division of the Court of Tax Appeals in accordance with Section 13, Article VIII of the Constitution. L-w. Q~ ERNESTO D. ACOSTA

Presiding Justice

Chairman, First Division 59 7