Millennium Business Services, Inc. vs. Commissioner of Internal Revenue

DECISION

ACOSTA, PJ:

The Case Before Us is a Petition for Review seeking for a refund or issuance of tax credit certificate in the amount of PI ,341,623.00 allegedly representing an unutilized creditable withholding tax for taxable year ended December 31, 2003. The Facts Petitioner is a domestic corporation duly organized and existing under the laws of the Republic of the Philippines and duly registered with the Bureau of Internal

Revenue.

It is principally engaged m the business of providing accounting and bookkeeping services. 1 Respondent is the duly appointed Commissioner of Internal Revenue, vested with authority to act as such, including, among others, the power to decide, approve and grant refunds and/or the issuance of tax credit certificates for excess creditable withholding taxes.2 On April 15, 2004, petitioner filed its annual income tax return3 for the calendar year ended December 31, 2003, declaring, among others, the following: Sales/Revenues/Receipts/Fees Less: Cost of Sales/Services Gross Income from Operation Add: Non-Operating & Other Income Total Gross Income Less: Deductions Taxable Income Tax Rate Tax Due Less: Tax Credits/Payments Prior Year's Excess Credits Creditable Tax Withheld for the First Three Quarters Creditable Tax Withheld for the Fourth Quarter Total Tax Credits/Payments Total Amount Payable/( Overpayment) (Underlines supplied) 15,240,176.00 14,026,08 1.00 1,214,095.00 62,960.00 1,277,055.00 649,327.00 627,728.00 32% 200,873.00 1,438,185.00 1,057,316.00 284,307.00 2,779,808.00 (2.578.935.00) In a letter dated April 7, 2006 and received by the BIR on the same date, petitioner requested for a refund or issuance of tax credit certificate in the amount of P2,578,935.00 representing its overpaid creditable withholding tax for the calendar year ended December 3 I, 2003 pursuant to the provisions of Sections 204 and 229 of the Tax Code, as amended.4

Alleging inaction5 on the part of the BIR, petitioner filed a Petition for Review with this Court on April I 2, 2006. The respondent filed her Answer on July I 4, 2006, and prayed for the dismissal of the Petition for lack of merit. She alleged therein the following Special and Affirmative Defenses: "5. Assuming but without admitting that Petitioner filed a claim for a tax credit certificate, the same is still subject to investigation by the Bureau of Internal Revenue;

6. Petitioner failed to demonstrate that the tax, which is the subject of this case, was erroneously or illegally collected;

7. Taxes paid and collected are presumed to be made in accordance with the laws and regulations, hence, not creditable or refundable;

8. It is incumbent upon the Petitioner to show that its (sic) has complied with the provisions of Section 204(C) in relation to Section 223 of the Tax Code, as amended;

9.

In an action for tax credit or refund, the burden is upon the taxpayer to prove that he is entitled thereto, and failure to discharge said burden is fatal to the claim (Emmanuel & Zenaida Aguilar v. Commissioner, CA-GR No. Sp. 16432, March 30, 1990 cited in A ban, Law of Basic Taxation in the Philippines, 1st Edition, p. 206);

I 0. Claims for refund are construed strictly against the claimant the same partake the nature of exemption from taxation (Commissioner of Internal Revenue vs. Ledesma, 3 I SCRA 95) and as such, they are looked upon with disfavor. (Western Minolco Corp. vs. Commissioner of Internal Revenue, I 24 SCRA 121)."

After trial, this case was submitted for decision on October 27, 2008 taking into consideration petitioner's Memorandum posted on October 13, 2008, sans respondent's Memorandum.

The Issues The parties jointly stipulated on the following issues6 for consideration and resolution of the Court:

I.

Whether the income payments from which the taxes were withheld were included in Petitioner's gross income for the year 2003. 2.

Whether Petitioner has excess and unutilized creditable withholding tax for the year 2003. 3.

Whether Petitioner has carried-over to the succeeding taxable years the alleged excess and unutilized withholding tax for the year 2003. 4.

Whether Petitioner's right to claim a refund of the alleged excess and unutilized withholding tax for the year 2003 is duly substantiated. 5.

Whether Petitioner's aggregate income tax due for calendar year ended December 3 1, 2003 is less than its total tax credits, and, thus, the creditable taxes withheld for 2003 in the total amount of Php I ,341 ,623.00 remain unutilized. 6.

Whether Petitioner is entitled to a refund or issuance of tax credit certificate in the amount of Php I ,341 ,623 .00 representing alleged excess and unutilized withholding tax for the year 2003. The Court's Ruling The basic requirements7 before a refund or issuance of tax credit certificate of excess creditable withholding taxes may be granted are as follows: I.

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;

2.

The fact of withholding is established by a copy of a 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 ofthe recipient.

Equally important, aside from the above-quoted requirements, is that petitioner must prove that it did not carry-over its excess creditable withholding taxes to the succeeding taxable year.8 Considering that the jointly stipulated 1ssues are intertwined with the above mentioned important requirements before a refund or issuance of tax credit certificate

may be granted, a detailed discussion of the latter will at the same time serve as the resolution ofthe former. We shall now determine petitioner's compliance with the requirements. Going to the very first requirement, Section 204(C) of the Tax Code in relation to Section 229 of the same Code provide that the claim for refund both in the administrative and judicial levels must be filed within two (2) years from the date of payment of the tax. For reference, the said provisions of the Tax Code are hereunder reproduced:

"Sec. 204. Authority of the Commissioner to compromise, abate and refund/credit taxes. - The Commissioner may - (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 or taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for tax credit or refund within 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 refund." XXX XXX XXX "Sec. 229. Recovery ofTax 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 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 settled that the reckoning point of the two-year prescriptive period for the filing of a claim for refund or tax credit certificate of excess creditable withholding tax is from the date of filing of the annual income tax return9 because it is only from this time that the refund is ascertained.10 In the case at bar, petitioner's claim with the BIR on April 7, 2006 and its Petition for Review before this Court on April 12, 2006, were both filed within the two

(2) year period prescribed by the Tax Code reckoned from April 15, 2004, the date the 2003 Annuallncome Tax Return was filed . Thus, petitioner has complied with the first requirement.

In order to prove compliance of the second requirement concerning the fact of withholding of creditable taxes by the withholding agents on income subject to withholding tax, petitioner offered in evidence its Certificates of Creditable Tax Withheld at Source 11 issued by various withholding agents. Judicious scrutiny of the Certificates reveals that except for the P2,315.38 taxes withheld relating to the total income payments ofP36,335.61, which is a proper support of petitioner's creditable taxes withheld on its income for taxable year 2002,12 the creditable taxes in the sum of P¹ ,350,447.47 relating to the total income payments of Pl3,478,144.67, were withheld from petitioner's service income for taxable year 2003, detailed as follows:

Tax Exhibits Withholding Agent (Payor) Income Payments Withheld D Nacap Nederland B. V. 36,000.00 3,600.00 E Lemoon Philippines Inc. 104,926.90 10,492.69 F Mayne (Pharma) Philippines, Inc. 24,000.00 2,400.00 G Penpower Philippines Inc. 97,546.80 9,754.68 H BMW Philippines Corporation 180,393.45 18,039.35 Carpal Holdings, B.Y. 57,000.00 5,700.00 Carpet Raya Philippines, Inc. 50,000.00 5,000.00 K CSA Holdings, Inc.

16,000.00 I ,600.00 L Convenience Food System (Thai) Ltd. 13,433.00 I ,343.30 M CK Holdings, Inc.

16,000.00 1,600.00 N Philips Electronics and Lighting, Inc. 58,636.50 1,172.73 9 ACCRA Investment Corporation vs. Court of Appeals, 204 SCRA 957; Commissioner of Internal Revenue vs. TMX Sales, Inc., 205 SCRA 184; and The Commissioner of Internal Revenue vs. Asia Australia Express, Ltd., represented by Soviamont Steamship Agencies, Inc. and the Court of Tax Appeals, GR No. 85956, April 10, 1989. 1° Commissioner of Internal Revenue vs. The American Life Insurance Co., 244 SCRA 446. 11 Exhibits D to JJJ , LLL to NNN, PPP to XXX, ZZZ to JJJJ, MMMM to KKKKK, 00000 to Q7 , S7 to J8, and L8 to C9 .

12 Exhibits K9, L9, M9 and N9 . ~

0 Anglo-Oriental Consulting Limited 22,500.00 2,250.00 p EDS Electronic Data Systems (Phil.), Inc 16,000.00 1,600.00 Q Export Consultant, Inc. 21,000.00 2,100.00 R FAG Southeast Asia Pte. Ltd. 21,00000 2,100.00 s XYST Corporation 21,000.00 2,100.00 T Sumitomo (SHI) Cyclo Drive Asia Pacific Pte. Ltd. 22,500.00 2,250.00 u St. Agen Holdings, Inc. 23,000.00 2,300.00 v Reach Networks Philippines, Inc. 29,09 1.00 2,909.10 w Santiago Cruz & Marayag Law Offices 20,000.00 2,000.00 X SCS Channels, Inc.

30,000.00 3,000.00 y Pulse Philippines, Inc. 93,000.00 9,300.00 z Nacap Philippines Inc. 36,000.00 3,600.00 AA Ecolochem Holdings, Inc. 152,500.00 15,250.00 88 Glaxosmithkline Phils Inc. 6 1,153.50 I ,223.07 cc Franke Contract Group Philippines, Inc. 37,938.60 3,793.86 DO WMGS Philippines, Inc. 48,560.70 4,856.07 EE Sumisetsu Philippines, Inc. 36,400.00 3,640.00 FF Oshkosh 8 'Gosh, Inc. 30,000.00 3,000.00 GG Navitaire International, LLC 342,007.10 34,200.7 1 HH lnt' l. Wave Communications Networks, Inc. 14 1,715.20 14,171.52 II Institutional Shareholder Services, Inc. 71,583.60 7,158.36 JJ AstraZeneca Pharmaceuticals (Phils) 33,000.00 3,300.00 KK Penpower Philippines Inc. 94,859.40 9,485.94 LL Carpal Holdings, 8 .V. 9,500.00 950.00 MM Carpet Raya Philippines, Inc. 20,000.00 2,000.00 NN CSA Holdings, Inc.

40,000.00 4,000.00 00 Convenience Food System (Thai) Ltd. 53,978.90 5,397.89 pp CK Holdings, Inc.

40,000.00 4,000.00 QQ EDS Electronic Data Systems (Phils), Inc 24,000.00 2,400.00 RR Ecolochem Holdings, Inc. 58,500.00 5,850.00 ss WMGS Philippines, Inc. 32,396.70 3,239.67 TT Sumitomo (SHI) Cyclo Drive Asia Pacific Pte. Ltd. 22,500.00 2,250.00 uu St. Agen Holdings, Inc. 23,666.70 2,366.67 vv St. Agen Et Fils, Ltd. 24,000.00 2,400.00 ww Pulse Philippines, Inc. 93,000.00 9,300.00 XX Oshkosh 8 'Gosh, Inc. 15,000.00 1,500.00 yy Navitaire International, LLC 228,313.30 22,83 1.33 zz Harris Corporation 24,000.00 2,400.00 AAA Apple Philippines, Inc. 69,300.00 6,930.00 888 Singapore Press Holdings (Overseas) Limited 32,161.20 3,216.12 CCC BMW Philippines Corporation 87,039.56 8,703.96 ODD Int'l. Wave Communications Networks, Inc. 138,332.60 13,833.26 EEE Institutional Shareholder Services, Inc. 80,000.00 8,000.00 FFF XYST Corporation 22,666.67 2,266.67 GGG The Lincoln Nat'! Life Insurance Company 7,000.00 700.00 HHH FAG Southeast Asia Pte. Ltd. 27,000.00 2,700.00 lll Glaxosmithkline Phils Inc. 49,09 1.00 98 1.82 JJ] AstraZeneca Pharmaceuticals (Phils) 88,000.00 8,800.00 LLL Harris Corporation 24,000.00 2,400.00 MMM Singapore Press Holdings (Overseas) Limited 32,373.80 3,237.38 NNN Apple Philippines, Inc. 17,325.00 I ,732.50 ppp Int' l. Wave Communications Networks, Inc. 142,479.04 14,247.90 QQQ Harris Corporation 45,250.00 4,525.00 RRR Penpower Philippines Inc. 98,179.20 9,817.92 sss Sumitomo Electric Industries,Ltd.-Manila Branch 328.20 16,410.00 TTT Nacap Philippines Inc. 24,000.00 2,400.00 ~~ uuu EDS Electronic Data Systems (Phils.), Inc 25,600.00 2,560.00 vvv Nacap Nederland B. V. 24,000.00 2,400.00 www Pulse Philippines, Inc. 147,882.00 14,788.20 XXX SCS Charmels, Inc.

70,000.00 7,000.00 zzz Mayne (Pharma) Philippines, Inc. 24,000.00 2,400.00 AAAA Export Consultants, Inc. 33, 166.70 3,3 16.67 BBBB Corus Asia Ltd.

177,229.6 1 17,722.96 ecce Corus Asia Ltd.

13 1,568.55 13,156.85 DODD Export Consultants, Inc. 2 1,000.00 2, I 00.00 EEEE Mayne Pharma (Philippines), Inc. 24,000.00 2,400.00 FFFF Frigorex Philippines Inc. 106,778.75 I 0,677.88 GGGG Anglo-Oriental Consulting Limited 22,500.00 2,250.00 HHHH Nacap Nederland B.V.

36,000.00 3,600.00 Illl Nacap Philippines Inc. 36,000.00 3,600.00 JJJJ Corus Asia Ltd.

132,323.00 13,232.30 MMMM Dek Asia Pacific Pte. Ltd 79,356.59 7,935 .66 NNNN Dek Asia Pacific Pte. Ltd 75,78 1.02 7,578.10 0000 Sanofi-Synthelabo Philippines Inc. 472,53 1.60 47,253.16 pppp Sanofi-Synthelabo Philippines Inc. 464,977.07 46,497.70 QQQQ Singapore Press Holdings (Overseas) Limited 32,345.80 3,234.58 RRRR CK Holdings, Inc.

24,000.00 2,400.00 ssss CSA Holdings, Inc.

24,000.00 2,400.00 TTTT Convenience Food System (Thai) Ltd. 53,689.30 5,368.93 uuuu Carpal Holdings, B.V. 47,500.00 4,750.00 vvvv Sanofi-Synthelabo Philippines Inc. 226,692.89 22,669.29 wwww Baxter Healthcare Philippines, Inc. 196,060.40 19,606.00 xxxx MMTI Marketing Philippines, Inc. 30,000.00 3,000.00 yyyy MMTI Marketing Philippines, Inc. 45,000.00 4,500.00 zzzz Brand Rex, Inc 30,000.00 3,000.00 AAAAA Brand Rex, Inc 30,000.00 3,000.00 BBBBB Brand Rex, Inc 30,000.00 3,000.00 ccccc Sumisetsu Philippines, Inc. 76,600.00 7,660.00 DDDDD Virbac Philippines, Inc. 16,000.00 I ,600.00 EEEEE Virbac Philippines, Inc. 12,000.00 I ,200.00 FFFFF Virbac Philippines, Inc. 16,000.00 1,600.00 GGGGG New Food Coatings (Phils.) Inc. 19,209.20 1,920.92 HHHHH Institutional Shareholder Services, Inc. 78,000.00 7,800.00

III II

St. Agen Holdings, Inc. 22,000.00 2,200.00 JJJJJ Sumitomo (S HI) Cyclo Drive Asia Pacific Pte. Ltd. 30,000.00 3,000.00 KKKKK FAG Southeast Asia Pte. Ltd. 27,000.00 2,700.00 00000 Parker Hanni fin Singapore Pte. Ltd. 4 1,592.90 4, 159.29 ppppp INGR Philippines, Inc. 40,000.00 4,000.00 QQQQQ INGR Philippines, Inc. 40,000.00 4,000.00 RRRRR Lemcon (Philippines), Inc. 11 7,722.35 II ,772.24 sssss St. Agen Et Fils, Ltd. 27,000.00 2,700.00 TTTTT XYST Corporation 2 1,000.00 2, 100.00 uuuuu INGR Philippines, Inc. 80,000.00 8,000.00 vvvvv Lemcon (Philippines), Inc. 11 4,000.00 11 ,400.00 wwwww Parker Hannifin Singapore Pte. Ltd. 3 1,331.30 3,133.13

XXX XX

Parker Hmmifin Singapore Pte. Ltd. 3 1,958 .78 3, 195 .88 yyyyy Frigorex Philippines Inc. 41 ,222.00 4,122.² 1 zzzzz Dek Asia Pacific Pte. Ltd 77,573 .68 7,757.37 AAAAAA A-Z Direct Marketing, Inc. 423,500.00 42,350.00 BBBBBB Reach Networks Philippines, Inc. 20,000.00 2,000.00 cccccc Reach Networks Philippines, Inc. 30,000.00 3,000.00 DDDDDD Arysta Agro Phils., Inc. 90,000.00 9,000.00 f~

EEEEEE Apple Philippines, Inc. 69,300.00 6,930.00 FFFFFF Oshkosh B'Gosh, Inc.

75,000.00 7,500.00 GGGGGG Burkert Contromatic Philippines, Inc. 213,215.50 2 1,32 1.55 HHHHHH Burkert Contromatic Philippines, Inc. 104,080.50 10,408.05 II !III Burkert Contromatic Philippines, Inc. 2 13,064.00 2 1,306.40 JJJJJJ Alphasem Asia Ltd.

25,219.25 2,52 1.93 KKKKKK Alphasem Asia Ltd.

23,463 .20 2,346.32 LLLLLL Alphasem Asia Ltd.

24,485 .50 2,448.55 MMMMMM Historical & Nautical Archeology Foundation Inc. 36,000.00 3,600.00 NNNNNN Historical & Nautical Archeology Foundation Inc. 36,000.00 3,600.00 000000 Historical & Nautical Archeology Foundation Inc. 36,000.00 3,600.00 pppppp Universal Electronic Assembly Phils. Corp. 60,000.00 6,000.00 QQQQQQ Universal Electronic Assembly Phils. Corp. 60,000.00 6,000.00 RRRRRR Universal Electronic Assembly Phils. Corp. 60,000.00 6,000.00 ssssss Reach Networks Philippines, Inc. 20,000.00 2,000.00 TTTTTT Reach Web Holdings, Inc. 15,500.00 I ,550.00 uuuuuu Reach Web Holdings, Inc. 10,000 00 1,000.00 vvvvvv Reach Web Holdings, Inc. 20,000.00 2,000.00 wwwwww Parker Hanni fin Singapore Pte. Ltd. 31 ,630.00 3,163.00

XXX XXX

Lemcon (Philippines), Inc. 132,444.35 13,244.44 yyyyyy BMW Philippines Corporation 137,046.90 13,704.69 zzzzzz BMW Philippines Corporation 6 1,414.80 6, 14 1.48 AAAAAAA EDS Electronic Data Systems (Phils.), Inc 35,200.00 3,520.00 BBBBBBB Mayne Pharma (Philippines), Inc. 24,000.00 2,400.00 ccccccc Franke Contract Group Philippines, Inc. 55,847.10 5,584.71 DDDDDDD WMGS Philippines, Inc. 65,002.20 6,500.22 EEEEEEE Anglo-Oriental Consulting Limited 22,500.00 2,250.00 FFFFFFF Anglo-Oriental Consulting Limited 22,500.00 2,250.00 GGGGGGG Brand Rex, Inc 20,000.00 2,000.00 HHHHHHH XYST Corporation 2 1,000 00 2, 100.00 II! I Ill Promark Strategies, Inc. 80,000.00 8,000.00 JJJJJJJ Regus Centres, Inc.

16 1,838.90 16, !83.89 KKKKKKK Regus Centers, Inc.

52, 128.60 5,212.86 LLLLLLL Regus Centres, Inc.

152,765.80 15,276.58 MMMMMMM Regus Centers, Inc.

128,316.70 12,83 1.67 N7 Penpower Philippines Inc. 99,220.80 9,922.08 0 7 Apple Philippines, Inc. 5 1,975.00 5,197.50 p7 Universal Electronic Assembly Phils. Corp. 60,000.00 6,000.00 Q7 Arysta Agro Agra Philippines Inc. 45,000.00 4,500.00 s7 Apple Philippines, Inc. 38,7!2.90 3,87 1.29 T7 Navitaire International, LLC 122,042.13 12,204.2 1 u7 Sanofi-Synthelabo Phil ippines Inc. 452,920.10 45,2920 1 y7 CK Holdings, Inc.

24,000.00 2,400.00 w7 CSA Holdings, Inc.

24,000.00 2,400.00 x7 Franke Contract Group Philippines, Inc. 65,006.40 6,500.64 y7 Bank of New York, Manila Representaive Office 45,000.00 4,500.00 z7 Bank of New York, Manila Representaive Office 15,000.00 I ,500.00 As Pulse Philippines, Inc. 93,000.00 9,300.00 B8 Alphasem Asia Ltd.

25,712.90 2,57 1.29 c s Carpal Holdings, B.V !9,000.00 1,900.00 0 8 Singapore Press Holdings (Overseas) Limited 33,032.00 3,303.20 E7 Convenience Food System (Thai) Ltd. 4 1,290.10 4, 129.0!

Fs Export Consultants, Inc. 21,00000 2, 100.00 Gs Corus Asia Ltd.

135,762.60 13,576.26 Hs Harris Corporation 48,000.00 4,800.00 ,s Institutional Shareholder Services, Inc. 79,000.00 7,900.00 (t4-

J8 A-Z Direct Marketing, Inc. 247,441.30 24,744. I 3 Ls Burkert Contromatic Philippines, Inc. 163,165.80 16,³ I 6.58 Ms Carpal Holdings, B.V. 9,500.00 I ,425.00 Ns Ecolochem Holdings, Inc. 58,500.00 5,850.00 08 Ecolochem Holdings, Inc. 58,500.00 5,850.00 p8 Oshkosh B'Gosh, Inc.

30,000.00 3,000.00 Q8 Navitaire International, LLC 76,918.10 7,69 1.81 Rs Nacap Nederland B.V.

36,000.00 3,600.00 s s Carpet Raya Philippines, Inc. 40,000.00 4,000.00 Ts Carpet Raya Philippines, Inc. 30,000.00 3,000.00 us WMGS Philippines, Inc. 49,779.60 4,977.96 y 8 Historical & Nautical Archeology Foundation Inc. 36,000.00 3,600.00 ws Int'L Wave Communications Networks, Inc. 144,360.84 14,436.08 xs Dek Asia Pacific Pte. Ltd 79,125.99 7,912.60 y s Touch Solutions, Inc. 24,000.00 2,400.00 z s Touch Solutions, Inc. 24,000.00 2,400.00 A9 Touch Solutions, Inc. 24,000.00 2,400.00 89 Touch Solutions, Inc. 16,000.00 1,600.00 c9 Nacap Philippines Inc. 36,000.00 3,600.00 09 Frigorex Philippines Inc. 41,592.50 4,159.25 E9 FAG Southeast Asia Pte. Ltd. 21,000 00 2, I 00.00 F9 Sumitomo (SHJ) Cyclo Drive Asia Pacific Pte. ltd. 22,500.00 2,250.00 G9 INGR Philippines, Inc. 40,000.00 4,000.00 H9 Franke Contract Group Philippines, Inc. 95,942.70 9,594.27 19 KPMG Consulting (Asia Pacific), Inc. 35,500.00 3,550.00 ]9 Sumitomo Electric Industries,Ltd.-Manila Branch 8,858.50 177. 17 0 9 Nacap Nederland B.Y.

36 000.00 3 600.00 TOTAL ~13,418,144 G:Z ~1,350,441 47 Indubitably, petitioner was able to comply with the second requirement. It should be pointed out, however, that this Court will only consider the total creditable withholding taxes of P 1,341 ,623.00 as reflected in the income tax return for taxable year 2003, which is lesser than the actual taxes withheld ofP1 ,350,447.47 as shown in the Certificates, since the said lesser amount of creditable withholding taxes was the one declared in the income tax return and which became the basis of this instant claim for refund.

As regards the third requirement, this Court ascertained that petitioner's income from services amounting to Pl3,478,144.67, upon which the creditable taxes of Pl ,341 ,623.00 is withheld, were included as part of the gross income declared in its income tax return 13.

Page II of 12 As to the other requirement, petitioner was able to establish that it did not carry- over as a tax credit the claimed unutilized creditable withholding taxes of P1 ,341 ,623.00 to the succeeding taxable year as shown in its 2004 income tax return. 14 Lastly, to be entitled to the full amount of its claim, it must be shown that the creditable taxes withheld were indeed unutilized. It should be noted that petitioner is claiming refund or issuance of tax credit certificate of unutilized creditable taxes withheld for 2003, thus, it must be proved that it is already cleared of income tax due for the year by substantiating its prior year's excess credit even only up to the extent of the tax due for the same year in order to convince this Court that indeed the creditable withholding taxes being claimed of remained unutilized. In Goodyear Philippines, Inc. vs. Commissioner of Internal Revenue, 15 it was unanimously ruled that "although the substantiation of petitioner's prior year's excess credit was an additional requirement set forth by the Court relative to petitioner's claim for refund of excess creditable taxes withheld, this was undoubtedly, was within the prerogative and power of the Court to do so, to enable it to decide this case with certainty. Otherwise, the Court will lack valid and justifiable reason in granting the unutilized or excess creditable income tax of the petitioner for the taxable year 2000." Here, petitioner is not entitled to the full amount of its claim since it failed to prove that the tax due for the taxable year 2003 had been squarely settled by prior year's excess credit absent proofs of the existence of such prior year's excess credit. However, as earlier noted regarding the result of Our examination of Certificates of Creditable Tax Withheld at Source is that the amount of P2,315.38 creditable withholding taxes pertains to taxable year 2002, thus, the same can be taken as a partial support of petitioner's prior year's excess credit. Hence, petitioner is entitled to a refund or issuance of tax credit certificate in a reduced amount of Pl , 143,065.38, computed as follows:

Creditable Withholding Tax for 2003 Less: Unsubstantiated Tax Payment: Income Tax Due for 2003 Less: Substantiated Prior Year's Excess Credit Refundable Amount of Unutilized CWT 14 Exhibit B.

15 CTA EB No. 104, January 16, 2006. P200,873.00 2,3 15.38 p 1,341 ,623.00

C.T.A. Case No. 744 1

WHEREFORE, the instant Petition for Review is hereby GRANTED. Respondent is hereby ORDERED to refund or issue tax credit certificate in a reduced amount of P1 ,143,065 .38 in favor ofthe petitioner.