Sonoma Services, Inc. vs. Commissioner of Internal Revenue

DECISION

Page 2 of 29

Petition er Sonoma Services, Inc. is a corporation duly organized and existing under the lows of th e Republic of the Philippines, with principal place of business at the 35 1h Floor, Tower One and Exchange Plaza, Ayala Triangle, Ayala Avenue, Makoti City. It was incorporated with the primary purpose of carrying on and conduc ting a general services business with any party, including the rendering of management and allied services within the limits a llowed by low, inc luding office and clerical support services, maintenance or repair work upon any and every kind of property, to enter into and execute con trac ts therefore or relating thereto.' Respondent 1s the duly appointed Commissioner of Internal Revenue, vested with authority to corry out all the functions, duties, and responsibilities of said office, including, inter olio, the power to decide, approve, and grant refunds and/or tax credits of overpaid or erroneously paid or collected internal revenue taxes. She presently holds office at the 51h Floor, BIR Notional Office Building, Aghom Rood, Dilimon, Quezon City. On April 17, 2006, petitioner filed with the Bureau o f Internal Revenue (BIR) its original Annual Income Tax Return for the taxable year 2005, wherein it indicated its c hoice to claim a refund of its excess and unutilized c reditable withholding taxes for the taxable year 2005.2£ 1 Pars. 1 and 3, Admitted Facts, Joint Stipula lion of Facts and Issues, Docket, p. 66 2 Exhibits "D", "D-1 ", and "D-2" Sonoma Services, Inc. v. CIR

On June 1, 2006, petitioner filed with the BIR its Amended Annual Income Tax Return for 2005, wherein it indicated its option to claim the refund of its excess and unutilized c reditable withholding taxes for 2005.3 On November 17, 2006, petitioner filed with the BIR ROO No. 50 its administrative claim for re fund of excess creditabl e withholding taxes for the taxable year 2005 in the amount of P5 , 0 7 0 ,932 .00 . ~ On April 10, 2008, due to inac tion on the part of the BIR, petitioner filed the instant Petition for Review . On May 19, 2008, respondent filed an Answer, stating the following

Special and Affirmative Defensess:

"4. Assuming but without admitting tha t Petitioner filed a c laim for refund, the same is still subject to investigation by the Bureau of Internal Revenue;

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

6. Taxes paid and collected are presumed to be made in accordance w ith the laws and regulations, hence, not c reditable or refundable;

7. It is incumbent upon the Petitioner to show that it has complied with the provisions of Sections 204(C) in relation to Section 229 of the 1997 Tax Code, as amended;

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

3 Exhibit "E"

4 Exhibit "A"

s Docket, p. 46 Sonoma Services, Inc. v. CIR

9. Claims for refund ore constru ed strictly against the claimant, the same partake the nature of exemption from taxation, (Commissioner of Internal Revenue vs. Ledesma, 3 1 SCRA 95) and as such, they ore looked upon w ith disfavor. (Western Minolco Corp. vs. Commissioner of Internal Revenue, 124 SCRA 12 1 ). " On May 27, 2008, petitioner filed its Pre-Trial Brie f. On May 29, 2008, responde nt fil ed a Pre-Trial Brief. On June 24, 2008, petitioner and respondent filed their Joint Stipulation of Facts and Issues.

On June 27, 2008, this Court approved th e Joint Stipulation of Facts and Issues, and pre-trial was considered terminated. During trial, petitioner presented testimonial and documentary evidence in support of its claim. Petitioner's two (2) witnesses were Vanessa I. Maturana and Katherine 0 . Constantino. Thereafter, petitioner formally offered its e vide nce, and with their admission, formally rested its case.

The documentary evidence formally offered are as follows:

Exhibits

A

B

c

D

Description

Petitioner's letter doted November 16, 2006 addressed to Mr. Cesar Charlie C. Lim of the BIR, RDO No. 50 Petitioner's Annual Income Tax Return (lTC) for calendar year (CY) ending December 31, 2003 Petitioner's Annual ITR for the CY ending December 31 , 2004 Petitioner's Tentative Annual ITR for the CY ending December 31, 2005 ' Sonoma Services, Inc. v. CIR

D-1

D-2

D-3

E

E- 1

E-2

E-3

E-4

F

F- 1

G

H

H- 1

H-2

H-3

H-4

H-5

Stomp mark of the BIR, RDO No. 50, showing the dote "April 17, 2006" as the dote o f filing of petitioner's Tentative Annuoi iTR for CY 2005 Tick mark ("x") appearing on the box next to the words "To be refunded" below Line 31 of petitioner's Tentative

Annual ITR for CY 2005

Petitioner's audited financial sta tements for CY 2005 Petitioner's Amended Annual ITR for the CY ending December 31, 2005 Line 14 o f the Amended Annual ITR

Line 27 of the Amended Annual ITR

Line 31 of the Amended Annual ITR

Tick mark ("x") appearing on the box next to the words "To be refunded" below Line 31 o f petitioner's

Amended Annual ITR for CY 2005

Petitioner' s Annual ITR for the CY ending December 31, 2006 Line 28A of the Annuai iTR Breakdown of petitioner's revenues for CY 2005 Summary of petitioner's Creditable Withholding Taxes for

CY 2003

CWT Certifica te issued by Jaime Zobel de Ayala to petitioner for the 2nd quarter of CY 2003 CWT Certificate issued by Jaime Augusto Zobel de Ayala to petitioner for the 2nd quarter o f CY 2003 CWT Certificate issued by Fernando Zobel de Ayala to petitioner for the 2ncJ quarter of CY 2003 CWT Certificate issued by Beatriz Susana Urquijo to petitioner for the 2nd quarter of CY 2003 CWT Certificate issued by Patricia Zobel de Ayala to petitioner for the 2ncJ quarter of CY 2003( Sonoma Services, Inc. v. CIR

H-6

H-7

H-8

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H-10

H- 11

H-12

H-13

H-14

H-1 5

H-16

H-17

H-18

H-19

H-20

H-21

CWT Certificate issued by Cristina Suarez de Pugo to petitioner for the 2nd quarter of CY 2003 CWT Certificate issued by Monico Zobel de Ayala to petitioner for the 2nd quarter of CY 2003 CWT Certificate issued by Sofia Elizalde to petitioner for the 2nd quarter of CY 2003 CWT Certificate issued by Georgina Moc-Crohon to petitioner for the 2nd quarter of CY 2003 CWT Certificate issued by Alejandro Padilla to petitioner for the 2nd quarter of CY 2003 CWT Certificate issued by Alfonso Zobel de Ayala, Jr. to petitioner for the 2nd quarter of CY 2003 CWT Certificate issued by Mo. Victoria Zobel de Ayala to petitioner for the 2ncJ quarter of CY 2003 CWT Certificate issued by Reinoso Holdings, Inc. to petitioner for the 2nd quarter of CY 2003 CWT Certificate issued by Corullon Holdings, Inc. to petitioner for the 2nd quarter of CY 2003 CWT Certificate issued by Son Puente Holdings, Inc. to petitioner for the 2nd quarter of CY 2003 CWT Certificate issued by Gilman Holdings, Inc. to petitioner for the 2ncJ quarter of CY 2003 CWT Certificate issued by Mermoc, Inc. to petitioner for the 2nd quarter of CY 2003

CWT

Certificate

issued

by Hacienda

Boloboticon

Homeowners' Association, Inc. to petitioner for the 2nd quarter o f CY 2003 CWT Certificate issued by Steps Donee Studio to petitioner for the 2nd quarter of CY 2003 CWT Certificate issued by Steps Donee Studio to petitioner for the 3'd quarter of CY 2003 CWT Certificate issued by Jaime Zobel de Ayala to petitioner for the 3rd quarter of CY 200~ Sonoma Services, Inc. v. CIR

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CWT Certificate issued by Jaime Augusto Zobel de Ayala to petitioner for the 3rd quarter of CY 2003 CWT Certificate issued by Fernando Zobel de Ayala to petitioner for the 3rd quarter of CY 2003 CWT Certificate issued by Beotriz Susana Urquijo to petitioner for the 3rd quarter of CY 2003 CWT Certificate issued by Patricio Zobel de Ayala to petitioner for the 3rd quarter of CY 2003 CWT Certificate issued by Cristina Suarez de Pugo to petitioner for the 3rd quarter of CY 2003 CWT Certificate issued by Monico Zobel de Ayala to petitioner for the 3rd quarter of CY 2003 CWT Certificate issued by Sofia Elizalde to petitioner for the 3rd quarter o f CY 2003 CWT Certificate issued by Alejandro Padilla to petitioner for the 3rd quarter o f CY 2003 CWT Certificate issued by Georgina Moc-Crohon to petitioner for the 3rd quarter of CY 2003 CWT Certificate issued by Alfonso Zobel de Ayala, Jr. to petitioner for the 3rd quarter of CY 2003 CWT Certificate issued by Mo. Victoria Zobel de Ayala to petitioner for the 3rcj quarter of CY 2003 CWT Certificate issued by Mermoc, Inc. to petitioner for the 3rd quarter of CY 2003 CWT Certificate issued by Reinoso Holdings, Inc. to petitioner for the 3rd quarter o f CY 2003 CWT Certificate issued by Corullon Holdings, Inc . to petitioner for the 3rcj quarter of CY 2003 CWT Certificate issued by Son Puente Holdings, Inc. to petitioner for lhe 3rd quarter of CY 2003 CWT Certificate issued by Gilmon Holdings, Inc. to petitioner for the 3rd quarter of CY 2003( Sonoma Services, Inc. v. CIR

H-38

H-39

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H-43

H-44

H-45

1- 1 1-2 1-3 1-4 1-5 1-6 1-7 CWT Certificate issued by Elija Holdings, Inc. to petitioner for the 3rd quarter of CY 2003 CWT Certificate issued by Fernando Zobel de Ayala to petitioner for the 41h quarter of CY 2003 CWT Certificate issued by Fercat Holdings, Inc. to petitioner for the 41h quarter of CY 2003 CWT Certificate issued by Elija Holdings, Inc. to petitioner for the 4 1 ~' quarter of CY 2003 CWT Certificate issued by Corullon Holdings, Inc. to petitioner for the 41h quarter of CY 2003 CWT Certificate issued by Reinosa Holdings, Inc. to petitioner for the 41h quarter of CY 2003 CWT Certificate issued by Gilman Holdings, Inc. to petitioner for the 4'h quarter of CY 2003 CWT Certificate issued by San Puente Holdings, Inc. to petitioner for the 41h quarter of CY 2003 Summary of petitioner's Creditable Withholding Taxes for

CY 2004

CWT Certificate issued by Reinosa Holdings, Inc. to petitioner for the 1 51 quarter of CY 2004 CWT Certificate issued by Mermac, Inc. to petitioner for the 1 sl quarter of CY 2004 CWT Certificate issued by Corullon Holdings, Inc. to petitioner for the 151 quarter of CY 2004 CWT Certificate issued by Elija Holdings, Inc. to petitioner for the 1 sl quarter of CY 2004 CWT Certificate issued by Fercat Holdings, Inc. to petitioner for the 151 quarter of CY 2004 CWT Certificate issued by FBC Holdings, Inc. to petitioner for the 15' quarter of CY 2004 CWT Certificate issued by Gilman Holdings, Inc. to petitioner for the 1 51 quarter of CY 2004( Sonoma Services, Inc. v. CIR

1-8 1-9 1-10 1- 1 1 1-12 1-13 1-14 1-15 1-16 1-17 1-18 1-19 1-20 1-21 1-22 1-23 CWT Certificate issued by Son Puente Holdings, Inc. to petitioner for the 1 sf quarter of CY 2004 CWT Certificate issued by Steps Donee Studio to petitioner for the 1 sf quarter of CY 2004 CWT Certificate issued by Corullon Holdings, Inc. to petitioner for the 2nd quarter of CY 2004 CWT Certificate issued by Steps Dance Studio to petitioner for the 2nd quarter of CY 2004 CWT Certificate issued by Alejandro Padilla to petitioner for the 2nd quarter of CY 2004 CWT Certificate issued by Alfonso Zobel de Ayala, Jr. to petitioner for the 2nd quarter of CY 2004 CWT Certificate issued by Sofia Elizalde to petitioner for the 2nd quarter of CY 2004 C WT Certificate issued by Beatriz Susana Urquijo to petitioner for the 2nd quarter of CY 2004 CWT Certifica te issued by Jaime Zobel de Ayala to petitioner for the 2nd quarter of CY 2004 CWT Certificate issued by Patricia Zobel de Ayala to petitioner for the 2nd quarter of CY 2004 CWT Certificate issued by Fernando Zobel de Ayala to petitioner for the 2nd quarter of CY 2004 CWT Certificate issued by Cristina Suarez de Puga to petitioner for the 2nd quarter of CY 2004 CWT Certificate issued by Mo. Victoria Zobel de Ayala to petitioner for the 2nd quarter of CY 2004 CWT Certifica te issued by Gilman Holdings, Inc. to petitioner for the 2nd quarter of CY 2004 CWT Certificate issued by Fercat Holdings, Inc. to petitioner for the 2nd quarter of CY 2004 CWT Certificate issued by Elija Holdings, Inc. to petitioner for the 2nd quarter of CY 2004~ Sonoma Services, Inc. v. CIR

1-24 1-25 1-26 1-27 1-28 1-29 1-30 1-31 1-32 1-33 1-34 1-35 1-36 1-37 1-38 1-39 CWT Certificate issued by FBC Holdings, Inc. to petitioner for the 2nd quarter of CY 2004 CWT Certificate issued by Jaime Augusto Zobel de Ayala to petitioner for the 2ncJ quarter of CY 2004 CWT Certificate issued by Mermoc, Inc. to petitioner for the 2nd quarter of CY 2004 CWT Certificate issued by Monico Zobel de Ayala to petitioner for the 2ncJ quarter of CY 2004 CWT Certificate issued by Georgina Moc-Crohon to petitioner for the 2nd quarter of CY 2004 CWT Certificate issued by Reinoso Holdings, Inc. to petitioner for the 2ncJ quarter of CY 2004 CWT Certificate issued by Son Puente Holdings, Inc. to petitioner for the 2ncJ quarter of CY 2004

CWT

Certificate

issued by

Hacienda

Boloboticon

Homeowners' Association, Inc. to petitioner for the 3rd quarter of CY 2004 CWT Certificate issued by Steps Dance Studio to petitioner for the 3rd quarter of CY 2004 CWT Certificate issued by Jaime Augusto Zobel de Ayala to petitioner for the 4n1 quarter of CY 2004 CWT Certificate issued by Jaime Zobel de Ayala to petitioner for the 41h quarter of CY 2004

CWT

Certificate

issued

by Hacienda

Boloboticon

Homeowner's Association, Inc. to petitioner for the 4'h quarter of CY 2004 CWT Certificate issued by Steps Dance Studio to petitioner for the 4'h quarter of CY 2004 CWT Certificate issued by Fernando Zobel de Ayala to petitioner for the 41h quarter of CY 2004 CWT Certificate issued by Beotriz Susana Urquijo to petitioner for the 41h quarter of CY 2004 CWT Certificate issued by Patricio Zobel de Ayala to petitioner for the 41h quarter of CY 2004£' Sonoma Services, Inc. v. CIR

1-40 1-41 1-42 1-43 1-44 1-45 1-46 1-47 1-48 1-49 1-50 1-51 1-52 1-53 1-54

J

CWT Certificate issued by Cristina Suarez de Pugo to petitioner for the 41h quarter of CY 2004 CWT Certificate issued by Monico Zobel de Ayala to petitioner for the 41h quarter of CY 2004 CWT Certificate issued by Sofia Elizalde to petitioner for the 4n' quarter of CY 2004 CWT Certificate issued by Elijo Holdings, Inc. to petitioner for the 41h quarter of CY 2004 CWT Certificate issued by Fercot Holdings, Inc. to petitioner for the 4 1 ~' quarter of CY 2004 CWT Certificate issued by Reinoso Holdings, Inc. to petitioner for the 41h quarter of CY 2004 CWT Certificate issued by Corullon Holdings, Inc. to petitioner for the 41h quarter of CY 2004 CWT Certificate issued by Son Puente Holdings, Inc. to petitioner for the 41h quarter of CY 2004 CWT Certifica te issued by Gilmon Holdings, Inc. to petitioner for the 41h quarter of CY 2004 CWT Certificate issued by FBC Holdings, Inc. to petitioner for the 41h quarter of CY 2004 CWT Certificate issued by Alejandro Padilla to petitioner for the 41h quarter of CY 2004 CWT Certificate issued by Georgina Moc-Crohon to petitioner for the 41h quarter of CY 2004 CWT Certificate issued by Alfonso Zobel de Ayala, Jr. to petitioner for the 41h quarter of CY 2004 CWT Certificate issued by Mo. Victoria Zobel de Ayala to petitioner for the 41h quarter of CY 2004 CWT Certificate issued by Mermoc, Inc. to petitioner for the 41h quarter of CY 2004 Summary of petitioner's Creditable Withholding Taxes for CY 20c1s( Sonoma Services, Inc. v. CIR

J-1

J-2

J-3

J-4

J-5

J-6

J-7

J-8

J-9

J-1 0

J- 1 1

J- 12

J- 13

J- 14

J- 15

J- 16

C WT Certific ate issued by Ja ime Augusto Zobel d e Ayala II to petitioner for the 1 sf quarter o f CY 2005 C WT Certificate issued by Jaime Zobel de Ayala to petitio ner for the 1 sf q uarter of CY 2005 C WT Certific ate issued by Fernando Zobel d e Ayala to petitioner for the 1 sf quarter of CY 2005 C WT Certificate issued by Beatriz Susana Urquijo to petitio ner for the 1 sf quarter o f CY 2005 CWT Certific ate issued by Patricia Zobel d e Ayala to petitio ner for the 1 sf q uarter o f CY 2005 CWT Certificate issued by Cristina Suarez d e Puga to petitioner for the 1 sf quarter o f CY 2005 C WT Certificate issued by Monic a Zobel d e Aya la to petitioner for the 1 sf quarter of CY 2005 CWT Certifica te issued by Sofia Elizalde to petitioner for the 1 sf quarter o f CY 2005 CWT Certific ate issued by Alejandro Padilla to petitioner for the 1 sf quarter o f CY 2005 C WT Certifica te issued by Georgina Mac-Crohon to petitio ner for the 1 sf q uarter o f CY 2005 C WT Certificate issued by Alfonso Zobel d e Ayala, Jr. to petitioner for the 1 sf quarter o f CY 2005 CWT Certificate issued by Mo. Victoria Zobel de Ayala to petitioner for the 15f quarter o f CY 2005 C WT Certific a te issued by Mermac, Inc. to petitioner for the 1 sf quarter of CY 2005 CWT Certificate issued by Elija Holdings, Inc . to petitioner for the 15 f quarter of CY 2005 C WT Certificate issued by Fercat Holdings, Inc. to petitioner for the 1 sf quarter of CY 2005 CWT Certifica te issued by Reinosa Holdings, Inc. to petitioner for the 1 sf quarter of CY 2005( Sonoma Services. Inc. v. CIR

J-17

J- 18

J-19

J-20

J-21

J-22

J-23

J-24

J-25

J-26

J-27

J-28

J-29

J-30

J-3 1

J-32

CWT Certificate issued by Corullon Holdings, Inc. to petitioner for the 1st quarter of CY 2005 CWT Certifica te issued by Son Puente Holdings, Inc. to petitioner for the 1st quarter of CY 2005 C WT Certifica te issued by Gilmon Holdings, Inc. to petitioner for the 1st quarter of CY 2005 CWT Certificate issued by FBC Holdings, Inc. to petitioner for the 1st quarter of CY 2005

CWT

Certificate

issued

by Hacienda

Boloboticon

Homeowners' Association, Inc. to petitioner for the 1st quarter of CY 2005 CWT Certificate issued by Steps Donee Studio to petitioner for the 1st quarter of CY 2005 CWT Certificate issued by Jaime Zobel de Ayala to petitioner for the 2nd quarter o f CY 2005 CWT Certificate issued by Jaime Zobel de Ayala to petitioner for the 2ncJ quarter of CY 2005 CWT Certificate issued by Fernando Zobel de Ayala to petitioner for the 2nd quarter of CY 2005 CWT Certificate issued by Beotriz Susana Urquijo to petitioner for the 2nd quarter of CY 2005 CWT Certificate issued by Patricio Zobel de Ayala to petitioner for the 2nd quarter o f CY 2005 CWT Certifica te issued by Cristina Suarez de Pugo to petitioner for the 2nd quarter o f CY 2005 CWT Certificate issued by Monico Zobel de Ayala to petitioner for the 2nd quarter of CY 2005 CWT Certificate issued by Sofia Elizalde to petitioner for the 2ncJ quarter of CY 2005 CWT Certificate issued by Alejandro Padilla to petitioner for the 2nd quarter of CY 2005 CWT Certificate issued by Georgina Moc-Crohon to petitioner for the 2ncJ quarter o f CY 2005( Sonoma Services, Inc. v. CIR

J-33

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J-42

J-43

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J-48

CWT Certificate issued by Alfonso Zobel de Aya la, Jr. to petitioner for the 2nd quarter of CY 2005 C WT Certific ate issued by Mo. Vic toria Zobel de Ayala to petitio ner for the 2nd quarter o f CY 2005 C WT Certificate issued by Mermac, Inc. to petitioner for the 2nd quarter o f CY 2005 C WT Certificate issued by Elijah Holdings, Inc. to petitioner for the 2nd quarter o f CY 2005 CWT Certificate issued by Fercat Holdings, Inc. to petitioner for the 2nd quarter o f CY 2005 C WT Certific ate issued by Reinosa Holdings, Inc. to petitioner for the 2nd quarter of CY 2005 C WT Certifica te issued by Corullon Holdings Inc. to petitio ner for the 2ncJ quarter of CY 2005 CWT Certific a te issued by San Puente Holdings, Inc. to petitioner for the 2nd quarter of CY 2005 CWT Certificate issued by Gilmon Holdings, Inc. to petitio ner for the 2n<J quarter o f CY 2005 C WT Certifica te issued by FBC Holdings, Inc. to petitio ner for the 2nd quarter of CY 2005

C WT

Certificate

issued by

Haciend a

Bala ba tic a n Homeowners' Associa tion, Inc. to petitioner for the 2nd q uarter o f CY 2005 C WT Certifica te issued by Steps Dance Stud io to petitio ner for the 2nd quarter of CY 2005 CWT Certifica te issued by Jaime Zobel de Ayala to petitioner for the 3rd quarter of CY 2005 CWT Certificate issued by Jaime Augusto Zobel d e Ayala II to petitioner for the 3rd quarter of CY 2005 CWT Certificate issued by Fernando Zobel de Ayala to petitioner for the 3r<J quarter o f CY 2005 C WT Certific ate issued by Sofia Elizald e to petitio ner for the 3rd quarter o f CY 200-x- Sonoma Services, Inc . v. CIR

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C WT Certificate issued by Alejandro Padilla to petitioner for the 3 rcJ quarter of CY 2005 CWT Certificate issued by Georgina Mac-Crohan to petitioner for the 3 rd quarter of CY 2005 CWT Certificate issued by Alfonso Zobel de Ayala, Jr. to petitioner for the 3 rcJ quarter of CY 2005 CWT Certificate issued by Mermac, Inc. to petitioner for the 3rd quarter of CY 2005 C WT Certificate issued by Elija Holdings, Inc. to petitioner for the 3rd quarter of CY 2005 CWT Certificate issued by Fercat Holdings, Inc. to petitioner for the 3 rd quarter of CY 2005 CWT Certificate issued by Reinosa Holdings, Inc. to petitioner for the 3 rd quarter of CY 2005 CWT Certifica te issued by Corullon Holdings, Inc. to petitioner for the 3 rcJ quarter of CY 2005 C WT Certificate issued by San Puente Holdings, Inc. to petitioner for the 3 rd quarter of CY 2005 CWT Certificate issued by Gilman Holdings, Inc. to petitioner for the 3 rd quarter of CY 2005 CWT Certificate issued by

Hacienda

Balabatican

Homeowners' Association, Inc. to petitioner for the 3rcJ quarter of CY 2005 CWT Certificate issued by FBC Holdings, Inc. to petitioner for the 3 rd quarter of CY 2005 CWT Certificate issued by Jaime Zobel de Ayala to petitioner for the 41h quarter of CY 2005 CWT Certifica te issued by Jaime Augusto Zobel de Ayala II to petitioner for the 41h quarter of CY 2005 C WT Certificate issued by Beatriz Susana Urquijo to petitioner for the 41h quarter of CY 2005 CWT Certifica le issued by Patricia Zobel de Ayala to petitioner for the 41h quarter of CY 2005 L Sonoma Services, Inc. v. CIR

J-65

J-66

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J-68

J-69

J-70

J-7 1

J-72

J-73

J-7 4

J-75

J-76

J-77

K

K-1

K-2

CWT Certificate issued by Alejandro Padilla to petitioner for the 4'h quarter o f CY 2005 CWT Certificate issued by Georgina Mac-Crohon to petitioner for the 4'h quarter of CY 2005 CWT Certificate issued by Alfonso Zobel de Ayala, Jr. to petitioner for the 41h quarter o f CY 2005 CWT Certificate issued by Mermac, Inc. to petitioner for the 4 '~ 1 quarter of CY 2005 CWT Certificate issued by Corullon Holdings, Inc. to petitioner for the 41h quarter of CY 2005 CWT Certificate issued by FBC Holdings, Inc. to petitioner for the 4'h quarter of CY 2005 CWT Certifica te issued by

Hacienda

Balabatican

Homeowners' Association, Inc. to petitioner for the 41h quarter o f CY 2005 CWT Certifica te issued by Fercat Holdings, Inc. to petitioner for the 4'h quarter of CY 2005 CWT Certificate issued by Elija Holdings, Inc. to petitioner for the 41h quarter of CY 2005 C WT Certificate issued by Reinosa Holdings, Inc . to petitioner for the 4 1 ~ 1 quarter of CY 2005 CWT Certifica te issued by San Puente Holdings, Inc. to petitioner for the 41h quarter of CY 2005 CWT Certificate issued by Gilmon Holdings, Inc. to petitioner for the 41h quarter of CY 2005 CWT Certificate issued by Steps Dance Studio to petitioner for the 41h quarter of CY 2005 Sworn Statement of Ms. Vanessa I. Maturana dated July 4, 2008 Ms. Maturana's signature appearing on page 7 of the Sworn Sta tement Submission dated July 4, 2008 covering the Sworn Statement of Ms. Maturana( Sonoma Services, Inc. v. CIR

L

L-1

L-2

M

M- 1

M-2

AA

AA-1

Sworn Statement of Ms. Vanessa I. Moturono doted August 21, 2008 Ms. Moturono 's signature appearing on page 14 of the

Sworn Statement

Submission doted August 21, 2008 covering the Sworn Statement of Ms. Moturono Sworn Statement of Ms. Katherine 0. Constantino doted January 23, 2009 Ms. Constantino's signature appearing on page 20 of

the Sworn Statement

Submission doted January 23, 2009 covering the Sworn Statement of Ms. Constantino ICPA's Report doted January 19,2009 Signature of Ms. Katherine 0. Constantino appearing on page 32 of the Report BB-1 to BB-22 Management Services Agreements between petitioner and its withholding agents-clients for CY 2005 CC-1 to CC-6 Cost Recovery Agreements between petitioner and its withholding agents-clients for CY 2005 DD-1 to DD-1 1 General Ledgers o f petitioner for CY 2005

EE

Reclassifying entry on Recovery on Costs for CY 2005

FF-1 to FF-85

Official

receipts covering the administration fees received by petitioner in CY 2005 GG (including

GG-1 to GG-

12) to BBB

(including

BBB-1 to BBB- 12)

inclusive of sub- markings

CCC-1 to

CCC-21

Annual Information Return of Creditable Income

Taxes Withheld (Expanded)/lncome Payments Exempt Withholding Tox(BIR Form 1604-E), Monthly Remittance

Return of Creditable Income Taxes Withheld (Expanded)

(BIR Form 1601 -E), and BTR-BIR Deposit Slips/Official Receipts covering the withholding taxes remitted by petitioner's withholding agents-clients for CY 2005 Management Services Agreements between petitioner and its withholding agents-clients for CY 2003( Sonoma Services, Inc. v. CIR

DDD-1 to

DDD-4

EEE

FFF

GGG-1 to

GGG- 10

HHH

Cost Recovery Agreements between petitioner and its withholding agents-clients for CY 2003 Audited Financial Statements of petitioner for CY 2003 Breakdown of petitioner's revenues for CY 2003 General Ledgers of petitioner for CY 2003 Sworn Statement of Ms. Marivic F. Lao dated October 18, 2007 111- 1 to 111-55

Official

receipts covering the administration fees received by the petitioner in CY 2003

JJJ-1 to

JJJ-6

KKK (including

KKK- 1 to KKK-

12) to EEEE

(including

EEEE- 1 to EEEE-3)

inclusive of sub- markings

FFFF

GGGG

HHHH-1 to

HHHH-9

II II

JJJJ-1 to

JJJJ-168

KKKK-1 to

KKKK-2

LLLL-1 to

LLLL-7

MMMM

(including Cash receipts voucher covering the administration fees received by petitioner in CY 2003

Annual Information Return of Creditable Income

Taxes Withheld (Expanded)/lncome Payments Exempt Withholding Tax(BIR Form 1604-E), Monthly Remittance

Return of Creditable Income Taxes Withheld (Expanded)

(BIR Form 1601 -E) , and BTR-BIR Deposit Slips/Official Receipts covering the withholding taxes remitted by petitioner's withholding agents-clients for CY 2003 Audited Financial Statements of petitioner for CY 2004 Breakdown of petitioner's revenues for CY 2004 General Ledgers of petitioner for CY 2004 Reclassifying entry on Recovery on Costs for CY 2004 Official receipts covering the administration fees received by petitioner in CY 2004 Management Services Agreements between petitioner and its withholding agents-clients for CY 2004 Cost Recovery Agreements between petitioner and its withholding agents-clients for CY 2004

Annual Information Return of Creditable Income

Taxes Wilhheld (Expanded)/lncome Payments Exempt~ Sonoma Services, Inc. v. CIR

MMMM- 1to

MMMM- 12) to

HHHHH

(including

HHHHH-1 to

HHHHH- 11 ), inclusive of sub-markings Withholding Tax(BIR Form 1604-E), Monthly Remittance

Return of Creditable Income Taxes Withheld (Expanded)

(BIR Form 1601-E), and BTR-BIR Deposit Slips/Official Receipts covering the withholding taxes remitted by petitioner's withholding agents-clients for CY 2004 Respondent did not present any evidence.6 On November 25, 2010, the case was deemed submitted for decision considering the

Memorandum

1 and

Supplemental

MemorondumB filed by petitioner on February 8, 2010 and November 18, 2010, respectively, and the report of the Records Division that respondent did not file a Memorondum.9 The issues IO as stated in the Joint Stipulation of Facts and Issues ore the following:

"1. Whether or not petitioner's withholding tax credits for CY 2005 in the amount of P5,070,932.00 are duly substantiated by documentary evidence.

2. Whether or not the income from which the subject creditable income taxes were withheld were reported as part of petitioner's revenues in its Annual Income Tax Return for CY 2005.

3. Whether or not petitioner has excess and unutilized creditable withholding taxes in the amount of P5,070,932.00 for CY 2005.

4. Whether or not petitioner applied its excess creditable withholding taxes for CY 2005 against its income tax liability in the succeeding taxable year/s. { 6 Docket, p. 503 7 Docket, pp. 508-525 a Docket, pp. 58 1-588 9 Docket, p. 589 1D Docket, pp. 67-68 Sonoma Services, Inc. v. CIR

5. Whether or not petitioner filed its administrative and judicial claims for refund of excess creditable withholding taxes for CY 2005 within the two-year prescriptive period provided in Section 204(C) of the Notional Internal Revenue Code (the 'Tax Code').

6. Whether or not petitioner is entitled to its claim for refund or issuance of TCC for its excess and unutilized creditable withholding taxes for CY 2005 in the amount of P5,070,932.00." The foregoing issues c an be summarized as fo llows: Whe ther or not p e titioner is e ntitle d to its c laim for re fund or issuance of a tax c re dit certificate in the amount of P5,070,932.00, re presenting its excess and unutilized c reditable withholding taxes for th e taxable year 2005.

Th e petition is meritorious.

Section 7 6 of the Natio nal Internal Re venue Code (NIRC) of 1997, as amended, provides:

"SEC. 7 6. 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 c alendar or fiscal year. If the sum of the quarterly tax payments mode 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) Corry-over the excess c redit; or (C) Be c redited 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 c redited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years. Once the option to c orry-over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been mode, such option shall be( Sonoma Services, Inc. v. CIR considered irrevocable for that taxable period and no application for cash refund or issuance of a tax credit certificate shall be allowed therefor."

The above-quoted prov1s1on of law provides for two options to a taxable corporation whose total quarterly 1ncom e tax payments 1n a given taxable year exceed its total income tax due, namely: ( l) filing of a tax refund (either in the form of cash or tax credit certific ate); or

(2) availment of a tax c redit. In the first option, any tax on income that is paid in excess of the amount due the government may be refunded, provided that the taxpayer properly applies for the refund. The second option works by applying the refundable amount, as shown in the Final Adjustm ent Return of a given taxable year, against the estimated quarterly income tax liabilities of the succeeding taxable year. However, once the carry-over option is taken, actually or c onstructively, it becomes irrevocable for that taxable period. 11 The phrase "for that taxable period" refers to the taxable year when the excess income tax, subject of the option, was a c quired by the taxpayer.'7{ 11 Philom Asset Management, Inc. vs. Commissioner o f Internal Revenue, G.R. Nos. 156637/162004, December 14, 2005; Systro Philippines, Inc . vs. Commissioner o f Internal Revenue, G.R. No. 17 6290, September 2 1, 2007 12 Commissioner o f ln lernol Revenue vs. Bonk of 1he Philippine Islands, G .R. No. 178490, July 7, 2009 Sonoma Services, Inc. v. CIR CTA C ASE NO . 7757

DECISION

Page 22 o f 29 In exerc1s1ng its option, the corporation must signify in its annual corporate adjustment return (by marking the option box provided in the BIR form) its intention either to carry over the excess c redit or to claim a refund. To fac ilitate tax collection, these remedies are in the alternative and th e c hoice of one precludes the other.IJ A review of petitioner's amended Annual Income Tax Return H for the taxable year 2005 shows that petitioner had total tax credits in the amount of P6,737 ,81 0.00, which consisted of the prior year's excess credits in the amount of Pl ,666,878.00 and c reditable taxes withheld during the year in the amount of P5,070,932.00, to wit: -- - - - - -- - --- - --

Prior Year's Excess Credits

p 1,666,878.00

Creditable Taxes Withheld for the First Three

Quarters

p 3,867,150.00 --- - - - - - - -

for the Fourth Quarter

1,203,782.00 5,070, 932.00 - r---

Total Tax Credits

p 6,737,810.00 - - -- - - The records reveal that the pnor year's excess c redits of P l ,666,878.00 originated from the c reditable taxes withheld for the year 2003 in the amount of P2,506,600.00 15, after deducting therefrom the income tax due for the taxable years 2003 and 2004 in the respective amounts of P289,502.00 and P550,220.00, as shown hereunder:( 13 Philippine Bonk of Communica tions vs. Commissioner o f Internal Revenue, e t o f., G.R. No. 11 2024, January 28, 1999 14 Exhibi t "E" 15 Exhibits "H- 1" to " H-45", as summarized in Exhibit "H" Sonoma Services, Inc. v. CIR

Exhibit

Taxable

Income

Prior Year's

Bala ne e

CWT for

Excess CWT

End of the

Year

Year

Tax Due

---- -- -- -----

"B"

2003 289,502.00 t---- ------

"C"

2004

Excess

Credits

1----- ·- - -- Due/ Refu ndable

the Year

28 9,502.00 2,506,600.00 ---- 6,878.00 5, 188,970.00 2,2 17,098.00 6,855,848.00 550,220.00 2,2 17,098.00 1,66 -- -'-- -- ---- The prior year's excess c redits of P 1,666,878.00 was applied against petitioner' s incom e tax due for the year 2005 in the amount of P1 ,029,302.00 16, leaving the amount of P637,576.00 prior year's exc ess c redits and c reditable taxes withheld during the year 2005 in the amount of P5,070,932.00 11, totaling P5,708,508.00 unutilized a s of December 31, 2005, a s shown also hereunder:

Prior Year's Excess Credits

p 1 ,666,878.00

Less: Income Tax Due

1,029,302.00

Balance of Prior Year's Excess Credits

P637,576.00

Add: Creditable Taxes Withheld During the Year

5,070,932.00 Unutilized Excess Tax Credits as of December 31 , 2005 p 5,708,508.00 Since petitioner marked the option "To be refund ed " in its Annual Income Tax Return 18 for the taxable year 2005 (bo th original and amended) and re flected only the amount of P637,576.00 as " Prior Year's Excess Credits" in its Quarterly Income Tax Returns 19 and Annual Income Tax Return 2o for the taxable year 2006, the unutilized c reditable withholding taxes for the taxable year 2005 in th e amount of(

16 Exhibit "E-2"

17 Exhibit "E-3"

18 Exhibits "D-2" and "E-4"

19 Line 29A, Exhibits "N", "N-1 ", "0", "0- 1 ", "P", and "P-1" 2o Exhibit "F-1 " Sonoma Services, Inc. v. CIR

P5,070,932.00 may be the subject of a claim for refund under Section 7 6 of the NIRC of 1997, as amended.

In accordance with revenue regulations issued by respondent and cases ::> 1 d ecided by the Supreme Court, the re fund of excess c reditable withholding taxes is dependent on petitioner's compliance with the following requirem ents:

1.

That the c laim for refund was filed within the two-year prescriptive period as provided under Section 204(C) in relation to Sec tion 229 of the NIRC of 1997; 2.

That the fact of withholding is established by a copy of a statement duly issued by the payor (withholding agent) to the payee, showing the amount paid and the amount of tax withh eld there from ; and 3.

That th e income upon which the taxes were withheld w ere inc luded in the return of the recipient. Anent the issue of timely filing of the re fund claim, the applicable provisions are Sections 204 (C) and 229 of the National Internal Revenue Code whic h provide :

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

XXX

XXX

XXX

(C ) Credit or re fund taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal revenue stamps w hen 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( 21 Section 2.58, Revenue Regula tions No. 2-98, as amended; Citibank N.A. vs. Court of Appeals, e t of., G.R. No . 107 434, Oc tober 10, 1997; ACCRA Investments Corporation vs. The Honorable Courl of Appeals, et o f., G .R. No. 96322, December 20, 1991 Sonoma Services, Inc. v. CIR 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 on 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 notional internal revenue tax hereafter alleged to hove been erroneously or illegally assessed or collected, or of any penalty claimed to hove been collected without authority, or of any sum alleged to hove been excessively or in any manner w rongfully 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 dote 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 therefor, refund or c redit any tax, where on the face of the return upon which payment was mode, such payment appears clearly to hove been erroneously paid." Petitioner has two years from the filing of the Final Adjustment Return within which to file a c laim for refu nd of excess c reditable income taxes withheld both in the administrative and judic ial levels. 22 In this case, the claim covers the taxable year 2005 for which petitioner filed its original Annual Income Tax Return on April 17, 2006. 73 Counting from this dote, the administrative c laim filed by petitioner on November 17, 2006,2-1 as well as the Petition for Review filed on April 10, 2008, fell within the two-( 22 ACCRA Investments Corporation vs. The Honorable Court of Appeals, e t of .. , G.R. No. 96322, December 20, 1991

23 Exhibit "D-1"

24 Exhibit "A"

Sonoma Services, Inc. v. CIR year prescriptive period. This shows tha t petitioner has complied with the first requirem ent.

As regards the second requisite, petitioner presented Certific ates of Credita ble Tax Withheld a t Source 75 duly issued to it by various withholding agents for the year 2005, reflecting c reditable withholding taxes in the tota l amount o f P5,070,932. 16.26 Thu s, petitioner satisfied the second requirem ent.

In ord er to prove compliance with the third requirement, petitioner submitted certific ates showing that the c redita ble taxes o f P5,070,932.00 were w ithheld on income payments received by petitioner for the year 2005 a mounting to P34,356,2 14.37. 27 How ever, petitioner' s summary indicates a low er amount o f P34,298,903.00 income payments, 2s the difference of P57,311.37 being attributa ble to the discrepanc y in the a mount o f incom e payment from San Puente Holdings, Inc . as recorded in petitioner's books per o ffic ia l receipt issued 79 a nd per BIR Form No. 2307.30 On the other hand, petitioner's declared gross inc ome in its

Annual

Incom e

Tax

Return

for th e same year amounted to P34,656,484.0031 • Petitioner presented a Brea kdown o f Revenues, to wiP 2(

25 Exhibits "J- 1 " to "J-77"

26 Page 2, Exhibit "J" 27 Annex l, Exhibit "AA" 2s Page 2, Exhibit " J"

29 Exhibit "FF-77"

30 Exhibit "J-7 5"

31 Line l9C, Exhibit "E" Sonoma Services, Inc. v. CIR

---- Per2307

ITR

Income on loons p 1 ,677, 157.00 Miscella neous Income 12,524.00

Administration Fee

For the year 2005 p 32,966,803.00 32,966,803.00 Recovery cost for the year 2005 1 ,332, 1 00.00 -

Total

p 34,298,903.00 p 34,656,484.00 The C o urt-commissio ne d Inde p e nde nt C e rtified Public Accountant explaine d the diffe re nce of P l ,332, l 00.00 a s fo llow s: 33 "The difference was due to Administration fee-Recovery on Cost w hic h was presented in the income tax return a nd financial statements as a reduction to 'Rental expense' and 'Miscellaneous expense' .

Recoveries on Cost were renta l and depreciation expenses shored by the Petitioner' s ma naged companies in accordance with their Cost Recovery Agreements (to be presented as Exhibits CC-1 to CC -6). Recoveries on Cost were collected with service fees and thus were initially recorded as 'Ad ministration Fees ' (to be presented as Exhibit DD-1 ). A reclassifying entry (to be presented as Exhibit EE) was mode on December 31, 2005 wherein the recovery on cost amount recorded in 'Administration fee' in the a mount of P 1 ,332, 100 was reclassified as a credit (deduction) to 'Rental Expense ' in the amount of P1 ,302,000 and 'Miscellaneous Expense' in the a mount of P30, 100 (General ledgers to be presented as

Exhibits

DD-2

and DD-3, respectively).

The breakdown of these recovery cost is shown in Annex 3. xxx" In fin e, p e titio ne r has esta blishe d th a t its incom e upon whic h the c re dita b le incom e taxes o f P5,070,932.00 were w ithhe ld was inc lude d in its inco m e tax re turn, thu s, p e titio ne r is e ntitle d to a re fund o f the exce ss c re ditable withh o lding ta xes fo r the taxable year 2005 in the said amo unt o f P5,070,932.00.(

32 Exhibit "G"

33 Page 8, Exhibit "A A" Sonoma Services, Inc. v. CIR

WHEREFORE, premises considered , the Petition for Review is hereby GRANTED. Accordingly, respondent is ORDERED TO REFUND or TO ISSUE A TAX CREDIT CERTIFICATE to petitioner in the amount of FIVE MILLION SEVENTY THOUSAND NINE HUNDRED THIRTY-TWO PESOS (P5,070, 932.00), representing excess and unutilized creditable withholding taxes for the taxable year 2005.

WE CONCUR:

~~c-~Q..

J6'ANITO-,C. CASTANEDA, frf.

Associate Justice

~ N : M~~G~

CIELITO N. MINDARO-GRULLA

Associate Justice

CAESAR A. CASANOVA

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision were reached in consulta tion before the case was assigned to the writer of the opinion of the Court's Division.

Q~.~o c.GsT~ / ~ ­ fUA.Nno C. CASTANEDA , ~_'

Associate Justice

Chairperson

Sonoma Services, Inc. v. CIR CTA CASE NO . 7757

DECISION

CERTIFICATION

Pa g e 29 o f 29 Pursua nt to Artic le VI II, Section 13 of the Constitution, and the Division Chairperson's Attestation, it is hereby certified tha t the conc lusions in the above Decision were rea c hed in consultation before the case was assig ned to the writer of the opinion of the Court's Division. ~ 1$>-~ ERN ESTO D. A COST A

Presiding Justice