Upsi Management, Inc. vs. Commissioner of Internal Revenue

DECISION

MINDARO-GRULLA, !:

This is a Petition for Review filed by petitioner UPSI Management, Inc. against respondent Commissioner of Internal Revenue (CIR) for the Court in Division, pursuant to Rule 4, Section 3(a)(2), in relation to Rule 8, Section 4(a), of the Revised Rules of the Court of Tax Appeals (RRCTA).£ UPSI Management, Inc. v. CIR

Petitioner seeks for the refund or issuance of a tax credit certificate in the amount of P1, 107,228.00, representing its excess/unutilized creditable withholding tax for the fiscal year ended March 31, 2007. Petitioner is a corporation duly incorporated and existing under Philippine laws, with business address at 1122 General Luna Street, Paco, Manila.

Respondent is the duly appointed Commissioner of the Bureau of Internal Revenue (SIR), with power, among others, to decide disputed assessments of internal revenue taxes and penalties imposed in relation thereto.

She holds office at the SIR National Office Building, Agham Road, Diliman, Quezon City.

On July 16, 2007, petitioner filed its original Annual Income Tax Return for the fiscal period ended March 31, 2007 with the Revenue District No. 34 of SIR Revenue Region No. 6. On November 14, 2007, petitioner filed its amended Annual Income Tax Return for the fiscal period ended March 31, 2007.

Petitioner

reported a Minimum Corporate Income Tax (MCIT) due of P20,562.00, (' UPSI Management, Inc. v. CIR prior years excess credits of P2,231 ,507.00, and creditable tax withheld in the amount of P 1,1 07,228.00 for the fiscal year ended March 31, 2007. In the same amended Annual Income Tax Return, petitioner indicated in the corresponding box its intention to be issued a tax credit certificate representing its unutilized creditable tax withheld for the taxable year 2007.

On November 7, 2008, petitioner filed a claim for refund through the issuance of a tax credit certificate in the total amount of P1, 107,228.00, which represents the unutilized creditable income taxes for the taxable period ended March 31 , 2007.

Due to respondent's failure to act on the said administrative claim, petitioner filed the instant Petition for Review on July 13, 2009. Respondent filed her Answer on July 28, 2009 and interposed the following Special and Affirmative Defenses: "5. Petitioner's claim for refund is still pending administrative investigation;

6. Petitioner has the burden of proof to show that it is entitled to the refund of the amounts claimed as refundable because taxes are presumed to have been collected in accordance with laws and regulations ( Caltex Phils., Inc. vs. Commissioner of Internal Revenue, CTA Case No. 2871, January 29, 1986}. (.

UPSI Management, Inc. v. CIR

7. Claims for refund are to be construed strictly against the petitioner, the same being in the nature of an exemption from taxation. Failure on the part of the petitioner to prove the same is fatal to its claim for tax refund. (Meralco Electric Co. vs.

Commissioner of Internal

Revenue, 67

SCRA

351,· Commissioner of Internal Revenue vs. Ledesma, 31 SCRA 95).

8. Petitioner must prove that the alleged refundable taxes were neither automatically applied as tax credit against its tax liability for the succeeding quarters of the succeeding year nor included as creditable taxes declared or applied to the succeeding fiscal years.

9. Under Section 76 of the 1997 Tax Code, petitioner's excess creditable tax withheld for fiscal year ended March 31, 2007 may either be refunded, claimed as tax credit or carried over/applied to the succeeding taxable years as could be explicitly gleaned out from the petitioner's annual income tax return (Annex 'B'). However, once an option has been made, the same becomes irrevocable for that taxable period and no application for cash refund shall be allowed therefor. 1 O.ln the case at bar, petitioner opted to claim as tax credit said amount of P1, 107,228.00 for fiscal year ended March 31 , 2007, but the said amount was likewise automatically carried over as petitioner's creditable tax withheld in its income tax _return for fiscal year ended March 31, 2008 (Annex 'C').

Respondent

strongly points out that the amount of P1 , 107,228.00 being sought for by petitioner as its tax credit is included in the petitioner's reported prior years excess credit of P3,318, 173.00 for fiscal year ended March 31 , 2008. Undoubtedly, petitioner has explicitly violated Section 76 of the 1997 Tax Code for claiming refund, tax credit and automatic carry-over simultaneously. Said petitioner's practice of claiming the two (2) options simultaneously would not only confuse the respondent of petitioner's claim but it is likewise highly irregular, improper and erroneous.

11. Aside from the petitioner's act of carrying-over of said amount of P1 , 107,228.00 to the petitioner's creditable tax withheld for fiscal year ended March 31 , 2009 which is improper, the fact of ~ UPSI Management, Inc. v. CIR carrying-over also creates serious conflict whether or not respondent would now allow petitioner's claim for refund and/or tax credit for obvious reason that said act of carrying-over might have been given due course as well. In other words, petitioner could not claim an option of carry-over and tax credit claim at the same time.

12. Moreover, the existence of an excess creditable withholding taxes alone does not per se entitle petitioner to tax credit entitlement.

The petitioner must prove that (1) its claim for refund is filed with the respondent within the two (2) year period from the date of payment of the tax required under Section 204 of the 1997 Tax Code; (2) it must be shown on petitioner's return that the income payment received was declared as part of its gross income; and (3) the fact of withholding is established by copies of statement duly issued by petitioner's payor showing the amount paid and the amount of taxes withheld ( Citytrust Finance Corporation vs. Commissioner of Internal Revenue, CTA Case No. 4134, November 11, 1991,· Paseo Realty & Development Corporation vs.

Commissioner of

Internal Revenue, CTA Case No. 4254, August 10, 1993)." On July 30, 2009, a Notice of Pre-Trial Conference was issued by this Court requiring both parties to be present at the pre-trial on August 27, 2009 and to file with the Court and serve on the adverse party their pre- trial briefs.

Subsequently, petitioner's Pre-Trial Brief was filed on August 20, 2009; while respondent's Pre-trial Brief was filed on August 24, 2009.( UPSI Management, Inc. v. CIR

On September 16, 2009, the parties filed their Joint Stipulation of Facts, which the Court approved in a Resolution dated September 23, 2009. In the same Resolution, the pre-trial was deemed terminated. Trial proceeded, during which petitioner presented witnesses, namely: Catherine D. Belen, Julieta M. Masilungan and Emmanuel Y. Mendoza. Thereafter, petitioner formally offered Exhibits "A" to "TTTT", which were later admitted in a Resolution dated December 7, 2010. The documentary evidence formally offered are as follows:

Exhibits:

A

B

c

D

E

F

F-1

Particulars:

Petitioner UPSIMI'S Short Period Income Tax Return for

the taxable period 2007

Petitioner UPSIMI's Amended Short Period Income Tax

Return for the taxable period 2007

Petitioner UPSIMI's Annual Income Tax Return for the

taxable year 2008

Petitioner UPSIMI's Amended Annual Income Tax Return

for the taxable year 2008 Petitioner UPSIMI's Claim for Refund through the Issuance of a Tax Credit Certificate filed on 07 November 2008 Certificate of Creditable Tax Withheld at Source for the first quarter, with payor

Emilio

Aguinaldo

Educational

Corporation (EAEC), Cavite .

Indicating the amount of P3,890.43 L UPSI Management, Inc. v. CIR

G

G-3

G-1

G-1-A

G-2

G-2-A

H

H-3

H-1

H-1-A

H-2

H-2-A

1-3 1-1

1-1-A

1-2

1-2-A

J

Certificate of Creditable Tax Withheld at Source for the month of January 2007, with payor Emilio Aguinaldo Educational Corporation (EAEC), Manila Indicating the amount of P4,936.72 Certificate of Creditable Tax Withheld at Source for the month of February 2007, with payor Emilio Aguinaldo Educational Corporation (EAEC), Manila Indicating the amount P4,936.72 Certificate of Creditable Tax Withheld at Source for the month of March 2007, with payor Emilio Aguinaldo Educational Corporation (EAEC), Manila Indicating the amount of P4,936.72 Certificate of Creditable Tax Withheld at Source for the month of January 2007, with payor Hospital Management Services, Inc.

Indicating the amount of P25,377.00 Certificate of Creditable Tax Withheld at Source for the month of February 2007, with payor Hospital Management Services, Inc.

Indicating the amount of P25,277.71 Certificate of Creditable Tax Withheld at Source for the month of March 2007, with payor Hospital Management Services, Inc.

Indicating the amount of P25,277.71 Certificate of Creditable Tax Withheld at Source for the month of January 2007, with payor Immaculate Conception Academy, Inc. - Cavite Indicating the amount of P528.79 Certificate of Creditable Tax Withheld at Source for the month of

February

2007, with payor

Immaculate

Conception Academy, Inc. - Cavite Indicating the amount of P434.36 Certificate of Creditable Tax Withheld at Source for the month of March 2007, with payor Immaculate Conception Academy, Inc. - Cavite Indicating the amount of P793.20 Certificate of Creditable Tax Withheld at Source for the First Quarter January 2007, with payor Rural Bank of Dasmarifias, lnc.c.- UPSI Management, Inc. v. CIR

J-1

K

K-3

K-1

K-1-A

K-2

K-2-A

L

L-3

L-1

L-1-A

L-2

L-2-A

M

M-3

M-1

M-1-A

M-2

M-2-A

Indicating the amount of P2,632.64 Certificate of Creditable Tax Withheld at Source for the month of January 2007, with payor Lope De Vega Tower Condominium Association, Inc.

Indicating the amount of P3,562.18 Certificate of Creditable Tax Withheld at Source for the month of February 2007, with payor Lope De Vega Tower Condominium Association, Inc.

Indicating the amount of P3,562.18 Certificate of Creditable Tax Withheld at Source for the month of March 2007, with payor Lope De Vega Tower Condominium Association, Inc.

Indicating the amount of P3,562.18 Certificate of Creditable Tax Withheld at Source for the month of January 2007, with payor UPSI Property Holdings, Inc. - Manila (Leasing Business) Indicating the amount of P120,000.00 Certificate of Creditable Tax Withheld at Source for the month of February 2007, with payor UPSI Property Holdings, Inc. - Manila Indicating the amount of P120,000.00 Certificate of Creditable Tax Withheld at Source for the month of March 2007, with payor UPSI Property Holdings, Inc. - Manila Indicating the amount of P120,000.00 Certificate of Creditable Tax Withheld at Source for the month of January 2007, for payor UPSI Property Holdings, Inc. -Manila (Hotel Business) Indicating the amount of P158,070.72 Certificate of Creditable Tax Withheld at Source for the month of February 2007, for payor UPSI Property Holdings, Inc. - Manila Indicating the amount of P189,212.17 Certificate of Creditable Tax Withheld at Source for the month of March 2007, for payor UPSI Property Holdings, Inc. - Manila Indicating the amount of P204,212.17' UPSI Management, Inc. v. CIR

N

N-3

N-1

N-1-A

N-2

N-2-A

0 0 -3 0-1

0 -1-A

0 -2

0 -2-A

p

Q

R

s

T

T-1

Certificate of Creditable Tax Withheld at Source for the month of January 2007, for payor UPSI Property Holdings, Inc. - Cavite Indicating the amount of P16,631.74 Certificate of Creditable Tax Withheld at Source for the month of February 2007, for payor UPSI Property Holdings, Inc. - Cavite Indicating the amount of P26,699.19 Certificate of Creditable Tax Withheld at Source for the month of March 2007, for payor UPSI Property Holdings, Inc. - Cavite Indicating the amount of P16,260.79 Certificate of Creditable Tax Withheld at Source for the month of January 2007, for payor Yaman Lahi Foundation, Inc.- EAC Indicating the amount of P8,744.34 Certificate of Creditable Tax Withheld at Source for the month of February 2007 Indicating the amount of P8,744.34 Certificate of Creditable Tax Withheld at Source for the month of March 2007, for payor Yaman Lahi Foundation, Inc. - EAC Indicating the amount of P8,744.34 Summary of Alphalist of Withholding Taxes for the month

of March 2007

Summary of Alphalist of Withholding Taxes for the month

of March 2007

Independent Auditor's

Report dated 11 July 2008, comprised of the balance sheets as of 31 March 2008 and 2007 (consisting of 18 pages)

List of Withholding Tax Payable Expanded

Monthly Remittance Return of Creditable Income Taxes

Withheld - Expanded (BIR Form No. 1601-E) of Hospital Management Services, Inc. for the month of January 2007 Indicating the amount of P299,544.00' UPSI Management, Inc. v. CIR

U

Alphalist of Payees Subject to Expanded Withholding Tax

of Hospital Management Services, Inc. as of January 2007 (consisting of 4 pages)

V

Monthly Remittance Return of Creditable Income Taxes

Withheld- Expanded (SIR Form No. 1601-E) of Hospital Management Services, Inc. for the month of February 2007

V-1

Indicating the amount of P442,322.28

W

Alphalist of Payees Subject to Expanded Withholding Tax

of Hospital Management Services, Inc. as of February 2007 (consisting of 5 pages)

X

Monthly Remittance Return of Creditable Income Taxes

Withheld - Expanded (SIR Form No. 1601-E) of Hospital Management Services, Inc. for the month of March 2007

X-1

Indicating the amount of P369, 192.29

Y

Alphalist of Payees Subject to Expanded Withholding Tax

of Hospital Management Services, Inc. as of March 2007 (consisting of 5 pages)

Z

Monthly Remittance Return of Creditable Income Taxes

Withheld -

Expanded

(SIR

Form

No.

1601-E) of

Immaculate Conception Academy, Inc. for the month of

January 2007

Z-1

Indicating the amount of P207,397.87

AA

Alphalist of Payees Subject to Expanded Withholding Tax

of Immaculate Conception Academy, Inc. as of January 2007

SS

Monthly Remittance Return of Creditable Income Taxes

Withheld -

Expanded

(SIR

Form

No.

1601-E) of

Immaculate Conception Academy, Inc. for the month of

February 2007

SS-1

Indicating the amount of P197,382.29

CC

Alphalist of Payees Subject to Expanded Withholding Tax

of Immaculate Conception Academy, Inc. as of February 2007~ UPSI Management, Inc. v. CIR

DD

Monthly Remittance Return of Creditable Income Taxes

Withheld -

Expanded

{BIR

Form

No. 1601 -E) of Immaculate Conception Academy, Inc. for the month of

March 2007

DD-1

Indicating the amount of P259,796.44

EE

Alphalist of Payees Subject to Expanded Withholding Tax

of Immaculate Conception Academy, Inc. as of

March

2007

FF

Monthly Remittance Return of Creditable Income Taxes

Withheld -

Expanded {BIR Form No. 1601-E) of Rural Bank of Dasmariiias, Inc. for the month of January 2007

FF-1

Indicating the amount of P5,063.22

GG

Alphalist of Payees Subject to Expanded Withholding Tax

of Rural Bank of Dasmariiias, Inc. as of January 2007

HH

Monthly Remittance Return of Creditable Income Taxes

Withheld - Expanded {BIR Form

No. 1601-E) of Rural Bank of Dasmariiias, Inc. for the month of February 2007

HH-1

Indicating the amount of P11 ,425.57

II

Alphalist of Payees Subject to Expanded Withholding Tax

of Rural Bank of Dasmariiias, Inc. as of February 2007

JJ

Monthly Remittance Return of Creditable Income Taxes

Withheld - Expanded {BIR Form

No. 1601 -E) of Rural Bank of Dasmariiias, Inc. for the month of March 2007

JJ-1

Indicating the amount of P5,051 .84

KK

Alphalist of Payees Subject to Expanded Withholding Tax

of Rural Bank of Dasmariiias, Inc. as of March 2007

LL

Monthly Remittance Return of Creditable Income Taxes

Withheld - Expanded (BIR Form

No. 1601-E) of UPSI Property Holdings, Inc. - Cavite for the month of January 2007

LL-1

Indicating the amount of P12,222.35

MM

Alphalist of Payees Subject to Expanded Withholding Tax

of UPSI Property Holdings, Inc. as of January 2007' UPSI Management, Inc. v. CIR

NN

Amended Monthly Remittance Return of Creditable Income

Taxes Withheld - Expanded (BIR Form

No. 1601-E) of UPSI Property Holdings, Inc. - Cavite for the month of

January 2007

NN-1

Indicating the amount of P7,011.72 00

Alphalist of Payees Subject to Expanded Withholding Tax

of UPSI Property Holdings, Inc. as of January 2007 (attached to the Amended BIR Form 1601-E)

PP

Monthly Remittance Return of Creditable Income Taxes

Withheld - Expanded (BIR Form

No. 1601-E) of UPSI Property Holdings, Inc. - Cavite for the month of February 2007

PP-1

Indicating the amount of P19,088.87

QQ

Alphalist of Payees Subject to Expanded Withholding Tax

of UPSI Property Holdings, Inc. - Cavite as of February 2007

RR

Amended Monthly Remittance Return of Creditable Income

Taxes Withheld - Expanded (BIR Form

No. 1601-E) of UPSI Property Holdings, Inc. - Cavite for the month of

February 2007

RR-1

Indicating the amount of P1 0,514.18

SS

Alphalist of Payees Subject to Expanded Withholding Tax

of UPSI Property Holdings, Inc. - Cavite as of February 2007 (attached to Amended BIR Form 1601-E)

TT

Monthly Remittance Return of Creditable Income Taxes

Withheld - Expanded (BIR Form

No. 1601-E) of UPSI Property Holdings, Inc. - Cavite for the month of March 2007

TT-1

Indicating the amount of P12,527.54

UU

Alphalist of Payees Subject to Expanded Withholding Tax

of UPSI Property Holdings, Inc. - Cavite as of March 2007

VV

Amended Monthly Remittance Return of Creditable Income

Taxes Withheld - Expanded (BIR Form

No. 1601-E) of ( UPSI Management, Inc. v. CIR

VV-1

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XX

XX-1

yy zz

ZZ-1

AAA

BBB

BBB-1

CCC

DOD

DDD-1

UPSI Property Holdings, Inc. - Cavite for the month of

March 2007

Indicating the amount of P6,708.36

Alphalist of Payees Subject to Expanded Withholding Tax

of UPSI Property Holdings, Inc. - Cavite as of March 2007 (attached to Amended BIR Form 1601-E)

Monthly Remittance Return of Creditable Income Taxes

Withheld - Expanded {BIR Form No. 1601-E) of Yaman Lahi Foundation, Inc. for the month of January 2007 Indicating the amount of P624,243.24

Alphalist of Payees Subject to Expanded Withholding Tax

as of January 2007 (consisting of 6 pages)

Monthly Remittance Return of Creditable Income Taxes

Withheld - Expanded {BIR Form No. 1601-E) of Yaman Lahi Foundation, Inc. for the month of February 2007 Indicating the amount of P568,989.45

Alphalist of Payees Subject to Expanded Withholding Tax

of Yaman Lahi Foundation, Inc. as of February 2007 (consisting of 2 pages)

Amended Monthly Remittance Return of Creditable Income

Taxes Withheld - Expanded {BIR Form

No. 1601-E) of Yaman Lahi Foundation, Inc. for the month of February 2007 Indicating an overpayment of P1 0,273.26

Amended Alphalist of Payees Subject to Expanded

Withholding Tax of Yaman Lahi Foundation, Inc. as of February 2007 (consisting of 2 pages)

Monthly Remittance Return of Creditable Income Taxes

Withheld - Expanded (BIR Form No. 1601-E) of Yaman Lahi Foundation, Inc. for the month of March 2007 Indicating the amount of P499,316.49c UPSI Management, Inc. v. CIR

EEE

FFF

FFF-1

GGG

HHH

HHH-1

Ill

JJJ

JJJ-1

KKK

LLL

LLL-1

Alphalist of Payees Subject to Expanded Withholding Tax

of Yaman Lahi Foundation, Inc. as of March 2007 (consisting of 2 pages)

Monthly Remittance Return of Creditable Income Taxes

Withheld -

Expanded {BIR Form No. 1601-E) of Emilio Aguinaldo Educational Corporation - Cavite for the month

of January 2007

Indicating the amount of P6,420.72

Alphalist of Payees Subject to Expanded Withholding Tax

of Emilio Aguinaldo Educational Corporation - Cavite as of

January 2007

Monthly Remittance Return of Creditable Income Taxes

Withheld - Expanded (BIR Form No. 1601-E) of Emilio Aguinaldo Educational Corporation - Cavite for the month

of February 2007

Indicating the amount of P5,230.98

Alphalist of Payees Subject to Expanded Withholding Tax

of Emilio Aguinaldo Educational Corporation - Cavite as of

February 2007

Monthly Remittance Return of Creditable Income Taxes

Withheld - Expanded {BIR Form No. 1601-E) of Emilio Aguinaldo Educational Corporation - Cavite for the month

of March 2007

Indicating the amount of P4,577.56

Alphalist of Payees Subject to Expanded Withholding Tax

of Emilio Aguinaldo Educational Corporation - Cavite as of

March 2007

Monthly Remittance Return of Creditable Income Taxes

Withheld - Expanded (BIR Form

No. 1601-E) of Emilio Aguinaldo Educational Corporation - Manila for the month

of January 2007

Indicating the amount of P12, 7 41.42£ UPSI Management, Inc. v. CIR

MMM

NNN

NNN-1

000 ppp

PPP-1

QQQ

RRR

RRR-1

sss

TTT

TTT-1

Alphalist of Payees Subject to Expanded Withholding Tax

of Emilio Aguinaldo Educational Corporation - Manila as of

January 2007

Monthly Remittance Return of Creditable Income Taxes

Withheld - Expanded {BIR Form

No. 1601-E) of Emilio Aguinaldo Educational Corporation - Manila for the month

of February 2007

Indicating the amount of P9,638.72

Alphalist of Payees Subject to Expanded Withholding Tax of Emilio Aguinaldo Educational Corporation - Manila as of February 2007

Monthly Remittance Return of Creditable Income Taxes

Withheld - Expanded {BIR Form

No. 1601-E) of Emilio Aguinaldo Educational Corporation - Manila for the month

of March 2007

Indicating the amount of P7,401.47

Alphalist of Payees Subject to Expanded Withholding Tax

of Emilio Aguinaldo Educational Corporation - Manila as of

March 2007

Monthly Remittance Return of Creditable Income Taxes

Withheld- Expanded (BIR Form No. 1601-E) of Lope de Vega Tower Condominium Association, Inc. for the month

of January 2007

Indicating the amount of P5,818.13

Alphalist of Payees Subject to Expanded Withholding Tax

of Lope de Vega Tower Condominium Association, Inc. as

of January 2007

Monthly Remittance Return of Creditable Income Taxes

Withheld- Expanded {BIR Form No. 1601-E) of Lope de Vega Tower Condominium Association, Inc. for the month

of February 2007

Indicating the amount of P5,968.52c.

UPSI Management, Inc. v. CIR uuu vw

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yyy zzz

AAAA

AAAA-1

BBBB

ecce

CCCC-1

DODD

Alphalist of Payees Subject to Expanded Withholding Tax

of Lope de Vega Tower Condominium Association, Inc. as

of February 2007

Monthly Remittance Return of Creditable Income Taxes

Withheld- Expanded (BIR Form No. 1601-E) of Lope de Vega Tower Condominium Association, Inc. for the month

of March 2007

Indicating the amount of P5,012.36

Alphalist of Payees Subject to Expanded Withholding Tax

of Lope de Vega Tower Condominium Association, Inc. as

of March 2007

Summary qf Creditable Withholding Tax for the 3-month period ended 2007 Schedule of Creditable Withholding Tax that are Declared as part of Petitioner UPSIMI's Income for the 3-month period ended 2007 Reconciliation Schedule of Income per Books against 2307

Monthly Remittance Return of Creditable Income Taxes

Withheld - Expanded (BIR Form No. 1601-E) of University Property Holdings, Inc. for the month of January 2007 Indicating the amount of P291 ,828.39

Alphalist of Payees Subject to Expanded Withholding Tax

of University Property Holdings, Inc. as of January 2007 (consisting of 4 pages)

Monthly Remittance Return of Creditable Income Taxes

Withheld- Expanded (BIR Form No. 1601-E) of University Property Holdings, Inc. for the month of February 2007 Indicating the amount of P424,291 .1 0

Alphalist of Payees Subject to Expanded Withholding Tax

of University Property Holdings, Inc. as of February 2007 (consisting of 5 pages)( UPSI Management, Inc. v. CIR

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LLLL-2

LLLL-3

Monthly Remittance Return of Creditable Income Taxes

Withheld - Expanded (BIR Form No. 1601-E) of University Property Holdings, Inc. for the month of March 2007 Indicating the amount of P408,707.18

Alphalist of Payees Subject to Expanded Withholding Tax

of University Property Holdings, Inc. as of March 2007 (consisting of 4 pages)

Amended Monthly Remittance Return of Creditable Income

Taxes Withheld - Expanded (BIR Form

No. 1601 -E) of University Property Holdings, Inc. for the month of March 2007 Indicating the amount of P418,004.53

Alphalist of Payees Subject to Expanded Withholding Tax

of University Property Holdings, Inc. as of March 2007 (consisting of 4 pages) Judicial Affidavit of Ms. Catherine D. Belen Printed name and Signature of Ms. Catherine D. Belen Judicial Affidavit of Ms. Julieta M. Masilungan Printed name and Signature of Ms. Julieta M. Masilungan

Results

of the

Procedures

Performed

Relative

to

Company's Claim for Refund of Its Unutilized Creditable

Withholding Tax Covering the Taxable Fiscal Year 2007

Printed name and signature of Mr. Emmanuel Y. Mendoza dated 10 August 2010 Quarterly Income Tax Return of UPSI Management, Inc.

for the First Quarter of Taxable Year 2008

Quarterly Income Tax Return of UPSI Management, Inc.

for the Second Quarter of Taxable Year 2008

Quarterly Income Tax Return of UPSI Management, Inc. for the Third Quarter of Taxable Year 2008 <.

UPSI Management, Inc. v. CIR

MMMM-1

Official Receipt No. 2012 E dated 09 March 2007 issued to Emilio Aguinaldo Educational Corp. (HOKI) for the sum of P30,456.68

MMMM-2

Official Receipt No. 2013 E dated 09 March 2007 issued to Emilio Aguinaldo Educational Corporation for the sum of P1 ,467.50

MMMM-3

Official Receipt No. 2018 E dated 21 March 2007 issued to Emilio Aguinaldo Educational Corp. - Cavite for the sum of P9, 159.50

MMMM-4

Official Receipt No. 2019 E dated 21 March 2007 issued to Emilio Aguinaldo Educational Corp. - Cavite for the sum of P9,159.50

MMMM-5

Official Receipt No. 2000 E dated 19 February 2007 issued to Emilio Aguinaldo Educational Corporation for the sum of P1 ,391 .86

MMMM-6

Official Receipt No. 2001 E dated 19 February 2007 issued to Emilio Aguinaldo Educational Corp. (HOKI) for the sum of P28,886. 75

MMMM-7

Official Receipt No. 1989 E dated 29 January 2007 issued to Emilio Aguinaldo Educational Corp. - Cavite for the sum of P9,518.33

MMMM-8

Official Receipt No. 1980 E dated 17 January 2007 issued to Emilio Aguinaldo Educational Corporation for the sum of P1 ,543.14

MMMM-9

Official Receipt No. 1981 E dated 17 January 2007 issued to Emilio Aguinaldo Educational Corp. (HOKI) for the sum of P32,026.61

MMMM-10

Official Receipt No. 2014 E dated 12 March 2007 issued to Hospital Management Services, Inc. for the sum of P163,462.54t UPSI Management, Inc. v. CIR

MMMM-11

Official Receipt No. 1996 E dated 12 February 2007 issued to Hospital Management Services, Inc. for the sum of P155,003.54

MMMM-12

Official Receipt No. 1978 E dated 11 January 2007 issued to Hospital Management Services, Inc. for the sum of P172, 563.59

MMMM-13

Official Receipt No. 2045 E dated 07 June 2007 issued to ICA Cavite for the sum of P4,579.76

MMMM-14

Official Receipt No. 2017 E dated 21 March 2007 issued to ICA Cavite for the sum of P3,909.33

MMMM-15

Official Receipt No. 1995 E dated 10 February 2007 issued to ICA Cavite for the sum of P4, 759.18

MMMM-16

Official Receipt No. 2015 E dated 12 March 2007 issued to Lope de Vega Tower Condominium, Asso. Inc. for the sum of P23,035.41

MMMM-17

Official Receipt No. 1992 E dated 10 February 2007 issued to Lope de Vega Tower Condominium, Asso. Inc. for the sum of P21 ,848.02

MMMM-18

Official Receipt No. 1974 E dated 02 January 2007 issued to Lope de Vega Tower Condominium, Asso. Inc. for the sum of P24,222.80

MMMM-19

Official Receipt No. 2008 E dated 08 March 2007 issued to Rural Bank for the sum of P4,578. 76

MMMM-20

Official Receipt No. 2006 E dated 27 February 2007 issued to Rural Bank for the sum of P4,343.69

MMMM-21

Official Receipt No. 1977 E dated 11 January 2007 issued to Rural Bank for the sum of P4,815.83

MMMM-22

Official Receipt No. 2007 E dated 08 March 2007 issued to UPSIPHI for the sum of P776,000.00' UPSI Management, Inc. v. CIR

MMMM-23

Official Receipt No. 1990 E dated 07 February 2007 issued to UPSIPHI for the sum of P736,000.00

MMMM-24

Official Receipt No. 1973 E dated 02 January 2007 issued to UPSIPHI for the sum of P816,000.00

MMMM-25

Official Receipt No. 2011 E dated 09 March 2007 issued to Yaman Lahi Foundation, Inc. for the sum of P56,546.72

MMMM-26

Official Receipt No. 1998 E dated 16 February 2007 issued to Yaman Lahi Foundation, Inc. for the sum of P53,631 .94

MMMM-27

Official Receipt No. 1976 E dated 11 January 2007 issued to Yaman Lahi Foundation, Inc. for the sum of P59,461 .50

MMMM-28

Official Receipt No. 2010 E dated 09 March 2007 issued to The Pearl Manila for the sum of P156,572.04

MMMM-29

Official Receipt No. 2021 E dated 21 March 2007 issued to The Pearl Manila for the sum of P1 , 164.00

MMMM-30

Official Receipt No. 2005 E dated 27 February 2007 issued to The Pearl Manila for the sum of P1 ,067,000.00

MMMM-31

Official Receipt No. 1993 E dated 10 February 2007 issued to The Pearl Manila for the sum of P148,501 .32

MMMM-32

Official Receipt No. 1988 E dated 27 January 2007 issued to The Pearl Manila for the sum of P970,000.00

MMMM-33

Official Receipt No. 1986 E dated 20 January 2007 issued to The Pearl Manila for the sum of P164,642. 76

NNNN

SEC Certificate of Filing of the Articles and Plan of Merger dated 20 December 2005 0000 Articles of Merger executed on 01 September 2005

PPPP

Plan of Merger signed on 01 September 2005

QQQQ

Certificate of Registration of Business Name dated 15

January 2006'

UPSI Management, Inc. v. CIR

RRRR

SSSS-1

SSSS-2

SSSS-3

SSSS-4

TTTT

TTTT-1

General Ledger of Revenue for Taxable Fiscal Year 2007 Quarterly Income Tax Return of UPSI Management, Inc.

for the First Quarter of Taxable Year 2009

Quarterly Income Tax Return of UPSI Management, Inc.

for the Second Quarter of Taxable Year 2009

Quarterly Income Tax Return of UPSI Management, Inc.

for the Third Quarter of Taxable Year 2009

Amended

Annual

Income

Tax

Return

of

UPSI

Management, Inc. for Taxable Year 2009 Judicial Affidavit of Mr. Emmanuel Y. Mendoza dated 10

August 2010

Printed name and signature of Mr. Emmanuel Y. Mendoza When the case was called for the initial presentation of respondent's evidence, respondent's counsel manifested that respondent will not present any witness.

Petitioner then filed its Memorandum on February 17, 2011 ; while respondent filed her Memorandum on February 18, 2011. After the filing of the parties' memoranda, the case was deemed submitted for decision on February 25, 2011. The parties submitted the following issues for this Court's disposition:, UPSI Management, Inc. v. CIR

"1. Whether or not the fact of withholding is established by a copy of a statement duly issued by the payers (withholding agents) to Petitioner, showing the amount paid and the amount of tax withheld therefrom;

2. Whether or not Petitioner's income tax returns for taxable period ended 31 March 2007 include income payments that were subjected to creditable withholding tax, as part of Petitioner's gross income for taxable period ended 31 March 2007; and

3. Whether or not the petitioner has violated Section 76 of the 1997 Tax Code."

This Court finds it appropriate to first address the issue of whether petitioner violated Section 76 of the National Internal Revenue Code (NIRC) of 1997.

Section 76 of the N I RC of 1997, as amended, states as follows: "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( UPSI Management, Inc. v. CIR 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." (Emphasis supplied) The above-quoted provision provides two options to a taxable corporation whose quarterly income tax payments in a given taxable year exceed its total income tax due. These options are (1) filing a tax refund (either in the form of cash or tax credit certificate) or (2) availing of a tax credit.

The first option is relatively simple. Any tax on income that is paid in excess of the amount due the government may be refunded, provided that a taxpayer properly applies for a refund. On the other hand, the second option works by applying the refundable amount, as shown on the Final Adjustment 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 constructively, it becomes irrevocable for that taxable period. The phrase "for that taxable period" refers to the taxable year when the excess income tax, subject of the option, was acquired by the taxpayer.c UPSI Management, Inc. v. CIR

In exercising 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 credit or to claim a refund. To facilitate tax collection, these remedies are in the alternative and the choice of one precludes the other. On July 16, 2007, petitioner filed its Annual Income Tax Return (AITR) for the fiscal year ended March 31, 2007. Subsequently, it amended the said return on November 14, 2007. Below are the computations shown in the returns:

Original AITR

Amended AITR

Fiscal Year ended March 31, 2007 AITR filed on 07/16/07 filed on 11/14/07 Exhibit ':4 n Exhibit "B n

Sales/Revenues/Receipts/Fees

p 7,489,259.00 p 7,489,259.00

Less: Cost of Sales/Services

6,461,650.00 6,461 ,650.00 Gross Income from Operation p 1,027,609.00 p 1 ,027,609.00

Add: Non-Operating & Other Income

479.00 479.00

Total Gross Income

p 1 ,028,088.00 p 1,028,088.00

Less: Deductions

1,206,543.00 1 ,206,543.00

Taxable Income

p (178,455.00) p (178,455.00) Tax Rate (except MCIT Rate) 35% 35%

Income Tax

NIL

NIL

Minimum Corporate Income Tax (MCIT)

p 20,562.00 p 20,562.00

Aggregate Income Tax Due

p 20,562.00 p 20,562.00

Less: Tax Credits/Payments

Prior Year's Excess Credits

p 5,159,341 .00 p 2,231 ,507.00

Creditable Tax Withheld for the First Three

Quarters

1,107,228.00 1,107,228.00 ( UPSI Management, Inc. v. CIR

Creditable Tax Withheld for the Fourth Quarter

Total Tax Credits/Payments

Tax Payable/(Overpayment)

p p

Page 25 of 30

- - 6,266,569.00 p 3,338,735.00 (6,246,007 .00) p (3,318,173.00) Petitioner did not check any box in its original Annual Income Tax Return and elected the option "To be issued a Tax Credit Certificate" in its amended Annual Income Tax Return insofar as the excess tax credits as of the fiscal year ended March 31, 2007 in the amount of P3,318, 173.00 (including the subject claim of P1, 107,228.00) is concerned. Nonetheless, petitioner carried over the said amount in its original Annual Income Tax Return for the fiscal year ended March 31, 2008 and Quarterly Income Tax Returns for the first, second, and third quarters of the succeeding fiscal year ended March 31, 2008. Thus, petitioner's option to refund (in the form of tax credit certificate) the amount of P1, 107,228.00 is actually negated by its very act of carrying over said excess amount to the succeeding fiscal quarters/year of 2008. Clearly, petitioner manifested its intention to carry over, instead of refunding the excess creditable withholding tax it paid during the fiscal year ended March 31, 2007 ·( UPSI Management, Inc. v. CIR

When petitioner exercised the carry-over option as regards the claimed excess creditable withholding tax for the fiscal year 2007, the said option became irrevocable for that taxable period and thus, no application for cash refund or issuance of tax credit certificate can be allowed. In the case of Paseo Realty and Development Corporation vs. Court of Appeals, Court of Tax Appeals and Commissioner of Internal Revenue, the Supreme Court had the occasion to expound on the options contained in Section 76 of the NIRC of 1997, as amended, and the irrevocability of the option made by the taxpayer. The pertinent portion of the decision reads:

"As clearly seen from this provision, the taxpayer is allowed three (3) options if the sum of its quarterly tax payments made during the taxable year is not equal to the total tax due for that year: (a) pay the balance of the tax still due; (b) carry-over the excess credit; or (c) be credited or refunded the amount paid. If the taxpayer has paid excess quarterly income taxes, it may be entitled to a tax credit or refund as shown in its final adjustment return which may be carried over and applied against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years. However, once the taxpayer has exercised the option to carry-over and to apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years, such option is irrevocable for that taxable period and no application for cash refund or issuance of a tax credit certificate shall be allowed." (Emphasis supplied)( UPSI Management, Inc. v. CIR

In the case of Phi/am Asset Management, Inc. vs. Commissioner of Internal Revenue, the Supreme Court reiterated the above ruling as follows: "These two options under Section 76 are alternative in nature. The choice of one precludes the other. Indeed, in Philippine Bank of Communications v. Commissioner of Internal Revenue, the Court ruled that a corporation must signify its intention - whether to request a tax refund or claim a tax credit - by marking the corresponding option box provided in the FAR. While a taxpayer is required to mark its choice in the form provided by the BIR, this requirement is only for the purpose of facilitating tax collection.

XXX

XXX

XXX

The carry-over option under Section 76 is perm1ss1ve. A corporation that is entitled to a tax refund or a tax credit for excess payment of quarterly income taxes may carry over and credit the excess income taxes paid in a given taxable year against the estimated income tax liabilities of the succeeding quarters. Once chosen, the carry-over option shall be considered irrevocable for that taxable period, and no application for a tax refund or issuance of a tax credit certificate shall then be allowed.

XXX

XXX

XXX

Whether the FIFO principle is applied or not, Section 76 remains clear and unequivocal. Once the carry-over option is taken, actually or constructively, it becomes irrevocable. Petitioner has chosen that option for its 1998 creditable withholding taxes. Thus, it is no longer entitled to a tax refund of P459,756.07, which corresponds to its 1998 excess tax credit xxx" (Emphasis supplied) A similar pronouncement was made by this Court in the case of Shell Services International Sendirian Berhad vs. Commissioner of Internal Revenue as regards the determination of the option chosen by thee UPSI Management, Inc. v. CIR taxpayer in accordance with Section 76 of the NIRC of 1997, as amended. The pertinent portion thereof reads:

"(W)hile petitioner marked with an 'x' the box corresponding to the phrase 'to be refunded' in its 2000 ITR, petitioner had actually exercised the option to carry-over its 2000 excess creditable withholding tax to the year 2001 , and in fact, it had already carried overto the succeeding year its unutilized creditable taxes withheld for the taxable year 2000. By express mandate of Section 76, once the option to carry-over has been made, such option is irrevocable for that taxable period and no application for cash refund or issuance of tax credit certificate shall be allowed therefore." (Emphasis supplied) Furthermore, in the case of Commissioner of Internal Revenue vs. PL Management International Philippines, Inc., the High Court held that: "Hence, the controlling factor for the operation of the irrevocability rule is that the taxpayer chose an option; and once it had already done so, it could no longer make another one. Consequently, after the taxpayer opts to carry-over its excess tax credit to the following taxable period, the question of whether or not it actually gets to apply said tax credit is irrelevant. Section 76 of the N I RC of 1997 is explicit in stating that once the option to carry over has been made, 'no application for tax refund or issuance of a tax credit certificate shall be allowed therefor'." (Emphasis supplied) Having exercised the option of carry-over as regards the claimed excess tax credits of P1, 107,228.00, petitioner is bound by the irrevocability rule under Section 76 of the NIRC of 1997, as amended. Consequently, petitioner cannot seek the refund of the amount of P1 , 107,228.00 even if the same was not utilized in the succeeding fiscal c UPSI Management, Inc. v. CIR year 2008. Petitioner's only recourse is to apply the excess amount of P1, 107,228.00 to the succeeding quarters/years until it is fully utilized. Suffice it to say that tax refunds are in the nature of tax exemptions. As such, they are regarded as in derogation of sovereign authority and to be construed strictissimi juris against the person or entity claiming the refund. Considering petitioner's failure to discharge such burden of proof, the instant claim for tax refund must necessarily fail.

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

WE CONCUR:

Q_~i4 C : ~~'"C&; \).., .

J{5'ANITO C. CASTANEDA~!R.

Associate Justice

~ N.M..,.:~.c;~ CIEL.ITO N_. MINDARO-GRULI!.A

Associate Justice

CAESAR A. CASANOVA

Associate Justice

UPSI Management, Inc. v. CIR

ATTESTATION

I attest 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.

~~ c..QY-~~ .~ JtJANITO C. CASTANEDA/ fR.

Associate Justice

Chairperson

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, and the Division Chairperson's Attestation, 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. ~ b· Qc-,J._ ERNESTO D. ACOSTA

Presiding Justice