Orix Auto Leasing Philippines Corporation vs. Commissioner of Internal Revenue

DECISION

vehicle rental and leasing business, either as a common carrier or private carrier, in the transportation of passengers, merchandise, freight or cargo.¹ Petitioner is duly registered as an income taxpayer with the Bureau of Internal Revenue (BIR), with Tax Identification No. 000-445-654-000? On the other hand, respondent Commissioner of Internal Revenue is the chief of the BIR, the government agency vested with authority to administer and enforce national internal revenue taxes, including, among others, the power to credit or refund internal revenue taxes erroneously/excessively or illegally paid, assessed or collected. She holds office at the BIR National Office Building, BIR Road, Diliman, Quezon City.3 On January 11 , 2008, petitioner filed its Annual Income Tax Return4 (ITR) for fiscal year ended September 30, 2007, reflecting, among others, the following information :5

Aggregate Income Tax Due

6,495,317

Less: Tax Credits/Payments

Prior Year's Excess Credits other than MCIT 8,623,891

Creditable Tax Withheld for the First Three

7,700,048

Quarters

Creditable Tax Withheld per BIR Form No.

2307 for the Fourth Quarter

2,532,850

Total Tax Credits/Payments

18,856,789

Total Amount Payable/(Overpayment)

(12,361,472) On March 4, 2009, through a letter dated March 2, 2009, petitioner filed with the Revenue District Office (ROO) No. 50, Revenue Region No. 08 of the BIR, an administrative claim for the issuance of TCCs in the total amount o~

~ 10,232,898.33 for its supposed unutilized creditable withholding tax for fiscal year 2007.6 Due to respondent's alleged failure to act on the said administrative claim,7 petitioner filed the instant Petition for Review on November 23, 2009. Respondent filed her Answer8, through registered mail, on January 11 , 2010 and interposed the following Special and Affirmative Defenses, to wit: "4. Petitioner failed to demonstrate that the tax subject of the case at bar was erroneously or illegally collected.

5. Taxes paid and collected are presumed to have been made in accordance with law and regulations, hence, not refundable. 6.

In an action for tax refund/credit, the burden of proof is on the taxpayer to establish its right to refund and failure to adduce sufficient proof is fatal to the action for tax refund/credit.

7. It is incumbent upon the petitioner to show that it has complied with the provisions of Section 76 in relation to Sections 204 and 229 of the 1997 Tax Code, as amended, including Revenue Regulations No. 2-98, as amended.

8. Claims for refund are construed strictly against the claimant for the same partakes the nature of exemption from taxation (Commissioner of Internal Revenue vs. Ledesma, G.R. No. L-13509, January 30, 1979, 31 SCRA 95) and as such, they are looked upon with disfavor (Western Minolco Corp. vs. Commissioner of Internal Revenue, 124 SCRA 121 )."

On March 19, 2010, the parties filed their Joint Stipulation of Facts and lssues,9 which the Court approved in the Resolution dated March 22, 2010.10 In the same Resolution, the pre-trial was terminated .~\

Parenthetically, a Supplemental Joint Stipulation of Facts 11 was also submitted by the parties on December 16, 2011 which was likewise approved by this Court in the Resolution dated February 15, 2012.12 Trial proceeded, giving both parties the opportunity to present documentary and testimonial evidence to support their claims. However, it was only petitioner that presented its documentary and testimonial evidence; while respondent's counsel manifested during the hearing held on March 1, 2012 that he is submitting the case for decision since there was no report of investigation from ROO No. 50. 13 On May 16, 2012, the case was submitted for decision,14 taking into consideration only petitioner's Memorandum filed on May 7, 201215 as respondent failed to file a Memorandum despite the opportunity granted.16

THE ISSUES

The parties submitted the following issues for this Court's resolution, viz: "A.

WHETHER

OR

NOT

PETITIONER

HAS

UNUTILIZED

CREDITABLE WITHHOLDING TAX IN THE AMOUNT OF PHP

TEN MILLION TWO HUNDRED THIRTY TWO THOUSAND

EIGHT HUNDRED

NINETY EIGHT AND

33/100

PESOS

(PHP10,232,898.33)

FOR

TAXABLE

YEAR

ENDED

SEPTEMBER 30, 2007, WHICH IS THE PROPER SUBJECT OF A CLAIM FOR REFUND/ISSUANCE OF A TCC PURSUANT TO SECTION 76 OF THE TAX CODE.

B.

WHETHER OR NOT THE INCOME UPON WHICH THE

SUBJECT UNUTILIZED CREDITABLE WITHHOLDING TAXES

WERE

WITHHELD

WERE

DECLARED

AS

PART

OF

PETITIONER'S GROSS INCOME IN ITS ANNUAL INCOME TAX

RETURN FOR TAXABLE YEAR ENDED SEPTEMBER 30, 2007. C.

WHETHER OR NOT PETITIONER'S UNUTILIZED CREDITABLE

WITHHOLDING

TAXES

FOR

TAXABLE

YEAR

ENDED

SEPTEMBER 30, 2007 IN THE AMOUNT OF PHP TEN MILLION

TWO HUNDRED THIRTY TWO THOUSAND EIGHT HUNDRED

NINETY EIGHT AND 33/100 PESOS (PHP10,232,898.33) ARE DULY SUBSTANTIATED BY DOCUMENTARY EVIDENCE. D.

WHETHER OR NOT PETITIONER'S UNUTILIZED CREDITABLE

WITHHOLDING

TAXES

FOR

TAXABLE

YEAR

ENDED

SEPTEMBER 30, 2007 WERE CARRIED OVER AND CLAIMED

AS 'PRIOR YEAR'S EXCESS TAX CREDITS' DURING THE

SUCCEEDING TAXABLE YEARS.

E.

WHETHER OR NOT PETITIONER IS ENTITLED TO ITS CLAIM FOR REFUND OR ISSUANCE OF TCC FOR ITS UNUTILIZED

CREDITABLE WITHHOLDING TAXES FOR TAXABLE YEAR

ENDED SEPTEMBER 30, 2007 IN THE AMOUNT OF PHP TEN

MILLION TWO HUNDRED THIRTY TWO THOUSAND EIGHT

HUNDRED

NINETY

EIGHT

AND

33/100

PESOS

(PHP1 0,232,898.33)."17 Petitioner's arguments Petitioner argues that it incurred/paid creditable withholding taxes in taxable year 2007 in the total amount of 12 1 0,232,898.33; that it was unable to apply or utilize the said creditable withholding taxes during the same taxable year; and that such unutilized creditable withholding taxes are duly substantiated by documentary evidence and was not carried over and claimed as "prior year's excess tax credits" during the succeeding taxable years. Furthermore, petitioner contends that the option to be issued a TCC was clearly indicated in the original and amended 2007 Annual ITR of petitioner, and~

therefore, makes the amount of ~ 10,232,898.33 proper subject of the instant claim under Section 76 of the Tax Code.

Moreover, petitioner asserts that the income from which the excess creditable withholding taxes in the amount of ~ 10,232,898.33 were imposed were declared as part of its gross income in its AnnuaiiTR for taxable year 2007. Lastly, petitioner emphasizes that it is entitled to the issuance of a TCC for its excess creditable withholding taxes for taxable year 2007 in the amount of ~ 1 0,232,898.33.

Respondent's counter-arguments In her Answer, respondent asserts that petitioner failed to demonstrate that the tax subject of the case at bar was erroneously or illegally collected; and that taxes paid and collected are presumed to have been made in accordance with law and implementing regulations, hence, not refundable. Respondent points out that in an action for tax refund/credit, the burden of proof is on the taxpayer to establish its right to refund, and failure to adduce sufficient proof is fatal to such action. Thus, it is allegedly incumbent upon petitioner to show that it has complied with the provisions of Section 76 in relation to Sections 204 and 229 of the Tax Code, as amended, including Revenue Regulations No. 2-98, as amended.

Finally, respondent maintains that claims for refund are construed strictly against petitioner for the same partakes the nature of exemption from taxation, and as such, they are looked upon with disfavor.

THE COURT'S RULING

The central issue in this case is whether petitioner is entitled to the ~ issuance of a TCC in the amount of Iii 1 0,232,898.33, representing its purported unutilized creditable withholding taxes for fiscal year ended September 30, 2007.

Taxpayer's

options under

Section 76 of the NIRC of 1997

in case of excess income payment.

In instances where there is excess income tax paid, Section 76 of the National Internal Revenue Code (NIRC) of 1997 provides 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 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."

Pursuant to the above-quoted provision, the corporate taxpayer's excess tax credits or overpaid income tax in a given taxable year may either be refunded (either in the form of cash or tax credit certificate) or carried over/applied to the succeeding taxable years. The carry-over option, however, once taken, actually I" or constructively, is irrevocable for that taxable period.18 A perusal of petitioner's Annual ITR for fiscal year ended September 30, 200719 shows that petitioner had total tax credits of 12 12,361 ,472.00, which consisted of the prior year's excess credits in the amount of 12 8,623,891.00 and creditable taxes withheld during the fiscal year ended September 30, 2007 in the amount of 12 1 0,232,898.00. Petitioner claims that the fiscal year 2007 income tax due in the amount of 12 6,495,317.00 was applied using a portion of its prior year's excess credits of 12 8,623,891 .00, leaving the prior year's excess credits in the amount of 12 2,128,574.00 (12 8,623,891 .00 less 12 6,495,317.00) and creditable taxes withheld during fiscal year 2007 in the amount of 12 10,232,898.00 or a total of 12 12,361,472.00 unutilized as of September 30, 2007, as shown below, which petitioner marked as "To be issued a Tax Credit

Certificate"20:

Aggregate Income Tax Due

Iii 6,495,317.00

Less:

Prior Year's Excess Credits

8,623,891.00

Balance of Prior Year's Excess Credits

Iii 2,128,574.00

Add:

Creditable Taxes Withheld - FY 2007

10,232,898.00 Excess Creditable Taxes Withheld as of September 30, 2007 Iii 12,361 ,472.00 Inasmuch as only the prior year's excess credits of 12 2,128,574.00 were carried over to fiscal year 2008,21 the creditable taxes withheld for fiscal year 2007 in the amount of 12 10,232,898.00 may be a proper subject of a claim for refund or issuance of a TCC, by virtue of Section 76 of the NIRC of 1997. It must be emphasized, however, that it is still necessary for petitioner t~

show compliance with the conditions for the refund or issuance of TCC for its supposed unutilized creditable withholding taxes. Conditions for the grant of a claim for refund of creditable withholding tax.

In accordance with settled jurisprudence and Section 2.58 of Revenue Regulations (RR) No. 2-98, as amended, the refund or issuance of TCC for unutilized creditable withholding taxes is dependent on the taxpayer's compliance with the following conditions:

1.

That the claim for refund was filed within the two-year prescriptive period prescribed under Section 204(C), in relation to Section 229 of the N I RC of 1997, as amended; 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 withheld therefrom; and 3.

That it is shown on the return of the recipient that the income payment received was declared as part of the gross income.22 Thus, this Court shall determine whether petitioner was able to satisfy the foregoing requirements.

As regards the first requisite, Sections 204(C) and 229 of the NIRC of 1997 provides as follows, to wit:

"SEC. 204. Authority of the

Commissioner

to Compromise, Abate and Refund or Credit Taxes. - The Commissioner may -

XXX

XXX

XXX

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

"SEC. 229. Recovery of Tax Erroneously or Illegally Collected. - No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress. In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid ." In the case of ACCRA Investments Corporation vs. The Honorable Court of Appeals, et a/. , 23 the Supreme Court said that the reckoning of the two-year prescriptive period for the filing of a claim for refund or tax credit of excess income tax paid/withheld provided in the above-quoted provisions should commence from the date of filing of the final adjustment return. Records show that the claimed excess creditable withholding taxes involve fiscal year ended September 30, 2007, for which petitioner filed its corresponding f

Annual ITR on January 11 , 2008.24 Counting from the said date, petitioner had two years to file its claim for refund or issuance of TCC for fiscal year 2007, both in the administrative and judicial levels.

Petitioner's administrative claim for refund was filed on March 4, 200925 and its judicial claim through the instant Petition for Review was filed on November 23, 2009. Clearly, both the administrative and the judicial claims for refund were filed well within the two-year prescriptive period.

Anent the second requisite, the Court-commissioned Independent Certified Public Accountant (CPA), Mr. Enrico T. Pizarro of PMC Consultants and Partners Co., presented two Reports dated August 26, 201026 and September 30, 201027. In the Supplemental Report dated September 30, 2010, the Independent CPA summarized his findings as follows:28

TOTAL CREDITABLE

EXHIBIT

WITHHOLDING

PARTICULARS

NO.

GROSS INCOME

TAXES

2007 Excess Tax Credits:

a. Without Exceptions 1-2-1 ~ 264,823,708.18 ~ 10,520,710.41

b. Without Exceptions-diqital siqnature 1-2-1.1 14,985.00 299.70

Total Without Exceptions

Iii 264,838,693.18

Iii

10,521 ,010.11

d. Exceptions Noted:

1. Not Original 1-2-2-1 ~ 265,832.00 ~ 7,215.12

2. Stamp signature 1-2-2-2 6,053,083.50 121 ,061.67

3. No tax identification number 1-2-2-3 213,020.20 10,651 .01

4. VAT withholdinq Taxes 1-2-2-4 485,269.64 20,419.19

Total With Exceptions

Iii

7,017,205.34

Iii

159,346.99

Total

Iii 271 ,855,898.52 Iii 10,680,357.10 The Independent CPA29 noted that there is an unclaimed amount of "

12 288,111 .78 from comparison of the total amount of excess tax credit properly supported by creditable certificates against the total amount claim for tax credit, to wit:

PARTICULARS

EXHIBIT NO.

AMOUNT

2007 Excess Tax Credits Properly supported by Certificate of Creditable (SIR Form 2307 with no exceptions as noted above) 1-2-1 and 1-2-1.1 l'l10,521 ,010.11 2007 Excess Tax Credits which is subject for claim for refund 10,232,898.33

Unclaimed 2007 Excess Tax Credits

Iii

288,111.78 Even though the Independent CPA provided a schedule of creditable taxes withheld with no exceptions more than the amount of claim, the total amount with exceptions found by the Independent CPA in the amount of 12 159,346.99 should still be deducted from the claim, since the Court cannot ascertain whether this is not actually part thereof.

Furthermore, upon a careful examination of the said Reports and petitioner's supporting documents, the Court finds that the creditable withholding tax in the amount of 12 10,521 ,010.11 , which was found by the Independent CPA to be without exceptions, includes the amount of 12 17 4, 798.46, which should be disallowed for the following reasons, and as itemized below:

Exhibit

PAYOR

Period

Gross Income

CWT

1. Supported by certificates dated outside the period of claim. 467 1-2-1.58 GREEN ICON INC.

07/01/06 to 12/31/06 !i 860,849.79 !i 43,042.49 634 1-2-1.59 HERBALIFE INTERNATIONAL PHILS., INC.

01/01/06 to 12/31/06 150,651 .50 3,013.03 638 1-2-1 .63 INTERNATIONAL SOS (PHILS.) INC 01/01/06 to 12/31/06 189,160.00 3,783.20 641 1-2-1 .71 MERCK, INC.

01/01/06 to 12/31/06 295,914.50 5,918.29 108 1-2-1 .109

NEC PHILIPPINES INC

01/01/06 to 12/31/06 1 '139,375.00 56,968.75

Subtotal

fl 2,635,950.79 fl 112,725.76

2. Supported by certificates not in petitioner's name. 195 1-2-1.240 CP KELCO PHILS. INC.

02/01/07 to 02/28/07 !i 95,869.00 !i 4,793.45 196 1-2-1.241 CP KELCO PHILS. INC.

03/01 /07 to 03/31 /07 287,097.80 14,354.89 213 1-2-1 .284 JPMED ASIAN PACIFIC, INC.

02/01/07 to 02/28/07 18,000.00 900.00 MIZUHO CORPORATE BANK, LTD. - MANILA 594 1-2-1 .106

BRANCH

10/01/06 to 12/31/06 12,316.73 246.33

Subtotal

fl 413,283.53 fl 20,294.67

3. Supported by certificates not signed by payor. 52 1-2-1 .245

DEPARTMENT OF FOREIGN AFFAIRS-RCO

53 1-2-1 .246

DEPARTMENT OF FOREIGN AFFAIRS-RCO

199 1-2-1 .245

DEPARTMENT OF FOREIGN AFFAIRS-RCO

200 1-2-1 .246

DEPARTMENT OF FOREIGN AFFAIRS-RCO

201 1-2-1 .247

DEPARTMENT OF FOREIGN AFFAIRS-RCO

4. Supported by certificate but pertains to other transaction. 379 1-2-1 .667

DEPARTMENT OF FOREIGN AFFAIRS-MINDANAO

5. Cannot ascertain the actual amount of tax withheld. 694 1-2-1 .279 HITACHI HIGH TECHNOLOGIES (S) PTE. L TO.

6. Certificates not found in the records. 710 1-2-1 .337 MITSUI & CO. LTD.-MANILA BRANCH 892 1-2-1 .172 TORRENT PHARMA PHILIPPINES, INC.

1 1-2-1.1.1

SUBIC POWER CORPORATION

591 1-2-1 .247

DEPARTMENT OF FOREIGN AFFAIRS-RCO

7. Overclaimed creditable withholding taxes. 590 1-2-1 .866 QUINTILES PHILS. INC.

per claim per actual certificate

01/01/07 TO 01/31/07

Iii

36,000.00

Iii

03/01/07 TO 03/31/07

36,000.00

01/01/07 TO 01/31/07

36,000.00

03/01/07 TO 03/31/07

36,000.00

02/01/07 TO 02/28/07

36,000.00

Subtotal

fil 180,000.00 fil

09/01/07 TO 09/30/07

Iii

36,000.00

Iii

Subtotal

fil 36,000.00 fil 01/01/07 to 03/30/07

Iii

4,710.00

Iii

Subtotal

fil 4,710.00 fil

Iii

223,390.00

Iii

678,600.00 14,985.00

02/01/07 TO 02/28/07

1,807.50

Subtotal

fil 918,782.50 fil 10/01/06 to 12/31/06

Iii

144,996.50

Iii

(60,984.00)

Subtotal

fil 84,012.50 fil

TOTAL

Iii

4,272, 739.32

Iii

Therefore, petitioner was able to substantiate its compliance with the second requisite by proper withholding tax certificates only the creditable withholding taxes in the amount of til 9,898,752.88 for fiscal year ended September 30, 2007, computed as follows:

Total Creditable Withholding Taxes Claim

li 10,232,898.33

Less: Disallowances

Per ICPA

159,346.99 Per this Court's further verification 174,798.46

Valid Creditable Withholding Taxes

til 9,898,752.88 1,800.00 1,800.00 1,800.00 1,800.00 1,800.00 9,000.00 1,800.00 1,800.00 4,710.00 4,710.00 4,467.80 19,788.00 299.70 32.28 24,587.78 2,899.93 (1 ,219.68) 1,680.25 174,798.46

CTA Case No. 800 I

This brings us to the third requirement as to whether or not the income upon which the subject taxes were withheld was included and reported by petitioner in its Income Tax Return for fiscal year ended September 30, 2007. It is observed that in petitioner's Annual ITR for fiscal year 2007,30 specifically under

Schedule

1 thereof or the "Schedule of Sales/Revenues/Receipts/Fees", which states taxable amounts pertaining to Sale of Goods/Properties in the amount of~ 21 ,848,938.00 and to Lease of Properties in the amount ~ 315,537,200.00, there is no corresponding entry whatsoever in the "Creditable Tax Withheld" column.

This declaration, at the very least, can be taken to mean, that no part of the gross income reported therein were ever subjected to creditable withholding tax.

Correspondingly, the supposed income payments to which taxes were allegedly withheld (in the total amount of ~ 1 0,232,898.33), cannot be said to have been declared as part of the gross income for fiscal year ended September 30, 2007.

Moreover, the Court finds petitioner's submitted Summary of Matching of Official Receipts against Creditable Withholding Taxes (BIR Form No. 2307)31 , Summary of Matching of Official Receipts against the Recorded Statement of Accoune2, various official receipts and statements of account, insufficient to establish petitioner's compliance with the third requisite. Petitioner should have presented proofs such as detailed general ledger, sales register, reconciliation schedules or any other document whereby the Court can trace if the income~

payments related to the claimed creditable taxes withheld indeed formed part of its gross income reflected in its Annual ITR for fiscal year ended September 30, 2007.33 As cases filed before this Court are litigated de novo, party-litigants should prove every minute aspect of their cases.34 In view of petitioner's failure to comply with the third requisite for the refund or issuance of TCC for unutilized creditable withholding taxes as provided by law and jurisprudence, this Court is left with no recourse but to deny the instant claim for issuance of TCC.

We reiterate our consistent ruling that actions for tax refund, as in the instant case, are in the nature of a claim for exemption and the law is not only construed in strictissimi juris against the taxpayer, but also the pieces of evidence presented entitling a taxpayer to an exemption is strictissimi scrutinized and must be duly proven.35

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

WE CONCUR:

f.~- v:. . ~ ERNESTO D. ACOSTA

CERTIFICATION

hereby certify that this Decision was reached after due consultation among the members of this Division in accordance with the provisions of Section 13, Article VIII of the Constitution.

L

~· C_,___ ERNESTO D. ACOSTA

Chairperson

Presiding Justice