Ayala Corporation vs. Commissioner of Internal Revenue

AMENDED DECISION

Petitioner's Motion for Partial Reconsideration Petitioner contends that this Court committed a reversible error in disallowing a portion of its claimed excess creditable withholding tax (CWT) for calendar years (CYs) 2008 and 2009, in the amount of P35,384, 7 46.22, on the ground that the income payments per Schedules of Creditable Taxes Withheld on Sale of Services and Properties and Lease of Properties do not tally with the income indicated in the Summary of Rental Income, Summary of Directors' Fees and Summary of Other Income, as found in the Final Amended Report, submitted by the Court-commissioned Independent Certified Public Accountant (ICPA). The details of the disallowances are as follows¹:

Period Income Payment Income Tax Exhibit Covered Payor Withheld CY 2008 J7 1st quarter HR Mall Inc.

p 33,819.84 p 676.40 lsuzu Automotive Dealership, J14 1st quarter Inc. - lsuzu Alabang 1,281 ,032.59 64,051 .63 J15 1st quarter lsuzu Cebu Inc. - lsuzu Cebu 1,108,611 .00 55,430.55 J16 1st quarter Manila Water Company 16,768,089.60 2,515,213.44 J19 2nd quarter HR Mall Inc.

33,281.46 665.63 J21 3rd quarter Honda Cars AlabanQ 70,513.50 1,410.27 Honda Cars Makati J41 4th quarter Incorporated 29,679,569.77 1,483,978.49 lsuzu Automotive Dealership, J48 4th quarter Inc. - lsuzu Alabang 1,366,798.00 68,339.90 J51 4th quarter lsuzu Cebu Inc. - lsuzu Cebu 806,702.80 40,335.14 J55 4th quarter Manila Water Company 29,270,631 .32 4,390,594.70 K12 2nd quarter Honda Makati 10,019,276.20 500,963.81 lsuzu Automotive Dealership, K16 2nd quarter Inc. - lsuzu Alabang 1,276,605.49 63,830.27 K17 2nd quarter lsuzu Cebu Inc. - lsuzu Cebu 891 ,622.20 44,581 .11 K34 3rd quarter Honda Cars 31 ,925,545.20 1,596,277.26 lsuzu Automotive Dealership, K36 3rd quarter Inc. - lsuzu AlabanQ 1,338,945.20 66,947.26 lsuzu Automotive Dealership, K37 3rd quarter Inc. - lsuzu Alabang 1,160,176.80 58,008.84 lsuzu Automotive Dealership, K38 3rd quarter Inc. - lsuzu Alabang 1,390,825.40 69,541 .27 K39 3rd quarter lsuzu Cebu Inc. - lsuzu Cebu 931 ,895.40 46,594.77 K40 3rd quarter Manila Water Company 52,022,765.72 7,803,404.86

TOTAL - CY 2008

p 181,376,707.49 p 18,870,845.60 CY 2009 J75 1st quarter Honda Cars Makati, Inc. p 36,023,978.28 p 1,801 '198.91 J89 2nd quarter Honda Cars Makati, Inc. 33,462,593.04 1 ,672,272.13

J94 2nd quarter J95 2nd quarter J124 3rd quarter L5 4th quarter L19 4th quarter L26 4th quarter L30 4th quarter L36 4th quarter

TOTAL - CY 2009

lsuzu Cebu Inc. - lsuzu Cebu Manila Water Company Manila Water Company Asiacom Philippines Inc. Bank of the Philippine Islands Honda Cars Makati, Inc. lsuzu Automotive Dealership, Inc. - lsuzu Alabang John Clements Consultants Inc.

Grand Total- CYs 2008 and 2009 776,869.20 38,843.66 41 ,805,416.66 6,270,812.50 29,945,007.45 4,491 ,751 .02 107,249.28 9,547.46 200,000.00 4,000.00 38,770,738.40 2,168,097.81 1 '135,542.60 56,777.13 30,000.00 600.00 p 182,257,394.91 p 16,513,900.62 p 363,634,102.40 p 35,384,7 46.22 Petitioner points out that if there are discrepancies between the two schedules as found by this Court, the same can be clarified and fully explained through cross-reference with other documentary exhibits forming part of the Final Amended Report2 and in the testimony of the ICPA through her Judicial Affidavit. 3 Petitioner attached to its Motion as Annex "A", a detailed list of explanation for each disallowance with cross-reference to relevant pieces of documentary evidence, to easily assist this Court in arriving at the desired reconciliation. With the aforesaid list, this Court was able to ascertain that the income of P355,335, 182.47, related to petitioner's claimed CWT in the amount of P34,228,507.42, formed part of the taxable income reported in its Annual Income Tax Returns for taxable years 2008 and 2009. Thus, the CWT of P34,228,507.42, detailed below, shall be refunded to petitioner in addition to the amount of P64,970,643.22, which was previously granted in the assailed Decision: Exhibit Period Covered CY 2008 J14 1st quarter J15 1st quarter J16 1st quarter K12 2nd quarter K16 2nd quarter K17 2nd quarter K34 3rd quarter 2 Exhibit "AAA".

3 Exhibit "888".

Payor/Withholding Agent Income Income Tax Payment Withheld lsuzu Automotive Dealership, Inc. - lsuzu Ala bang 1,281 ,032.59 64,051 .63 lsuzu Cebu Inc. - lsuzu Cebu 859,226.83 42,961 .34 Manila Water Company 16,768,089.60 2,515,213.44 Honda Makati 10,019,276.20 500,963.81 lsuzu Automotive Dealership, Inc. - lsuzu Ala bang 1 ,276,605.49 63,830.27 lsuzu Cebu Inc. - lsuzu Cebu 880,638.00 44,031 .90 Honda Cars 31 ,925,545.20 1,596,277.26

K36 3rd quarter K37 3rd quarter K38 3rd quarter K39 3rd quarter K40 3rd quarter J41 4th quarter J48 4th quarter J51 4th quarter J55 4th quarter

TOTAL CY 2008

CY 2009 J75 1st quarter J89 2nd quarter J94 2nd quarter J95 2nd quarter J124 3rd quarter L5 4th quarter L26 4th quarter L30 4th quarter

TOTAL CY 2009

lsuzu Automotive Dealership, Inc. - lsuzu Ala bang lsuzu Automotive Dealership, Inc. - lsuzu Ala bang lsuzu Automotive Dealership, Inc.- lsuzu Ala bang lsuzu Cebu Inc. - lsuzu Cebu Manila Water Company Honda Cars Makati Incorporated lsuzu Automotive Dealership, Inc. - lsuzu Ala bang lsuzu Cebu Inc. - lsuzu Cebu Manila Water Company Honda Cars Makati, Inc. Honda Cars Makati, Inc. lsuzu Cebu Inc. - lsuzu Cebu Manila Water Company Manila Water Company Asiacom Philippines Inc. Honda Cars Makati, Inc. lsuzu Automotive Dealership, Inc. - lsuzu Ala bang Grand Total- CYs 2008 and 2009 1,338,945.20 66,947.26 1,160,176.80 58,008.84 1,390,825.40 69,541 .27 931 ,895.40 46,594.77 51 ,092,71 0.35 7,663,896.56 29,679,569.77 1,483,978.49 1,365,477.59 68,273.88 716,180.17 35,809.01 22,752,134.40 3,412,820.17 173,438,328.99 17,733,199.90 36,023,978.28 1,801 ,198.91 33,462,593.04 1 ,672,272.13 771,512.24 38,575.82 41 ,805,416.66 6,270,812.50 29,870,347.14 4,480,551 .97 107,249.28 9,547.46 38,770,738.40 2,168,097.81 1,085,018.44 54,250.92 181,896,853.48 16,495,307.52 355,335,182.47 34,228,507.42 However, the denial of petitioner's claimed CWT in the amount of P1, 156,238.80 shall remain due to the following reasons: Exhibit Period Payor/Withholding Agent Income Income Tax Covered Payment Withheld

CY 2008

1) CWT allegedly pertaining to advances made by petitioner to payor but no documents were submitted by petitioner to corroborate the said advances J7 1st quarter HR Mall Inc.

33,819.84 676.40 J19 2nd HR Mall Inc.

quarter 33,281.46 665.63 J21 3rd quarter Honda Cars Alabang 70,513.50 1,410.27 2) CWT supported by SIR Forms No. 2307 but formed part of the total CWT of P1 ,452,575.57 not claimed by petitioner (see

Exhibit "AAA", page 5, Procedures and Observations, par. 5) J15 1st quarter lsuzu Cebu Inc. - lsuzu Cebu K17 2nd lsuzu Cebu Inc. - lsuzu Cebu quarter K40 3rd quarter Manila Water Company J48 4th quarter lsuzu Automotive Dealership, Inc. - lsuzu Alabanq J51 4th quarter lsuzu Cebu Inc. - lsuzu Cebu J55 4th quarter Manila Water Company

TOTAL - CY 2008

CY 2009 1) CWT pertaining to advances made by petitioner to payor but no documents were submitted by petitioner to corroborate the said advances L19 4th quarter Bank of the Philippine Islands L36 4th quarter John Clements Consultants Inc. 2) CWT without BIR Forms No. 2307, thus not claimed by petitioner J94 2nd lsuzu Cebu Inc. - lsuzu Cebu quarter J124 3rd quarter Manila Water Company 3) CWTsupported with BIR Form No. 2307 but the rental income was not recorded in the general ledger, thus not claimed by petitioner L30 4th quarter lsuzu Automotive Dealership, Inc. - lsuzu Alabang with 2307 but not claimed

TOTAL - CY 2009

Grand Total - CYs 2008 and 2009 249,384.17 12,469.21 10,984.20 549.21 930,055.37 139,508.30 1,320.41 66.02 90,522.63 4,526.13 6,518,496.92 977,774.53 7,938,378.50 1,137,645.70 200,000.00 4,000.00 30,000.00 600.00 5,356.96 267.84 74,660.31 11,199.05 50,524.16 2,526.21 360,541.43 18,593.10 8,298,919.93 1 '156,238.80 In sum, this Court finds petitioner entitled to the issuance of a Tax Credit Certificate in the amount of P34,228,507.42, representing excess CWT for calendar years 2008 and 2009, in addition to the amount of P64,970,643.22 originally granted to petitioner per Decision dated November 11 , 2013. Respondent's Motion for Partial Reconsideration Respondent argues that petitioner failed to prove its compliance with Revenue Memorandum Order (RMO) No. 53-98 and Revenue Regulations (RR) No. 2-2006, in connection with the filing of its administrative claim for refund through the submission of the mandatory documentary requirements provided therein. Respondent contends that such failure of petitioner deprived her of the opportunity and time to study petitioner's claim for refund and to fully exercise her ~ function. Thus, respondent posits that the instant Petition for Review was filed prematurely, in violation of the doctrine of exhaustion of administrative remedies. In opposition, petitioner contends that respondent was given sufficient time to investigate its claim for the issuance of tax credit certificate and that respondent failed to present testimonial or documentary evidence to warrant the denial of its claim. This Court finds respondent's arguments without merit. It must be stressed that Revenue Memorandum Order (RMO) No. 53-98, dated June 1, 1998 and entitled "Checklist of Documents to be Submitted by a Taxpayer upon Audit of his Tax Liabilities as well as of the Mandatory Reporting Requirements to be Prepared by a Revenue Officer, all of which Comprise a Complete Tax Docket", refers mainly to the requirements in the administrative level for claims for refund/tax credit, wherein the taxpayer is required to submit for audit purposes, all his/its pertinent documents/records, to establish the veracity of his/its claim. However, when a taxpayer's claim reaches the judicial level or when the claim is elevated to this Court, the Rules of Court and this Court's own Rules govern the matter of proving the said claim. Moreover, RR2-2006 indeed prescribes the attachment of the Summary of Alphalist of Withholding Agents of Income Payments Subjected to Tax Withheld at Source (SAWT) to tax returns, with claimed tax credits due to creditable tax withheld at source. However, this Court, in numerous cases, held that the following are the requisites that must be complied with in order to claim a Tax Credit Certificate or Refund of excess creditable withholding tax (CWT): (a) that the claim for refund was filed within the two-year prescriptive period as provided under Section 204(C) in relation to Section 229 of the National Internal Revenue Code (NIRC) of 1997, as amended; (b) 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 (c) that the income upon which the taxes were withheld were included in the return of the recipient. These requisites were also adopted by the Supreme Court in the case of United International Pictures AB vs. Commissioner of Internal Revenue.4r

WHEREFORE, respondent's "MOTION FOR PARTIAL RECONSIDERATION (RE: Decision dated 11 November 2013)" is DENIED for lack of merit. On the other hand, petitioner's "MOTION FOR PARTIAL RECONSIDERATION" is PARTIALLY GRANTED. Accordingly, the Decision promulgated on November 11 , 2013 is MODIFIED and respondent is ordered to issue a Tax Credit Certificate in favor of petitioner in the amount of P99, 199,150.64, representing excess CWT for calendar years 2008 and 2009.

WE CONCUR:

CAESAR~SANOVA Associate Justice

Q~~ G~~~/~­

ifuANITO C. CASTANEDA, JR. Associate Justice ~~~ AMELIA R. COTANGCO-MANALASTAS Associate Justice ATTESTATION I attest that the conclusions in the above Amended Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. Q~h c. QJ!--~;.(...< Q ' JU'ANITO C. CASTANEuK," JR. 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 Amended Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court.

Presiding Justice