Upsi Management, Inc. vs. Commissioner of Internal Revenue

DECISION

MINDARO-GRULLA, J.:

Submitl ed for d ecision is a Petition for Re view for the Court en bone und er Sectio n 18 of Repub lic Act 1125 1 , as a m e nded a nd Rule 4, Sectio n 2(o )(l ), in re la tio n to Rule 8, Section 4( b ) of th e Revised Rules o f the Court o f Tax Appeals (RRCTA)7, as ame nded , assailing the Decisio n:!( 1 An Ac t Creating the Court o f lox Appeals 2 Sec. 2. Cases within the jurisdiction of the Court en bone. - lhe Court e n bone shall exerc ise exclusive oppellole jurisdic tion to review by oppeot the foll owing: (o)

Decisions or

resolutions on mo tions for reconsidera tio n or new trio! o f the Court in Division in the exerc ise of its exclusive oppello1e jurisdic tion over:

UPS! Monogemen l, Inc. vs. Commissioner of In lerna! Revenue CTA EB Case No. 670 (CTA Case No. 7762) promulgated on April 15, 20 10 a nd the Reso l ut i o n ~ promulgated on Au g ust 10, 201 0 o f this Court's First D iv i s i o n . ~) Petitio ne r seeks a reversal o f b oth th e a foresaid Decisio n a nd Resolutio n, the d isp ositive portions of which, respectively, read as follows:

Decision doted April 15, 2010:

"WHEREFORE, petitioner's claim for refund is hereby DENIED for insufficiency of evidence.

Motion

for

Partial

Reconsideration is hereby DENIED for lock of merit.

(I )

Cases arising from odminislro live agencies- Bureau o f lnlernol Revenue, Bureau of Cusloms, Deporlmenl o f Finance, Deporlmenl o f lrode and Industry, Deportment o f Agriculture;

XXX

Sec. 4. Where to appeal; mode of oppeof.-

(o) XXX.

XXX

XXX

(b) An appeal from o d ecision or resolulion o f the Courl in Division on o molion for reconsid e ro lion or new !rio! shall b e Ioke n lo the Courl by peli lion for re view os provid e d in Rule 43 of the Rules of Court. The Court e n bone shall oc t on the appeal.

(c ) XXX .

'En bone docke l, pp. 59-82.

4 Ibid. pp. 122- 129 .

s Composed o f Presiding Juslice Ernes to D. Acoslo, Associole Juslice Erlindo P.Uy and Associo le Jus lice Esperonzo r. Fobon-Vic lorino.

UPSI Managem en t, Inc . vs. Commissioner o f Internal Revenue CTA EB Case No. 670 (CTA Case No. 7762)

DECISION

Page 3 o f 18 "On April 17, 2006, petitioner filed its annual incom e tax re turn for the year ended December 31, 2005 with the Revenue District No. 34 of the Revenue Region No. 6 of the Bureau of Internal Revenue (BIR) , declaring among others, the following: Soles/Re ven ues/Receipts/Fees

Less: Cos / or Soles/Services

Gross income from Opera /ion Add: Non-Operating & 0 /h er Income Total Gross incom e Less: Deductio ns Taxable Incom e Minimum Corporate income Tax

Income Tax Due

Less: Tax Credits/Poymen ls

Prior Year's Excess Credits

Creditable Tax Withheld for the First Three Quarters

Creditable Tax Withheld for the Fourth Quarter

Total Tax Credits/Paym ents Tax Overpoym enl p 18,74/ ,488.00 14,325,299.00 4,4/6, 189.00 466.00 4,416,655.00 4,524, 900.00 ( 1 08,245.00) 88,333.00 88,333.00 4,570,705.00 1,664,028.00 248, 167.00 6,482,899.00 (6,394,566.00) Moreover, petitioner indicated in the corresponding b ox of the said return its intention to be issued a tax credit certificate (TCC) by marking the appropriate box th ereon. On 7 March 2008, within th e p eriod prescribed by low, petitioner filed a c laim for th e issuance o f a tax c redit certificate in th e to tal amount PI, 912, 195.00 representing unutilized creditable income taxes for the taxable year 2005 pursuant to Section 204 (C) and 229 of the Notional Internal Revenue Code (NIRC).

While its c laims for refund is still pending administrative investigation, p e titioner filed on April 14, 2008 the instant Pe tition for Revie w pursuant to Sec tion 229 of the Notional Internal Revenue Code.

In his Answer filed on May 27, 2008, respondent prayed that th e petition be dismissed with cost.xxx.

XXX

XXX

XXX.

After trial, this case was submitted for dec ision on January 20, 20 10 taking into consideration respondent's m emorandum filed on November 23, 2009 and petitioner's memorandum filed on December 17, 2009. " ~ UPSI Manage men t, Inc . vs. Commissioner o f Interna l Revenue CTA EB Case No. 670 (CTA Case No. 7762)

DECISION

Page 4 o f 18 On April 15, 20 l 0, 1he assailed Decision was promulgated denying petitioner's c laim for refund for insuffic iency of evidence on th e ground of failure to present as evide nce its quarterly income tax return for the 2006 taxable year. The pertinent portion of which states: "xxx, [P] etitioner still has foiled to prove that it did not corry over its claimed excess or unutilized c reditable withholding taxes to the succeeding quarters of taxable year 2006. Records of th e case disclosed that petitioner foiled to present as evidence its 2006 quarterly income tax returns. Alth ough, petitioner presented its Annual Income Tax Return wherein it shows that it did not corry over as tax c redit its c la imed unutilized c reditable withholding taxes of P 1, 912, 195.00 to the succeeding taxable year 2006, however, this evidence is not enough to conclude that petitioner did not apply the said excess or unutilized creditable withholding taxes against the incom e tax due for the first three quarters of 2006. Petitioner should hove presented its quarterly 2006 quarterly income tax returns. The said quarterly income re turns could help the Court determine whether petitioner effectively opted to corry over the 2005 excess or unutilized creditable withholding taxes to th e subsequent taxable year. If petitioner applied the said excess or unutilized c reditable withholding taxes against the income tax due for the first three quarters of taxable year 2006, it therefore e ffectively exerc ised th e option to corry over the 2005 excess or unutilized c reditable withholding taxes the succeeding year 2006: thus, its claim for refund should be denied xxx." Petitioner filed a Motion for Partial Reconsidera tion. This time petitioner attac hed its 2006 quarterly income tax return s. It is evident in petitioner's l 51 ,2ncj and 3 rd quorlerly incom e 1ox returns for th e taxable year 2006 that the 2005 excess c redit was included in th e prior excess tax c redit.

However, petitioner asserts that it was merely through inadvertence and !ho t i1s c laim lo be issued a 1ox c redit certific ate has been clear and c onsiste nl. Moreover, petitioner maintains that the.( UPSI Manage men t, Inc. vs. Commissioner o f lnlernal Revenue CTA EB Case No . 670 (CTA Case No. 7762)

DE C ISION

Page 5 o f 18 2005 excess c redit was not actually c arried over as there were sufficient excess creditable withholding taxes prior to the taxable year 2005 to cover its 2006 l st , 2ncJ and JrcJ quarterly taxes. On August l 0, 20 l 0, th e assailed Resolution was promulgated d e nying p etitioner's Motion for Partial Reconsideration for lock of merit. The p ertine nt portion o f whic h sta tes:

"Upon examination of the foregoing additional documents, th e Court determined that petitioner hod actually carried over and applied its c laimed creditable withholding taxes of P 1, 912, 195.00 as port of its " Prior Year's Excess Credit" of P6,394,566.00, to the first , second and third quarters of 2006. Pe titioner's explana tion that the corry over of its c laimed excess c reditable withholding taxes in all its quarterly income tax returns as mere inadvertence, does no t sway this Court." He nce, p e titioner fil ed the instant Pe tilio n for Review. In assailing the Dec ision and Resolution o f this Court' s Division, p etitioner raised this sole ground:

"THE FIRST DIVISION OF THE COURT OF TAX APPEALS DID

NOT DECIDE IN ACCORDANCE WITH

LAW, APPLICABLE JURISPRUDENCE,

AND

FACTUAL

CIRCUMSTANCES

SURROUNDING THE CASE, WHEN IT RULED THAT PETITIONER IS NOT ENTITLED TO THE REFUND OR ISSUANCE OF A TCC IN THE

AMOUNT

OF

P1 ,912,195.00

REPRESENTING

EXCESS

CREDITABLE WITHHOLDING TAXES ARISING FROM TAXABLE

YEAR 2005 BECAUSE PETITIONER ALLEGEDLY CARRIED OVER

THE SAME TO THE SUCEEDING TAXABLE QUARTERS OF 2006." Pe titioner argues that the issue whe ther it c arried its 2005 excess tax c redits to th e succeeding taxable year (2006) was never put in issue and assert that both parties eve n stipulated and admitted that petitioner did no t utilize th e some. Thus, petitio ner wonders why the ( UPSI Management, Inc. vs. Commissioner of lnlernal Revenue CTA EB Case No. 670 (CTA Case No. 7762)

DECISION

Page 6 o f 18 issue of wheth er it carried its 2005 excess tax c redits to the succeeding taxable year (2006) cropped up.

Petitioner maintains that it c learly indicated on its 2005 income tax return its option to claim for re fund through the issuance of a tax c redit certificate and the exerc ise of that option negates any initiation of application of the excess withholding tax credits to the succeeding quarters of 2006. Moreover, petitioner asserts that its 2005 excess tax credits were never utilized in the 2006 taxable year. Petitioner c laimed that the inadvertent inclusion of the 2005 excess or unutilized creditable withholding tax in the 2006 quarterly income tax return as "prior years tax c redit" did not in any way benefit petitioner or that the same did not automatically mean that petitioner e ffec tive ly exercised the option to carry over.

In sum , peli1ioner alleges thai th e Firs! Division of this Court acted with grave abuse of disc retion when it disregarded the stipulated and admitted fact that petitioner did not utilize nor apply the 2005 excess tax credits to any tax liabilities for th e taxable year 2006.

Petitioner

reiterates that the issue of "whether petitioner carried over its 2005 excess creditable withholding taxes to th e succeeding year" was never brought up because both parties had already stipulated and admitted that petitioner has unequivocally indicated its intention to be issued a tax c redit certifica te and thai i1 did not utilize its 2005 excess( UPSI Management, Inc. vs. Commissioner of In ternal Revenue CTA EB Case No. 670 (CTA Case No. 7762) tax c redit.

Thus, th ere is the imputation that th e Court a quo did not decide in accordance with law, applicable jurisprud e nce and fac tual c irc umstances of the c ase .

However, the respondent CIR maintains that the First Division of this Court was correct in declaring that petitioner has effective ly exerc ised the option to c arry over its 2005 excess and unutilized c reditable withholding taxes to the succeeding year (2006). We resolve in favor o f respondent.

Petitioner finds fault with the First Division o f this Court in resolving the issue o f "whether petitioner carried over its 2005 excess c reditable withholding taxes to the succeeding taxable year" despite the fa c t that it was not specifically stated in th e issues to be resolved , and considering that the stipulation and admission th a i pe titioner exercised its option to refund throug h th e issuance o f a tax cred i1 certifica te and that it did not utilize its 2005 excess tax c redit in the succeeding year, are among those con tained in the Join! Stipulation of Facts and Issues. Su ffice it to say that this Court is a court o f competent jurisdic tion which is vested with the authority to resolve even unassigned issues. It can do so when such a step is indispensable or necessary to a just resolution of issues raised in a particular pleading or when the 4:

UPSI Managemenl, Inc. vs. Commissioner of lnlernol Revenue CTA EB Case No. 670 (CTA Case No. 7762) unassigned issues ore inextricably linked or germane to those that hove been pleoded.t' In the instant case, th e fact o f whether petitioner carried over its 2005 excess c reditable withholding taxes to the taxable quarters of the succeeding taxable year is no t only necessary but indispensable in arriving at a just decision of the case. The Division of this Court aptly explained as follows:

"The crux of the oforequoted joint stipulated issues is the determination of whether or not petitioner is entitled for refund of its alleged excess or unutilized creditable withholding tax in the amount of P 1, 912, 195.00 for the taxable year 2005. The following ore the basic requirements before a refund or issuance of tax credit certificate of excess creditable withholding taxes may be granted, viz:

1.

The claim for refund must be filed within the two-year prescriptive period provided under Section 204(C) in relation to Section 229 of the NIRC of 1997, as amended;

2. The fact of withholding is established by a copy of a statement issued by the payor (withholding agent] to the payee, showing the amount paid and the amount of tax withheld therefrom; and

3. The incom e upon which the taxes were withheld were included in the return of the recipient.

Equally

important, aside from the above-quoted requirements, is that petitioner must prove that it did not corry- over its excess creditable withholding taxes to the succeeding taxable year. This additional requirement is on offshoot of the "irrevocable rule" introduced in the lost sentence of Section 76 of the Notional Internal Revenue Code (NIRC]. The said provisions of th e NIRC provide: t..

6 Crisanlo Rafaelilo G. Gualt)erto V vs. Courl of Appeals; Hon. Helen B. Ricafort, Presiding Judge, l~egiono l Triol Courl F'oronaque Cily, Branch 260; and Joycelyn D. Pablo-Gualberto, [G.R. No. 1562.)4. June 28, 200.)]

UPSI Manage m enl. Inc. vs. Commissioner of lnlernal Revenue CTA EB Case No. 670 (CTA Case No. 7762)

DECISION

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 mode during the said taxable year is not equal to th e total tax due on the entire taxable income of that year, th e corporation shall either:

(A} Pay the balance of tax still due; or (B) Corry-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."

(Emphasis supplied)

Page 9 of 18

In the case o f Systra Philippines, Inc. vs. Commissioner of Internal Revenue, the Supreme Court held that the legislative intent to make the option irrevocable becomes clearer when Section 76 is viewed in comparison to Section 69 of the (old) 1977 Tax Code. Accordingly, under Section 69 of the 1977 Tax Code, there was no irrevocability rule. Instead of claiming a refund, the excess tax c redits could be "credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable year," that is, the immediately following year only. In contrast, Section 76 of the present Tax Code formulates on irrevocability rule which stresses and fortifies the nature of the remedies or options as alternative, not cumulative. It also provides that the excess tax credits "may be carried over and credited against th e estimated quarterly income tax liabilities for th e taxable quarters of the succeeding taxable years" until fully utilized."( UPSI Management, Inc. vs. Commissioner o f lnt e rnall~evenue CTA EB Case No. 670 (CTA Case No. 7762) It is an established jurisprude nce under the "Irrevocable Rule" that if the taxpayer opted to corry-over and apply th e excess against the estimated quarterly income tax due for the taxable quarters of the succeeding taxabl e years, th e same is irrevoca ble and no c ash re fund or tax c redit thereto shall be allowed. Obviously, before a refund for c reditable withholding tax is granted, it is essenlial to prove that the excess c reditable withholding tax should have not been carried over to the succeeding taxable quarte rs considering that the optio n to c orry- over or apply as tax c redit in th e succeeding taxable quarters ca nnot be modified in its final adjustment return . The rul e prevents a taxpayer from claiming twice the excess quarterly taxes paid:

( 1) a s automa tic c redit against taxes for the taxable quarters o f th e succeeding years for which no tax c redit certifica te has been issued; and

(2) as a tax c redit either for whic h a tax credit certificate will be issued or whic h will be c laimed for c ash re fund / Thus, even if the claim for refund was within the 2-yeor prescriptive period, the fac t o f withholding o f c reditable taxes by the withholding agents was prove n and the income upon which the withholding taxes w ere withheld were inc luded as part of th e gross~ 7

Systra

Philippines, Inc .

vs. Commissioner o f

Internal

Revenue, G.R.

No.

176290,Seplember 21, 2007 UPSI Monoge m e n1 , Inc. vs. Commissioner o f Internal Revenue CTA EB Case No. 670 (CTA Case No. 7762)

DECISION

Page 11 o f 18 1ncome and were reflected in the preceding income tax return. Nonetheless, the taxpayer should prove that the excess creditable withholding tax has not been carried over to the taxable quarters of the succeeding taxable years.

It is a matter of evidence and axiomatic that a c laimant has the burden o f proof to es tablish the factual basis o f his or her claim for tax c redit or re fund. Tax re funds, like tax exemptions, are c onstrued stric tly against the taxpayer. 13 Moreover, e ntitlement to a tax refund is for the taxpayer to prove and not for the government to disprove.9 Thus, the Division of this Court was correct in holding that petitioner must prove that it did nof carry-ove r its excess c reditable withholding taxes to the succeeding taxable year or to be more specific to the taxable quarters of the succeeding taxabl e year. Appare ntly, the b est evidence to prove that th e excess c reditable withholding tax was not c arried over to the succeeding taxable quarte rs is the presentation of th e succeeding quarterly income tax return and the annual income tax return of the subseque nt taxable year in order for this Court to verify and conclude that th e c laimed amount was not utilized or c arried over to the said quarters. (.

8 Commissioner o f Internal Revenue vs. Bonk of the Philippine Islands, G.R. No. I 78490, July 7, 2009.

9 Commissionu of Interna l Revenue vs. For Easl Bonk & Trust Company, etc., G.R. No. 173854, Marc h I .), 20 10.

UPSI Management, Inc. vs. Commissioner of Internal Revenue CT A EB Case No . 670 (CT A Case No. 77 62)

Having discussed the indispensability to prove that petitioner did not carry over its 2005 excess creditable withholding taxes to the taxable quarters of the succeeding taxable year, the stipulation and admission that pe1itioner exerc ised its option to re fund and that it did not utilize its 2005 excess tax c redit in the succeeding year do not render th e same moot. The "carry over" and "utiliza tion" of its 2005 excess c reditable withholding taxes to the succeeding taxable year is a different set of things.

A taxpayer may have opted to carry over its excess creditable withholding taxes to the succeeding taxabl e year but not utilize the same. Even though the excess tax credit was not utilized, the taxpayer is not e ntitled to a refund. Th e irrevocability rule applies. The question of whether or not the taxpayer actually utilizes said tax credit is irrelevant. lo Section 7 6 of the NIRC o f 1997 is explic it in stating that once the option to carry over has bee n made, "no application for tax refund or issuance of a tax c redit certificate shall be allowed therefor. " 11 The last sentence of Section 7 6 of the NIRC of 1997 reads: "Once th e option to carry-over and apply the excess quarterly income tax against income tax due for the taxable quar1 ers of the succeeding taxable years has& IO Commissioner o f Internal Revenue vs. PL Manage ment International Philippines, Inc., G l~. No. 160949, April 4, 2011 , c iting Commissioner o f ln1ernol Revenue vs. Bonk of the Philippine Islands, GK No . 178490, July 7, 2009. II Ibid .

UPSI Monoge rne nl , Inc . vs. Commissioner of ln t e rno l l~eve nu e CTA EB Case No. 670 (CTA Case No. 7762) been made, such option sha ll be considered irrevoca ble for that taxable period and no application for tax refu nd or issua nce of a tax credit certificate shall b e a llow ed there for." Th e evide nt inten t of the legislature, in adding the last sen tence to Sec tion 7 6 of the NIRC o f 1997, is to keep the taxpayer from flip-flopping o n its optio ns, a nd avoid confusion and complication as regards said taxpayer's excess tax c redit. 17 Thus, in the case o f Commissioner of Internal Revenue vs. Ba nk of the Philippine Islands 13, the Supreme Court held tha t: "xxx. When circumstances show that a choice has been mode by the taxpayer to corry over th e excess income tax as credit, it should be respected;

but when indubitable circumstances clearly show that another c hoice - a tax refund - is in order, it should be granted. 'Technicalities and /ega/isms, however exalted, should not be misused by th e government to keep money not belonging to it and thereby enric h itself at the expense of its law-abiding citizens."

Therefore, as to whic h option the taxpayer chose is generally a matter of evidence. It is axiomatic that a claimant has th e burden of proof to establish th e factual basis of his or her claim for tax credit or refund. Tax refunds, like tax exemptions, are construed strictly against the taxpayer. " Incidentally, a taxpayer may have indicated the intention to re fund the excess c reditable w ithhold ing taxes but neverth eless may have ACTUALLY CARRIED IT OVER TO THE TAXABLE Q UARTERS OF THE SUCCEEDING TAXABLE YEAR which may or may not be utilized. However, taxpayer c annot get a tax re fund or a tax credit and carry< 12 1bid.

13 G.R. No. 178490, July 7, 2009 .

UPSI Monoge me n l, Inc . vs. Commissioner o f lnlernol RE:'ve nue CTA EB Case No. 6/0 (CTA Case No . /762) o ver at the same time for the same excess inc ome taxes paid. Appare ntly, a taxpayer who has indica ted the inte ntio n to refund the excess c red itable withholding taxes but neverthe less c arried them over and utilized the same in the TAXABLE Q UA RTERS O F THE SUCCEEDING TAXABLE YEAR is not e ntitled lo re fund.

In the sa me ve1n, a taxpayer wh o has indic ated the inte ntio n to refund th e excess creditable with holding taxes bu t nevert hele ss carry the m over bu t was not a ble to utilize th e sa m e in the TAXAB LE QU A RTERS O F TH E SUCCEEDING TAXABLE YEAR is likewise not e ntitled to refund. Indeed, a taxpayer m a y a m end its q uarte rly inc om e tax re turn or a nnual Incom e tax re turn whic h in either c ase m a y m odify the previo us inte ntio n to c arry-over, app ly a s ta x c redit certific ate or refund , a s the c a se may b e. But the exerc ise o f the option to carry-over in the succeeding taxable quarters under the irrevocable rule c anno t b e modified in its fina l adjustm e nt re turn .

1 ~ In the insta nt c a se, petitio ner sig nified il s inte ntio n to re fu nd the 2005 excess c reditable withholding tax throug h the issuance o f a ta x c redit certific ate in its 2005 final tax return . How e ver, the same 2005 excess c reditable withholding tax whic h p etitio ner seeks to re fund was actua lly c arried o ver and included as " prior years excess c redits" in the l sl , 2nd a nd 3rcj q uarterly incom e tax re turns for the taxable year( 14Millennium Business Services, Inc . vs. CIR, C lA EB Case No. 5 10 promulg o led on Sep tember 28,2010 UPSI Managemenl , Inc . vs. Commissioner of Internal Revenue CTA EB Case No. 670 (CTA Case No. 7762)

DECISION

Page 15 o f 18 2006. The fact that petitio ner was not able to a c tually utilize said tax credit is irrelevant. The fac t re mains that petitioner actually carried over the 2005 excess c reditabl e withholding tax in the first three taxable quarters of the succeeding taxable year and it negated its previous intention to c laim for a re fund. Having exerc ised the option to carry- over with respect to its claimed 2005 excess tax c redits as evide nced by the quarterly income tax return, petitioner is bound by th e irrevocability rule under Section 7 6 o f th e NIRC of 1997, as amended. This is the significance o f the presentation o f the succeeding quarterly incom e tax return and the annual income tax return of the su bsequent laxable year.

Petitio ne r's excuse that th e c arry-over and inclusion of the 2005 excess creditable withholding tax as "prior years excess c redits " was through inadverte nce and that this did not in any way be nefit petitioner, is not tenable. While petitioner did not amend its 2005 annual income tax return sig nifying th erein its intention to c laim a refund through a tax c redit certificate, the subsequent filing o f the quarterly income tax return for the 1st , 2n<j and 3 rd quarters carrying the 2005 excess c reditable withholding tax as "prior years excess c redits" belies their claim.

The Supreme Court had instruc tively explained the e ffect of inclusion of excess tax c redit in the "prior years excess credits" a s follows:<.

UPSI Monogeme nl, Inc. vs. Commissioner o f lnlerno l Revenue CTA EB Case No. 670 (CTA Case No. 7762)

DECISION

Page 16 o f 18 "First, the fac t that it filled out the portion "Prior Year 's Excess Credits" in its 1999 FAR means tha t it ca tegoric ally a vailed itself of th e c orry-over option.

In fact, the line that preced es that phrase in th e BIR form clearly states "Less: Tax Credits/Pa ym ents." The contention that it m erely filled o ut that p ortion b ecause it was a req uirem ent - and that to hove d one o th erwise would hove been ta nta mount to fa lsifying the FAR - is a long sho t.

Th e FAR 1s the m ost reliable firsthand evidenc e of c orporate a c ts pertaining to inc ome taxes. In it ore fo und the itemizatio n and summary of additions to and d eductions from incom e taxes due. These entries ore no t with out rhym e or reason. They ore required, because they facilita te the tax a dministra tion process."

Sim ila rly, the q uarte rly inc ome tax re turn is required to facilitate tax administratio n process and the e ntries therein ore not w ithout rhyme or rea son. While petitioner excluded the 2005 excess c red itable w ithhold ing tax a s "prior year's excess c redits" in its final adjustment return or 2006 annual incom e tax re turn, it appears tha t it is a mere afterthoug ht c o nside ring tha t the 2005 excess c reditable w ithho ld ing tax was not utilized nor applied.

No ne theless, the fac t remains tha t pe titioner did c orry o ver said excess tax c redit in the quarterly tax return for the l st, 2ncJ and 3rcJ quarters of the taxable year 2006. The inclusion of the 2005 excess c red itable withholding tax a s "prior yea r's excess c redits" m eans that it e ffectively c arried over and availed of the c arry-over optio n w hic h is irrevocable regard less o f its previous inte ntio n in order to ovoid confusio n and flip-flopping o f o p tions . Section 7 6 is cl ear and unequivoc a l. Once the c arry-ove r optio n is' UPSI Manage m ent, Inc . vs. Commissioner o f Internal Revenue Cl A EB Case No . 670 (CTA Case No. 7762)

DECISION

Page 17 o f 18 token, actua lly or c o nstruc tively, it becomes irre vo c o bl e . 1 ~> Nevertheless, p etitio ner's 2005 excess c redita ble withh olding tax will not b e forfeited in the governme nt's favor, because it may b e c la im ed by petitio ner as tax c red its in the suc ceeding taxa ble years until it has been fully applied to p e titio ner' s tax liobilities. 16

WHEREFORE pre mises c onsid ered , th e p e tition for re view is hereby DENIED. The Dec isio n o f th e First Divisio n of this Court in CTA Case No .77 62, promulgated on April 15, 20 10 and its Resolutio n, promulgated on August 10, 20 10, o re here by AFFIRMED . No pro nou ncem ent as to cos ts.

WE CONCUR :

~_..- a; .

o..~ ERNESTO D. ACOSTA

Presiding Justice

~·,:-:; c . ~~d -~ ~ (with Sep a rate Conc urrirfg- o nd Dissenting O pinio n) JUANITO C. CASTANEDA, JR.

Associate Justice

----------

TISTA

15 Philorn Asse l Mcmogem en l, Inc. v. Commissioner o f Interna l Revenue : G .R. Nos. 156637 ond 16200-1, 1-1 December ?005. -1 77 SCRA 76 1, /80. 16 1bic:l.

UPSI Manage m ent, Inc . vs. Commissioner of Internal Revenue CTA EB Case No. 670 (CTA Case No. 7762)

ER~ UY

Ass~~stice CAESAR A. CASANOVA

(On Leave)

OLGA PALANCA-ENRIQUEZ

Associate Justice

AMELB:r:;::C:::l!:::

Associate Justice

CERTIFICATION

Pursuant to Article VIII, Section 13 o f the Constitution, it is hereby certified that the conclusions in the above Decision were reached in consultation among the members of the Court En Bane before the case was assigned to the wri ler of the opinion of the Court En Bane. t~-~- ~ ERNESTO D. ACOSTA

Presiding Justice

REPUBLIC OF THE PHILIPPINES

COURT OF TAX APPEALS

QUEZON CITY

ENBANC

UPSI MANAGEMENT, INC., Petitioner, -versus-

COMMISSIONER OF INTERNAL

REVENUE, Respondent.

CTA EB No. 670 (CTA Case No. 7762)

Present:

Acosta, P.J., Castaneda, Jr., Bautista, Uy, Casanova, Palanca-Enriquez, Fabon-Victorino, Mindaro-Grulla, and Cotangco-Manalastas, JJ.

PROMULGATED:

/W'A-;_~~

OCT 1 9 2011

-?'.:~ 4, ~ A x-----------------------------------------------------------------------------x

SEPARATE CONCURRING AND DISSENTING OPINION

CASTANEDA, JR., J.:

I vote to AFFIRM the assailed Decision1 dated April 15, 2010 and the Resolution2 dated August 10, 2010 promulgated by the CTA First Division which DENIED the petition seeking the refund or issuance of a tax credit certificate in ft- 1 Rollo, pp. 59-82. Penned by Presiding Justice Ernesto D. Acosta, with Associate Justice Erlinda P. Uy and Associate Justice Esperanza R. Fabon-Victorino, concurring. 2 Rollo, pp. 122-129.

Separate Concurring and Dissenting Opinion

CTA EB No. 670 {CTA Case No. 7762)

Page2of8

the amount of

P

1,912,195.00 allegedly representing petitioner's excess/unutilized creditable withholding tax (CWT) for the taxable year 2005. I concur in the result on the basis that 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. As shown in petitioner's subsequent quarterly returns, the first, second and third quarters of 2006, petitioner reflected the amount of P 6,394,566 as prior year's excess credits. This action signified its intention to carry-over its 2005 excess CWT to the next succeeding taxable year. In the recent case of Commissioner of Internal Revenue vs. McGeorge Food Industries, Inc., 3 the Supreme Court held that the exercise of an option to carry-over is irrevocable. So that once the taxpayer has chosen to carry over the excess CWT to the succeeding taxable years, it can no longer file a claim for refund. In this case, petitioner can no longer file a claim for refund because it effectively carried-over its 2005 excess CWT to the succeeding taxable quarters.

Nonetheless, I maintain my position that the submission of the subsequent income tax returns (ITR) for the succeeding taxable year is not required to prove refund of excess CWT as illustrated in several Supreme Court decisions. In the case of Phi/am Asset Management, Inc. vs. Commissioner of Internal Revenue, 4 the Supreme Court exhaustively discussed the reasons why p. 3 G.R. No. 174157, October 20, 2010, 634 SCRA 193. 4 G.R. Nos. 156637/162004, December 14, 2005, 477 SCRA 761.

Separate Concurring and Dissenting Opinion

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the ITR or the Final Adjustment Return (FAR) of the succeeding year is no longer necessary when a taxpayer requests for a tax refund. It categorically ruled that the said requirement has no basis in law and jurisprudence. The Supreme Court held:

Requiring that the ITR or the FAR of the succeeding year be presented

to the BIR in

requesting a tax refund has no basis in law and jurisprudence.

First, Section 76 of the Tax Code does not mandate it. The law merely requires the filing of the FAR for the preceding-- not the succeeding -- taxable year. Indeed, any refundable amount indicated in the FAR of the preceding taxable year may be credited against the estimated income tax liabilities for the taxable quarters of the succeeding taxable year. However, nowhere is there even a tinge of a hint in any of the provisions of the Tax Code that the FAR of the taxable year following the period to which the tax credits are originally being applied should also be presented to the BIR.

Second, Section 5 of RR 12-94, amending Section 10(a) of RR 6-85, merely provides that claims for the refund of income taxes deducted and withheld from income payments shall be given due course only (1) when it is shown on the ITR that the income payment received is being declared part of the taxpayer's gross income; and (2) when the fact of withholding is established by a copy of the withholding tax statement, duly issued by the payor to the payee, showing the amount paid and the income tax withheld from that amount.

XXX

XXX

XXX

The established procedure is that a taxpayer that wants a cash refund shall make a written request for it, and the ITR showing the excess expanded withholding tax credits shall then be examined by the BIR. For the grant of refund, RRs 12-94 and 6-85 state that all pertinent accounting records should be submitted by the taxpayer. These records, however, actually refer only to (1) the withholding tax statements; (2) the ITR of the present yz--

Separate Concurring and Dissenting Opinion

CTA EB No. 670 (CTA Case No. 7762)

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quarter to which the excess withholding tax credits are being applied; and (3) the ITR of the quarter for the previous taxable year in which the excess credits arose. To stress, these regulations implementing the law do not require the proffer of the FAR for the taxable year following the period to which the tax credits are being applied.

Third, there is no automatic grant of a tax refund As a matter of procedure, the BIR should be given the opportunity "to investigate and confirm the veracity" of a taxpayer's claim, before it grants the refund. Exercising the option for a tax refund or a tax credit does not ipso facto confer upon a taxpayer the right to an immediate availment of the choice made. Neither does it impose a duty on the government to allow tax collection to be at the sole control of a taxpayer.

Fourth, the BIR ought to have on file its own copies of petitioner's FAR for the succeeding year, on the basis of which it could rebut the assertion that there was a subsequent credit of the excess income tax payments for the previous year. Its failure to present this vital document to support its contention against the grant of a tax refund to petitioner is certainly fatal.

Fifth, the CTA should have taken judicial notice of the fact of filing and the pendency of petitioner's subsequent claim for a refund of excess creditable taxes withheld for 1998. The existence of the claim ought to be known by reason of its judicial functions. Furthermore, it is decisive to and will easily resolve the material issue in this case. If only judicial notice were taken earlier, the fact that there was no carry-over of the excess creditable taxes withheld for 1997 would have already been crystal clear.

Sixth, the Tax Code allows the refund of taxes to a taxpayer that claims it in writing within two years after payment of the taxes erroneously received by the BIR. Despite the failure of petitioner to make the appropriate marking in the BIR form, the filing of its written claim effectively serves as an expression of its choice to request a tax refund, instead of a tax credit To assert that any future claim for a tax refund will be instantly hindered by a failure to signify one's intention in the FAR is to render nugatory the clear provision that allows for a two-year prescriptive period. J-.

Separate Concurring and Dissenting Opinion

CTA EB No. 670 (CTA Case No. 7762)

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In fact, in BPI-Family Savings Bank v. CA, this Court even ordered the refund of a taxpayer's excess creditable taxes, despite the express declaration in the FAR to apply the excess to the succeeding year. When circumstances show that a choice of tax credit has been made, it should be respected.

But when indubitable circumstances clearly show that another choice -- a tax refund -- is in order, it should be granted.

"Technicalities and legalisms, however exalted, should not be misused by the government to keep money not belonging to it and thereby enrich itself at the expense of its law- abiding citizens."

In the present case, although petitioner did not mark the refund box in its 1997 FAR, neither did it perform any act indicating that it chose a tax credit. On the contrary, it filed on September 11, 1998, an administrative claim for the refund of its excess taxes withheld in 1997. In none of its quarterly returns for 1998 did it apply the excess creditable taxes. Under these circumstances, petitioner is entitled to a tax refund of its 1997 excess tax credits in the amount of P522,092. (emphasis ours) Citing the Phi/am Asset Management case, the Supreme Court made a similar ruling in the case of State Land Investment Corporation vs. Commissioner of Internal Revenue 5 attesting as unnecessary the presentation of the final adjustment return for the subsequent year as follows: As previously mentioned, after paying P4,187,523.00 as income tax due in 1998, there remained an unutilized tax credit of P9,742,270.51. It was not necessary on the part of petitioner to file with the BIR its income tax return for 1999. In Philam Asset Management, Inc. vs. Commissioner of Internal Revenue, we held that the Tax Code merely requires the filing of the final adjustment return for the preceding - not the succeeding - taxable year. Indeed, any refundable amount indicated therein corresponding to the preceding taxable year may be credited against the estimated income tax liabilities for the taxable quarters of the succeeding taxable year. Requiring that the income tax return or the final adjustment return of the succeeding year be presented }t-- 5 G.R. No. 171956, January 18, 2008, 542 SCRA 114.

Separate Concurring and Dissenting Opinion

CTA EB No. 670 (CTA Case No. 7762)

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to the BIR in requesting a tax refund has no basis in law and jurisprudence.

For as long as the claimant complied with the tax refund requisites, it is pointless to further require it to present the income tax return of the succeeding taxable year. The presentation of subsequent ITRs is a mere superfluity as declared by the Supreme Court in the case of Commissioner of Internal Revenue vs. PERF Realty Corporation, 6 viz.:

XXX

XXX

XXX

Further, We sustain the CA that there is no need to rule on the issue of the admissibility of the 1998 ITR since the CTA ruled that PERF already complied with the requisites of applying for a tax refund. The verification process is not incumbent on PERF; it is the duty of the CIR to verify whether or not PERF had carried over the 1997 excess income taxes. (Emphasis ours) It is also worth mentioning that in cases of refund involving the 1997 taxable year as what happened in the above-mentioned cases, the Supreme Court ruled that Section 76 of the 1997 NIRC controls, the law in effect at the time the taxpayer made known to the BIR its preference to carry over and apply its overpayment in 1997 to its tax liability in 1998. This was clarified in the case of Commissioner of Internal Revenue vs. McGeorge Food Industrie~ Inc.7, thus, even if the transactions occurred before 1 January 1998, the date of effectivity of 1997 NIRC, Section 76 of the said code was held to be the J'- 6 G.R. No. 163345, July 4, 2008, 557 SCRA 165. 7 Supra, note 3.

Separate Concurring and Dissenting Opinion

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applicable provision following the general rule on the prospective application of laws.8 The Supreme Court held:

xxx Administratively speaking, Section 76 serves the same purpose as its companion provisions in Title II, Chapter XII of the 1997 NIRC, namely, Section 74 on the declaration of income tax by individuals, Section 75 on the declaration of quarterly corporate income tax, and Section 77 on the place and time of filing and payment of quarterly corporate income tax - they are all tools designed to promote rational and efficient functioning of the tax system. These provisions should be distinguished from the provisions in Title II, Chapter IV (Tax on Corporations) and Chapter VII (Allowable Deductions), among others, relating to the question on the intrinsic taxability of corporate transactions.

Thus

treated,

Section

76 and its companion provisions in Title II, Chapter XII should be applied following the general rule on the prospective application of laws such that they operate to govern the conduct of corporate taxpayers the moment the 1997 NIRC took effect on 1 January 1998. There is no quarrel that at the time respondent filed its final adjustment return for 1997 on 15 April 1998, the deadline under Section 77 (B) of the 1997 NIRC (formerly Section 70(b) of the 1977 NIRC), the 1997 NIRC was already in force, having gone into effect a few months earlier on 1 January 1998. Accordingly, Section 76 is controlling. (emphasis ours) Also, in the recent case of Commissioner of Internal Revenue vs.

PL

Management International Philippines, Inc., 9 the Supreme Court applied Section 76 of the 1997 NIRC in the claim for refund of the excess CWT of taxable year 1997.

Considering that in the cases of Phi/am-Asset, State Land and PERF Realty, the High Court did not require the submission of final adjustment return of the succeeding taxable year to prove the claimant's entitlement to excess or ? 8 Supra, note 3.

9 G.R. No. 160949, April4, 2011.

Separate Concurring and Dissenting Opinion

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unutilized creditable withholding tax; logically, there is no sufficient basis to require the claimant to submit quarterly income tax returns for the subsequent taxable period.

~C..~_/~ ' tlUANITO c. CASTANEDA, JR.

Associate Justice