Commissioner of Internal Revenue vs. Philippine Realty and Holdings Corporation

DECISION

Fa bon-Victorino, J.:

In this appeal via the instant Petition for Review dated May 12, 2012, petitioner Commissioner of Internal Revenue assails the Decision dated December 20, 2011, which granted respondent's claim for refund of unutilized creditable tax withheld for the year 2007, and the Resolution dated April 4, 2012 which denied her Motion for Reconsideration, both rendered by the Court in Division. / First, the facts.

Petitioner is the Commissioner of Internal Revenue (CIR), vested by law with the power to implement and enforce the provisions of the National Internal Revenue Code (NIRC) and other tax laws, and in particular, to decide claims for refund of internal revenue taxes. Respondent Philippine Realty and Holdings Corporation, Inc. is a domestic corporation with principal offices and business address at 33/F East Tower, Philippine Stock Exchange, Exchange Road, Ortigas Center, Pasig City. It is registered with the Bureau of Internal Revenue (BIR) with

Tax Identification Number (TIN) 000-188-233-000 and BIR

Certificate

of

Registration

bearing

RDO

Control

No.

3RC0000419979.

Respondent is engaged in the business of dealing, engaging, investing, and transacting directly or indirectly, in all forms of business and mercantile acts and transaction concerning all kinds of real property including but not limited to the acquisition, development, utilization, and disposition of residential, industrial and commercial property and concerning all kinds of personal property, including but not limited to technical and industrial equipment and machineries, commercial paper and documents, securities, evidences of indebtedness, instruments of value, and other forms of obligations, service and all rights to personal properties.

On April 14, 2008, respondent electronically filed its original Annual Income Tax Return (ITR) for taxable year 2007.

On October 21, 2009, it filed its administrative claim for refund of its unutilized creditable taxes withheld at source for taxable year 2007 in the amount of P9,783,619.00. On April 13, 2010, respondent filed a Petition Review with the Court in Division claiming inaction on part of petitioner.

for the / In her Answer, petitioner mainly invoked the burden on the part of respondent to prove its entitlement to the claim for refund by presenting clear and convincing evidence that all the requirements for that purpose have been satisfied. After trial, the Court in Division rendered the assailed Decision dated December 20, 2011, partially granting respondent's claim for refund in this wise:

WHEREFORE, premises considered, the instant Petition for Review is hereby

PARTIALLY

GRANTED.

Accordingly, respondent (herein petitioner) is hereby ordered to refund/issue tax credit certificate in favor of petitioner (herein respondent) the reduced amount of EIGHT

MILLION

SEVEN

HUNDRED

SEVENTY

THOUSAND

FIFTY

THREE

AND

85/100

PESOS

(P8,770,053.85), representing petitioner's unutilized creditable taxes withheld at source for taxable year 2007.

Allow

Presentation

of

Additional

Evidence in Support of the Opposition is hereby

DENIED

for lack of merit.

Petitioner's Motion for Reconsideration is, likewise, DENIED for lack of merit.

THE RULING OF THE COURT

Sections 204(C) and 229 of the NIRC of 1997, as amended, relevantly state:

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 stamped 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 J 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 therefore, 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. As stated in the foregoing provisions, the two-year prescriptive period is reckoned from the filing of the final adjusted return (FAR), 2 for both administrative and judicial claims. The present action covers the taxable year 2007 for which respondent filed its original Annual ITR on April 14, 2008.

Counting from this date, the administrative claim filed by respondent on October 21, 2009 as well as the Petition for Review filed with the Court in Division on April 13, 2010, were within the two-year prescriptive period thus are deemed seasonably filed.

Further, Section 76 of the NIRC of 1997, as amended, 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 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.

Under the above provision, a corporation entitled to a tax credit or refund of the excess estimated quarterly income taxes paid has two options: (¹) to carry over the excess credit or (²) to apply for the issuance of a tax credit certificate or to claim a cash refund. If the option to carry over the excess credit is exercised, the same shall be irrevocable for that taxable period. 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. 3 Respondent clearly indicated its option to be issued a Tax Credit Certificate in its Annual Income Tax Return for year 2007, 4 pursuant to Section 76 of the NIRC.

On the entitlement of respondent to the refund sought, the Supreme Court enumerated the requisites for claiming a tax credit or a refund of creditable withholding tax: 1) The j

claim must be filed with the CIR within the two-year period from the date of payment of the tax; 2) It must be shown on the return that the income received was declared as part of the gross income; and 3) The fact of withholding must be established by a copy of a statement duly issued by the payor to the payee showing the amount paid and the amount of the tax withheld. 5 As earlier observed, respondent complied with the first requisite as it timely filed both its administrative and judicial claims within the two-year prescriptive period mandated by law.

Respondent likewise complied with the second requisite as comprehensively held by the Court in Division in the assailed Decision of December 20, 2011, in the following manner:

A perusal of the certificates revealed that the creditable withholding taxes (CWT) of P11,442,371.73 were withheld on gross income payments of P211,761,354.86 broken down as follows:

Nature

Income Pavments

Income Tax Withheld

Payments for Rental

p 12 050 078.41 p 602/482.23

Payments for Sale of Services

Payments

for

Prime

Contractors/Sub-

Contractors

52 301.50 2,096.03 Payments made by Top

10 000 Corporations

57 880.72 1,157.62

Subtotal

110 182.22 3,253.65

Refund

from

MERALCO

to

Customers

3 172 522.80 1 015 207.28 Payment from Sale of Real

Property

196 428 571.43 9 821,428.57

Total

p 211,761,354.86 p 11,442,371.73 On the other hand, (respondent's) amended 2007 Annual Income Tax Return disclosed the following amounts of income:

Amount

Sale of Real Estate

p 196,428 571.00

Lease of Properties

27,953 702.00

Subtotal

p 224 382 2 73.00

Non Operating and Other Income

Interest Discount

p 80,486,937.00

Liabilities Written Off

66,025,975.00

Meralco Refund

3,172,523.00

Interest Income

457,477.00

Miscellaneous Income

439,032.00

Subtotal

p 150,581 944.00

TOTAL

p . :3Z4l964l217.00 Evidently, (respondent) was able to establish that the income payments arising from its sale of real estate in the amount of P196,428,571.43 and refunds from

Meralco

in the amount of P³,172,522.80 from which the claimed creditable taxes for P9,821,428.57 and Pl,015,207.28 were withheld, respectively, were the very same figures (except for rounding off differences) declared in its 2007 Annual Income Tax Return.

As to the rental income payments of P12,050,078.41, related to the claimed

CWT

of P602,482.23, records reveal that there is a discrepancy of P15,903,623.59 between the rental income of P27,953,702.00 as reflected in (respondent's) 2007

Annual

Income

Tax Return and the total rental income of P12,050,078.41 as shown in the certificates. Since (respondent) failed to account for the said discrepancy and it cannot be verified whether the rental income payments of P12,050,078.41 were actually declared in (respondent's) return, the claimed CWT in the amount of P602,482.23 shall be denied.

With regard to the income payments from (respondent's) sale of services in the amount of P110,182.22 related to the claimed

CWT

of P3,253.65, (respondent) failed to prove / that it declared the said income payments in its income tax return as no amount of

"Sale of Services" was indicated in its returns.

While (respondent) reported a "Miscellaneous Income" of P439,032.00, it cannot be verified whether the same included the income payments of P110,182.22.

(Respondent) should have submitted documents wherein the income payments of P110,182.22 can be traced as forming part of its reported miscellaneous income of P439,032.00.

Thus, the CWT of P3,253.65 related to the income payments of P110,182.22 shall, likewise, be denied.

On the third requisite, the Court in Division ruled on the compliance by respondent as follows:

Anent

compliance with the third requirement, (respondent) submitted various

Certificates

of

Creditable

Tax

Withheld at Source (BIR Form No. 2307) for taxable year 2007, to prove the fact of withholding x x x.

However, the

CWT

reflected per certificates in the total amount of P11,442,527. 98 is lower than the total tax credits of P11,824,848.00 reported per (respondent's) Annual Income Tax Return for taxable year 2007.

Thus, the discrepancy of P382,320.02 shall be denied from (respondent's) claim.

Moreover, (respondent's) claimed CWT, in the amount of P156.25, shall be disallowed because the corresponding certificate was denied admission by the Court in its Resolution dated February 16, 2011 for being merely provisionally marked.

In sum, (respondent) proved compliance with the third requirement but only to the extent of P11,442,371.73 (P11,442,527.98 less 156.25) out of the j declared CWT for taxable year 2007 in the amount of P11,824,848.00.

The foregoing ruling by the Court in Division being in accord with the pertinent laws and jurisprudence, and remains undisputed by the parties, the Court En Bane sees no reason to deviate therefrom.

Finally, the non-presentation of respondent's Original Quarterly ITR for the year 2008 to prove that respondent did not carry-over and apply its excess CWT for 2007 to the succeeding year is of no moment. Jurisprudence has long dispensed with the presentation of the succeeding year's returns in claims for refund of excess CWT, thus: 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 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. 6 While the cited case mentions only that there is no need to present the FAR of the succeeding year, it is also clear that there is also no need to present the quarterly returns for the succeeding year. The cited decision also enumerated the documents that must be submitted in evidence to prove entitlement to refund or tax credit, to wit: "(1) the withholding tax statements; (2) the ITR of the present 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." Under the familiar maxim in statutory construction, expressio unius est exclusio alterius, the express mention of one person, thing, or consequence implies the exclusion of all others. 7 Hence, when the Supreme Court listed the documents needed to be entitled to a claim for refund of excess CWT, such is deemed an exclusive list and everything else must be excluded. Since submission of the FAR or the quarterly returns of the succeeding year to be entitled to a refund of excess CWT is not included, then there is no need / to present these documents.

To repeat, the submission in evidence of the returns of the succeeding year is unnecessary as "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 to the BIR in requesting a tax refund has no basis in law and jurisprudence. "8 Relevantly, the Supreme Court has ruled that it is not incumbent upon the taxpayer to prove that it did not carry- over its excess CWT to the succeeding year since it is the duty of the petitioner CIR to verify whether or not a taxpayer carried over its excess income taxes subject of the claim for refund. 9 Lastly, while the respondent's

Original

Quarterly

Returns for the first three (3) quarters of the succeeding year were not formally offered in evidence, nonetheless, the same became part of the record of the case when they were submitted to the Court in Division as attachments to respondent's

Opposition

10 to petitioner's

Motion

for Reconsideration. The Court cannot simply ignore the import of these documents.

In the interest of justice, documents deemed part of the record though not admitted in evidence may be considered by the court in arriving at its ruling as emphasized by the High Court, as follows: The CIR takes the view that the CA erred in considering the 1998 ITR of PERF. It was not formally offered in evidence. Section 34,

Rule 132 of the Revised Rules of Court

states that the court shall consider no evidence which has not been formally

J

offered.

The reasoning is specious.

PERF attached its 1998 ITR to its motion for reconsideration. The 1998 ITR is a part of the records of the case and clearly showed that income taxes in the amount of P1,280,504.00 were not claimed as tax credit in 1998.

In Filinvest Development Corporation v. Commissioner of Internal Revenue, the Court held that the 1997 ITR attached to the motion for reconsideration is part of the records of that case and cannot be simply ignored by the CTA.

Moreover, technicalities should not be used to defeat substantive rights, especially those that have been held as a matter of right. 11 Considering that the 2008 Original Quarterly Income Tax Returns 12 of respondent for the first two (2) quarters indicated a zero amount for "Prior year's Excess Credits," while that for the 3rd quarter did not indicate any excess credits from the previous year, it is clear that respondent did not carry-over or apply its 2007 excess CWT to its income tax due for year 2008.

WHEREFORE, the Petition for Review dated May 12, 2012 filed by petitioner Commissioner of Internal Revenue, is hereby DENIED, for lack of merit. Consequently, the Decision dated December 20, 2011 and the Resolution dated April 4, 2012, both rendered by the Court in Division, are hereby AFFIRMED.

We Concur:

Presiding Justice

~ c.~'L ­ JU~NITo' C. CASTANEcY~-JR.

Associate Justice

(On Leave)

ERLINDA P. UY

Associate Justice

(On Leave;

LOVELL R. BAUTISTA

Associate Justice

CAESA~SANOVA

Associate Justice

(On Leave)

~~-"/~.-/~ CIELITO N. MINDARO-GRULLA AMELIA R. COTANGCO-MANALASTAS

Associate Justice

Associate Justice

q; .~ .. ~~ - L:

MA. BELEN M. RINGPIS-LIBAN

Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the above Decision has been reached in consultation with the members of the Court En Bane before the case was assigned to the writer of the opinion of the Court.

Presiding Justice