UPSI MANAGEMENT, INC. v. COMMISSIONER OF INTERNAL REVENUE

Re publi c o f th e Philipp ines COURT OF TAX APPEAlS Quezon City EN BANC UPSI MANAGEMENT, INC ., CTA EB CASE NO . 670 Pe titi oner, (CTA C a se No. 7762) For: Re fu nd Prese nt : A COSTA P.J ., CASTA NED A JR. - v e rsu s- BA UTI STA UY CASA NOVA PA LANCA-ENRI Q UEZ FA BO N-VICTO RIN O M I N D A R O -GRULLA COMMISSIONER OF INTERNAl COTA NGCO-M A NAL ASTAS, JJ . REVENUE , Res p o ndent. Pro m ulga te d: 11111.~d~~u,~ OCT 1 9 2011 /f/ '/,'d...(" ~ A' I X--------------------------------------------------------------------------------------X DECISION MINDARO - GRULLA, J.: Submi tl e d for d ec ision is a Petition for Re view for the Cou rt e n bo ne un d e r Sec ti o n 18 o f Rep u b li c Ac t 1125 1, as a m e nded a nd Ru le 4, Sec ti o n 2(o )(l ), in re la ti o n to Ru le 8, Sec tion 4( b ) of th e Revise d Rul es o f th e Court o f Tax Appea ls (RRCTA )7, as am e nd e d , assaili ng th e Decisio n:!( 1 An Ac t C re atin g th e Cour t o f lox Appea ls 2 Sec. 2. Cases within th e jurisdictio n of th e Court en bone. - lh e Court e n bone sha ll exerc ise exclusive oppe ll ole jurisdic ti on to review by oppeo t th e foll o wing: (o) Decisions or resolutions o n mo ti ons for reco nside ra ti o n or ne w trio! o f th e Court in Division in th e e xe rc is e of it s exclusive oppello1e jurisd ic tion over:

UPS! Monoge men l , Inc . vs. Commissioner of In lerna! Revenue Page 2 o f 18 CTA EB Case No. 670 (CTA Case No. 7762) DECISION p romu lga ted on Ap ril 15, 20 10 a nd the Reso l ut i o n ~ promu lga ted on Au g ust 10 , 201 0 o f thi s Co urt 's First D iv i s i o n . ~) Pe titio ne r see ks a reversa l o f b o th th e a foresa id Decisio n a nd Reso lu ti o n , th e d isp ositive porti ons of wh ich, res p ec ti ve ly, read as fo ll ows: Decision doted Ap ril 15, 2010 : "WHEREFORE, petitioner's claim for re fund is hereby DENIED for insufficiency of evidence. SO ORDERED. " Reso lu ti o n do te d Augus t 10, 2010: "WHEREFORE, petitioner 's Motion for Partial Reconsideration is hereby DENIED for lock of merit. SO ORDERED." The p e rti ne n t fac ts as narra ted by th is Co urt 's Di vision read as fo llows: t. ( I ) Cases arising from odminislro liv e agencies- Bureau o f lnlernol Revenue, Burea u of C usloms , Deporlmenl o f Finance, Deporlmenl o f lrode and Industry, De portm e nt o f Agricu lture; XXX XXX XXX Sec. 4. Wh e re to appeal; mode of oppeof.- (o) XXX. (b) An appea l from o d ecision or resolulion o f th e Courl in Division on o mo lion for reconsid e ro lion or ne w !rio! shall b e Ioke n lo th e Courl by peli lion for re vi ew os provid e d in Rule 43 of th e Ru les of Cour t. Th e Court e n bone sha ll oc t on the appea l. (c ) XXX . 'En bone d oc ke l, pp. 59 -82. 4 Ibid. pp. 122- 129 . s Co mpose d o f Presiding Juslic e Ern es to D. Acoslo, Associole Juslice Erl indo P.Uy and Associo le Jus lice Esperonzo r. Fobon -Vi c lorino .

UPSI Mana ge m en t, Inc . vs. Com missioner o f Int e rnal Reve nue Pag e 3 o f 18 CTA EB Case No. 670 (CTA C as e No. 77 62) DECISION "On April 17, 2006, petitioner fil ed its annual in co m e tax re turn for th e year e nded December 31, 2005 with th e Revenue District No. 34 of the Reve nue Region No. 6 of the Bureau of Internal Revenue (BIR) , declaring among others, the following: So les/ Re v en ues/ Rece ipts/Fees p 18,74/ ,488 .00 Less : Cos / or So les/Services 14 ,325,299.00 Gross income from Opera /ion 4,4/6, 189.00 Add: Non-Operating & 0 /h er In come 466.00 Total Gross incom e 4 , 4 1 6 , 6 5 5 .00 Less: De ductio ns 4,524, 900.00 Taxable Inco m e ( 108,245.00) Minimum Co rporate income Tax 88,333 .00 In come Tax Due 88,333.00 Less: Tax Credits/Poymen ls 4,570,705.00 Prio r Year's Excess Credits 1, 6 6 4 , 0 2 8 . 0 0 C reditable Tax Withh e ld for th e First Three Quarters Creditable Tax Withh e ld for th e Fourth Quarter 248, 167.00 Total Tax Credits/Paym e nts 6,4 82,899.00 Tax Overpoym e nl (6 ,394,566.00) Moreover, petitioner indica te d in th e 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 e riod presc ribed by low, petitioner fil ed a c laim for th e issuance o f a tax c re dit certificate in th e to tal am ount PI, 912, 195.00 repres e nting unutilized creditable income taxes for the taxable year 2005 pursuant to Section 204 (C) and 229 o f 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 o n May 27, 2008, respo ndent prayed that th e petition be dismissed with cost.xxx. XXX XXX XXX. After trial, this case was submitted fo r de c ision on January 20, 20 10 taking into cons ide ration respo nde nt's m e morandum fil ed on November 23, 2009 and petitioner's memorandum fil ed o n December 17, 2009. " ~

UPSI Manag e m en t, Inc . vs . Commissioner o f Int e rna l Revenue Page 4 o f 18 CTA EB Case No. 670 (C TA Case No. 7762) DECISION On April 15, 20 l 0, 1he assail e d Decision was promulgated denying petitioner's c laim for refund for in suffic iency of evidence on th e ground of failure to prese nt as evid e nce its quarterly in come tax re turn for th e 2006 taxabl e ye ar. The p e rtin e nt portion of which states: "xxx, [P] etitioner still has foile d to prove that it did not corry over its claimed excess or unutilize d c reditable withholding taxes to th e succeedin g quarters of taxable yea r 2006. Records of th e case disclosed that pe titioner foiled to present as evidence its 2006 quarterly income tax returns. A lth ough, petitioner presented its Annual Income Tax Return wherein it sh ows that it did not corry over as ta x c redit its c la im ed unutilized c reditable withholding tax es o f P 1,912, 195.00 to th e succeeding taxable yea r 2006, however, this evidence is not enough to conclude that petitioner did not apply th e sa id excess or unutilized creditable withholding taxes again st th e in co m e tax due for the first three quarters of 2006. Petitio ne r shou ld hove presented its quarterly 2006 quarterly income tax returns. Th e sa id quarterly income re turns cou ld he lp 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 tax es against th e income tax due for th e first three quarters o f taxable year 2006, it there fore e ffec tiv e ly exerc ised th e option to corry over th e 2005 excess or unutilized c reditable withholding taxes the succeeding year 2006: thus, its claim for refund should be denied xxx . " Pe tition e r fil e d a M o tion fo r Partial Recons id era ti o n. This tim e petition e r atta c he d its 2006 quarte rly in co m e ta x re turn s. It is e vident in petitioner's l 51 ,2ncj and 3 rd quorlerly in co m e 1ox re turns for th e ta xab le ye ar 2006 that th e 2005 excess c re dit was includ e d in th e prior excess ta x c re dit. Howe ver, p e titi oner ass e rts that it was merely throug h inadvertence and !h o t i1 s c laim lo b e issued a 1ox c re dit ce rtifi c ate ha s b ee n cl e ar and c onsiste nl. Moreover, p e tition e r maintains that th e .(

UPSI Manage m en t, In c. vs. Commissio ne r o f lnl e rnal Revenue Page 5 o f 18 CTA EB Case No . 670 (CTA Case No. 7762) DE C ISION 2005 e xc e ss c redi t was not actually c arri e d over as there were sufficien t excess cre ditabl e withhold in g taxes prior to the taxabl e year 2005 to co ve r its 2006 l st , 2ncJ and JrcJ quarte rly taxes. On Augu st l 0, 20 l 0, th e assa il e d Resolution was promu lgated d e nying p e titioner's Motion for Partial Reconsideration for lock of merit. Th e p e rtin e nt porti on o f whi c h sta tes : "Upo n examina tion of the foregoing additio nal documents, th e Court determined that petitioner hod actually carried over and applied its c laim ed creditab le 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 explan a tion that the corry over of its c laim ed excess c reditable withholding ta xes in all its quarterly in come ta x returns as mere inadvertence, does no t sway this Court." He nce, p e titi oner fil e d th e in stant Pe tili o n for Revie w. In assailing th e Dec ision and Resoluti on o f thi s Cou rt' s Division , p e titioner rais e d this sole grou nd : "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 tition e r argu es that th e issue wh e th e r it c arri e d its 2005 e xcess tax c re dits to th e succeed ing taxabl e year (2006) was never put in issue and assert that both parti es e ve n stipulate d and admitted that petitioner did no t utilize th e some. Thu s, pe titi o ne r wonders why th e (

UPSI Management, In c. vs. Commissioner of lnl erna l Revenue Page 6 o f 18 CTA EB Case No. 670 (CTA Case No. 7762) DECISION issu e of wheth e r it carried its 2005 excess tax c re dits to the succeeding taxable ye ar (2006) cropped up. Pe tition e r maintains that it c learly indica te d on its 2005 income tax re turn its option to claim for re fund through the issuance of a tax c red it ce rtifi ca te and th e exerc ise of that option negates any initiation of application of th e excess withholding tax cred its to th e succeeding quarte rs of 2006. Moreover, p e titioner asserts that its 2005 excess tax credi ts were never utilized in th e 2006 taxabl e year. Pe titioner c laim ed that th e inadvertent inclusion of th e 2005 excess or unutilize d creditable withholding tax in the 2006 quarterly incom e tax return as "prior years tax c re dit" did not in any way benefit petitioner or that the same did no t automatically m e an that p e tition e r e ff ec tive ly exercised the option to ca rry over. In su m , peli1ioner alleges thai th e Firs! Division of this Court acted with grave abuse of disc re tion when it disrega rd ed th e stipulated and admitte d fact that petition e r did not utilize nor apply the 2005 excess tax cred its to any tax liabilities for th e taxabl e year 2006. Pe tition er reite rates that the issu e of "whe th e r p e titi o ner carried over its 2005 excess creditable withholding taxes to th e succeeding year" was never brought up because both parti es had already stipulated and admitted that p e titioner has un e quivocally indica ted its intention to b e issued a tax c red it certifi ca te and thai i1 did not utilize its 2005 excess (

UPSI Management, Inc. vs. Commission e r of In te rnal Re ve nue Page 7 of 18 CTA EB Case No. 670 (CTA Cas e No. 77 62) DECISION tax c re dit. Thus , th e re is th e imputation that th e Court a quo did not decide in accordance with law, applicable jurisprud e nce and fa c tual c irc umstan ces o f th e c as e . Howeve r, th e respo nd en t CIR maintains that th e First Division of this Cou rt was correc t in declaring that petitioner ha s effec tiv e ly exerc ised th e opti on to c arry over its 2005 excess and unuti lize d c red itabl e withholding taxes to th e succeed in g yea r (2006). We resolve in favor o f respondent . Petitioner find s fault with th e First Division o f this Court in reso lving the issue o f "whe th e r petitioner carri ed over its 2005 excess c re ditable withholding ta xes to th e succeed in g taxable year" despite th e fa c t that it was not specifica lly stat ed in th e issues to b e reso lve d , and cons id erin g that the sti pu lation and adm ission th a i pe titi o ne r exercised its op ti on to refund throug h th e issuance o f a ta x cred i1 certifi ca te and that it did no t uti lize its 2005 excess tax c red it in the succeed ing year, are among th ose con tain ed in the Jo in! St ipu lati on of Facts and Issues. Su ffi ce it to say that this Court is a court o f compete nt jurisd ic ti o n which is vested with th e authority to resolve even unassigned issues. It can do so when such a step is indispensable or necessary to a ju st resolution of issues rai sed in a particular plead in g o r when the 4:

UPSI Managemenl, Inc . vs . Commissioner of lnlernol Revenue Page 8 of 18 CTA EB Case No. 670 (CTA Case No. 7762) D EC ISION unassigned issues ore in extri cab ly linked or germane to those that hove been pl eoded.t' In th e 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 explain ed 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 Manag e m e nl. Inc. vs. Commissioner of lnl e rnal Revenue Page 9 of 18 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 o n 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 e xcess amount paid, as th e 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 es timated 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) In the case o f Systra Philippines, Inc. vs. Comm issioner of Internal Revenue, th e Supreme Co urt he ld that th e 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 rul e. Instead of claiming a refund, th e excess tax c redits could be "credi ted against the estimated quarterly income tax liabilities for th e 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 th e nature of th e remedies or options as alternative, not cu mulative. It also provides that the excess tax credits "m ay be carried over and c redited against th e es timated quarterly incom e tax liabilities for th e taxable quarters of the succeeding taxable years" until fully utilize d."(

UPSI Management, Inc. vs. Co mmi ssioner o f lnt e rnall~evenue Page 10 o f 18 CTA EB C ase No. 670 (CTA Case No. 7762 ) DECISION It is an es tablish ed jurisprud e nce und e r th e "Irrevocable Rule" that if the taxpayer opte d to corry-ov er and apply th e excess against th e estimate d quarterly in come tax du e for the taxabl e quarters of th e succeeding taxabl e years, th e sa m e is irrevoca bl e and no c ash re fund o r tax c re dit th e re to sha ll b e allowe d. Obviously, before a re fund for c re ditabl e withholding tax is granted, it is esse nlial to prov e that th e excess c reditabl e withholding tax should have no t been ca rri e d over to th e succeed ing ta xab le quarte rs consid e ri ng that th e optio n to c orry- over or apply as tax c re dit in th e succ ee ding taxabl e quarte rs ca nnot be mod ified in its final adju stment return . Th e rul e preven ts a taxpaye r from claim in g twi ce th e excess quarte rly taxes paid: (1) a s au toma ti c c red it against taxes for th e taxabl e quarte rs o f th e succeeding years fo r which no tax c re dit ce rtifi ca te has b ee n issued; and (2) as a tax c re dit e ith e r for whi c h a tax credit ce rtificate wi ll be iss ued or whi c h wi ll be c laim ed for c ash re fund / Thus, eve n if th e cla im for refund was within th e 2-yeor p resc riptiv e period, th e fa c t o f withholding o f c re ditabl e taxes by th e withholding ag e nts was prove n and th e income upon which th e withholding ta xes w e re withh e ld were in c lud ed as part of th e gross~ 7 Sys tra Phili ppines, Inc . vs. Commissio ne r o f Inte rnal Revenue, G.R. No. 176290,Sep lember 2 1, 2007

UPSI Monog e m e n1 , In c. vs. Co mmissio ne r o f Inte rnal Revenue Pag e 11 o f 18 CTA EB Case No. 670 (C TA Case No. 7762) DECISION 1nco me and were reflected in the preceding income tax return. Non e th e less, the taxpayer shou ld prov e that the excess creditab le withho ldin g tax has not b ee n ca rri e d over to th e taxable quarte rs of th e succeed ing taxabl e years. It is a matter of evide nce and axiomatic that a c laimant has th e burden o f proo f to es tablish th e factual basis o f his o r he r claim fo r tax c re dit or re fund. Tax re funds , like tax exemptions, are c onstrued stric tly against th e taxpayer. 13 Moreover, e ntitle m e nt to a tax re fund is for th e taxpayer to prove and not for the governm e nt to disprove.9 Thus, the Division of this Court was correct in holding that petition er must prove that it did nof ca rry-o ve r its excess c red itabl e withholding tax es to th e succee ding taxabl e year o r to be more specific to th e taxabl e quarters of the succeeding taxabl e ye ar. Appare ntly, th e b est evid ence to prove that th e e xcess c red itabl e withholding tax was not c arri e d over to th e succeeding taxabl e quarte rs is th e presentation of th e succeeding quarterly in co m e tax re turn and th e annual income tax retu rn of th e subse qu e nt taxabl e year in order for this Court to verify and co nclud e that th e c laim ed amount wa s not utilized or c arrie d over to th e said quarte rs. (. 8 Com missio n e r o f Inte rnal Revenue vs. Bonk of th e Ph ilippin e Islands, G.R. No . I 78 490, Ju ly 7, 2009. 9 Co mmission u of Inte rn a l Re venu e vs. For Eas l Bonk & Tru st Company, e tc., G .R. No. 173854, Marc h I .), 20 10.

UPSI Manageme nt, In c. vs. Comm issio ne r of Internal Re ve nu e Pag e 12 of 18 CT A EB Case No . 670 (CTA C ase No. 77 62) DECISION Having discussed th e indispensability to prove that petitioner did not carry over its 2005 excess creditab le withholding taxes to th e taxabl e quarte rs of th e succeeding taxabl e ye ar, the stipulation and admission that p e 1itioner exerc ise d its op tion to re fund and that it did not utilize its 2005 excess tax c re dit in th e succeeding ye ar do not re nd e r th e same moot. Th e "c arry over" and "uti liza tion" of its 2005 excess c reditable withholding taxes to the succeeding taxable ye ar is a different set of things. A taxpaye r may have opted to ca rry over its excess creditable withholding taxes to the succeeding taxabl e year but not utilize th e same . Even though th e excess tax credit was not utilize d, th e taxpayer is no t e ntitl ed to a refund. Th e irre vocability rule appli es . Th e qu es tion of whether or not the taxpaye r actually utilizes said tax credit is irre lev ant. lo Section 76 of th e NIRC o f 1997 is e xpli c it in sta ting that once th e option to carry over has bee n made, "no application for tax refund or issuance of a tax c redit ce rtifi ca te shall be allowed th e re for. " 11 Th e last sentence of Section 76 of th e NIRC of 1997 re ads: "Once th e option to carry-over and apply th e excess quarterly in come tax against in co m e tax du e for th e taxabl e quar1 e rs of th e succeed in g taxabl e years has& IO Co mmissione r o f Inte rnal Revenue vs. PL Manage m e nt Int e rnati o nal Ph ilippines, Inc., G l~. No. 160949, April 4, 2011 , c iting Commissione r o f ln1 e rnol Re ve nue vs. Bonk of th e Philippine Islands, GK No . 178490, July 7, 2009. II Ib id .

UPSI Monog e rn e nl , Inc . vs. Comm issioner of ln t e rno l l~eve nu e Pag e 13 of 18 CTA EB Case No . 670 (CTA Case No. 7762) DECISION bee n m ade, suc h opti on sha ll be considered irrevoca bl e for th at taxable period and no app lication for tax refu nd o r issua nce of a tax cre dit ce rtifi ca te shall b e a ll ow e d th e re for." Th e e vid e nt inten t o f th e leg isla ture, in add ing the las t sen tence to Sec ti on 76 of the NI RC o f 1997, is to keep th e taxpaye r from fli p-flopping o n its op ti o ns, a nd avoid confusion and comp lica ti on as regards sa id taxpaye r's excess tax c red it . 17 Thus, in the case o f Commissioner of Interna l Revenue vs. Ba nk of the Phili ppine Islands 13, the Supreme Cou rt he ld th a 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 respec ted; but when indubitable circumstances clearly show that another c hoice - a tax refund - is in order, it should be granted. 'Tec hnicalities and /ega/isms, however exalted, should not be misused by th e government to ke ep money not belonging to it and thereby e nric h itse lf at th e expense of its law-abiding citizens ." Therefore, as to whic h option th e taxpayer chose is generally a matter of evide nce. 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 cons tru ed strictly against th e taxpayer. " Incidenta lly, a taxpayer may have indica ted the intention to re fu nd th e excess c redi tab le w ithh o ld ing taxes bu t neverth e less may have ACTUALLY CARR IED IT OVER TO THE TAXABLE Q UARTERS OF THE SUCCEED ING TAXABLE YEAR wh ich may or may no t be utilized. However, taxpayer c anno t get a tax re fund or a tax cred it and carry< 12 1bid. 13 G.R. No. 178490, July 7, 2009 .

UPS I Monog e m e n l, Inc . vs. Comm issio ne r o f ln lerno l RE:' ve nu e Pag e 14 of 18 C TA EB C ase No. 6/0 (C TA C ase No . /76 2) D E CISION o ve r at the sam e tim e fo r th e sam e e xcess in c om e taxes paid. A ppare ntl y, a taxpaye r wh o has indica te d th e inte ntio n to re fund th e exce ss c re d itab le wit h ho lding taxe s but ne ve rth e less c arri e d them ov e r and utilize d th e sam e in th e TA XABL E Q UA RT ERS O F THE SUCCEEDING TAXAB LE YEAR is no t e ntitl e d lo re fund. In th e sa me ve1n, a ta xpaye r wh o has indic ate d th e inte ntio n to re fund th e excess cre ditab le with holdin g ta xes bu t neve rt hele ss carry the m o ve r bu t was not a bl e to utilize th e sa m e in th e TAX AB LE QU A RT ERS O F TH E SUCCEE DING TA XAB LE YEAR is like wi se no t e ntitl e d to re fund. Indeed , a taxp aye r m a y a m e nd its q uarte rl y in c o m e tax re turn o r a nnual In co m e tax re turn whi c h in e ith e r c a se m a y m o di fy th e previo us inte ntio n to c arry-o ve r, ap p ly a s ta x c re dit ce rtifi c at e or re fund , a s th e c a se may b e . But th e exe rc ise o f the op tion to carry-ov e r in the succe e din g taxab le quarte rs und er th e irrevoc abl e rul e c ann o t b e modified in its fin a l a dju stm e nt re turn . 1 ~ In th e in sta nt c a se, pe titi o ne r sig nified il s inte ntio n to re fu nd th e 2005 excess c re ditable wi thh o lding tax thro ug h th e issuan ce o f a ta x c redit ce rtifi c at e in its 2005 final ta x re turn . Ho w e ve r, th e sam e 2005 excess c re ditabl e wi thh o ldin g tax whi c h p e titio ne r see ks to re fund wa s ac tua ll y c arri e d o ve r and includ e d as " prior ye ars e xcess c re dits" in the l sl , 2nd a nd 3rcj q ua rt e rly in co m e tax re turn s for th e ta xabl e year( 14Mille nnium Busin ess Se rvi ces, Inc . vs. CIR, C lA EB C as e No. 5 10 pro mulg o le d o n Sep te mbe r 28,2010

UPSI Managemen l , Inc . vs. Commi ssioner of Internal Reve nue Page 15 o f 18 CTA EB Case No. 670 (CTA Case No. 7762 ) DECISION 2006. The fa ct that p e titi o ne r was not abl e to a c tually utilize sa id tax credit is irrel e vant. The fa c t re mains that petitioner actually ca rri ed over th e 2005 excess c reditabl e withholding tax in th e first three ta xab le quarters of th e succeed in g taxabl e ye ar and it negated its previous inte ntion to c laim for a re fund. Havin g e xe rc ised th e op tion to carry- over with res p ec t to its cla im e d 2005 excess tax c red its as e vid e nced by th e quarte rly in co m e tax re turn , p e titi oner is bound by th e irrevoc ability rul e under Section 76 o f th e NIR C of 199 7, as amended. This is th e sign ifi cance o f th e prese ntatio n o f th e suc cee ding quarterly in co m e tax re turn and th e annual in come tax re turn of th e su bs eque nt la xable ye ar. Pe titi o ne r's excuse that th e c arry-over and inclusion of th e 2005 excess cred itabl e withholding tax as "prior years excess c redits " was thro ugh inadve rte nce and that thi s did not in any way b e nefit p e tition e r, is not tenable. Whil e petition e r did not am e nd its 2005 annual in come ta x return sig nifying th erein its intention to c laim a re fund through a ta x c re dit certifi ca te, th e subse qu e nt filing o f th e quarte rly incom e tax re turn for th e 1st , 2n<j and 3 rd quarters ca rryin g th e 2005 excess c red itabl e withholding tax as "pri or years excess c red its" be lies th e ir claim. Th e Suprem e Court had in stru c ti ve ly explain e d th e e ffec t of in clusio n of excess ta x c re dit in th e "prior ye ars excess cred its" a s follow s:<.

UPS I Mono ge m e n l, In c. vs . Comm issio ner o f ln lern o l Reve nue Page 16 o f 18 CTA EB Case No. 670 (C TA Case No. 7762) DECISION "First, th e fa c t that it fill ed ou t th e portio n "Pri or Ye ar 's Excess C re dits" in its 1999 FAR means th a t it ca tegoric ally a vaile d itse lf of th e c orry-over op tio n. In fac t, th e lin e that preced es that phrase in th e BIR form cle arly states " Less: Tax C re dits/Pa ym e nts." Th e co nte ntio n that it m ere ly fille d o ut that p o rti o n b ecause it was a re q uire m e nt - and that to hove d o ne o th erwise wou ld ho ve b een ta nta m ount to fa lsifyin g the FAR - is a lo ng sh o t. Th e FA R 1s the m os t re liable firsthand evide nc e of c orpo rate a c ts pertaining to in c ome taxes. In it ore fo und th e ite mizatio n and summary o f additio ns to and d e ductio ns from in co m e taxes due. These e ntries o re no t wi th ou t rh ym e o r reason. They ore required, because they fac ilita te the tax a dministra tio n p rocess." Sim il a rl y, th e q uarte rl y inc om e tax re turn is re qu ire d to facilitate tax administrati o n p ro ce ss and th e e ntries the re in ore no t w ith out rhym e or re a so n . Whil e pe ti tion e r e xclud e d th e 2005 e xc es s c re d itab le w ithho ld ing tax a s " p rior ye ar 's e xcess c re dits " in its fina l adjustmen t re turn or 2006 annua l in co m e tax re turn , it app e ars tha t it is a mere afte rth oug ht c o nsid e ri ng th a t th e 2005 e xcess c red itab le w ithh o ld ing tax wa s no t uti lize d nor applie d. No ne th e less, the fa c t re ma ins tha t p e titi o ne r did c orry o ve r sa id excess ta x c re dit in the quarte rly tax re turn for the l st, 2ncJ and 3rcJ qua rte rs of the taxab le ye ar 2006 . The inclusion of the 2005 e xce ss c re d itab le withh o lding tax a s "pri or ye a r's exce ss c re dits" m e an s that it e ffe ctiv e ly c arri e d o ve r and ava ile d o f the c arry-ov e r optio n w hic h is irre vocabl e re ga rd less o f its previous inte ntio n in o rd e r to ov o id co nfu sio n and fl ip- fl opping o f o p ti ons . Se ction 76 is cl e ar and un e qu ivo c a l. On ce th e c arry-ov e r op ti o n is'

UPSI Manage m e nt, Inc . vs. Co mm issio ne r o f Interna l Re ve nue Pa ge 17 o f 18 Cl A EB Case No . 670 (C TA Case No. 77 62) DECISION tok e n , ac tua ll y o r c o nstru c ti ve ly, it becomes irre vo c o bl e . 1 ~> Neverth e less, p e titi o ne r's 2005 excess c redita bl e withh o ldin g tax will no t b e forfe ited in the gove rnm e nt ' s favor, b ec aus e it may b e c la im e d by petitio ne r as tax c re d its in th e suc ce ed ing taxa bl e ye ars u ntil it has bee n full y app li ed to p e titi o ne r' s tax li obilitie s. 16 WHEREFORE p re m ise s c onsid e re d , th e p e ti tion for re vie w is he re by DENIED . The De c isio n o f th e First Divisio n of thi s Cou rt in CTA Cas e No .77 62 , p romu lga te d on April 15, 20 10 and its Re soluti o n, pro mu lga ted on Augu st 10, 20 10, o re he re by AFFIRMED . No pro nou nce m e nt as to cos ts. SO ORDERED. WE C ONCUR : ~ N.M~ -~~ CIELITO N. MINDARO-GRULLA A sso c ia te Justic e ~_..- a; . o.. ~ ERNESTO D. ACOSTA Presiding Ju stice ~�,:-:; c . ~~d -~ ~ TISTA (with Sep a rate Conc urrirfg- o nd Disse nting O pinio n) JUANITO C . CASTANEDA, JR . Ass oc iate Jus ti ce ---------- 15 Philorn Asse l M cmo ge m e n l , In c. v. Co mmissio ne r o f Inte rn a l Re ve nue : G .R. Nos. 156637 ond 16200-1 , 1-1 December ?005 . -1 77 SCRA 76 1, /80. 16 1bic:l.

UPSI Manage m e nt, In c . vs. C omm ission e r of Int ernal Re ve nue Page 18 of 18 CTA EB Cas e No. 670 (CTA Case No. 7762) DECISION AsERs~ ~~stiUcYe CAESAR A. CASANOVA (On Leave) OLGA PALANCA-ENRIQUEZ Associate Ju sti ce AMELB:r:;::C:::l!::: Associate Ju stice CERTIFICATION Pursuant to Article VIII, Section 13 o f th e Co nstituti on, it is hereby ce rtifi ed that th e co nclusions in th e above Decision were rea ched in consu ltation among the members of the Cou rt En Bane before th e case was assigned to th e wri le r of th e op ini on of th e Cou rt En Bane. t~-~- ~ ERNESTO D. ACOSTA Presiding Ju sti ce

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY ENBANC UPSI MANAGEMENT, INC., CTA EB No. 670 Petitioner, (CTA Case No. 7762) Present: Acosta, P.J., Castaneda, Jr., -versus- Bautista, Uy, Casanova, Palanca-Enriquez, Fabon-Victorino, Mindaro-Grulla, and Cotangco-Manalastas, JJ. COMMISSIONER OF INTERNAL REVENUE, Respondent. 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 Resolution 2 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 p. Internal Revenue,4 the Supreme Court exhaustively discussed the reasons why 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 CTA EB No. 670 (CTA Case No. 7762) Page3of8 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 yz-- withholding tax statements; (2) the ITR of the present

Separate Concurring and Dissenting Opinion CTA EB No. 670 (CTA Case No. 7762) Page4of8 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 J-. to signify one's intention in the FAR is to render nugatory the clear provision that allows for a two-year prescriptive period.

Separate Concurring and Dissenting Opinion CTA EB No. 670 (CTA Case No. 7762) Page5of8 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) Page6of8 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, Ju ly 4, 2008, 557 SCRA 165. 7 Supra, note 3.

Separate Concurring and Dissenting Opinion CTA EB No. 670 (CTA Case No. 7762) Page 7of8 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 CTA EB No. 670 (CTA Case No. 7762) PageBofB 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