CTA Case No. 4800 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS Quezon City RURAL BANK OF COTABATO, INC., C. T. A. CASE NO. 4800 Petitioner, -versus- HONORABLE COMMISSIONER, BUREAU OF INTERNAL REVENUE, Responden t. )( - - - - - This is a petition for re v iew filed by petitioner, Rural Bank of Cotabato, Inc., seeking a refund of income taxes for 1989 and 1990 and documentary stamp tax fo r the latter period, allegedly erroneously paid by reason of tax privileges granted to rural banks of which it . is covered. is a banking . under R. A. Petitioner corporation organized No. 720, as amended, ( and operating with principal office in Cotabato City. - �~ As alleged in its petition, then President Ferdinand E. Marcos issued Presidential Decree No. 2026 on February 03, 1986, restoring the tax privileges granted to rural banks thus amending

DECISION- CTA CASE NO. 4800 -2- for that purpose Section One of Presidential Decree No. 1955. By reason of said P. D. No. 2026, respondent Bureau of Internal Revenue issued Revenue Memorandum Circul~r No .. 9-86, offici.ally dated May a, 1986, which it communicated to the Central The c.,ntt"al Bank in turn disseminated to all rural banks the text of said CB ReveniJe Circular and other pertinent information related thereto in Circular Letters numbered 86- 17 and 86-19, both dated August 01, 1986. Quoted hereunder is the ~ertinent portion of CB Circular Letter No @ 86-17, dated August 1' 1986, addressed to all Rural Banks which Quotes verbatim a letter of the Commissioner of Internal I Revenue, dated June 23, 1986, to wit: "In reply to your letter dated April 22, 1986, please be informed that P. D. No. 2026 added paragraph <f> to the enumeration of several tax exemptions and privileges not abolished by PO No. 1955, in effect restoring a 11 tax exemptions and/ or preferential tax treatment previously enjoyed by rural banks prior to their abolition on October 15, 1984 (effectivity of PD No. 1955>. PO No. 202G is explicit that the tax exemption benefits whi6n were restored by ~aid � deere~ shall apply to rural ~anks only whose net assets are less than 1=130 , 000 / 000 and the same shall only be enjoyed f o r a Re riod of five ( 5l y ears fr m the date of it e ffectivity wh i - is F ebr u a~ y 3 9 1986 , s u bJ~Ct to f urthe r ext en sion a may b e comm en ed b y th e .i nist er J f Cinance . c c ord ing y 9 P O No . 2026 i s a va id l a~ a nd . th r e storatio n o f t h e a fore men t i o e t. x

DECISION - eTA CASE NO. 4800 - 3- exemptions and / or preferential tax privileges shall be effective only from and after Febr uary 3, 1986. <Revenue Memorandum Circular No. 9 - 86 dated May 8, 1986). II / Petitioner alleges that due to . "honest inadvertenc~," i t erroneous~y paid income t a x e s for 1989 and 1990 in the amounts of P5,215.65 and P7,856.95, respectively; plus PSOO.OO for documentary stamp tax in 1989. On Apri 1 01' 1992, petitioner wrote respondent Bureau, through its Regional Office in Cotabato City, . seeking a refund of said taxes for 1989 and 1990 in the total amount . of P13, 572. GO which it claims to have� been erroneously paid, citing as legal basis therefor Presidential Decree No. 2026. As no action was taken by respondent Bur eau of petitioner's claim for refund, the instant petition was filed to protect itself from the two-year pr,escript ive period provided for in Section 230 of the National Internal Revenue � Code <N I RC >. On May 26, 19~2, Petitioner amended '~ i t s petition to state that for the periods in question, that is, the years ended 1989 and 1990, petitioner had net assets of P680,891 .. 82 and j::)567,706.96 respectively, as shown in its

DECISION- eTA CASE NO. 4800 -4- Statements of Condition which were reported to the Central Bank of the Philippines, to show that said petitioner is covered by the tax-exemptions. provided under P. D. No. 2026. In his Answer to the Petition, respondent made a blanket denial of the allegations of the petition and, as part of his special �and affirmative defenses, stated that petitioner failed to state any cause of action under Section 204 of the Tax Code and that petitioner failed to show on the face of its petition that the collection of the aforesaid tax liability in the amount of P13,572.60 is illegal and erroneous. Furthermore, petitions for tax refund are construed strictly against the taxpayer as they are in the nature of tax exemption. As part of its evidence, petitioner presented the following documentary evidence to support its claim which were all admitted by the Court: ... a> The Circular Letter of the Central Bank to all Rural Banks No. 85-17, dated August . 01, 1985 <Exh. A> � Letter No. 85- 18 b) Central Bank Circular <Exh. B>. c> Annual Income Tax Return for 1989 of the Rural Bank of Cotabato, Inc. (Exh. C>. d) Quarterly Income Tax Ret urn ending March 31, 1989 (Exh. C-1>.

DECISION- eTA CASE NO. 4800 -5- e) Quarterly Income Tax Return ending June 30, 1989 <Exh. t-2). f) Quarterly Income Tax Return ending September 30, 1989 <Ex h. C-3> g) Annual Income Tax Return ending December 31' 1990 <Exh. D>. h) Quarterly Income Tax Ret urn ending March 31' 1990 <Exh. D-1 >. i) Quarterly Income Tax Return ending June 30, 1990 <Exh. D-2>. j) Quarterly Income Tax Ret urn ending September 30, 1990 <Exh . D- 3> . k) Letter of petitioner, through counsel, to the respondent Bureau requesting for refund of taxes erroneously pa id in the total amount of P13,572.60 <Exh. E>. Other than the foregoing, no documentary or testimonial evidence were formally offered by petitioner in support of its case on October a, 1992. Respondent waived his right to present evidence. He likewise failed to file a memorandum within the time given to him by the Court. The only issue to be resolved in this case is whether or not under existing laws petitioner... is entitled to a refund of taxes erroneously paid for the years in question. It is not disputed that with the issuance of P. D. No. 2026 during the martial law years, more particularly on February 3, 1986, it added

DECISION- CTA CASE NO. 4800 - 6- paragraph (f) to the enumeration of several tax exemptions and privileges not abolished by PD ' No. 1955, in effect restoring all tax exemptions and or preferential tax treatment previously enjoyed by rural banks prior to their abolition 011 October 15, 1984 (effectivity of PO No~ 1955). Petitioner, a rural bank, with net assets very much less than the amount preseribe'd in said presidential decree is by thes e tax exemptions and pr i v i 1 e g e s. This Presidential Decree was duly implemented by Revenue Memorandum Circular No. 9-86, dated May B, 198E., which in turn was circulated to all rural banks by 'the Central Bank of the Philippines in its twin circulars numbered 86- 17 and 86-18. both dated August 1, 1986, for their information and guidance. As part of its evidence, petitioner presented its income tax returns for the years 1968 and 1989. Petitioner claims to have paid respondent Bureau as a basis for their claim for r efund . ~he amount of . P2,141.86 corresponding to the first quarter ending on March 31, 1989; the amount of P2,357.65 corresponding to the first quarter e ndi n g March 31' 1990; and the amoun of I

DECISION- eTA CASE NO. 4800 -7- P2,893.67 corresponding to the second quarter ending June 30, 1990. We have scrutinized the evidence -and have found none to prove that these amounts totalling P13,572.60 were allegedly erroneously paid to the respondent Bureau and for which the present judicial claim for such refund was filed. In its 1 ett er to the Commissioner of Internal Revenue through the Regional Director, Region II-A, in Cotabato City, seeking a refund of taxes erroneously paid, petitioner through counsel, did state certain RTRs and official receipts allegedly evidencing said payments for the years 1989 and 1990. However, said documentary evidence were not present~d before this Court ' to support its petition for judicial refund at the proper time. The Annual Income Tax Returns for the years 1989 and 1990 only indicate the amount of taxes due, as the case may be, but ~ do not indicate or state actual payment of such taxes. The Rules of the Court in Rule 132 Section 34 thereof is quite c 1 ea�r that 11 the court shall consider no evidence which has not been formally offered" <Veran vs. Court of Appeals; 157 SCRA 438). Under this rule, evidence not formally offered in court will not be taken into

-- -- DECISION- CTA CASE NO. 4800 - a- consideration in disposing of the issues of a case <Martin, Revised Rules of Evidence, p. 589). While petitioner in the case at bar allegedly marked and simultaneously offered Exhibits l to K- I, it appears that the same wera introduced only through petitioner's memorandum, long after it has formally offered exhibits A to E inclusive which as earlier indicated were admitted by this Court. In this connection, it s h o u 1.d be not e d that the Court of Tax Appeals is a court of record, empowered to promulgate as it has promulgated, its ru'le.s and regulations pursuant to Section 8 of Republic Act No. 1125, for the conduct of its business, and as may be ne'eded for the uniformity of its decision within its jurisdiction <please see Rules of the Court of Tax Appeals CRCTAJ). Being a court of record like the Regional Trial Court <RTC) , the Tax Court is required to conduct a formal trial where the parties must present their evidence to be taken into consideration in the decision of ~he case. In Fi ne, only evidence formally presented at .� I,._ . c n sidered by t h is Court 'j in t he d ispo_i tio n of a cas e .

DECISION- eTA CASE NO. 4800 -9- Actual payment of the taxes, as well as the date of payment, is material and relevant in the recovery of tax erroneously or illegally collected. As provided for in Section 230 of the National Internal Revenue Code '(NIRC>: "No suit or proceeding shall be maintained in any co urt for the recov ery of any national i nte r nal reven ue tax hereafter alle ged to have been erroneously or illegally assessed or collect ed, or of any penalty c la i med t o have been co llect ed without autho ri ty or of any sum alleged to have been excessiv e or in any mann er wrongfu lly col lected, until a claim for refund or credit has been dul y filed wi th the Co mmi ss ioner; but such suit or proceeding ma y be maintained , whethe r or not such ta x, penalty, or sum h as been paid under protest or duress. In any case, no such suit or proceeding s hall be begun after the expiration of ~ ~ ar?_ fro.!!'. ~.b..g_ date_ of p ayment of the tax or penalty regardless of any supervening cause that may arise after payment; Provided, however, that the Co mmissioner ma y, eve n wit hout a written claim th erefor, ref und or credit any tax, where on the face of the ret urn upon which payment was ma de, such payment appears clearly to ha ve been erroneously pa id." [emphasis supplied] Respondent in his Answer, as part of his special and affirmative defenses stated that petitioner failed to state any ca use of a c t ion citing Section 204 �of the Tax Code which provides: "Sec. 204. Authority of the Co��iss ioner to co�pro�ise, abate, and refund/credit taMes~ Th e Commissioner may -

DECISION- eTA CASE NO. 4800 -10- 1. Compromi s e the pa yment of any internal revenue tax wh e n - a. A reasonable doubt as to the validity of the c laim against the taxpayer exist s ; or b. The financial position of the taxpayer demonstrates a clea r inab i lity to pay the asse~sed tax 2. Abate or cancel a tax liability, when - a . The t ax or a n y portion th e r~of a ppears t o be unjustly or e xcessi ve ly a ssessed; or b . The adm i n is trat ion and coll ection costs i nv olv ed do not justify the collec tion of the amount due. All cr imin al v io l ati ons may be c ompr om i sed except (a) thos e already filed i n c ourt, and <b> those i nvolving fr a ud. The Commissioner of Internal Revenue may delegate his power to compromise internal revenue cases to the Deputy Commi s sioner and the Regional Directors, subject to s uch limitations and re s trictions a s may be imposed und er rule s a nd regulation s to be promulgated for th e pur pose. 3 . Credit or refund taxes erroneously or illegally received penalties i mposed without authority, refund the value of internal r e venue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or change unu s ed stamps that have .. . been rendered unfit for use and refund their value upoQ proof of destru~tion . , No cr~dit or ref.!Jnd of taxes .Q.C ~nalties ~hal_l be ~llowed unles~ the taxpayer files in writing witn th~ co_mmi,..?_~io. ner �!.claim for: credit .Q.!:. r~fUQQ within two years after payment of ~he ~~K or Q~na~. [underscoring ou r s)

DECISION- eTA CASE NO. 4800 - 11 - The formal statement of said operative facts to give petitioner the judicial relief it seeks were not in fact clearly and explicitly stated. Moreover, without the evidence of actual payment of said taxes, much less the time they were paid, this Court will have no way of reckoning the two- year prescriptive period provided for in the aforequoted provision of the NIRC for j ur'id ical purposes. What is more fatal is the fact that the proof of such erroneous payment and the purpose for which such payment was made is wanting. WHEREFORE, herein petition for refund of ta><es allegedly erroneously paid is hereby dis�issed for lack of cause of action. SO ORDERED. ~P.~ RAMON 0. DE VEY Associate Judg

DEC IS ION - e TA CAS E NO . 4 800 -12- WE CONCUR; ~a~ I ERNESTO D. ACOSTA Presi d i ng Associate Jud ge I hereby ce rtify t hat this de cision wa s reac hed after due c onsultation am ong th e me mbers of the Court of Tax App @als i n accordance with Section 13, Article VIII, of t he Constitution . ~ c:;-(Q � Q. ~ ERNESTO D. ACOSTA Presiding J udge Cou rt of Tax Ap peals