LEGACY HOMES, INC. v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY LEGACY HOMES, INC., Pe titi o ner, -versus - C.T.A. CASE NO. 5791 HON. BEETHOVEN D. RUALO, COMMISSIONER OF INTERNAL Pro mul gate d : REVENUE, MAY G4 2001 Respo ndent. t. ?ll7 7 \ L'J?' r' t 1r�- -;J.,c--v'"V'Vr ' X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - X DECISION Thi s is a petitio n seeking fo r the refund or issuance of a tax cred it certificate amounting to P4,967,125 .67 (see Petiti oner's Memorandum, p. 260, CTA records), plus interest at legal rate, all egedly representing excess or overpaid income taxes for the year ended December 3 1, 1996. The antecedent facts fo llow. Pet itio ner is a domestic corporati on dul y organized and ex isting under Phi lippine laws . It is engaged in the business of development, sa le and lease of real property wi th principal office at Phase 5, Block 124, Lot 20, Villa de Calamba, Calam ba, Laguna (Exhib it A). For the taxable year I996, Petitioner fil ed its quarterl y income tax returns, all of which showed losses in its operati ons:

DECISION- CTA CASE NO. 5791 PAGE2 Period Date Filed Taxable Exh. Covered lncome(Loss) Tax Withheld B 1st Quarter May 30, 1996 (P8, 198,364.75) p 298,245.00 c 211d Quarter August 29, 1996 (3,98 :1,819.05) 205,977.68 D 3rd Quarter November29, 1996 (7,419,399.41) 2,371,648.04 On April 15, 1997, Petitioner filed its Annual Income Tax Return for the calendar year ended December 31, 1996, reflecting a net loss of P8 ,446, 116.00, with tax credits/payments totalling P5,380,813.00 (Exhibit E). Petitioner opted to apply as tax credit to the succeeding taxable year 1997 its unutilized tax payments. However, it failed to do so as it ended up again in a loss position in 1997 (Exhibit G). Thus, on April 12, 1999, Petitioner filed with ROO No. 56 of the Bureau of Internal Revenue, a letter claim for the refund of its unutilized tax credit for the year 199b in the amount of P5,380,8 13 .00 (Exhibit F), on the basis of the follow ing provisions of the Tax Code: Section 204. A utllority of tile Commissioner to compromise, abate, and refund/credit taxes. - The Commissioner may: XXX XXX XXX (3) 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 stamp::; 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 years after the payment of the tax or penalty.

DECISION- CTA CASE NO . 5791 PAG E 3 Section 230 (now Section 229). R ecovery 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 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 begun after the exp irati on 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 therefor, 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. There being no immediate action on the part of herein Respondent and the two-year prescriptive period was about to lapse, the instant petition was filed on April 14, 1999. In his Answer filed on June 10, 1999, Respondent raised the following Special and Affirmative Defenses: "3. Petitioner's alleged claim for refund/tax credit is subject to administrative routinary investigation by the respondent's Bureau; 4. It is incumbent upon petitioner to show that the total amount of P5 ,3 80,813 .00, claimed as excess or overpaid income taxes for the year end ed December 31 , 1996, were erroneously or illegally collected ; 5. Taxes paid and collected are presumed to have been made 111 acco rdance with law, hence, not refundable; 6. In an actio n for tax refund , the taxpayer has the burden of establi shing its right thereto, and failure to sustain the same renders the claim for refund fatal ; .- / ') ,(..,

DECISION- CTA CASE NO. 5791 PAGE 4 7. Petitioner must undoubtedly show that it has complied with the provisions of Section 204 in relation to Section 230 (now Section 229) of the Tax Code; and 8. The rule is well-established that claimi for refund/tax credit are construed in strictissimi juris against the taxpayer as it partakes the nature of exemption from tax." In their "Joint Stipulation of Facts and Simplification of Issues" filed before this Court on August II. 1999, the parties submitted the following issues for resolution: a. Whether or not there was erroneous and/or illegally withheld and/or overpaid income taxes in the amount of FIVE MILLION THREE HUNDRED EIGHTY THOUSAND EIGI-IT HUNDRED THIRTEEN PESOS (P5,380,813 .00) for the calendar year ended December 31, 1996? b. Whether or not the erroneous and/or illegall~( withheld and/or overpaid income taxes in the amount of FIVE MILLION THREE HUNDRED EIGHTY THOUSAND EIGHT HUNDRED THIRTEEN PESOS (P5,380.813 .00) is duly substantiated by documentary evidences? c. Whether or not the erroneous and/or illegally withheld and/or overpaid income taxes in the amount of FIVE MILLION THREE HUNDRED EIGHTY THOUSAND EIGHT HUNDRED THIRTEEN PESOS (P5,380,813.00) was applied to the income tax payable for the calendar year ended December 31, 1997? d. Whether or not the income payments received by the Petitioner for the calendar year ended December 31, 1996 which was subjected to creditable withholding tax formed part of the gross income declared by the Petitioner in its Annual Income Tax Return for 1996? In support of its case, Petitioner offered the following in evidence: Exhibits Description A SEC Amended Articles of Incorporation ...., ' \) f \.j

DEC IS ION- CTA CASE NO. 579 1 PAGE 5 A-I & A-2 Ex ternal Independent A uditor Report to the Court of Tax A-3 Appeals (CT A) A-4 Certifi cates of C reditabl e W ithho lding Tax 1996 (BIR Form A-5 & A-6 N o . 1743-75 0) A-5- 1 A -6 -1 Wi thh o lding Tax Returns 1996 A-7-l S up plementa l Ex tern al Inde pende nt Audito r Report to the B,C& D CTA E F 1994 ITR & breakdown of gross sales durin g the year, G including li st of indi v idua l sales (3 2 pages) G-2 1995 ITR & brea kdow n of gross sales durin g th e year, inc ludin g li st o f ind ividua l sales (32 pages) 1996 ITR & breakd own of gro ss sales durin g the year, including li st of indi vidua l sales (27 pages) 1996 Quarterl y Incom e Tax Return s 1996 Co rporati o n/ Partn ershi p A nnu al Inco m e T ax Re turn wi th the 1996 A ud ited Financial Statem ents Tax C redit cla im letter to th e BIR dated A pril 8, 1999 in the amo unt o f P5,38 0,8 13.00 1997 ITR ( 14 pages) incl udin g the Audited F inancial Statements 1998 IT R (26 pages) inc luding the A udited F inancial Sta te m e nt s Howeve r, in its Mem orandum fil ed las t f ebruary 8, 200 I , Petiti oner redu ced the am o unt of its c la im fro m P 5,380,8 13. 00 to P4,96 7, 125.67 in view of the findin gs of the indepe nd ent C PA d isa ll owing th e amo unt of P 132,724. 83 either beca use the w ithho lding was no t s up po rted by th e co rres po ndin g ce rtifi cates or the inco me was no t repo rted as

DECIS ION- CTA CASE NO. 579 1 PAGE 6 part of the gross income in the inco me tax return . Petiti oner likewise admitted th at the Withho lding Tax Certi ficate in the amount of P2 80 ,962.5 0 pertaining to the tax w ithheld by Sc ie nce Park of the Philippines (Ex hibit A-5, p. 8 of 9) should have been issued in 1995 and not 1996 ; there fo re, the same must also be excluded. Respondent' s co unsel, on hi s part, presented no evidence and submitted thi s case for dec ision based on the pl eadin gs. H e likewise fa iled' to fil e his Memorandum w ithin th e peri od g ive n by th e Co urt. After a careful scrutiny of the ev idence adduced sole ly by Pe titi oner, thi s Co urt rul es aga inst the latter. It bears stressi ng th at in claims fo r refund of unutili zed or excess creditabl e w ithho lding taxes, one of th e bas ic requirements is th at th e Petiti oner must show to the sati sfac ti on of thi s Co urt th at the amo unt so ught to be refunded was not carried over to the succeedin g taxa bl e year(s). To prove thi s po int, the succeeding years ' returns are vital fo r the same would show th at it did not apply its unutili zed or excess creditable taxes to its tax li abilities during the succeedin g years . Since the peri od covered in the instant petiti on is 1996, Petiti oner presented its 1997 and 1998 returns. Both returns showed that th e amount of P5,380,8 I 3.00 whi ch Petitioner ori ginall y so ught to claim as tax credit was carri ed over until 1998 . In its 1998 retu rn. however, Petiti oner signifi ed again its intention o f carryin g over the said a mo unt as tax cred it on th e fo ll owing year. Unfo rtuna tely, Petiti oner fa il ed to prese nt its 1999 Income Tax Return for thi s Court to determine w ith certainty that its 1997 unutili zed tax ' pay ments we re no longer carried over. In thi s Co urt' s recentl y decided case of lsuzu

DECISION- CTA CASE NO. 579 I PAGE 7 Philippines Coq)oJ�ation vs. Commissione1� of lntunal Revenue, CTA Case No. 5812 dated Mm�ch 28, 2001, We ruled on the importance of presenting the succeeding year's return as evidence, thus: "Petitioner's 1996, 1997 and 1998 Annual Income Tax Returns disclosed that the claimed 1996 unutili zed creditable withholding taxes of P4,623,685.00 were carried-over to 1997 and 1998 taxable years. It is worth noting that petitioner has indicated agai n its intention of applying the said 1996 unutili zed creditable withholding taxes up to the succeeding year 1999. Since Petitioner failed to present its 1999 An nual Income Tax Return, this Court cannot determine with certainty whether or not the aforesaid tax credits were actually utili zed or app li ed against its 1999 income tax liabi lity. Thus, the non-presentation of its 1999 Annua l Income Tax Return is fata l to its claim for refund . (Filinvest Development Corporation vs. CIR, et. a!., CA-GR SP No . 56800, dated August 18, 2000)" Additionally, this Court observed that in Petitioner's 1997 Annual Income Tax Return , the "x" mark in the box to be refunded was handwritten and the typewritten " x" mark in the box to be applied as credit to next year appeared to have been erased. Since the rest of the entries in the said return were typewritten, it wou ld seem that Petitioner merely belatedly indicated in its 1997 annual income tax return its choice to refund the amount considering that the same was handwritten and the amount of P5,380,813.00 was still carried over in 1998. In CTA Case No. 4958 entitled Citytrust Investment Philippines, Inc. vs. Commissioner of Internal ReP~ nue promulgated on April 25 , 1996, this Court had the occasion to pass upon a more or less simi lar issue: " It is to be noted that the 1991 final tax return of petitioner shows that the box es indicating the choices "to be refunded" and "to be app li ed to the next succeeding taxable year" are both marked with "x" (Exhibit G). We find this an incongruous situation as one can not ask that the same amount to be

DEC ISION- CTA CASE NO. 5791 PAGE 8 refund ed and at th e same time to be appli ed as tax c redit to the succeedin g taxabl e year. However, a close scrutiny of the same tax return for 199 1 revealed th at w hat w as ori ginall y marked w ith an "x" was the box referrin g to the cho ice " to be appli ed as tax credit to the succeeding taxabl e yea r" beca use the marki ng "x" has th e same typewriter print as th e rest of the fi gures co nta ined in the said return . The other mark ing of "x" for the box referring to th e cho ice " to be refund ed" was obviously made w ith a pen or penc il leadin g us to give more credence to the o pti on of petiti oner of appl ying the amount to th e nex t succeedin g taxable year. So, if the petiti oner had indeed applied the same refund abl e amount to sati sfy its tax li abilities for the succeeding year of 1992, th en the prese nt cl a im for refund must be deni ed because to grant the same wo ul d in effect be grantin g tw ice th e refund of the same amount w hi ch is de trim enta l to the in te rest of th e gove rnm ent." T he fa ilu re of Petiti oner to present its 1999 Co rp orati on A nnu a l Inco me Tax Return is fa ta l to its c laim for refund . Well -settl ed is the rul e th at tax refund s, like tax exempti o ns, are co nstrued stri ctl y aga inst th e taxpaye r (Citibank, N.A. vs. Court of Appeals and Commissioner of Intemal Revenue, G.R. No. 107434 dated October 10, 1997). WHEREFORE, prem1 ses co nside red, the instant Petiti on fo r Rev iew IS here by deni ed fo r ins ufficie ncy of ev idence. No prono un cement as to costs. SO ORDERED. l CONCUR: G-IS(. o~ ERNESTO D. ACOSTA Presiding Judge

DEC ISION- CTA CASE NO. 579 1 PAGE 9 CERTIFICATION I hereby certi fy th at th e above dec ision was reached after du e co nsultati on w ith t he members of the Court of Tax Ap pea ls in acco rd ance w ith Section 13, A rticle VIII of th e Co nstituti o n . (lc~~ c~- ERNESTO D. ACOSTA Presid ing Judge