CTA Case No. 4526 (Decision)

REPUBLXC OF TH~ PHXLXPPXNES COURT OF TAX APPEALS QUEZON CXTY GEODETIC AND CONSTRUCTION SURVEY, LTD. <Philippine Branch>, Petitioner, C.T.A. CASE NO. 4526 COMMISSIONER OF INTERNAL REVENUE, - - )( - - Respondent. )( DE C I I 0 N This case is a claim for refund of overpaid e><panded creditable withholding ta>< fot' the yeat' ended December 31, 1'388 in the t ota 1 amount of P4'30,000.00. Petitioner is a resident foreign corporation organized and e><i~ting under laws of Switzerland and is duly authorized to engage in business in the Philippines as an intet' national specialized surveyor. As such, it ent et'ed into a .J service contract with the Philippine Long Distance

DECISION CTA CASE NO. 4526 - 2- Telephone Company for the years 1987 and 1988 and derived revenues therefrom in the total amount of P9,800,000.00. For ca 1endar year ended December 31, 1987, petitioner suffered a net loss of P30,9GO.OO c omputed AS follows: Service Fee s P1,04G,250.00 Less: Cost of Service ----����J~~f;._ Q_~�~ .!..Q9.. Gross Profit p 190,181.00 Less: Deductions ........ ..... ?g t.J. L.tl~QQ_ Net Loss for 1987 <See Exhibit A, p. 40, CT(A!?._. _r_e_c4o9.rs.d.'2s�.Q).!_Q..Q.._> and declared as prior year's tax credi t , the a mount of P52 ,839.00 (ibid) indicating in its return that said amount WAs to be applied as tax credit for the succeeding taxable year. It must be not ed that the amount of .) P1,04G,250.00 was merely accrued as income by petitioner. No actual payment was made by PLOT to petit ioner. Consequently, no expanded withholding tax was withh eld at source by PLOT. For calendar year ended Oecembet" , 31, 1988, petitioner was paid by PLOT the total contt"act price of P9, 800,000.00 and the cot"t"esponding 5')( creditable withholding tax was withheld. Inasmuch a ~ . a port ion of the contract

DECISION CTA CASE NO. 4526 - 3- price (i.e ., P1,046,250.00) has been declared by petitioner as accrued i n c ome fot' the year ended 1987, its 1988 income tax return reflected only the balance of the total contract price less deductio ns resulted to a net los s of P93,787.00 and a refundable amount of P542,839.00, computed DS follow 1 S t"IJice I ncom~ P8,753,750.00 L~ssa Cos t of SeriJice ..Jid~ .t4. ,__Q~-~-~...Q..Q. Gross Income P2 ,739,685.00 Lessc Deductions ���-~' ~3~., .:4 7?. � OQ_ Net Income (Loss > <P 93, 787 .00> Tax R~te �--��---��-----������--�. ~Pl.'~ Income T x Due NIL Lessu Prior Year'~ Excess c -di t p 52, 839. 00 5~ Expand d Wit h - holdin T x 490, 000.00 ____....~:4.~ .. 8.~9-_ QQ. Tot a 1 Am o �J n t ( "e f �.m dab 1 e ) q:~,.,..=9-.4:..?-.,t)1~':!;.5i?_C.J._ > Although it c ppea\"s fl"'om the pe tit ion e t'' s 1988 Corporate Annual I ncome Ta x R~turn that the total amount refundable is P542, 839.00, yet the petitioner belieiJes that i t is lawful ly en titled to a refund of onl y P490,000.00 as the t'ight to claim refund or tax credit for the amount of P52,839.00 repr sent ing � prior year's excess credit ha s already prescribed in accordance wi th Section 230 of the Tax Code . The issuem to b resolv d I" a~ follow s:

DECISION CTA CASE NO. 4526 - 4- 1. Whether or not petitioner's right to claim for refund or tax credit has prescribed. 2. Considering that petitioner filed cla i m fot' t' efund ~ . t!!ll.,!..l ..:!; ~.n.'-' o .~.'S.l.Y.. with the f i 1 in g of the petition for review, an inevitable qu stion arise s on whether Ol' not petition er hAs a cause of action in bringing the suit to this considering that the exhaustion of administrative remedies has not been complied with. 3. Whether or not petitionet"' is entit led to a refund or t x ct"edi t of the amount of 1=�490,000.00 in l'\llegedly unutilized cred itable wit hholding tax at source. Confident of the favorable ruling in the case of Gibbs v. Co��issioner, G. R. L-17406 , Nov. 29, 1965, which states that: "A taxpe\yer who contributes to the withholding tax � ~yste m does so not really to deposit an amount to the

DECISION CTA CASE NO. 4526 - 5- Commissioner of Inte r nal Revenue , but in truth to per form a nd extinguish his tax obligation for the year concet~ned. In other word s , he is paying his ta>< obligation for that year. Consequently, a taxpayer whose income is withheld at the source will be deemed to have paid his tax li a bility when the same fi:\lls P..~-! e ..l!l.t._______t h .e ... e. D9 .. 9 L ..t.b ~L_ t; _a )(___....Y...e.a..t::. ______I~.....J s_ 1?._t _:t.__ f!'~Q!!L.J:;JJ..i .~- __ ~_r.___Jt?.t._~_ then o t~ when t h e t ax 1 i a b i 1 i t y fa 1 1 s due t.h~t. __J;_b~____j;_W.9_ Y. .~�'r____p~rJoc;L___j _rL__$ _f.?_q _t__t~LTJ ..._29_? . <now Section t 2 30 > q_L .J:: h ~ --�-R.!?._"'!_~_D.t,A ~--�� Ge>._d e _ _s a t..~_:t;_J:>__ __ ~_()__ - ~c Ll D. I'.JJt..b ____ )'.'_l:!_S per.:;:t.. _____to _________ pa y m~Dt!;____ ____a.ff. ~ _ct e..9. _____ ____ :tD.r.~_Q_!-,_\_gb_ j ;;__l]_t,'l__ ___ ~_tt_bh_g_J_gj _D_Q t._~-~-----.?.Y-?..t.J?_I11_ � II <Underscoring petitioner's� See petition for review, p. 4.> Petitioner allege d that it was well within the prescriptive period when it filed the petition for review on D..~_q_~__f!I..Q.~..r.:..__ ;;_~_,_____l.~~-Qs_____:t.b t,'I ___V_!?.ry____sa me... pat e.....h (!_ f _U __e._q_____ a. D.....~.c1.111.J.nJ .?..:t.J.:~J; . i __':!'_e._____G_l�'.i..�"'---f .C!.e ....r.e _fqn9.� There is no dispute as to whethet~ the petitioner filed the petition for r'eview within the prescriptive period, for i ndeed, it compl i ed with the law. The seemingly c ont t~ ovet~sial iss ue , how e v�n~, was whether or not petitioner has ca usEL ..P.f.___ _a r.:;j;__iqn in bringing the suit when i t ?...tm._q_lj;~_D.!?.J'tY..!?..1.'i_ filed the cl aim for refund. In justifying the filing of the suit, petit ioner even had the temet~ity to allege that "To date, respondent has not yet acted

DECISION CTR CRSE NO. 4526 - 6- upon said claim for refund or t a x ct' ed it to the prejudice of the petitioner" (see petition, page 3). Of course, how can the t'e s pond ent act on its claim when it did not even give him the opportunity to act in the fh' st place? The taxpayer is given two years pt'esct'iptiv~>? pet'iod before appealing to the Court of Tax Appeals to precisely give the respondent o ppot't unity to decide on the claim in order for him to cot't'ect the action of subordinat e officers; and to notify the government that such taxes have been questioned, and the notice should then be borne in mind in es~ima ting the revenue available for expenditure. <Ber�ejo v. Collector, L-3028, July 2'3' 1 '350) � This is the � very essence, the vet' Y substance of the doctrine of exhaustion of administrative remedies. The doctrine rest s upon the presumption that the ad mini strative body, board or officer, if given the chance to � co t' t'ect its mistake or error, may amend its decision on a given matt er and decide it properly. <Sec. 42 Am. Jur. 57'3. > It is elementary therefore that before resort to the courts can be obtained, all

DECISION CTA CASE NO. 4526 - 7- administrative remedies available should first be exhausted. <Sa�p guita Shoe Factory vs. Court of Ta)( App!!als, G. R. No. L-10285, J;m. 1'358 . > And non-compliance thereof is proptn' fot' dismis sa l of court action <Cruz v. D 1 Rosario , L-17444, Dec. 2G, 1'363, '3 SCRA 755> fot' lad< of cause of action <ibid) and is a flaw whi c h is fatal to a c ourt review <Walstro� v. Mapa, Jr., 181 SCRA 431>. In the c;ase at bar, the petitionet' filed its claim for refund on the same date he filed the petition for r view which is tantamount to not h aving filed such claim at all. 81..1ch action is frowned upon by thi s Court for being pro-forma and was done merely to comply with the letter of the 1a w and y e t d i s regard e d t h e s pit' i t o t' t h e v e t~ y substance of the law. What th e petit i onet' had done was a mockery of the doct~ine of exhaustion of administrative remedies. In doing so, the petitioner had c l ipped the powet~ of the Commissioner of Internal Revenue to act on claims for refund as mandated by law v irtually depriving him of this important fun ct ion. The taxpayet~, t :herefore, should h a ve filed his claim o u u i . ' .

DECISION CTA CASE NO. 4526 - 8- .J for refund at the earliest in stancP i t was brought before him and should have nnt WAited on the last day required nf him by law hec.=~.11se by then it would be too late for the respondent to act on its cl.::dm thereby destroying the essence of the doctrine of exhaustion of administrati ve remedies. Jurisdictionally, this Court can entertain only decJ.si..JIIJS. of the Commissionet' of Intet�nr.d R e v P. n u e i n c a s e s i n v o 1 v i n q , a mo n ~l o t h e t' s , 1�' P f u n d c;, In thi s t hPl�' l?. (J...f? !~j _~5. .i...OJ1.. nf the Commi. r,;c; iPnPt' nf Intr~ t�n .::ll fxP. V�'11 1.(1?, be e au 5 e he wa 5 ....n oJ.........f:!.. v..en.... g i _v_en ___ s IJCh ... q ppot�' t _l_tn i t y .... :t 9.. do so. HPl-'' P.in pel~ itionf't ' C.=I.Tillnt; s<->e l-< t'' Pf�tr.t"~ 1.1ndPt' thP c]o ;;~~< of hnvinq filed the i'l.ct ion ( ;\] thouqh pt' o �- f tn' ma) li'J i thin t ll e two ��- y e .:-:n� pt' e s Ct' i pt i v �-? per' i. o d ~;incP ' to d.-~tP, t�' esponden t h;-:~ s not y~~ t actf'd upon �;a id cl;:~im f () 'r' t'e fund Ot' t <"- >< C'r' P. d i �t; t o the p t ' e j u d i c e o f t h P p e t i t j o TH" .,.., ' <r, e e r� P t i t i n 11 , p � 3 ) . Such alleg a ti o n is bereft of hone s ty a nd candor on t h �-' pat' t o f t h �~ p e t i t i o n e t '' � I f i n d e e d t h P t ' e wa c;, " p t' e j u d i c e " s 1..1f f e t' e d by t h e f..H? t i t i o n e t' , c e t' t a i n l y , t h e t ' f�' s p o n d P n t h a "' n o t c n n t 'r'' i b 1.1t P d t h P. t'' P t o � The third issue is thereby purely academic. , ... ' \)OJ.. .J

DECISION CTA CASE NO. 4526 - 9- Additionally, a mnre pr~gmatic ~urp ose of the is that it will help prevent th f> c lnnqinq nf otw couy�t dockets. To allow the petitione t' to file his c l~aim for r~fund ,; imultAn P ously wi t h the filing of the petit .ion for review on the last day before the period prescribes, We will be ct' eati ng a dangerous precedent. It would not be long that this Court wil l be dealing with the monstrous clogging of dockets which cou ld have been otherwise solved in the adminis t rative l evel had t h e y ( t ax pay e r ) f i 1 e d t h e i r c 1 a i m f o 't' t' e fund at the earlies~ opportunity. WHEREFORE, in all thiP f'oregoi ng, this Court he'l""eby R OLV o DISMISS the pet� ion for revi ew f'or 1 ck of c � use of' ction thtt pet itioner hav ing f'ail d to co�ply with th d ctrin . of' eKhaustion of ad�inistrative re� dies s above discussed. SO ORDERED. Quezon City, Met't' O Manila, J11ne 2, 1993. GRUBA Judge

DECISION CTA CASE NO. 4526 - 10 - WE CONCUR : Q .. ~ ACOSTA I hereby certify th at t h is decision was reached after due consu l tation between t h e members of the Court of Tax Appeals in acc ordance wit h Section 13, Article VII I of the Constitution . ~lR_ .. ~ ERNESTO D. ACOSTA Presiding Judge Court of Tax Appea l s r .. , � OOv