CTA Case No. 4150 (Decision)

I REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY SANITARY WARES MANUFACTURING CORPORATION, Petitioner, - versus - C.T.A. CASE NO. 4150 THE COKHISSIORER OF INTERNAL REVENUE, Respondent. X- - - - - - - ~ - - - - - X D E C :r: S I 0 N Th is is a claim for refund of petitioner's alleged overpayme~t of income taxes for the fiscal year 1984 in the sum of P252,875 . 00. The undisputed facts show that petitioner is a domestic corporation duly organized under the laws of the Philippines and duly registered with the Board of Investment (BOI) as an Export-Producer engage d in the manufacture of .vitreous Ch~na bathroom fixtures for domestic use and export to ,I foreig n c ountries. In 1984 petitioner was granted by BOI the followi ng tax c redit certificates in the total amount of P722,502.00, to wit: 603

DECISION - _, C.T.A. CASE NO. 4150 - 2- .T.....C......C.............N......O............ DATE A......M........O.....U......N......T..... P215 ,391.00 0726 June 07 , 19 84 228,239 . 00 0727 June 07 , 1984 38 , 328 . 00 35 ,837 .0 0 0759 July 20 , 1984 .......?..f?.. ~...r...?.9...7.. . :. . .9.. Q. 076 0 July 20 , 1984 P722 502.00 ~:::~::::::o:::,:::::'::::::::::::::::::::;;;;::;;;:::::::::: 0948 Nov , 20 , 1984 T0 t a1 For the calendar year 1984 1 pet itione r filed its c orporat e qu arterly income tax returns, and paid the corres~onding in come tax in the sum of P1 2 ,111,07 1.04, a s follows: First l? 4 ,269 ,782.07 Second 4,0 7 5,358 .9 4 Third .......~..f..J.�.?.. L.~..~..9...:....9.} Y.!..?... r....! .! .!...t...9..1.!...:..Q.~. '''"'''''''"''''''''"'''''''''" '"'' ' "'"'''''''"'''OOOOoo oUoOoooOoh""'''' On April 15, 1985 petitioner filed its final income tax returns declaring a total gross income of P82,492,883.00 for taxable year 1984 (Exh. "K", p. 77, CTA records) including the amount of P2,404,805.00 as income of petitioner from other sources, as follows: �' 604

DECISION - C.T.A. CASE NO. 4150 3- Sale of scrap materials p 435,058.00 Tax Credit on BOI incentives 722,502.00 Forei gn Exchange gain 642,209.00 Others .................�..9.?..1....9.~.�..~....9. .9. Tota l P2 404 805.00 ::::::::::::::':::::::::::~::::::::::'::::::::::::::::::::::::::::::::::::::: (Ann ex "F" Petition for Review, p. 10, CTA records.) On the same da y, petitioner paid the amount of P6,897,111. 00 as total tax due as indicated in its inco me tax ret u ~n. On Septemb er 2~ , 1986, resp onden t Commissioner of Interna l Revenue i~sued BIR Ruling No. 195-86 hol ding that tax credi t duly issue d on or after April 28, 1983 to BOt regi stered firms are not inc ludible i n the gro ss inco me of the grantee and are therefore not taxable for income tax purposes. Salient port ion of said ruling states: "In reply, please be informed that pursuant to Article 22 of PO 1789 as amended by Batas Pambansa Blg. 391 (effective April 28, 1983), pertinent portion of which reads: 'x x x The tax credit certificate shall be used to pay taxes, duties, charges and fees due to the national government: Provided, That � the tax credits issued under this Code shall not form part of the gross income of the grantee/transferee for income tax purposes under Section 29 of the National Internal Revenue Code and are therefore :1}.<?...!:.......!:.?..~.?..1:>.. !.. ~. : Provided further, That such tax credits shall be valid only for a period of ten (10) years from date of 605

-- DECISION - C.T.A. CASE HO. 4150 - 4- is suance. (Emphasis supplied)' the tax c redits duly issued on or after April 28, 1983 to BOI - registered firms like Indo Phil Textile Mills~ Inc. are not includible in the gross income of the grantee and are therefore not taxable for income tax purposes. X X X" Pe titioner on account of the above-cited ruling, filed a request for refund or tax credit on April 15, 1987 in the amount of P252,875.00 representing its overpaid corporate income tax for the year 1984, computed as follows: Gross Income Per Return P82,492,883 Less: Tax Credits Issued by BOI, erroneous 1 y reported as income ....... .. .... ?.?..?..1...?..9..?.. Corrected Gross Income 81,770,381 Le ss: Deduction per Return ....?..7.. 1 ?...!}. 1...?..~..~. Corrected Taxable Income -~. ?.. ~..r. ..?. .?.. ?.. .r. ..?.. ~--~- Tax Due Thereon P 100,000 X 25 % p 25,000 54,156,633 X 35% ... .!.~..1...~..?..~. L.~..?..?.. P18,979,822 Less: Tax Credits Certificate 215,391 Obtained From BOI Applied Against Income Tax Due as . . . .. . . . . . . . . . . . . . ..~..1...!.~.?.-~. Shown in the Return Creditable Income Tax (EWT) on Rental Income Amount of Tax That Should Have Been Paid P18,755,301 Income Tax Paid Per Return ....! .~..1..9..Q. .?...I...!.?..?.. 1st P4,269,782 ( .~. . . . . . . . . . ?..?.. ?..L~..?.. ?..) 2nd 4,075,359 3rd 3,765,930 4th .....?.. .r....~.~-?...1..!.!..!. To t a 1 Overpaid Income Tax (Annex 1, Petition For Review, p. 15 CTA records. ) 606

DECISION - C.T.A. CASE NO. 4150 - 5- Petitioner without waiting for respondent to act on the claim for refund or tax credit filed the instant petition for review on April 15, 1987 to s uspend the running of prescriptive period set forth in Section 230 of the tax code. The sole issue posed on this appeal is whether o r not petitioner is entitled to the refund of the overp a id income tax amounting to P252,875.00 or in the alternative, the issuance of tax credit certificates. Respondent in his answer raised t he following spec ial and affirmative defenses as follows: 1. In an action for refund, the taxpayer must show that the taxes were paid erroneously or collected illegally. Failure to sustain this bu r den is fatal to the action for refund; 2 . Claims for refund are construed strictly again s t the claimants since they are in the nature of an exemption from taxation (Hanila Electric Co. v. Com. of Internal Revenue, G. R. No. L- 29987 and L-2 3847, October 22 1 1975, 67 SCRA 351) ; and, 3. Taxes are presumed to have been paid and collected in accordance with law. 4. Respondent alleged that petitioner can not rely on BIR Ruling No. 198-86 because it does 607

DECISION - C.T .A. CASE NO . 4150 - 6- no t apply to petiti o ner ( Ans wer, par. 3 , p. 29, CTA records ) , Howev e r , respondent faile d to s ub s tantiate his a l legat ions a nd s ubmitt e d t h e case for decision based on the p le ading s a nd re cords of t he c ase . Pe titio n er , on the other hand, strongly mainta 'n e d that the overpaid income tax in the to t a l sum of P252,875.00 is refundable in' accordance with BIR Ruling No. 195-86 dated September 29, 1986 which holds that tax credit duly issued on or after April 28, 1983 to BOI registered firms are not includible in gross income of the grantee and are therefore not taxable for income tax purposes (Exh. "V"' p. 94 CTA records). Petitioner being a BOI registered export producer is e ntitled to several incentives like tax credit for percentage taxes paid on imported and locally purch as ed raw materials used in the manufacture of its expo rted finished products citing ' the pertinent provi si on of P.D. No. 1788, as amended as follow~: "ART. 4 8 .:J;.~ .~ -~.~. !:. :f.: .Y.~ .l?.............!:.9..............�g.~.9.:f.:..l?..:t:..~ .:r;.~.9. ~:l<:. l?<?. .:t;. !:........~ .:t;..9..9 .Y.9 .~..:r;..l?... Registered export producers, whether pioneer or non - pioneer, shall be entitled to additional incentives enumerated hereunder: a. � .'l.'. ~. :l<:.... f.. :r;.~.9J.!:.� - Every registered export producer shall enjoy a tax credit equivalent to the sales, compensating and spec ific taxes and duties on the supplies, raw materials and semi- 608

DECISION - C.T.A. CASE .NO . 4 1 50 - 7- manufactured products used in the manufacture, processing or production of its export products and constituting a s ubstantial portion of the cost of pr oduction or forming part of the export p r oducts, whether exported directly by the registered export producer or sold to a nother export producer, which uses such so ld products as a direct input in export products manufactured or processed by it an d subs e quently exported, or to an ex port trader: Provided, That the tax cre dit shall accrue to the registered export p r oduce r only a fter the other expo rt pro duc er or e xport trader has ac tually or c on s tructively exported said products." That its annual corporate income tax return for the year 1984 showed an overpayment of P25 2 ,875.00 due to the erroneous inclusion of P7 22 , 50 2 .00 tax credits in its gross income (Exh. "K-5", p. 78, CTA records). The latter amount was not supposed to be a part of the gross income of pe tit io ner in its 1984 corporate income tax return b ase d o n the aforestated BIR Ruling No . 195-86 d ate d Se ptember 29, 1986. To advance his claim, petitioner cited Section 69 of the Tax Code, to wit: "sec . 6 9 . ~. ; .P.~..!.....~.<:U.~. ~ -~~.~.~.~. . . .:r::.~.~-~.E.~ .~.. - Eve ry corpo ration li a ble to tax under Sec tion 24 shall file a final adjustment re tu r n covering the total taxable income for t h e preceding calendar or fiscal yea r . . If the s um of the quarterly tax p a yments 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 : 609

DECISION - C.T.A. CASE NO. 4150 - 8- a. Pay the excess tax still due; or b: Be refunded the excess amount paid, as the case may be. In case the corporation is entitled to a refund of the excess estimated quarterly income taxes paid, the refundable amount shown on its final adjustment return may be credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable year." Likewise the pertinent provision of Revenue Mem o randum Circular No . 7-85 dated April 1 1 1985 implementing Section 69 of the Tax Code provides: "In the above provision of the Regulations (Section 7 of the Revenue Regulations No. 10-77), the corporation may request for the refund of the overpaid income tax or claim for automatic tax credit. ':!'I?..... ~I.:l~ .~E~ .. PEI?.. ~J?. .!:.: -~ -~-~~1?. I.:l .....I?..I.:l..............~..<?..:J::.I?..<?. .:J::. ~. ~- ~- ..........~I.:l.I.:l.~. ~.!............~I.:l. ~..<?..~~..............t ax E.~.~-~EI.:l..... ~hi?. .~~I.:l9 .E~~-~.I.:l9~.J:.>..! .~.....~.!'.<?..~.I.:l.~. ~..... ~.E. ~.~. ~.I.:l. 9.. ~. :1::.1?..~... .<?.'!..~. :J::J?..~. ~ 9......9.~.-~.E.!:.:.~. :J::. ! ..Y......~.I.:l. ~.<?.~.~ ....~. ~.~.~. ~. , the office has promulgated Revenue Memorandum Order No. 32-76 dated June 11, 1976, co ntaining the procedures in processing said returns. Under these procedures, .~.h. ~......E.~..~..~.E.I.:l. ~............~.:J::.~........I!':.~E. ~..!..�....P.E..~.: .~.~.9.A.~. ~.9. which consist mainly of checking mathematical accuracy of the figures in the return. J.l. ~- ~- ~ .:~::....~.h~. ~ h.1.. . .....!:.:h.~..... :J::.~ .~- ~.n. 9.....1?..:J::........~ .9.~....g. :~::. ~. 9 .~.-~......~. ~- 9.E.~..I.:l~ ~.9.J.....~.J.:l .9..r. ..........~..h. ~. ~..... J?.E.<?..g. ~..9~E.~. . ~-~-~.....~. 9..<?.J?.~. ~ .9. .t....o..............f......a.......c.......i.....l.....i.....t....a........t.....e.....................i...m..........m.........e.....d.......i...a......t....e............a......c.......t....i...o.....n..........,,_,,,...o......n............c......a.......s.....e......s..... .!. ~.~.-~... .~.h. ~. ~. . xxx" (Underscoring supplied) . We agree with petitioner. It is clear from the foregoing provision of law and Memorandum Circular No. 7-85 that petitioner may be allowed to recover the amount claimed on the basis merely of 610

DECISION - C. T. A. CASE NO . 4150 - 9- c h ecki ng t h e ma th e mati c a l a cc urac y o f th e figures in th e inco me tax return. Furt h ermore, petitioner had rea so n t o re ly on t h e BIR Rul in g No . 195 - 86 herei n ci t e d e ven if such r ul ing was a ddr esse d to a n o ther taxp a yer because pe ti t i oner' s c a se involved substantially if not eq u ally the same facts. We find the BIR. Ruling to b e sou nd in its interpretation of law. Said BIR Rulin g No. 195-86 answers categorically the issue a f fec ting the party seeking clarification from the p rovis ion of P.D. No. 1789 specifically Art. 22, whi c h g r ants tax credit to export producers who are regi s te red with the Board of Investments. The ra ti o nale of the said BIR ruling is to benefit not o nly t he parties involved but addresses itself to a ll p ro ducers who are also registered with the BOI and a re themselves grantee of th e in c entives purs u a nt to said provision of law . For easy re f ere nce, we quote the provision of Section 22 of Pres i de ntial Decree No. 1789, Section 22 which gi ves credence to the claim of petitioner that p ro v i des : "Art. 22. 'Tax Credit' sha ll mean a ny of the credits against taxes and/or duties paid or would have been paid or b as ed on a percentage of net value earned o r of net local content of exports ex t e nded to a registered enterprise by this Code to evidence which a tax credit 611

DECISION - C.T.A. CASE NO. 4150 - 10 - cert ificate shall be issued by the Minister of Finance or hi s represe ntative, except in cases of tax cre dits on net value earned and net local co ntent which shall be issued by the Chairman of the Board or hi s represe ntative. The tax credit certi ficates are transferrable under such co nditions as may be determined by the Board after consultation with the Ministry of Finance . However, t he tax cred it based on net value earned or of net loca l content can be transferred only to domestic raw materials or component supp liers of the registered enterprise wh ich in turn can transfer such cert ificates to its suppliers, whether registered enterprises or not. The tax cre dit certificate shall be used to pay taxes, duties, charges and fees due to the national government: Provided, !h~! the tax cred ts is ued under th s Code s hall not art of the ross income of the .. 9.E. ~n!.~.~/. !.~~r.l.~. ~ .~. ~. ~~ .. ~9.~ .. Ar.l..s.:9..!1'~ !..~~ p~tE.P .<?.~~. ~. ':lr.l.~. ~E ..~~~ .!.~9.r.l. .. ?~ .9.. ~ !h.~ . ~. ~!.. ~9.r.l..~.! I n t e r n a l Revenue ................................ .... ........................................... Code a ............. ................ nd a......r.....e. ...........t...h....e.....r.....e.......f.....o.......r.. .e. not....!.. a.:~. C'lble: Provided, further, That suc h tax credits shall be valid only for a period of ten (10) years from date of issuance." (Underscoring supplied) \'le are fully convinced of the position taken by petitioner that it is entitled to a refund and/or tax credit for the overpayment of its corporate income tax since it did not apply to ~he succeeding taxable year 1985 its overpaid income tax for the taxable year 1984 pursuant to Sec. 69 in relat ion to Memorandum Circular No. 7 - 85. In view of all the foregoing, this court believes that petitioner has substantiated its claim for refund in accordance with the law and 612

DECISION - C.T.A. CASE NO. 4150 - 11 - rules above cited. Contrary to the allegation of the respo ndent, this court believes that it is the responde nt who failed on his duty to substantiate his a llegation that the claim of petitioner is not meritorious. For instead of presenting his own evidence which will tend to disprove the allegations of petitioner, he merely submitted the case based on the pleadings and records of the case. Instead of relying on the strength of his own case , he has been relying on the weaknesses of his opponent's evidences. A policy which respondent has adopted in previous cases but which this co urt citing jurisprudence h as stated a s follows "Since one who prays for judgment on the pleadings without offering proof as to the truth of his a llegations, must be understood to have admitte d the truth of all the material and relevant allegatio ns taken together with such of his own as are admitted" - (Citibank, N.A. vs. The Acting Commissioner of Internal Revenue, . CTA Case No. 3378, August 30, 1991; Bank of America vs. Commissionewr of Internal Revenue, CTA Case No. 3642, December 27, 1991; citing Baue r mann vs. Casa, 10 Phil 386; Evangelista vs. De La Rosa, et al., 76 Phil 115). Respondent maybe considered as not questioning seriously petitioner's entitlement to 613 r

DECISION - C.T.A . CASE NO. 4150 - 12 - its clai m for refund. More so when the evidences presented which were not disputed by respondent, sufficiently established petitioner's right to the refund (Commonwealth Management. & Services Corporation vs. Commissioner of Internal Revenue, CTA Case No. 3232, June 26, 1985; 9un Life Insurance Office Ltd. vs. The Acting Commissioner of Internal Revenue, CTA Case No. 3205, June 23, 1989; Jardine Fleming [Phil.] Inc. vs. Commissioner of Internal Revenue, CTA Cases Nos. 4041 and 4125, October 31, 1991). WHEREFORE, respondent Commissioner of Internal Revenue is hereby ordered to issue in favor of petitioner Sanitary Wares Manufacturing ' .� Corporation a tax credit certificate in the sum of P252,875.00. Without pronouncement as to cost. SO ORDERED. Quezon City, Metro Manila, August 21 , 1992. ~~ - ~~ ERNESTO D. ACOSTA Presiding Judge I CONCUR: ST~ DADIVA;:FAR;}LES Acting Associate Judge 614

DECISION - C.T.A. CASE NO. 4150 - 13 - CERTIFICATION I hereby certify that this decision was reached after due consultation between the members of the Court of Tax Appeals in accordance with Section 13, Article VIII of the Constitution. ~Q_~ ERNESTO D. ACOSTA Presiding Judge Court of Tax Appeals � 615