CTA Case No. 4272 (Decision)

REPUBLIC OF THE PHILIPPIMEB COURT OF TAX APPEALS QUKZOM CITY STANDARD CHARTERED BANK (PHIL. BRANCH), Petitioner~ ��- versus - C.T.A. CASE NO. 4272 THE COMMISSIONER OF INTERNAL REVENUE, Respondent. >t - - - DE C I s I 0N This is a claim for the refLmd of petitioner of alleged overpayments of income tax for the fiscal year 1986 in the sum of P4~577~453.00~ representing overpaid income tax on excess tax credit as at December 31~ 1986. As borne out by the pleadings and records of this case~ petitioner is a foreign corporation duly licensed to engage in banking business in the Philippines in accordance with Philippine law~ with off .ic~? address at Petrophi 1 Bldg. , Maka ti Avenue~ Makati, . Metro Manila. This case at hand has been submitted for decision based on the pleadings and records of the case, with petitioner submitting its memoranda sans the memoranda of respondent. 104

DECISION CTA CASE NO. 4272 - 2- For the calendar year ended December 31, 1986 petitioner paid his income tax in the sum of P6,348,571.00 computed as follows: Q~_BRT_E;;.B B.t!.QV.NI g.~ H1..~1T�. First P1,641~261 F, F- 1, J, K- 1 Second F, F-1, J' ~<- 1 Third 4,046,1 36 F, F-1, J ' ~:~- 1 661,173 (Petition for Review, pa r. 2, p. 1 CTA records, Admitted Answer, par. p.18, CTA rec.). Petitioner's income tax liability for the calendar year 1986 amounted only to P4,807,281.00. Petitioner alleged to have overpaid its 1986 income tax liability to the total amount of P4,577,453.00 (Petition for Review, par. 3, p. 2,; Admitted, Answer, par. 2, p. 18, CTA rec.). The e>:cess amount of P4,577,453.00 representing overpaid income tax was not uti 1i zed or applied in petitioner 's quarterly income tax liabilities for the taxable quarters of the succeeding taxable year 1987. Petitioner incurred no loss for the s aid year. (Petition for review, par. 4, p. 2; Admitted, Answer, par. 2, p. 18, CTA rec � ) � On February 29, 1988, petitioner filed with respondent a written request for the refund and/or credit in the amount of P4,577,453.00, representing overpaid income tax payment for

DECISION CTA CASE NO. 4272 - 3- calendar year 1986 (Annex "A"~ Petition for Review~ pp. 4-6; Admitted~ Answer~ par. 4~ p. 18~ CTA rec. ) . On November 4~ 1988~ the Makati Regional Office~ thru Director Perfecto T. Domingo made a favorable endorsement of petitioner's claim for the refund of P4~577~608.00 (Exh. "G"~ p. 53, CTA rec.)~ which was not acted upon by respondent. Petitioner without waiting for respondent's action in its claim for refund filed the instant petition for review on May 27~ 1988. The paramount issues raised on this appeal are: 1. Whether petitioner is entitled to the refund of the overpaid income tax and/or tax credit certificate for the said amount; � and 2. Whether petitioner's claim has prescribed. Respondent in his special and affirmative defenses stated that: 1. In an action for refund, the burden of proof is upon the taxpayer to show that it is entitled to the tax refund and failure to sustain ' the burden is fatal to the action for refund; 2. Ta>:es are presLimed to have been paid and I \. 106

DECISION CTA CASE No.� 4272 - 4- collected in accorda nce with law; 3. Under S e ction 292 of the Ta>{ Code~ no suit for the recovery of national internal revenue ta>: shall begin after the e >: piration of two (2) years from the date of paym~nt of tax; 4. Any amount sought to be refunded must be shown to have been paid to~ and received by the Bureau of Internal Revenue; 5. It is ~ncumbent upon petitioner to show that it has complied with the provisions of Sections 292 and 295 of the Ta x Code; 6. Claims for ta:< refund are strictly construed against the claimants since they are in the nature of an exemption from taxation (Manila Electric Co. vs. Commissioner of Internal Revenue~ G.R. No. L - 29787~ October 20~ 1975~ 67 SCRA 351; 7. Granting arguendo that petitioner is entitled to ta x refund/credit~ nevertheless~ pe titioner ' s claim has prescribed with respect to ta>: payments made prior to May 27 ~ 1986, pursuant to Section 292 in relation to Section 295 of the 1977 Tax Code (Pacific Procon Ltd. vs. C. T. A. G. R. No. 6805, November 27, 1984); 8. The petition states no cause of action as it does not allege the date when the tax sought to be refunded was paid (Manufacturer's Bank and Trust 107

DECISION CTA CASE NO. 4272 - 5- Co.~ as Tr-ustee for- Gener-al T r-ust Plan vs. Co mmi ssione r- of Inter-nal Revenue~ C.T.A. C.m1!!1~ Ne. 1659, November- 19~ 196 5). Petitioner-~ on the other hand~ al lege that under Section 69 ( former-1 y Sec. 79) of the Ta x \ Code, taken in relation to Revenue Memorandum Cir-cular Nos. 7-85 and 32-76, it is rightfully entitled to be refunded and/or- entitled to tax cr-edit cer-tificate for- the over-paid income taxes as of December- 31~ 1986 which was not app lied or- utilized on the succeeding taxable year. Per-tinent portion of Section 6 9 of the Tax Code~ which was cited by petitioner~ reads: "Final adj1..1stment o �f r-etur-n. Ever-y c or-por-ation 1iab 1e to tax under Section 24 s hall file a final adjustment return cover-ing the total net income for- the pr-eceding calendar or- fistal ye a r. If the sum of the quarterly tax payments ma de dur-ing the said ta xab le year is not equal to the total tax due on the entir-e taxable net income . of the year-, the cor-poration sha ll either- : (a) Pay the excess tax still due; or ( b ) ~J?......_.r..g_f L\D_g_~Q_____.t..h~--�~�~1.= �.~.?-SL....~..ITI...Q.!-In :t..-.P.�:.;i.:..�1. , as the case may be. In case the corporation is entitled to a refund of the excess estimated quar-terly income ta }:es paid~ the r-efundable amount s hown on its final adjustment return may be credited against 108

DECISION CTA CASE NO. 4272 - 6- the estimated quarterly income tax 1 iabi 1 i ties for the ta }:ab le quarters of the suc ceeding taxable year." (Underscoring supplied) Likewise the pertinent provision of Revenue Memorandum Circular No. 7- 85 dated April 1, 1985 was emphasized by petitioner as follows : 11 In the abo ve provision of the Regulati ons Section 7 of the Revenue Regulations No. 10-77) , the corporation may request for the refund of the overpaid income tax QC claim for au toma tic credit. 19- ...- ...i..D_~q.r..� .._ ........P..LPffiP.t. ~c;..t..i9.n_.........9.0.............~..9 .r..P..9.r...S\..t.�_._._.~.o.o..\J.S\...L .........:i...o..~..9.m..�...._.:t.~.;,:;. C�.!:.~\.L.O........?. h.9.~ .!.D..9 ........r.g f L~.O..Q. ~.!?....!.g...... ~ffi.Q~U:l.t..?.......8\..C:t.?.A:.O.g .f...r.:.Pm....._Q_y_~..r.:.P.~ ;!,...9. _.Q..t,t_<?.~,r.:..t.!?..r..lY...... t .o..~..9.JTI.�. ... ...t..�.\;:t�?_�. , t he office has promulgated Revenue Memorandum Order No. 32- 76 dated June 11~ 1976, containing the procedures in processing said returns. Under these procedures, .t...tJ�.........!':_~...t.h! r 0..2........�.\F_!?...__(I_l e r::__E;J! ...Y........PL�.:- a hL9.J....t.g_g_ l-J h i c h consist mainly of checking mathematical a ccuracy of the figures in the return. 0 t.t..E?..r:.._.~b.t~.h..s_...t.b.� __L!?..f..P..O..Q........9.r.........t_~K....-~. r..!?..Q..4:. :t......;i..?. 9 ..[�.\D....t.J?.Q...; _ a nd, i.b.!..?........ Pt:P.~ .!?.Q.htt:�'._.\1~.?........fo._\ Q..Qp:t;~g. t9.... .. f .~.~-i...t:t..t.~.t.? ........A.m.m.g.�!.i .S'. t .!?......... ~.~-�t.! .9..D._QfL....!;.fo.\..2.?.?.. J .i l<;.!?.........t..b.L?...o!.. x x }: 11 ( Un de rsc or i n�g sup p 1 i ed ) from the provisions of law above quoted, petitioner maint a ined that since in this . case at hand~ it is not denied, nor res pondent disputed that petitioner's annual corporate income tax return reflected an overpayment of P1,713~736.00 , and the same was carried over in the succeeding ta>:able year. Petitioner cone luded tha t since respondent.., did not dispute the fact that for ta>:able year ended December 31~ 1986~ petitioner's annual 109

DECISION CTA CASE NO. 4272 - 7- corporate income ta:-: return reflected the sum of P9,384,754.00 as total payment while the total income ta :-: 1 iabi 1 i ty was on 1 y P 4, 807,201.00, this clearly shows that petitioner has a refundable amount of P4,577,453.00. A close scrutiny of the records wi 11 justify that this claim of petitioner was never contested by respondent in specific term s~ Fur-thermore, the records will show that respondent, through its Regional Director, Perfecto T. Domingo, had prepared a letter dated November 24, 1988 addressed to the Chief Refund Audit . e rt ion that the said amount of P4,547,608.18 was the amount overpaid by petitioner ( Exh. L, p. 53, CTA rec.). However, said recommendation \f-Ja s not acted upon by the respondent. Said letter/ memorandum is hereby quoted below: "November 24, 1988 The Commissioner of Internal Revenue Diliman , Quezon City t . Attn � : I..b..E.L_C._t::ti.J~... .!l--. R~.f-~!.!J..Q. ttl:::\_c2A.t......P-!.~! s i g_o._ Sir: In compliance with Revenue Me morandum Order No. 32- 76 dated June 11, 1976, I have the honor to forward herewith the Audit Sheet for Corporate Income Tax Returns and other related papers bea r i ng on the refund cases of STANDARD CHARTERED BANK PHILIPPINE 110

DECISION CTA CASE NO. 4272 - 8- BRANCH~ 7901 fvfakat:..i. A v enue~ l'1 o� f.: ati ~ Metr�o Manila~ for the ca l endar yea rs e ndinq Dec ember :::a~ 1985 a nd 1.986~ s h ovJ.i.n q overpayments of Pl~713,736.00 and P2,833,872.18, respectively, for appro- priate action. Please acknowledge receipt hereof. Very truly yours, (Sgd.)PERFECTO T. DOMINGO Regional Director TAN: D- 5527-01824-1 - 0" it should be noted that the mathematical disparity between the amount c 1aim by petitioner which is P4,577,433.00 and the total overpayment recommended by the Regional Director of P4,547,608.18 . such disparity as explained by petitioner was due to the fact that respondent failed to consider the c t-edi ta bl e withholding ta>:, and the adjustment on 1985 s hare of the head office expenses in the sum of P29,845.00, as reflected in the 1986 income tax return of petitioner. (E>:h. "K", p. 51, CTA rec.). This computation was not rebutted by respondent by concrete proof. Anent the allegation of respondent in his answer (par. p. 5, CTA rec.) specifically denying the claim of the petitioner's . entitlement to the refund of the excess tax credit on overpaid 111

DECISION CTA CASE NO. 4272 - 9- income tax for the calendar year end e d December 3 1~ 1986~ which were not applied or� Lltilized by peti t.ioner in the succeeding ta }:able year~ and as correct 1 y asserted by petitioner in .i ts petition �for r�eview (par. 5, p. 2, CTA rec.) "the la~J allows the automatic carry-over and application of the excess tax credits only against the estimated quarterly income tax liabilities to the taxable qua 1rt.er of the succeeding ta}:able year". It is, therefore~ of paramount importance to consider that the respondent I s office to which the claim for refund was assigned for investigation strongly recommended the granting of the claim for refund or ta x credit after auditing the corporate income tax returns of petitioner for the calendar years ended December 31, 1985 and 1986. The BIR Regional director acknovJledged that the 1985 and 1986 returns of petitioner shovJed overpayments of F'1,713~ 736 .00 and P2~833,872.18. (Exh. "L", p. 53, CTA re c. ) . ~ Contrary to respondent's claim, respondent was furnished pertinent returns and other related papers both in the administrative level and judicial trials. We find the c 1aim of petitioner that the matter which respondent is denying for lack of knowledge or infm-mation is a matter of 112

DECISION CTA CASE NO. 4272 - 10 - record~ and the means of information concerning which ar-e within the control of the respondent is readily accessible to him. Respondent allegation of lack of information will not be considered as a specific denial as cited by petitioner. (J.P. Juan and Sons 1 In~-~ v. Lianga Industries 1 Inc. 1 28 SCRA 807; Philippine Advertising Counselors 1 Inc. 1 v. Revilla, 52 SCRA 246. ). We agree with petitioner that while the Rules of Court allows respondent to state in general terms that he cannot admit or deny specific matters averred in the complaint for lack of ~:: novHedge or information sufficient to �form a belief as to the . truths of the averment which will amount to specific denial~ such has limitation. Where the fact~ to which want of knm�Jledge is asserted~ is wi thil! the knowledge of the court and not plain 1y and necessat- i 1y within the respondent know 1edge~ the averment of 1 ac k of knowledge thereof will be disregarded. On the . issue of prescription~ respondent's alleg<:~tion in his answer that petitioner's claim has already prescribed with respect to tax payments made prior to May 27~ 1986~ pursuant to Section 292 of the Tax Code~ in relation to Section 295 of the Code~ is without merit. We agree with the petitioner that ":o::�: the two year prescriptive 113

�' DECISION CTA CASE NO. 4272 - 11 - period is counted only from the date the final return s howing the overpayment is fil e d which ""Jas on April 15~ 1987 (Please see Exhibit "A-2 ") and not in the dates the quarterly payment were made. Accordingly~ petitioner filed an administrative claim and instituted a judicial suit for the refund of P4~577,45 3 on May 2 5~ 1988 and May 27, 1988~ re s pectively~ which are well within the 2 year period c ounted from the filing of petitioner ' s 1986 return on April 15~ 1987" as held in the case of Asia Australia Express, Ltd., l'. Coaaissioner of Internal Revenue, CTA Case No. 3695~ September 29~ 1988 (Affirmed on appeal by the Supreme Court G. R. No. 85'.~56 .~ Apr i 1 10 .~ 1989) this Honorab 1e Court ruled therein that: "The apparent contentious quibble on the c omputati9n of the 2 - year p re scriptiv e pet- i od under Section 292 of theTa:�: Code had been squarely t- e s olv e d in e arlier decisions of the Supreme Co urt which lend settling eloquence to the precise issue in the case at bar. Thus ruled~ inter alia, "When a ta>: paid in installments~ the prescriptive period of two years provided in Section 3 06 (now Sec . 292) of the Revenue code should be counted from the date of the final or last installment. xxx This rule proceeds from the theory that, in contemplation of ta >: laws~ there is no payment until the whole or entire tax liability is c ompletely paid. Thus, a payment of a p a t- t of portion thereof, cannot operate to start the commencement of the statute of 1 imitations. In this regard~ . the word 'ta:�: � in statutory provisions comparable 114

.. DECI S I ON CTA CASE NO. 4 2 72 - 12 - t o Section 306 o f our Reven ue Cod e have been un iforml y he ld to refer to the entire tax a nd no t a por t ion t hereof (Clark v . U. S., 69 F 2d 748; A . S . l<riedner Co, v. U.S., 30 F supp . 7 24; Hills v. U.S ., 50 F 2d 302 , 55 F 2d 1001) and t he voca bl es 'paymen t of t a:�: � wi th in statu tes re q u ir i n g r ef u nd c l ai m~ refer to t he da t e whe n al l t he ta >: was p ai d~ not when a porti o n was paid (Br aun v. U.S. , 8 F s upp . 869, 836; Collec tor o-f Internal Revenue v. Prieto, 2 SCRA 1007; Co ��is s ioner o-f Internal Revenue v. Palan c a, 18 S CRA 496 J . " IN VIEW OF THE FOREGOING, respondent Commissioner of Internal Revenue is hereby ordered to refund to petitioner Standard Chartered Bank (Phil. Branch) the sum of P4,577,453.00 and to issue a tax credit certificate for the said amount in f a vor of petitioner. SO ORDERED. Quezon City~ Metro Man i l a ~ Ma rch 1 7~ 1992 . .1f lt;~ CONS ANTEf. ROADUIN Jud ge I CONCUR: ~~LQ.. ~ ERNESTO D. ACOSTA Pr esid i ng Judge 115

DECISION CTA CASE NO. 4272 - 13 - I hereby certify thctt this decision was reached after due consultation between the members of the Court of Tax Appeals in accordance with Section 13, Article VIII of th~ Constitution. ~ .._.:x:;\Q. .. ~ ERNESTO D. ACOSTA Presiding Judge Court of Tax Appeals 116