CTA Case No. 5500 (Decision)

REPiBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY SGS PHIL1PP~NES, INC. tfn�net~ly PHILIPPINE TESTING AND CONTROL EERV ICES~ INC. ) '! Pet:!..-;:.oner�, 1"\ CO~MISSIONER OF INTERNAL REVEN~E, X- - - - - - - - - - - - - - - - - DEC I SION This case 1nvolves crea1table ~1.-;hholding tax for~ ::alendat~ vear~s ?noed Petit1oner is a domest\c corporation organized ard uncE��l- <:?..ncj := h i 1 i p rn n e �; � It �1 <::"> pr1mar1Ly enqaged 1 n l;ne DJSJ.ness of shipments in the Philippines. On .June J.LJ., :L':3'3tS~ PetitEmet~ amended .�,. r -~ ::; ;-~ o en- <3. . . o r c�h -no :t :-1q its +: p t 1 Testing and Contr~l Inr .. 1 ~; P''l<'F':''IC'Fd ti':t J.ssued by the Secur~l 'ties and Exchan~e Commission (Exh. <Exh, D-� �~ l " '"' i �1-h D-::.)' au~;hot'J.zinq tne

OE.l:JS [tF-t - C.T.A. CASE NO. 550C amendment of the Artic.es of lncorporat1on of Philipc1ne Testing and Control Ser'v1ces, Inc., to effect the chanoe '-' l Sl3S amonw ca:~ �?ndar� year� ended December� 31, 1':394, qnnual 'ncorr<e ,-.::..>< ". 7' t 9':35 (Exh. A-4) roflectinq ~n overoaid tax 1n thr:� Gr�oss Income P40, 210, EA4. 00 Less: Deductions 43, ~''J15, 270. 00 Tax Rate ( ;?. , 30-4�. S.3t+. (iO > Income ra:'\ DuE� 351. Less: Tax Credits/Payments 1'�\J1 .Tl ':__ CrPditFb]e Ta~ Wit~~~,~ Amount Refundable J.L~I-t. Eili::~ .. 00 sa.id ca :L en d ar�� year ~et1tione~ dec lar�ed a net loss in the amount of ���r::. f �: I"Ct PCi j n its 1994 Corporate Annual Income Tax Return CExh. A-3). Thus, Pet1t1oner carried over to the succeeding calendar year of 1?95 the affi0 1Jf1"C of ~144,812.00 as tax credit. L i k e wi s e , f o t' t h e c �:3. 1 e n d a r' year ended December 31. 1 995~ Return on Apr1l 13, 1996 declarinq a net operat1ng loss o f P1,207,847.00 <Exh" B--.:3) cr�ed it a.b 1 e taxes withheld at source for that year in the total am ount of

DECISION -� C.T.A. CASE NO. 5500 3 over of the excess creditable w1thholdinq taxes which P e t i t i o ner gen e r a ted in 1994 c annot be ~pplied because of the operat1ng loss it Thus~ amount of P144~812.00 represent i ng unutilized creditable wit hh o lding taxes for the calendar year 1994 and th e amount of unutili::-:ed taxe s for the calendar year 1995 represent the alleged total overpaid 1ncome tax of Petitioner computed as follow s : Gross Incou P42,G48,755.00 Less: Deductions 43,856.242.00 Net Loss ( 1,207,487.00) Tax Rate Income Tax Due 35" Less: Tax Credits/Pay�ents NIL Prior Year's Excess Credit P144,812.00 . 507t 460. 00 Creditable Tax Withholding 362,648.00 Total Amount Refundable p===5=0=7!::,4=6=0=�=0=0== Although the refundable amount of P507.460.00 was opted bv Petitionl''r"' "to be applied as tax cr��edit to ne:d: the same did not mat e rialize because Petitioner did not carry it over in 1996 as shown bv the 1996 income t ax r eturn CExhs. C~ C-1 to C-9). l1' 1997' Pet1tioner filed a letter-claim <Exh. E) with the Bureau of Internal Revenue seeking for the refund of the amount of P507,460.00 as unutilized cred i table withholding tax paid for thE taxable years 199 4 and 1995.

DECISJCJN -- C.T.A. CASE NO. 5500 �- 4 has neither acted much less the claim Petitioner had no other recourse e:-<:ct:-~pt to file the 1nstant Petition for Review on April '+, 1. 1 9':37 in order to toll ti-1e 1�'unn1n~~ of the tli'Jo-year' prescriptive period allowed under Section 230 of the Ta:,.; Code, as amended. Respondent, for' his fol.lm�nng Special ard Affirmative defenses in ~is Answer~ The administrative claim fo1�' r�efund li~a~.; t1J.er1 only on f.=!pr'i 1 l1, 1':5''37 1.'>1h!"l'"'!~a';, �dH' instant petition was filed on April 14, 1997, not giving Respondent enough chance to act on it ; 6. Petitioner has not shown proof that it has incurred losses in the years 1994 and 1g95, mere declaration 1n the returns without beinq supported by ~ecords of pertinent oaoers proving that the claimed deductions were really oa1o or incurred during the years in ouestion is insufficient; 7. The expenses claimed by the Petitioner ir its ~S9L and � f::l<::l!::' ~- _,. _,� ..J not totally allowable, thus even if granting, for the sake of argument, that the withholdinG tax payments for both years are correct and accurate, the same are insuffic1ent to cover the payment of 1ts deficiency taxes; A T~e petition states no cause of ~ction as it does not alleged the dates when the taxes sought to be refunded were actually paid; '3. The best evidence of payment and r��emittance of taxes 1l-nthheld are the otf1r1al J�~ece i pt s; 10. Claims the claimant, constr~ued strictly agairst exemptions from in the nature of thP same t.>eing Lede~;m.::L, taxes <CIR vs.

DECISION -- C.T.A. CASE NO. 5500 T+- Section show compliance with the provisions of 230 of the Tax Code; lf~. Consequently, Petit:i.oner~ is not legally entitled to the clB.im !-,f:'-~ein sour~ht to be refunded." It is likewise the conten~ion of Respondent that Petitioner not only failed to esta~l1sh bv rlear an~ convincing evidence its entitlement to the refund sought but was also remiss in disouting the find1ngs of the Respondent's revenue examiner (Respondent's Memorandum, p. of the investigation conducted, l"vt- was ~ound that the taxpayer failed to substantiate with the corresponding certifjcate of withholding tax the amount of P115,902.65 allegedly representing tax credit; that t~e su~ of PGB,430.00 2s t a>< CTed 1-l; is erroneous for there cer-t<::1_1n gr~oss income reported but in fact not subject to withholding tc:~x; that th(-? -::\mnunt w1thheld allegedly by Toledo ~arufacturirq Co. and Cebu Mitsume, Inc. is of dou.bt""'"ul nature and that no proof has ~ee~ the w1thholding taxes were actually remitted to the BIR by the company's alleged wi-chholding Memorandum Report, November~ :1. Sl':::-17' p. c .... .-, t::~ t:: BH~ J.._J, t'8C'()("�d<;). In order to support its entitlement to refund, Petitioner on its part submitted the following documents

DECISION ��-� C.T.A. CASE NO. 5500 wh1ch were all adm1tted in a Resolution. dated February E?, 1998, to wit: 1. The administrat1ve claim for refund filed with the BIR E Income Tax Return <ITR) for the A, B. y e.;,;n��s 1994, 199::i and 1 '3'35 and the amended ITR for 1994 BB, C The SEC Certificate of Registration D 4. Th e various cert ificates of F-1 to creditable income tax withheld F-7'3 at source f or 1994 G�-�1 to The various certificates of creditable income tax withheld G-�1.01 at source for 1995 The only issue to be r eso lved by this Court is whether or not Petitioner is entitled to the refund the sum of P507~460.00 representing alleged overpaid credit a ble withholding tax for calendar years 1994 and 1.995. Petitioner anchored its claim fo~ refund of the aforementioned excess creditable withholding tax on the following provisions of the Tax Code: "Sec. 69. Final adju stment t,etur n. Every corpo ration li a ble t o tax under Section C~Lr shall fi!e covering the total taxable income for the preceding calendar or fiscal year. If the sum of the quarterly tax paym e nts mad e during t h e said taxable year 1s not equal to the total tax

DEC IS HJ'\l -- C.T.A. CASE NO. 5500 --� 7 - due on the entire taxable income cf that the corporation shall either: ta) Pay the excess tax still due; o~ (b) Be r�efunded the excess amount In case 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 acainst the estimated quarterly i n come tax l1abil1ties for the taxable quarter of the succeeding taxable year'." "Sec. 204. fluthority ot= the Commissione r t o co mprom i se, abate., and r� efund/credi t t a.xes. T~e Commissioner may~ }{ X (3) Credit or refund taxes erroneously or :illegJ'J.�/ ��-Gc>~ived~ pe'lalties imposed without au.thor�jty, 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 stamps that ~ave been rendered unfit for us e and ref und their valu e upon pr�oof of dest�r�uct1on. No cr��edit or' r�e-Fund ~f taxes o r penalties shal! be allo wed unless the taxpaye~ f i l e s i'! wr~ting w~th the Commissioner claim for credit or refund within two years after the payment of the tax or penalty." We find nothing ambiguous n or obscu r e i n the of of the Code. 1 nsofa.~-- as the same is tn~ought to beat' upon the circumstances of the Petitioner in the case at bar. True eno~gh, the excess payment made by the Petitioner could <a.) be r�efundecl to the corporation or (b) be C:Tedited to the s~~ceeding taxable year. However'~ Petitioner sustained a net o per��at in g loss

DECISION -- C.T.A. CASE NO. 5500 - 8- �r� e n Cl e "r"' i n g 1t 1mcossible to ~pply the ex~ss~ creditab~e withholding taxes 1t Since Petitioner did no~ ut::.l1ze the 1'39LJ over�pe.id income tax i~ the succeed1no year' 199!:;, as well as its 1995 overpaid income tax, due to the losses it incurred in the years 1995 and l99E,, it appears therefore that the amount claimed for re~und lS befor�e c. O'r' Ct'ed 1 t of the tax ~-.J i t h h e 1d can be g i v e n d u e c o 1_; r' s e , i t i. s i mp e J�' at i v e f Dr' the claimant-Petitioner to show first com~1iance with the following reau1sites: U That the taxpayer' flied its claim ftw refund within the two (2) year per1od prescr1bed under Section 230 Df the Tax CCJde; 2) That it was shown on the return of the recip1ent that the income pavment rece1ved was declared as part of the gross income (Section 10, Revenue Regulations No. G-85~ ACCR(~ Investments Col�'p. vs. Cour�t of l:~pDea ... �,>~ 204 SCRA 957); 3) The fact of withholding is :=:�~.,tabl.~s'.c-c! bv <:< copy -..~i -7;.1~2 -::tatpment <BIR Form 1743. 1) duly issued by the payor (withholding agent) to the payee, show1ng thP amount of 1ncome pa1d and the amount of taM withheld therefrom (ibid.> A per'usal of the evidence submitted by the Petitioner revea:s that it has satisfactor:ly proven its rlaim for refund/tax credit. Petitioner filed its 1995 <Exh. A-5). The 1995 Corporate Annual Income Tax

:~�ciSIGi\l - :.-.A. CASE NO. 5500 - g- Retuni <Exh. B) ~<Jas frled on (.~pr~i]. 13~ 1996 <E:-<h. B-7). The written claim for� r�efund (Exh. E) was filed Respondent's office on Apl�'i l 11, 1997 (Exh. E-1) and the Petition fat' Rev1ew ~-.Jith this Co,_wt on Apt'il 1L~, 1'3'37. Fr-om a.1.J the �fol�'f~~Join9~ it can bt:, gleaned that fl�'om the dates of filing of the corporate annual income tax l'et ur�ns fo1�' the f:.scal ye;:ws involved. t h e t ~<.J o y e ,:n-� prescriptive period under Section 230 of the Tax Code has r�� e t .l "L i til-. c 1" in the f1ling of 1t s administrative and judicial claims. to the Re�:;pondent' s content1on? the Pet1tioner is not requ1red to show the date of payment of the tax withheld at so ux�ce. The r'u l e taxpayer pays on a quarterly basis or on the 15th day of the 4~h month following the close of the calendar n- fiscal per~iod. This is the time when it can be finally ascertained that the taxpayer e_ther made profit or suffered a loss in their operatinns <AdMu vs. CIR, CTA Case No. 3976, October 18, 1989). In addition, the 1'394 and 1995 cr-editable withholding taxes were duly supported by Cert1ficates of Creditable Withholding Tax At Source <BIR Form 1743. 1) in accordance with the requ1rements of Revenue Regulations No. 6-85 <Exhs. F-1 to F-7g and G-1 to G-101). It was further established that the income upon which these creditable withholding taxes were paid were

DECISION - C.T.A. CASE NO. 5500 - 10 �- 1nciuded in the and B) � The J�~esults of the invest1gat1on conducted by Respondent's reverue officers that Pet1tione~�~ claim of doubt fu.l nature cannot be given weight by this Cour�-t, absent .:.'.\nv m-oof �::::Jch Without the necessa.r�y and ev:dence, the findiTHJS of the off 1 cer~s ,:u�e r1ot.r :.nq tJ! t; mer~e conjectr_wes and pr~e mat ut~e conclus1ons only dt~awi ng they are regularly the it' functions. The Resoondent cannot l1kew1se quest1on the veracity of the :rcome Tax Ret ur�-ns and the ceJ�~tificates of creditable tax withheld since Respondent d1d not present any evidencE pointing out irTegul.:n~ity in the p~�epat�at 1 on of these documents <BPI as Liquidator vs. CIR, CTA Case No. 4257, December 20, 1993). Thus, the findings of t~e R2sponden~ cannot clc:feat the otherwise valid cla1m of PFtlt io~er . especially if the Petitioner's evidence is complete and Respondent's defense wh1ch 1s anchored as usual on pr�' J. n c~ J j:.� l e that claims f o r' r- e f u n d .;:,, ~� e construed cannot be given ct�edence in the light of the Pet i t 1 on (�? 1'' s t!V:ldence to p1�'o v e i t s claim <Shangri-la Plaza Corp. vs. CIR, CTA Case No. 5346, January 9~ 1998) .

DECISION - C.T.A. CASE NO. 5500 �-� 11 - n T conc.i.u~~ion~ t.Je find P e t i t i o n e t' .L adequately proven its case before this Court . Howeve r~ ~ fr'om the E>vidence s u b m ~. t t e d 7 refunded is only P419,562.90 instead of the original P507,460.00 as claimed in the petition. For the taxable Petitioner presented certificates of tax withheld in the total amount of ~223,374.41. however in the corporate annual income tax return for the same year~ only the amount o f P1 4 4,812.00 was de2lared ~~ ~reditahlP tax withheld, thus, only the amount of P144,812.00 should be refunded to Petlticner for calendar year 1994. For the t axa ble year 1995, the amoun t of P362, 648. 00 <Exh. B- 10) har been declared by Petitioner in its annual income tax t�etul�~n, however only the amount of P274,750.90 has subst a ntiated by certificates of tax withheld <E x hs. G- l t o G- :1.01). Thus. only the a mount of ~274,750.90 should be refunded to Petitioner for the calendar year 1995. The deta1ls of the total refundable amount of P4:1.9,562.90 is shown hereunder: Pet' Petitioner'' s Pet" Petitioner's Cla.iiS with Suppm't ing A�ount Refundable Yeat' BIR/CTA Docutu~nts Exhs. 1994 P144,812.00 P223,374.41 F-1 to F-79 P144,812. 00 1995 362,648.00 274,750.90 G-1 to G-101 274,750.90 TOTALS P507,460.00 P498,125.31 P419,562.90 WHEREFORE, i n view of the foregoing? claim for refund is GRANTED and Resoondent

l"\f"' ~.-.~. CASE NO. 5500 - ., -� .LI�..=.~. ORDERED to ISSUE a TAX �:r~FT;::. T C::::-RT IF I CATE: :. n thP c� mo 1 tnt of 0419,562.90, re pres e nting overpa id ~ne taxable years 1994 and 1995. SO ORDERED. m-.'i: RAMON 0. DE WE CONCUR: L\Q-~ ERNESTO D. ACOSTA r::�r~ esidlng Judge CERTIFICATION I hereby certify that the above decision was reachec A.-Fte~~ due consultat10T1 with thE~ membet~s of tne Com't; of T~v Cn~o~ l ~ in a~~ordan"P with Se~tion 13. Article VII[ a~ the Constitut1or. G-lQ,~ ERNESTO D. ACOSTA fT'esld:tno JJoqe