CTA Case No. 4217 (Decision)

- ~ �- -REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY BANK OF THE PHILIPPINE ISLANDS as Trustee of the PAL Pilots Retirement Benefit Plan, Petitioner, -versus - ~ C.T.A. CASE NO. 4217 COMMISSIONER OF INTERNAL REVENUE, Respondent. X- - - - - - - - - - - - - - X DE CI S I 0 N This petition for review seeks the recovery of _, ' the total amount of P4,099,489.~0 representing the final withholding tax on interest of bank deposits and yield of deposit substitute for taxable y'ears 1985 and 1986 allegedly withheld by re s pondent erroneously and illegally. On Hay 30, 1972, the Philippine Airlines, Inc. established the PAL Pilots Retirement Benefit Plan to provide a fund for the retirement, death and disability benefits of its employees. The said retirement plan qualified as a .reasonable retirement benefit plan within the meaning of R.A. /~ 658 / I

DECISION CTA CASE NO. 4217 - 2- No. 4917 pursuant to the letter o f the former Commiss ioner of Internal Revenue on September 12, 1973. Petitioner was duly appointed trustee of the funds of the PAL Pilots Retirement Benefit Plan. �' Pursuant to the trust agreement, petitioner depo s ited and invested the funds of the retirement plan in savings and time depo sits , money market and various securities with various banking and financial institutions. For the years 1985 and 1986, these deposits and investments earned income in the a mount of P12,669,892.99 and P16,883,417.59, respectively. The c orresponding withholding taxes were withheld on these earnings in ~he total amount of P1,825,483.78 and P2,274,005. 52 for the years 1985 and 1986, respectively or a total of P4,0 99 ,489.30. On Dec e mber 29 , 1987, peti tio ner through counsel, sent a letter to respondent demanding t he ref und of the amount of P1,825,483. 78 covering its 1985 withholding taxes and at the same time filed a petition for review with this Court in order to meet the two - year pr escri ptive period under Section 230 of the Tax Code. Another claim for refund letter was sent by petitioner on February 19, 1988 659

DE C TSI ON CTA CASE NO. 4217 - 3- dem a ndi ng fro m resp o ndent th e refun d of t h e a mount _, of F2,27 4,005 .52 c over in g it s 1986 withh o lding tax. On Febr u ar y 26, 19 88 , petition er amended the petition for r e view filed ear l ier b y in c luding the 1 986 wi thholding t ax for i t s ~ l a im f or refund. In its a nsv1 e r , respondent adm itted so me materia l allegations of t h e petition but d e nies so me facts such as the filing of th e c l aim wit hin the tvTO�� ye a r p eriod , the ill ega lity of t h e c l a im . T\ s s p ecial a nd a ffirm at iv e def enses, how eve r, resp o ndent cont e nded that the retirem e nt pl an whic h e nj oys tax e xemption unde r Secti o n s 21 ( d ) a nd 24(cc ) of th e NIRC were withdra wn by imp li ed repea l o f t h ese two sect.ions by P . O . No . 1 959 . Res pondent a ls o a rgu e d that the c ase rel ied up o n by P P. t i t io ne r , �c;. C.~ . B.:~ .:t::.i,re .l!'~'!t: P 1 a n v. Com mi ss i o n e r of Int er nal Rev e nue (C.T .A. Case No. 3888 , Dec. 15, 1 988 ) whe rein this Co urt rul ed that em p loy ees tr u st are tax exemp, , i s still unde r rev i eH by the Su p reme Co urt in G. R. No. L -77 097. The i ss u es submitted f or reso lut i on o f this Court are as f ol l o Hs: ( 1) \'lh et h er or not s ub ject c l ai m f or r e fund has already pres cri bed ; ( / 660

DECISION CTA CASE NO. 4217 _, - 4- (2) Whether or not petitioner has sufficiently proven the f act of withholding taxes and payment of the same to the Bureau of Intern al Revenue as required by law; and ( 3) Whether or not the income tax exemption granted to private retirement benefit plan has already been revoked by Presidential Decree No. 1959. On the first issue, the records of the case show that on December 29, 1987, petitioner filed with the Bureau of Internal Revenue the claim for refund covering its alleged 1985 erroneously withheld taxes in the total amount of P1,8 2 5,483.78. On the same date, petitioner also filed a petition for review with this Court coveri ng the said 1985 erroneously withheld taxes. On February 16, 1988, petitioner filed with the Bure a u of Internal revenue the claim for refund covering its alleged 1986 erroneously withholding tax in the amount of P2,274,005.52. Consequently, it amended its petition for review to inc 1ude its 1986 claim for refund and filed the same \-lith the Court on February 26, 1988. / 661 _,

_, DECI SI ON CTn CASE NO. 4 2 17 - 5- The p e rt i ne nt prov i s i ons of the Na t iona l I n t e r n a l Re v e n u e Code app l i cabl e on this part i c ular i s sue are as f ol l ows : S e ct i o n 29 2 ( now Sec. 23 0) . Reco v ery of ta x erro n e o u s ly or i ll ega lly coll ,e c ted. No suit or pro c eedi n g s h a ll be ma i n t a i ned in a ny c o urt f o r th e recover y o f a n y n a ti o n a l inte rna l rev e n u e t ax her ea ft er all eged to ha ve been e rr on eo u s ly o r i lle ga ll y a ss e s se d o r c o ll ec t e d, or of a n y su m a ll eg e d to h ave b e e n co ll e c te d \V' i t h out aut h orit y , o r o f s um a ll e g e d t o have been exces s i ve o r in a n y ma nn er \V' r o ngfully co ll ected, u n t i l a c l a im f o r r e fund or cre di t h as b e e n duly fi l e d wi th th e Co mmi ss i o n e r; b u t s u c h s ui t or p roceed in g may be ma int a in e d, wh e th e r or n o t such ta x , pe n a l ty, or s u m has been p aid und er protest o r duress. In .......... '3.:.I}..Y... ......... c::!..i3.:.!;;..~. L.. ... n o s uc h s ui t or pr oc eedi n g ......... . !;;)1 �1 ~}: h }?. ~ . }?. ~ 9 '~�~���� a ft e r t h e ~ }{ptr;a.:. !:.A9n .9 ~ t Ho y ear s fro m th e d a t e o f p�l y ~ ~I}!: .<?. ~.......t h e ta x .<?..:r.::... p ~ n a.: ~!: Y . F !:? g c:t .r:c1} .~ . ?.f5. o f a n y ? .':IP~.I:.Y.~~ i n ca u se t h at ma.: Y. .... i3.F.i .~ .~. ... a f t er J> c:t.� 111 ~ ~1:::= Provided , h orve ve r , T h a t t h e Co mmis s i o n er ma y , ev e n wi t h out v-'r itte n cla im t h erefor , r e fund or c r e dit a ny t ax, wh e r e on th e f ace of the return u pon whi c h p a y me n t was mad e , su c h p a ym en t a p p e ars c l ea rly to h a v e b ee n e rro ne o u s l y p a id. ( Un ders c oring s upplied . ) and Sec ti o n 295 (n o w S ec . 204 ) . Au t h ority of t h e Co mmi s si on er to compromi se , abate, and re fund / c re di t taxes . ) . XX X XXX XXX ~ 662

DECISION� CTA CASE NO. 4217 - 6- (3) Credit or refund ta xe s erroneously or illegally received, penalties imposed without authority, re fund the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or c h a ng e unused s tamps that have been rendered unfit for use and refund their value upon proof of destruction. No c..:t::.~..9.~.~.......9.~..........~.~.~. '::1.!.1.9:. of t: .~.~. ~. ~ ...........9.!:............J'..~.f.l:.~.!..t:.; ~ .~........ ~.~-a.:~} .............1.?...~...............~.!. ~.9. ~ ~.d.: ':1.!1.!..~. ~. ~.. .t: .~.~........t:.~.~ !?.~.�.~. ~ ......~..~..~. ~. ~........i..f.l:.......~:r.:; t:.;.!l.<J........~.~. t:.l.:l. the Commissione of claim fo cre dit or :r:.~.~.'::l..f.l:.9....~.?:.t:.h.i..f.l:........t: ~.9... Y.~.a.:.!:.!'> .. .~ ~.t:.~.:t::.... t:h..~....l?.t:lY.~ ~. l1 t .' C?.f.......t:.h.~.......t~.~...........9.!: .....J?..~.f.l:~.!..t:.Y... ( Unde rs coring supplied.) Clearly pursuant to said provi sions of law, recovery of tax erroneously or illegally col lected must be done \-li thin two years from the date of paym n of the tax in question by filing a timely claim for refund with the Commissioner of Interna l Revenue and instituting a suit or proceeding in court within the said peri od of time. In the case of final withholding tax as in the instant case, pursuant to Section 51 (a) of th e Nati onal Internal Revenue Code, the filing of the return and the payment of the corresponding taxes withheld should be made within 25 days from the cl ose of each calendar quarter. The records show that the petiti one r filed its claim for refund and the instant petition for revi e w on December 27 , 1987. Inasmuch as 663 /

DECISIO N CTn c nSE NO. 4217 �- 7 - pa y mc n t o f Hi thh o ld in g taxes h as t o b e d o ne o n a quarter ly basi s , only th e clai m for refu nd of p eti tioner for th e p e riod starti ng th e l ast quarter of 1985 remain s v a lid and sub s isting. Th e recov e ry of taxes paid for the first, second and t hird -� quarters of 1 985 h ave pres c ribed . He n ce , for the y ear 198 5, p e titioner may v a lidly c l aim fo r refund onl y payment s of withholding ta x es made during the l i'ls t. quar t er of th e said year. Con se quently, the cer U . fication of wit hholding marked Ex h . "J" iss u ed by Ho ngko n g Bank cover ing t h e period f ro m Jun e 198 5 to /\ug u s t 1 985 in the total am ount o f P168,830.45 h as a lready prescrib e d. Wh at see ms to be a va lid c laim is t h e amount of P494 , 717. 35 covere d by the ce rtification d a t e d February 2 1, 1990 i ss u e d by BPI Cr ed i t Corpor at ion mar k ed Exh. "H" . no o ther ce rtj_fica ti o n o r statement o f wi t hh o lrling ha s b ee n presente d by p et iti o n er to cover it s 1985 c l a im for tax r e fu nd except th ese two do c ument s. On th e second issue o f wheth er or not pet. itio ner has s ufficiently e stabli s hed or proven its c la im for refund, thi s Court b e li eves that p etitio ner f ai l e d t o p rove it s claim as require d by l aw. The burden of proof is o n the petiti o n e r to 664

DECISION CTA CASE HO. 4217 - 8- present evidence on the facts in issue necessary to establish his claim. The applicable provisions of law aside from Section 54(a) (now Sec. 51(a)) whiqh requires the filing of quarterly return are Sections 54 (c) and (d) of the Tax Code (now Sec. �. � 51 (c) and (d) ) . Pursuant � to said Section 54(c) a written statement of income payments made and taxes withheld shall be furnished each recipient by the withholding agent simultaneously upon payment of the withholding tax at the request of the payee. In case this is not requested by the payee , simultaneously upon withholding, the statement "should be given to the payee on or before January 31 of the succeeding year". Another related provision of law which will prove the fact of withholding and income payments, is the requirement under Section 54(d) of the same Code for the withholding agent to file an annual return containing a reconciliation statement of quarterly payments, list of payees and income payment. In case of final withholding taxes, the return shall be filed on or before January 31 of the succeeding year. 665

DECISION CTA CASE HO. 4217 - 9- In other words, pursuant to said provisions of law, the fact of withholding and payment of the withholding tax to the Bureau of Internal Revenue may be proven by presenting copies of the following documents: .� (1) Quarterly withholding tax return 1,� ' (2) Written statement of income payments made and taxes withheld (3) Annual return containing the reconciliation of quarterly payments, list of payees and income payments. On its 1985 claim, petitioner failed to prove by documentary or testimonial evidence what , particular payments were made during the said last quarter. Exhibit H, which contains a certification letter dated February 21, 1990 issued by BPI Credit Corporation merely enumerates in general the various taxes withheld for the years 1985 and 1986 without indication as to the date of the remittance or payment of the tax to the BIR. No other evidence was presented to support the withholding and payment of taxes for the last quarter of 1985. To prove its 1986 claim for refund, petitioner /~ 666

DECISION CTA CASE NO. 4217 - 10 - presented Exhibits "F" to "J" consisting of various certifications issued by the Bank of the Philippine Islands, BPI Credit Corporation and Bank of AmeriGa as withholding agents. All the above -' certifications were defective as they were not �.� properly identified and testified as to the truthfulness of their contents by the officers who issued these documents nor by any officer who knows about the same. The witnesses presented by petitioner merely testified on the identity of the ' signatories to said certifications but never � to their contents. Granting for purposes of argument that said certifications have probative value, they tend to prove only two basic facts 1 ( 1 ) that there were investments made by BPI as trustee in the form of "deposit substitutes", (2) that the corr esponding taxes due were withheld by the withholding agents. However, no other evidence was pres e nted to prove the fact of payment or remittance of the said withholding taxes to the Bureau of Internal Revenue. In two instances namely the withholding taxes done by Hongkong Bank and BA Finance Corp., petitioner presented aside from cert~fications of withholding tax, Central 667

DECISION CTA CASE NO. 4217 - 11 - Bank confirmation receipts, quarterly withholding tax return and BIR Form 1743-1 "certificate of creditable income tax withheld at source" to prove payment and remittance of the withholding tax. Unfortunately, as discussed above, the claim covering Hongkong taxes has �.� Bank withholding already prescribed while the claim covering the BA Finance in the amount of P2, 552.08, the documents submitted to prove the claim consisting of BIR Form No. 1743-1, Central Bank � confi.rmation receipts and quarterly returns failed to indicate that the payment was for and in behalf of payee. Not one , witness has testified as to their contents. This only shows that petitioner is well aware of the requ i red documents that have to be presented to prove its claim. Their failure .to produce will only mean the absence of those documents. In fact, BPI, as trustee and the principal withholding agent for most of the placements made in behalf of the PAL Pilots Retirement Plan failed to present a single document to prove the payment or remittance of the withholding tax. In this respect, this Court agrees with the respondent that claims for refund of taxes are construed strictly against /~ 668

DECISION CTA CASE MO. 4217 - 12 - claimants, the same being in the nature of an exemption from taxation (Manila Electric Co. vs. CIR 67 SCRA 351, Commissioner of Internal Revenue vs. Ledesma, G.R. Mo. L-17509, January 30, 1970, 31 SCRA 95). On the third issue of�� whether or not the income tax exemption granted to promote retirement benefit plan has already been � revoked by Presidential Decree No. 1959, this Court would like to inform respondent that the decision of this Court in C.T.A. Case No. 3888, entitled GCL , .! .!!.!:.~.E.~-~-!-..B~. !.~nE.~ holding the non-repeal of the tax _, exempt privilege of private retirement plan has already been affirmed by the Supreme Court of the Philippines in its decision in Commissioner of No. L- 95022, March 23, 1992. However, a decision on the legality or illegality of this claim based on this doctrine becomes unnecessary in view of prescription and failure of the petitioner to prove its claim for refund factually by clear and convincing evidence. /~ I 669

DECISION CTA CASE NO. 4217 - 13 - In view of the foregoing, the Court finds and so holds that petitioner is not entitled to the refund being claimed for taxable years 1985 and 1986. WHEREFORE, finding the instant petition for review without �erit, the sa�e is hereby dis�issed and petitioner's clai� for refund is hereby denied. With costs against the petitioner. SO ORDERED. / Quezon City, Met~o Manila, October 22, 1992. GRUBA Judge WE CONCURs ~~ P~~~ RAMON 0. DE VE A Associate Ju e 670

--- DECISION CTA CASE NO. 4217 - 14 - CERT I F I CATI 0 N I hereby certify that this decision was reached after due consultation among 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 � � ) 671