CTA Case No. 6084 (Decision)

REPUBLIC OF T HE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY MC GEORGE FOOD INDUSTRIES, INC., Petitioner, -versus- C.T.A Case No. 6084 COMMISS IONER OF INTERNAL REVENUE, Promulgated: Respondent. ' SEP 03 2001fo~y?h":IL- ..... . X-------------------------------------------------------------X D ECISION This is a Petition for Review seeking for the refund or for the issuance of a tax credit certificate in the amount of FOUR MILLION SEVEN HUNDRED THIRTY SIX THOUSAND ONE HUNDRED EIGHTY EIGI-IT PESOS (P 4,736,188.00) allegedl y representing the overpaid quarterly income taxes and the unutilized creditable withholding taxes for the calendar year 1997. Petitioner is a corporation dul y organized and existing under and by virtue of Philippine laws, with principal office at the 1i 11 Floor, Citibank Centre, Paseo de Roxas, Makati C ity. It is primarily engaged in the restaurant and fast food business.' Reco rds show that on April 15 , 1998, Petitioner filed its Corporation Annual Income Tax Return (Exhibit H) for the calendar year ended December 1997 reflecting the amount of 1 Joint Stipulation of Facts and Iss ues, par. I, CTA docket p.54 1011

DECISION CTA Case no. 6084 Page 2 P4,736,188.00 as excess and/or unutilized creditable income tax (Exhibit H-1), computed as follows : Gross Income p 1,709,619,235 .00 Less: Deductions 1,694,207,841 .00 Taxable Income 15,411,394.00 Tax Due 5,393,988.00 Less: Tax Credits/Payments 10,130,176.00 Alleged Refundable amount p 4,736,188 .00 The aggregate tax credits/payments of Pl 0, 130,176.00 as above shown consi sts of the quarterly income tax payments made by Petitioner for the first and second quarters of the year amounting to P2,636 ,824.24 (Exhibit A-3) and P 7,261 ,588.75 (Exhibit E-2) , respecti vely; and the balance represents creditable income taxes withheld during taxable year I997 amounting to P231 ,763.00, as reflected in Section E of the I997 Income Tax Return (Exhibit f-1) of the Petitioner. The authenticity and due execution of these quarterly and Annual Return s of the Petitioner were duly admitted by the Respondent in the Joint Stipulation ofFacts. 2 It was likewise indicated in the said 1997 Annual Income Tax Return, the inte ntion of Petitioner to carry over and apply the unutili zed creditable income tax of P4,736 ,188 .00 as tax credit for the succeeding calendar year 1998 (Exhibit H-2) . Meanwhile, on April 15, 1999, Petitioner filed its Annual Income Tax Return for ca lendar year 1998 which showed among others, a minimum corporate incom e tax (M C IT) due of P5,799,056.00 and a total tax credit payment of P 4.953 ,367.00, the breakdown of which are as fo ll ows: 2 See Joint Stipulation of Facts and Issues, par. 3 allLI 4, CTA docket p. .'iS 101 2

DECISION CTA Case no . 6084 Page 3 Prior Year's Excess Credits p 4, 736,188.00 Tax Credits/Payments for the Ist 3 Quarters 67,274.00 Tax Withheld per BIR Form No.2307 for the 149,905.00 First three Quarters p 4,953,367.00 Total Tax Credit Payment In its Petition for Review submitted to this Court, Petitioner explained that with the figures above stated, only the amounts ofP67,274.00 and P149,905.00, were actually credited against the P5,799,056.00 Minimum Corporate Income Tax liability for the year 1998. Needless to say, the amount of P4,736,188.00 representing the excess tax credits carried over from the previous year (1997) was not taken into account in computing the income tax payable for the year 1998. Neither was this amount carried over or credited against the income tax liability for the year 1999, hence it still remained unutilized. On April 14, 2000, Petitioner filed with the . Bureau of Internal Revenue an administrative claim for refund of P4,736,188.00 representing overpaid income taxes for the calendar year 1997.3 On that same date, Petitioner filed a Petition for Review with thi s Court. Respondent, in his Answer filed on May 8, 2000, raised the following Special and Affirmative Defenses, thus: "4. Petitioner's alleged claim for tax refund/ tax credit is subject to administrati ve routinary investigation/ examination by Respondent's Bureau; 5. The tax sought to be refunded was collected and paid pursuant to law and pertinent BIR implementing rules and regulations; hence, not refundable; 6. Petitioner's allegation that it has an unutilized creditable withholding tax credits for the year 1997 in the amount of P4,736,188.00 does not ipso fa cto ' ibid. , par. 5, CTA docket p.55 .401 3

DECISION CTA Case no. 6084 Page 4 warrant the credit. Petitioner has the burden of proving that it is indeed entitled to the credit sought as it is a well-settled rule that claims for tax refunds/ tax credit are construed in strictissimi juris against the taxpayer (Commissioner of Internal Revenue vs. Ledesma, G.R. No. L-13509, 30January 1979, 31 SCRA 95). Thi s is due to the fact that claims for refund/ credit partake the nature of an exemption from tax. Thus, it is incumbent upon the Petitioner to prove that it is indeed entitled to the refund/ credit sought. Failure on the part of the Petitioner to prove the same is fatal to its claim for tax credit. He who claims exemption from the common burden cannot be permitted to exist upon vague implications (Asiatic Petroleum Co. vs. Llamas, 49 Phil. 466). 7. Petitioner must show compliance with the pro";isions of Section 204(c) and 229 of the Tax Code." In order to substantiate its claim for refund/ or tax credit, Petitioner formally offered as evidence, the following documents: Exhibit Description A,E,G Corporate Quarterly Income Tax Returns for the 1st, H,J, L 211d and 3rd quarters of 1997 B,F Annual Corporate Income Tax Return for the I calendar years 1997, 1998 and 1999 C , D , I-1 to Debit Ticket Advise from Citibank showing 1-16, M to VV remittance of tax payments to the BIR Summary of Certificates of Creditable Taxes Withheld at Source from January to December 1997 Various Certificates of Creditable Tax withheld at source Herein parties, in order to simplify the case, agreed on the issues to be resolved , thus: l. Whether or not Petitioner is entitled to a refund and/or issuance of a tax credit certificate in the amount of P4,736,188.00 representing overpaid .: 01 4

DECISION CTA Case no. 6084 Page 5 quarterly income tax and unutilized creditable tax withheld for calendar year 1997; 2. Whether or not Petitioner has shown compliance with the provisJOns of Section 204(c) and 229 of the Tax Code; 3. Whether or not Petitioner complied with the requirements necessary for the refund of income taxes of P4,736, 188.00, representing overpaid quarterl y income and unutili zed creditable withholding taxes for the year 1997; 4. Whether or not Petitioner' s claim for refund of unutilized creditabl e withholding taxes for the 1997 taxable year is substantiated by documentary evidence. However, since the enumerated issues are all interrelated , we deem it best to strea mline them into one main issue of WHETHER OR NOT PETITIONER IS ENTITLED TO THE REFUND OF P4,736,188.00 REPRESENTING TI-l E OVERPAID QUARTERLY IN COME TAX AND UNUTILIZED CREDITABLE WITHHOLDING TAX AT SOURCE FOR THE CALENDAR YEAR 1997. In asserting its right to the refund of the amount of excess and unutilized creditable withholding income tax , Petitioner cites as its legal bases Section 69 (Now Section 76) in relation to Section 30 (now Section 229) of th e Tax Code, L ~re uncl er quoted as follows: "Section 69. Final Adjustment Return.- Every corporatio n liable to tax under Section 24 shall fil e a final adjustment return covering the total taxable income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxabl e year is not equal to the total tax due on the entire taxabl e net income of that year, the corporation shall either: (a) Pay the excess tax still due; or (b) Be refunded the excess amount paid, as the case may be.

DECISION CTA Case no. 6084 Page 6 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 liabi li ties for the taxable quarters of the succeeding taxable year." "Section 230. Recovery of Tax erroneously or illegally collected. - No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter all eged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax or penalty, or sum has been paid under protest or duress. In any case, no such suit or proceeding shall be begun after the expiration of two years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment; provided, however, that the Co1..1missioner may, even without a written claim therefore, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid." Corollary to the aforesaid provisions, this Court, in previous ly decided cases, laid down the three basic requisites for the grant of the refund of overpaid quarterly income payments and unutilized creditable tax at source, thus: 1. That the claim for refund was filed within two (2) years as prescribed under Section 230 (Now Section 229) of the Tax Code; 2. That the income upon which the taxes were withheld were included in the return of the recipients; 3. That the fact of withholding is established by a copy of a statement (BIR Form) 1743.1) duly issued by the payor (withholding agent) to the payee showing the I 1016

DECISION CTA Case no. 6084 Page 7 amount paid and the amount of tax withheld therefrom. (Section i 0, Revenue Regulation 6-85; City Trust Finance Corporation vs The Honorable Commissioner of internal Revenue, CTA Case no. 4i34, November ii, i99 1: Affirmed by the Court of Appeals in City Trust Finance Corporation vs. Commissioner of Internal Revenue, CA GR SP No. 28239, March i4, i994; and City Trust Finance Corporation vs. Commissioner of internal Revenue, CTA Case No . 4046, February 24, i993, affirmed l?Y the Court of Appeals in Commissioner ofInternal Revenue vs City Trust Finance Corporation, CA G. R. SP 31104, April i8,1994) The above-quoted requirements were affirmed by the Supreme Court in the case of Citibank, N. A. vs. Court of Tax Appeals and Commissioner of Internal Revenu e, G.R. 107434, October 10,1997. A thorough analysis of the records of this case as well as the applicable jurisprudence leads this Court to conclude that a refund or tax credit is in order. Petitioner in its 1997 annual income tax return (Exh . H) declared a taxable income of P 15 ,411,394.00 and a corresponding income tax liabi lity of P5,393 ,988.00 . The same return shows quarterly income tax payme nts of P9,898,413.00 and creditable taxes withheld of P231 ,763.00 or a total tax credit of Pl0,130,176.00. Applying the tax credits to the income tax liability, Petitioner will have an excess tax credit of P4,736, 188.00 which was opted to be applied as cred it to the succeeding taxable year. While it is true that Petitioner initially intended to carry over the 1997 excess/unuti lized tax credits to the succeeding year, it is also significant to note that Petitioner was not able to utili ze the same, as reflected in its 1998 Corporate Annual Income Tax Return. For taxable year 1998 , Petitioner declared in its annual income tax return a minimum corporate income tax (MCIT) li abi lity of P5,799,056.00, the prior year's excess credit of P4,736, 188.00 and the I 998

DECISION CTA Case no. 6084 Page 8 creditable taxes withheld of P217, 179.00 or a total tax credit of P4 ,953,367.00. After app lying the total tax credit of P4,953 ,367.00 against the MCIT, Petitioner still had an income tax liability in the amount of P845 ,689.00. In its memorandum submitted to this Court, Petitioner explained that the income tax payabl e for the year 1998 should have been P845,689.00. However, instead of paying the said amount, Petitioner still paid the amount of P5 ,581 ,877.00 (Exhibit J-2, Exhibit J-3) as refl ected in the bank validati on of Petiti oner's Income Tax Return for that year. The difference between the amount paid (P5 ,581 ,877.00) and the MCIT due of P5 ,799,056.00 is P2 17, 179.00 which is the sum of the withholding tax credits for the year 1998. It is significant to note that the amount of P4 ,736, 188.00 representing excess tax credits carried over from the previous year (1997) was not taken into account in computing the income tax payable for the year 1998. Hence, the amount of excess/ unutilized creditable taxes as of the end of taxable year 1997 was not utilized against the income tax payable of Petitioner for the taxable year 1998 (Exhibit J), neither was the amount carried over to the subsequent taxable year 1999 (Exhibit L). But before a claim for refund of unutilized w ithholding tax can be granted as stated earlier, it is important that Petitioner must first comply with the three basic req uirements, thus: (I) That the claim for refund is filed within the two-year reglementary period pursuant to Section 230 o.fthe Tax Code, as amended,� Records show that Petitioner filed a claim for refund with the BIR on April 14 , 2000 and with this Co urt also on the same date. While it is remarkable at the outset that the dates of filing of both the administrative and judicial claim for refund is one and the same, it is

DECISION CTA Case no. 6084 Page 9 important that both dates should be within the two-year prescriptive period mandated by Section 230 of the Tax Code. This two-year prescriptive period commences to run at the earliest on the date of filing of the adjusted final tax return (Commissioner of Intern al Revenue vs. Asia Australia Ltd., G.R. No. L-85956, April 10,1989). In the instant case, Petitioner filed its Corporate Annual Income Tax Return on Apri l1 5, 1998. Clearly, this falls well within the two-year period provided by law. (2) That the income upon which the taxes were withheld were included as part of the gross income declared in the income tax return of the recipient; As to whether or not Petitioner included the income from which the taxes were withheld in its reported gross income, We are convinced that Petitioner partially complied with this requirement. The Certificates of Creditable Tax Withheld at Source reflected income arising from sale of goods, advertising, and payment to contractors. However, only the income from sale of goods were reflected in the annual inc~me tax return of Petitioner. thus it fo ll ows that only the creditable taxes withheld from the sale of goods are considered for refund . (3) That the fact of withholding is established by a copy ofthe statement duly issued by the payor to the payee showing the amount paid and the amount oftax withheld therefrom. Petitioner's submission of the vario us certificates of Creditable Income Tax Withheld at Source indicates compliance with this requirement. Petitioner offered as evidence the following Certificates of Creditable Tax Withheld at Sourcv in support of its claim for re fund : i 01 9

DECISION CTA Case no . 6084 Page 10 WITHHOLDING AGENT EXHIBIT PERIOD SOURCE OF TAX IN C O M E WITHHELD EDSA FOOD IND USTR IES c 1/1197-3/3 1/97 Sale of goods p 2,707 .04 5,775.50 MCCOLUY'S INC. Payment to Contractor 7,55436 MCM IG IITY 9 ,670.46 EDSA FOOD INDUSTRI ES D 111197 -3 / 31197 Advertising 3,732 .47 EDSA FOOD INDUSTR IES 2,638 .70 NLEMEE FOOD CORP. I-I II 1197-12/31197 Adverti sing 4.598 .04 NEEMEE f'OOD CORP. 5,005 .7 1 G IANT ARCHES 1-2 7II /97-9/3 1197 Sale of goods 36,78638 CEB U GOLDEN INDUS TRI ES 2,668.53 CEI3U GOLDEN VENTUR ES 1-3 4/ I/97-6/30/97 Sa le of goods 2,746 .06 MC BROS 5,829. 12 MCCOLBY'S INC. 1-4 I011 /97- 12/3 1197 Adverti sing MCCOLBY'S INC. 29 .08 MCCOLBY'S INC. 1- 5 7II /97 -9/30/97 Advert isin g 9,028 .04 MCCOLBY'S INC. 8,251.75 MCCOLBY'S IN C. 1-6 I0/1/97- 12/3 1197 Ad ~c rti s in g 8,3 4 9 .21 GMC 3,3 18.10 MC.JOLA 1-7 411 0/97-611 0/97 Advertising 3 1, 178.3 I 81 ,895 .68 1-8 411 0/97 -611 0/97 Advertising 23 1,762.54 1-9 111197- 12/J 1/97 Payment to Contractor 1-10 1211 /97- 12/3 1197 Adverti sing 1-11 I011 /97- 12/3 1197 Adve rti si ng 1-12 411 /97-6/30/97 Adve rti sin g 1-1 3 7II /97-9/30/97 Advertis ing 1-1 4 8/01197-9/30/97 Sale of goods 1- 15 II 1197-12/3 1197 Services 1- 16 II 1197- 12/3 1197 Sa le of goods Total p After an examination of the above documents, the certificates from Cebu Golden Food Industries and Cebu Golden Food Ventures failed to bear the withholding agents ' signatures, hence we excluded the taxes withheld as reflected therein, in the final computation . Thus, only the following creditable taxes withheld where the corresponding mcome were included as part of the gross income declared m the ITR were considered 111 the final computation, to wit: WITHHOLD ING AGENT EXHIBIT PERIOD TAX WITHHELD EDSA FOOD IND USTR IES c 1/ 1/97-3 /31 /97 p EDSA FOOD INDUSTRI ES 2,707.04 EDSA FOOD INDUSTRIES 1-2 711 /97-9/3 I/97 3,732.47 MCCOLBY'S IN C. 2,638 .70 MCJOLA 1-3 4/ I/97-6/30/97 3,3 18 . 10 8 1,895.68 1-14 8/0 I/97-9/30/97 94,291.99 1-16 1/ 1/97-12/31 /97 Total p

DECISION CTA Case no. 6084 Page II Based on the foregoing, it is on ly proper that a refund be granted to Petitioner but in a reduced amount ofP4,598,716.98 computed as fo ll ows: TAXABLE YEAR 1997 Taxable Income P15.411.394.00 Tax Due p 5,393,988.00 Less: Tax Payments/Cred it (a) Quarterly payments (Exhs. A-3 & E-2) P9,898,412.99 (b) Creditable tax withheld 94,291.99 9,992 ,704.98 Amount Refundable p 4.598.716.98 WHEREFORE, in vtew of the foregoing, the instant Petition for Review is PARTIALLY GRANTED. Respondent is hereby ORDERED TO REFUND in favor of the Petitioner, the reduced amount of FOUR MILLION FIVE HUNDRED NINETY ElGHT THOUSAND SEVEN HUNDRED SIXTEEN & 98/100 PESOS (P4,598,716.98) representin g the excess and unutilized creditable wi'thholding tax for the calendar year ended December 1997. SO ORDERED. ..'<.... 0;'.)- _"1'

DEC ISION CTA Case no . 6084 Page 12 l CONCUR: ~~.~ ERNESTO D. ACOSTA Presiding Judge CERTIFICATION J hereby certify that the above decision was reached after due consultation w ilh the members of the Court of Tax Appeals in accordance w i,th Section 13 , Article VJll of the C o n s t i t uti on. ERNESTO D. ACOSTA Presiding Judge 102 2