CTA Case No. 4046 (Decision)

REPUBLIC OF THE PHIL. PPINES COURT OF TAX APPEALS QUEZON CITY CITYTRUST FH CE CORPORATION <For~erly Inve stors Finance Corporation/F CR Finance). Petitioner, - versus - C.T.A. CASE NO. 4046 COHHISSIONER OF INTERNAL REVENUE. Respondent. X- - - - ---- -X DEC I s I 0 N This is a c laim for judicial refund of overpaid withholding tax payments in the amount of P343, 391. 69 for the calendar year ended December 31, 1983. The records show that petitioner Citytrust Finance Corporat'on is a domestic corporation duly organized under Philippine laws. Petitioner is engaged in the financing and leasing business with principal office in Makati, Metro Manila. Petitioner in the pursuit of its business operation has derived income from rentals, commissions, collection fees, insurance agency fees, allowance

DECISION - C.T.A. CASE NO. 40 6 - 2- to solicit insurance, brokers fees and management fees coming from various clients. On April 16, 1984, petitioner filed with the Bureau of Internal Revenue its Corporate Income Tax Return for the year ending December 31, 1983 indicating a refundable amount of P343,391.69, computed as follows: Gross Inc o me P189,738,257.00 Less: Deductions Net Income <Loss> . __.H!~r.. ?..?_~t~_4i .�_Q..Q Tax Due <~-=--.. -. 3~ ......9..~?. ~C?.L Tax Credit for 1983 Total Amount Refundable NIL ��-� ���-�-� _,;3. ~_;3..._~-~-~ �_.�.~ 1'..........,- ~-~-~.. ~-~-~ ~ .�~= On April 14, 1986, petitioner filed with ,. respondent a claim for tax refund in the amount of P343,391.69 for the year 1983 <Exh. BR>. Since petitioner suffered a loss j_n ita operations it therefore had no income tax liability against which the creditable withholding taxes could be applied. Thus, petitioner opted to claim for the refund of the withholding taxes paid. As respondent has not acted on the claim for refund, petitioner filed the instant petition for review with this Court. Respondent admits in his answer incontestable facts, such as: petitioner's having filed its annual corporate income tax return for 1983 and the filing of a claim for refund. He denies

DECISION - C.T.A. CASE NO. 40 6 -3- petitioner's allegation pertaining to its claim �or lack o� knowledge or in�ormation suf�icient to �orm a belief as to the truth of the matters stated therein. As special and a��irmative defenses, � respondent stated among others: a. That the mere averment that petitioner I au�fered a net loss �rom its operation, in the amount of P35, 087. 00, for the year 1983 does not ipso facto merit a re�und; b. That it is incumbent upon petitioner t .o '. proye complianc e with the provision o� Section 292 and 295 of the Tax Code of 1977; c. That the amount sought to be re�unded were collected in accordance with law; and d. That claims for re�und are st.rict.ly construed agains t the claimant. In his memorandum, respondent maintains that the income �rom which taxes were wi t hheld was not included as part o� its gross income. However, respondent admits that only the amount o� P163,365.40 were withheld �rom petitioner's income o� P3,924,123.81 for 1983 <Respondent's Memorandum, p. 218, CTA records). Hence, if at all petitioner is entitled to the refund claime d it should only be P163,365.49, compute d as follows: (p. 217, ibid.)

DECISION - C.T.A. CASE NO. 4046 - 4- ... J-1_;:1,t ~r-~ 9f ... I ncoJ.l!.~. ,t\mOUlJ.t. T~~ .. .'!! i_t_b h.~.J:.Q. Rental <total payment> P1,155,217.37 p 57,761.50 Commissions <total> 694, 471. 91 Collection fe e F.J 3,208.27 11,321.21 Insurance Agency fee 57,332.00 Allowance to solicit 158.52 2,866.60 insurance Brokers fee <total> 6,489.82 324.34 207,404.44 933.32 Management :fee _J....d~.QQ , _pQQ.!_QQ. - 9Q,__.QQQ~..QQ TOTAL ~-~!. ~~~! ~--~~. ~-~ p 1 ~~-!: ~-~~: -~.~ The question submitted for decision is whether or not petitioner is entitled to the refund o:f P343,391.69 as alleged overpaid withholding income tax :for the year 1983. The Tax Code provides that the withholding / agent is required to furnish the payee or recipient of income a written statement <BIR Form 1743 l l) showing: <1> the income or other payments made by the withholding agent; ~nd <2 > the amount of tax deducted and wi t.hheld therefrom. . [Sec. 54< c' NIRC; see also Sec. 6 o:f Rev. Reg. No. 6-85. l On the part of the recipient o:f the income, it is essential that the income, from which the tax was withheld at sou}ce under Section 53, should be included as part of the income declared in his income tax return. I:f the taxes withheld were over and ~hove the tax due in his return, the same shall

DECISION - C.T.A. CASE NO. 4046 -5- be refunded to him pursuant to the provis ion of Section 295. (Sec. 54 <f > NIRC. l A c laim for refund of excess withholding taxes shall be given due cou r s e o nly when the following requirements have been complied w'th: <1> that the tax payer or recipien t of income filed a claim for refund within the two <2> year period f ro m the date of payment of t he t ax~ <2> that th e income payment rece ived was declared as part of his gross income in t he return: and -. (3) the fact of withholding is established by a co py of statement duly issued by the payor to the p ayee <BIR Form 1743.1) showing: <a> the amount paid; and (b) the amount of tax withhe ld therefrom (Sec. 10, Rev. Re g. 6 - 85; see Citytrust Finance Co.rpo.ration v. The c o.,lissi oner o:f Internal Revenue, CTA Case No. 4134, Nove�ber 11, 1991 ). In the recent case of Co��issioner of Internal Revenue v. Ci tytrust Banking Corporation, CA-G. R. SP No. 26839, July 31, 1992, the Court of Appeals affirmed in toto our decision in the case of Ci tytrust Banking Corporation v. Co��issioner of Internal Revenue, CTA Case No. 4099; llay 28, 1991, and added:

DECISION - C.T.A. CASE NO. 4046 -6- "Of greater significance also is the respondent Tax Court's observation that the remittance of tax withheld made by .) the withholding agents could h a ve been easily verified by pet itioner, considering that it is within their competence to know, to check and verify the regularity of perform nee of his subordinates. It undersco red the fRc:t that the remittance of withholding taxes by producing the confirmation receipt is not required by law and regulation as the withholding agent is not within the control of the payee taxpayer but are the tax agent of the Commissioner of Internal Revenue. It is on this account that the taxes deducted and withhe d Rre considered special :fund in rust for the government until paid to the Bureau of Internal Revenue. The withholding agent merely hold the amount in trust. � fo;r:- the government <Resolution of the Court of Tax Appeals, Dec em ber 3, 1991, Rollo, p. ,. 96). " During the trial, petitioner offered documentary exhibits to show proof of payment and remittance of the creditable withholding taxes sought to be refunded in its :favor. The record shows that petitioner has submitted as evidence / various certificates of creditable income tax I withheld at source <BIR Form 1743.1>, statement of tax withheld at source <BIR Forms 1743 and 1743 A> and the certification issued by various withho~ding agents to support its claim :for refund. Petitioner's 1983 Income Tax Return showed a gross income of Pl89,738,257.00 <Exhibit "A"). Out of

DECISION - C. T.A. CASE NO . 4046 -7- the total creditable withholding taxes claimed by petitioner amounting to P343,391.69 it was able to prove by the presentation of docume>ntary evidence the sum of P204,792.45 only, summarized as follows: Nature of Income Amo u n t Tax Withheld Rental P1,928,2 32 .97 p 96, 411. 62 Commission 300,626.22 15,031. 37 Collection Fees . 3,208.27 158.52 Insurance Agency Fees 57,332.00 2,866.60 Allowanc e to solicit 6,489.82 324.34 insur ance Manage>ment Fee _ _! ._.~Q_Q..,. QQO.!. QQ -~Q .. _QQO! Q.Q. To t a 1 P-!. L~~~!. -8~-~~�-�~~. P 2- 0 4���-�, 7 9 2 . 4 5 ~- - The following income and th e -. correspond i ng t axes withheld at source made up the findings of '�� this Court, to wit: RENTAL INCO!ff Withholding Agent lncolll' tax Vithhl'ld Exhibits ----------- ------ ------------ --- -- --- Holll' Financing Corp. p 790,796. 40 p 39, 539.82 B I Citytrust Banking Corp. 32,190. 00 1,609. 50 J Citytrust Banking Corp. 32,190.00 1, 609. 50 It Citytrust Banking Corp. 32,190.00 l, 609. 50 L Industrial World Traders Phils. ,Inc. 35,441. 28 1, 772.04 "p ftetropolitan Psychological Corp. 22,769.28 1,138.44 Q Cora Suntay &Associates 35,190.00 1, 759.50 R ftinistry of Trade &Industry 141,453.90 7,072.70 s EntreprPneurs Trading Corp. 66,225.50 3,311.29 T Reltex Dl'velop~ent Co., Inc. 34,500.00 1,725.00 u Carter International Corporation 1,297.80 64.89 'X Carter International Corporation 2,132.10 106.60 y ftansteel IInt'l. l Corporation 5,510. 60 275.52 z Warner-la�bert Phils., Inc. 12,923.40 646.17 AB Warner-La�bert Phils., Inc. 12,923.40 646.17 AC Warner-la�bert Phils., Inc. 12,923. 40 646.17 AD Varner-la bert Phils., Inc. 12,923.40 646.17 A. H. Robins IPhils. l Co. , Inc. 169,787. 68 8,489.39 A.H. Robins !Phils.> Co. , Inc. 136,704.03 6,835.21

DECISION - C.T.A. CASE 0. 4046 -8- Union Carbide Phils. Inc. 23,127.00 1,156.35 AE Union Carbide Phil � Inc. 23,127.00 1,156.35 AF Union Carbide Phils. Inc. 23,127.00 1, 56.35 AG Union Carbide Phils. Inc. 23,127.00 1,156.35 AR Dingla an Law Office 3,500.00 175.00 AQ Jon, Lopez &Co. , CPA's 9,864.00 493.20 AR Private Dev. Corp. of the Phils. 5,500.00 275.00 AT Borro~eo's Specialties Galore 47,250.00 2,362.50 BA Borro o's Sp cialtiea Galore 47,250.00 2,362.50 BB Interbank - Cebu Fuente Branch 33,075.00 1,653. 75 BC Varner-La�bert Phils., Inc. 12,923.40 6 6.17 BJ Varner-La�bert Phils. , Inc. 12,923. 40 646.17 Bft Varner-La�bert Phils., Inc. 12,923. 40 646.17 Bll Varner-La�bert Phils., Inc. 12,923.40 646. 17 80 Varner-La�bert Phils. , Inc. 12,923. 40 646.17 BP Standard Insurance Co., Inc. 3,750.00 187.50 BF Perla Co~pania De Seguros, Inc. 5,000.00 250.00 BG Warner-La�bert Phils., Inc. 12,923.40 646.17 BK Varner-La�bert Phils., Inc. _ .._t.~. m~.~-Q -� ---� ..--.~~.~~ 17. BL To t a 1 ~~� .~~~-~~!! t %.� ~u,~~~ COtrKISSIOKS Withholding Agent Inco-.e Tax Withheld Exhibits �.� ------------ -------- --------- -------- Perla Co~pania De Seg1ros, Inc. p 11,065.60 p 553. 28 c Perla Co�pania De Seguros, Inc. 40,042.00 2,002. 10 D Standard Insurance Co., Inc. ~ 15,816.20 790.76 II 113. 14 AI First Intpgrated Bonding &Ins. Co. 2,262.80 Fist Integrated Bonding &Ins. Co. 43,184.00 2,159.20 AL Perla Co�pania De Seguros, Inc. 3,990.00 199.50 AP Standard Insurance Co., Inc. 2,796.40 139.82 0 Perla Co�pania De Seguros, Inc. 4,636.00 231.80 AI{ Afisco Insurance Corporation 3,720.20 185. tr/ AO Standard Insurance Co., Inc. 21,320.00 1,066.'00 AS Perla Co�pania De Seguros, Inc. 44,815.18 2,240.76 BH Perla Co�pania De Seguros, Inc. --.H~...r.?~� .91 --~.t~~.�..!M BI To 't a 1 ! p 300,626.22 _15,~.~_1_._3? COLLECTIOI FEES Inco-.e Tax Withheld Exhibit w Withholding Agent Phil. Prudential Life Ins. Co. 8�~

DECISION - C. T.A. CAS E NO . 4046 -9- INSURANCE AGENCY Ftf:S Inco~ Tax Withheld Exhibit Withholding AgPnt p 57�.:lJ2. 00 ~=::k~�-~ All Standard Insurance Co., Inc. ALUWAKCE TO SfJLICIT INSURANCE Withholding Agent Inco~~e Tax llithheld Exhibit ------ --- ----- -- - -- --- --- ---- Yolanda A. Kilayko and/or ~ �---�-~J~~9....~~ !--�-�-�~!:~ AM Ratton E. Kilayko c/o Afisco Insurance Corporation IIANAG�KEKT FEES Withholding Agent Inco.- Tax Withheld Exhibits ------------- ---- ------------ -------- Fil-Insurance Broken1 ~~~~~ ()0()~9.9 t~{~~~ BD, BD-1, BE & BE-l Corporation \' Res ponde nt is of the opinion that petitioner failed to include as part of its g ross income the income from which taxes were withheld in 1983. Section 54(f) of the Tax Code in relation to Se ction 10 of t.he Re�1enue Regulations No. 6-85, revised and conso l idated expanded wi'thholding tax regu lations, provides as a requirement the presentation of documentary evidence to show that for the taxable year in question, the income from which the various creditable taxes were included as part of the� gross income of petiti oner's income tax return. The Court finds that peti tibner was able to su bstantiate h is c laim for r efund base on the

DECISION - C.T.A. CASE NO. 4046 - 10 - table of computations of the various withholding of creditable taxes. Responde nt in his commE?Jlt to petit i oner's offer of evidence admitted Exhibits 8, C, D, AI and AQ, representing Certifications issued by various withholding agents. But in his memorandum, respondent pointed out that Exhibits C, D, AI, AQ and BQ should not be considered for being self- serving. He stressed that petitioner d i d not present BIR Form 1743.1 as prescribed under Section 10 Revenue Regulations No. 6 - 85. The Court admitted and took into consideration Exhibits 8, C, D, AI and AQ although these are mere certificat ions considering that -the same were not objected to by respondent in his comment. These ~ exhibits were compared from the originals by respondent's counsel. The name of petitioner were indicated � there i n toge .:.her vi th the amount o:f tax withheld therefrom. Respondent even though he admits these exhibits in his comment to petitioner's formal . offer of evidence still took exception to the fact that the various exhibits presented were not allegedly duly verified by respondent's revenue enforcement officers, therefore, self-serving.

DECISION - C.T . A. CASE NO . 4046 - 11 - The law and the implement i ng r e qulation have / adopted a minimal requirement in order that an excess tax credit withheld could be re:funded to taxpa yers. Petitioner was able to present all three requirements :for claiming a re:f und o:f excess withholding taxes only vi th respect to the amount o:f P204,792.45. First, a claim for refund dated April 11, 1986 was fi led with the Appellate Division o:f the BIR on April 14, 1986 <Exh. BR> and with this Court on April 15, 1986 we ll vi thin the 2-year period :from date o:f payment o:f the tax that i s on ' April 15, 1984. �,' Second, petitioner presented as documentary evidence it Annual Corporate Income Tax Return :for 1983 <Exh. A> showing income as :follows: Schedule 1 P184,886,846.00 Schedule 5 --��----~ '��-~-;5._,\.__,__~J .t!...P.Q. Total Income establishing the :fact that for the taxable year 1983, it has included in its income tax return the particular income from which the various creditable taxes were withheld.

DECISION - C. T.A. CASE NO. 4046 - 12 - Third, petitioner presente d various BIR Forms No . 1743, 1743~1 and 1743 A as proo� o� withhold ing of taxes for 1983. This Court has i n numerous cases dismissed the allegations of counsels �or the respondent that t he other requireme nts such as the presentati on of withholding tax returns, o��icial receipts showing payments of withholding taxes and verification by revenue enforcement officer have to be presented before actual refund s hould be granted. iThe Phi.lippine American Life I nsurance Co�pany v. Commissioner of Interna.l Revenue, dT~ ' Case No. 4018, Nove111ber 5, 1991, affir�ed by the Court , of . Appea.ls in Commi ssioner of Int erna.l Revenue v. The Phi.lippine American Life Insurance Co., and The Court of Tax Appea.ls, CA - G. R. No. 26598, /larch 26, 1992; A. Soriano Corporations v . Co�lltissioner of Interna.l Revenue, CTA Case No. 42 01, August 7, 1991; Common~ea.l th Pacific Consu.ltants Ltd. v. Co111missioner of Inter na.l Revenue, CTA Case No. 2953, /lay 15, 1982; and Ateneo de Jlani.la v. Commissioner of Interna.l Revenue, CTA Case No. 3213, Ju.ly 28, 1989J. Exhibits E, F, G and H were not conside red by the Court since these exhibits merely showed that the Philippine Association of Finance Com p anies,

DECISION - C.T . A. CASE HO. 4046 - 13 - Inc., . a withholding agent, filed its Qu arterly Return of Creditable inc o me Tax Wit h held for 1983. Nothing in the returns ind icate that the amount withheld was for the account of petitioner. The same i~ true with Exhibit BQ, a Certification issued by Ridge Developme nt Corporation, which showed the amount of tax withheld on office rentals but it did not indicate the payee or recipient of the income. Besides, Exhibits E, F, G and H together with Exhibits AW <BIR Form 1743.1) and BQ <Certification of Ridge Development Corporation> were all compared from .. I- , ..... their '� res pective photocopies. Contrary to the best evidence rul~ as prescribed under Section 3 of Rule 130 of the Revised Rules of Court there being no showing that the originals were lost or des troyed . Exhibits AJ, AU, AV, AX, AY and AZ, representing BIR Form~ 1743 . 1 and 1743 of various withholding agents, were also ignored' by the Court in evaluating the evidence presented by petitioner taking into consideration the objections raised by respondent it appearing that the name of petitioner was merely added and superimposed to the name of another payee. Said Exhibits did not specifically indicate the name of petitioner as the recipient of the income from which taxes have been withheld 9J

DECISION - C.T.A. CASE NO. 4046 - 14 - therefrom. Furthermore, the TAN of the payee as indicated in BIR Form 1743 and 1743. 1 is not the same as the TAN of petitioner which is 0300-615 - 2 as shown in its income tax return <Exh. A>. Exhibits BD, BD - 1, BE and BE-l were taken into consideration by this Court there being no objections raised on the part of respondent even if the same were merely compared from another xerox copy. In fact, respondent admits in his memorandum that the management fees of P1,800,000.00 from I which the P90,000.00 corresponding tax was withheld "' :-1 ... forms part of petitioner's income for 1983. IN VIEW OF THE FOREGOING, respondent Commissioner of Internal Revenue is hereby ordered to REFUND to petitioner CITY TRUST FINANCE CORPORATION the sum of P204,792.45, repre s enting excess payment of withholding taxes for the year 1983. No pronouncement as to cost . SO ORDERED. Quezon City, Metro Manila, February 24, 1993. ~_;c; a.(]_~ ERNESTO D. ACOSTA Presiding Judge 10 0

DECISION - C.T.A. CASE HO. 4046 - 15 - WE CONCUR: GRUBA Judge CERTIFICATION I hereby certify that this decision vas reached after due consultation among fh~~ members of the Court of Tax Appeals in accordance with Sect~pn I 13, Article VIII of the Constitution. ~Q,c~ ERHESTO D. ACOSTA Presiding Judge Court of Tax Appeals .) lO i