CTA Case No. 4355 (Decision)

REPUBLIC lF THE PHILIPPINES COURT lF TAX APPEALS QUEZON CITY P.F. COLLIER, INC. C. T. A. CASE NO. 4355 <Philippine Branch>, � Petitioner, versus - Tt� CC'�MISSIONER OF INTERNAL REVENUE, Respondent. JC - - - DECISION The case at bar involves a clai� for refund of P.F. Collier, Inc. <Phil. Branch) in the total a�ount of Pi217,014.00 allegedly representing erroneo11.ts 1 y paid inco�e taxes for the taxable years 198& and 1987. The antecedent facts are as hereby narrated. Petitioner is a resident foreign corporation duly licensed to do business in the Philippines. It is a branch of P.F. Collier, U.S.A., engaged in the, selling and distributing of Collier's Encyclopedia in the Philippines. Howe vel~, for the taxable years 198& and 1987, the sales were effected directly by the head office to the independent local distributors upon specific orders placed by the latter to the for�er.

DECISION - C.T.R. Case No. 4355 - 2- in U.S. dollars tendered to the New York head office. Al 1 egedl y, petitioner recorded these direct sales, and erroneously paid income ta~es in the respective amounts of P71,512.00 for the year 198G, and P145,502.00 for the year 1987, totalling P217,014.00, on the resulting net ta~able income for the said years. As a consequence, on April 14, 1989 petitioner filed with t~espondent a written claim for refund of the total amount of P217,014.00. On the same given date, it filed with this Com~t the instant petition to toll the t~unn i ng of the two-year prescriptive period. Questions that need to be resolved in this case are: 1. ls petitioner entitled to the refund of the total a�ount of P217,014.00? 2. Is petitioner's claim within the two-year prescriptive period? We give affirmative answers for both questions. The entire amount of P217,014.00 must be t~efunded to petitioner. It was an erroneous fot~ sales which did not take place in the Philippines. Petit i one�~ is a resident foreign corporation doing business in the Philippines and being so, it �ust be ta~ed only on income realized from sources within the Phi 1 i ppi nes. This finds support in Section 24(b)(2) of 14~0

DECISION - C.T.R. Case No. 4355 - 3- the 198& Tax Code, the pertinent portion of which runs as follows: "Sect ion 21t. Rates Ta.Jt on co,~po'f~at i o n s . - <a> Tax on domestic corporations xxx (b) Tax on foreign .corporations - ( 1) XXX (2) Resident corporations - (i) In general A corporation organized, authorized, or existing under the laws of any foreign country engaged in trade or business within the Philippines, shall be taxable as pl~ovi ded in subsection (a) of this section upon the total net income derived in the preceding taxable year~ fro� all sources within the Philippines. xxx (Underscoring suppled> To prove its contention that all the subject sales took place in the U.S. petitioner submitted in open court all the covering invoices of said sales and they were marked as Exhibits "G-3" to "G-22", i nelliS i ve, for petit i onet~. Although they were ~erely xerox copies, a certification, consisting of 3 pages, duly authenticated by a Consul in New York, was also submitted and marked as Exhibit "G" (page 1>, Exhibit "G-1" (page 2>, and Exhibit "G-2" (page 3). This certification clearly states that the invoices correct copies of the ot~i gi nal s. The invoices showed that they were all issued in the U.S. by P.F. Colliet~, Inc ��

DECISION - C.T.A. Case No. 4355 - 4- Respondent petitioner's stance, by citing a portion of Section 37(�>) of the 198G TaH Code, thus: "Section 37. lnco�e the Philippines (a) xxx (b) )(}()( <c> xxx (d) )(}()( <e> Income from sources partly within and par~tly without. -KKK Gains, pt'ofits, and income derived from the purchase of personal property within and its sale without the Philippines or from the purchase of personal property without and its sale within the Philippines, shall be treated as derived entirely from sources within the country in which sold: Pt'OV ided, xxx The above provision, as its caption states, applies sources partly within and partly without. It is patently inapplicable to the instant case which involves income so�.n�ces wholly without the Philippines. Nevertheless, to the Court's mind, the above-quoted pt~ov is ion expounds mot~e the the situs of sale of personal property taxation is the place where the sale is consummated and perfected. Thus: "Income derived from the purchase and sale of personal property shall be t �~eat ed as 1430

- DECISION - C.T.A. Case No. 4355 5- derived entirely from the countrv in which it is sold, the place where the personal property i s maJ~keted. Hence~ foJ~ income ta>< p1..wposes~ the proceeds derived from the sale of shares of stocks which are intangible personal properties shall be considered ta>eable income to the vendor in the place where the sale is consummated and perfected. A contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. Likewise~ a contract of sale is considered consummated upon delivery~ actual or constructive, of the object of said contract. ln other words, when and where the property in the goods passes, when and where the incidents of ownership vest in the vendee. " ( p. 244~ Jose P. Al ejandt~o, Law on TaKation, 1970 second edition; Underscoring s1..1ppl i ed> Applying the foregoing to the case at subject sales in 198G and 1987 were indeed and cons1..1mmat ed in the U.S �� When the local placed and/or sent their specific orders to P.F. Collier, u.s.' they already knew the price of the Collier's encyclopedia/books. Such orders were shipped by the vendor in the U.S. direct to the different vendees in the Philippines. This fact is clearly reflected in all the authenticated invoices s1..1bmitted as evidence fot~ Anent the second issue of presct~i pt ion, the govet~n i ng 1 aw is Section 230 of the Ta>< Code, pertinent portion of which states: ..Section 230. Recove,�y of taN er,�oneous1 y m� i 11ega11 y co11 ect ed. No suit ot~ proceeding shall be maintained in any COI..trt f OJ~ 140.1.

DECISION - C.T.R. Case No. 4355 - b- the recovery of any national internal revenue ta~ hereafter alleged to have been erroneously or illegally assessed or collected, ~~~ until a clai� for refund or credit has been duly filed with the Commissioner; ~~x 1n any cas e, n:..:..::o'--=s..::u::.=c:.!l;.:.l__s:...:;u:..::i,_t~-=o'-'t-~_ __.p:::.r:;...:o:.::c=-e=-=e-=d=-1=-�"'"'n""ga. shall be begun after the e~piration of two years from the date of payment of the ta~ xxx" <Underscoring supplied) The above-quoted pt~ovision t~eq ...,it~es the filing of a written claim for refund with the B.l.R. and the filing of a judicial claim within two years from the date of payment. To prove compliance with this provision, petitioner presented the following documentary evidence, to wit: Exhibit Description "A" Claim for refund filed with BlR on April 14, 1989 "D" lncome Tax Return for 1386 f i 1 ed on Apt~ i 1 15, 1387 "E" lncome Ta~ Return for 1987 f i 1 ed on Apt~ i 1 15, 1388 UF" Confirmation Receipt No. 11255216 in the amount of P71,512.00 dated April 15, 1987 "G" Confirmation Receipt No. 15005159 in the amount of P145, 502. 00 dated Apt~il 15, 1388 As can be gleaned the above-mentioned documents, petitioner filed its annual income tax 1402

DECISION - C.T.R. Case No. 4355 - 7- for 198& and paid the income tax amounting to P71,512.00 on Apt~i 1 15, 1987, the last day for filing corporate annual income taM return. The two-year prescriptive period began from April 15, 1987 and ended on April 15, 1989. The clai~ for refund was filed with the B. I.R. and with this co ...wt on Ap.-�il 14, 1389, which was still a day away fro~ the deadline. For taMable year 1387, petitioner filed its annual income tax return and paid on April 15, 1988, the corresponding income tax in the amount of P145,502.00. The two year prescriptive period commenced from April 15, 1988 and expired on Apt�i 1 15, 1990. The clai~ for refund was filed with the B.[. R. and with this Cour�t on Apr�i 1 14., 198'3 which was a year� before the expiry date of the prescriptive period. All the foregoing established beyond question, the fact that the subject claims for refund for the years 1986 and 1987 did not prescribe. At this juncture, it is worth mentioning that the issue of prescription was resolved by this Court in the light of the Supreme Court decision in the case of Co��issioner of IntPrnal vs. ThP PhilippinP R�Prican LifP InsurancP Co., Pt al., G. R. No. 105208, 1 4 ., ~ 0 0

DECISION - C.T.R. Case No. 4355 - 8- which was promulgated on May 29, 1995. ThP portion of the decision rPads as follows: "xxx It may bE' obset~ved that although quarterly taxes due are required to be paid within sixty days from the closE' of each quartPr, thE' fact that the amount shall be dPductPd from the tax due for the succeeding quartPr shows that until a final adjustment return shall have bPPn filed, the taxes paid in the preceding quarter are merely partial taxPs duE' from a corporation. Neither amount can serve as the final figure to quantify what is due the government nor what should be refunded to the corporation. XXX XXX XXX Clearly, the orescriotive oeriod of two years should commence to run only from the time that the refund is ascertained, which can only be deter�mined after� a final ad iustment r�etur�n is acco�plished. xxx ~~ivate respondent being a corporation, Section 292 <now Section 230) cannot serve as the sole basis for determining the two-year prescriptive period for refunds. As we have earlier said in the TMX Sales case, Sections 68, 69 and 70 on Quarterly Corporate Income tax Payment and Section 321 should be considered in conjunction with it. Moreover, even if the two-year prescriptive period had already lapsed, the same is not iurisdictional 4 and may be suspended for reasons of equity and other special circumstances.~" n g <Undet~scori supplied) Summing up on the issue of prescription, al thO'-Igh Section 230 of the Tax Code expressly provides, that the two-year prescriptive period should be counted from the 4 0ral and Dental College vs. CTA, 102 Phil. 912 ~Panay Electric Co. vs. Collector, 103 Phil. 819

DECISION - C.T.R. Case No. 4355 - 9- date of payment of the ta~ being refunded/ta~ credited, if the ta~payer involved is a corporation and pays quarterly income taM, the prescriptive period is reckoned not from the date of payment of the quarterly taMes, but rather from the date of filing the corporate annual income taM return. The reason, as given in a line of Supreme Court decisions previously cited and quoted hel~ein, is that, it is only at the time of filing the corporate annual or final income ta~ return, that a corporate taMpayer is able to determine whether it has a refund or it has still a taM due payable. More in point of prescription, is the SC ruling in the case of Panay Electric Co. vs. CIR and CA which was cited in the aforequoted Philamlife decision. The Panay ruling held that: "M.xM While petitioner was to blame in part for supposedly sleeping on its right and in not filing the claim for refund and the suit to enforce said refund on time, there is evidence to the effect that if petitioner did not file it�:. stJ.it for� r�efund ear�lier�, it was because of an agreeMent with an agent of the Collector that they should await the result of the case of Philippine Railway vs. Collector� of Inter�nal Revenue, then pending in this Court in order that the parties ~ay act correctly. On moral and equitable grounds, therefore, petitioner is entitled to refund from the date of the claiM for t~efund. ~~~" <Unde�~scot~ing supplied) Another important case cited in the Philamlife decision, was the case of College of Oral and Dental 1405

DECISION - C.T.A. Case No. 4355 - 10 - Surgery vs. CTA and The Collector of Internal Revenue, which laid down the ruling that if the taxpayer's claim for refund was denied by the B.J.R. and the taxpayer failed to appeal said denial to this Court within thirty <30> days from the receipt of such denial, the appeal or claim for refund can no longer be taken cognizance of by this Court, for lack of jurisdiction. This case involved a scenario wherein two important periods ex pi t~ed: (1) the two-year prescriptive period from the date of pay�ent of tax, and (2) the thirty (30> day period to appeal to this Court, the B.l.R.'s denial of the refund. Lapse of is not jurisdictional, while expiration of the second period is fatal to a claim for refund as it cannot be adjudicated by this Co1..wt fot~ want of jurisdiction. Adding more clarity to this issue on prescription is Associate Justice Jose C. Vitug's concurring opinion to the a~orementioned Supreme Court decision in the case of "CIR vs. The Philippine A�erican Lif'e Insurance Co., et al.," which states that: "The two-year pet~i od, in the case of the ql..lat~tet~ly income tax payment system for cot~pot~at ions, should be deemed to start only ft~om the time the final adjustment tax is due and payable. ln Gibbs vs. Co��issioner ( 16 SCRA, 318>' the co ..wt said that if the tax is withheld at so�.n~ce, a concept similar to, albeit not on all f out~s with., the e cot~pot~at tax 14Jl1

DECISION - C.T.R. Case No. 4355 - 11 - payment scheme, the two year period starts when the tax falls due at the end of the taxable yeat~. In fine, coroot~ate income tax payments for the first three quarters of the taxable year should, for purposes of the two-year prescriptive period, be deemed to have been paid on the 15~h day of April or of the fourth month following the close of the fiscal year covering the entire taxable inco111e of the preceding calendar or fiscal year.* xxx" <Underscoring supplied> Aside from the two 111ain issues just discussed, respondent by way of special and affirmative defenses in his answer raised other side issues, to wit: 1. Petition states no cause of action as it does not allege with exactitude the date when the tax sought to be refunded was paid; 2. Petitioner has the burden of proof to show that taxes were erroneously or illegally paid and failure to do so on its part is fatal to its claim; 3. Petit i onet~, being a resident fot~eign corpot~at ion, is subject to inco"'e tax upon i t s t o t a l net income ft~om a l l so~..n~ces within the Philippines; and 4. The situs of the source of payments was the Philippines and such flow of wealth should share the burden of supporting the Gover~nment. Although the petition did not show the Pxact datPs when the taxes sought to be refunded were paid, the clai� fot~ refund, and xerox copies of the returns as well as the recPipts of the taxes paid, attached as *(See Sections 75-77, NlRC) 14J'/

DECISION - C.T.R. Case No. 4355 - 12 - anne~es to the petition filed with this Court. The instant petition states a cause of action as the dates of payment wanting in the petition were clearly indicated on the attached invoices. Thus 7 in one case this Court ruled that: "In the case at bar, the corporate quarterly and annual inco�e ta~ return for the fiscal year ending October 31, 1989 as well as the confirmation receipts and payment orders showing the amount of ta~es paid, were all attached to the petition. If eKamined closely, the anne~es of the petition clearlY shows the date when said taKes in question were paid. The oetition therefore, states a cause of action. " <CTR Decision, CTR Case No. 4592, "Rrmco-Marsteel Rlloy Corp. vs. CIR," July 1, 1993, p. 7; Underscoring supplied) Rs borne by the records of the case, it cannot be denied that petitioner has assumed the burden of proving to the satisfaction of this Court that the income taKes it paid for the years 1985 and 1987 were erroneous and/or illegal. The third side issue is not disputable. It is e~pressly provided under Section 24<b> <2>, as quoted hereinbefore, that resident foreign corporation doing business in the Philippines is ta~able on its total net income from all sources within the Philippines. Precisely, this provision was even used by petitioner as basis for its claim that it �ade erroneous pay�ents of 1400

DECISION - C.T.R. Case No. 4355 - 13 - taxes as the subject income was realized from sources without the Philippines. The last side issue which refers to the situs of the flow of wealth, is immaterial to the instant case. What is controlling here, for taxation purposes, is the situs of the sale of personal property. WHEREFORE, finding the petition met~i t ot~i ous and in accordance with law, the GRANTED. Respondent is ordered to refund in favor of petitioner the total amount of P217,014.00 as erroneously paid income tax for the years 198G and 1987. No pronounce�ent as to cost. SO ORDERED. WE CONCUR: ~-'2.~ ERNESTO D. ACOSTA Presi ~L K. GRUBR Associa e Judge 140J

DECISION -. C.T.R. Case No. 4355 - 14 - CERTIFICATION I hereby certify that this decision was reached after due consultation among the members of the Court of TaK Appeals in accordance with Section 13, Article VIII of the Constitution. 0_ ~Q.~ E"m�STO D. ACOSTA Pt~es i ding J\.tdge Court of Ta~ Appeals