CTA Case No. 5682 (Decision)

/ '? REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY HOPEWELL TILEMAN POWER SYSTEMS, INC., Petitioner, -versus- C.T.A. CASI f [(). 5.682 COMMISSIONER OF INTERNAL l'ro:)m:::t:: () " REVENUE, ..,r! \.;\}.. _ Q7 "...,r-:-_ )�.::._ , _,___ - I I - :_', �� J { ��. . ��� .� Respondent. _..::.,: < , I x- - - - - - - - - - - - - - - - - - - - - .:- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - -x DECISION This case involves a claim for refund/tax credit in the amount or PG,070,03.GO representing overpaid creditable withholding taxes for the fiscal years 1996 and I YJ7. The following facts are stipulated by the parties: (1) Petitioner is a domestic corporation, haYing b.'.: 11 incorporated under Philippine laws in 1993; (2) Petitioner was organized primarily to design, construe!, erect, assemble, commission, operate, maintain, rchabi]j[, tc anJ man:� turbine and other power generating plants and related faciliti�:s; etncl (3) On October 15, 1996, Petitioner filed with the Burc;:u ur Internal Revenue its Corporate Ammal Income Tax Return for the hJ..:.:! year ended June 30, 1996. The rest of the facts are simple. For fiscal year ended June 30, 1996 (Exh. A) Petitioner decbrccl a creditable taxes withheld at source in the amount of P2,191,983.00 which it <lpp!i('(i. :w:,:'l::.i.

DECISION C.T.A. CASE NO. 5682 - 2- its income tax due for the period in the sum of P862,913.00. Thus, lcavin <I:J cxcc::s creditable withholding tax amounting to P1,329,070.00 (Exh. A-3). Pctiti oncl� ii1dic:1kd its intention to carry-over said excess withholding tax to the succeeding year's !:1:; :i.b:;y (Exh. A-4). Petitioner's Corporate Annual Income Tax Return for the fiscal year ended J,i:;c 30, 1997 (Exh. B) filed on October 15, 1997, showed creditable taxes v,�itLld'-1 ic 11�,c amount of P5,280,440.00 and prior year's excess tax credit of P1 ,329,070.00 (E;;h. -1-<:) whereas the income tax due was only P530,877.00. P.t this point in tim..:, i\.:iilil ;c:�\ excess creditable withholding taxes amounted to P6,078,633.00 (Exh. B-2). h. ilionc-:� opted to refund the said excess taxes as reflected in its ret urn (Exb. 8-5). Accordingly, Petitioner filed an application for the refund of excess crcd!l:ti,!c withholding taxes for the fiscal years 1996 and 1997 in the total ::mount ol' P6,070,Ci33.00 with the Bureau of Internal Revenue on October 5, 1998 (Exh. H). Considering that the two-year prescriptive period was about to lapse, ihc inst::nL petition was filed without haste on October 15, 1998. Respondent, by way of Special and Affirmative Defenses, st1tes: a) Petitioner's claim for refund/tax credit is still UIH.krvi!lG administrative examination/investigation by Respondent's Lidrc:m: considering that there exists a serious doubt as to the vcrac i I y or Lhc deductions claimed and declared by said Petitioner durint, i ls lise�! Y':::r 1997; b) Petitioner miserably failed to demonstr::.tc that the t1:�;c-; subject of the case at bar were erroneously or illegally collected; c) The total amount of P6,078,633.00 being claimed by Petitioner as alleged overpaid creditable withholding tax for fiscal yc:1:�s 1996 and 1997 was not properly documented; lUlO

.. DECISION C.T.A. CASE NO. 5682 - 3- d) In an action for tax refund/credit, the burden of proof is on the taxpayer to establish its right to refund and failure to sustain the burck;.1 is fatal to the claim/credit; and e) In the long line of cases decided by no less than this Honorable Court, as affirmed by the Court of Appeals and the Supreme Court, claims for refund/credit are construed strictissimi juris against the taxpayer as they partake the nature of exemption from tax. To prove their respective allegations/and po tions, Petitioner presented bc::)l testimonial and documentary evidence while Respondent merely submitlcd the c::se based on the pleadings. The only issue for resolution in this case is whether or notPetitioner is entitled to a refund/credit of creditable withholding taxes for the fiscal years 1996 and 1997 in the total sum ofP6,078,633.00. We rule in favor of thePetitioner. The records of this case disclose that on October 15, 1996, Petitioner filed with the BIR its Corporation Atmual Income Tax Return for fiscal year ended June 30, 1996, reflecting a total creditable income tax payment ofP2,191,183.00 which was applied against an income tax due of P862,913.00 leaving a refundable excess creditable tax payment ofP1,329,070.00 (Exhs. A to A-3, inclusive & Exh. A-7). Petitioner then opted to carry-over tJ1 excess tax credits ofP1,329,070.00 to the succeeding year 1997 (Exh. A-4). On October 15, 1997 (Exh. B-1), Petitioner filed with the BIR its Corporation Almual Income Tax Return for fiscal year ended June 30, 1997 clecl<lring a total creditable tax payment ofP6,609,5 l 0.00 representing the sum of the prior year's excess credits of P1,329,070.00 and creditable taxes withheld during 1997 in the sum of P5,280,440.00 (Exh .. B-4). The total creditable tax payment of P6,609,5 10.00 was applied against an income tax due of P530,877.00 resulLing to excess t1;: n"dits of

( DECISION C.T.A. CASE NO. 5682 - 4- P6,078,633.00 (Exh. B-2) which Petitioner opted to be refunded (Exh. D-5) in:,:tci of carrying it over to the following year of1998. On October 5, 1998, Petitioner filed with the BIR an admini:-;trative cbim fur refund of P6,078,633.00 representing overpaid income tax for fisct! year end\.:d June 30, 1997 (Exh. H) and subsequently filed a Petition for Review with this Court on Octob,;r 15,1998. Based on the documentary evidence presented, Petitioner proved that [t compli d with the following basic requirements for refund of excess unutilizcd creel i .1blc withholding taxes provided under Revenue Regulations No. 6-85, as affirmed lJy t:1c Supreme Court in the case of Citibank N.A. vs. Court of Appeals and Comr�J:s:,ia:.l<:r of Internal Revenue, 280 SCRA 459, to wit: 1.) that the claim for refund was filed within the two-year prescriptive pcrioJ provided under Section230 of the Tax Code; 2.) that the income upon which the taxes were withheld were included in the return of the recipient; and 3.) that the fact of withholding is established by a copy of a sto.tcmcnt duly issued by the payor (withholding agent) to the payee, showing the amou;1t paid and the amount of tax withheld therefrom. In compliance with the first requirement, Petitioner fikd its ndmin i s trative ;mel judicial claims on October 5,1998 (Exh. H-1) and October15,1998, respecti vely, which are both within two years from October15,1996 and October15, 1997, the dates when Petitioner filed its annual income tax retums for fiscal years ended June 30, 1996 and Jw1e 30,1997 (Exhs. A-1 & B-1), respectively. As regards the second requirement, Petitioner declared in its annual income t:-:x returns/audited financial statements for FYs1996 and1997 income from sale of services 1Ul2

r DECISION C.T.A. CASE NO. 5682 - 5- ofP177,468,162.00 (Exh. A-5) andPl13,656,666.00 (Exh. B-6) from which the income taxes of P2,191,983.00 (Exh. A-6) and P5,280,440.00 (Exh. B-7) were withheld, respectively. Petitioner presented a reconciliation of the total withholding taxes as reflected in the mmual income tax returns and as indicated in the certificates of creditable tax withheld at source for FYs 1996 and 1997 (Exh. 1). Total withholding taxes shown in the annual income tax returns for both FYs 1996 and 1997 amounted to P7,..f72,423.00 (Exh. 1-1) which is almost equal with the total withholding taxes indicated in the certificates of creditable tax withheld at source for fiscal years 1996 and 1997 in the amow1t ofP7,472,425.00 (Exh. 1-2). It is to be noted also that Petitioner's total income from s<:!c of :ervices of P291,124,828.00 as declared in the mmual income tax returns for both FYs 19';,i C::hs. A-5 & B-6) and 1997 is even higher than the amount ofP262,582,067.80 rcprcscn:i:c the total of the income payments reflected in the certificates of crcclitdb!e tax witbhdd :it source (Exhs. D toE, inclusive). Lastly, the fact of withholding is established by the Certificates of Crccic<!blc 'LL Withheld at Source issued by HopewellPower (Phils.) Corporation to Petitioner cktai!.:d as follows: , , Period Income Crcui!a!Jic Covered Payment TlX \'. il!1ill',;J Withholding Agent C Hopewell Power (Phi Is) Corp Apr. 30 to P 83,219,600.00 I' 832, I %.00 June 30, 1996 D Hopewell Power (Phils) Corp October 1996 55,297,039.40 2,/C�!,:;) I .07 E Hopewell Power (Phils) Corp Oct 31 to 124,065,428.40 3,375,3 77.50 Dec. 31, 1996 P262.582.06U_Q lUlJ

.. DECISION C.T.A. CASE NO. 562 - 6- Petitioner indicated its intention or having the 1997 excess tax credits of P6,078,633.00 refunded instead of carrying them over to the succeeding year (sec Exhibit B-5), by the presentation or the 1998 annual income tax return. Petitioner, Jor the sake or clarity, has presented the 1998 Annual Income Tax Return ending fiscal year June 30, 1998 (Exh. G) to show that the 1996 and 1997 creditable withholding taxes were not carried over to the said taxable year. WHEREFORE, in view of the 1oregoing, the instant Petition for Review is hereby GRANTED. Accordingly, the Respondent is ORDERED to REFUND or ISSUE a Tax Credit Certiricatc in the amount or P6,078,633.00 in 11Yor or the Petitioner. SO ORDERED. WE CONCUR: LO- ERNESTO D. ACOSTA : / idi udge , WN MON 0. DE ;{A A:sciate .lud CERTIFICATION 1 hereby certify that the above clecisioi1 was reached atlcr due consultation with the members of the Court of Tax Appeals in accordance with Section 13, Article VIIJ of the Constitution. t>- ERNETO D. ACOSTA Presiding Judge lUl't