CTA Case No. 3358 (Decision)

I 1� REPUBLIC OF THE PHILIPPIRBS COURT OF TAX APPEALS QUEZON CITY ORIENT PACIFIC CAPITAL INVESTMENT CORPORATION (Citicorp Investment Philippines), Petitioner, -versus - C.T.A. CASE NO. 3358 THE ACTING COMMISSIONER OF ;o/:J- Y INTERNAL REVENUE, Respondent. X- - - - - - - - - - - - - X DE C 0N This is a claim for tax credit in the amount of P487,336.00 in favor of petitioner ~/ fo ~ overpaid 1979 income ta>: arising from unapplied creditable ta>: withheld. This amount of tax credit claim is P487,336.00 representing income tax withheld on interest income of petitioner from time and savings deposit and from debenture bonds. For income tax purposes, petitioner's operations in 1979 resulted in a loss. (E>:hs. B and B-1, B- 4, B-5 and B-6; Testimony of Ms. Doris Mendo~a, January 27, 1980, pp. 5-7, t.s.n.) Consequently, it had no income tax liability for said year against which the creditable withholding taxes could be applied. 24~

DECISION CTA CASE NO. 3358 - 2- Petitioner, therefore, made an overpayment of Four Hundred Eighty Seven Thousand Three Hundred Thirty (Exhs. B- 2, B- 3; pp.5 - 7, t.s.n., Jan. 27, 1988.) The amount claimed was certified to have been withheld by its withholding agents, namely: the Bank of the Philippine Islands, the Metropolitan Bank and Trust Co . Inc. , the International Corporate Bank and the Far East Bank '-'- Trust Co., Inc. The amounts withheld by said withholding agents t.olere remitted to the Government, together with other amounts withheld by said withholding agents from other taxpayers during such withholding periods. (Exhs. C, C- 1; D, D- 1, D-2; E, E-1, E-21 F, F- 1, F- 2; G, G-1, G- 2; H, H- 1, H- 2; I, I-1, 1-2 1 J, J - 1, J - 2; K, K- 1, K- 2, K-3 , K- 4, K-5, K-6, K-7, K- 9; L, L- 1, L-2,. M, M- 1, M- 2, M-3, M-4J N, N- 1, N- 2, N- 3, and N-4; testimony of Ms. Doris Mendoza, pp. 7 to 14, t.s.n., Jan. 27, 1999.) Consequently, in a letter filed with respondent's office by petitioner, through its auditors on July 10, 1990 (Exhs. A, A-1J Par. 6, Petition, admitted as to filing of claim on July 10, 1990, Par. 4, Answer), petitioner requested for 2b u

DECISION CTA CASE NO. 3358 - 3- tax credit in the amount of P487,336.00 !9?.:9 (E>:h. Par. 6, Petition; admit ted par. 4, Answer). Both the claim for tax credit as well as the Petition for Review had been filed within two years from the date the withholding taxes were paid (E>ths. A and A-1; Petition for Review, CTA Rec.), said claim and petition having been filed on July 10, 1980 and July 30, 1981, respectively. In Paragraph 7 of respondent's answer, h� alleges that: "7. Granting for the sake of argument that petitioner is entitled to a ta>: credit, petitioner's claim for tiint credit for the period prior to July 30, 1979, two years prior to the filing of this petition on July 30, 1981, has prescribed;" In other words, respondent in effect claims that the following portions of the claim for tia>t credit have been barred by prescription: Withholding Portion withheld Date of paymt Ex hi- Agent from petitioner to the Gov't bit Metrobank p 712.19 1-25-79 "E-2" 12,040.97 4-2S-79 "F-2" - do - do 2,439.49 7-25-79 "8-2" IBAA 369.10 1-19-79 "J-2" 1,502.79 4- 24-79 "t<-2" - do - 7-19-79 "K-4" 499.66 - do - 2bJ..

DECISION CTA CASE NO. 3358 - 4- Interbank 1,060.89 1-18-79 "L-2" - do- 4-06-79 "M-2" - do- 7-16-79 "M-4" TOTAL Noteworthy is the fact that with the exception of the amounts covered by E>thibits "E-2" (P712.19), "J-2" (P369.10) and "L-2" (P1,060.89) or a total amount of P2,042.18, which represent withholding ta>t paid in 1978, and remitted by the withholding agents in January of 1979, all other amounts were withheld during the year 1979 (Certifications of withholding banks, Exhs. F P12,049.97, G P2,439.49, K - P1,502.79 and P499.66, M - P1,579.96 and P180.25). To date, respondent has not yet granted petitioner's request for tax credit. (Par. 5, PetitionJ admitted in par. 1, Answer) The on 1y issues to be resolved in this case arel 1. Whether or not the income tax on interest income of petitioner withheld from it in 1979, and paid by the withholding agents to the Government are refundable; 2. Whether or not petitioner's claim for tax .' credit for sums remitted to the Government by tha

:Ip, DECISION CTA CASE NO. 3358 - 5- withholding agents prior to July 30, 1979 (i.e., more than two years prior to filing of Petition for Review on July 30, 1981) have been barred by prescription. Petitioner contends that the taxes withheld on interest income paid by petitioner on its savings and time deposits and on its debenture bonds are refundable and that petitioner's claim for tax credit, e>:cept only for the amount of P2,142.18 which is barred by prescription, can be allowed. Respondent, however, maintains that the income tax on interest income, withheld and paid by petitioner thrOLigh its depository banks, was collected in accordance with law and regulations and hence not refundable. It is further asserted that the amount that is for credit of P487,366.00 as alleged overpaid withholding taH, was already considered and dedLicted in the computation of its net income reflected in its returns filed with respondent's Bureau. Respondent Commissioner had reach this conclusion as shown by the findings of his revenue examiner (Nora E. Tamayo) after an investigation of the petitioner's 1979 corporate annual income tax return, wherein a deficiency income tax assessment was ascertained to

DECISION CTA CASE NO. 3358 - 6- be still due and collectible from the latter for the said period in the amount of P1,185,985.60, and documentary stamp ta>:es in the amount of P765,884.33, computed as follows: Net income per return � � � � � P2,538,885.00 ADD1 Unallowable deductions/ additional income interest expense �� P5,635,329.15 Total adjustment � � � � e~~63s.~J9.15 Net income per investigation ���� P3,096,444.00 Less: Personal and Additional e>temptions Net income subject to tax � . � � P3, 096 � 444. Q_Q. Income tax due thereon vvvvvvvvvvvvv � P1,229,577.60 LESS: Income tax already withheld ��� � � � � � � ~~7 ' 36~..!!.9Q. Deficiency ta>t � ���.�. p 741,241.00 ADD: Surcharge � � � � � � � � � � . Interest Max. . � . . . � � � . P 444,744.60 Compromise � � � � � � � � � � TOTAL AMOUNT DUE I!< COLLECTIBLE � � � E.l.� 18~_1._~-~-5. 60 vvvvvvvvvvvvv Documentary stamps: Sec. 223 .�.� P 427,674.33 Sec. 225 � � � � ___3~~-lQ, 00. TOTAL AMOUNT DUE I!< COLLECTIBLE � � � f._.765,8_e4.~ vvvvvvvvvvvvv (Pages 77, 78 & 79, BIR records)." Finally, respondent claimed that to grant petitioner's claim for tax credit would only result .' to a double tax credit, not to mention the fact that petitioner has outstanding tax liabilities in

DECISION CTA CASE NO. 3358 - 7- the amounts of P1~185~585.60 and P765~884.33 representing its deficiency income and documentary stamps taxes, respectively, for the year 1979. He concluded, citing allegedly similar case involving issues identical to the instant case (Tax Service of the Phils. vs. Coaaission�r of Internal Revenue, CT A CASE No. 2326), this Honorable Court in denying the claim of the petitioner for tax credit ruled ">: x >t It appearing that the sum of P7,293.47 has been applied by respondent in partial payment of the alleged deficiency income tax due fr�om the Estate, by way of ta>: credit, the claim \1-Je note that the report of Revenue Examiner Nora E. Tamayo (pp. 77, 78 & 79, CTA rec.) has not been approved by the Commissioner of Internal Revenue. Neither has she been presented to testify on her report. Hence, her report can not be taken as concrete evidence in this case of her findings that the said P487,366 withholding tax was already considered and deducted in the computation of its net income reflected in its return filed in respondent's Bureau. The corporate annual income tax return bf petitioner for the calendar year ended December 31;

DECISION CTA CASE NO. 3358 - 8- 1979 shows that the claimed tax credit of P487,336 was not considered and deducted in the computation of its net income reflected in its return. (E>:hs. B-1, B-2 8( B-3.) The law applicable is Section 53 of the National Internal Revenue Code, quoted hereundl!r, is clear and explicit: 11 Sec. 53. Withholding of tax at source >: >: >t. "(e) Withholding tax on interest on bank deposit. "(1) Rate of withholding tax. Every bank or banking institution shall deduct and withhold from the interest on bank deposits (except interest paid or credited to non-resident alien individual and foreign corporations)~ a tax equal to fifteen percent of the said interest. Provided, however, Th~t no withholding of tax shall be made if the aggregate amount of the interest of a 11 deposit accounts maintained by a depositor alone or together with another in any one bank at any time during the ta>:able period does not e>:ceed three hundred fifty pesos a year or eighty-seven pesos and fifty centavos per quarter. For this purpose, interest on a deposit account maintained by two persons shall be deemed to be equally owned by them. "(2) Treatment of bank deposit interest. - Ih!'-.:._A.rtt~.r:.~~.i_.i.r.H;;:ome_.!!_tl~l.L be ~n~_Juct.~.~---in J;._fl~oss _,i_n~ome_ in ~_g_m.Rutinq � t...h.~~~P-D~_;J.,_!:_gr "_!!L incgm.~__t;_~_!(__l_iabiJ._,i ty in @..c;:;..~.o r~;t~.n!;.!LJ�~.!!;J:t e >e ;1,_!5tin g l�a ~ � " The interest income subjected to withholding tax being then required to be included in the taxpayer's gross income in computing his income ta ~ 1 iabi 1i ty, any withholding tc.:n:es paid by taxpayer 2b0

DECISION CTA CASE NO. 3358 - 9- t...,as therefore subject to refund in the event the taxpayer suffered a loss instead of realizing ta>:able gain. Thus, having incurred a loss of P2~538~885.00 petitioner is therefore entitled to the refund of taxes paid amounting to P487,336.00. As to interest on bonds, the Expanded Withholding Tax Regulations, Revenue Regulations 13-78 ~ as amended by Revenue Regulations No. 6-79 then provided: "Section 1. Income payments subject to withholding tax and rates prescribed therein. Except as herein otherwise provided, there shall be withheld a cr_ed_~j:a_!;)j_~incc:une_ta. ~ at the rates herein specified for each class of payee from the following items of income payments to persons residing in the Philippines. "h) Interest Payments on Bonds or similar Indebtedness On interest payment other than interest which is exempt from income ta>t Ltnder Section 29 (b)(8)(0) of the NIRC, as amended, on bonds or similar evidence of indebtedness, except tax-free covenant bonds, the interest of other payment on which is subject to withholding under Section 53 of the Tax Code, issued by any corporation and by all government agencies including government owned or controlled corporations 15% (underscoring supplied). It follows from the aforequoted provisions of law and regulations, therefore, that the withholding taxes on interest earned by petitioner on its savings and time deposits and on its

DECISION CTA CASE NO. 3358 - 10 - debenture bonds in 1979 ( i .eq prior to the amendment which subjected interest on deposits and yield on deposit substitutes to final withholding t.:n:es) , partook of the nature of !;_f editab~.�.. (not final) withholding taxes. Petitioner having incurred losses, a fact not disputed by respondent, such creditable income tax withheld should be credited in favor of petitioner. Res pondent's allegation in his answer that said withholding taxes in the amount of P487,336.00 were collected in accordance with the law and regulations does not forclose petitioner ' s right to the tax c redit. The law and regulations on creditable withholding taxes are premised on the recognition that the ta>:payer ' s ultimate tax liability, if any, is determinable only at the end of the taxable year. Hence, the tax for the year is finally determined to be either refundable or subject to additional payments with the filing of the Final or Adjustment Return for the year in question. The allegation of the respondent Commissioner that, assuming that subject ta>:es are refundable, petitioner ' s claim for the period prior to July 30, 1979, or two years prior to the filing of the , petition on July 30, 1981, had prescribed is 2bo

DECISION CTA CASE NO. 3358 - 11 - without basis in law and jurisprudence. The 2-year period provided in Sec. 292 of the Tax Code of 1979 is really to be counted from time the tax f_pr~b~ Y..f?_s:\..[_ fa 11 s due. That the two-year period is to be counted from the end of the t.::n:able period finds support in a decision rendered by the Supreme Court in the case of Gibbs vs. Co��issioner (15 SCRA 318) when it categorically ruled= "A taxpayer whose income is withheld at soLirce ~ijj_ be__g~eme~ _ to h-~-Y.-~.--..P-~id his .t.~K...l.~_a bJ-..1 i t..Y.. . ...wh~.o......:t..D.PL ..?..~.m.~ f a_:l,.)_~_ft..!-!.r_s:~_:t.....t.:.b.e --~n.g_o f Q.L_~_sc.r::JQ.t i.Y.~ . --...P.~r.:J. oct......... unq~r:..__�.~c t !..P.J"_l __~Oq________g_f___ ___ ~ h_~ ~..f f ~c t ~Q___t.hr.9..1J..9.h___.t.tte...........J1A.t .hhq.ls:J i n__g ___t.~>.L-~.Y...~t.~.m. � " (underscoring supplied). / I This has been modified by this Honorable Court~ for very sound reasons~ in THX Sal�s, Inc. vs. Co��isstoner o~ Internal Revenue, CTA Case 3745, April 29, 1988, wherein the 2-year period was counted from the date the final return was filed~ and the amount still due (or refundable) finally ascertained. This is because under the law in 1979, as well as at present, the tax for the year, if any amount is still payable falls due on the

,,,. j~. DECISION CTA CASE NO. 3358 - 12 - same date as the filing of the final or adjustment return. It appears from the aforequoted Bibbs decision that ta>:es paid prior to Ju 1y 30 ~ 1979 hav� not prescribed as the two-year period should be counted not from July 30, 1979 but from December 31, 1979, the end of the ta>:able year of petitioner corporation. If we apply the TMX decision which takes into account the change in the law since the promulgation of the old Bibbs case, the 2-year period should be counted from February 27, 1980 (date when petitioner filed its 1979 Final Tax Return) � Consequently, with the exception of the amount of P2, 142.18 which is conceded by petitioner as wi thholdings for 1978 and is therefore barred by prescription: Withholding Portion withheld Date of paymt Ex hi- agent from petitioner to the Bov't bit Metrobank p 712.19 1-25-79 "E-2" IBAA 369.10 1-19-79 "J-2" Interbank -~.960.89 1-18-79 "L-2" Total P2,142.18 .... ,_..;s The rest of the amount of P487,336.00 is to be credited in favor of petitioner. 26 U

DECISION CTA CASE NO. 3358 - 13 - WHEREFORE, petitioner Orient Pacific Capital Investment Corporation (Citicorp Investment Philippines), is entitled to a tax credit of P4B5,193.82. No pronouncement as to costs. SO ORDERED. Quezon City, Philippines, October ? , . 1990. I CONCUR: CIRTifiCATIOM I hereby certify that this decision was reached after due consultation between the members of the Court of Tax Appeals in accordance with Section 13, Article VIII of the C. ROAQUIN sociate Judge Co t of Tax Appeals 2b.i