AYALA LIFE ASSURANCE, INC. v. COMMISSIONER OF INTERNAL REVENUE

\. REPUBLIC OF THE PHILIPPINES COURT OF TA.X APPEALS QUEZON CITY AYALA LIFE ASSURANCE, INC., Petitioner, -versus- Prornul ;; �; , C.T.A. CASE NO. 5631 COlVIMISSIONER OF INTERNAL 1 1 ZOOO REVENUE, Respondent. x-----------------------------------------------------------x DECISION Tllis is a judicial claim for refund of the amount of SEVEN IviiLLION FOUR HUNDRED FIFTY EIGHT THOUSAND FOUR HUNDRED FOURTEEN PESOS (P7,458,414.00) allegedly re presenting unutilized excess creditable taxes withheld at source covering the year 1995. The antecedent facts of tllis case are undisputed. Petitioner is a corporation organized and existing under and by virtue of the laws of the Pllili p pines. On April 15, 1996, Petitioner filed with the Bureau of Internal Revenue its CoqJoration Annual Income Tax Retum for the calendar year ended December 31, 1995, reflecting an overpaid income tax in the amount ofP13,989,801 .00, computed as follows:

DECISION- C.T.A. CASE NO. 5631 Gross L'1co1ne P'7 ..a. ' h-.Jh...,,.o.,. .1... _o.,, .. 1 vs-n'� n'-''n-' � Net Loss fP 1 7 {-;.(\ '),( < (\(\ 1\ Income Tax Payable , 1 vv" Less: TiL\: c-:redits/Paj.rtnents ..1." �..-r -'� vv Creditable Tax Witreld N!L Tax Refundable .p 1. V r.:.,...:J:< .._.I.1J.) .<..IQ V7 J,\(,\1\(.\1 ',7,At...;,:;v Q)-1�1..a.,1� � fl() 13,989,801.00 '-''-' ,fP... 1..�__. -,=1.,Q.... Q'V Q...., Rfl1 ()()) .. . Oftl1e aforesaid arr1ount, P7,453,414.00 allgdl)r represer1ts Pctitior1er's creditlble tax 'vithheld on its sale of assets and rental mcome for the taxable year 1995 which were not utilized or applied against an;' tax liabilit)', Slllce it alleged!)' i:1currcd losses !Jl tl1c n10Ullt. ofP1,760,243.00 in tl1e s3id J'eJr. Petitior1er cJrriecl O'-'Cr tl1e s:-:id U ..1,l.,l...,l.rV,,U..,,.I..,U._,,. f�n. t-1 .. lV l..l.l."" succeedhg )'ear as prior )rear's excess credit. In Petitioner suffered a loss 11.1 the an1ount of P43,052,197.00, t!1us tl1e :unount of P7,1158,-11'1.00 as creditJb.lc t:1x \Vithheld re1nJined U11utilizecl s of 1996. (Exl1ibit ''C") 1997, Petitior1er filed ari ""'.-l ..."";+,;c<f�+�i-;,_ ,, U.UJ.lllllJ.:>W. U.l..l \' \.1 Bu reau of Internal P...c\'etlue 1n�"\�! A1�"\�ti�n..no the .:...f&.'n-"t.I�.I p....c;J:,:...i.r..l... 1111.ounJ of p7. '458,414.00 reprcsenti11g its 1995 unutilized creditable t:1xes \Vitltheld at source fl<vh Q\ Si11ce ,.......,. .. ... ,. respon,lent h.as 11ot Jcted upon on its lettcr...rcciucst for refun.,l, Petitioner ele'v':tted l1cfore t..1.is Court or1 ./\pril 15, 1998. hl his ..1'1swer to the Petition for Revie'.v, the Respondent interposed the following Special :t.'. 1d ..L1..ffirmative Defenses, to \Vit: 5. The petition states no c:1use of actio11 as it does not allege t11c dates a-f1,._r1d ,,,l,t.:)o..., fl"u. '''''"'.:t>S �"'"',,.-.-tt- 4-"' 1"' .... ,.'"r....o '""'i,, ....11,r p..u,.....,;.tu,..1., l'VJl\o.IJl 1..11 \o.l U.l.. ilrr.\.1' VY5lll. t.V U\.f .1\.f.l.Y.llU\.1' ''\1'\.1'.1\.1' U.\.l'l.YU..l.lJ

DECISION- C.T.A. CASE NO. 5631 Page 3 oflO 6. Claims for refund are construed strictly against the claimant, the same being in the nature of exemption from taxes (Commissioner of Internal Revenue vs. Ledesma, 31 SCRA 95; Manila Electric Co. vs. Conm1issioner of Internal Revenue, 67 SCRA 35); 7. It is incumbent upon petitiOner to show compliance with the provision of Section 230 of the Tax Code, as amended; 8. In an action for tax refund, the burden of proof is upon the taxpayer to prove that he is entitled to the refund and failure to sustain the same is fatal to the action for refund. In a Resolution promulgated on August 10, 1999, this case was deemed submitted for decision sans the memorandum of the Respondent. The sole issue submitted for Our consideration is whether or not Petitioner was able to present sufficient evidence to support its claim for refund in the amount of P7,458,414.00. In its Ivlemorandum, Petitioner relied on the provisions of Section 76 and Section 58 of the Tax Reform Act of 1997 which, for the proper disposition of this case, are reproduced hereunder: "SECTION 76. Fiscal Adjustment Return. - Every cmvoration liable to tax under Section 27 shall file a fmal 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 taxable year is not equal to the total tax due on the entire taxable income of that year, the C011JOration shall either: X X X "(C) Be credited or refunded with the excess amount paid, as the case may be.

- DECISION- C.T.A. CASE NO. 5631 X X x" "SECTION 58. Returns andpayments of Taxes WIJI/I zeld at Source. X X X . "(D) Income of Recipient. - Income upon which any creditable tax is required to be withheld at source under Section 57 shall be included in the retum of its recipient but the excess of the amount of tax so withheld over the tax due on his return shall be refunded to him subject to the provisions of Section 204; if the income tax collected at source is less than the tax due on his return, the difrfe ence shall be paid in accordance with the provisions of Section 56. "All taxes withheld pursuant to the provisions of this Code and its implementing rules and regulations are hereby considered trust funds and shall be maintained in a separate account and not commingled with any other funds of the withholding agent." Likewise, to support its stance, Petitioner cited the tluust of Our ruling in the case of Citytrust Finance Corpor ation vs. Commissioner of Internal Revenue (CTA Case No. 4134 and 4046, dated November 11, 1991 and February 24, 1993, respectively) where We laid down the requirements which a taxpayer must be able to comply with before it may be granted a refund of overpaid creditable withholding tax, to wit: 1) That the claim for refund was filed within two years as prescribed under Section 230 of the Tax Code; 2) That the income upon which the taxes were withheld were included in the return of the recipient; 3) That the fact of withholding is established by a copy� of statement (BIR Fotm 1743.1) duly issued by the payor (withholding agent) to the payee showing the amount paid and the amount of tax withheld therefrom.

DECISION- C.T.A. CASE NO. 5631 After a careful pemsal of all the evidence at hand, includ i ng the tes timony of Petitioner's witnesses, and after considering carefully Respondent's failure to rebut Petitioner's evidence, thereby implying that it has admitted the tmth of the contents of the exhibits, specifically the returns and the certificates of tax withheld, this Court finds for the Petitioner. As correctly pointed out by the Petitioner, the grant of refund of overpaid creditable tax withheld at source is dependent upon compliance by the taxpayer ,;v�ith the following requirements, to wit: 1. That the claim for refund was filed within two years as prescribed under Section 230 of the Tax Code; 2. That the income upon which the taxes were withheld were included in the return of the recipient; 3. That the fact of withholding is established by a copy of statement (BIR Fonn 1743.1) duly issued by the payor (withholding agent) to the payee showing the amount paid and the amount of tax withheld therefrom. The Supreme Com1 has affirmed the aforementioned requirements m the case entitled Citibank N.A. vs. Court of Appeals and Conunissioner of Tnternal Revenue, 280 SCRA 459. Following the mling laid clown in this case, Exhibit "A", the fmal adjustment return for the year ending December 31, 1995 and Exhibit "C", the fmal adjustment retum for the year ending December 31, 1996, show net loss operation on the part of the Petitioner in the amount of P1, 760,243 and P43,052, 197, respectively. Therefore, for the said years Petitioner incuiTed no income tax liabilities and that Petitioner was not able to utilize its excess creditable income taxes d uring the previous year on account' of the m1

DECISION- C.T.A. CASE NO. 5631 loss suffered in taxable year 1996. These facts remain undisputed by the Respondent. In fact, the claim for refund was submitted for decision by the Respondent's counsel without presenting any contrary evidence for failure on the part of the examining group of the Bil.l to investigate the said claim. Thus, We now discuss Petitioner's compliance with the following requirements ad seriatim. As regards the first requirement, the Petitioner has complied by filing its claim for refund with the Bureau of Internal Revenue on December 3, 1997 and elevated its case to this Com1, by reason of the Respondent's inaction, on Aptil15, 1998, both dates offtling falling within the two year period from April 15, 1996, the latter date when Petitioner filed its 1995 annual income tax retum, which is in compliance with Section 229 of the Tax Code quoted hereunder: "SECTION 229. Recovery of Tax Errotzeousp or Jllegal(v Collected. - No suit or proceeding shall be maintained in any court for the recovery of any national intemal revenue tax hereafter alleged 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, penalty, or sum has been paid under protest or duress." In any case, no such suit or proceeding shall be filed after the expiration of two (2) 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 Commissioner may even without a written claim therefor, refund or credit any tax, where on the face of the retum upon which payment was made, such payment appears clearly to have been enoneously paid."

DECISION- C.T.A. CASE NO. 5631 \Vith regard to the second requirement, Petitioner declared in its 1995 income tax retwn its gain on sale of real estate of P142,331,443.00 and rental income of P28,462,093.00 from which the creditable mcome taxes of P6,058,496.00 and P1,399,918.00, respectively, were withheld as part of its gross mcome of P265,7 19,369.00 (Exh. A). Thus, Petitioner complied with the requirement that the income upon which the taxes were withheld must be included in the return of the recipient. With respect of the third requisite, while We agree that Petitioner was able to prove the fact of withholding by presenting Certificates of Tax Withheld issued by its withholding agents showing the amount paid and the amount of tax withheld therefrom, thi<; Comt is not inclined to grant the entire amount prayed for inasmuch as only the amount ofP5,553,095.22 was properly documented . In the same breath, we disallowed Exhibit A-26 (page 78, CTA records) representing Monthly Remittance of Income Taxes Withheld amounting to P 1,408,245. 90 from the summary which is not the proper Bil.l Fmm required per Sections 6 and 10 of Revenue Regulations No. 6-85 which provides, thus: "Section 6. - Statement of income parments made ami taxes l-t-itltlteld Every withholding agent required to deduct and withhold taxes - under these Regulations shall furnish each recipient, in respect to his or its receipts during the calendar qumter or year a written statement (Bil.l Form 1743.1) showing the income or other payments made by the vvithholcling agent during such quat1er or year, �and the amount of the tax deducted and withheld therefrom. xxx" "Section 10. - Claims (or tax credit or refund. - Claims for tax credit or refund of income tax deducted and withheld on income payments shall be given due course only when it is shown on the return that the in come

DECISION- C.T.A. CASE NO. 5631 Page8ofl0 payment received was declared as patt of the gross income and the fact of withholding is established hy a copy of the statement duly issued by the payor to the payee (BIR Form No. 1743.1) showing the amount paid and the amount of tax withheld therefrom." It appearing therefore that Exhibit A-26 of the Petitioner pertains to income taxes with11eld and remitted to the BIR by it as with11olding agent/payor of income payments made to other coqJOrate entities and not income taxes withheld from Petitioner's income which is manifestly not in pursuance to the mandate of the aforequotcd provisions of law, We are constrained to exclude the same in the computation of the refundable amount to which the Petitioner is entitled to, to wit: Exh. Withholding Agent Income Income Tax Payment Withheld A-1 Ayala Agricultural Devt. Corp. 103,305 60 5,165.28 A -2 Aromin, Sy & Associates, Inc. 717,120.00 35,856.00 A-3 Del Monte Fresh Prod. (Phils.), Inc. 259,995.20 12,999.76 A-4 Del Monte Fresh Prod. (Phils.), Inc. 194,996.40 A-5 Del Monte Fresh Prod. (Phils.), Inc. 324,994.00 9,749.82 A-6 Cartasano Caramutan Padlan & Co. 16,249.70 A-7 Davao Exotic Banana Corporation 14,750.00 A-8 Davao Multi Maritime & Mktg. Corp. 56,210.00 737.50 A-9 Davao Multi Maritime & Mktg. Corp. 21,560.00 2,810.50 A-10 Davao Multi Maritime & Mktg. Corp. 22,344.00 1,078.00 A-11 Davao Multi Maritime & Mktg. Corp. 22,344.00 1,117.20 A-12 DHL Philippines Corporation 22,344.00 1,117.20 A-13 Dr. Joseph P. Macasiray 162,181.60 1,117.20 A-14 Edinet Philippines, Inc. 194,400.00 8,109.08 A-15 Edinet Philippines, Inc. 803,887.10 9,720.00 A-16 Empire Sales Philippines, Corp. 862,801.55 40,1 94.38 A-17 E. B. Loredo Realty Corp. 194,400.00 43,140.12 A-18 E. de Leon Enterprises, Inc. 180,225.00 9,720.00 A-19 Jehu Trading Corporation 90,000.00 9,011.25 A-20 Makati Rotary Club Foundation 30,720.00 4,500.00 A-21 Murray Management Corp. 185,085.00 1,537.33 A-22 Management Asso. of the Phils. 388,800.00 9,254.25 A-23 United Janitorial & Manpower Svcs. 486,000.00 19,440.00 486,000.00 24,300.00 24,300.00

DECISION- C.T.A. CASE NO. 5631 A-24 Ray Burton Development Corp. 93, 005, 000.00 4,650, 250.00 A-25 Ayala Systems Technology, Inc. 100, 339.00 5, 016.95 A-27 Ayala Systems Technology, Inc. A-28 Borden lnt'l Phils., Inc. 3, 175, 105.60 158, 755.28 A-29 Borden lnt'l Phils., Inc. 201, 675.96 10, 083.80 A-30 Borden lnt'l Phils., Inc. 192,375.00 9, 618.75 A-31 Borden lnt'l Phils., Inc. 9,301.00 465.65 A-32 Borden lnt'l Phils., Inc. 192, 375.00 9,618.75 A-33 Universal Reinsurance Corp. 192, 375.00 9, 618.75 A-34 Ayala Health Care, Inc. A-35 BPI -Ayala West 2, 599, 422.00 129,971.12 A-36 Steven J. Leach, Jr. & Asso., Inc. 2, 511,900.00 125, 595.00 TOTAL: 1,103, 830.00 55, 191.50 109,108, 162.01 97, 685.10 5,553, 095.22 As to the remaining amount not properly substantiated, the same is also disallowed pursuant to the aforequoted Revenue Regulations No. 6-85. \VHEREFORE, in view of all the foregoing, Respondent is hereby ORDERED to REFl.JND or in the altemative to ISSUE a Tax Credit Cet1ificate in the amount of FIVE MILLION FIVE HUNDRED FIFTY TIIREE TIIOUSAND NINETY FIVE AND 22/100 PESOS (P5,553,095.22) in favor of the Petitioner representing unutilizecl excess creditable taxes withheld at source for the year 1995. M10N 0. DE E RA SO ORDERED. /1 Associate Jud , WECONClJR: c ERN ESTO D. ACOSTA Presiding Judge .r#- Associate Juoge

DECISION- C.T.A. CASE NO. 5631 CERTIFICA.TION I hereby certify that above decision was reached after due consultation \Vith the members of the Court of Tax Appeals in accordance with Section 13, Article VIII of the Const it u tion . - ERNESTO D. ACOSTA Presiding Judge