STAR PERFORMANCE INC v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PH~L IPPINES COURT OF TAX APPEALS QUEZON CITY SECOND DIVISION STAR PERFORMANCE INC., C.T.A CASE NO. 6639 Pet itioner, Members: - versus- CASTANEDA, JR., Chairman U'r ,and THE COMMISSIONER OF INTERNAL REVENUE , PALANCA�ENRIOUEZ, JJ. Respondent. Promulgated: MAR 2 4 ~006 / \Z x- --------- ------------------ -------------------- ----- ------------ --- ------ -- -- --- ------- x DECISION CA STAN EDA , JR., f..: T hi s case invo lves a claim for refund or issuance of a tax credit certificate in the amo unt of P2297.485. 00 allegedl y representing excess creditable w ithho lding taxes fo r taxabl e year 2000 . Petiti oner is a domestic corporation duly organi zed and existing under the laws of the Republic of the Phi lippines, w ith principal address at J.Y. & Sons Industri al Co mpound. Phiv idec Industrial Complex. Taguig. Metro Manila. Petitioner is registered

DEC ISION CTA CA SE NO. 6639 Page 2 of8 with the Bureau of Internal Revenue (BIR) with Taxpayer' s Identification Number 004- 00 1-798-590 (pars . 1 & 3. Summary t-?fAdmitted Facts, pp. 51-52. Records) . On April 4. 200 1. petitioner filed its 2000 Annual Income Tax Return (Exhibit A) declaring neither taxable income nor loss but reflecting a minimum corporate income tax (MCIT) li ability of P830,940.00 which was offset against the creditable taxes wi thheld of P3.128.425 .00 leaving an income tax overpayment of P2.297.485 .00. computed as fo ll ows: Sales P314 ,875,416 .00 Less : Cost of Sales 273 ,947 ,874 .00 Gross Income from Operation Add Non-Operating & Other Income p 40 ,927 ,542 .00 Gross Income 619 476 .00 Less : Deductions Taxable Income p 41 ,547 ,018 .00 Minimum Corporate Income Tax 41 547 018.00 Less : Tax Credits p 830,940.00 Creditable Tax Withheld for the First Three Quarters Creditable Tax Withheld for the Fourth Quarter p 2,416,437.00 Total Tax Credits 711 988.00 Overpayment p 3,128,425 .00 p 2 297 485 .QQ Petiti oner opted to have the excess amount of P2.297.485 .00 refunded. Also, petitioner did not carry-over the excess tax credits of P2,297.485.00 in its income tax return for the succeeding taxable year 200 1 (Exh ibit M) . On April 6. 200 1, petitioner filed with the Bureau of Internal Revenue a letter claiming fo r the refund of its excess/unutilized creditable withholding taxes for the years 1998 to 2000 in the aggregate amount of P8.878 , 13 2. 00 (Exhibit B). broken down as fo llows: 1998 p 3,370,050 .00 1999 3,210 ,597 .00 2000 2,297,485.00 p 8.878 .132.QQ

DEC IS ION CTA CASE NO. 6639 Page 3 of8 On April 18, 2002, petitioner filed another letter with the BIR reiterating its request for the refund and/or issuance of a tax credit certificate corresponding to its excess creditable withholding taxes for taxable year 2000 in the amount of P2.297.485 .00 (Exhibit C). Due to the inaction of the respondent and in order to toll the running of the two- year prescriptive period provided under Section 229 of the NIRC of 1997. petitioner filed the instant Petition for Review with this Court on April 3, 2003. In hi s Answer filed on June 5, 2003, respondent asserted the following Special and Affirmative Defenses : 4. Petitioner has not shown proof that the excess withholding taxes claimed was not utilized for the succeeding years; 5. Petitioner' has not shown proof that the income from which the withholding taxes were withheld and subject matter of the claim was reported in its income tax returns for the year 2000: 6. Petitioner failed to substantiate its claim by proper documentary ev idence; 7. 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. Commissioner of Internal Revenue 67 SCRA 95); 8. In an action for tax refund/credit, the burden of proof is on the taxpayer to establish its right to the refund and failure to sustain the burden is fatal to the action for refund ; 9. Taxes paid and collected are presumed to have been made m accordance with law and regulations. hence not refundable. In their Joint Stipulation of Issues filed on October 22. 2003. the parties presented the following for the resolution of this Court: 6;;

DEC ISI O CTA CASE NO. 6639 Page 4 of8 1. Whether or not the excess or unutilized creditable tax withheld in the amount of P2 ,297,485.00 are duly supported by documents showing the amount paid and the amount of tax withheld therefrom; 2. Whether or not the income upon which creditable taxes were withheld by the income payors were included and reported as part of Petitioner' s gross income in its income t2�.,._ return for taxable year 2000 ; 3. Whether or not the amount of P2,297,485 .00 representing unutilized withholding tax credits of Petitioner for taxable year 2000 was utilized or applied against its income tax liability for the subsequent taxable year: 4. Whether or not petitioner is entitled to the refund or issuance of a tax credit certificate in the amount of P2 ,297.485.00 representing unutilized/excess creditable withholding taxes for calendar year ended December 31 , 2000. Petitioner anchors its claim for refund on Sections 76 and 204(C) of the National Internal Revenue Code of 1997 which provide : " SEC. 76. Final Ac:{justment Return . - Every corporation liable to tax under Section 27 shall file a final 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 corporation shall either: ..(A) Pay the balance of tax still due; or ��(B) Carry-over the excess credit; or ..(C) Be credited or refunded with the excess amount paid, as the case may be. ��rn case the corporation is entitled to a tax credit or refund of the excess estimated quarterly income taxes paid, the excess amount shown on its final adjustment return may be carried over and credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years. Once the option to carry-over and appl y the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been made. such option shall be considered irrevocable for that taxable period and no application for

DECIS ION CTA CA SE NO. 6639 Page 5 of8 cash refund or Issuance of a tax credit certificate shall be allowed therefor.�� SEC. 204. Authority of the Commissioner to Compromise. Abate. and Refund or Credit Taxes. - The Commissioner may - XXX XXX XXX (C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition by the purchaser. and, in hi s discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction . No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty: Provided. however. That a return filed showing an overpayment shall be considered as a written claim for credit or refund." Based on the afore-quoted law, petitioner may seek the refund of excess income tax payments shown in its final adjustment return. However. before petitioner can be entitl ed to the refund thereof, it must show compliance with the following requisites : 1) That the claim for refund was filed within the two-year prescripti ve period prescribed under Section 204(C), in relation to Section 229 of the NIRC of 1997; 2) That the fact of withholding is established by a copy of a statement dul y issued by the payor (withholding agent) to the payee (BlR Form No. 1743-A), showing the amount paid and the amount of tax withheld therefrom; and 3) That the income upon which the taxes were withheld was included in the return of the recipient (Citibank. N.A . vs. Co urt of Appeals and Commissioner ofInternal Revenue. 280 SCRA -159:) . Records show that petitioner complied with the� {irst requisite . The subj ect claim pertains to taxable year 2000 for which petitioner filed its income tax return on April 4. 2001 . Counting from this date, petitioner had until April 4, 2003 within which to file its claim for refund/tax credit both in the administrative and judicial leve ls. Thus. the ;);;/

DECISION CTA CASE NO. 6639 Page 6 of8 administrative claim for refund originally filed on April 4. 2001 and the Petition for Review filed on April 3. 2003 were timely filed within the two-year prescriptive period . To prove the fact of withholding, petitioner submitted various Certificates of Creditable Tax Withheld at Source showing creditable withholding taxes in the amount of P3.128.425.21 on sale of goods it made to Avon Cosrretics and Triumph International (Phils.) Inc. for taxable year 2000 in the amount ofP312.844.244.44. detailed as follows: Exh . Period Covered Withholding Agent Income Payment Tax Withheld D 1/01/00 - 3/31/00 Avon Cosmetics P 6,850 ,189.00 p 68 ,501.89 Avon Cosmetics 10,047 ,100.00 100,471 .00 E 4/01/00 - 6/30/00 Avon Cosmetics 7,167,480.00 71 ,674.80 Triumph International (Phils) , Inc. 72,188 ,627 .92 721 ,886.29 F 710 1/00 - 9/30/00 Triumph International (Phi ls) , Inc. 62 ,597 ,384 .57 625 ,973.83 Triumph International (Phils) , Inc. 82 ,791,869.49 827 ,929.63 H 1/01/00 - 3/31/00 Subtotal P241 ,642,650.98 P2,416,437 .44 I 4/0 1/00 - 6/30/00 j 7/0 1/00 - 9/30/00 G 10/01/00- 12/31/00 Avon Cosmetics p 15,810 ,125.00 p 158,101 .25 K 10/01/00- 12/31/00 Triumph International (Phils) , Inc 55 ,391 ,648.46 553 ,886 .52 Subtotal p 71 ,20 1177 3.46 p 711 ,987.77 Tota l P312.844 .4 2 4 .44 P3.128.425 21 As to the third requisite, the Schedule of Sales for the year ended December 31. 2000 (Exhibit N) and Trial Balance as of December 31, 2000 (Exhibit 0-1) submitted by petitioner show that the gross sales amount of P314.875.416.00 reflected in its 2000 income tax return (Exhibit A) pertains to the sales made by petitioner to its only clients Avo n Cosmetics and Triumph International (Phils.). Inc.. This gross sales fi gure of P314.875.416.00 included the amount of P312 ,844.424.44 which relates to the creditable withholding taxes of P3 , 128,425.21 as testified to by :;~titioner' s Accounting Manager, Ms. Je1mylyn Barrera (Jun e 10. 200-1. TSN. pages 10-15). Thus. petitioner properl y

DECISION CTA CASE NO. 6639 declared in its 2000 income tax return the income related to the reported creditab le withholding taxes of P3 ,128,425.21. In sum , petitioner has comp lied with all the above requisites and has suffi cientl y proven its claim for refund/tax credit of excess creditable withholding taxes for the year 2000 in the amount ofP2,297,485 .00. WHEREFORE , the Petition for Review is hereby GRANTED. Accordingly, respondent is ORDERED TO REFUND or in the alternative. ISSUE A TAX CREDIT CERTIFICATE to the petitioner in the amount of P2 ,297,485 .00 representing excess creditable withho lding taxes fo r taxable year 2000 . SO ORDERED. a~ a.~a-u'~ '). . CiUANITO C. CASTANEDA:fR.' Associate Justice WE CONCU R: ~~~d Associate Justice AEsR~~~~tUicYe

DECISION CTA CASE NO. 6639 ATTESTATION I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion ofthe Court's Division . e. a~_,_'-h> ~ctct .Sl.--t cd'UANITO c. CASTANEDA, Jw.. Associate Justice C hairman CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution. and the Division Chairman's Attestation, it is hereby certified that the conclusions in the above Deci sion were reached in consultation before the case was assigned to the writer of the opinion of the Court" s Division. Cb- VL. ~ ERNESTO D. ACOSTA Presidin g Ju st ice (Ji;