CTA Case No. 5266 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY CCT CONSTRUCTORS CORPORATION, C.T.A. CASE NO. 5266 Petitioner, - versus - THE COMMISSIONER OF INTERNAL REVENUE, Respondent. X- - - - DECISION This is a petition seeking for the refund o~� issuance of tax credit certificate amounting to Four Million Eight Hundred Twenty Seven Thousand Two Hundred Seventy Nine Pesos ( P4, 827, 279. (H)), unutilized creditable taxes withheld for the fiscal years ended Ma~�ch 31, 1993 and Ma~�ch 31, 1994. The factual backdrop of the case are as follows: Petitioner is a corporation organized and existing under the laws of the Republic of the Philippines and is primarily engaged in construction and engineering. For the fiscal year ended March 31, 1993, Petitioner's Annual Income Tax Return which was filed on July 17, 1993 reflected a gross income of P 188,983,360.00, broken down as follows: Cont~�act income P183,279,038.00 Rental income 5,400,450.00 Miscellaneous income 9, 291. (H) Others (sales/exchanges 294,581.00 of pt�opet�ty) P188,983,360.00 G~�oss income For the said year, however, Petitioner allegedly ended into a net loss position as its expenses amounted to ~)

DECIS I ON C.T.A. CASE NO. 5266 - 2- ~191,247,647.00. Petitionet~, therefore, was not able to utilize the creditable taxes withheld from its contract and rental income totalling P2,218,270.00. Pursuant to Section 69 of the Tax Code which provides that ''(i)n case the corporation is entitled to a refund of the excess estimated quarterly income taxes paid, the refundable amount shown on its final adjustment may be credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable year," Petitionet~ cat~t~ied ovet~ the amount of P2,218,270.00 to the succeeding year. Fat~ the fiscal yeat~ 31' 1994, filed on July 15, Petitioner's Annual Income Tax Return 1994 showed a gross income of P256,486,806.00, detailed as follows: Contt~act income P248,063,452.00 Rental income 7,171,100.00 Miscellaneous income 1,052,418.00 Others (sales/exchanges 199,836.00 o f pt~oper~ty P256,486,806.00 However, while Petitioner reported a gain for the said year amounting to ~352,277.00, its income tax payable was only P123,297.00 and because of this condition, Petitioner was not able to apply in fu 11 its ct~ed it ab 1 e taxes withheld fot~ the yea-r~ in the amount of

DECISION C.T.A. CASE NO. 5266 - 3- P2,732,306.00 as well as its creditable taxes withheld which were carried over from the previous fiscal year. Invoking the provisions of Section 204 (3) of the Tax Code, to wit: "SEC. 204. Ruthot'it y o F the Co��i ssi onet' to compro�ise~ abate~ and r eFund/credit taxes.- The Co��issioner may X X X (3) Credit or refund taxes erroneously or illegally received, penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition by the purchaset~, and, in his disct~etion, 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 u nless the taxpayer files in writing with the Commissioner a claim for credit or refund within two years aft e r the payment of the tax or penalty," Petitioner filed a claim for refund with the Bureau of Intet~nal Revenue on June 27, 1'3'35 in the total amount of P4,827,27'3.00, representing the unutilized creditable taxes withheld fat~ the fiscal yeat~s ended Mat~ch 31, 1'3'33 and March 31, 1'3'34, broken down as follows: Creditable tax withheld for FY 1'393 P2,218,270.00 Add: Creditable tax withheld for FY 1'3'34 2,732,306.00 Total Less: Income tax for FY 1'3'34 P4,'350,576.00 ( 123, 2'37. (H)) P4,827,27'3.00 Since there was no action on the part Respondent and the two-year prescriptive period was about

DECISION C.T.A. CASE NO. 5266 - 4- to expi�r~e, the instant petition was filed on July 14, 1'395. Respondent, in his Answet~, set up the following Special and Affirmative Defenses: "6. Petitionet~'s claim fot~ ta>< t~efund is still undergoing the usual routinary investigation/examination by t he respondent's But'eau; 7. The alleged creditable withholding taxes were collected and paid pursuant to law and its pert inent implementing rules and t~egulations, hence, not t~efundable. Mot~eovet~, petitioner has to prove that the creditable withholding taxes were actually paid, remitted to and received by respondent's Bureau and that, the income from which the alleged creditable taxes were withheld must be declared and included in its gross income during the year under review; 8. Petitioner must likewise prove that the alleged creditable withholding taxes were neither automatically applied as tax credit against its tax liability for the succeeding quarter/s of the succeeding t axable year nor i ncluded as creditable taxes declared in the succeeding taxable year/s; '3. Petitioner's allegation that it sustained losses does not ipso facto warrant the refund. Petitioner must prove that the deductions claim (sic} by it from its gross income are allowable deductions under the Tax Code and its pertinent BIR implementing rules and t~egulations. The same must be suppor~ted by evidence; 10. Claims for tax refund are construed strictly against the claimant as it partakes of the nature of an exemption from tax, and it is incumbent upon petitioner to prove the same. Petitioner must prove that it is entitled thereto. Failure of petitioner to prove

DECISION C.T.A. CASE NO. 5266 - 5- entitlement to the subject claim for refund is fatal to its claim; 11. Moreover, petitioner must prove that it has complied with the provision of Section 230 of the Tax Code, as amended. " The sole issue to be resolved is whether or not Petitioner is entitled to the refund sought on the basis of the evidence presented. Petit i onet~, to prove its case, submitted the followinR exhibits: Exhibit Desct~ipt ion Corporation Annual Income Tax A Return of Petitioner for Fiscal Year Ended March 31, 1993 B Corporation Annual Income Tax Return of Petitioner for Fiscal Yeat~ Ended Mat~ch 31, 1994, including Attachments c Administrative claim for refund filed by Petitioner D to HH Various certificates of creditable income tax withheld at source Respondent, on his part, contended that the instant action for refund should be denied due course for failure on the pat~t of the Petitioner to submit the required documents necessary for the settlement of the case. Furthermore, Respondent argued that Petitioner even had an income tax deficiency in the amount of P73,960, 150.00 fot~ fi seal yeat~ 1994. To support his case, Respondent offered the following in evidence:

DECISI ON C.T. A. CASE NO. 5266 - 6- Exhs. 1 Lettet~ of Authot~ity dated June 30, 1'3'35 (p. 80, BIR rec.) c: Lettet~ dated Novembet~ 15, 1'3'3E. sent to the pet it i one t~ ( p. 1'30, B I R t~ e c. ) 3 Lettet~ of petitionet~ dated Decembet~ 3, 1'3'3E. (p. 1'31, BIR t~ec. > 4 Memo-t~epot~t dated Decembet~ '3, 1'3'3E. addt~essed to the Revenue District Officer, RD No. 47, East Makati (p. 1'34, BIR t~ec.) (inadvet~tently mat~ked as Exh. "5") 5 Memorandum dated June 15, 1'3'30 sent by the Commission on Audit to the Chief, Tax Credit/Refund Division (inadvertently marked as Exh. "E.") stating thet~ein the documents which the latter should require taxpayers to submit before claims for tax credit/ refund may be granted. E. Memo-report dated February 7, 1'3'37 relative to the claim for tax credit/refund of alleged excess creditable withholding tax paid for fiscal year ended Mat~ch 31 , 1'3'34 (inadvertently mat~ked as Exh. "7") 10 Letter of the Revenue District Officer, Revenue District No. 47, East Makati addressed to the petitioner informing the latter that respondent's investigating revenue examiner has already submitted his report recommending the denial of the herein claim for tax credit/refund and that petitioner is being invited for a conference to go over the findings of said revenue officer and present objection thereto i f necessat~y. After a careful scrutiny of the facts and evidence attendant to the case at Petit i onei'~ has indeed

DECISION C.T.A. CASE NO. 5266 - 7- failed to convince this Court of its entitlement to the refund sought. It bears emphasis that aside from the two-year prescriptive period required under Sections 204 and 230 of the Tax Code and the presentation of the Certificates of Creditable Income Tax Withheld at Source which Petitioner was able to satisfy, it is likewise required that the income upon which the taxes were withheld at source were included as part of the income declared in the income tax return of the recipient. Petit i onet~' s Income Ta x Returns for the fiscal years ended March 31, 1993 and March 31, 1994, reflected a total contract and rental income of P443,914,040.00 computed as follows: Fiscal yeat~ ending l'tlat~ch 31, 1993 Contt~act income p 183, 279, 038. (H) Exh. A <Schedule 2) Rental income 5,400,450.00 Exh. A <Schedule 4) Fiscal yeat~ ending f'r1at~ch 31, 1994 Contt~act income P248, 063, 452. (H) Exh. B <Schedule 2) Rental income 7, 171 , 100. 00 Exh. B <Schedule 4) Total P443,914,040. 00 A detailed computation, however, of the Certificates of Creditable Tax Withheld at Source submitted by Petitioner a tot a 1 contract and t~ental income of P462,987,654.78 (net of adjus t ments) or a difference of P19,073,614.78, thus:

DECISION C. T. A. CASE NO. 5266 - 8- Exhibit Withholding Agent Incoae Tax Withheld D EDS Mfg. Inc. p 20,320,152.34 p 203,201.53 27,807.00 E (6/92> Kawasaki Heavy 36,480.69 47,621.60 Industries, Ltd. 2,780, 700.00 34,822.98 319,674.72 F (7/92> Industries, Ltd. 3,648,068.40 1, 221,903.17 6 (10/92) Industries, Ltd. 4, 762,160.00 145,454.54 20,404.50 H 0-12/92) Matsushita Elec. 240,000.00 85,800.00 Phil. Corp. 3,482,298.00 151,085.46 3,921.00 J Roht Electronics 681.82 579,300.16 Phils. Inc. 31,967,472.27 35,454.55 70,167.55 I (4/92-3/93) Matsushita 185,523.26 309,086.79 Coaaunication 172,788.60 Industrial Corp. 40,964.57 of the Phils. 122,190,317.00 275,910.56 K 0993) Roh� Electronics Phils. Inc. 14,545,454.54 L 0993) Toyo Construction Co., Ltd. 2,040,450.00 M(1993> Toyo Construction Co., Ltd. 4,800,000.00 N Toyo Construction Co., Ltd. 1,860, 000.00 0 (1993) Eds Mfg. Inc. 15,108,545.98 p Eds Mfg. Inc. 392,100.00 Q (Oct. '93)- Eco-Forawork Systea (Mar. '94) Phil., Inc. 13,636.36 R (111- 12/31/93) Fels Energy, Inc. 57,930,016.00 s (1/1-3/94) Fels Energy, Inc. 3,545,454.55 T 0993- Kawasaki Heavy 2nd m Industries, Ltd. 7,016,752.92 Kawasaki Heavy u (1993- 3rd m Industries, Ltd. 18,552,325.23 v (1993- Kawasaki Heavy 4th Q) Industries, Ltd. 30,908,677.19 w (1994- Kawasaki Heavy 1st Q) Industries, Ltd. 17,278,859.60 X (Apri 1 193- Matsushita March 195) Coaaunicat ion Industrial Corp. of the Phils. 4,096,457.00 Y (April- Matsushita Sept. '93) Cotaunication Industrial Corp. of the Phils. 27,591,056.00 z (Oct. '93- Matsushita Mar. '94) Coaaunication Industrial Corp. �

DECISION C.T.A. CASE NO. 5266 -9 of the Phi 1s. 10,978,421.00 109,784.21 AA 1993 Precision 2,175.42 439,063.46 Engineered 41,833.23 46,920.00 Co1ponents 57,636.98 259,555.00 Corporation 217,541.82 23,400.00 BB 1993 Roh1 Electronics 273.80 5,111, 046. 83 Phi ls. 1 Inc. 43,687,345.52 Roh1 Electronics CC (Jan.- Mar. 1994) Phils., Inc. 4,183,323.00 DD Roh1 Electronics Phi 1s., Inc. 4,692,000.00 EE 1993 Sagara Metro Plastics Industrial Corp. 5,763,698.00 FF Uan.- Toyo Construction Mar. 1994) Co., Ltd. 5,191,100.00 66 (Jan.- Dec. 1993) Alpha Core, Inc. 2,340,000.00 HH (Jan.- Dec. 1993) Yakult Phils. Inc. 271380.00 Total 471,911,762.78 Less: Adjustments Exh. D-2 p 5,145,454.00 '3,25'3,008.00 2, 3'3'+, 700. 00 462,652,754.78 J-2 334,'300.00 L~43, '314, 040.00 224,878.00 P-2 1, 15'3,076.00 18,738,714.78 X-2 Z-2 Balance Pel'~ ...~et ul'~n s Di ffel'~ence With this result, we may infer that not all the contract and rental income of Petitioner were reflected in its 1'3'33 and 1'3'34 returns. Consequently, if we al'~e to consider the difference of P18,738,714.78, Petitioner~ might have ended into a relatively higher gain position which could give rise to a tax liability rather than a For Petitioner's failure to declare in its returns all the income payments received as part of its

DECISION C.T.A. CASE NO. 5266 - 10 - gt~oss income, this claim for refund cannot be given due WHEREFORE, in view of the foregoing, Pet it ionet~' s claim for refund or issuance of tax credit certificate is h et~eby DENIED. No pronouncement as to/ costs. SO ORDERED. /~--� t..~J / RAMON 0. DE VE A -' Associate Ju e / CERTIFICATION I hereby certify that this decision was reached after due consultation with the members of the Court of Tax Appeals in accordance with Section 13, Article VIII of the Constitution. GUL-~ ERNESTO D. ACOSTA Pt~esiding Jud~;~e Court of Tax Appeals