SONOMA SERVICES, INC. v. COMMISSIONER OF INTERNAL REVENUE

Republic of th e Philippines COURT OF TAX APPEALS Quezon City SECOND DIVISION SONOMA SERVICES , INC ., CTA CASE NO. 7757 Pe tition e r, For: Refund or Issuance of a Tax Credit Certific ate -ve rsus- Pre se nt: CASTANEDA, JR. , Chairperson COMMISSIONER OF INTERNAL CASANOVA, and REVENUE , MINDARO - GRULLA, JJ . Res pond e nt. Promulgated : SEP 0 2-'/ MINDARO -GRULLA, :!_.: This is a Pe titi o n fo r Re vi ew fil e d o n April l 0, 2008 by Sonoma Se rvi ces, In c. a s p e titi o ne r against th e C o mmissio ne r o f Inte rnal Re venu e (CIR) a s res pond e nt, for th e Court in Divisi o n, pursuant to Rul e 4, Se ction 3 (a) (2), in re latio n to Rul e 8, Sec tio n 4(o), o f th e Revise d Rul es o f th e C o urt o f Ta x Appe als (RRCTA). Pe tition e r prays th e re in that thi s Court re nd e r judgm e nt ord e ring respo nd e nt to re fund o r iss ue a tax c re dit ce rtifi ca te in its fav o r in th e am o unt o f P5,070,932.00, re prese nting unutilize d c re ditabl e withholding ta xes for th e ta xa bl e year 2005.{

Sonoma Services , Inc. v. CIR Page 2 of 29 CTA CASE NO. 7757 DECISION Pe tition e r Sonoma Services, Inc. is a corpora tion duly organized and existing under th e lows of th e Republi c of the Philippin es, with principal place o f busin ess at the 35 1h Fl oor, Tower One and Exchange Pl aza, Ayala Triangle, Ayala Avenu e, Makoti City. It was incorporated with the primary purpose of carrying on and conduc ting a general services business with any party, including the rendering o f management and allied servi ces within th e limits a ll owed by low, in c luding o ffi ce and clerica l support servi ces, maintenance or repair work upon any and e ve ry kind of property, to e nter into and execu te con tra c ts th erefore or relating th e reto .' Respondent 1s th e duly appointed Commissioner of Inte rnal Revenue, ves ted with authority to co rry out al l the functions , duties, and res pon sibilities of said office, including, inter olio, th e power to d ecid e, approve, and gran t re fund s and/or ta x credits of overpaid or e rron eous ly paid or co llec ted inte rnal revenue taxes. She presently ho ld s office at th e 51h Floor, BIR Notional Office Building , Aghom Rood, Dilimon , Qu ezon City. On April 17, 2006, petitioner filed with th e Bureau o f Inte rnal Revenue (BIR) its o riginal Annual Income Tax Return for the taxable year 2005, wherein it indicated its c ho ice to claim a re fund o f its excess and unutilized c red itable withh o ldin g taxes for th e taxable year 2005. 2� 1 Pars. 1 and 3, Admit ted Facts , Joint Sti pula lion of Facts and Issues, Docket , p. 66 2 Exhibits "D" , "D- 1" , and "D-2"

Sonoma Servi ces, Inc. v. CIR Page 3 of 29 CTA CASE NO . 7757 DECISION On Jun e 1, 2006, petition e r filed with th e BIR its Amended Annual In co me Tax Re turn for 2005, wh e re in it indicated its op ti on to claim the re fund of its excess and unutilize d c reditabl e withholding taxes for 2005.3 On November 17, 2006, p e titioner fil e d with the BIR ROO No. 50 its administrative cla im for re fund of excess credi tabl e withholding taxes for th e taxable yea r 2005 in th e amount o f P5 , 0 7 0 ,932 .00 . ~ On April 10, 2008, due to ina c tion on the part o f the BIR , petitioner fil ed th e instant Pe tition for Re vi ew . On May 19, 2008, res pond e nt fil e d an Answer, statin g the following Special and Affirmative Defensess: "4. Assum in g but without admitting th a t Petitio ner fil ed a c laim for refund , the same is still subject to investigation by th e Bureau of Interna l Revenue; 5. Petitioner failed to demonstrate that th e ta x, which is subject of this case, was erroneous ly or ill ega lly col lected; 6. Taxes paid and coll ected are p resumed to be made in accordance w ith th e laws and reg ulation s, hence, not c red itabl e or re fundable ; 7. It is in cumbe nt upon the Pe titioner to show that it has comp lied w ith the provisions of Sections 204(C) in rela tion to Section 229 of the 1997 Ta x Code, as amend e d; 8. In an acti on for ta x c red it or refund , th e burden is upon th e ta xpayer to prove that it is en titl ed th ere to, and failure to discharge the sa id burden is fata l to th e claim (Emmanuel & Ze naida Aguilar v. Comm issioner, CA-GR No. Sp. 16432, March 30, 1990 cited in A bon, Low o f Basic Taxation in the Philippines, Ist Edition, p. 206);( 3 Exhibit "E" 4 Exhibit "A" s Docket , p. 46

Sonoma Services, Inc. v. CIR Page 4 o f 29 CTA CASE NO. 7757 DECISION 9. Claims for refund ore cons tru e d strictly against th e claimant, the same partake th e nature of exemption from taxation, (Commissioner of Inte rnal Revenue vs. Ledesma, 3 1 SCRA 95) and as suc h, they ore looked upon w ith disfavor. (Wes tern Minolco Corp. vs. Commissioner of Internal Revenue, 124 SCRA 12 1). " On May 27 , 2008, petition e r fil e d its Pre-Trial Bri e f. On May 29, 2008, respond e nt fil e d a Pre-Trial Brief. On June 24, 2008, petitioner and respondent filed their Joint Stipulation of Facts and Issu es . On Jun e 27, 2008, this Court approved th e Joint Stipulation of Facts and Issu es, and pre-trial was considered te rminated. During trial, p e titi oner presented tes tim onial and documentary evidence in support of its claim. Pe titioner 's two (2) witnesses were Vanessa I. Maturana and Kath e rin e 0 . Constantino. There after, petitioner formally offered its e vid e nce, and with th e ir admission, formally rested its case. The documentary evidence formally offered are as fo llows: Exhibits Description A Petitioner's le tter doted November 16, 2006 addressed B to Mr. Cesar Charlie C. Lim o f th e BIR , RDO No. 50 c Petitioner's Annual Income Tax Return (lTC) for ca le ndar year (CY) e nding December 31, 2003 D Petitioner's Annua l ITR for th e CY end ing December 31 , 2004 Petitioner's Tentative Annual ITR fo r th e CY end ing December 3 1, 2005 '

Sonoma Services, Inc. v. CIR Page 5 o f 29 CTA CASE NO . 7757 DECISION D- 1 Stomp mark o f the BIR , RDO No. 50, showing the dote "April 17, 2006" as th e dote o f filing of petitioner's Tentative Annuoi iTR fo r CY 2005 D-2 Tick mark ("x" ) appearing o n th e box next to the words "To be refunded" below Line 31 of petitioner's Tentati ve Annual ITR fo r CY 2005 D-3 Petitioner's audited financial sta temen ts for CY 2005 E Petitioner's Am ended Ann ua l ITR for the CY ending Decembe r 31, 2005 E- 1 Lin e 14 o f th e Amended Annual ITR E-2 Line 27 of th e Amended Annual ITR E-3 Lin e 3 1 of the Ame nd e d Annual ITR E- 4 Ti ck mark ("x") appearing on th e box next to the words "To be refunded" below Line 31 o f petitioner 's Amended Annua l ITR for CY 2005 F Petition e r' s Annual ITR for th e CY e nding December 3 1, 2006 F- 1 Line 28A o f the Annuai iTR G Breakdown o f petitioner's revenues for CY 2005 H Sum mary of p e titi o ne r's Creditable Withholding Ta xes for CY 2003 H- 1 CWT Certifi ca te iss ued by Jaime Zobel de Ayala to petitione r for th e 2nd quarter of CY 2003 H-2 CWT Certificate issued by Jaime Aug usto Zobel de Ayala to petition e r for the 2nd quarter o f CY 2003 H-3 C WT Certifica te issued by Fernando Zobel de Ayala to petitioner for the 2ncJquarter of CY 2003 H-4 CWT Certificate iss ued by Beatriz Susana Urquijo to petitioner for the 2nd quarter of CY 2003 H-5 CWT Certificate issued by Patri cia Zobel de Ayala to petitioner for the 2ncJquarter of CY 2003(

Sonoma Services, Inc. v. CIR Page 6 of 29 CTA CASE NO . 7757 DECISION H-6 CWT Certificate issued by Cristina Suarez de Pugo to H-7 petitioner for the 2nd quarter of CY 2003 H-8 H-9 CWT Certificate issued by Monico Zobel de Ayala to H- 10 petitioner for the 2nd quarter of CY 2003 H- 11 H-12 CWT Certificate issued by Sofia Elizalde to petitioner for H-13 the 2nd quarter of CY 2003 H-14 H-1 5 CWT Certificate issued by Georgina Moc-Crohon to H-16 petitioner for the 2nd quarter of CY 2003 H-17 H-18 CWT Certificate issued by Alejandro Padilla to petitioner for the 2nd quarter of CY 2003 H-19 H-20 CWT Certificate issued by Alfonso Zobel de Ayala, Jr. to H-21 petitioner for the 2nd quarter of CY 2003 CWT Certificate issued by Mo. Victoria Zobel de Aya la to petitioner for the 2ncJ quarter of CY 2003 CWT Certificate issued by Reinoso Holdings, Inc . to petitioner for the 2nd quarter of CY 2003 CWT Certificate issued by Corullon Holdings, Inc. to petitioner for the 2nd quarter of CY 2003 CWT Certificate issued by Son Puente Holdings, Inc. to petitioner for the 2nd quarter of CY 2003 CWT Certificate issued by Gilman Holdings, Inc. to petitioner for the 2ncJ quarter of CY 2003 CWT Certificate issued by Mermoc, Inc. to petitioner for th e 2nd quarter of CY 2003 CWT Certificate issued by Hacienda Boloboticon Homeowners' Association, Inc. to petitioner for the 2nd quarter o f CY 2003 CWT Certificate issued by Steps Donee Studio to petitioner for the 2nd quarter of CY 2003 CWT Certificate issued by Steps Donee Studio to petitioner for the 3'd quarter of CY 2003 CWT Certificate issued by Jaime Zobel de Ayala to petitioner for the 3rd quarter of CY 200~

Sonoma Services, Inc. v. CIR Page 7 of 29 CTA CASE NO. 7757 DECISION H-22 CWT Certificate issued by Jaime Augusto Zobel de H-23 Ayala to petitioner for the 3rd quarter of CY 2003 H-24 H-25 CWT Certificate issued by Fernando Zobel de Aya la to H-26 petitioner for the 3rd quarter o f CY 2003 H-27 H-28 CWT Certifi cate issued by Beotriz Susana Urquijo to H-29 petitioner for the 3rd quarter of CY 2003 H-30 H-31 CWT Certificate issued by Patricio Zobel de Aya la to H-32 petitioner for the 3rd quarter of CY 2003 H-33 H-34 CWT Certificate issued by Cristina Suarez de Pugo to H-35 petitioner for the 3rd quarter of CY 2003 H-36 H-37 CWT Certifi ca te issued by Monico Zobel de Ayala to petitioner for the 3rd quarter of CY 2003 CWT Certificate issued by Sofia Elizalde to petitioner fo r the 3rd quarter o f CY 2003 CWT Certificate issued by Alejandro Padilla to petitioner for th e 3rd quarter o f CY 2003 CWT Certifi cate issued by Georg ina Moc-Crohon to pe titioner for the 3rd quarter of CY 2003 CWT Certificate issued by Alfonso Zobel de Ayala, Jr. to petitioner for the 3rd quarter of CY 2003 CWT Certifi cate issued by Mo. Victoria Zobel de Ayala to petitioner for th e 3rcj quarter of CY 2003 CWT Certificate issued by Mermoc, Inc. to petitioner for th e 3rd quarter of CY 2003 CWT Certificate issued by Reinoso Holdings, Inc. to petitioner for the 3rd quarter o f CY 2003 CWT Certifi cate issued by Coru llon Holdings, In c . to petitioner for the 3rcj quarter of CY 2003 CWT Certificate issued by Son Puente Holdings, Inc. to petitioner for lh e 3rd quarter of CY 2003 CWT Certificate issued by Gilmon Holdings, In c. to petitioner for the 3rd quarter of CY 2003(

Sonoma Services, Inc . v. CIR Page 8 of 29 CTA CASE NO. 7757 DECISION H-38 CWT Certificate issued by Elija Holdings, Inc. to petitioner H-39 for the 3rd quarter of CY 2003 H-40 H-41 CWT Certificate issued by Fernando Zobel de Ayala to H-42 peti tioner for the 41h quarter of CY 2003 H-43 H-44 CWT Certificate issued by Fercat Holdings, Inc. to H-45 petitioner for the 41h quarter of CY 2003 1- 1 CWT Certificate issued by Elija Holdings, Inc. to petitioner 1-2 for the 4 1 ~' quarter of CY 2003 1-3 1-4 CWT Certificate issued by Corullon Holdings, Inc. to 1-5 petitioner for the 41h quarter of CY 2003 1-6 1-7 CWT Certificate issued by Reinosa Holdings, Inc. to petitioner for the 41h quarter of CY 2003 CWT Certificate issued by Gilman Holdings, Inc. to petitioner for the 4'h quarter of CY 2003 CWT Certificate issued by San Puente Holdings, Inc. to petitioner for the 41h quarter of CY 2003 Summary of petitioner's Creditable Withholding Taxes for CY 2004 CWT Certificate issued by Reinosa Holdings, Inc. to petitioner for the 151 quarter of CY 2004 CWT Certificate issued by Mermac, Inc. to petitioner for the 1sl quarter of CY 2004 CWT Certificate issued by Corullon Holdings, Inc. to petitioner for the 151 quarter of CY 2004 CWT Certificate issued by Elija Holdings, Inc. to petitioner for the 1sl quarter of CY 2004 CWT Certificate issued by Fercat Holdings, Inc. to peti tioner for the 151 quarter of CY 2004 CWT Certificate issued by FBC Holdings, Inc. to petitioner for the 15' quarter of CY 2004 CWT Certificate issued by Gilman Holdings, Inc. to petitioner for the 151 quarter of CY 2004(

Sonoma Services, Inc. v. CIR Page 9 o f 29 CTA CASE NO. 7757 DECISION 1-8 CWT Certificate issued by Son Puente Holdings, Inc. to petitioner for th e 1sf quarter of CY 2004 1-9 CWT Certifica te issued by Steps Donee Studio to petitioner for the 1sf quarter o f CY 2004 1- 10 CWT Certifica te issued by Corullon Holdings, Inc. to petitioner for the 2nd quarter of CY 2004 1- 11 CWT Certificate issued by Steps Dance Studio to peti tioner for the 2nd quarter of CY 2004 1- 12 CWT Certificate issued by Alejandro Padilla to petitioner for th e 2nd quarter of CY 2004 1-13 CWT Certificate issued by Alfonso Zobel de Ayala, Jr. to petitioner for the 2nd quarter of CY 2004 1- 14 CWT Certificate issued by Sofia Elizalde to petitioner for th e 2nd quarter of CY 2004 1- 15 C WT Certificate issued by Beatriz Susana Urquijo to petitioner for the 2nd quarter of CY 2004 1- 16 CWT Certifi ca te issued by Jaime Zobel de Ayala to pe titi oner for th e 2nd quarter of CY 2004 1-17 CWT Certifi ca te issued by Patricia Zobel de Ayala to petitioner for th e 2nd quarter of CY 2004 1-18 CWT Certificate issued by Fernando Zobel de Aya la to petitioner for th e 2nd quarter of CY 2004 1- 19 CWT Certificate issued by Cristina Suarez de Puga to petitioner for th e 2nd quarter of CY 2004 1-20 CWT Certificate issued by Mo. Victoria Zobel de Aya la to petitioner for th e 2nd quarter of CY 2004 1-21 CWT Certifi ca te issued by Gilman Holdings, Inc. to petitioner for th e 2nd quarter o f CY 2004 1-22 CWT Certificate issued by Fercat Holdings, Inc. to petitioner for th e 2nd quarter of CY 2004 1-23 CWT Certificate issued by Elija Holdings, Inc. to petitioner for th e 2nd quarter of CY 2004~

Sonoma Services, Inc. v. CIR Page 10 of 29 CTA CASE NO. 7757 DECISION 1-24 CWT Certificate issued by FBC Holdings, Inc. to petitioner for the 2nd quarter of CY 2004 1-25 CWT Certificate issued by Jaime Augusto Zobel de Ayala to petitioner for the 2ncJ quarter of CY 2004 1-26 CWT Certificate issued by Mermoc, Inc. to petitioner for the 2nd quarter of CY 2004 1-27 CWT Certificate issued by Monico Zobel de Ayala to petitioner for the 2ncJ quarter of CY 2004 1-28 CWT Certificate issued by Georgina Moc-Crohon to petitioner for the 2nd quarter of CY 2004 1-29 CWT Certificate issued by Reinoso Holdings, Inc . to petitioner for the 2ncJ quarter of CY 2004 1-30 CWT Certificate issued by Son Puente Holdings, Inc. to petitioner for the 2ncJ quarter of CY 2004 1-31 CWT Certificate issued by Hacienda Boloboticon Homeowners' Association , Inc. to petitioner for the 3rd quarter of CY 2004 1-32 CWT Certificate issued by Steps Dance Studio to petitioner for the 3rd quarter of CY 2004 1-33 CWT Certificate issued by Jaime Augusto Zobel de Ayala to petitioner for the 4n1 quarter of CY 2004 1-34 CWT Certificate issued by Jaime Zobel de Ayala to petitioner for the 41h quarter of CY 2004 1-35 CWT Certificate issued by Hacienda Boloboticon Homeowner's Association , Inc. to petitioner for the 4'h quarter of CY 2004 1-36 CWT Certificate issued by Steps Dance Studio to petitioner for the 4'h quarter of CY 2004 1-37 CWT Certificate issued by Fernando Zobel de Ayala to petitione r for th e 41h quarter of CY 2004 1-38 CWT Certificate issued by Beotriz Susana Urquijo to petitioner for the 41h quarter of CY 2004 1-39 CWT Certificate issued by Patricio Zobel de Ayala to petitioner for the 41h quarter of CY 2004�'

Sonoma Services, Inc. v. CIR Page 11 of 29 CTA CASE NO. 7757 DECISION 1-40 CWT Certificate issued by C ri stina Suarez de Pugo to petitioner for the 41h quarter of CY 2004 1-41 CWT Certificate issued by Monico Zobel de Ayala to petitioner for the 41h quarter of CY 2004 1-42 CWT Certificate issued by Sofia Elizalde to petitioner for the 4n' quarter of CY 2004 1-43 CWT Certificate issued by Elijo Holdings, Inc. to petitioner for the 41h quarter of CY 2004 1-44 CWT Certificate issued by Fercot Holdings, Inc. to petitioner for the 4 1 ~' quarter of CY 2004 1-45 CWT Certificate issued by Reinoso Holdings, Inc. to petitioner for the 41h quarter of CY 2004 1-46 CWT Certificate issued by Corullon Holdings, Inc. to petitioner for th e 41h quarter of CY 2004 1-47 CWT Certificate issued by Son Puente Holdings, Inc. to petitioner for th e 41h quarter of CY 2004 1-48 CWT Certifi ca te issued by Gilmon Holdings, Inc. to petitioner for th e 41h quarter of CY 2004 1-49 CWT Certificate issued by FBC Holdings, Inc. to petitioner for the 41h quarter of CY 2004 1-50 CWT Certificate issued by Alejandro Padilla to petitioner for the 41h quarter of CY 2004 1-51 CWT Certificate issued by Georgina Moc-C rohon to pe titioner for the 41h quarter of CY 200 4 1-52 CWT Certifica te issued by Alfonso Zobel de Ayala, Jr. to petitioner for the 41h quarter of CY 2004 1-53 CWT Certificate issued by Mo. Victoria Zobel de Ayala to petitioner for the 41h quarter of CY 2004 1-54 CWT Certificate issued by Mermoc, Inc. to petitioner for th e 41h quarter o f CY 2004 J Summary of petitioner's Creditable Withholding Taxes for CY 20c1s(

Sonoma Services , In c . v. CIR Pa ge 12 o f 29 CTA CASE NO . 7757 DECISION J- 1 C WT Certific ate issued by Ja im e Aug usto Zo b e l d e J-2 Ayala II to pe titi oner fo r the 1sf quarte r o f CY 2005 J-3 C WT Cert ificate issued by Jaime Zobel de Ayala to J-4 p e titi o ne r for th e 1sf q uarter o f CY 2005 J-5 J-6 C WT Certific ate issue d by Fe rnand o Zob e l d e Ayala to J-7 pe titi oner for the 1sf quarter o f CY 2005 J-8 J-9 C WT Certifi ca te issued by Bea triz Susana Urqu ijo to petitio ne r fo r the 1sf q uarte r o f CY 2005 J- 10 J- 11 C WT C e rtific ate iss ue d b y Patricia Zo b e l d e Ayala to J- 12 pe titio ne r for the 1sf q uarte r o f CY 2005 J- 13 C WT Certifi ca te issue d by C risti na Suarez d e Puga to J- 14 p e titione r for th e 1sf quarter o f CY 2005 J- 15 J- 16 C WT C e rtificate iss ue d b y M o nic a Zob e l d e Aya la to pe titi oner for the 1sf quarte r o f CY 2005 C WT Certifi ca te issue d by So fi a Elizal de to pe titio ne r fo r th e 1sf quarte r o f CY 2005 CWT Certific ate issue d by Alejandro Padilla to p e tition e r for th e 1sf quarte r o f CY 2005 C WT Certifi ca te iss ued by Georg in a Mac-C ro ho n to pe titio ne r fo r the 1sf q uarte r o f CY 2005 C WT Certifi ca te iss ued by Alfo nso Zobel d e Aya la, Jr. to p e titi o ne r fo r th e 1sf quarte r o f CY 2005 C WT Cert ifica te issued by Mo. Vic toria Zo b e l d e Ayala to pe ti tio ne r for th e 15f quarte r o f CY 2005 C WT Certi fic a te iss ued by M e rm ac, Inc. to p e titio ne r fo r th e 1sf quarte r o f CY 2005 C WT Certificate issued by Elija Holdings, In c . to petitio ner fo r th e 15f quarte r of CY 2005 C WT Certi fica te issued by Fercat Holdi ngs, Inc. to p e titi o ne r for th e 1sf quarte r o f CY 2005 C WT Certifi ca te issued by Rei nosa Ho ld ings, Inc. to pe titi oner for th e 1sf quarte r o f CY 2005(

Sonoma Services. Inc. v. CIR Page 13 of 29 CTA CASE NO . 7757 DECISION J- 17 CWT Certificate issued by Corullon Holdings, Inc . to J- 18 petitioner fo r th e 1st quarter of CY 2005 J-19 J-20 CWT Certifica te issued by Son Pue nte Holding s, Inc. to J-21 petitioner for th e 1st quarter of CY 2005 J-22 C WT Certifi ca te issued by G ilmon Holdings, Inc . to J-23 petitioner for th e 1st quarter of CY 2005 J- 24 J-25 CWT Certificate issued by FBC Holdings, In c. to petitioner J-2 6 fo r th e 1st quarter of CY 2005 J-27 J-28 CWT Certificate issued by Hacienda Boloboticon J-29 Hom eowne rs' Assoc iatio n, Inc. to petitioner for th e 1st J-30 quarter of CY 2005 J-3 1 J-32 CWT Certificate issued by Steps Donee Studio to petitioner for the 1st quarter of CY 2005 CWT Certificate issued by Jaime Zobel de Aya la to pe titioner for th e 2nd quarter o f CY 2005 CWT Certificate issued by Jaim e Zobel de Aya la to petitioner for th e 2ncJquarter of CY 2005 CWT Certifi ca te issued by Fernando Zobel de Ayala to petitioner for the 2nd quarter of CY 2005 CWT Certifica te issued by Beotriz Susana Urquijo to pe titi oner for th e 2nd quarter of CY 2005 CWT Certifica te issued by Patricio Zobel de Ayala to petitioner for th e 2nd quarter o f CY 2005 CWT Cert ifica te issued by C ristina Suarez de Pugo to pe titioner for the 2nd quarter o f CY 2005 CWT Certifi cate issued by Monico Zobel de Ayala to petitioner for the 2nd quarter of CY 2005 CWT Certificate issued by So fia Eliza ld e to peti ti oner for th e 2ncJ quarte r of CY 2005 CWT Certificate issued by Alejandro Padilla to petitioner for th e 2nd quarter of CY 2005 CWT Certificate issued by Georgi na Moc-C ro hon to petition e r for th e 2ncJquarter o f CY 2005(

Sono ma Services , Inc. v. CIR Pag e 14 of 29 CTA CASE NO. 7757 DECISION J-33 C WT Certifi ca te issued by Alfonso Zobel de Aya la, Jr. to J-34 p e ti tio ne r fo r th e 2nd q uarte r o f CY 2005 J-35 J-36 C WT C e rtifi c ate issue d b y Mo. Vic to ria Zob e l d e Ayala to J-37 pe titi o ne r for th e 2nd quarte r o f CY 2005 J-38 J-39 C WT Certificate issued b y M e rm ac , In c. to pe titi o ne r for J-40 th e 2nd quarte r o f CY 2005 J-41 J-42 C WT Certifi ca te issue d by Elijah Holdin gs, Inc. to J-43 pe titio ne r for th e 2nd quarter o f CY 2005 J-44 C WT Certificate issued by Fercat Holdi ngs, Inc. to J-45 p e titi o ne r for th e 2nd quarter o f CY 2005 J-46 J-47 C WT Certifi c ate issue d b y Re in osa Ho ldin gs, Inc. to J- 48 pe titi oner for the 2nd quarter o f CY 2005 C WT Certifi ca te issued by Corullon Holdin gs In c. to pe titio ner for the 2ncJ quarter of CY 2005 C WT Certific a te issued b y San Pue nte Ho ldings, Inc . to p etitioner for th e 2nd quarter o f CY 2005 C WT Certifica te issued by Gilmon Hol din gs, In c. to pe titi o ne r for th e 2n<Jquarter o f CY 2005 C WT Certifi ca te issue d by FBC Ho ld in gs, Inc. to p e titio ne r fo r the 2nd quarte r of CY 2005 C WT Certifi ca te issued by Haciend a Ba la b a tic a n Homeowners' Associa tio n, Inc. to pe titioner for the 2nd q uarte r o f CY 2005 C WT Certi fica te issued by Steps Dan ce Stu d io to petitio ne r fo r the 2nd quarte r o f CY 2005 CWT Cert ifica te issued by Jai me Zobel de Aya la to pe titio ne r for the 3rd quarter of CY 2005 C WT Certifica te issued by Jaime Augusto Zobel d e Ayala II to petitio ne r for th e 3rd quarte r of CY 2005 CWT Certificate issued by Fernando Zobel de Ayala to p e titi oner for the 3r<Jquart e r o f CY 2005 C WT Certifi c ate issue d b y So fia Eliza ld e to p e titio ne r fo r th e 3rd quarter o f CY 200-x-

Sonoma Services, In c . v. CIR Page 15 of 29 CTA CASE NO. 7757 D E CISION J-49 C WT Certifica te issued by Alejandro Padilla to petitioner for th e 3 rcJ quarter of CY 2005 J-50 CWT Certificate issued by Georgina Mac-Crohan to petitioner for th e 3 rd quarter of CY 2005 J-51 CWT Certificate issued by Alfonso Zobel de Ayala , Jr. to pe titi oner for the 3 rcJ quarter of CY 2005 J-52 CWT Certifi cate issued by Mermac, Inc. to petitioner for the 3rd quarter of CY 2005 J-53 C WT Certificate issued by Elija Holdings, Inc . to petitioner for th e 3rd quarter of CY 2005 J-54 CWT Certificate issued by Ferca t Holdings, Inc. to petitioner for the 3 rd quarter of CY 2005 J-55 CWT Certificate issued by Rein osa Ho lding s, Inc. to petitioner for the 3 rd quarter of CY 2005 J-56 CWT Certifi ca te issued by Coru llo n Holdings, In c. to petitioner for the 3 rcJ quarter of CY 2005 J-57 C WT Certificate issued by San Puente Holdings, Inc. to petitioner for th e 3 rd quarter o f CY 2005 J-58 CWT Certificate issued by G ilman Holdi ngs, Inc. to petitioner for th e 3 rd quarter of CY 2005 J-59 CWT Certificate issued by Ha cie nda Balabatican Homeowners' Associa tion , In c. to petitioner for th e 3rcJ quarter of CY 2005 J-60 CWT Certifica te issued by FBC Holdings, Inc. to petitioner for the 3 rd quarter of CY 2005 J-61 CWT Certificate issued by Jaim e Zobel de Aya la to peti ti oner for th e 41h quarter of CY 2005 J-62 CWT Certifi ca te issued by Jaime Augusto Zobe l de Ayala II to pe titioner for the 41h quarter of CY 2005 J-63 C WT Certifi ca te issued by Beatriz Susa na Urquijo to petitioner for th e 41h quarter of CY 2005 J-64 CWT Certifi ca le issued by Patricia Zobel de Aya la to petitioner for the 41h quarter of CY 2005 L

Sonoma Services, Inc. v. CIR Page 16 of 29 CTA CASE NO. 7757 DECISION J-65 CWT Certifi ca te issued by Aleja ndro Padilla to petitioner J-66 fo r the 4 'h quarter o f CY 2005 J-67 J-68 CWT Certificate issued by Georgina Mac-Crohon to J-69 petitioner for th e 4'h quarte r o f CY 2005 J-70 J-7 1 CWT Certificate issued by Alfonso Zobel de Ayala, Jr. to petitioner for th e 41h quarter o f CY 2005 J-72 J-73 CWT Certificate iss ued by M e rmac , Inc. to petitio ner for J-7 4 the 4 '~1 quarter of CY 2005 J-75 J-76 CWT Certificate issued by Corullon Holdings, Inc. to J-77 peti ti oner for th e 41h quarter of CY 2005 K K-1 CWT Certificate issued by FBC Holdings, Inc. to petitioner K- 2 for th e 4'h quarter of CY 2005 CWT Certifi ca te issued by Ha cienda Balabatican Homeowners' Association , Inc. to petitioner for th e 41h quarter o f CY 2005 CWT Certifica te issued by Ferca t Holdings, Inc. to petitioner for the 4'h quarter of CY 2005 CWT Certificate issued by Elija Holdings, Inc. to petitioner for th e 41h quarter of CY 2005 C WT Certificate issued by Reinosa Ho ldin gs, In c . to petitioner for the 4 1 ~1 quarter of CY 2005 CWT Certifi ca te issued by San Puente Hold ings, Inc. to pe titi oner for the 41h quarter of CY 2005 CWT Certificate issued by Gilmon Holdin gs, In c. to petitioner for th e 41h quarter of CY 2005 CWT Certifi ca te issued by Steps Dance Studi o to petitioner for th e 41h quarte r of CY 2005 Sworn Statemen t of Ms. Vanessa I. Maturana dated July 4, 2008 Ms. Maturana's signature appearing on page 7 o f th e Sworn Sta tement Su bmission dated July 4, 2008 covering th e Sworn State m en t o f M s. Maturana(

Sonoma Services, Inc. v. CIR Page 17 of 29 CTA CASE NO. 7757 DECISION L Sworn Statement of Ms. Vanessa I. Moturono doted August 21, 2008 L- 1 Ms. Moturono 's sign ature appearing on page 14 of the Sworn Statement L-2 Submission doted August 21, 2008 covering the Sworn Statement of Ms . Moturono M Sworn Statement of Ms. Katherine 0. Constantino doted January 23, 2009 M- 1 Ms . Constantino's signature appearing on page 20 of the Sworn Statement M -2 Submission doted January 23, 2009 covering the Sworn Statement of Ms. Constantino AA ICPA's Report doted January 19,2009 AA-1 Signature of M s. Katherine 0. Constantino appearing on page 32 of the Report BB-1 to BB-22 Management Services Agreements between petitioner and its withholding agents-clients for CY 2005 CC-1 to CC-6 Cost Recovery Agreements between petitioner and its withholding agents-cl ients for CY 2005 DD-1 to DD-11 General Ledgers o f petitioner for CY 2005 EE Reclassifying en try on Recovery on Costs for CY 2005 FF-1 to FF-85 Official receipts covering the administration fees received by p e titioner in CY 2005 GG (inc ludin g Annual Information Return of C red itable Income GG-1 to GG- Taxes Withheld (Expanded)/lncome Payments Exempt 12) to BBB Withholding Tox(BIR Form 1604-E), Monthly Remittance Return of Creditable Income Taxes Withheld (Expanded) (including (B IR Form 1601 -E ), and BTR-BIR Deposit Slips/Official BBB- 1 to BBB- 12) Receipts covering the withholding taxes remitted by inclusive of petitioner 's withholding agents-clients for CY 2005 sub- markings CCC-1 to Management Services Agreements between petitioner CCC-21 and its withholding agents-clients for CY 2003(

Sonoma Services, Inc. v. CIR Page 18 of 29 CTA CASE NO. 7757 DECISION DDD- 1 to Cost Recovery Agreements between petitioner and its DDD - 4 withholding agents-clients for CY 2003 EEE Audited Financial Statements of petitioner for CY 2003 FFF Breakdown of petitioner's revenues for CY 2003 GGG-1 to General Ledgers of petitioner for CY 2003 GGG- 10 HHH Sworn Statement of Ms. Marivic F. Lao dated October 18, 2007 111- 1 to 111-55 Official receipts covering the administration fees received by the petitioner in CY 2003 JJJ- 1 to Cash receipts voucher covering the administration fees JJJ-6 received by petitioner in CY 2003 KKK (including Annual Information Return of Creditable Income KKK- 1to KKK- Taxes Withheld (Expanded )/lncome Payments Exempt 12) to EEEE Withholding Tax(BIR Form 1604-E), Monthly Remittance (including Return of Creditable Income Taxes Withheld (Expanded) EEEE- 1 to EEEE-3) (BIR Form 1601 -E) , and BTR-BIR Deposit Slips/Official inclusive of Receipts covering the withholding taxes remitted by sub- markings petitioner's withholding agents-clients for CY 2003 FFFF Audited Financial Statements of petitioner for CY 2004 GGGG Breakdown of petitioner's revenues for CY 2004 HHHH-1 to General Ledgers of petitioner for CY 2004 HHHH-9 II II Reclassifying entry on Recovery on Costs for CY 2004 JJJJ-1 to Official receipts covering the administration fees JJJJ- 168 received by petitioner in CY 2004 KKKK-1 to Management Services Agreements between petitioner KKKK-2 and its withholding agents-clients for CY 2004 LLLL- 1to Cost Recovery Agreements between petitioner and its LLLL-7 withholding agents-clients for CY 2004 MMMM Annual Information Return of Creditable In co me Taxes Wilhheld (Expa nded )/lncome Payments Exempt~ (including

Sonoma Services, Inc. v. CIR Page 19 of 29 CTA CASE NO. 7757 DECISION MMMM- 1to Withholding Tax(BIR Form 1604-E), Monthly Remittance Return of Creditable Income Taxes Withheld (Expanded) MMMM- 12) to (BIR Form 1601-E) , and BTR-BIR Deposit Slips/Official Receipts covering the withholding taxes remitted by HHHHH petitioner's withholding agents-clients for CY 2004 (in c l u d i n g HHHHH-1 to HHHHH - 11 ), inclusive of sub-markings Respondent did not present any evidence.6 On November 25, 2010, the case was deemed submitted for decision consid e ring th e Memorandum 1 and Supplemental MemorondumBfiled by petitioner on February 8, 2010 and November 18, 2010, respectively, and the report of the Records Division that respondent did not file a Memorondum.9 The issues IO as stated in the Joint Stipulation of Facts and Issues ore the following: "1. Whether or not petitioner's withholding tax credits for CY 2005 in the amount of P5 ,070,932.00 are duly substantiated by documentary evidence. 2. Whether or not the income from which th e subject creditable income taxes were withheld were reported as part of petitioner's revenues in its Annual Income Tax Return for CY 2005. 3. Whether or not petitioner has excess and unutilized creditable withholding taxes in the amount of P5,070,932.00 for CY 2005. 4. Whether or not petitioner applied its excess creditable withholding taxes for CY 2005 against its income tax liability in the succeeding taxable year/s. { 6 Docket, p. 503 7 Docket, pp. 508-525 a Docket, pp. 58 1-588 9 Docket, p. 589 1D Docket, pp. 67-68

Sonoma Services, Inc. v. CIR Page 20 of 29 CTA CASE NO. 7757 DECISION 5. Wheth e r or not petition e r fil ed its administrative and judicial claims for refund of excess c reditable withholding taxes for CY 2005 within th e two-ye ar prescriptive period provided in Section 204(C) of th e Notio nal Inte rna l Revenue Code (th e 'Tax Code'). 6. Whether or not petitioner is en titl ed to its cla im for refund or issuance of TCC for its excess and unutilized creditable wi thh o lding taxes fo r CY 2005 in the amount of P5,070,932.00." Th e foregoing issu es c an be su mmarized as fo llows: Wh e ther or not p e titi one r is e ntitl e d to its c laim for re fund or iss uance of a tax c re dit certificate in the amount of P5,070,932.00, re prese nting its excess and unutilized c reditabl e withholding taxes for th e taxable year 2005. Th e petition is meritoriou s. Section 76 of th e Natio nal Interna l Re venue Code (NIRC) of 1997, as amended, provides: "SEC. 76. Final Adjustment Return. - Every corporatio n liabl e to tax under Section 27 sha ll file a final adjustment return covering th e total taxable income for the preceding c alendar or fiscal year. If the sum of th e quarterly tax paym e nts mode during the said ta xa bl e year is not e qual to the total tax due on th e e ntire taxable in co me of that year, the corporation shall either: (A) Pay the balanc e of ta x stil l due; or (B) Corry-over th e excess c redit; o r (C) Be c redi ted or refu nded with th e excess amount paid, as the case may be. In case th e corp o rati on is en titl ed to a ta x credit o r refund o f the excess estimated quarterly income taxes paid , th e excess amount shown on its fin al adjustm en t re turn may be carried over and c redited against th e estim a te d quarterl y in co me tax liabilities for th e taxable quarters of the succeedi ng taxable years. Once th e opti on to c orry-ove r and apply the excess quarterly in co m e ta x against income ta x due for th e taxable quarters o f th e succeeding ta xable years has been mode, such option sha ll be(

Sonoma Services, Inc. v. CIR Page 2 1 of 29 CTA CASE NO. 7757 DECISION considered irrevocable for that taxable period and no application for cash refund or issuance of a ta x c redit ce rtificate shall be allowed th ere for." The above-quoted prov1s1on of law provides for two options to a taxabl e corporation whos e total quarterly 1nco m e tax payments 1n a given taxable ye ar exceed its total income tax due, namely: (l) filing of a tax refund (either in the form of cash or tax credit ce rtifi c ate); or (2) availment of a tax c redit. In the first option , any tax on income that is paid in excess of the amount due th e government may be refunded, provided that the taxpayer properly applies for the refund. Th e second option works by applying th e refundable amount, as shown in th e Final Adjustm en t Return of a given taxabl e yea r, against th e es timated quarte rly income tax liabilities of the succeeding taxable year. However, once the carry-over option is take n, actually or c onstructively, it b eco m es irrevoc able for that taxabl e period. 11 The phrase "for that taxable period" refers to the taxable year when the excess income tax, subject of the option, was a c quire d by th e taxpayer.'7{ 11 Philom Asse t Management, Inc . vs. Commissione r o f Inte rnal Revenue, G.R. Nos. 156637/16200 4, December 14 , 2005; Sys tro Philippines, Inc . vs. Com missio ne r o f Inte rnal Revenue, G.R . No. 176290, Sep te mbe r 2 1, 2007 12 Commissio ner o f ln le rnol Reve nue vs. Bonk of 1he Philippine Islands, G .R. No . 178 490, Ju ly 7, 2009

Sono ma Servi ces, Inc. v . CIR Page 22 o f 29 CTA C ASE NO . 7757 DECISION In exerc1s1ng its option , the corporation must signify in its annual corporate adjustment return (by marking the option box provided in the BIR form) its inten tion either to carry over the excess c redit or to claim a refund. To fa c ilitate tax col lection , th ese re medies are in the alternative and th e c hoice of one prec lud es th e other.IJ A review of petitioner's am e nded Annual In come Tax Return H for the taxable year 2005 shows that p e titioner had total tax credi ts in the amount of P6,737,81 0.00 , which cons iste d of the prior year 's excess credits in the amount of Pl ,666,878.00 and c reditable taxes withheld during the year in the amount of P5 ,070,932.00 , to wit: -- - - - - -- - --- - -- Prior Year's Excess C redits p 1,666,878.00 Creditable Taxes Withheld - for th e First Three 5,070,932 .00 p 6,737,810.00 Quarte rs - - - - - p -3, 867 ,1 50 .00 for the Fourth Quarter - Total -Tax Cre-di- ts - - - - r--1-,203,782.00 - - The records reveal that the pnor year's excess c redits of Pl ,666,878 .00 originated from th e c reditabl e taxes withheld for the year 2003 in th e amount of P2,506,600.00 15, after deducting therefrom the incom e tax due for the taxabl e years 2003 and 2004 in the respective amounts of P289,502.00 and P550 ,220.00 , as shown he re und e r:( 13 Philippine Bonk of Communica ti ons vs. Commission e r o f Int e rnal Rev e nue, e t o f., G.R. No. 11 202 4, January 28, 1999 14 Exhibi t "E" 15 Exhibits "H- 1" to " H-45", as summarized in Exh ibit " H"

Sonoma Services, Inc. v. C IR Pa ge 23 o f 29 CTA CASE NO. 7757 DECISION Exhibit Taxable Income Prior Year's Bala ne e CWT for Excess CWT End of the Excess the Year 2,506,600 .00 Year - - - - -- Ye-ar- -T-ax-D- ue- Credits Due/ Refu ndable 5, 188,970.00 2,2 17,098.00 6, 8 55 ,8 48 .00 1----- �- "B" - - -20-0-3 - 289,502.00 - - -- - - - 289,502.00 t---- -"- C" 200 4 550,2- 20.0- 0 2,2 17,098.00 - -1-,6-6 6,878 .00 -'-- The prior ye ar's exc es s c re d its o f P1,666 ,878 .00 was applied against p e titi oner' s in co m e ta x du e fo r th e ye ar 2005 in th e amount of P1 ,029 ,302.00 16, le aving th e amount of P637, 576 .00 prior ye ar's e xc ess c re d its and c re ditab le taxes withh e ld during th e ye ar 2005 in th e amount of P5 ,070,932 .00 11, tota ling P5,708,508 .00 unuti lized a s of Dece mbe r 3 1, 2005, a s shown al so hereund e r: Prior Year's Excess Credits p 1,666,878.00 Less : Incom e Ta x Due 1,029 ,302 .00 Balance of Prior Year's Excess Credits P6 37 ,576.00 Add : Creditable Taxes Withheld During the Year 5,070,932.00 Unutilized Excess Tax Credits as of December 31 , 2005 p 5,708 ,508.00 Sin ce p e titi o ne r marke d th e o pti o n "To b e re fund e d " in its Annua l Inco m e Ta x Re turn 18 for th e ta xab le ye ar 2005 (bo th o riginal and am e nd e d) and re flec ted on ly th e amoun t of P637, 57 6.00 as " Prior Ye ar's Excess Cre dits" in its Qua rte rly In co m e Ta x Re turn s19 and Annua l Inco m e Ta x Re turn 2o for th e ta xabl e ye ar 2006, th e unu tilized c re ditabl e withh o lding taxes fo r th e ta xable ye a r 2005 in th e amount of( 16 Exhibit "E-2" 17 Exhib it "E-3" 18 Exhib its "D-2" and "E-4" 19 Lin e 29A, Exhi b its " N", " N- 1", "0", "0- 1", "P", and "P- 1" 2o Exhibit "F- 1"

Sonoma Services, In c. v. CIR Page 24 o f 29 CTA CASE NO. 7757 DECISION P5,070,932 .00 may be th e subject of a claim for refund under Section 76 o f th e NIRC of 1997, as amended. In accordance with reve nu e regu lations issu e d by res pondent and cases:> 1 d ec id ed by th e Supreme Court, th e re fund of excess c reditabl e withho ldin g ta xes is depe nd e nt on petition e r's compliance with th e following require m e nts: 1. That the c laim for re fund was filed within th e two-year prescriptive period as provided under Section 204(C) in re lation to Sec tion 229 of the NIRC of 1997; 2. That th e fact of withholding is es tablished by a copy of a stat e m e nt duly issu e d by the payor (withholding agent) to the payee, showing th e amount paid and the amount of ta x withh e ld th e re from ; and 3. That th e in co m e upon which th e taxes were withh e ld w e re in c luded in th e re turn of th e recipient. Anent th e issue of tim e ly filin g o f th e re fund claim , the applicable provi sions are Sec tions 204 (C) and 229 of th e National Inte rnal Revenue Code whic h provide : "SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes.- The Commissioner may- XXX XXX XXX (C ) C re dit or re fund taxes e rro neous ly o r ill eg ally receive d or penalties imposed without authority, refund the value of internal reve nu e stamps w he n th ey are returned in good conditi on by th e purchaser, and , in his discretion, redeem or ch ang e unused stamps that have bee n rendered unfit for use and refund their ( 21 Section 2.58, Revenue Regu la tions No. 2-98, as am e nded; Citibank N.A. vs . Court o f Appea ls, e t of., G.R. No . 107434, Oc tober 10, 199 7; ACCRA Investments Corp o ration vs. The Honorable Courl of Appea ls, et o f., G .R. No. 96322, December 20, 1991

Sonoma Services, Inc. v. CIR Page 25 of 29 CTA CASE NO. 7757 DECISION va lu e upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with th e Commissioner a claim for credi t or refund within two (2) years after the payment of the tax or penalty: Provided, however, That a return fi led showing on overpayment shall be considered as a written claim for credit or refund." "SEC. 229. Recovery of Tax Erroneously or Illegally Collected. - No sui t or proceeding shall be maintained in any court for th e recovery of any notional internal revenue tax hereafter alleged to hove been erroneously or illegally assessed or collected, or of any penalty claimed to hove been collected without authority, or of any sum alleged to hove been excessively or in any manner w ro ngfu lly coll ec ted, until a claim for refund or cred it has been duly filed with the Commissioner; but such su it o r proceeding may be maintained, whether or not such tax, p ena lty, 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 dote of payment of the tax o r penalty regardless of any superve nin g cause that may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefor, refund or c redit any tax, where on the face of the return upon wh ich payment was mode , such payment appears clearly to hove been erroneously paid." Pe titi oner ha s two years from th e filing of th e Final Adjustment Re turn within which to fil e a c laim for refu nd o f excess c red itabl e inco m e taxes withh e ld both in th e administrative and judic ial le ve ls. 22 In this case, the claim cove rs the ta xab le year 2005 for which petitioner fil e d its o riginal Annual In come Tax Return on April 17, 2006. 73 Counting from this dote, th e administrative c laim filed by petitioner on November 17, 2006, 2-1 as well as th e Petition for Review filed on April 10, 2008, fe ll within th e two-( 22 ACCRA Investments Corporation vs. The Honorable Cou rt of Appeals, e t of.. , G.R. No. 96322, December 20, 1991 23 Exhibit "D-1" 24 Exhibit " A"

Sonoma Services, Inc. v. CIR Page 26 o f 29 CTA CASE NO. 7757 DECISION ye ar prescriptiv e p e ri o d. This shows th a t pe titi o ne r ha s co mplie d with th e first re quire m e nt. As reg ard s th e seco nd re quisite, p e titio ne r prese nte d C e rtific ates o f Credita bl e Tax Withh e ld a t Sou rce 75 du ly issued to it by vari o us withh o ldin g age nts for th e ye ar 2005 , re fl ec tin g c re ditabl e withh o lding ta xes in th e to ta l am o unt o f P5 ,070,932. 16.26 Thu s, p e titi o ne r satisfi e d th e seco nd req uire m e nt. In ord e r to prove co mplian ce with th e third re quire m e nt, p e titi o ne r sub m itted ce rtifi c ates sho wi ng that th e c re d ita bl e taxes o f P5 ,070 ,93 2.00 we re w ithh e ld o n in co m e paym en ts receive d by p e titi o ne r for th e ye ar 2005 a m o untin g to P34 ,356 ,2 14.37. 27 How e ve r, p e titi o ne r' s summary indica tes a low e r am o unt o f P3 4,298, 903.00 in co m e pay me nts, 2s th e d iffe re nce o f P57, 311.37 b e ing attributa bl e to th e disc re pan c y in th e a m o unt o f in co m e paym e nt fro m San Pu e nte Ho ldin gs, In c . a s rec ord e d in p e titi o ne r's boo ks p e r o ffi c ia l receipt iss ue d 79 a nd p e r BIR Form No. 230 7.30 On th e o ther hand , p e titio ne r's d ec lare d gross in c om e in its Annual In co m e Tax Re turn fo r th e sam e ye ar am o unte d to P34 ,656,484.0031� Pe titi o ne r prese nted a Brea kdown o f Reve nu es, to wiP 2( 25 Exhibi ts "J - 1" to " J-77" 26 Page 2, Exhib it "J" 27 Annex l, Exhibit " AA" 2s Page 2, Exhibit " J" 29 Exhib it "FF-77" 30 Exhibit "J -75" 31 Line l9C, Exhibit "E"

Sonoma Services, Inc. v. CIR Page 27 o f 29 CTA CASE NO. 7757 DECISION ITR p 1,677, 157.00 ---- Per2307 12,52 4. 00 Inco m e o n lo ons p 32,966,803.00 32,966,803.00 Miscel la neous Inco m e 1,332, 100.00 p 34,656 ,484.00 Adm inistra tion Fee - For the ye ar 2005 Recovery cost fo r th e year 2005 p 34,298,903.00 Total Th e C o urt-co mmissio n e d Ind e p e nd e nt C e rtifie d Public A cc ountant ex plain e d th e diffe re n ce of Pl ,33 2, l 00.00 a s fo ll o w s: 33 "Th e differe nce w as du e to Administration fee-Recovery o n Cost w hic h was prese nte d in th e incom e tax return a nd fi nan c ial statements as a reduc tion to 'Ren ta l expe nse' and 'Misce ll aneous expense' . Recoveries o n Cost were re nta l a nd deprec ia tion exp e nses sh ored by th e Petiti o ne r' s m a na ge d co m pa nies in accorda nce w ith th e ir Cos t Recovery Agreemen ts (to be p resen ted as Exhibits CC - 1 to CC -6). Recoveri es on Cost were col lec ted wi th service fees and thus were initially recorded as ' Ad ministra ti on Fees ' (to b e p resented as Exhibit DD-1 ). A reclassifying entry (to be p rese nted as Exhibit EE ) was m ode o n December 31, 2005 whe rein th e recovery on cos t am o unt record e d in 'Administra tion fee' in th e a m ount o f P1,332, 100 was reclassi fi ed as a cred it (deduc tio n) to 'Rental Expense ' in the amoun t o f P1 ,302,000 and 'Misce ll aneous Expe nse' in th e a m oun t of P30, 100 (General ledge rs to be p resen ted as Exhibits DD -2 and DD -3 , respec tively). The b reakdown of these recovery cost is shown in Annex 3 . xxx " In fin e, p e titi o n e r ha s esta blish e d th a t it s in co m e upon whi c h th e c re dita b le in co m e taxes o f P5, 0 70,932. 00 were w ithh e ld wa s in c lud e d in its in co m e ta x re turn, thu s, p e titi o n e r is e ntitl e d to a re fund o f th e exc e ss c re ditabl e withh o ldin g ta xes fo r th e taxabl e ye ar 2005 in th e said am o unt o f P5,0 70 ,932. 00 .( 32 Exhib it "G" 33 Pag e 8, Exhibit "A A"

Sonoma Services, In c. v . CIR Pag e 28 of 29 CTA CASE NO. 7757 DECISION WHEREFORE , premis es cons idere d , th e Pe tition for Review is hereby GRANTED . Accordingly, res p o nd e nt is ORDERED TO REFUND or TO ISSUE A TAX CREDIT CERTIFICATE to petitioner in th e amount of FIVE MILLION SEVENTY THOUSAND NINE HUNDRED THIRTY-TWO PESOS (P5 ,070,932.00) , representing excess and unutilize d cred itabl e withholding taxes for th e ta xab le year 2005. SO ORDERED . ~ N : M~~G~ CIELITO N. MINDARO-GRULLA Associ ate Ju stice WE CONCUR: ~~c-~Q.. CAESAR A. CASANOVA J6'ANITO-,C. CASTANEDA, frf. Associate Justice Associate Ju sti ce ATTESTATION I attest that the conc lusions in the above Decision were reached in consu lta tion before the case was assigned to th e writer of th e opinion o f the Court's Division. Q~.~o .cCA.SGTAsNETD~A , /~~_' fUA.Nno C Associate Ju stice Chairperson

Sonoma Se rvices, In c. v. C IR Pa g e 29 o f 29 CTA CASE NO . 775 7 DECISION CERTIFICATION Pu rsu a nt to Arti c le VI II, Section 13 o f th e Co nstituti o n, and th e Divisio n C hairperso n 's Attestation , it is he re b y certifi e d th a t th e co nc lu sio ns in th e above Decisio n we re re a c he d in co nsultati o n b e fo re th e case was assig ne d to th e w rite r o f the o pi nion o f th e Court 's Divisio n. ~ 1$>-~ ERN ESTO D. A COST A Presiding Ju sti ce