CTA Case No. 5636 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY RIZAL COM1\1ERCIAL BANKING CORPORATION, Petitioner, -versus- C.T.A. CASE NO. 5636 COM1\1ISSIONER OF INTERNAL Promulgated: REVENUE, __jUN L6_2000 {;!/);:-; Respondent. / x- - ----------- ---- -- - - ------------------ - - - - - - - - - -- - - ----- - -x DECISION This petition for revtew is seeking for the refund or Issuance of a tax credit certificate in the amount ofP8,703,440.43, allegedly representing overpaid gross receipts tax for the calendar years ended December 31, 1996 and December 31, 1997. The facts can be briefly stated as follows: Petitioner is a banking institution organized and existing under lhe lavvs of the Philippines with principal office located at No. 333 Sen. Gil J. Puyat Avenue, Maklfi City. For each calendar quarter of taxable years 1996 and 1997, petitioner seasonably filed its Qumierly Percentage Tax Returns, declaring all income subjec t to percentage lax in the amount of P6,335,606,848.99 and paid the corresponding gross receipts tax due thereon in the sum ofP159,941,600.95, broken down as follows:

f DECISION- CTA CASE NO. 5636 PAGE2 1st Qtr. 1996 p 844,973,478.92 p 38,512,345.78 2nd 726,644,506.26 29,256,840.59 3rd Qtr. 1996 794,687,887.17 35,038,019.86 41h Qtr. 1996 648,228,412.80 28,940,257.14 Qtr. 1996 P3,014,534,285.15 Pl31,747,463.37 Total p 898,677,221.74 p 40,271,782.69 1st Qtr. 1997 783,462,070.75 2nd Qtr. 1997 856,749,984.57 35,341,735.91 782,183,286.78 3rd Qtr. 1997 36,577,352.47 4111 Qtr. 1997 P3,321,072,563.84 34,575,9S6.51 P146, 766,857. 5 Total Grand Total P6,335,606,848.99 P278. 514.,320.95 s Petitioner alleged that the aforementioned gross receipt in the amounts or P3,014,534,285.15 and P3,321,072,563.84, for the year 1996 and 1997, respectively, included some interest income derived from purchase of government securities and 50 1 conunercial papers in the amounts of P362,734,559.60 for 1996 and P 8, 5 - , 033.00 for t 1997. The latter sums were declared by petitioner as part of he taxable gross receipts t inclusive of he 20<}o fmal tax withheld at source. n On January 30, 1996, this Coutt rendered a decisio in C. T.A. Case No. -17]0 entitled Asian Bank Corporation vs. Commissioner of Internal Revenue wh erei n it was held that the <1%> fmal withholding tax on bank's interest income should not form pari of e t t x its taxable gross receipts for purposes of computing the gross rec ip s a . eti On April17, 1998, on the strength of the aforesaid decision, p tioner filed a letter- h request for the refund or issuance of a tax credit certificate with t e BIR Revenue Region No. 8 in the amount ofP8,703,440.43, representing the overpaid gross receipts tax for the years 1996 and 199 , computed as follows: . . ' .. l-.J

DECISION- CTA CASE NO. 5636 PAGE3 Rate afFinal Tax Gross Receipts Final Tax 20(% rate of lax P360,925,459.53 Withheld by DSP 15�o rate of tax Total 1,809,100.07 P72, 185,091.91 P362,734,559. 60 271 , 365.0 1 P72,456,45G. ()2 Rate afFinal Tax Gross Receipts Final Tax 20% rate of tax P506,704,933.48 \Vithhdd by DSP 15:6 rate of tax Total 1,809,100.07 P 1 01, 340, 986. 70 P508,514,033.55 271,365.01 Grand Total P871,248,593.15 P101.6l2.35 L 71 Multiply by GRT Rate Excess GRT Payment Pl74,068,808.63 s(!:& P 82QJJA0.43 On April 20, 1998, petitioner lodged its appeal in this Court in order to toll th.: m1ming of the two-year prescriptive period to judicially claim for the refund of ovetvaid internal revenue tax pursuant to Section 230 of the Tax Code, as amended. Respondent, in his Answer, raised the follO\ving special and aUiJmalive defenses: 7. The mling in the case of Collector vs. Manila Jockey Club, 108 Phil. 821, i not applicable in the instant case on !he ground tha t the defmition of the tenn "gross receipts" as interpreted by the Supreme Court in said case, is intended ''for the purpose of the amusement tax" as provided in Section 123(b) of the National Intemal Revenue Code (NIRC), hence, not applicle to the gross receipts tax (GRT) under Section 119 of the Code; 8. Applying the total gross receipts minus the 20% final lax<.:s on passive income as the basis in computing the 5�o GRT will re su lt in the unlawful reduction of the amount of tax fixed by law or regulations, or worst, a subtle amendment of the said law or regulations; 9. Petitioner failed to present its final ammal percentage lax return as required under Section 6(b) of Revenue Regulations No. 12-80, as v.�dl as, its Annual Income Ta.x Returns for the years in question in order to appraise the Honorable. Court of the actual amount of percentage taxes am! tax on . 1u . . .. .,

DECISION- CTA CASE NO. 5636 PAGE4 gross receipts paid or accmed in said years which were claimed as deduction in computing the taxpayer's income tax liability in accordance with Section 7(c) of the said regulations; 10. The petition states no cause of action since it does not alleged (sic) the date/s when the tax/es sought to be refunded were actually p aid; 11. In an action for tax credit/refund, 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 tax refund; and 12. Well-settled is the mle that claims for refund are constmed in strictissimi juris against the claimants since it partakes of the nature of an exemption from taxation. In order to suppm1 its claim for refund, petitioner presented the follO\ving evidence: 1. Quatierly Percentage Tax Returns for the years 1996 and 1997 (Exhs. A, B, C, D, E, F, G, and H, inclusive of submarkings); 2. Written claim for refund with the Bureau of Intemal Revenue (Exhs. I and I-1); 3. Smmnary of Tax Paid Income for the years 1996 and 1997 together \Vith the schedules/computations ofthe respective gross receipts tax (Exhs. J, K, L, M, N, 0, P, Q, R, S, T, and U, inclusive of submarkings); 4. ,. -Letter-certification elated November 3, 1998 of the Bureau of Treasury with attached schedule of investments of petitioner in treasury bills for the years 1996 and 1997 (Exhs. V, \1-1, and V-2); 5. Letter request of petitioner addressed to the Bureau of Treasury for the issuance of cet1ification offtnal taxes withheld on petitioner's investments in govenuncnt securities (Exh. W); )� .._.l �jJ .

DECISION- CTA CASE NO. 5636 PAGES 6. Letter-reports, elated Febmary 24, 1999 and May 11, 1999, of lhe conunissioned independent auditor regarding verification of peti ti oner ' s clairn (Ex.hs. X and DD); 7. Various domestic trading sheets of fixed rate treasury notes, com_rm-rcia I papers, and CB/treasury bills (Exhs. Y-1, Y-2, AA-1 lo AA-6, BB-1 lo BB-184 and EE-l to EE-223); and 8. Various cetiificates of fmal income tax withheld for the years 1996 and 1997 issued by the Bangko Sentral ng Pilipinas. Respondent, on the other hand, submitted his case for decision sans lhe presenlalion of evidence. Eventually this case was submitted for decision after both parties presented their respective memoranda. The Court is now tasked to resolve the following issues: l. \Vhether or not the 201o fmal "vithholding tax on bank's interest income should fonn part of the taxable gross receipts for purposes of computing the gross receipts tax; and 2. W1tether or not petitioner adduced sufficient evidence to support its cause. Anent t1c first issue, this Comi in a long line of cases has already ruled lhat lhe 20% fmal taxes on interest income should no longer fonn pati of taxable gross receipts for pmvoses of computing the gross receipts tax. This is the maxim behind Our decision in the case of Asian Bank Corporation vs. Conzmissioner ofInternal Revenue, CT.il Case No. 4720, dated January 30, 1996, supra, petiinent potiions of which read as follows: I. ., '..J;� '-

DECISION- CTA CASE NO. 5636 PAGE6 "We agree with the petitioner that the 20�<> fmal withholding tax on its interest income should not fonn part of its taxable gross receipts. XXX XXX XXX This conclusion is in accord with the interpretation of the Supreme Court in the case entitled Collector of Internal Revenue vs. t\1ani1a .Iockey Club, 108 Phil. 821, as quoted by this Court in disposing of a similar issue in the case entitled Compania Maritima vs. Acting Commissioner of Internal Revenue, CTA Case No. 1426 dated November 14, 1996, thus: In the second place, the highest tribunal of the l:t 1cl inteqJreted the term: "gross receipts" to mean all recci pts of a taxpayer excluding those which have been especially eam1m"kt.::d by law or regulation for the govenunent or some person olllcr than the taxpayer. Thus, it was held: "xx xx: . The Govenunent could not have meant to tax as gross receipt of the l\1anila Jockey Club the 1/zl!o which it directs same Club to tum over to the Board of Races. The latter being a Government institution, there would be double taxation, which should be avoided unless the statute admits of no other interpretation. In the same mmmer, the Gove1nment could not have intended to consider as gross receipt the pmiion ofthe funds vvh ich i I directed the Club to give, or know the Club would give, to winning horses and Jockeys- admitted 5%. It is tmc that the law says that out of the total wager funds 1 21/.i�o shall be set aside as the 'commission' of the track owners but the law itself takes official notice, and virtually approves or directs payment of the portion that goes to owners of horses as prized and bonuses of jockeys, vvhich portion is ,. {tdmittedlv 5% out ofthe 12Yz�o commission. As it did not ' at that ti1 c contemplate the application of 'gross receipts' revenue principle, the law in m aking a distribution of the total wager funds, took no trouble of separating one item from the other; and for convenience, grouped three items under one cmmnon denomination. "Needless to say, gross receipts of the proprietor of the amusement place should not include any money which although delivered to the amusement place has been especally eannarked by law or regulation for some person J . ' l � 'L '-

DECISION- CTA CASE NO. 5636 PAGE 7 other than the proprietor." (The Commissioner of Internal Revenue vs. Manila Jockey Club, Inc. G.R. Nos. L-13890 and L-13887, June 30, 1960) It is to be noted that, under Section 260 of the Tax Code, a race-track is subject to an amusement tax of 20�o of its gross receipts and the tem1 �gross receipts' embraces all the receipts of the proprietor, lessee, or operator of the amusement place." Notwithstanding the broad and all-embracing ddlnition of the term "gross receipts" found in our amusement tax la\v, our Supreme Court did not adopt a literal interpretation of the said term in the case of the l\.1anila Jockey Club, Inc., supra." Our mling in the aforementioned decision has ah�eady been affinned by the Court of Appeals in the case entitled Commissioner of Internal Revenue vs. Citytrust Philippines, CA G.R SP No. 52707, August 17, 1999, which involves a s imilar issue, thus: Accordingly the 2Q;i) fmal tax withheld against the Respondent's passive income was already remitted to the Bureau of Intema1 Revenue, for the corresponding year that the same was actually withheld and considered fmal withholding taxes under Section 50 of the same Code. Indubitably, to include the same to Respondent's (Citytrust) gross receipts for the vear 1994 would be to tax twice the passive income derived by the Respondent for the said year, which would constitute double taxation anathema to our laxation laws." (Underlining supplied). The legal issue having been settled, what remains to be resolved is the factual aspect of the case. Section '230 of the Tax Code, as amended, provides !hat a claim for refund, both with the Bureau of Internal Revenue and with this Court, must be filed within two years from the date of payment of the tax. In�counting the two-year prescriptive period, the filing of the quarterly percentage tax return should be considered as the "date of payment of the tax" (Solid Bank Corporation vs. Commissioner of Internal Revenue, CTA BuD

DECISION- CTA CASE NO. 5636 PAGES Case No. 5408, April 14, 1999; and Citytrust Investment Philippi�'('S, Inc. vs. Commissioner of Internal Revenue, CTA Case No. 5403, April 19, 199). Appl) i;1g the above mling to the case at bar reveals that petitioner timely filed its cb Ill for refund with the Bureau of Internal Revenue (April 17, 1998), and the Petition f<1, l'eview "�ith this Comt (on April 20, 1998) reckoned, at the earliest, from April 22, i �_._)6, the (!ate when the1996 first Quarterly Percentage Tax Return was filed (Exh. .'\). Aside from proving that the petition for review was timely filed withiL (he two-y..:ar reglementary period, petitioner must also prove its compliance with � .: following requisites: 1. That it paid the gross receipts tax; 2. That it erroneously oveq)aid its gross receipts tax by includ� .g the 20'�,, fmal withholding tax derived on its passive income as patt of the gro;s recc �::Is declarcJ in the quarterly percentage tax returns for the period involved; and 3. That the withholding agent certifies that 20%> [mal with.holdi11g tax w;:s paid on such passive income. (Bank of the Philippine Islands vs. Comr.: issioner or Internal Revenue, CTA Case No. 5458, February 15, 1999; and BPJ Capital vs. Commissionr of Internal Revenue, CTA Case No. 5457, l\1arrh 1, 19)9; cited in Solid Bank Corporation vs. Commissioner of Internal Revenue, CTA Case No. 5408, April 14, 1999.) A meticulous examination of all the evidence on record reveals that petitioner was able to show that it paid gross receipts tax for calendar quarters of taxable y-.;:1rs 1996 and 1997 as evidenced _by the machine validations appearing on the lower portion of the

DECISION- CTA CASE NO. 5636 PAGE9 respective qum1erly percentage tax retums (Exhs. A to H, inclusive of submarkings). It was also established that the alleged 20o fmal withholding taxes on interest income derived from investments in securities were included in the gross receipts re11ectecl in petitioner's 1996 and 1997 quarterly percentage tax retums. This was attested to by the conunissioned independent auditor, Nlr. Ruben R. Rubio and as ver ified by the Court tlu�ough petitioner's various schedules and computations of gross receipts tax and the sununal)' of tax paid income for the years 1996 and 1997 (Exhs. J to U, inclusive of submarkings). Lastly, petitioner was able to present certifications from B an gko Sentral ng Pilipinas that 2Q<}o fmal taxes were withheld fi�om peti tioner 's investments in various govemment securities (Exlts. V, V-1, V-2, Z-1, Z-2, and CC-1 to CC-39). However, out of the total alleged payment of 20% [mal taxes in the amount of P174,068,808.63, only the sum of P31,084,282.15 was verified by the auditor to have been included in the gross receipts. l-Ienee, only the amount ofP1 , 554, 215. 31 represents overpaid gross receipts tax for the years 1996 and 1997, computed as follows: 1996 1st 2nd 3rd 4th Annual p 139.170.84 p 139,170.84 p p 373,345.85 Fixed Rate Treasury Notes ------ Floating Rate Treasury Notes 915,162.52 132,014.41 1,047,176.93 Commercial Papers 169,958.43 69.585.42 p 25.418.75 169.958.43 "' / 1 ,204.016. 71 827,719.69 5,266.714.03 4,603.959.56 11,902,409.99 P2,428,308.50 p 4,629,378.31 p 13,492,891.20 Treasury Bonds ' P1,098,904.94 p 5,336,299.45 CB/Treasury Bills 5% 5% 5% Total p 121,415.43 5% 5% p 231,468.92 p 674,644.56 Multiply by GRT Rate Refundable p 54,945.25 p 266,814.97 1st 2nd 3rd 4th Annual p p Fixed Rate Treasury Notes P p -p Floating Rate Treasury Notes 8. I.J'-.,.. .,.

DECISION- CTA CASE NO. 5636 PAGElO Commercial Papers 96,531.49 96,531.49 Treasury Bonds CBffreasury Bills 3,356,842.73 5,299, 729.67 4,830,225.15 4,008.085.82 17,494,883.37 Total P3,453,374.22 p 17,591,414.86 Multiply by GRT Rate P5,299,729.67 P 4,830,225.15 P 4,008,085.82 Refundable 5% 5% p 172,668.71 5% 5% 5% p 879,570.74 p 264,986.48 p 241,511.26 p 200,404.29 A further verification of the report of the independent auditor and scrutiny of the evidence on record reveals that petitioner's investments in commercial papers arc not suppm1ed by certificates of fmal withholding tax. 1�-Iencc, a total amount of fuwl tax in the amount of P266,489.92 on commercial papers should not be excluded from the computation of the total gross receipts for the purpose of payment of GRT'. There arc also some treasury bills whose series numbers were not included in the certification issued by the Bangko Sentral ng Pilipinas. Therefore, an additional disallO\vance on the amount claimed by petitioner is inevitable, to wit: 1996 TAS Liquidity Floor Trust Total 292,467.73 523,598.31 January p p 231,130.58 p -p 106,820.37 674,490.07 February 108,229.50 723,682.40 March 261 '110.72 567,669.70 776,801.36 70,934.16 615.452.90 830,814.78 April 764,756.83 274,651.57 '148.063.69 May 148,063.69 193,418.49 193,418.49 June ,; 69,301.28 69.301.28 4,704,927.21 July 1,524,997.51 5 1 5,690.64 367.520.61 5% August 392.360.01 266,302.79 223,802.47 235,246.36 September 1,149,514.04 p October p November December Annual p p 2,030,415.66 p Multiply by GRT Rate Disallowance

DECISION- CTA CASE NO. 5636 PAGE 11 1997 TAS Liquidity Floor Trust Total 282,950.41 453,785.24 January p p 170,834.83 p -p 13,307.09 13,307.09 February 241,867.73 -p 401,416.67 p 123,126.16 March 27,902.43 159,548.94 463,188.73 205.520.90 95,223.73 1,039,128.12 April 499,660.06 979,961.57 257,667.83 935,374.52 May 84,733.40 539,468.06 867,827.59 10,305.43 895,228.17 June 48,862.80 925,069.09 9,017.62 818,964.79 615,161.09 July 9,017.62 937,986.99 64,924.25 6.839.281.39 August 62,112.81 1.551,164.93 5% September 34 1,964.07 October November 550,236.84 December 875,874.18 Annual p p 5,288,116.46 p Multip ly by GRT Rate Disallowance It should be emphasized that only those 20<% final withholding taxes which were proven to have been paid or withheld on passiv e income should be excluded ill the computation of gross receipts tax (Philam Savings Bank, Inc. vs. The Commissioner, Bureau oflnternal Revenue, CTA Case No. 5407, August 18, 1998). In conclusion, petitioner is only entitled to the amount of P963,680.35 computed as follows: Total Amount Verified by SGV 1996' p 674,644.56 1997 879,570.74 p 1,554,215.30 Less: Final Taxes Without Certificates a. Commercial Papers 1996 (P169,958.93 X 5%) p 8,497.95 1997 (P96,531.49 X 5%) 4,826.57 Total p 13,324.52 b. CBfTreasury Bills 1996 p 235,246.36 1997 341,964.07 Total p 577,210.43 590,534.95 Amount Refundable p 963,680.35

DECISION- CTA CASE NO. 5636 PAGE 12 WHEREFORE, in view of the foregoing, the instant petition for review is hereby partially GRANTED. Respondent is ORDERED to REFUND in favor of petitioner the swn of P963,680.35, representing overpaid gross receipts tax for the years 1996 and 1997. SO ORDERED. G-r-u- ERNESTO D. ACOSTA Presiding Judge WE CONCUR: / P r MON O. DE VE Associate Judg .. (Dissenting) AMANCIO Q. SAGA Associate Judge CERTIFICATION I hereby certify that the above decision was reached after due consultation with the members of the Court of Tax Appeals in accordance with Section 13, A1iicle VIII of the Constitution. c\ Q -- , TO D. ACOSTA Presiding Judge 8J:_j