CTA Case No. 5045 (Decision)

REPUBLIC OF THE PHILIPPHES COURT OF TAX APPEALS m.JEZON CITY BENGUET CORPORATION~ Petitioner~, C.T.A. CASE NO. 5045 COMMISSIONER OF INTERNAL Promulgated: REVENUE. APR 12 1996 Re-spondE?nt. X- - - - - --------------X DEc:rs:roN This pE?tition is a judicial clais for rE>fund of allE>gE?d e-xcE?ss withholding tax paymE?nts in the- a~ount of P5, '902, 252.00 fol~ thE? taxablE? yE?al~ 1991. PE?titionE?r is a do�E?stic corporation organizE?d and �>xi sting undE?l~ and of the of thE? Philippines. It is e-ngagE?d in the- mining businE?ss which includE's the E?xploration, dE?Yt>lopment and ope-ration of mining propertiE?s for purposes of commercial prod1.1ct :ion and the marketing of marketable ainE? products :it The petitioner alleges that in the course of the it incomE? payments which creditable taxes were withheld by different age-nts :in the total amo,.mt of P5, '302, 252.00. It is clai~ed that these crE?ditable taxes were not utilized for the aforesaid

DECISION C.T.A. CASE NO. 5045 .-. .:::.. taxable as yeat~ petitioner suffered a net loss in the a�ount of Pl53,912,&l0.00 in 1991 thus resulting in an income of P5,902,252.00. Petit i onel~ likewise suffered a net loss in 1992 as sho~1n by :its income tax return thus the excess income tax paysents of the previous year were not credited to the succeeding Correspondingly, petitioner filed a cl~im fol~ refund of excess inco=e tax payments made :in l99l, in dated NoveDber 29, 1993, and received by the respondent on December 2, 1993. Shortly thereafter, that 1s, on December 10, 1993, a petition for review was filed before t~is Court. Records show that respondent d:id not act on the claim for refund. In her answer to the petition, respondent the following special and affirmative defenses, to wit: SPECIAL AND AFFIRMATIVE DEFENSES 5. Petitioner states no cause of action as the petition has not shown that the tax sought to be refunded was actually withheld and remitted to herein respondent in accordance with the TaK Code. &. The claia for refund is still undergoing investigation.and respondent has yet to make a decision thereon rendering the appeal to this Honorable Court premature. 7. Claims for refund of taxes are construed strictly against the claimant, the same be1ng in the nat,n�e of exemption fl~OD taxes <Commissioner of Customs vs. Phi 1. Acetylene Co., 39 SCRA 70 <1971>; Meralco vs. CIR 67 SCRA 352 <1975>.

DECISION C.T.A. CASE NO. 5045 3- 8. ln an action for refund of taxes, the bw~den of proof is upon petitioner to show that the taxes paid were erroneously or illegally collected. Failure to prove the same is fatal to its claim for refund. As an added defense, the respondent, by way of a off eJ~ of evide-nce filed 19'95, presented a photocopy of a pre-assessment notice, dated November 17, 1994, addressed to petitioner containing the of the investigation conducte-d by BlR exa~iners showing petitioner's tax liabilities for the taxable year 1991 in the amount of P737,598,918.23 to counteract that the claim for refund of pe-titioner cannot prosper as the petitioner has a pending tax liability consisting of a much larger amount for the taxable year 1991. The issue fol~ the- considel~ation of th:ls Court is whethel~ ol~ not petitioner is entitled to a tax refund or in the aaeount of P5,902,252.00 overpaid creditable inco�e tax for the year 1991. Petitioner presented as evidence its 1991 annual corporate income tax return filed on April 13, 1992 showing a net loss of Pl53,912,Sl0.00 <Exhibit "A"). Also l~eflected in said is the aaol\.mt of P5,902,252.00 corresponding to the creditable incose tax withheld for that sa�e year. To it was unable to credit the overpaid amount of the previous year to the next succeeding quarters of the taxable year

DECISION C.T.R. CASE NO. 5045 - 4- 1992, petitioner presented its 1992 annual e cot~porat incoae tax retw~n showing a net loss of PlOO,B65,BlO.OO <page 7, CTR records). Copies of certificates of creditable income taxes withheld by its various agents in 1991 were also offered in evidence. One of the object. ion!. of J~espondent t. o the petitioner's claim for refund is that the petition has not shown that the tax which is the subject of the claim has been actually withheld and remitted to the BIR. At this point it is best to review the applicable provisions of the law and revenue regulations, plus the evidence presented by the petitioner, to deteJ~Iiline whether there has been compliance with the require~ents sufficient to warrant the refund of the amount claiaed for the taxable year 1931. Section 63 of the Tax Code thE' application of excess income taxes paid for a particular taxable year on the quarterly income tax liabilities for the taxable quarters of the succeeding taxable year, thJ.lS: SEC. &9. F j nal ad,just�ent ret urn. - E v p)~y corporation liable to tax under Section 24 shall file a final adjustment return covering the total taxable inco~e for the- prece-ding calendar or fiscal year. If the sum of the quarterly tax payments aade 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 :

OEC[SION C.T.A. CASE NO. 5045 - 5- a) Pay the excess tax still due; or b) Be refunded the excess a~ount paid, as the case may be. In case the corporation is entitled to a refund of the excess estiaated .quarterly income taxes paid, the refundable amount shown on its final adjustment return ~ay be credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable year. (as amended by Presidential Decl~ee No. 1705> lf the succeeding taxable year upon which the excess incoJBe taxes of the previous year likewise results in a loss, a claim for refund Aust be filed within the two year period from pay~ent. As in the instant cas-e, a refund of excess creditable income tax shall be granted, if there is co~pliance with the three basic requirements set forth in Section 10 of Revenue Regulations No. 6-85. Compliance with these requirements has been reiterated in a number of cases decided by this Court naaely: Kao Philippines Inc. vs. CIR, CTA Case No. 4899, February 21, 1995; BPI Faaily Savings Bank Inc. vs. CIR, CTA case no. 1994; City-trust Finance Col-poration foraerly Investors Finane~ Corp. vs. CI R, CTA case no. 404&, :1393; Citytrust Finance Corporation vs. CIR, CTA case no. 4143, November 11, :1991. of Appeals in the case entitled Co�aissioner of Internal Revenue vs. Court of Tax Appeals and Paseo Realty and Developaent Corporation, CA-G.R. SP No. 32927,

DECISION C.T.A. CASE NO. 5045 - b- 28, 1994, upheld the decision of this court acknowledging co=pliance with the three basic require~ents to warrant the refund of excess creditable 1nco~e taxes. These requirements are as follows : 1) That petitioner filed a claim for refund within the two <2> year period as prescribed by Section 292 (now 230) of the Tax Code; 2> That the income upon which the taxes were withheld were included in the return of the recipient; 3) The fact of withholding is established by a copy of the statement d1..1l y i ss�.1ed by the payor to the payee <BIR Form 1743.1> showing the amount paid and the amount of tax withheld therefrom. Records show that petitioner filed its annual incoue for the taxable year 1991 13, 19'92. W1thin a two-year period from payment, petitioner filed a claim for refund with the respondent on December 2,1993 and a petition for review was filed with this Court on Decem bel~ 10, 19'93 thereby showing sufficient compliance with the aforementioned requirement number one. As t 0 the- second requirement, it has established that the petitioner declared the inco~e from which the taxes were withheld in its income tax return covering the taxable year 1991 <Exhibit "A", page 53, CTA The income from the

DECISION C.T.A. CASE NO. 5045 - 7- the amount of P112,000,000.00 from which a 5~ income tax of P5,600,000.00 was withheld is also indicated in the aforecited 1991 income tax return of petitioner. A caref1..tl examination of the evidence presented by the petit i onel~ in compliance with the third requirement shows that not all of these documents petitioner warrant the refund of the amount prayed for. The income tax withheld as shown by Exhibits "F" and "F-l" were not included in the final computation as these pertained to withholding tax on compensation .which is not classified as a creditable income tax. Likewise, the income tax allegedly withheld by Far East Bank in the amount of P37, 949. 58 p�~esent ed as Exhibit "G" is also denied as it is not presented in the prescribed fora <BIR 1743.1> but is e:nbodied in a mere certification issued by Far East Bank. (see page 62, CTA records) The aain bulk of petitioner's claim for refund corresponds to the incone tax withheld in the a111ount of P5,600,000.00 on its sale of real property in the amount of P112,000,000.00. Such withholding tax of SS on the sale, exchangE' Ol~ transfE'r of rE'al a corporation is classified as crE'ditable withholding tax by RE'vE'nuE' RE'gulations No. l-90 which provides follows:

DECISION C.T.A. CASE NO. 5045 - B- s~ction 1. Section l of Revenue is hereby amended to read Regulations No. 6-85 as follows: "Section 1. lncomP oavmPnts S'.lbjpct to creditable withholding tax and rates prescribPd thereon. Except as herPin othPl~wi se pt~ovide-d, thel~P shal 1 be withheld a creditable income tax at the rates he-re-in spe-cifie-d for each of payee- from the- following items of income payme-nts to persons residing in the Philippines: XXX "~iii> ,~e-al y , propel~t. othe-l~ th.an cap1tal assets, by an ind1viclr.aal, e-state, trust, trust fund or pension fund or real property, whether capital or ordinary asset, by a corporation who is not habitually engagPd in real estate business -- five pet~ce-nt (!:�"'�" No. C1228275& <Exhibit �K"> and Ce-ntral Bank Confiraation RPCPi pt No. B2410E..l41 <E>thib:it "L"> a~JJo\.mt of P5,600,000.00 was withhe-ld and subse-que-ntly paid to the BlR in 1991 (se-e page 300, BlR re-cords) which is sufficie-nt co=pliance to warrant the-ir appre-ciation fol~ plWpOSPS of i ncl r..�di ng the- indicate-d aaount :in o\.w final computation. Anothe-r significant obje-ction made by re-spondent on the- claim for refund is the existe-nce of a pre-asse-ss~entr notice, date-d Nove-�bPr 17, 1994 <Exhibit "1">, Ol.d:lining pe-titione-r's tax de-ficie-ncies for the- taxable year 1991 which is the sa=e year ~ubject of the presPnt clai~.

DECISION C.T.A. CASE NO. 5045 - 9- This objection although not expounded by respondent was included in her formal offel~ of evidence presumably on the proposition that a pe-nding ta)t liability for a taxable year is a bar to a clai~ for refund pertaining to that same- year. finds in this theory of respondent, if we can call it that, as we cannot 1 ooi-c into the merits of the pre-asse-ssment notice issued to the petitioner unless such notice matures into a final assessment. To do otherwise is tantamount to treading into grounds where this Court has no jurisdiction. One. of the r~medies provided by law to taxpayers in cases of assessments issued by the BIR is the re=edy of .... protest provided in Section 229 of the Tax Code. ., ... :is only when this protest is denied in whole or in part, that the taxpayer may take his appeal to this C01..wt in accordance with Section 7 <1> of Republic Act 1125, thus: SECTlON 7. Jurisdiction Col\.n~t of Tax Appeals shall exercise exclusive appl?'llate j ul~ i s d i ct i on as herein provided. to review by appeal, (1) Decisions of the Commissioner of lnternal Revenue in cases involving disputed assessmentst refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the National Internal Revenue Code or other law or part of ]aw administered by the BI R. 405

DECISION C.T.A. CASE NO. 5045 - l () - Jm~isdiction ovel~ the- s.ub.Je-ct matte-t~ is f�.mdaaental for a court to act on a give-n controve-rsy. It is confe-rre-d by law, not by consent of the parties. >t)OOD! The Tax Court is a Court of special jurisdiction. As such, it can take cognizance- only of such matters as are cle-arly within its jurisdiction <Coaaissioner of 1nternal Revenue vs. Villa, 22 SCRA 3). In conclusion, the- creditable withholding taxes to be refunded or credited to the petitioner is co~pute-d as follows: l.lit.hhold1n; ~ount of Tax IM~r1d �J!l)bit Ayrnt locnr t'ilJli!'M. far East Bank and Tru~t Co. H7,�9Z.~ S,N%.65 G-1 far East Bank and Tru~t CD. m.,4J9.J4 8,8Z0.96 G-2 far Eao.t. Bank and Tru~t Co. 5B,~74 Z,9Ul~ 6-3 Far East Bank and Trust Co. !17,�~.~ 5,884.65 &-4 far East Bank and Trust Co. 233,34�.!�. ll, 9&7. 31 G-5 fiJI' Eas.t Bank and Trust Co. 53,�0&.Ji' c,f..80.Jl G-6 far East Bank and Trust Co. 53,�(l..%? Z,U0.3l G-7 far East Bank and Trust Co. lW,8l8.?6 !l,Oii0.9l G-8 nrtrepolitan Bank and Trust Co. ~,l�.B.OO 2&,008.40 H En;inrrrin) Equiparnt lnc. 250,000.00 lZ,SOO.OO En;inrrrjng Equiparnt lnc. i!.O,OOO.OO ll,500.00 I-1 EngiDrrrin; Equiparnt In~. 250,000.00 12,500.00 I-2 Enginrrring Equiparnt lnc. 250,000.00 lZ,~.oo J-3 En;inrrrin~ Equiparnt In~. 250,000.00 lc,SOO.OO 1-4 E~Ji~rrrin~ Equiparnt Inc. ~...(), 000.00 lZ,SOO.OO l-5 En;inrrring Equiptrnt Inc. i'50, 000.00 2Z,500.00 1-G En;imrrring Equiparnt lnc. C.C.JO, 000.00 li',~OO I-7 En;inrrring Equiparnt Inc. ~,000.00 JZ,~.oo I-8 En;:~rrring Equip�rnt Inc. 250,000.00 JZ,~.oo 1-9 En;jnrrring Equiparnt J~. Z30,000.00 Jc,~.oo HO EJJgiJWrrinJ �q11iparnt Inc. ~.ooo.oo 12,500.00 ]-ll Prtropbi1 E~ploration and DrwrlPp~rnt Co. 53.?., 170.00 C't,�.58.48 J Bt�gurt in brhalf of La 6olom1rina ""� ooo.ooo. 00 s.wo.ooo.oo M,L ~8Sl 1 S7ft.J2

DECISION C.T.A. CASE NO. 5045 - ll - WHEREFORE, in view of all the fo�~egoing, respondent lS hereby ordered to issue a Tax Credit Certificate in the amount of P5,S51,574.32 in favor .of the petitioner. SO ORDERED. WE CONCUR: ~~ ERNESTO D. GRUBA Judge CERT IF ICAT IOI"'-1 I hereby certify that this decision was reached after due consultation among the members of the Court of Tax Appeals in accordance with Section 131 Article VIII of the Constitution. Q~QcQ~ ERNESTO D. ACOSTA Pt~ e s i d i n g Judge Court of Tax Appeals dfl'/'