CTA Case No. 4212 (Decision)

I .'\ If X \ \ REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY BPI FAMILY SAVINGS BANK, INC. , C.T.A. CASE NO. 4212 P e t i t i onet~ , ----- --F'#-i:; PROMULGATED: ~ COMMISSIONER OF INTERNAL SEP 30 1994 REVENUE, Hespondent. x -----�- DECISION This is a claim for judicial refun d or credit of a n a 1 1 e g e d o v e t~ p .:.d cl c t~ e cl i t a b 1 e i n co me t ax i n t h e a mo u n t o f P2 4,541.41 for calendar year 1985. The f ac t s a nd the a nte c t~ dent s of thi s case a t~ e not in di s pute. BPI Fa mily Savings Bank, Inc. , is a d o me s t i c cot~ pot�� at i on cl u l y en~ g an i z e d a nd e x i s t i n g u n d e t~ the. law s of th e Philippine s . Fot~ the yeat~ 1985, petitioner r~ceived re nt al income for .le asi ng spaces fro m wh ich it s lessees, unclet~ the expan ded withholding tax t~ egulations, withheld the a mount of Pc~4,541.'+1, c omputed as follows: Lessee Rental Incou 5~ Withholding TaK Prudential Life Plan, Inc. p 49,500.00 P1,237.50 Isetann Depart 1ent Store, Inc. 150,000.00 7,500.00 Philippine A1erican Life Insurance, Co. 44,625.00 1,181.25 Doris Hao 51,255.00 2,562. 75 Insular Life Assurance, Co. 57,750.00 2,887.50 Lifeti1e Market ing Corporation 6,400.00 80.00

DECISION - C.T.A. CASE NO. 4212 - 2- Nepo~uceno Enterprises 5,700.00 285. 00 Maria S. Evangelista 10,200.00 510.00 Gul Plaza 20,325.27 1,016.25 Filinvest Finance and Leasing Corp. 7,000.00 350.00 National Bazaar Marketing Corp. 22,050. 00 1,102. 50 Ministry of Trade and Industry 30,050.00 1,500.00 Bank of the Philippine Islands 1, 135.22 170.28 Sager Realty Co1pany1 Inc. 8,400.00 420.00 Charles Lee's Depart1ent St ore 15,467.50 648.38 Lareina Pawnshop 21,000.00 1,050.00 Orion Radio and Electrical Supply 21,000.00 1, 050.00 Pa11ana Philippines, Inc. 19,800.00 9'30.00 P24,541.41 Un Dctobet~ 1� .., f l ':.~BE. , petitionet~ filed i t s t~ e q u e s t I for a tax credit in the total amount of P24,541.4l. Fat~ on the of the t~esp ondent Commissionet~ of Intet~ n al Revenue to a c t on petitionet~' s �r~ equest, the lattet~ filed the instant petition befot~e c t h i s 0 l..lt"'t on Decem bet~ 1':38? claiming that it "suffet~e d a net lo ss of P'�, 206 ,Sl32.00 fot~ 1.985; hence, the ent i t~e i:trnount of und et~ ct~ed i t ab 1 e w i t h h o l d i n g s h o u 1 d b e t~ e f u n d e d t o i t � " <Petition fot~ f~ e vi e w, p. l ; C. T. ~L f~ I? c (H~d !; , p. 1 ) � Hespondent, :in .::nlswet~. to the pet it ion, alle!;,led c:\ mon .g o t h e t'' s a s s p e c i a 1 .::.m d a f f i t~ mat i v e d e f~ en s e s t hat : 1 ) t. h e petition states no cause of action as it does not allege the date wh en the tax s ought to be refunded was paid; 2) this case doe s not involve illeg-ally collected ta><es, petition fot~ t~eview thet~efot~e does not 1 i e ; and 3) t h e.t~ e i s no need t o f i 1 e a pet it i on f o t~ review to preserve petitioner's right within the two-year pet'' i o d be c a l..t s e a t a>< pay e t~ 111 a y t~ e co v e t~ e >< c E~ s s i nco me t ax

DECISION C.T.A. CASE NO. 4212 3- p a i d w i t h i n t en <1 0 ) y e a r~ s fl-~ o m d at e o f pay men t u n c:l e r~ Article 1144 of the New Civil Code. T h e ma i n i s s u e f o t"' con s i d e t~ at i on o f t h i s Co u t~ t i s whether or not the petitioner is en titled to a tax refund in the amount overpaid income tax for the year 1985. Befor~ e decidi ng on the m<':l.in issue, it is best to discuss fir~ s t the point s r~ aised by the r~espondent which this Com~ t has so undly disposed in the r~ece nt cases of Jardine Davies , Inc. vs. Commissioner of Internal Revenue (C.T.A. Case Nos. 3839, 4013 and 4124; January 20 , 1994). Respo ndent alleged that the petition states no cause of action because it does not state the cjate when the taxes wer~e paid. Time a nd again , this Cotwt has r~u led t h c.'~ t " p e t i t i o n e t~ i s n cd; r�' e q u i r~ t~ d t o s h o w t h e d at e o f pay men t of the tax withheld at source. The r~ule is that a cot~por~ate taxpayer~ pays on a quat~t er~ly b a s i s . The f i n a 1 pay men t :i s t h e 1 as t q u a r~ t e t~ pay men t at t h e end o f the tax .:.~ble year~ cw on the fifteE!nth day of the four~th month follo wing the close of the calendar or fiscal This is the time wh en it can finally ascertained t h at t h e t a >< p a y e r~ e i t h e r~ ma c:r e p r~ o f i t m~ s '-I f f e r~ e d a 1 o s s in its operati on s. ( Sun Insurance Office Ltd. vs. Acting Commissioner of Internal Revenue, C. T. A. Case No. 3205, June 1':3B9; Ateneo de Manila University vs. Commissioner of Internal Revenue , C. T. f-). Case No. 3213 ,

DEC I S ION - C.T.A. CASE NO. 42 1 2 - 4- ,htly E:8, l 9B9; Asia Australia Expre ss Ltd. vs . Com missioner of I nt ernal Reve n ue, C. T. ~). Case No. 3975, Oct obe..-~ 1 8, 1989; ~::\ nd Pas eo Realt y and Develo pmen t Corp. vs. Commissi on er of I n ternal Reve nue , C. -r'. A. Ca se t'-lo. 4528, April 30, 1993. > F~esprJndent also clai me d th at the petition i nvolvE~ d herein does not cover erroneo u sly or illegally col l ected tax p ursuan t to S ection 292 of t he Tax Code. In the case of Cit ytrust Ban k i ng Corporati on vs. Commi ssioner o f I n ternal Revenue <C. T. n. Case No. L~099, IYi ay �:::8, 1 991 ), thi s Court ru led that: "fC! lth oug h the t i t l e of Sect ion ;::~30 of t he Tax Co d e i s ' Re co v e ..~ y o f Tax E ...~ ..~ on e o us 1 y or I 11 ega 11 y Co 1 1 e ct e d' , th e t it 1 e a 1 one i s not contt�' ol1in~_;f. By the tenot~ of Sectio n 230 , the two -y ear limit applies to actions to recover L any national intern al revenue tax erroneously or illegally a ss essed or collected; 2. any penalty clai med to have been collected without authority; or 3. any sum alleged to h ave been exce ssiv e o..-~ in a ny manner~ 1-'n~o ngfully collect-ed." In t hi s particular cas e, the alleged overp aid in co me tax falls und�~~-~ item no. 3 , fot~ although it was legally collected by virtue of the withholding tax s ystem , it was none t heles!; alleged _i::\s " ~?xcessiv ~?" . Fl s to the allegation that thE~t~e is no need to file t h i s p e t i t io n to pr~eset~ve the petitionet~'s t~i ght to ax refund or credit s ince it ha s ten (10) years from date of � 840

DECISION - C.T.A. CASE NO. 4212 - 5- p a y me n t t o 1�' e c o v e r�� e >< c e 5 5 i n c o mE~ t .~~ >< p a i d p u r' s u an t �t o r-�kticle 1.1'+'+ of the New Civil Code, this Cotwt in the same case of Citytrust Banking Corporation (supra>, held: " f-It the ver' Y least then , the automatic tax cl�'e dit pr' ovision acts lil<e a clai m fo1�' r' efund for' the yeat' of ovE~r' payment because i t s et' Ves thl:? sa me put' po s e � whi c h i s to put the BIF~ on notice that thr! coll!''ction of the ta>< i s be i ng cont !?sted. But settled i s the -r' ule that even when a claim for r e fund or tax credit is pen d ing ~-Jith tiH? Commissioner', whe n th e two - y e a r' pet"� i o cl f-..-.o m t h e d at e o f pay men t i s a bo u t to el a p s e th e ta><pa yer need not awai t the Commi s sioner's decision and instead mu s t file a petition f or' t'!?view in thi s Cout' t put'Stl a nt to S ection c~30 of the Tax Code. To opine t her e fo re that th e r e i s no need to f i le a p!?tition for' J�' eview to pt'eser've the t'ight to c l <1im f or' a t' efund <n�� ta>< cr'edit i s to go a~F=t.i n s t the positive mandate of Sec. c~30. ><><><. Th eref o re , the taxpayer shou ld still file a cl a im for a refund or tax credit and the corr esponding petition for revie w within the periods required in case of overpayment of income tax t'eflected in its r' ettwns oth e t'wise hi s r�ight to clai m for' r'efund or' tax c r�edit wi 11 pr' esc�r'i be. XXX ><X>< )()(}( The Tax Code being a special li:\w, its pr' ovisions pr�evail ov!?t' those under' the Civil C od e � (4 n d s i n c e t h e o v e r' pay men t s . a r' o s e o u t o f the applice:\tion oF the pr' ovisio n s of the Tax Code, the provisions of � the same on prescriptive periods should necessarily govern. X X X. II In the c ase of Servicewide Specialist, Inc. vs. Commissioner of Internal Revenue and Court of Tax Appeals ~ippeals held: "The r' ul ing was subseque n tly clarified by this Cour't in a 1 at t e r' c a s e , Co mmi s s i o n e t' of

DECISION - C.T.A. CASE NO. 4212 - 6- I n t e t�� n a l F< e v e n u e v s � I n s u 1 at~ L u mbe t~ C o � , D e c � 11, 1r::J67, ~:;:1 SC F~(-) 1 Z~37. It was thet~e held that Sectio ns 3 06 and 309 of the Intet~ nal F<evenue Code were intended to govern all kinds of refunds of internal revenue taxes - those taxes imposed and collected put~suant to the National Internal F<eve nu e Code. In other words the pt~escriptive pet~iod o f tii'IO (;;:~) ye at~s thet~�d n provided is the one whi c h s hould govern and not any othet�� pt~ esct~iptive pet~ iod, such c.~s t h a t of t e n (10) yea t~s pt~ ovided fat~ i n (.h~ticle 11Lf Lf, pc.u~a~F~a ph <~:: >, of the Civil Co de. xxx xxx. ' In fine, ~-Jh 1:~ n the tic~ x s o '-1!~ h t to be t~ e funded is i l leg all y en~ e t~ t~ one o us l y co 1 l E.' ct e d, the pet~ i o d of pt~esct~iption st.::n~ts fl�~o m the date t h e tax was paid; but when the tax is leg .:dly collected, the prescriptive period commences to run from the date of occ urrence of s up ervening cause which gavr~ t~ise to the t~i~1ht of t~ef und. The f�uling in J"Y1ull e t' & Phipps is accot�� din~llY modified." Going nrJvl to the main issue , Section 53(f) of the 1985 Tax Co de, as a mended, provides: "Ot:her' cases ot=� withholding t:ax at sow�'ce. T he J"Y1inistet' <Sect~ etat~y) of Finance may upon the recom mendation of the Commissioner of In t e Y' n a l F< even u e, t~ e q tti t~ e c.<.l so the with h o 1 ding of a tax on the same item s of income payabl~ to pet~so n s (natm~al ot~ jt.wid:ical) t~esi ding in the Phi 1 ippines by t he sa me pet~s ons menti oned in pc.<.t~ ayt~ aph (b) (1) of t h i s sPr: tion at the r~a te of not less than two and one - half per centum (2~~ ) but not more than thirty five per centum (35~) thereof which shall be credite4 against the i nco me t ax J. i a b i 1 i t y o f t h e t ax pay e t~ f o t~ t h e t axc.~b J. e y eat~. " <Undet'sco t~ i ng s upp 1 i ed) The te1�~ m "taxable ye.::n~", as defined in Section C:~O<p > of the same Tax �code, me .::l n s the cal E~nd;:n~ yeat~ at~ the fis cal yee:n�� ending clm~ ing such calen dat~ ye e:n~, upon the basis of which thf? net inco me is c omputed. "Taxable yea1�~" :i.nc 1 ude s in t he case of a return made fot~ a

DECISION - C.T.A. CASE NO. 4212 - 7- fractional part of a year the period for which such In claiming for a refund, petitioner offered as part of its evidence the income tax return ''for the six months end i n g Dec e mbet~ 3 1 , 1 '::3 8 5 " � I n t h e au d i t o t~' s n o t e s t o financic:~l sta tement s, it was that the petitioner~ "was incot~pot~a ted and sta t~ted i t s co mmet~cial (only) on .h1ly 1 ' 1.985". <C.T.f~. p. 51) F o t~ t h e p e t~ i o d o f s :i. >< 111 o n t h s , p e t i t i o n e t~ s u f' f e t~ e d a net lo ss in the amount of Pl.~, C::OG, 93c::. 00 as indic:~c.~ted in i t s incoiH? tax r~ettn~ n filed o n ~1pr~il 15, 1986.' Respondent's denial of' the claim is based on the ar~gument that the evidence pt~esented by the petitioner~ " i s insufficient to pt~ove that petitioner~ incur~r~ed a net l o s s . " <t<1emor~ andum, p. ~~; C.T.n. Hecm~ds, p. 111) As argued by the respondent: "The claim for~ r~efund is ba sed on petitioner's allegation that it Jncurred a net loss and, ther~efor~e, i t had no income tax 1 i a b i 1 i t y f o t~ 1 9 8 5. As c 1 a i me d , t h e d e d u c t i on s <P 321, 174,079.00) exceeded its inco me <P 3 1G,967,1L~7.(H)), hen ce, a net loss of PL~,;:;:~OG,932.00 <Exh. "A">. Deductions ar~e a � matter~ of legislative grace and a particular deduction shall be allowed only wher~ e ther~e i s a clear~ pr~ov ision in the s tatute for~ the deduction clai med <Tan Chiu' vs. Collector of Internal Revenue, C. T. f:.). Cas~? No. 1A 3, July :31, 1 ':J5E,). Het��e, in i t s income tax t~ettn~n, petitioner~ is claiming itemi ze d deductions a mon g which 943

DECISION - C.T. A. CASE NO. 4212 - 8- r~equir~ ~? pr~ oof that they ar~ e or~din.:n~y and ne c ~?s s.:.n~ y. Othe r~ th a n the ;-~ettwn, thet~e i s no e v i d e n c e , o ;-~ .:.d o ;-~ d o c u me n t a;-~ y , t o p ;-~ o v e t h e dedu c tion s c laimed, p.-:n' ticula r~ly the fact thc.'\t the expe11sr~s a 1�'e or~dinat~y and 11ecesse:n~ y. Absent such evidence, the expenses are u nallov~able . Consequently, it cannot be said that the deductions are over and a bove the income resulting in a net lo ss . In ot h er wor~ ds, petitioner-'s evidence is insufficient to prove that it incurred a net loss. This Co tn~t however~ r~ ules for~ t h e petition er~. lt is entitled to a tax refund or credit of overpaid creditable taxes withheld from it s rental inco me. If indeed the petitioner~ ' s itemized e><penses can not be allowed as deduction s it s income, as a 1 1 e g e d b y t h e ;-~ e s p o n cl e n t ; t ~ e n t h e 1at t e ~- s h o 1.11 d t1 a v e issued a n assess ment against the former. lvlor' e t h.-an seve n yei:H' S have passed <::�n1d r- espondent did not even bother~ to con t est the r~ etm~n filed by the pet it io tH!t'. It is only at this very late hour that the respondent is qu estion i ng the validity of the deductions claimed by t t1 e petitioner~ This pr~act:i.c e of the r~ e s p o 11 d e n t ca n n o t b f? a 1 1 o vJ e d a s i t wo �.t1 c.i t' u 11 c o u n t e t' t o the basic tenets of equity, ju st ice and fait~ play whi c h th is Court is tasked to uphold . T h e q u e s t i on t h at 1 E' f t t o be an s wet' e d t h e r~ e f o ;-~ e i s whether or not the petitioner ha s complied wit h the three basic r'eq uir-'e me nt s s<;.>t for~ th in Section 10 of Revenue f~egulation!; No. 6 - 8~i a nd in pr~eviou s cases of BPI Family Savi n gs Ban k, Inc . v s. Coram i s s i oner of Interna l Revenue,

DECISION - C.T.A. CASE NO. 4212 - 9- C.T.A. Case No. 1.~3;:~~5, Mat�'c h 1 7 , 19'34; Citytrust Finance Corporation formerly Investors Finance Corporation vs. Commissioner of Internal Revenue, C. T. (4. Case No. 4045, Febt~uat~ y 2 '+, 1 '3'33 ; Ci tytrust Finance Corporation vs. The Commissi o ner of Internal Revenue, C. T. f4. Case No . 41L~3, l\lovembet~ 11, 1'3'3L The requirements are as follows: 1. that p e t i t i o n e t~ filed a claim for t~efund 1--d. thin th e two <�::: >- yeat~ pet~ i oc.i as p t~ e set~ i bed by Section 2'3i:~ <now .:::30) of NH~C; c~. that the income upon whi c h the taxes vlet~e withheld wet~e in c luded in the t~et�.wn of the recipieht ; and 3. the fact of . vd.thholding is established by a cop y of the statement duly issued by the payot~ t o the payee <BIR Fcwm 17'+3. 1) showing the amount paid and the amount of tax withhE~ld th e t..� eft~om. T h e t~ e t m~ n h a v i n g be en f i 1 e d on Apt~ i 1 1 5, 1985, pet i t i on e t'' h ad t 1--1 o y eat~ s f t~ o m t hat d at e t o f i 1 e a c 1 a i m The t~ecot~ds of t h i s case shov1 that pet i t ionet~ filed . its claim the respondent on Octobe r 17, 1.'385 <Exhibit c II II ; c" "'f .. A. Hecot~ ds, p. 3 ), and t h i s Petition befot~e t h i s Cout~t on Decembet' ;:::'3, 1. 987 <C. T. (4. Hecot��ds, p. U, well within the prescribe d period. In compliance with the second p e t i t i o n e ~~ cl e c J. at~ E~ d t h e t~ e n t a 1 i n c o me a s pat~ t o f i t s ~;p�~ os s income in i t s income t ax t~etcwn. <Petition for F~evie1-q Exhibit "A"; C.T.~1. F~ecot~ ds, p. L.-7) 94 5

DECI S I ON - C.T.A. CASE NO. 4 2 12 - 10 - f-1s to the thit~ d r~ equir~ement, t h i s Com~t finds that so me of the exhibits \o'H?t~e not duly c:\ccomplished by the petition~?r~' s lo'Jithholding agents to wat~t~ant thei t~ pt~oper~ disposition or appreciation. Fr~om a mong the evidence pr~ese nted by the petitionet~, E><hibits "B", "B -2 ", "B--4", "B--5", "B-7", "B -- 8", "B��- '3", "B - 10", "B-1.1", "B - 12", "B- 1 Lf", "B - 15", "B-15", "B - 17", "B��-f~ O" , and "B-23 " cannot be given consideration by this Co ur~t as the statements submitted did not clea r ly state so me vital information of the withholding, like the comp1�!te name of the payee/petitioner~, i t s cor~r~ect ta>< account number~ , a nd the per~iod o f ~-Jithholding. E><hibits "�B -� 5" ,:\nd " B - 1r::3" were denied since they wet�' e not in the pr~escr~ibed . for�� m <BIR Form 174-~~ .t>, whilr-~ E><hibit "B -� 18" \o'Jas di sa llowed since ~ it pertained to fin~ l tax withheld fro~ interest income. Tax refund partakes of the nature of a ta>< e><emption and t h e r�' e for~ e can n o t be a J. 1 owed �.t n 1 e s s g r~ ant e d i n t h e mo s t e x p 1 i c i t an c.1 cat e g or~ i c a 1 1 an g u a g e � The gr~a nt of r~ e fund p r�' i v i 1 e g e s 111 u s t be s t r~ i c t 1 y con s t r~ u e d a g a i n s t t h e <Insular Lumber Co. vs. Court of Tax App eal s , 10Lf SCRA 710; Commissioner of Internal Revenue v s. Ri o Tuba Ni c kel Mining Corporatioh , 207 SCRA 54'3) Th us t h e c t~ e d i t a b 1 e wi t h h o 1 d i n g t ax at s o u n:- e 1 e f t to be refunded or credited in favor of the petitioner is computed a s follows:

DECI S ION - C.T.A. CASE NO. 4 2 12 - 11 - Les s e e Exhibi t 5" W/Tax lsetann Department Store, Inc. B-1 Pl50,000.00 P7,500.00 Doris Hao B-3 51,255.00 2,562.75 Filinvest Finance and Leasing Corp. B-13 7,000.00 350.00 Lareina Pawnshop B-21 21 , 000.00 1,050.00 Orion Radio and Electrical Supply B-22 21,000.00 1, 05(1, 00 P12, 512. 75 WHEREFORE, in view of all the circumstances, t~espondent is het~eby ORDERED to issue a Tax Ct~ edit C et~tificate in the amount of P12,5l.2.75 in favor of the petitioner. No pronounce ment as SO ORDERED. ~ELK. GRUBA f.)ssocia Judge WE I / ;� I / CERTIFICATION This is to certify that t h e above decision was t~eached aftet~ due co n sultation among t h e membet~s of the Court of Tax Appeals in accordan ce wit h Section 13, Article VIII of the Constitution. ~ce . ~ ERNESTO D. ACOSTA Pt~esichng Judge Court of Tax Appeals 94 7