CTA Case No. 3984 (Decision)

J REPUBLIC OF THE PHILIPPIN E S COURT OF TAX APPEALS QUEZON CITY WHOLESALE COMMODITY AND EXCHANGE, INC., f=�t:ti t.i.c.1ner�, - -- VE' Ir�s~ u~:; C.T.A. CASE NO . 3 984 COMMISSIONER OF INTERNAL REVENUE, F\t?spond~;:n t . X- - - - - - - - DEC I s I 0N This is a case .involving a claim fo r refund or of amo unt F'~~;5' 927 corpor�ate de ve lopment tax paid by petitioner. Thr~ i ss ue, after the submission by t.he:i. r� respective memoranda, has s immered down to whether or not petitioner is covered by Batas F'ambansa Blg. 399 wh :~c h aboli s hed the 10% corporate development tax und er Section 24 ( e ) of the 1977 Tax Code. F't:.~t.i.t :i.o nE~r- , d domt:?!::;t:i.c c:or�por�i:\t. .i.on, 1' .i.lf.~ d on Or.:: to be r� .1. 7 ~� .1. 9f:l3 it!:> ann u a 1 c:: Cl l'" pol~ t:\ tE~ inc ornE:~ t..:�~ >( r� f:tt..tr�n �for�� :.l.t ~:; �fi!:=.c c.'\ 1 yer3r- t::nded June ~.::. 0, .1.9B ::::., f.; how:i.nu .:~ nf:.~ t incom1:7~ o�f 1='407, 24�'+ .::~nd a t:ota 1 ta ;., due thereon of F'.1.68,462, di s tribute d :i.nto F'.1.32,535 as regul a r c::DrpDra t e income ta x and F'35,927 as corpDrate deve l opme nt tax. 51

DECI S ION CTA CAS E NO . 3 984 2 On 1'1ay .1.9, 19!33 , B ,:ita ~.=. ~-=�amb a n !:'~ a Blg. :~89 vJa~:; promulgated repealing the provi s ion s of Section 24(e) of the 1977 la x Cod e on the corporate deve 1 opm�?n t ta >: � Be �for��e .1. t !s r�� <:? p ea l , thf~ provi s ion of Secti o n 2 4(e) s tates : S<::: ction 24-(e) Cor- pc:Jr� c.~te Development Tc:-:~x In additic:m to t.hf~ tc.~)�: imposed in sub s ect .i .on (a) o �f this Secticm~ an additional tax in an amount equivalent to 10% of the s ame taxable net income shall be paid by a domes tic or a resident foreign corporation which qualifies as a clos ely- held corporation as defined h e n? i n : Thf.? tt?rm "clo S E:)- ly - hr.: ld c:cwporat.ion" me,::u�l!':> i::"'lny <::: or� por- at~ .i.on, ( i::l) at l e a s t 50% in valu e of the out s tanding ts tock or�� (b) c'..lt. le,::\!3 t~ :50% of the total comb i. n eel vo t ..i. n<J powt?. r� o �f i::~ 11 c 1 r::l ~:;ses o �f s:; t:o c k �;~nt. :i.t:. lt? d to vot.e, at any time during the taxable year, .i.s owned directly or indirectly by or for not more t:ha11 fivf.�? pf.~ r-s ons, ni::~tul�- al or judici c.~l. The r- f.;:- p~:-~r.:~l o f f3<::.~ ctiun ~~? 4(F: ) wc::~ s:, c lal'" i �f .i. E.~ d by I Revenue Memorandum Circular (RMC) Nu. 1 - 84: [Bata s Pamba n s a Blg. 3 99] AN ACT ABOLISHING THE ADDITIONAL. TEN PEJ;:CENT TAX ON THE TAXABLE NET INCOME OF CLCJ~:3EL Y-- HELD CDF~PORAT I DNS, I::::EPEAL. I NG FDf~ THE PURPOSE PAF~AGr~f�~F'H (e) DF f.)EC'T' I ClN TWENTY -.. FDUR OF-- TI�-IE NAT I CJNAL I 1\I TEF~ I\IAL F~EVENUE CODE:~, Af.3 A!VIENDED. Be :i. t. enacted by the Pamban s a in s e ss ion a ssembled:

DECIS I ON CTA CASE NO . 3 984 - 3- !:1. ECTION .1.. F' a r-aqr. aph (e) of Sec tion twenty- four of the National Internal Revenue Code~ as amended, i s hF.~reby r��E~pealed. SECTION 2. This act will effect upon its approval. Appr�oved . Sgd. QUERUBF C. MAKALINTAL ~3peakf-? l'.. Thi s Act was passed by the Batasang Pamban sa on February 21, 1983. Sgd. ANTONIO M. DE GUZMAN Secretary-General Sgd. FERDINAND E. MARCOS Pres ident of the Philippines Batas F'ambansa Blq. 399 repealed the provisions of paragra ph (e) of Section 24 of the National Internal Revenue Code whi c: h impo s e add it. .ion .::1. 1 1 0~1. ta :-: on taxable net .income of closely-held r.:c) r-por� at :i.on s . ThE' abolition of the addit.i.cmal 101. tax took effect on May 19, .1.983, the date of appr�ova 1 of Ba ta s:; Pam ban sa B1fJ. :::::9c1. Sin e: �? the income tax is an annual t.ax based on a c a lendar or a fi s cal year depending on the taxpayer' s annual acc o unting period~ the repeal o f the corporate deve lopment tax s hall be

DECIS ION CTA CASEI NO. 3 984 4- int.er- pr�eted to br.-? E:f �ff:=ctivt:= for� ta :�:c~ble year�s hE�? qinr�,incJ a�fter- May .1.9~ 1.983. Accordingly~ corporations otherwise qualifying as 'closely-held corporations' whose taxable year ends after May .1.9~ .1.983~ are no longer subject to the provisions o�f Section 24 ( e) o �f theTa:�: Code. Cor�po 1�. a tion!:~ othE?rwise qua 1 i fy ing as , � c: 1 o~;e 1 y--he 1 d cor�por-a tions' vJhosf.-? fiscal year ends before May 19, 1983 are still liable to pay the corporate de ve 1opmE!n t ta>:. " Petitioner alleges that it has been paying the .1.0% corporate development tax, under Section 24(e) of th e .1977 �ra:�: Codf: c:~s e<:H- ly as thf.': �fiscal yt-~ar- end.i.n<J ,June :::::o , .1.97c1 wh <:-?n i t. f.:; u bm.i.ttt.~d its �fir.. st final adjustment return. The erroneous payment of the corporate development tax in the amount of F' ~!-5,927 �for- thE' 'f' :i. ~.:;cal yE~a r�� endinq June 30, 198 ~~: resulted from petitioner' s wronq assumption that t. he s:; a i d t .:.1 :�: vJa ~.:; ~~.; t .i. 1 1 e :�: i f::. t .:i. n q . B. F' � B 1 q � � ~~89 took effect on May 19, 1983 , and based on RMC 1-84, closely -�� held cor-por��at.i.ons vJhosf.-? ta:�:ab le year� ends after May 19, .1983 are no longer s u bject to the 10% corporate deve l opment Since petitioner's tc.u:able yt:=ar.. E~nd~:; on .June 30, 19B3 which is ,::~ �fter- May 19~ 1983~ i t i s not liable to pay the corporate development t.::~:�:. The payment made wa s therefore a mistake and s hould be recovered. Re spo ndent~ upon the other hand, does not

DECISION CTA CASE NO. 3984 - 5- dispute the foregoing effects of B.P. Blg. 399 but stTesses th.:.it th<= lai-'J, as e:�:pla.i.ned by RMC :J. -�- f.34 , applies e:-:clus;.ively to 11 Clost.'1ly - held cor- pcwat. .i.ons 11 as de�fined by Section 24(e) o�f the Ta>: Code. It appears that petitioner merely presumed itself as a 11 c 1 ose 1 y-he 1 d cnr-por��a t:i.on 11 1-'Ji thou t hav in~1 submi t.ted positive and concrete evidence to substantiate the same. Without s uch evidence, petitioner cannot j u s t i f y i t s .:�~~~SE?I'-t.ic.-,n o�f c:uvel'.. aqe under B.P . Blg. Fo 1r� thr:? r� esponden t, i t absolutely necessary for petitioner to present in evi d ence such ducumr.~nts~ as thr2 duly r-r:.~ <Ji!::;tr.?r-f.~ d Articles Df IncorpD ra tion, corporate book s and other pertinent to it a 11 C:lo~.:;e l y-held Thf.= deter�� minat:i. vr:~ qu�:?f.:;tion then i s whether without thi s speci fic kind Df evidence hav i nrJ bE:en pre se nted to butress t h e c l aim of petitioner, p<;? tit.ionE~r�� 's:. c:.::\use 1-'Jould collapse �for- having no leg to stand Dn. As i t is, petitioner hc:~s alleged �f acts whi c h is provE.~d by pr��epnnder-a n c: e c>f ev idr.?nce. Petitioner's a ll egation that as early as fiscal year- ended ,June 30, 1.979!, 1-'Jhen i t ~, ubmitt ec:l .i.t:s �fir-st �final r.:,dju s tment r���:? tUI'.. n, i t ha s been payin<J the 10% corporate development tax is not contested (p/

DECISION CTA CASE NO . 3984 - 6- by r�� f:~ ~:;pondent. the evidence for the petitione r s hows that it filed a corporate tax r e turn for the fi sc al year ended June 30, 1983 and pc=.iid the 10/. c:or� poJ'" atf:~ development ta:�: in the amount of F'35,927 out the total ta :�: due. Res pond e nt failed to rea lize the implication a s to this fact of payment by petitioner of the 10% corporate development. ta x . Instead, he throws the pE?t.i t.ioner to pr� esen t sue h kind of evidence as the .::'lrtic les incorporation, ccH�pcwate books, etc., a s c=.illE~<Jedly :i.ndispensable proo �f of bf.~inq r:'l "clos:.ely - held cor�poration" under the l avJ. We s urmi s e that re s pondent cannot s imply deny the a 11 eqa tions of pet..:i. tioner� and con tr�oveJ��t the alleqation s made by him. The purpose of requiring the res pondent to make a specific: denial is to make him di s clos e matter s which he sincerely intend s to di s prove together with the matters which he relies upon to suppo1�. t . the den.:i.<.'.'ll (Noran .� Comment' s on the Ru .l e s o t - Co u r t , V o .l ~ .l �' 1 '.'9 7' '.'9 e d � .� p ~ .3' .3' 0) � the bunien t'J'f pn::Jo �f has sh :i.�ft.ed to r. espondent to e s tabli s h hi s cas e after petitioner has shown fact s supporting his cau s e (Se c tion 1~ Ru.le 1.3'1~ Rules of Cour �t� ,; Noran .� s upra .� Vol , e:�. .� p � .2). It ~"-las aqa.i.n s t

DECISION CTA CASE NO. 3984 - 7- the inter-est of petitioner- to pay thE~ 10% development tax and, logically, would not have paid the same if it did not feel bona fide that it was under- any obligation to do so. The tests pr-ovided for- in Section 24(e) to be .::~pplied in detenninin~1 v-Jhethel'" a l::-~u~5 .i.ne~:; s e n t i t y i s ac:tu,::~lly a '' clost~ly ���- held cor-poration'' ar-e r-elevant only for the purpos e of identifying those who are liable to pay the cor� por�," te dE~ve 1 opmen t ta >:. For� that. matter-, the documents enumerated by respondent as necessar-y evidence for the purpos e of justifying petitioner's claim in importance and virtually dispensed with by the paymt::-nt o �f t .he lOZ. c::or-por� c:~tf.:? development tax by pet.i. t.i.oner�. Payment the .1. 0~1. cor-por-ate devE~ 1 opmen t. ta;�: her-e mean~~ acceptance o�f thf.? fact by the petitioner� that i t is closely- held cor-poration within r-eac h of the corresponding law, Sect..io1�1 24(e), i'JIRC, and the concomitant obliqation of paying the tax imposed. Thus, We say that this act o �f compliancE~ vJith th? duty is pr-ecisely the f.?vidence v-Jhich tends to pr� ovF~ that petitioner� i ~~ indeed a close l y - held corpor-ation. The pet.i t..ioner� had complied with what it believed bona fide to be its duty by computing the

DEC ISI ON CTA CAS E NO. 3 984 - 8- tax it i s liable for and paying the same. Thi s act c.'lcce ptanc::e and compliance V:Ji th duty � 1. c� :::> sufficient enough to overwhelm the nee d, a s alleged by re s ~ondent, to present evidence to th e td'fec:t that is actually a "close ly- held cor- poration" ..-.c:; by St~C t.i.on :;-~4 (e) � C\ .~ Con s ide r i ng that inter-rial revenue ta:�:es (e.g. income ta:-:) impose thE~ bur-den on th~? ta:-:payer o �f s upplying b y the r eturn, the infor mation upon which an a ssess me nt would be based, thu s the willingnes s on the par-�t. cd' the ta :-: payer�� to be bound r_,y the e:-:action no matt e r- the .i.ncor�,ven ience 1--'Jhic: h impr-esse:; d l'?vo t i o n to cluty, :it. 1--'JCJUJ. d be impr�� ope r- f o r�� r-espondent to d e ny the quali �ficat.ion "close ly- held Re s pond ,en t:. d f.? n i ~:.;-~~ f ac: t ::. to s u i t hi s cDnven .i. E?nc:E? ~ yet vm u ld .:~cce pt benefits fr-om the acts ar�� .i. s ing from the errDneous belief of petitioner .if not for this claim for refund or credit. The pronouncement in a Un ite d States case ( Newp o rt v . Ringo , 37 Ky. 63.5 .� 636; .tO S. f..l .�.:?) cited by out"� Su pr e me Court: .i.n Gonzal o P uy at & Sons, In c. v. Cit y o f Ha n i la . (L - .17447, l lp r .i.l 30 .� .1963 .� 7 :::CRA 970 .� '.":174-975), .i. s analogous l y related t o thi s controve r sy.

DEC ISI ON CTA CAS E NO . 3 984 - 9- " I t .is too well :~ettled in this state to need thE~ ci tat.ion of author-ity that i �f money be pc:dd thr-ouq h a c 1ear� mistake of law c~r- �fact, essentially a�ffE~ctinq thf.::> r- :i.qhts of the par� t.i.es~ and wh.ic h in 1 a~'-1 or- c:onsc: .i.ence was not payab 1e, and shou 1d not be r�eta:i.ned by tht:: pc:~ r- ty t- t:'?C f:::>ivinq .1. t , i t may be r� ec:oven::~d. Both l a~o<1 and sound mor-a 1 i ty so d.i.c:tate. Especially should this bf.? th e r-ule as to i l l eqal ta)�:at..i.on. IJ.J.~. t .e.!:f.R.� .Yf:'C........he.2.........D...9..........Y..Q:!..c;..~-......i .D..........t./l ~.......j .,_!!l.P.Q!?..:!:. t:!:.P.r.l 9.L .......:~. t!~--� .... b..lo!r:..c.teo....~..................tt~.... .. h.� .e...._.tbg_...._. r.:.!.!J.b.t........_.!~Q pcg.2.~=Hn~ ..... :th� .t .....t..t!~.........t.�r..~,j, !l.U ........PP.!'.~.~r: ........b. \.2...........P.~ .en J.e~t.J_f..L1 1.1Y. .... !?}: !'.~ n.~ .t<e~ ~-t~... .. .. .....H~~ ........211.~}.~.~ L9 ....... .f!}2.t........ ... b~. r.:~ cu,\J. x:: ~~:L..... t.<.:}......... hn C.:1~! .........m.!} C.. t �............. h.en..........tJ�!P.?..g............,t.n �!...\.J:J.J.QC..ttY.. .. Q.Y.~C . JJ,Lr:D..,.... ..D.UJ.:.........'-2 t}QI.,I J.~J...... ..b.~......��..\:,\.f .f.~.r::. 192.2 ... PY....c.:..PJ!!PJ. Y:!:.D9 ....Y!.!t. b.......!'.!.!:lf;,1.:\::....... .b.S'!. _../2g!.!..~ .......fl<..:f .s>. t),~ .L!. !?Y.~?. ..........:tP...........be............h.J.:.2............ .!'J.!,.l.t...Y......... .... B.2..............� ..............9 ..99..9. c;,J... t.),..;,gr!� U pon the con tr-ar�y, h e s:;hou l d be pr-b moted to its r-eady per-for-mance by r�efunding to him any legal e >:action paid by him in iqno r�ance o�f i t s i lle<;Jal i ty; and, c:er�tainly, in such a case, if be s ubject to pen .::\lt.y few nonpayment, hi s compliance und e r belief of its l egality, and withou t awaitinq a r-esor-t to j u dicia l pr-oc:eedinqs s hould not be r-eqar-ded in law as so far- voluntar-y as to affect his r� ig ht of r.. ecover�y." ( l.J nder�s c:or� inq s upplied) Consider-ed fr-om another view, the mel~ i t c'..l �f r.. esponden t ' s ar� rJurn e nt on the need the afor-ementioned document s a~ evidence is blotted out if the pr-inciple of s olutio indebiti is pl aced into the p:i.ctun~. if tc.1ke t'�es pondent ' s s ugge s t iun thC':\ t. pet.i. tinnet'- .i. s not a 11 c:: l u~.:;e l y- he 1 d c:or-por� at:i.ol"l 11 without sai d s~ pec:i.f.:i.c ev.:i.dencf.~, i t would s t i l l 'fo l low that. p E�t.i.t.i.one1��� s hould not. have

DECISION CTA CASE NO. 3984 - 10 - been assessed the 10% corporate development tax in the first place, and therefo r-e ' the payment that h as been made by t h e latter was a mista k e and s houl d be recovered. " I �f somethi n <] is receive d wh e n t. h e r�e is no r� .i o h t to demand i t, and it was u n du l y d e l ivered throu g h mistake, t he o b l.ioation to ret u rn it arises " . ( .Ar t. 21' .'54., NCC) WHEREFORE, the instant petition is granted. The amount of P35 ,927 paid for the corporate development tax should be refunded or credited to petitioner. No pronouncement as to costs. SO ORDERED. Quezon City, May 7, 1990. Judge WE CONCUR: ~-~~fAI~~/ILC'Ev .J u dge (em l.f.:r.~ve ) ALEX Z. REYES As;;;oc:iate .Jude::~~

.. DECISION , - CTA CASE NO. 3984 - 11 - CERTIFICATION I hereby certify that this decision was reached after due consultation among the members of the Court of Tax Appeals in accordance with Section 13, Articl e VIII of the Constitution. AMANT F'res id ng Judge Court of Tax Appeals