CTA Case No. 2948 (Decision)

~T~JD.UC OP fHE P'follUPP~Nif~ ~QU.t1' OF TAX AFfLAL.:~ Q\Jl!':ZON {;rr'f1 BANK OF AMERICA NT & SA, (MANILA BHANCH), Petition e r, -� ver s us - C .T.A. C/\SES NOS . 2948 COMM ISS ION ER OF INTERNAL & 3001 REVENUE, rr/-2e/ro Respondent. x--�- --- -�~ ---X DECISI 0 N Both cases i nvolv e the same factual Lirc um stance which b as ic iss~ e is nothing mo re than a question of petitioner's entitlement to the r efund of overpaid gross receipts t ax for the first qu arter o f 1 976 and income tax f o r th e year 1976 con seque nced by alle ged oversta t e- ment of interest inco me . Petitioner Bank of America Nation a l Trust and Savings Asso ciat io n, a fore ign corporation organized und er the laws of the United States of Amarica a nd licens~d to eng~ge in banking bu si n ess in the Philippines filed with the recpond e nt Commissioner of Internal Reve nue on April 20, 1976 it s gross receipts ta x return for the first qua r ter of 1976 f o r a total amou nt o f e53 , 217,303.41 and paid t he 5% b a nk gross receipt s tax 30 3 /

DECISION - CTA CASES NOS. 2948 & 3001 2 in the amount of e2,660,865.17; and, on April 14, 1977, the corporate a nnual income ta x return for the calendar year ended December 31, 1976 with a declared gross income of 8168~355,024.00 and paid a total of 811,433,715.00 income taxes. Incorporated as part of both returns were receipts of interest incomes from offshore loans directly granted by the petitioner's foreign head office and other foreign branches in favor of Phil i ppine borrowers. The case at bar has pa r ticular refer ence ~o the remittance of interest paym e nt s on the dollar loan extended to the Philipp ine based Standard Fruit Corpor a tion prior to 1976 by the Hongkong branch of the petitioner. As disclosed, every quart e r of the year Sta nd ard Fr~i t remit s it s interest payments to the Hongkong Branch which remittances being Philippine sourced income are in turn reported thru telex to the pe titioner for Philippine tax purpose, and the amount indicated in the advic e is what is returned for the 5% bank gross receipts tax and income tax for the applicable year. As further presented, sometime in April 1976 the Hongkong Branch advised the pe titioner that the amount of interest on the Standard Fruit Corporatio n lo an 304

DECISION - CTA CASES NOS . 2948 & 3001 3 eceived during the first quarter of 1976 was US$494 9 791.64. Accordingly, pet itioner included the pes o eq uival e nt of such amount in computing its gro ss re cei pt s tax re t u rn for the fir st� quarter o f 1 9 76 . a nd paid 5% bank ~ gross r eceipts t ax th ereo n; lik ewise , reported th e same amount as part of it s interest income from dollar denominated lo a ns granted to Philippine borrowers for the year 1976 in the corporate an nual income tax r e turn for the year en ded December 1976. Sometim e i n October 1977 petit io ne r was advised by the ongkong branch of an e rror in the telex message of April 1976 in that in s tead of US$4 94,791. 64 , th e correct int eres t income for St andard Fruit Corporation loan should hav e been only US$94,791 .64 th us resulting in an over s tatem e nt in the amount of US$ 400,000. 0 0, or e3,0DO,OOO.OO a t the pr ev ailing conver sio n r ate of P-7 . 50 t o $1.00. Th e consequence th e r eof was an over- payment of th e corr esponding ta x liabilities . On April 20, 1978 pe t i tion er file d with the res� . pendent Commis s ioner of Intern a l Rev en ue a cla im for the r efund of t~e amount of 8150,000.00, i. e., 5% of e3,000,000.00 as the overpaid gross receipts t ax for the first quarter of 1976; and, on April 10 , 1979 30 5

6 DECISION - CTA CASES NOS. 2948 & 3001 4 another claim for the refund of el,OSO,OOO.OO or 35% of 83,000,000.00 representing the overpayment of income tax for the year 1976. To hedge against the running of the statutory period of limit atio ns petitioner had these petitions for review docketed in CTA Cas e No. 2948 dated April 20, 1978 and CTA Case No . 3001 dated April 11 , 1979. What We have in the case at bar is a n alleged erroneously reported interest income essentially ad- d r e s s e d a n d d i r e c t 1 y b r o u g h t t o b e a r u.p o n t he p e t i -� tioner which just knew what there was to be known being party to the error sought to be rectified. Going by the records , it appears that the factual findings are not short of s pecifi c support in terms of tractable data openly laid and fully di sc losed, a s s uch, de serves th~ credence normally accorded in th e absence of contrary evidence . Respond e nt ha s not disputed the relatively simple material facts nor pr ese nted any evidence of the relevance and competence required to bash that patina of legality ov e r the petitioner's claim . Suffice it to state, the petitioner's own Mr. Nilo Chincuanco te stified that "they relied upon the telex message of their Hongkong branch in 306

DECISION - CTA CASES NOS. 2948 & 3001 5 preparing their gross receipts tax return for the first qunrter of 1976 and for their income tax return for the year 1976. Hence, they reported an interest income of US$494,794.61 in bo t h instances. They only learned that there was a mistake when sometime in October 1977 Petitioner's Hongkong br~nch, thru telex message informed them that the telex report of April 1976 was incorrect and that the actual interest income of Standard Fruit J Corporation was only US$94,724.61. 11 I~ adding to a more logical reaso~ing , Mr. K.C. Wong of the Bank of America Hongkong Branch likewise testified on the Standard Fruit loan and presented the Loan Agreement in Exhibit F 11 11 as well as the , telex messages sent the petitioner. From the tenor of the Loan Agreement the Standard Fruit Corporation was to pay quarterly amortizations on its US$8,000,000.00 loan in the amount of US$400,000 . 00 per quarter . Articles 1 . 2 and 1.5 of the Lo a n Agreement, Exhibit F 11 11 p r o v i d e s a s f o 11 o vJ s : "1 . 2 The notes of the Maker shall bear interest at the rate of 8% per annum on the aggregate unpaid principal balan c e and interest thereon shall be paid by the Maker quarterly beginning September 30, 1971 and thereafter . On each interest paym e nt date, 30 7

.. DECISION - CTA CASES NOS. 2948 & 3001 6 C & C will pay the Bank the amount, if any, which may be necessary so that the total of such amount and the interest paid by the Maker shall equal, on a cumulative basis, interest on the outstanding principal balance of the notes at a rate per annum 1 1/2% in excess of the interbank offerinu rate for Eurodollars at the Bank's London branch (said interbank offering rate he rein called the "L I 0R" ) � For the period ending September 30, 1971, the LIOR shall be the six-month rate. Not less than five days prior to Sep- tember 30, 1971, C & C shall inform the Bank whether it elects t hat the LIOR be determin e d for a three-month period, thereafter elect the period for which such rate shall be . determined t hereafter . Each such expiration date is hereinafter called on Interest Ad- justment Date � The Ba nk s h a 11 , t.w o days before each Int~rest Adjustment Date, deter- mine the rate to be applicable until the next succeeding Interest Adjustm e nt Date and sha ll notify C & C thereof." "1.5 Th e principal on the notes purchased by the Bank shall be repaid in quart e rly pay- ments of US$400,000 each , with the first pay- ment due March 31, 1974, with paymen ts quarterly thereafter on June 30, September 30 and December 31 of each year (except the year 1977, March 31, June 30 quarterly payments of 1978) and continuing thereafter until Se pt ember 30, 1980, on which date the entire balance of principal and int e rest shall be due and payable." It may suffice to state th at having said what needs to be said the testimonies bore the imprint of plausi- bility,and not a few cannot fail to make heads and tails of the innocuous f a ux~. A correction must lie, Whatever pall of uncertainty hanged over the specific purpose of the controverted remittance of Standard Fruit Corporation the amount of US$400,000.00 coul d not 30 8

. .\ DECISION - CTA CASES NOS . 2948 & 3B01 7 have formed part of the interest payment contemplated by the terms of the Agreement as understood and applied. It will be too much of st retch therefore to hold peti- tioner accountable for such amou nt more than wh at was called upon it by law to declar e for tax purpose. And, respondent Commissioner of Internal Revenue cannot remain unperturbed in not infusing valid cognizance to the overpaid taxes as consequenced by the overstated inter est income. WHEREFORE, finding the petitions to be wel l taken, the same are granted and the refund of the amounts sought is hereby ordered. No costs. SO ORDERED. Quezon City, Metro Manila, November 28, 1986. ~~w ~A:~~te Judge WE CONCUR: 30 9