CTA Case No. 5621 (Decision)

.. REPl'BLIC OF THE PHILIPPI~ ES COrRT OF T.~X APPEAL8 QrEZO~ CITY SA~ :\IIGCEL PROPERTIES. L\C. (J.;'ormerly. .\lonteie)' - San ~1iguel Properties, Inc., Formerly: ~~fonterey ~arms ( orporation)~ Petitioner, - versn~- C.T. 1\. ('ASF I 0. 5621 C'O~t~HSSI01 rER 01~ I~ ER.~AL Promulgated: ~ REVEl T{TE, Respondent. A~G 06 1~99 ~ _ ------------------------- ----------------- -------X: D~CISION This case mvolves :1 1udicwl action for the refund or in the altematlve for the issuance of tax credit certificate in the sum of P15. 867 f\50 on, representi..ng overpaid income tax arising from excess payment of creditable withholding taxe<; at source for the cakndar year ended December 31. 1995. Petitioner is a domestic corporatiOn duly organized and eXIsting under and h~ vtrtue ot the laws of the Philippines. It is engaged in the farming business which includ s breeding of swine and canle with principal office located at PCPD Building, Sitio Sto. l'-Jino de Bonifacio, Western Bicutan, Taguig, ~ietro; Ianila. F 01 the \.alend<tr yeat ended n.;l;embt:r 31' 1995, pt,;titiunl:I filed ih CuqJui .ttion Annual Income Ta:~ Rerum un \pril 15, 199G, rct1..cting a net operatiilg lo:o;s in the amount of P38.G89,173.00 but with a refundable income tm.. payment in the sum of

DH 'fSfON- Pagel P4L646.577.00. arising from its prior year's excess credit and the 1995 various creditable wtthholdmg taxes at source, detailed as follows: .Net loss P38,689,173.00 Tax Due p nil Less: Tax CreditsfPayments p 25,778,927.00 a) Prior year's excess credit b) Qmnterly payments 15,867,650.00 41,646,577.00 c) Creditable Tax Withheld P41,646.577.00 Amount Refundable Petitioner indicated in the aforementioned return its intention of applyit1g the refundable income tax as tax credit to the succeedi."lg taxable year 1996. However, the tpnded anpliratt"on hPramP nucratonr ..1ne to thP f'art th<>t thp f'<>lPfld<lr "ear 1QQh m� "'""' m" ._ 1.., ..., .., ...,...,...., .... ._...... .. 0 ..Y - - ' ... ._..., ..&. _... ....... ...,. "" ..., .... """ ._ ........ J "" .A.-'_,.'""' petitioner suffered another net loss from its operations in the amourit' of Pll,217,466.00 le::!ving no income tax lillhility from which the sllid overpllyrnent could be 11pplied (Em. C- 14). On March 19. 1998, petitioner ftled a letter claim for refund with the Appellate Diviswn of the Bureau of Internal J.{evenue seeking the retund of overpatd mcome tax in amount of Pl6,523,357. 77, representing the excess income tax payment for the calendar year 1995 (Exh. C-26). Tht: inaction of lht: Rt:spomknl on iht: afurt:mt:niiont:d daim wmpdlt:d iht: petitioner to file the in.stant petition for review on April 1-J., 1998, in order to toll the n.mrung of the tvvo-ycar prescriptive period mandated by Section 230 of the Tax Code, as amended. DuriJtg trial, Petitioner formall)' offered L11 e,.-idence the follo\\'ing documents tJ1 order to support its claim for refund:

DFCTSTON- ( 1 T .:'\. Case 1'Jo. ~621 Page3 1. Report of fmdings from the comntissioned independent certified public accountant (Exhs. A and AA); 2. Petitioner' s ar1nual L'1come tax. r~tl.tms for the calendar ~years 1994, 1995, 1996, and 1997 together with their conesponding audited financial statements and auditors' reports (Exhs. C-1 to C-25); 3. The various certificates of creditable withholding tax at source (Exh. BB): and .f. The letter clai.tn for refund (Exh. C-2G). The above documents were properly identified by Petitioner's vvitncss and were all admitted by the Court i.'l a Resolution, dated October 30, 1998. Respondent on his part elects not to present controverting e�vidence. This case was eventually subwitted for decision after both parties presented their respective memoranda. The isc;;ue" now confronting {Jc;; are a" follows: 1) whether or not petitioner 1s entitled to the claim for refund of alleged overpaid income tax for the period covered by the claim: and if in the affirmative; 2) whether or not petitioner has presented sufficient eVldence to substantiate the said claim for refund. We answer both questions in favor of Petitioner. The legal basis of Peiilioner in claiming for lhe refund of overpaid inwme Lax. is Section G9 ofthe Tax Code, as amended, to quote: Section 69. Final adjus�tment return. -Every corporation liabie to tax under Section 24 shall flle a fmal adjustment return coveri.ng the total taxable income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made duri..ng the f'>aid taxable year is not equal to the total tax due on the entire taxable income of that year the corporation shall either: (a) Pay the excess tax still due; or (b) He refunded the excess amount paid, as the case may be.

f)EC'ISION- C.T..~e'\ . Case !'Jo 5621 Page 4 In case the corporation is entitled to a refund of the excess estimated quarterly mcome taxes paid, the refundable amount shown on its fi..'1.al adjustment return ma:y be credited against the esti.T..ated quarterl)p income tax liabilities for the taxable quarters of the succeeding taxable year (Underlining supplied). It is apparent from the evidence on record that petitioner incurred successive net operating loc;:ses from its husmesc;: nnrlert:lkings for the calendar vearc;: 1994 199-;. 1996 and 1997. The 1995 income tax payments arismg from creditable withholding taxes at source remain unapplied during the years. hence, petitioner appears to be legally ent1tled to the refund sought. However. petitioner must still prove tts entitlement to the refund b:y substantial evidence. ~ection 230 of the Tax Code, as amended, provides that the ciaim for refund, bulh in iht: auminislraiivt: anu juui~,;ial lt:vd, musi bt: ftku within iwu yt:ars from iht: date of payment of the tax. For easy reference, Section 230 of the Tax Code, as amended, is hereby quoted as follows: Section 230. Recovery oftax erroneously or illegaily collected. - No suit or proceerling shall be maintained in any court for the recovery of any national intemal revenue tax hereafter alleged to have been enuneousl:y or illegally assessed or collected. or of any penalty claimed to have been collected without authority", or of any sum alleged to have been excessiv" or in any manner wrongfully collected. until a claim for refund or credit has been ctuly tiled \\'ith the Comrrtissioner; but such suit or proceeclh~g rna)~ be mamtame<L whether or not such tax, penaltv. or sum has been patd under protest or duress. In any case, no such suit or proceeding mall be begun after the expiration of two years from the date of payment of the tax or penalty regardless of any supervening cause that may mise after payment: ProYided, however, that the Conunissioner rna} , even without a written claim therefor refunrl or credit any tax, where on face of the return upon \>vhich payutent \Va8 ntade, 8UCh payment <t]Jpeaus cleady to have been enoneously paid (Underlining supplied).

DFCISION- C.T /\ c�ase t--Jo. 56:!1 Page 5 Furthermore. in claiming for the refund of excess creditable withholding tax. Petltwner must show comphance wtth the tollowmg three reqmsttes: 1. that it filed a ciaim for refund within the two (2) year period as prescribed under Section 299 (now 230) of the National Internal Revenue Code; ihai iht: inwmt: upon "hi~h iht: la.\.t:s wt:rt: "ilhhdd "t:rt: . 2. included in the return of the recinient:' and 3. the tact of withholding is established by a copy of statement (BIR Form 17-B.1) duly issued by the payor (witrJwlding agent) to the payee, showing the amount paid and the amount of tax withheld theretrom. (Sec. 10, Rev. Regs. 6-85; Citytrust Finance Corporation vs. The Commissioner of Internal Revenue, CTA Case No. 4134, November 11, 1991; and Citytrust Finance Corporation (Formerly Investor's Finance Corporation/FNCB Finance vs. Commissioner of Internal Revenue, .',-..-.I'T. 'A "as" '- ( . ~ 11'...r, o� 4(V1"-9t�v, � F"C bruaf ~I J"".-. ..., 9cn) 1 ..1 / J � The records establish that petitioner;s ciaim for refund was timeh filed \Vitlun the two-year period from the date of payment of the tax. The letter request for refund was ftkd \'vilh iht: rt:spondt:nl on .ivfar~h 19, 1998, whik lht: instani L.ast: \v<ts insiiiuit:d on April 14-, 1998 (Exh. C-26). Thl.'; two-y~ar period wmn1cw..es oil April 15, 1996, the date when p~titioncr filed its final income ta~ return for calendar vcar 1995 (C~ornn1issioner of Interr1al Rcvet1ue ,~s. T~1:X Sales, Inc. et al., G.R. ~o. 837736, .January 15, 1992 ). The income upon \VrJch the creditable '1vithholdi..-1g taxes in questiotl v=v~ere Y'vith.lteld \�vere ht-tcluded as part of the gross income reflected under Schedule 1, 3, and 5 of Section C of petitioner's 1995 i.t1come tax return (Exhs. C'-8 to C-1 ~). Lastly, the total amount ofPl 5,867,650.00 is duly supported by Certificates of C'rerl1tahle Tm;ome Tax Withheld at Source and was attested by the corrunissioned mdependent certifted public accountant (Exhs AA. A, R and BB ).

.' (' I ,., RL.~>t--��~--lt, on the other hand, contends that petitioner is no longer entitled to the claim for refund because a mere allegatiOn of net loss in the corporate annual income tax retwns does not ipso facto merit a tax refund. He further reasons that there is no evidence to show that deductions ciaimed against petitioner's gross income are aliowabie deductions under the Tax Code. Wt~ fmd tht~ fort~going argumt~nis of rt~spondt~nl wiihoui mt~ril. It should be pointed out that the atmual income tax returns of petitioner were prepared and signed under the penalties of perjmy. In fact these income tax returns VJ"ere exarr.ined b~y ht-tdependent CP.l\s, as required under Section 232 of the Tax Code, vvherei..11 the auditors expressed an unqualified opir.ion on the assets, liabilities and stockh.older's equity as well as the revenues and expenses of petitioner for the calendar year~ 1994 199'5 199(); and 1997 (Exhs C-7, C-12, C'-19, and C-2'5). Moreover, petitioner is not required to show detailed proof of the truthfulness of each and every item in the income tax return because this function belongs to the Commissioner of Internal Revenue as mandated by the Tax Code which requires the commissioner to assess internal revenue taxes within three years after the last day prescribed by law for the filing of the return (Citibank, N.A., vs. Court of Appeals and Commissioner of Internai Revenue, G.R. No. 107434, October 10, 1997). Respondent aiso avers thai there is no sufficient proof thai the taxes withheid by lht~ payor wt:rt: rt:milit:d to lht~ BIR and lhal pt:liliont:r failt~d lo prow lhal iht~ laxt:s withheld went to the coffers of the govenunent. We fmd this contention of the respondent without merit. All that is required by law and/or implementing regulations to show proof of -.vithholdi.rl.g is the presentation of

llFC ISION - Page- the statements of tax \Vithheld at source (BIR Fotm 1743.1 ). showing the inwme recervt:d and the amount ot tax wtthheld theretrom and that the mcome \\las mcluded to form part ot petittoner's gross income as stated in its income tax retum. The reason for this is simple. The withholding agenr is not within the control of the payee-taxpayer but is wnsidt:red an agenl of lhe Cummissium:r ufinkmal Revmut:. Tht: ""ilhhulding agt:nl m~:rd) holds the amount in h ust f01 the govt.:nunent (Cununissioner uf Int~mal ... R~"~~~u~ \s. Cityt1�u~t Ba11ki11g CU1�puratiu11, CA-GR SP No. 26839, Jul) Jl, 1992). Tlms, it is sign.ifi...ant to note that the presentation of P�'~)Ttlent orders, .;onfmnation receipts or in the alternative th\. admission of \\�ithholding agents is not at all re1u1red under the lmv and regulations. The BIR Fmm 1743.1 ha-..i.Ilg been signed under the penalties of perjury can he taken on its face (Fi!ipinas :Management & Lea'\ing Sen�ice" Corporation vs. Commissioner of Internal Revenue, CTA Case 1\.Jo ..tU6, dated "\!arch 11, 199-t). \'\'HERFFORE, in of all the foregoii1g, respondent is hereb~; m ORDF.RED to REFP. or m the altcmatn:e to ISSPE a T I\..'X rREDIT CERTIFIC'.\TE in taYor of the petitioner the amount of P15,867,650.00 repret1enting overpaid income tax. SO ORDERED

OF< r.�roN- Page 8 �wE CONCl~: L U2~~ ER. TESTO D. ACOSTA P siding Judge CERTIFICATION Therehy cert1ty that the :~hove rleci~ion wa~ reached after clue con~nltation with the members of the Court of Tax Appeals in accordance with Section 13. Article VIII of the Constitution. Q ~~~ EH.: ~SlU D. ACOS!A Presiding Judge