CTA Case No. 4985 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY RNSCOR HAGEDORN SECURITIES, INC., C.T.A. CASE NO. 4985. Petitioner~, ' - versus - COMMISSIONER OF INT-ERNAL r~EVENUE, Respondent. X- - - - - - - - - - - - - - - - - - - - - - - - - -X DECISION This is a suit filed on May 7, 1993 for the recovery of the withholding tax on dividends in the amount of PGO,OOO.OO alleged to have been erroneously paid to respondent on May 10, 1991. Petitioner is a domestic corporation duly organized and e~isting under and by virtue of the laws of the Philippines and is a duly licensed stockbroker authorized to buy and sell stocks in the Manila Stock E~change. On December 17, 1992, petitioner filed a claim for refund with the respondent in the amount of PGO,OOO.OO representing withholding ta~ on th~ cash dividends paid to one of its clients, First Philippine Investment Trust CFPIT>, a non-resident corporation domiciled in Hongkong. This claim for refund is anchored on the proposition that there was a double payment of withholding ta~es on the 1265

DECISION - C.T.A. CASE NO. 4985 - 2- cash dividends remitted and paid to FPlT and because of this the payment made by the petitioner to the BIR must be returned or applied as a tax credit in its favor. The petition contains the allegation that one of its clients, First Philippine Trust <FPlT> acquired shares of stock of Metro Drug, Inc. through a street stock arrangement with the petitioner, and in 1991, Metro Drug, lnc. remitted and paid the BIR the 15~ withholding tax i~posed by law on the dividends it paid to FPIT. Similarly, petitioner alleges that it also withheld 15~ withholding tax on the same cash dividends through an erroneous accounting entry resulting in the double payment of withholding taxes. The claim for refund filed with BlR was not acted upon thus this case was elevated to this Court in a petition for review. Respondent in her Answer, proposed the following Special and Affirmative Defenses: 7. In an action for refund of taxes, the burden of proof is upon the taxpayer to prove that the taxes paid or remitted were erroneously or illegally collected. Failure to sustain said burden is fatal to the action for refund; 8. It is incumbent upon petitioner to show that it has complied with the provisions of Section 23 of the Tax Code regarding the prescriptive period within which to file claims for refund; 1266

DECISION - C.T.A. CASE NO. 4985 -3 9. Petitioner has not shown that the tax sought to be refunded in accordance with the National Internal Revenue Code; 10. Petitioner, who has the burden of proving that it is entitled to tax refund, has failed to establish that the tax subject to its claim for refund was erroneously or illegally collected; 11. The claim for tax ref1.' .md, being in the nature of an exemption from taxation, must be construed strictly against petitioner <Insular Lumber Co. vs. Court of Tax Appeals, 104 SCRA 710 [1981J>; In addition to the abovementioned defenses, respo.ndent, in her memorandum, attempts to block the claim for refund by asserting that petitioner is not the real party in interest to claim for refund of withholding taxes primarily because when it remitted the a�ount as withholding tax it did not act as a withholding agent as it was not obliged to withhold and remit the tax on said dividend. The issue presented to Us for resolution is whether or not petitioner is entitled to the refund of P&o,ooo.oo representing alleged erroneously paid withholding tax on cash dividend paid in 1991. To bolster its claim, petitioner, among others, submitted the following documents as evidence: 1> Exhibit "A" Certification dated September 9, 1991 signed by M.A. Roy, the group treasurer of Metro Drug, Inc., to prove that Metro Group of Companies paid and 1267

--- DECISION C.T.A. CASE NO. 4985 4 remitted to the BIR the withholding tax on the cash dividends paid to FPIT. 2) Exhibit "A-1" BIR P.O. No. C10594572 in the sum of P1,030,9G7.92 issued to Metro Drug, Inc., to prove that Metro Drug, Inc. paid withholding taxes to the BI,R. 3) Exhibit "A-2" Central Bank Confirmation receipt issued to Metro Drug, Inc. for the same p11.1rpose as Exhibit "A-1". 4> E >I h i bit "A- 3" Monthly Remittance Return of Income Taxes withheld for April 1991 to prove that Metro Dt~ug, Inc. as withholding agent filed with RDO 32 East Makati the monthly return for its withholding of tax on cash dividends. 5) Exhibit "B" Bl R P. 0. No. 10939483 in the sum of PG1,875.00 in the name of petitioner to prove that petitioner mistakenly paid again the withholding tax due on the cash dividends received by FPIT. G> Exhibit "B-1" Bank Confirtwation Receipt in the sum of P61,875.00 in petitioner's na�e for the same purpose as Exhibit "B". 7> Exhibit "B-2" Monthly Remittance Return filed by petitioner for same purpose as Exhibit "B .... Respondent, on the other hand, opted not to present any evidence and failed to submit the BIR records ~268 y

-�--- ........ DECISION - C.T.A. CASE NO. 4985 - 5- notwithstanding the subpoena duces tecum issued by this Court� requiring its presentation. A close examination of the records of this case shows that petitioner's claim for refund rests on a sound legal basis. There is no dispute as to the occurrence of a double payment of withholding taxes on a single taxable transaction made by Metro Drug, Inc. and thereafter by petitioner. Central Bank Confirmation Receipt No. 821273169 <Exhibit "A-2"> showed that Metro Drug, Inc. paid the amount of P1,030,967.92 to the BIR inclusive of the taxes it withheld from the dividends it remitted to FPlT. It is also evident that petitioner subsequently remitted to the BIR the amount of P61,875.00 representing the taxes it withheld from the same dividends paid to FPIT as shown by Central Bank Confirmation Receipt No. B22760380 dated May 10, 1991. Moreover, respondent in her memorandum admitted the fact that petitioner paid the BIR an amount representing the taxes it mistakenly paid to the BIR when she stated, thus: When petitioner remitted the amount of P60,000.00 allegedly as withholding tax on the cash dividend of First Philippine Investment Trust, it did not act as withholding agent because under the law it was not obliged to withhold and remit the tax on said cash dividend. <see page 85, CTA records> 1269

DECISION - C.T.A. CASE NO. 4985 - 6- From the facts thus presented, there exists no doubt that petitioner, by mistake, paid the tax that has already been previously paid by the withholding agent resulting in the double recovery of taxes on the part of the Bl R. This situation creates ,a quasi-contract relationship between petitioner and respondent more particularly categorized as a case of "solutio in debiti" governed by Article 2154 of the Civil Code of the Philippines which provides as follo' ws: Article 2154. If something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises. The law and the facts are clear. Respondent, in receiving two payments pertaining to a single taxable transaction when the law imposes �erely a single taxable amount to be paid by the proper withholding agent, is obliged to return what was errtineously paid pursuant to the aforecited Article 2154 of the Civil Code. Fair deal is expected by our taxpayers from the BIR and the duty demands that BIR should refund without any unreasonable delay what it has erroneously collected. of Internal Revenue vs. Tokyo Shipping Co., Ltd., represented by Soria�ont Stea�ship Agencies, Inc., and Court of Tax Appeals, G.R. No. 68252, May 25, 1995) 1270

DECISION - C.T.R. CASE NO. 4985 - 7- The defense of the respondent that refund is not pl~oper becal&se petitioner is not the real in interest to claim the amount is a reflection of her failure to see the situation in the context of a quasi- cont�~act. It was petitioner who wrpngfully paid the taxes when it had no obligation to do so and it was the BI R who .~ece i ved such payment in excess of that required by law. Seen i n t hi s 1 i g h t , i t i s the pet i t i on e.~ who i s the real-party-in-interest to claim the refund of the erroneous payment. Section 2 of Rule 3 of the Rules of Court provides the following: SEC. 2. Pat�ties in interest. Every action must be prosecuted and ~efended in the name of the real party in interest. Rll persons having an interest in the subject of the action and in obtaining the relief de�anded shall be joined as plaintiffs. All persons who claim an interest in the controversy or the subject thereof adverse to the plaintiff, or who are necessary to a c~mplete determination or settlement of the questions involved therein shall be joined as defendants. <Taken from Sec. 2, Rule 2, old Rules of Court and from Sec. 114 of Ret No. 190> The Supreme Co1..wt, in the case entitled University of the �Philippines, Board of Regents vs. Ligot-Telan, 227 SCRR 342 elaborated on the meaning of a l~eal party in interest in the following manner, thus: R real party in intel~est is one "who stands to be benefited or injured by the judgment or the party entitled to the avails of the suit." "lntel~est" within the meaning of the rule means material interest, an interest 1271

DECISION - C.T.A. CASE NO. 4985 -8- in issue and to be affected by the decree, as distinguished from mere interest in the question involved, ol~ a mere incidental interest" <University � of the Philippines, Board of Regents .vs. Ligot-Telan, 227 SCRA 342). The above-quoted definition is an apt description of the petitioner in the instant case as ~t will eventually stand to be ~benefited or injured by the judgment" depending on the outcome of this case. WHEREFORE, in view of the foregoing, petitioner's claim for refund in the amount of PGO,OOO.OO representing the er~oneous payment of the 15~ withholding tax on cash dividends is GRANTED. Respondent is hereby ordered to refund or issue a tax credit certificate in favor of petitioner in the amount of PGO,OOO.OO. SO ORDERED. E~R-NE-ST�O~D. . ~ RCOSTR Presiding Judge WE CONCUR: 1272

DECISION - C.T.A. CASE NO. 4985 - 9- CERTIFICRT:IDN 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, Article VIII of the Consitution. ~ ' ~ ERNESTO D. ACOSTA Pt~es i ding Judge Court of Tax Appeals 1273