CTA Case No. 5740 (Decision)

,/ REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY FIRST E-BANK CORPORATION (A DEVELOPMENT BANK), (Formcdy PDCP Development Bank, Inc.), Petitioner, - v ers us - C.T.A. CASE NO. 5740 COMMISSIONER OF INTERNAL Promulgated: REVENUE, MAY 0 4 2001 Respond e nt. ?;t�~b~, ~~ X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - X DECISION This case involves a claim for refund or issuance' of a tax credit certificate in the amount of P33 ,867,086.00, representing unutili zed payments of quarterly income tax and creditable withholding taxes at source for the calendar years ended December 31, 1996 and December 31, 1997. Petitioner is a domestic corporation dul y organi zed and existing under the laws of the Philippines with principal office located at PDCP Bank Building, 8737 Paseo de Roxas, Makati City. It is primarily engaged in the banking business. On April 15 , 1997, Petitioner filed its 1996 Corporation Annual Income Tax Return reflecting a taxabl e income of P50, 181 ,777 .00 with a corresponding tax due of P 17,563,622.00. The same return also shows that Petitioner had a third quarter income

DECISION- CTA CASE NO. 5740 PAG E 2 tax payment of Pl7 , 114,703 .00 and creditable taxes withheld of P23,229,871.00 (or a total of P40 ,344,574 .00) which were applied to its income tax liability ofP17,563,622.00 resulting in an overpayment of income tax in the amount of P22,780,952 .00. Petitioner indicated in its 1996 income tax return its intention to apply the overpaid income tax as credit to the succeeding taxable year 1997 (Exhibit "D", ,. nclusive of sub-markings). On April 15 , 1998 , Petitioner filed its 1997 tentative Corporation Annual Income Tax Return reflecting a net loss in the amount of P28 ,208,767.00 but with an amount refundabl e of P33 ,867,086.00, detailed as follows : (Exhibit "E", inclusive of sub- markings) Net loss P28.208,767.00 p Tax Due Less: Tax Credits/Payments P22,780,952 .00 a) Prior year's excess credits 11,086,134.00 33,867,086.00 b) Quarter! y excess creel its P3 3.867.086.00 c) Creditable tax withheld Amount Refundable Petitioner opted to ask for the refund of prior year's excess credit of P22 ,780,952 .00 while the 1997 creditable tax withheld ofP11,086,134.00 was chosen to be applied as tax credit to the succeeding year. On August 12, 1998, Petitioner amended its 1997 final adjustment return showing the same refundable amount of P33 ,867,086.00 but with a corrected operating loss of P98 ,320,25 8.00. In the said return, Petitioner maintaint j its intention to refund the prior year's excess credit ofP22,780,952.00 and to apply the 1997 creditable withholding taxes

DEC ISION- CTA CASE NO . 5740 PAGE 3 of P I I ,086. 134 .00 as tax credit to th e succeeding taxabl e yea r 1998 (Exhibit " F" , inclusive of sub-markin gs). O n N ovember 4, 1998, Petiti oner fil ed w ith Revenue Region N o. 8, Bureau of Inte rn al Reve nue, a w ritten ap pli cati on fo r th e refund of excess inco me tax payme nts for th e ca lendar yea rs 1996 and 1997 in the tota l amoun .' of P33,867,086. 00 mani fes ting the rei n that it is no lo nger pursuing the carry-over of its 1997 unutili zed creditable tax w ithheld in the amo unt of P II ,086, 134.00 (Exhi bits " Z" and "Z- 1"). Co nsiste nt w it h its des ire to refund the afo rementi oned total overp ay me nt, Pe titi oner o n Marc h II , 1999, elevated its appeal w ith thi s Co urt by filin g the instant Petition fo r Rev iew in acco rd ance with the prov is ions of Section 230 of the Tax Code . Still mindful of its cla im for refund , Pe titi oner did not carry-ove r its 1997 excess tax credit of P 11 ,086, 134. 00 to ca le nd ar year 1998 as ev idenced by the 199 8 tentative and fin al Corpora ti on A nnual Income Tax Returns (Ex h i bit~ "G" and " H", inclusive of sub- m a rk in gs). In hi s Answer, Respo ndent advanced the fo ll owing Spec ial and Affi rm ative Defenses : 6. T hat petitioner has already exercised th e optio n to ca rry-over and ap pl y th e en ti re excess income tax subj ect to (s ic) its claim to taxa bl e yea r 1998 w hi ch is cons ide red und er Sectio n 76 of th e N IRC 1997 irrevocab le fo r the said taxab le peri od, hence, applicatio n for cash refund or iss ua nce of a tax credit certi ficate is no longe r all owa bl e in the insta nt case; 7. That the amendment of the 1997 Co rporati on Tax Return of the Petit io ne r p urposely inte nd ed to make it appear t11at the Petiti oner opted to claim for refund the 1996 excess income tax in the amo unt of P22 ,780,952.00 nor its manifes tat ion that it is no longe r pursuing the 6 Uu

DEC IS ION - CTA CASE NO. 5740 PAGE4 carry-over of the 1997 unutili zed creditab le w ithho lding tax in the amo unt of PI I,086, 134.00 w ill no longe r change the irrevocable option a lready exerci sed by the Petiti oner in the 199 7 ori gina�1 return and in the 1997 a mend ed return ; 8. T he petiti on states no ca use of ac ti on as it does not a ll ege the date/s w hen the taxes so ught to be refund ed we re ac tua ll y pa id ; 9 . In an acti on for tax refund/cred it, the burden of proof is o n the tax payer to establi sh its ri ght to the refun d and fa ilure to s ustain the burde n is fata l to th e ac ti on for tax refund ; I0. Taxes pa id and co llected are pres umed to have been made 111 acco rd ance w ith law and regul ati ons, hence, not refundable; and 11 . We ll -settl ed is the rul e that claims fo r refund are co nstru ed stri ctl y aga inst the c la imants since it partakes of the nature of an exe m pti on from taxati on (Resins, Inc. vs. A uditor Genera l, 75 SC RA 754, 1968) . To prove its enti tlement to th e cla im fo r refund , Petiti oner presented the fo ll owing ev id e n ce: I . T he 1996 Co rporati on Q ua rte rl y Inco me Tax Re turns (Ex hs. A, B, and C); 2. The 1996 Corporati on A nnu a l Inco me Tax Return and the o ri g ina l and a mended fin a l adj ustment returns for the cale ndar years 1997 and 1998 (Ex hs. E, F, G, a nd H , inc lusive of submarkings); 3. Vario us 1996 and 1997 certifi cates of credita bl e taxes w ithhe ld at so urce, BIR Cert ificates A uth ori z ing Registrati on, Monthl y Re r:1ittance Returns, a nd va ri ous docum ents supportin g th e w ithholding of creditabl e w ithholdin g taxes at so urce (Exhs. I toY, AA to EE, GG to MM , UU, SS and TT); 4. Le tte r- c lai m lo r refund (Ex hs. Z to Z-2); t;u9

DEC IS ION- CTA CASE NO. 5740 PAGE 5 ' 5. Report of the commi ss ioned indepe nde nt CPA w ith respect to the acc uracy of Petitioner 's cl aim for unutili zed creditable w ithho lding taxes and overpaid income taxes (Ex h. WW a nd WW- I); and 6. Sched ul es of inco me tax pay me nts & income tax withheld fo r the yea rs 1996 and 1997 (Ex hs. FF and N N). T hi s case was submitted for deci sion on Febru ary 20, 200 I w ithout the ev ide nce and me mo ra nd um of the Res pond ent. T he iss ues j o intl y stipulated by the part ies are as fo ll ows: I . Wheth er or not Petitio ner has excess or overpaid income tax for th e cale ndar yea rs ended December 3 1, 1996 and I997 whi ch is a proper obj ect o f a claim for refund pursuant to Secti on 229 of th e Nati o na l Intern al Reve nue Code as a mended ; 2. W hether or not the said excess or overpaid income tax of the Petitioner for the yea rs end ed Decem be r 3 1, I996 and 1997 are substanti ated by docum e ntary ev idence; 3. W hether or not said excess or overp aid income tax fo r the cale nda r years ended December 3 1, 1996 and I99 7 was carried over to the succeedin g ca lenda r yea r e nded Decem be r 3 I , I998 and appli ed aga inst any of the inc~ m e tax li ability of the Petit io ner for the sa id pe ri od; and 4. Whether or not the excess c reditab le w ithho lding tax being cla imed by Petit io ner represe nts tax on income w hich was reported in the Corporati on A nnual Inco me Tax Ret urn of Petiti one r fo r calendar years ended Decembe r 3 I, 1996 a nd 1997. 6 10

DEC ISION- CTA CASE NO. 5740 PAGE 6 T he legal bas is in claimin g for th e refund of overpaid income tax is Secti on 69 (now Sec. 76) of th e Tax Code. as amended, whi ch reads as follows: SEC. 69. Fiua/ Adjustmeut Retum. -Ever;,' corpo rati on li able to tax und er Secti on 24 shall fil e a fin al adjustme nt return coverin g the tota l income for the preceding ca lendar o r fi sca l year. If the sum of the qua rterl y tax payme nts made durin g the sa id taxable year is not equa l to the total tax due on th e entire taxabl e inco me of th at yea r the corporati on shall either: (a) Pay th e excess tax still du e; or .(Ql_Be refund ed th e excess amount paid. as the case may be. In case the corporation is entitled to a refund of th e excess estimated qu arterl y income taxes paid , th e refund abl e amount shown o n its fin al adjustm ent return may be credited against th e estimated quarterly income tax liabilities fo r the taxabl e qu arters of th e succeeding taxa bl e yea r. (U nderlinin g sup plied) Based on the afo re-quoted prov iso, the refund abl e income tax pay me nt of a g iven year can onl y be c red ited aga inst the estimated q uarterl y inco me tax li abil ities fo r the taxable quarte rs o f the succeedin g taxabl e year. It is apparent that in the taxa bl e years 1996 and 199 7, Petiti oner had accumul ated income tax payme nts in th e total amo unt of P33,867,08 6. 00 whi ch we re not ut ilized as tax credit in the yea rs 1997 or 1998 (Ex hibits "D", "E", "F", "G", a nd " H"), hence, it is a proper subj ect of a c laim for refund based on the afore-quo ted Section 69 of the Tax Code, as amended. However, before the p rese nt appeal co uld prosper, Petiti o ner sho ul d prove its entitl ement to the refund by substanti al evidence. Secti on 230 of the Tax Code prov ides:

DEC IS ION - CTA CASE NO. 5740 PAGE 7 SEC. 230. Recovery of tax erroneously or illegally collected. - No suit or proceeding shall be maintained in any court for the recovery of any nati onal intern al revenue tax hereafter alleged to have been erroneously or illegall y assessed or co ll ected, or of any penalty cl aimed to have been collected w ithout authority, or of any sum alleged to have been excessive or in any manner wro ngfull y co llected, until a claim for refund or credit has been dul y fil ed with the Commi ssioner; but such suit or proceedin g may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress. In any case, no such suit or proceedin g shall be begun after the ex pirati on of the two years from the elate of payr.�!ent of the tax or penalty regardless of any supervening cause that may ari se after payment: Provided, however. That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the fa ce of the return upon whi ch payment was made, such payment appears clearl y to have been erroneo usly paid. F urtherm ore, in claiming fo r the refun d of excess creditable withholding tax , Petiti oner must show compliance with the fo ll owing req ui sites, to wit: 1. that it fi led a claim for refund within the two (2) year period as prescribed under Section 299 (now 230) of the Natio nal Internal Revenue Code; 2. that the income upon whi ch the taxes we re w ithheld were inc luclecl in the ret urn of the rec ipi ent; and 3. the fac t of withholding is estab lished by a copy of a statement (B IR For 1743. 1) dul y issued by the payor (withholding agent) to the payee, showing the amount paid and the amo unt of tax withheld therefrom (Citibank N.A. vs. Court of Appeals and Commissioner of Interna l Revenu e, 280 SCRA 459; ACCRA Investm ent Corpon1tion vs. Com�t of Appeals, 204 SCRA 957). A perusal of the evidence submitted by the Petitioner revea ls that the claim for refun d was timely fi led wi thin two yea rs from the date of payment of the tax. The b... ..j. 2.

DEC IS ION - CTA CASE N O. 5740 PAGE 8 admini strati ve c la im for refund was fil ed w ith the Respondent on N ovember 4, 1998 and the Petiti on fo r Rev iew was fil ed w ith thi s Co urt on M arch 11 , 1999. T he two-year prescripti ve peri od commences on April 15 , 1997 and April 15 , 1998, the elates when Petiti oner fil ed its 1996 and 1997 ori ginal fina l .'tdjustment return s respective ly (Com missioner of l ntema l Revenu e vs. TMX Sales, Inc. etl al. , G. R. No. 837736, January 15, 1992) . It is a lso clear from th e record s of th e case th a t Petiti o ner pa id the am o unt of P17, 11 4, 702. 00 for third quarter income tax li ability as shown by th e ba nk 's mac hin e va lida ti on ap pearin g in the lowe r po rti on of the 1996 third qu arterl y inco me tax return (Exhibit "C-4"). With res pect to the cla im for refund o f creditabl e withholdin g taxes, the Co urt find s the report of the co mmi ss ioned independ ent CP A, Ms. Fe li za A. Pe ralta, commendabl e (Exhibits " WW" and " WW- 1" ). The audit procedures stated the re in a re suffi c ient to come-up w ith the desired res ult of ascerta ining the propriety of Petitione r's cl a im for refund o r c red itab le w ithho ldin g taxes fo r th e yea rs 1996 and 1997, th e refore, th e obse rvati ons and findin gs arri ved at by Mr. Pera lta are he reby adopted. Petiti one r s uffi c ientl y establi shed by mea ns of th e va ri o us Certifi cates of Withho lding Tax at Source and other pertinent docum ents the amounts of P20,34 1,04 0.42 and P8 ,708 ,5 13.95 for the tax abl e yea rs 1996 and 1997, respective ly. To wit: For 1996: Ex hs. Amount I 2 0,044 ,871.4 0 Withholdin g Agents Filipin o Te lepho ne Co mpany J 93.50 Bank o r Co mm erce r

D EC ISION- CTA CASE NO. 5740 PA GE 9 C lem ente Capital Co nsultants, Inc. K 4,948 .5 0 4,948 .5 0 C lemente Ca pital Consultants, Inc. L 4,648 .60 8,742. 00 C lemente Capital Consultants, Inc. EE 2, 754 .00 I 0 ,030 .00 Isla Del Pac ifi co M arin e Products, Co rp . M 5,63 2. 65 7,4 2 3 .04 Be nedi ct Jacinto N 22,019 .40 222,428.8 3 JC Ge rvacio & Associates 0 2 500.00 P20,3 41 ,040.42 Metro Rea lty p Amount Phil -A m Life-PDC P Fund Mgt, Inc . Q p 4,948 .52 Re n1Co Consulting Deve lopm ent, Inc. R 75 , 116.52 s 13,057 .44 PD C P In surance Brokers, Inc. 8 ,704 .96 23 1,2 86.5 1 AGP Industri al Corporati on T 8,3 42,400 .00 3 3 , 0 0 0 .0 0 S ub total p 8,708,51 3.95 For 199 7: P29.049.5 54.37 Withholdin g Agents Ex hs. Cl emente Capital Consultants, Inc . Philippine Retirement Authority u United Coconut Planters Life Assurance United Coconut Pl anters Life Assurance v PDC P Insurance Brokers, Inc. Multi -Realty Corp . X Daphne C. Ku ok y Tota l 00 MM GG, HH G RA ND TOTA L The re lated income of the a bove-li sted creditabl e w ithholding taxes we re incl uded in Petitioner's gross income as re fl ected in the 1996 and 1997 income tax returns (Ex hs. RR, SS , and TT). With respect to Respondent 's argument in hi s A nswer that Petiti oner is not entitl ed to the re fund because Petiti oner alread y exercised the opti on to carry-over and appli ed the entire excess inco me tax subj ect of its claim to taxable yea r 1998 w hich is considered under Sec ti on 76 of the 1997 Tax Code irrevocab le, the Court, after ve ri fi cation of the ~ 14

DEC ISION - CTA CASE NO. 5740 PAGE 10 1997 orig inal and ame nded fin al adjustme nt returns shows th at o nl y the amo unt o f Pll ,086 , 134 .00 , rep resenting th e 1997 creditabl e taxes withhe ld , were opted to be applied as credit to succeedin g year while th e sum of P22 .780,95 2. 00 was chosen to be refunded. It was furth er noted th at in the 1998 income tax return, Pe titioner did not carry over the entire amount subj ect of the present appeal. T he Court does not ag ree w ith Res pondent 's opinion that th e 1997 T ax Code w hich took effec t on January I, 1998. parti cul arl y th e prov isions of Secti on 76, is already applica bl e in cases invo lving th e 199 7 Corpo ra ti on A nnual Income Tax Re turn w hi ch was fil ed on A pril 15, 1998. The amendatory provisions introduced by the Tax Reform Act of 1997 o r Rep ubli c Ac t No . 8424, ap pl y onl y at th e start of taxabl e year 1998, th e effecti vity o f th e Ac t bein g January 1, 199 8. T he date of filin g of the 199 7 fin al adjustment return which fe ll on April 15, 1998 is not controlling considering th at the inco me tax li ability is computed as at the end of taxable year 1997. Furthermore, the law gives a tax paye r ample time to til e its inco me tax return . Secti on 70(b) o f the Tax Code all ows a corpo rate tax paye r to fil e its fin al adj ustm ent return on or be fo re the 15 1 day of h th e 4 1 month fo ll owing the cl ose of th e fi scal year, as th e case may be. T he ra ti onale h behind such pe ri od is to give th e tax paye r the opportunity to adjust at the e nd of th e year its inco me and expenses for proper determin ati o n of income tax li ability and to give th e inde pendent Certifi ed Public Acco unta nt a chance to audit and examine the taxpaye r's books of acco unts. T hi s is ex press ly provided und er Secti on 232 of th e Tax Code, to wit: ,\ . tJ .!. ~)

DECISION- CTA CASE NO . 5740 PAGE II SEC. 232. (A) Corporations. companies, partnerships. or persons required to keep books of accounts. All corporations, companies, partnerships or persons required by law to pay internal revenue taxes shall keep a journal and a ledger, or the ir equivalents : Provided, however, That those w hose gross quarterly sa les, earnin gs, receipts, or o utput do not exceed five thousand pesos shall keep and use a simplified set of bookkeeping records duly auth ori zed by the Secretary of Finance wherein a ll transacti ons and results of operati ons are shown from which all taxes due the government may readily and accurately be ascertained and determined any time of the yea r: And Provided, further, That in the case of corporation s, companies, partnerships, or persons whose gross sales, earnings, receipts or output exceed twenty-five thousand pesos, shall have their books of accounts audited and examined by independent Certified Public Acco untants and their income tax returns accompanied with certified balance sheets, profit and loss statements, schedules listing income- producing properties and the corresponding incomes therefrom and other relevant statements. (Underlining supplied) T herefore, it is abs urd and inconvenient to conclude that the 1997 Tax Code is applicable to the 1997 return considering that in taxable yea r 1997 the provisions of the old Tax Code still prevails (Cnrmclino F. Pansacoh1 vs. Commissioner of Internal Revenue, CTA Case No. 5924, June 13, 2000). In sum, Petitioner is entitl ed to the reduced amo unt of P28,600,635. 13 , computed as fo ll ows: Income Tax Due P17 ,563 ,622.00 Less: Tax Cred its/Payments P17,114,702.76 a. T hird quarter income tax payment 20,34 1,040.42 37,455,743.18 b. Creditab le taxes withheld p 19,892, 12 1.18 Amount Refundable tJ' 1 0. \ .!.

DEC IS ION- CTA CASE NO. 5740 PAGE I2 Income Tax Due p 0. 00 Less Creditable taxes w ithheld A mount Refun dab le ~08 ,5 1 3.95 Total A mount Refundable p 8,708 ,5 13.95 ? 28.600.635. 13 WHEREFORE , in view of the forego in g, the instant petitio n for review is hereby PARTIALLY GRANTED. Respondent is ORDERED to REFUND o�� in the alternative to ISSUE A TAX CREDIT CERTIFICATE in favor of Petiti oner the amoun t of P28.600,635 .13, represe nting overpa id inco me taxes fo r the years 1996 and 1997. SO ORDERED. I CONCUR: ~~o~ ERNESTO D. ACOSTA Pres iding Jud ge CERTIFICATION I hereby certi fy that the above decision was reached after du e consultati on w ith the members o f the Court of Tax A ppea ls in acco rda nce with Secti on 13, A rti cle VIII of the Consti tuti o n. ~lQ~~ ERNESTO D. ACOSTA .Presiding Judge