SMITHKLINE BEECHAM RESEARCH LIMITED PHILIPPINE BRANCH v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY SMITHKLINE BEECHAM RESEARCH C.T.A. CASE NO. 5506 LIMITED PHILIPPINE BRANCH, Petitioner, - versus - COMMISSIONER OF INTERNAL Promulgated: REVENUE, SEP 15 1998 t)to_~~ Respondent. X- - - - - - - - - - - - - - - - - - - - - - - - - - - X DEcI sI 0 N This case involves a j u dicial action for the refund of the amou n ts of P3,449,681.00 and P11,244,504.00, representing overpaid income tax resulting from an excess pay ment of creditable withholding taxes for the calendar years ended December 31, 1994 and December 31, 19 9 5' respectively. Petitioner is a corporation duly organized and existi n g under the laws of England. It is registered with the Securities and Excha n ge Co mmission to engage in the business of manufacturi n g pharmaceutical products, throug h a Ph ilippine branch, with office address located at 5th Flr., JMT Corporate Condominium, ADB Avenue, Ortigas Ce n ter, Pasig, Metro Manila.

DECISION C.T.A. CASE NO . 5506. - 2- For the calendar year 1994, petitioner fil e d i ts Corporation Annual Income Tax Return on April 11, 1995, reflecting, among other s , a refundable amount of P3,499,681.00 (Exhs. A to A-2) . This refundable amount was opted by the petitioner to be refunded but was actually carried over to the succeeding taxable year 1995. For the calendar year 1995, petitioner filed its Corporation Annual Income Tax Return on April 15, 1996 showing a total refundable amount of P14,744,185.00 which included the 1994 creditable taxes withheld of P3,499,681.00 and the 1995 creditable withholding taxes at source in the amount of P11,244,504.00 (Exh. p ) � Although, the whole refundable amount of P14,744,185.00 was "to be applied as credit to next y e ar", this did not materialize because petitioner did not carry it over in 1996 as shown by the amended 1996 income tax return (Exh. HH) � On October 22, 1996, petitioner filed a letter claim for r�efund with Revenue District No. 43 of the Bureau of Internal Revenue asking for the refund of the amount of P14,744,185.00, representing unutilized creditable withholding taxes at source for the year s 1994 and 1995 (Exh . FF). Since respondent has neither granted nor acted upon the claim for refund, petitioner was left with no

DECISION C.T.A. CASE NO. 5506. - 3- !eCOU!Se but to file the instant petition fo1 1eview on Ap1il 14, 1997 in o1de1 to toll the 1unning of the two- yea1 p1esc1iptive pe1iod allowed unde1 Section 230 of the Tax Code, as amended. Upon these facts, 1espondent me1ely advanced as special and affi1mative defenses that petitione1 ' s claim fo1 1efund is still unde1going administ1ative investigation; in an action fo1 tax 1efund, the bu1den of p1oof is upon the taxpaye1 and failure to sustain this bu1den is fatal its claim ( Surigao Consolidated Mining Company vs. Commissioner of Internal Revenue. 9 SCRA 728, 734. [1963]); it is incumbent upon petitione1 to show that it has complied with the p1ovisions of Section 204 in !elation with Section 230 of the Tax Code; and claims fo1 1efund are const1ued s~ric~issimi juris against the taxpaye1 ( Commissioner of Internal Revenue vs. Tokyo Shipping Company. Ltd .� 244 SCRA 332, 336 [1995] ). In Older� to suppo1t its entitlement to the 1efund, petitioner' p1esented the following documents: a. The 1994, 1995, and 1996 final income tax 1etu1ns with the attachments of audited financial statements and auditors' 1epo1t (Exhs. A, A-1, A-3, P, GG and HH); b � The va1ious ce1tificates of c1editable withholding tax at SOU!Ce [BIR Fo1m 1743.1] (Exhs. B, C, D, E, F, G, H, I , J , K, L, M, N,

DECISION C.T.A. CASE NO. 5506. - 4- 0' Q' R, S, T, U, V, W, X, Y, Z, AA, BB, cc' DO, and EE ); and c . The letter-claim for refund with the Bureau of Internal Revenue (Exh. FF). The aforementioned documents were all admitted by the Court in a Resolution, dated January 8, 1998. On the other hand, respondent ' s counsel submitted his case for decision without presentation of any evidence (see Minutes of the Session, February 19, 1998, p. 302, CTA records). Both parties submitted their respective memoranda. The Court is now confronted with the following issues: 1 . Wh ether or not petitioner is legally entitled to the refund sought; and 2 � Whether or not petitioner has fully substantiated with proper evidence, its claim for refund. Anent the first issue, petitioner cites as legal bases Sections 51 and 69 of the Tax Code, as amended. For easy reference, Sections 51, and 69 of the Tax Code, as amended, are hereby quoted as follows: "Sec. 51. Ret:urns And Payment:s Or Taxes W.i t:hhel d At: Source. (a) Quarterly returns and payment of taxes withheld. xxx (b) Statement of income payment made and taxes withheld. Every withholding agent

DECISION C.T.A. CASE NO. 5506. - 5- required to deduct and withhold taxes under Section Fifty-three shall furnish each recipient, in respect to his or its receipts during the calendar quarter or year, a written state ment showing the income or other payments made by the withholding agent during such quarter or year, and the amount of tax deducted and wit h held t h erefrom, sim u lta n eously u po n pay ment at the request of t h e payee, but not l ate r t h a n t h e 20th da y following t h e close of the quarter in t he case of cor poration (d) Income of Recipient. Income upon whic h any creditable tax is required to be withheld at source u nder Section 50 shall be included in the return of its recipient but ~ excess of the a mo u nt of tax so with h eld over t h e tax due on his return shall be refunded to h i m s u bject to t h e provisions o f sectio n 204; if t h e inco me collected at source is less tha n t h e tax due on his return, the difference shall be paid in acco r dance with the provisions of Section 49. Sec. 69. Final adjustment return. Every corporation liable to tax under Section 24 s h all file a final adj u st ment retur n coveri n g the total income for t h e preceding calendar or fiscal yea r . If t h e su m of t h e quarterly tax pay ments made d u ring the sai d taxable y ear is n ot equal to the total tax due on the entire taxable income of that year the corporation shall either: (a) Pay the exce ss tax still due; or ( b ) Be refu nd ed the excess a mount paid, as the case may be. In case the corporation is e n titled to a refund of the excess estimated quarterly income taxes paid, the ref u ndable a mount sho wn o n its final adjustment return may be credited against the estimated quarterly income tax liabilities for the taxable quarters of t he succeeding taxable year. ( Underlining supplied).

DECISION C.T.A. CASE NO. 5506. - 6- The above provisions of law settles petitioner's entitlement to t h e ref u nd of an excess i n come tax payment. We now delve on the second iss u e whic h is the factual aspect of the case. It is already well-settled that three basic requirements must be met before a refund of overpaid creditable with h olding taxes may be granted, to wit: 1. That it filed a claim for refund wit h in the two ( 2) year period from t h e date of payment of the tax as pt�escribed under Section 299 (now 230) of t h e National Internal Reve nue Code, as a me n ded; 2. That the i n co me u pon wh ich t h e taxes were withheld at source under Section 53 were included as part of the income declared i n the income tax return of the recipient; and 3. The fact of wit hh oldi n g is established by a copy of statement (BIR Form 1743.1) duly issued by t h e payor (with h olding agent) to t h e payee, showing the amount paid a n d t h e a mo un t of tax withheld theref r o m. [Sec. 10, Rev. Reg. 6 - 85; see Citytrust Finance Corporation vs. The Commissioner of Internal Revenue, CTA Case No. 4134, November 11, 1991; aff i rmed by the Court of Appeals in Citytrust Finance Corporat i on vs. Court of Tax Appeals and the Commissioner of Internal Revenue, CA-G.R. SP No. 28239, March 14, 1994; and Citytrust Finance Corporation (Formerly Investor's Finance Corporation/FNCB Finance) vs. Commissioner of Internal Revenue, CTA Case No . 4046, February 24, 1993; affirmed by the Court of Appeals in Commissioner of Internal Revenue vs. Citytrust Fi nance Corporation (Formerly Investors Finance Corporation/FNCB Finance) and the Cour t of Tax Appe als , CA- G. R . SP No. 31104, April 18, 1994].

DECISION C. T.A. CASE NO. 55 06. - 7- (\ C l t" C I.Ifll ''J18 Ct r eco rd s Rnd evi d e n ce o-F t h e c as e r� eve fl .t e d p et i t:i..o n e r� q1J a l i f i e dly rn e t: th e r�e q11 i I'P ifl !' lt tc: fftP. Il t.i. Ol t t? d a il0 \1('. f\ s I" e g A 1� cl s 1� e q u i r� P 111 e n t: num b e r� o n e, t h e c l ai m I' P f U 11 d o l ovc 1� p;1.i d .i. II CO II"I e f:. i-IX a r i s i ng f� r. o rn th e excess p n y m P 11 t o I ~J j t Ill t o I ci.i n g t�. :-1 x a 1: c: o t r r� c e s It o 11J d b f> f i l e d botl t Co 111111 i. !-': .., i o 11 P 1 o I I n t: P I' 11 a 1 ~ ~ e v c n u e a n cl "' i t h th i. G C o 11 t' t w l t . It i 1t t�. it c> t.w o - y P ;9 ,. p P 1- j o d f r o 1rr t It e d.=d:e of paym e n t t h e Tax CodP, a rn e 11d e d . A v c I" i t i c a t i o n o f the Jud icial c laim 'f 0 ,. y e a r� l 9 9 4 d i s c 1 o s e d t II rl t p e t i t i 0 n 0 I' o 111 y f i 1 e d t~ h e i n -:::tn 11 t ac tio n on ApriL th e tErx \.Jas on 1\pril J 1 ' 199S, t h e d a t~ e u h P n t: h e Rnnu a l i n c orne tax 1� P t: U t' I I ol p P I. j l~ joner� \ ,! .:) �; I i lf'd. 1 h e r� e f� o I' e , th e 1 99 4 c I i1 i 1T1 r o 1� t' C f I I tl d j It or t it e P- 3 , ,Ll9g ,68 J .00 h as ,') lf1 0 1111 1. d 11' (> ,:rdy p r� r:- c: c I' i b (� d I o 1� b P i n q I .i. 1 e d beyond t h e t\.-.�o ��� yen I' p e 1� i ocJ pt� ov id Pu uy 1 Rw (Commi ss ioner of Internal Revenue v s . T he Philippine Am erica n Life Insurance Co .� The Court of Tax Appeal s an d Th e Court of Appeals. G.R . No. 105208. May 29. 1995; Commi ss ioner of Internal Rev e nue v s . TMX Sales. Inc. an d Th e Court of Tax Appeals, G. R. No. 837736, January 15, 1992; ACCRA Investment Corp. v s . The Honorabl e Court of Appeals. Commissioner of Internal Revenue and Th e Cou rt of Tax Appeals. G.R. No. 96322, Dece mb er 2 0. 1991; Commissioner of Internal Revenue vs.

DECISION C.T.A. CASE NO. 5506. - 8- Asia Australia Express Ltd., represented by Soriamont Steamship Agencies, Inc. and Court of Tax Appeals, G. R. No. 85956, April 10, 1989). With respect to the 1995 overpaid creditable withholding tax in the amount of P11,244,504.00, the filing of the claim for refund was within the two-year period. It appears from the records that the filing of the administrative clai m for refund with the Bureau of Internal Revenue was done on October 22, 1996 (Exh. FF) and the petition for review with this Court on April 14, 19 9 7. The counting of the two-year period commences to run on April 15, 1996, the time when the petitioner filed its final income tax return for the taxable year 1995. As to t h e sec ond requirement, petitioner wa s able to show that the income t he creditable withholding taxes for 1995 were paid was included in its gross income. This was testified to by petitioner� ' s witness, Mr. Robert de Jesus Velilla, Jr. (pp. 18 and 19, TSN, Augu st 26, 1997) and was show n under Section C of the 1995 annual income tax return of petitioner (Exh. P). With respect to the last r�equirement, petitioner fell short in proving all the withholding taxes claimed dut�ing the year 1995. A su mmation of the amounts reflected in the certificates of creditable withholding tax at so u rce (BIR Form 1743.1) presented by petitioner

DECISION C.T.A. CASE NO. 5506. - 9- shows a lesser a mo un t of P 7,748,6 4 1.36 than what petitioner is claiming for, to wit: Amount of Amount of Withholding Agent Exh. Income Paymen ts Tax Withheld Mercury Drug Corporation p 278,520.00 p 2,785. 20 Me rcury Drug Corporation Mercury Drug Corporation 257,400.00 2,574.00 Mer cury Drug Corporation Mercury Drug Corporation 270,270.00 2,702.70 Mercury Drug Corporation Mercury Drug Corporation T 517,506 . 00 5,175 . 06 Mer cury Drug Corporation Mercury Drug Corporation U 358 , 860.00 3,588.60 Mercury Drug Corporation National Development Company V 428,675 . 00 4,286 .7 5 Zuellig Pharma Corpora t ion Zuellig Pharma Corporation W 54 7,621.00 5,476.21 Zuell i g Pharma Corporation Zuellig Pharma Corporation 73,256 . 00 732 . 56 T 0 T AL 270,746.00 2,707.46 561,802.00 5,618.02 AA 85,300.00 853.00 BB 163' 627' 081.00 1,636, 270. 81 CC 170,807,910.00 1,708,079.10 DO 234 '959' 638.00 2,349,596.38 EE 201,819,551.00 2,018,195.51 P774,864,1 36.00 P7 '748,641.36 Th erefore, t h is Cour t l i mits petitio ner's e n t i t le me n t to t h e s um o f ~ 7,748,6 4 1.36 wh ic h was s up po r ted by evide n ce. Th e allegati on a dvanced by the respo n de n t t h at the mere aver ment of net loss does not ipso fact:o merit a r efu nd , s uf fice i t t o s t ate t h at i n t h e case o f Bank of the Philippine Islands as Liquidator of Paramount Acceptance Corporation vs. Commissioner of Internal Revenue, CTA Case No. 4257, dated December 20, 1993 suc h controvers y h as alread y been settle d , and We q u ote: Des p ite th e r ese r vatio n o f r es pond e n t wit h respect to t h e veracit y of t h e r et urn still u p to t h e ti me gi v e n f or r espo nd e n t to p r ese n t he r evide n ce and up u ntil t h e s u b missio n of t h is

DECISION C.T.A. CASE NO. 5506. - 10 - case for decision nothing was shown during the hearing that the return was erroneous nor was there evidence presented that there exist any irregularity in the computation or preparation of the return which will taint their reliability or sufficiency and competency as proof of overpaid income tax for the year 1985. At the time the return was filed on April 14, 1986, respondent's examiners had all the time to examine and audit the return. Up to this time nothing was heard from the respondent disputing the correctness of the return for otherwise she would have, upon knowledge of any irregularity, issued an assessment for said year or at least notified this Court if there any. It is within the competence of respondent to examine petitioner's financial statements and audit report as these are documents necessarily attached to the return filed by petitioner and formed part of the SIR records. Respondent is thereby considered to have admitted the truth of the contents of these exhibits. Hence, in the absence of contrary evidence, the Income Tax Returns and the Confirmation Receipts of payment of the quarterly taxes should be given credence as proof of overpaid income tax for 1985 in the amount of ~65,259.00 (see also Citytrust Banking Corporation vs. Commissioner of Internal Revenue. CTA Case No. 4099. dated May 28. 1991) . Respondent also avers that there is no sufficient proof that the taxes withheld by the payor were remitted to the SIR and that petitioner should have presented certifications from the SIR's Revenue Accounting Division as to the fact of remittance. We find respondent' s contention without merit. The presentation of such certifications are not required by law and/or implementing revenue regulations. All that is required to show proof of withholding is the presentation the statements of tax withheld at source (SIR Form

DECISION C . T.A. CASE NO. 5506. - 11 - 1743.1) showing the income received and the amount of tax withheld t h erefrom and that the income was included to form part of petitioner's gross income as stated in its income tax return. The reason for this is simple. The withholding agent is not within the control of the payee-taxpayer but are considered as the tax agent of the Commissioner of Internal Revenue. The withholding agent merely holds the a mo un t in trust for the govern ment ( Commissioner of Internal Revenue v s . Citytru s t Bank i ng Co r poration, CA-GR SP No . 26839, July 31, 1992 ). Th us, it is significa n t to note that the presentation of payme n t orders, confirmation receipts or in the alternative t h e a dm .iss .ion o f w.i t:h h o 1 d .in g age n t:s are not at all required under the law a n d regulations. The BIR Form 1743.1 having been signed under the penalties of perjury can be taken o n its face ( Filipinas Management & Leasing Service s Corpora t ion vs . Commissioner of Internal Revenue, CTA Case No. 4146, dated March 11, 1994 ). WHEREFORE , in view of t h e foregoing, the petition for� review is found to be partially meritorious. The claim for refund of petitioner for the calendar year 1994 is hereby DE NIED for being filed out of time but the claim for refund for excess creditable withholdi ng tax fo r� the calendar year 1995 is GRANTED. Accordingly,

DECISION C.T.A. CASE NO. 5506. - 12 - respondent is ordered to REFUND in favor of petitioner the su m of P7,748,641.36. SO ORDERED . ~lQ- 0~ ERNESTO D. ACOSTA Presiding Judge WE CONCUR: / f i ~~, I RAMON 0. D~~ Associa t 3 e Ju( dg[ 1 CIO Q. AGA Associate udge CERTIFICATION I hereby certify that t h e above decision was reached after due consultation with the members of t h e Court of Tax Appeals in accordance with Section 13, Article VIII of the Constitution. ~'a- 0.......-1\- ERNESTO D. ACOSTA Presiding Judge