CTA Case No. 4273 (Decision)

--- ----- ... ... REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS Quezon City BANK OF AMERICA, NT & SA <Manila Branch), Petitioner, - versus - C. T. A. Case No. 4273 THE COMMISSIONER OF INTERNAL 3 ) REVENUE, - )( - - - Respondent. - - - - - - )( This is a claim for refund or ta)( credit initiated by petitioner for its overpaid income ta)( for December 31, 1986 and 1987, arising from e)(cess quarterly - income ta)( payments for the year 1986. Petit i oner Bank of' America is a foreign c o rp o r a t i ,on d u 1 y licensed to engage i .n banking business in the Philippines in accordance with Philippine Laws. As such, petitioner has the status of' a resident foreign corporation or a Philippin� Branch, for ta)(ation purposes. It appears that for the calendar year ended December 31, 1986, petitioner filed its Annual

- DECISION- CTA Case No. 4273 -2- Income Ta>< Ret urn on Sept ember 4, 1987 [E><h. A and A-lJ reflecting the following income ta>< payments: a) Prior Year's (1985 ) p 12, 754, 949. 19 Excess Credit <t ax paymen t) CExh. M & M-1 1 b) First Quarter 1986 Tax 8, 259,314.81 Payment <May 30, 1986) p 2 1 ,014 ,264. 00 CExh. B & CJ TO TnL INCOME TnXES PniD In th e s ame 1986 corporate inco me ta>< return, p etitioner declare d a ta>< l i ability in the total a mount of P12 , 10 1, 524 ( for both the regular banking unit for 1=110.234,915 and the . FCDU unit for Pi, 866, 609). Petitioner th er efor e c onsidered itself to h ave o ver paid it 5 1996 inco me ta>< l iab i l i t y in the a 111o unt of J.i)8 ,912 ,740 which is likewise rerle~ted � in 1 986 , t hu s represe nting p etitioner's e >< cess ta>< credit for the year ended Decemb er 3 1 , 1986 .. Fo r the succeeding ta><a ble year 1987, petit io n er filed it s Annual Income Ta>< Return [Exh. PJ and only the a mo unt of Pl, 149,396 was applied agai n s t petitioner's q u arterly income ta>< liabili ties during th e ta><ab l e quarter for that year as petitioner dec lared a net 1 oss. It appear s th e n that petitioner h ad an un uti lized e><cess ta>< credit or overpai d inco me ta>< of

- DECISION- eTA Case No. 4273 - 3- P7,7G3,344 <P8,912,740 less P1,149,39G> as of December 31, 1987 CE xh. OJ. This income ta>< return was filed with the Bureau of' Internal Revenue on Apri 1 15, 1988. On May 19, 1988, petitioner, through its auditors, f'i led with the respondent a request for refund o r the issua nce of' a ta>< credit certificate in a letter, dated March 4, 1988 [Exh. KJ. A supplemental letter, dated May 24, 1988, wa s filed by the auditors, for and in behalf' of' the petitioner, requesting for the refund o r issuance o f' ta>< credit for the amo unt of' P7 , 7 G3,344 as ove p id i ncome cre d it as of' December 31' 1986, n t o f the applic a t i on o f' P1, 1 49,395 CExh. LJ. Respondent fafl .ed to act on petitioner's claim for refund. In respondent's Answer to the instant petition, he admitted all averments relating to the filing and e><istenc e of petitioner's income ta>< return for the calendar year ended on December 31' 1986, but specifically denies veracity of' the entries in said income ta>< on the ground that said income ta>< return is still subject to the "usual verification and investigation." He likewise admitted that 880

- nn-: JSJON Cln Case No. 4 273 - 4- petitioner requested from the respondent a ta>< credit in the amount of P7,763,344 but specifically denies the reasons advanced in said letter as being "erroneous conjectures." As special affirmative defenses, respondent averred, among others, that: a) The petition states no cause oF action as it does not allege when the tax sought to be credited was paid; b) The amount oF P7, 763,344 claimed by petitioner as overpaid net income tax For the year 1986 was paid in accordance with law and regulations; c) Claims For reFund are strictly construed against the taxpayer and in the instant case the same is not properly documented let alone that the same is still pending "pre - audit" pursuant to Revenue Memorandum Ot~der No. 32- 76 , dated June 11, 1976, � implementing the provisions oF Sections 85 and 86 (now Sec. 69) oF the Tax Code. During the hearing of this case, respondent, after a series of postponements, failed to submit any evidence. Instead, he submitted his case for decision on the "bases of the pleadings and the evidence presented by the petitioner" [Hearing on Sept ember 7, 1992, p. 106, CTA records]. He did n o t even fi e a Memorandum to buttress, at the very least, the lleg ~ tion s in his Answer [Manifest a tion, dated J a nu a ry 5 , 1993, p. 140, CTA records]. It is likewise noted that the respondent even failed to transmit to this Court 881

- DECISION- eTA Case No. 4273 - 5- the BIR records of the case as required in Section 2, Rule 7 of the Rules of this Court which could have aided this Court in making an overall assessment of the evidence in deciding this case. The sole issue to be resolved is whether or not petitioner is entitled to the refundable amount for the years ended December 31, 1986 and 1987 representing unutilized overpaid income tax in the amount of P7,763,344, pursuant to Section 69 in relation to Section 230 of the National Internal Revenue Code. The evidence presented by petitioner is uncontroverted. As earlier stated, respondent did not present any evidence in support of his case. During the hearing of this case, respondent did not even cross-examine the solitary witness, Augusto Monzon, Senior Administrative Clerk of the Bank of America, presented by petitioner [Hearing of March 1, 1989]. As ably presented by petitioner in his Memorandum, dated November 6, 1992 [pp. 118- 133, CTA record s ], the following is the "sequence" of vital documentary evidence in the form of year- end and quarterly income tax returns and payments made by the petitioner to give a clearer picture 882

-DEC ISION- eTA Case No. 4273 - 6- of the overpaid income ta~ or e~cess ta~ credit which it now seek to be refunded: Corporate Annual Inco�e Ta w Return Filed on ApY'il 15, 1986 <YeaY' Ended DecembeY' 31, 1985> In come P1, 138,654,298.00 Less : Deductions 989,951,265.00 Net Income 148,703,033.00 Tax Rate 35" In co me Tax Due 52,036,061.00 65,065,551.52 Less:PY'ior Year' s Excess Credit P 698,9 17 .19 Quarter ly Payments Dur ing the Year 64,366,634.33 Excess Tax Cred it 13,029,490.52 Add : Creditable Taxes Withheld 4,816.67 TOTAL 13,034,307.19 Less: FCDU Pa ym e nts 279,358.00 Tota l Amount to be Applied a~ !;) 12,754,949.19 Tax Credit o Suc ceeding Year ===~====:==== ==== Gross In co me p 264,901,163.00 Less: Deduction s 204,831,836.00 Taxable Net Income 60,069,327.00 Tax Rate 35" Income Tax Due 21,014,264.00 Les s : Tax Credit for 1985 12,754,949.19 Income Tax paid for the Quarter 8,259,314.81 === ====== == ====== 883

- - DECISION- CTA Case No. 4273 -7- Final Corporate Annual Inco�e Tax Return Filed on September 4, 1987 <Year Ended December 31, 1986) Income p 708,043,119.00 Less : deductions 678,800,505.00 Net Income 29,242,614.00 Tax Rate 35,C. Income Tax Due 10,234,915.00 2 1,014,264.00 Less:Prior year's exc~s cred i t P 12 , 754 , 949.1 9 8,259. 314.8 1 Quarter ly P yment~ durin th y e r Excess T x C ed t 10, 779,349.00 1,866,609.00 Les s: CDU y m nt p 8, 912, 7'�0. 00 Refundabl Amount =~============== = Co por te Annua l lnco� Tax Return <Year End d December 3 1, 19 87> Refundable Amount s a t p 8,912,740.00 De ce mber 31 , 198G 1' 149, 396. 00 Less: Amoun t Appli e d in Taxable Year 1987 Refundable A�ount p - - - - -7-,7-6--3-,3-4--4-.0-0- <Exh. 0> - Did Petitioner file its administrative claim for refund within the time prescribed by Section 230 of the NIRC? Based on the evidence presented, petitioner complied with that requirement. Section 230 of the NIRC provides thus: "t?..~.c;.Jj_.cm_?..30. Rec;,overy o f tax errq_!']e~usl y Q.t:..__,i l_l_l!..ll.~-~-cq_l_l_~_t;;_.'t~d. - No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or 884

� - DECISION- eTA Case No. 4273 -8- illegally assessed or collected, or oF any penalty claimed to have been collected without authority or oF any s um alle ged to have been exces sive o r in any ma nner wrongFully collected, until a c laim For refund or credit has been Filed with the Commissioner ; b u t such refund or credit has b e n dul y Filed with the Commissioner; but s u c h su it or p r oce eding ma y be maintained , whether or not such tax, penalty, or sum h.a b en paid under protest or duress. I n any ca e, no such suit or proceeding sha l l be begun after th� expir~ti on of two years ft"' o m the d t e o f gay~~te n t of the tax or penalt y r@gard l ~s of ny u pervenin g ca use that m.ay al"'iS e aff:ttt" paym11n t: E!ro.Y..J. f!..Ji'..f!.., t!JJ.!:'!...fl..>' !...r?:. r:..~ That thfil Com mi ssi on er may , eve n with ou t a writ ten claim thereFor, refund or credit any tax, whtH"' e on the f ace of the ret urn upon which payment w.:as ma de, suc h payme nt appears clearly to have b een erroneou sly paid." (underscoring s upplied) The general rule is that the two-year period is counted from the date of payment. However, under Sections and 69 of the NIRC, corporations are required to file quarterly income tax and a final adjustment return covering the total net incpme , from the preceding calendar or fiscal year and the corresponding adjustment has likewise to be made in filing an administrative claim for refund with the Commissioner of Internal Revenue. To quote the pertinent provisions of law: Section 68. !!!!..c;..L~r.:i!' t i Dt!...._fi..L _.f;;_l!..t:::.PP...r...~.J.. e Ouart er-!.~ Irrc;g� ~---[ax.- Every c orpo ra tion sh.:dl File in duplicate a quarterly summary declaration of its gross income and deductions on a cumulative 885

- DECISION- eTA Case No. 4273 - 9- basis for the preceding quarter or quarters upon which the income tax, as provided in Title II � oF this Code shall be levied, collected and paid. The tax so comptlted shall be dect~ease d by the amount oF tax previously paid or assessed during th e pt~eceding quarters and s h a 11 be pa i d not 1 a t e t~ than s i x t y ( 6 0) d a y s From the cl o se oF each oF the First tht~ee ( 3) quarters oF the taxable yeat~, whethet~ calendar or Fi seal year. Section 69. F...i.TJ.aL. .f.!d.i..f:l!>t�~nt .......B~t..ur..IJ. ~.- - Evt?ry corpor~tinn l i �b l t? to t~x under SPct inn P 4 shall File a Final adjustment re tur n coverin g the total net income For the preceding calendar or Fi seal year. IF the sum oF the quart er } y t ax payments ma de during th e year is not equal to the total due on the e nti re taxable net income oF that year the c orporation shall either: (a) Pay the excess t ax sti ll due; or (b) Be refunded the excess amount paid, as the case may be. In case the corporation is entitled to a reFund of the excess estimated quarterly income taxes paid, the reFundable amount shown on its Final adjustment return may be credited against the estimated q~arterly income tax liabilities for the taxable �1 i abi 1 it i es for the taxable quarters of the succeeding taxable year. (underscoring supplied) The time for filing the administrative claim for refund or tax credit and the judicial action I taken thereon was never raised by the respondent. In fact, respondent unqualifiedly admitted Exhibits K and L of the petitioner which were the letters of the auditors of the petitioner, dated March 4, 1988 and May 24, 1988, respectively, requesting for refund in the amount of P7,763,344 ( p. 76, CTA records). Be that as it may, the 88 G

- DECISION- CTA Case No. 4273 -1 0- reckoning date in the determination of the two- year prescriptive period to institute the claim for refund of this nature should be the last day for filing of the final adjustment income tax return covering the total net income for the preceding calendar or fiscal year as provided by Section 69 of the NIRC. In this case, therefore, petitioner filed its final adjustment income tax return for the year 1986 on September 4, 1987. Its administrative claim was filed on May 19., 1988 and the judicial suit., i.e � ., petition for review before this Court., was initiated on May 27., 1988., all within the prescribed period mandated by Section 230 of the NIRC. The Supreme Court has in fact already ruled and interpreted this matter in the case of ACCRA Investments Corporation v s. Commissioner of Internal Revenue., G. R. No. 96322, December 20., 1991., when it pointedly stated that: "Clearly, ther~ e is the need to 'File a r~ettlrn 'First beFore a clai m 'For reFund ca n prosper inasmuch as the respondent Commi ssioner by his own rules and regulations mandates that the corpora te taxpayer~ opting to ask 'For a reFund must show in its 'Final adjustment return the income it received 'From all sources and the amount or withholding taxes remitted by its withholding agents to the Bureau or Internal Revenue. The petitioner corporation 'Filed its 'Final adjustment return 'For its 1981 taxable year on npr~il 15, 1982. In our resolution dated npril 10, 1989 in the case or 88 7

- DECISION- CTA Case No. 4273 -11 - Commissioner Internal Revenue vs. ~sia ~ustt~a lia Express, Ltd. (G.R. No. 85956J, we ruled that the two - year prescriptive period within which to claim a rerund commences to run at the earliest on the date or the riling or the adjusted rinal tax return. Hence, the petitioner corporation had until ~pril 15, 1984 within which to rile its claim ror rerund. It bears emphasis at this point that the rationale in computing the two-year prescriptive per iod with respect to the petition er cor por ation's claim ror rerund rrom the time it riled its rinal adjustment return is the ract that it wa s only then that the ~CCR~JN could a s certain wheth e r i t made pt~ o f"i t s or incurred los s es in it s bu s iness operations. The ' date or payment,' the r erore, in ~CCR~IN' s c a s e was when its t a x liability, ir any, rell due upon it s riling or it s rinal adjustment r etw~ n on ~pril 15, 1982 . " ) Respondent failed to respond to the claim for refund instituted by the petitioner giving the latter no other recourse e><cept to bring thtt ins t ant pe tition for review before this Court. ~ etit i o n er has overpaid ineom in the amount of P7,763,344. 0 0 f o r the t a><able ye a r in question, it is thus entitled to a refund as required by law. ' WHEREFORE, judgment is hereby rendered directing respondent to refund or issue a ta>< credit certificate in the amount of P7,763,344.00 representing unutilized e><cess ta>< credit or overpaid income ta>< for the years ended December 31, 1986 and 1987. No pronouncement as to costs. 88&

- DECISION- CTA Cas e No. 4273 - 12- SO ORDERED. Quezon City, Metro Manila, 24 Au gust 1993. �;w--~ 2/_.. ~ /~ AMON O. DE VEYRA (/ As s oc iate Judge WE CONCUR: c 'f~N~STOoD. .ACO~STA Pres iding ~L � � GRIll> As soc i a te Judg e I hereby c r tiFy tha t th is decision wa s r ached aFte~ du ~ cons ult ation among th e members oF th~ Cou~t o F Tax Appe a ls, in accordanc~ w~th Se c t i on 13, Article VIII oF the Constitution. idin - Judge Court of Tax Appeals 88 f)