CTA Case No. 6058 (Decision)

REPUBLIC OF THE PHIL.IPPINES COURT OF TAX APPEALS QUEZON CITY CITICORP CAPITAL PHILIPPINES, I NC., Petitioner. -versus- C.I.A. CASE NO. 6058 COMMISSIONER OF INTERNAL Promulgated: REVENUE, AUG 09 2001 /J;:cetfit'~~l- Respondent. 1 r/ X-----------------------------------------------------------X DECISION Thi s is a petition seeking for the refund or issuance or a tax credit certificate in the amount of Five Million Nine Hundred Thirty One Thousand and Ninety Eight Pesos (P5,931 ,098.00), allegedly representing overpaid income tax and unutilized creditable wi thholding tax for the taxable year 1997. The facts of the case are si mple: Petitioner is a domestic corporation engaged in the business of underwriting securities as an investment house with principal ot1ice at 8741 Pasco de Roxas, Makati City. On May 29, 1997, Petitioner fil ed its Quarterly Income Tax Return for the first quarter of 1997, reflecting a taxable income or p 14.448.965.40 and paid the tax due thereon amounting to P5 ,057, 137.90 (Exhibit A) . .)

DECISION- CTA CASE NO. 6058 PAGE2 For the succeeding quarters of 1997, however, Petitioner incurred losses from its foreign exchange transactions, resulting to a net loss position at the end of the year. On April 15, 1998, Petitioner filed its Annual ii11'ome Tax Return for the taxable year 1997 reporting a net loss of P97,237,756.00 and a refundable amount of P5,057,138.00, representing the income tax paid on the first quarter of 1997 (Exhibits D, 0-2). Petitioner opted to apply the refundable amount as credit against the income tax due on the following year 1998 and indicated such choice by marking with an 'x' the appropriate box in the return (Exhibit 0-1 ). During the taxable y_car 1997, Petitioner derived inco me which were subjected to expanded withholding tax as follows: Exhibit Income Payment Amount Tax Withheld Subject to Expanded p 5,999.24 Withholding Tax 670,517.86 197 443.29 G Payment to Customs, Real P873,960.39 Estate and Commercial Brokers. Withholding Agent: Eq uitabl e Banking Corporation P 11 9,984.70 I-I Professional/Talent Fees 2.446,372.60 Withholding Agent: Citicorp 2,462,354.07 Securities Jnt'l. (RP), Inc. I, 114,568.40 Professional/Talent Fees I,134, !()5.20 Withholding Agent: Citicorp I,537,776.20 Securi ties Int' I. (RP), Inc. 1276,924.40 PIO 092 145.57 Realizing that it failed to report the creditable tax withheld in its Annual Corporate Income Tax Return for 1997, Petitioner tiled an Ame nded Corpo rate Annual Income Tax

DECISION - CT A CA SE N O. 6058 PAG E3 Return for the year 1997 on June 19. 199 8 (Ex hi bit E). th is tim e reportin g a refund abl e amoun.t of P5 ,931,098 .00 represent;_ng ove rpaid inco me tax o f P5,057, 137 .90 and unutili zed creditabl e w ithho lding tax in th e amo unt o r P873,960.39, which it opted to carry over to the succeedin g tax abl e year 1991). Petitioner, howe ver, fa iled to carry ove r the am o unt o r P5,93 1,098 .00 to the succeeding taxabl e year of 199 8 as it end ed up aga in in a net loss pos iti o n on that year (Exhibit J). Thus, on February I0, 2000, Petiti o ner til ed w ith the Bureau of Internal Revenue (BIR) ROO No . 50, a letter-claim fo r th e refund o r its unutili zed tax credit in the amount of P5 ,931 ,098.00 (Ex hibit F). As there was no ac ti o n on th e part o f he rei n Respond ent, and the two-ye ar prescriptive period was about to expire, the instant Petiti o n was fil ed o n April II , 2000, anchored on Sections 76 and 204(c) of th e 1997 Tax Code, to state: Section 76. Final Adjustment Retum. - Eve ry corporati o n liable to tax under Section 27 sha ll file a fin a l adju stm ent return cove rin g the total taxable income fo r the precedin g cale nd ar or l"i sca l year. If th e s um of the quarterl y tax paym ents made durin g the sai d taxab le year is no t eq ual to th e to ta l tax due o n the entire taxa ble inco me o r that yea r. th e co rporati on shall either: (A) Pay the ba lance of the tax still d ue; o r (B) Carry-over the excess credit; o r (C) Be credited o r re fund ed w ith th e excess amo unt paid, as the case may be. In case the corporati o n is entitled to a tax credit o r refund of the excess estimated quarterly inco me taxes pa id , th e excess amo unt shown o n its fin al adjustm ent return may be carri ed ove r a nd c redi ted aga inst the es tim ated quarterl y inco me tax li abiliti es lo r the taxabl e q uarters o r the succeeding taxable years. Once th e opti o n to carry-over a nd appl y the excess quarterl y income tax against income tax due lo r th e taxab le q uarters of the succeedin g taxable years has bee n made, such op ti o n s ha ll be co nsidered irrevocable for

DECISION- CTA CASE NO. 6058 PAGE4 that taxable period apd no applicati on fo r cash rdund or issuance of a tax credit certificate shall be allowed therefo r. " Section 204. Authority of tlte CommiHioner to compromise, abate, and refund/credit taxes. - The Co mmi ss ioner may: XXX XXX XXX (l)Credit or refund taxes erroneously or ill egall y received or penalties imposed without authority, rcCuncl the value of internal revenue stamps when they arc returned in good condition by the purchaser, and, in hi s discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destructi on. No credit or refund of taxes or penalties shall be allowed unless the taxpayer fil_es in writing with the Co m1~1i ss ion e r a claim for credit or refund within two (2) years after the payment of the tax or penalty: Provided, hm 11ever. that a return tiled showing an overpayment shall be considered as a written claim for credit or refund . ln his Answer filed through registered mail on June 14. 2000, Respondent claimed by way of Special and Affirmative Dc!c nses that: "4. Assuming without admitting that petiti oner fil ed a claim for refund, the same is subject to investigation by the Bureau of Internal Revenue. 5. Petitioner miserably failed tv demonstrate that the ta x subj ect of the case at bar was erroneously or illegall y co ll ec ted. 6. Taxes paid and collected arc presumed to have been made in accordance with law and regulations, hence, not refundable . 7. In an action for tax refund/credit, the burden of proof is on the taxpayer to establish its right to refund and failure to adduce sunicient proof is fatal to the action for tax refund/credit. 8. It is incumbent upon the pditi oner to show that it has complied with the provisions of Section 204 in relati on to Section 229 of the Tax Code, as amended .

DEC ISION- CTA CASE NO. 6058 PAG ES 9. Claims for refund are construed stri ctl y aga ins t the claimant fo r the same partakes the nature of exe mpt io n from taxati on (Commissioner of Internal Revenue vs. Lede sma, G.R. No. L- 13509. January 30, 1970, 3 1 SC RA 95) and as such. they arc looked upon with di sfavo r (Western Minolco Corp. vs . Commi ss ioner of Interna l Reve nue, 124 SCRA 12 1)." The issues We are tasked to reso lve have been st ipulated by the parties to be as follow s: 1. Whether or not the Petiti oner has an excess quarterl y income tax payment and unutili zed creditab le wi thhold ing tax in the amount of P5 ,93 1,098 .00 for calendar yea r ending December 3 1, 199 7. 2. Whether or not the inco me from which taxes were withheld were included as part of the gross inco me in the Petiti oner's 1997 income tax return. 3. Whether or not the Petiti oner 's claim lo r re fund of all eged excess quarterl y income tax pay ment and unutili zed creditabl e withholding tax is substanti ated by documentary ev idence. 4. Whether or not the petiti oner appli ed th e overpaid income tax and the unutilized creditabl e withholding tax fo r taxab le year 1997 to its inco me tax li abilities for the subsequent taxab le year. Petitioner, to support its case, offered the fo ll owing ev ide nce : Exhibits Descrip tion A to C Quarterl y Inco me Tax Returns lo r the first, second and third quarters of 1997 0 Annual Co rporate Inco me Tax Return for calendar year 1997 E Amended Corporate Annual In co me Tax Return for calendar year 199 7 F Admini strati ve cla im lo r refund da ted 4 February 2000 G to 1 Certifi cates of Creditab le Tax Withheld at So urce during the yea r 199 7 J Annual Inco me Tax Return lo r taxab le year 1998

DEC ISIO N- CTA CASE NO . 6058 PAG E6 K A mended A nnual Income Tax Re t~m1 for taxable year 1999 Respondent ' s co unseL on hi s part, s ubmitted thi s case for de c ision on the ground that there is' no report on the in vesti ga ti on (p. 173. CTA record s). He likewise failed to file hi s memorandum within th e peri od given by th e Co urt. We find for th e Petiti one r. The right of a taxpaye r to recover fro m th e Respo nde nt's burea u any excess income tax paid is provided for under Section 69 (now Secti on 76) o f the Tax Code, hereinbefore quoted . On the other hand , to be entitled to a rcl'un d cf excess or unutili zed creditable withholding tax, the foll owing requirem ents have to be met: 1. That the cla im for re fund was filed w ithin the two (2) year period prescribed und er Secti on 230 o f th e Na ti onal Intern a l Reve nu e Code ; 2. That the income upon w hi ch th e taxes were wi thhe ld we re included in the return o fth c rec ipi e nt ; a nd 3 . That the fact o r withho lding is estab li shed by a co py of a statement [BIR Form 23 07 (form erl y Fo rm 1743- 750)] dul y iss ued by the payor (w ithholding age nt) to th e payee, showing the amount paid and the am ount o f tax w ithhe ld th ere ti�om . [Section 10, Rev . Regs . No. 6-85; sec Cityt:u st Finance Corporation vs. The Hono��able Com missioner of Internal Revenue, CTA Case No. 4134, Novcmbe1� 11, 1991; affirmed by the Court of Appeals in Citytrust Finance Corporation vs. Court of Tax Appeals and the Commissioner of Internal Revenue, C.A. G.R. SP No, 28239, March 14, 1994; and Citytrust Finance Corporation (formerly ln vcs to��'s Finance Corporation/FNCB Finance) vs. Commissioner of Internal Revenue, CTA Case No. 4046, Fcbruar�y 24, 1993; affirmed by the Court of Appeals in Commissioner of Internal Revenue vs. Citytrus t Finance C orpon1tion (formerly Investo��' s Finance Corp./FNC13 Finance) and the Cou1�t of T ax Appeals, C.A. G.R. SP No. 31104, AprillS, 1994].

DEC ISION - CTA CASE NO. 6058 PAG E 7 The aforementi oned requirements we re al"lirm cd by th e Supreme Co urt in the case entitled Citibank, N.A. vs. Court of Appeals and Commissioner of lntcmal Revenue 280 SCRA 459. As to the first requirement, We fin d Petiti oner' s claim fo r refund , both in the administrative and judicial leve l, as tim ely til ed. The Corporate Annual Income Tax Return of Petitioner for the taxa bl e year ended Decembe r 3 1, 1997 was fil ed on April 15, 1998 (Exhibit D). Veril y, the claim for refund ti led with the 131 R on February 10, 2000 as well as the instant petiti on to r review tiled on April II , 2000 fall within the two-yea r prescriptive period. Petitioner's annual mcome tax return for the taxab le year ending December 3 1, 1997 al so showed that part of its gross income (loss) of P (58,696, 747.00) (Section A of Exhibit E) came from underwritin g co mmi ss ion of P7,428 ,386.00 and management and professional fees of P9,972, 165.00 fro m whi ch amounts the total creditable tax of P873,960.39 was withheld [(Schedul e 2 of Secti on C) Ex hi bit E] . And to prove the fact of withholding, Petitioner su,bmittcd certifi cates of creditabl e tax withheld at source (Exhibits G to I) issued by its wi thholdin g age nts spcc iiled earli er. From the above, it is ev ident th at Petit io ner has shown compliance with the requirements set forth . We, therefore, proceed to the issue of whether or not Petiti oner has an excess quarterl y income tax pay ment and unutili zed creditabl e withholding tax in the amount of P5 ,931 ,098.00 for the calendar year ending Dece mber 3 1. 1997 . For the first quarter of 1997. Petiti oner declared taxab le income in the amount of P14,448 ,965.40 and paid the correspondin g in co me t~ x of P5.05 7,137. 90. Likewise

D EC IS ION - CTA CASE NO. 6058 PAG E 8 during the year, Equitable. Bankin g Co rporat ion and Citicorp Securities International (RP), .Inc. withheld creditabl e tax fro m Petiti oner ' s inco me fro m underwriting commi ss ion and manage me11t a11d prokssiolwl l"ees totallin g 1' ~73,960 . 00 . llo wcve r, during the succeeding quarters or th e year, Pet iti oner sullerecl losses from its foreign exchange transacti ons res ulting to a loss pos iti on at the end or the yea r. Co nsequentl y, since Petitioner had no tax li ability for the yea r. the payment made by Petitioner for the first quarter of I997 in the amount of P5.057.137.90 as wel l as creditable taxes withheld from Petitioner's income in th e total amount of P873,960.00 remain ed unapplied or unutili zed by the end of the- year The second issue hav in g been passed upo n when the seco nd requirement was di scussed, We proceed to the issue on substantiatio n. An examinati on of the Quarterly Income Tax Re turn offered by Petitioner as Exhibit "A" wo uld reveal that Petiti oner made an inco me tax pay ment during the fi rs t quarter of 1997 in the amount or P5.057. 137.90 at Citiban k. N.A.. Manil a (Ex hibit A-3). Al so, the fact of withholding was proven by the Ce rti fi c ~.!les of Creditab le Tax Withheld at Source offered by Petitio ner as Ex hi bits G to I. The Quarter ly and An nual Income Tax Returns of Petiti oner also showed that except lor the first qua rter of 1997, Petitioner indeed suffered losses during the yea rs I1)97 ami 1998 and that the amount of P5 ,93 I,098.00 was not carri ed over in 1999(Ex hi bits A toE, .J and K) . It is also signifi cant to note that Respo nde nt a lTered no evidence to counter Petitioner's claim and since the latter has shown surti cient ev idence to support its entitl ement to the reli ef sought, thi s Co urt has no reco urse but to grant the same. 9 GO

DEC ISION- CTA CASE NO. 6058 PAGE 9 \ With reference to the fo urth iss ue. since in thi s case Petiti oner is seeking fo r the refund of its overpaid income tax and unutili zed cred itab le taxes withheld fo r the taxable year 1997 whi ch it was not able to appl y aga in st its tax li ab ility fo r the said year as it � ended up in a net loss pos iti on, Petiti oner has shown that it did not utilize the amount sought to be refund ed by presentin g in ev ide nce not on ly its 1998 but also its 1999 Annual Income Tax Return . Petiti oner' s 1998 Inco me T:tx Return showed that while the amount of P5,931 ,097 appeared as " Pri or Yea r' s Excess Cred its", the same was not applied against any tax liability or Petiti oner !'or it ended up al so in a Joss pos iti on. On the other hand , the 1999 Inco me Tax Ret urn o r Peti ti oner showed that the amount sought to be refunded was no longe r ca rried over. WHEREFORE, in view or all the fo regoi ng. th is Court fi nds the instant petition meritorious and in acco rdance with Jaw. Respo nde nt is hereby ORDERED to REli' UND or ISSUE A TAX CREDIT CERTIFI CAT E to Petiti oner in the amount of P5 ,931 ,098 .00 represe nting overpaid in co me ta x and unL.t ili zed creditabl e withholding tax for the taxable yea r 199 7. SO ORDERED. ER NESTO D. ACOSTA Presiding Judge I CONCUR: 9Gi

DECISION- CTA CASE NO. 6058 PA GE IO CERTI Fl CATl ON [ he're by certify that the above deci sion was reached after due consultat ion w ith the members of the Co urt of Tax Appeal s in accordance vvit.h Sec ti on 13, Article VIII of the Constitution. L-(9,0~ ERNESTO D. ACOSTA Presiding Jud ge