CTA Case No. 5955 (Decision)

REPUBLIC OF T HE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY EQUITABLE PCI BANK (form erly Equitable Banking Corporation), Petitioner, -versus- C.T.A. CASE NO. 5955 COMMISSIONER OF INT ERNAL Promu lgated: R E V E NU E, JUL 20 2001 .�,/f�.1!~� I tJ- Respondent. x - ----------------------------------- - -------- - ------ - ------x DECISIO N Before Us for consideration is a Petition for Review filed by the above-named Petitioner seeking for the refund or issuance of a tax credit certificate in the amount of P3,7 12,888.92 representing overpaid gross receipts tax for the quarter ended September 30, 1997. The facts as adduced from the "Joint Stipulation of Facts and Issues" entered into by the parties on March 10, 2000 (pages 57 to 58, CTA records), are as follows: 1. That Petitioner Equitable PCI Bank (formerly Equitable Banking Corporation) is a banking institution duly organized and existing under the laws of the Philippines; 2. That in C.T.A. Case no . 4720 entitled Asian Bank Corporation vs. Commissioner of Internal Revenue, the Honorable Court of Tax Appeals ruled that the twenty percent (20%) fina l withholding tax on a bank's passive income should not form part of the bank's taxable gross receipts for the purpose of computing the bank 's gross receipts tax . 3. That the decision in Asian Bank Corporation vs. Commissioner of Internal Revenue under C.T.A. Case No. 4720 was appealed to the Court of A p p e a ls; 88 ~J

DECISION- CTA CASE NO. 5955 PAGE2 4. That on December 29,1997, on the strength of said decision, EBC through a letter of even date (Annexes "C" and "C-1" of Petition) requested of the Respondent through the Revenue District Office No. 30, Revenue Region No.6, Binondo, Manila (the office having area jurisdiction over the Petitioner) the refund or issuance of a tax credit certificate for the September 30,1997 Quarter in the amount of PHILIPPINE PESOS: THREE MILLION SEVEN HUNDRED TWELVE THOUSAND EIGHT HUNDRED EIGHTY EIGI-JT PESOS and 92/100 (P3,712,888.92); 5. That the Petition for tax refund was lilcd within the two-year prescriptive period as the Petitioner's GRT tax for the quarter ended September 30,1997 was paid on October 20,1997 and the present petition was filed on October 20, 1999; 6. That the claim for refund is pending administrative investigation; 7. That the Petitioner and the authorized agent bank are one and the same person. Records of the case show that on October 20, 1997, Petitioner seasonably filed with the Bureau of Internal Revenue (B IR) its various quarterly percentage tax returns, covering those of its Head Office and branches, for the period ended September 30,1997. It likewise submitted its Transmittal sheet of Quarterly withholding tax returns filed by banks and other financial institutions classified as large taxpayers with branch offices and paid the BIR a total amount of P88,416, 181.02 as gross receipts tax. Of the said amount, the Gross Receipts Tax (GRT) paid by EBC Head Office was P51,347,92l.09 as shown by the EBC's Head Office Quarterly Percentage Tax Return for the quarter ended September 30, 1997 (Exhibit B-1 ). The GRT was computed based on the accumulated total gross receipts ofP1,172,048,lJ8.78 (Exh.B-3). On the strength of the ruling of this Court in the rase of Asian Bank Cmporation vs. CIR, CTA Case No. 4720 dated January 30, 1996, where we held that the 20% final withholding tax on a bank's passive income should not form part of its gross receipts tax 880

DECISION- CTA CASE NO. 5955 PAGE 3 base, Petitioner filed with the BIR on December 29,1997 an administrative claim for refund or issuance of a tax credit certificate for, among other sums, P3,712,888.92 corresponding to the difference betw<:;en the Gross Receipts Tax paid of PSI ,347,921.09 pertaining to EBC Head Office and the Adjusted Gross Receipts Tax in the amount of P47,63S,032.17, computed as follows: Gross Receipts Subjected to Tax p 1' 172,048,138.78 Less: 20% Portion of Tax 6,339,43S.26 Paid Income (Annex Bl of2) 67,918,343.19 Investment Income subject Pl ,097,790,360.33 to 20% final tax booked at gross (Annex B2 of2) Adjusted Gross Receipts Tax Base Computation of Adjusted Gross R~ceipt Tax: Gross Receipts Tax Due 0% Pll4,81S,403.98 p 0.00 I% 20,483,7S2.Sl 3% 34,718,277.S7 204,837.S3 S% 927,772,926.27 1,04l,S48.33 PI ,097,790,360.33 46,388,646.31 P47,63S,032.17 Gross Receipts Tax Paid PSI ,347,921.09 Adjusted Gross Receipts Tax 47,63S,032 .17 Tax Refund p \ 712.888.92 Petitioner alleged that in arnvmg at the adju~.ted gro ~::. receipts tax base of Pl,097,790,360.33, it deducted from th e ori ginal gross receipts Lax base of PJ,I72,048,138.78 the amount of P6,339,43S.26 representing the 20% tax withheld on income received and booked net of final tax and P67,918,343.19 representing the 20% 8Bi

DECISION- CTA CASE NO. 5955 PAGE4 final tax withheld on tax paid income booked at gross. Petitioner is now claiming the excess GRT paid amounting to P3,712,888 .92. As there was no action on the part of herein Respondent, the instant Petition was filed on October 20, 1999 to toll the running of the two-year prescriptive period. In his Answer filed on Novemb,~r 8, 1999, Respondent raised the following Special and Affirmative Defenses, to wit: XXX XXX XXX 11. The decision in Asian Bank Corporation vs. Commissioner of Internal Revenue (CTA Case No. 4720) is pending appeal with the Court of Tax Appeals. Hence, invocation thereof at this point in time is premature. 12. There is no provision in the Tax Code or any Special Law which excludes the 20% final �income tax withholding under Section 50(a) of the Tax Code, as no longer forming part of the gross receipts for the purpose of the computation of gross receipts tax under Section 119 of the Tax Code. 13. The petition does not state a cause of action as there is no allegation that the tax sought to be refunded was ~ctually paid to the Bureau of Internal Revenue and that the 20% final withholding tax on income was actually remitted by its withholding agents in accordance with the provisions of the Tax Code. 14. The claim for refund is pending administrative investigation. 15 . Taxes are presumed to have been collected in accordance with law. Hence, petitioner must prove that the taxes sought to be refunded were erroneously or illegally collected. 16. The non-inclusion of the 20% final withholding tax on income from the gross income for purposes of the gross receipts tax operates as an exemption from tax . Hence, the same must be construed strictly against the one who asserts the claim of exemption, considering that tax exemption can only be given effect when the grant is clear ad categorical inasmuch as taxation is the rule and exemption is the exception.

DECISION- CTA CASE NO. 5955 PAGE 5 17. Claims for refund of taxes arc to be construed strictly against the claimants, the same being in the nature of an _exemption from taxation (Manila Electric Co. vs. Commissioner of Internal tZevcnuc, 67 SCRA 351 ). 18 . Petitioner must show that it has complied with the provisions of Sections 204(3) and Section 230 of the Tax Code, as amended. In order to substantiate its claim lor refund, Petitioner presented the following documentary evidence, to wit: . Exhibits Description A Petitioner's Transmittal Sheet of Quarterly Withholding Tax Returns for Quarter Ended September 30, 1997 B Petitioner's Head Office Quarterly Percentage Tax Return for the Quarter ended September 30,1997 C EBC Head Office Income and Expense statement for the period ended September 1997 D to F-9-a Petitioner's Subsidiary Ledger Transactions on Expense Account G to M-1 Petitioner's Subsidiary Ledger Transactions on Income Account N Petitioner's written claim for Refund dated December 29, 1997 In the Joint Stipulation of Facts and Issues approved by the Court in its Resolution of March 17, 2000, the parties agreed to limit the issues to the following: I. Whether or not the then Equitable Banking Corporation (EBC) Head Office actually included in the computation of its GRT Base for the quarter ended September 30, 1997 the amounts of [a] P6,339,435.26 (representing 20% tax withheld on income received and booked net of 20% final tax during the quarter ended September 30, 1997), and [b] P67,918,343.19 (representing 20% final tax withheld on tax paid income booked at gross [I 00%] subjected to gross receipts tax for the quarter ended September 30, 1997).

DI �:C ISION- CTA CASE NO. 5')55 PAGE 6 2. Whether or not the said amounts represented the twenty percent (20%) final tax on certain passive income of EBC for the said quarter. 3. Whether or not the said amounts were received by EBC as part of its gross receipts for the said quarter. 4. Whether or not the respective withholding agents of EBC have paid the said amounts to the BIR. 5. Whether or not EBC is entitled to its claim for refund covering the said quarter and for how much. 6. Whether or not there is a provision in the Tax Code or any Special law which excludes the 20% final income tax withheld �under Section 50 (a) of the Tax Code from the gross receipts for the purpose of computing gross receipts tax under Section 119 of the Tax Code. 7. Whether or not the non-inclusion of the said 201Yo final wit hholding tax in the computation of gross receipts subject to tax , operates as an exemption from tax. As the aforementioned issues are interrelated, We deem it best to stream line and simplify them to one main issue of " Whethe�� o1� not Petitioner is entitled to the refund of the amount of P3,712,888.92 allegedly representing the excess g��oss receipts tax paid". To begin with, the legal controversy at bar is n0t one of first impression. This Court has already settled the legal aspect of this case in Asia n Bank Corporation vs. Commissioner of Internal Revenue, CTA Case No. 4720 Jn�omulgated on January 30, 1996 wherein it ruled that the 20% final withholding tax on a bank or a financial institution 's passive income should not form part of its gross receipts' tax base for purposes of computing the gross receipts tax. However, even if the law entitles Petitioner to a refund of overpaid gross receipts taxes, it does not necessarily follow that there shall be an automatic grant of the claim in

DECISION- CTA CASE NO. 5955 PAGE 7 the absence of sufficient and convincing factual evidence to prove its entitlement thereto. Thus, in order to be entitled to the refund of overpaid gross receipts tax based on the Asian Bank decision (supra), Petitioner must sufficiently prove the following: 1. That it actually paid the 20% final withholding taxes on its gross receipts from passive income; 2. That the 20% final withholding tax on passive income formed part of its gross receipts subjected to the gross receipts tax; and 3. That it actually paid the GRT due on its gross receipts fl�om passive income inclusive of the 20% final withholding taxes (see Equitable Banking Corporation vs. CIR, CTA Case No. 5661, March 30, 2000; Ballk of tlte Philippine islands vs. Commissioner of Jntemal Revenue, CTA Case No. 5458, February 15,1999; Solid Bank Corporation vs. Commissioner of llltemal Revenue, CTA Case No. 5408, April 14,1999) After a thorough examination of the evidence adduced by Petitioner, this Court finds that the above requirements were not satisfactorily met. Petitioner's Quarterly Percentage Tax Return and the Transmittal Sheet of Percentage Tax of Head Office and Branches/Units of Large Taxpayers showed that Petitioner's head office paid a gross receipts tax of P51,347,92l.09 on taxable gross receipts of PI, 172,048,138.78 (Ex h. B-3 ). Petitioner tllegedly included in its taxable gross receipts of Pl,l72,048,138.78 J the amounts of P6,339,435.26 (Exh. N-4) representing 20% final tax withheld on income received and booked net of 20% final tax and P67,918,343.19 (Exh. N-5) representing 20% final tax withheld on tax paid income

DECISION- CTA CASE NO. 5955 PAGE 8 booked at gross for which .5% gross receipts tax of P3,712 ,888.92 was allegedly paid (Admitted, Joint Stipulation of Facts and Issues, Item No. 4, CTA docket p.57). Based on the evidence on record, Petitioner failed to present proof of actual withholding of the 20% final taxes of P6,339,435.26 and P67,918,343.19. The certificates of final taxes withheld issued by the withho lding agents or issuers of the investment securities showing the amount of interest income payment and the corresponding final withholding tax were not presented. Nowhere from among the documents presented would show that the alleged 20% final tax on its interest income was actually withheld and .remitted to the SIR. In the case entitled China nanking Corporation vs. Commissioner of lntemal Revenue, C.T.A. Case No. 5433, dated October 7, 1998, this Court has the occasion to rule on the importance of presenting the certificates of final income tax withheld in cases where the Petitioner is claiming a refund of gross receipts tax. In this case, the Co urt found Petitioner legally en titled to the refund but denied the petition for review for failure of Petitioner to produce the said document, thus: A thorough and careful examination of all the documentary evidence presented by the Petitioner reveals that Petitioner has failed to substantially prove its entitlement to the refund/credit sought. Even though, Petitioner in the case at bar had satisfactori ly proved through various documentary evidence that it actually paid its gross receipts taxes which was computed based on its gross receipts inclusive of the 20% final withholding tax on the bank's interest income, it however fai led to [prove that the said 20% final withholding taxes were act uall y paid and remitted to the Bureau of Internal Revenue, thus entitling the same to be excluded from the computation of Petitioner's gross receipt's tax . Petitioner is reminded that in the case of Asian Bank Corporation (supra) from which it based its claim for refund, a disputable presumption exists that the final tax excluded from the computation of gross receipts tax already "went to the coffers of the government", and therefore, should no longer form part of its gross receipts for the purpose of computing th( GRT. This Court in

DEC ISION- CTA CASE NO. 5955 PAG E9 deciding on the As ian Bank case so ught to avo id the unfavo red ex istence of doubl e taxation. In the instant case, Petiti oner showed no convincing proof that it suffe red from being erroneo usly taxed tw ice thus entitling it to the re fund sought. It is our opini on that for the Pe titioner to substanti all y prove its entitl ement to the refund/ credit so ught, it should have presented as evidence copies of Certificates of Final Tax W ithheld issued by th e withholding agents, x x x or any proof whatsoever that wo uld sho w pay ment of th e 20% fin al w ithholding tax and whi ch wo uld necessaril y justify its exclusion from Pcli ti oncr' s gross n.:cc ipls. Petitioner likewise fail ed to substanti ate that the 20% fin al w ithho lding taxes formed part o f its gross rece ipts subj ected to th e gros~ rece ipts tax. Whil e Petiti one r's 1997 first quarter taxable gross rece ipts (passive and non -passive) and the corresponding gross receipts tax appearing in its 1997 first qu arterl y percentage tax return (Ex h. B) tall y with those appearing in its computati on sheet and subsidi ary ledger (Ex hs. B-4, G to M), the amounts of pass ive income shown in the co mputati on sheet and subsidia ry ledger cannot be ve rifi ed as to wheth er th ese we re recorded at gross or net of the 20% withholding taxes. The amount indi cated therein co ul d onl y be ascertained through a so urce document w hich co uld support and estab lis h the accuracy of the fig ures as declared by the Pe titioner. Petitioner shoul d have <:tdd uced as ev idence supportin g docum ents such as detailed transaction reco rds, confirmati on of purchase, confirmatio n of sale, trading sheets, credi t/debit advises acco unti ng tickets, certi fica tes of fina l taxes w ithheld , etc ., to show the ac tu al receipt of income and th e w ithho lding o f the corresponding 20% fin al tax. T he contention of the Petitioner th at the entries 111 the ge neral and subsidi ary ledge rs sho uld be give n the highest probati ve value p ursuant to Sectio n 43 of Rul e 130 of the Rul es of Court is bereft of merit. While it is true that entri es in the ledger are made

DECISION- CT/\ CASE NO. 5955 PAGE 10 by a bank personnel in his professional capacity or in the performance of a duty in the ordinary or regular course of busi ness. it is still necessary that the source document be presented to verify the contents. J\.bscnt thi s pertinent document, a serious doubt would be created as to the veracity, accuracy and truthfulness of the entries made. Contrary to Petiti oner's assertion, the ledger balances and the working papers bearing the data of each of the transaction are not sufficient proof of Petitioner's claim for refund. Entries in the general ledger are already the results or summation of Petitioner's detailed transaction on passive investments. Thus, the raw data entered in the ledger should be corroborated by the production of the best evidence obtainable, such as the above-mentioned source documents. As public interest is involved in tax refunds, this Court shou ld be cautious of litigants presenting its case without any supporting documents that would attest to the accuracy of the amount it claimed for refund (Equitabk Banking Corporation vs. CIR CTA Case No. 5914, June 28, 2000). As tax refunds are in the nature of tax exemptions and regarded as in derogation of sovereign authority, it should be construed strictissimijuris against the claimant (CIR vs. Procter and Gamble Phils., Mfg., Corp., 204 SCRA 377). This strict construction of tax refunds necessitates upon the c laimant to create a prima facie case in his favor. Thus, he must justify his c laim by showing covering proofs and introducing strong evidence to satisfactori ly sustain his point of contention. Failure on his part to adduce evidence pertinent and substantia l to his case is fata l to his claim (bid). Fi nall y, we are not swayed by Petitioner's ratiocination that in the aforecitcd Asian Bank case what is essential to prove is that a financial institution did not receive the amount of 20% final tax for it not to include the same in the computation of gross receipts ., ~, 8 ~b

DECISION- CTA CASE NO. 5955 PAGE II tax. Petitioner failed to analyze that the Asian Bank case involves an assessment case that presupposes an audit from Respondent's examiners and requires only a ruling from the Court regarding exclusion of final taxes in the base of gross receipts. It does not involve a refund case wherein petitioner should adduce evidence to show payment of final tax in order to be entitled to a refund (Equitable Banl{ing Corporation vs. CIH., CTA Case No. 5640, June 7, 2000). Inasmuch as Petitioner failed to prove the inclusion of the 20% final withh olding taxes of P6,339,435.26 and P67,918,343.19 in its 1997 quarterly gross receipts from passive income subjected to 5% GRT, it then follows that it fai led to show that the corresponding 5% GRT of P3,712,888.92 was included in its 1997 total quarterly GRT payment ofP51,347,921.09. WHEREFORE, in view of the foregoing, the instant Petition for Review is hereby DENIED for insufficiency of evidence. SO ORDERED. ~!;).~ ERNESTO D. ACOSTA Presiding Judge I CONCUR: ANCIOQ. ~ Associate Judge B J ~J

DEC ISION- CTA CASE NO. 5955 PAGE 12 CERTIFJCATION I hereby certify that the above dec ision was reached after due consulta ti on w ith th e members of the Court of Tax Appeals in acco rda nce w ith Secti on 13, Article VIII of the Co nstituti on . L c~ t;;. ERNESTO D. ACOSTA Presiding Judge 900