CTA Case No. 4356 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY FAR EAST BANK AND TRUST C.T.A CASE NOS. 4356 and COKPANY/FOREIGN CURRENCY 4441 DEPOSIT UNIT, Petitioner, - ver-sus - COKKISSIONER OF INTERNAL REVENUE, Respondent. X- - - - - - - - - - - X DECISION The consolidation o� the above - named cases were sought by petitioner �or continuity and convenience o� all the parties. There being no objection �rom respondent, t his Court granted said motion. C.T.A. Case No. 4356 involves a claim �or re�und �or 1986 in the amount o� P3,993,067. 04 representing the �allowing: 1986 Excess incom~ tax P2 ,240,675. 77 .1 payment 2,444,806. 27 2 p 4,685,482. 04 3 1986 Withholding tax on interest on gov't securities & other income 1 E}ths. " ZZ " and "ZZ - 1". E;.ths. "DDD" "DDD - 1" to "DilD-51", inclusive~ E=-chs. "YY" to "YY -2 ", E:-chs. "BBB", "BBB-1" to "BBB - E�" and Exhs. "CCC" to "CC:C - 2". Exhs. "WW", "XX" and "XX-1". 32 7

DECISION - C.T.A. CASE NOS. 4356 and 4441 -2- Less: 1987 FCDU tax liability 692,415. 00 4 1986 CLAIM FOR REFUND P 3,993,067. 04 e C.T.A. Case No . . 4441 involves a claim for refund for 1987 in the amount of P1,584,074. 25 computed as follows: 1987 Withholding tax on interest on p 3 ,658,689. ~~ 6 gov't securities and other 2,074,671. 00 7" income P 1,584,018. 2 ~ 8 Less: 1988 FCDU tax liability 1987 CLAIM FOR REFUND Petitioner is a domestic banking corporation with a _ foreign currency deposit unit. On April 14, 1989, petitioner filed a written claim for refund9 with the Bureau of Internal Revenue <BIR> covering the 1986 alleged refundable amount of P3,993,067. 0 "1., Simultaneous therewith, it filed a pe tition for review 10 with the Court of Tax Appeals <CTA >. On April 16, 1990, a judicial claim11 �or re�und was �iled by petitioner with the Court this time covering the 1987 alleged re�undable amount o� P1,584,018. 2 ~ since E)ths. "NN", "00- 1"; "(JIJ"; This amount was o��ered by FEBTC against its re�undable tax as shown by Exh. "BB" . FEBTC was able to support with evidence only P3,891,917. 04 or a di��erence o� P101,250. 00 � G E)ths. "BB", "EEE", "FFF" to "FFF- 24", "GGG", "GGG-1" and "GGG -2 ", "HHH" to "HHH-2", "III" "JJJ" to "J J J - 26", "ww - 13 n on "ww". T.S.N. o� October 2 0, 1992, p. 23. Ibid., Exh. "WW" 15 on Exh. "WW". E>thibit "A". Records o� CTA Case No. 4 356 , PP� 1 - 4. .l..l. Record s o� CTA Case No. 4441, PP� 1-5 . 328

DECISION - C.T.A. CASE NOS. 4356 and 4441 -3 - respondent has failed and refused to refund the said amount notwithstanding repeated oral demands.~ 2 Practically the same allegations were made by respondent in its answer to the foregoing petitions, viz: <1> Petition states no cause of action since there is no allegation as to the date when the tax sought to be refunded was paid or that it was actually paid to the government; (2) Petitione~ failed to show that i t has complied with the provisions of Section 230 . of the Ta:.c Code; ( 3 ) The claim for refund has already prescribed as of the date of filing of the petition since the prescriptive period started to run from the date the tax was paid; <4> A claim for tax refund partakes the nature of an exemption from taxation and must be construed strictly against petitioner. In addition, respondent raised the defense of lack of jurisdiction over the case with regards to the 1987 petition for review for failure of petitioner to file a written claim for refund with the BIR within the two year period prescribed by Section 204(3) of the Tax Code. The issue in CTA Case No. 4356 and CTA Case No. 4441 may be briefly stated as - whether or not petitioner is entitled to the refund claimed. The question on whether this Court has jurisdiction over CTA Case No. 4441 is likewise submitted for decision. CTA Case No. 4441 petition for review p. 3, par. 7 329

DECISION - C.T.A. CASE HOS. 4356 and 4441 -4- Petitioner presented and o��ered documentary and testimonial evidence in support o� its claim. Counsel �or respondent �mani�ested that he has no records to transmit in these cases and submitted only one piece o� evidence. These cases were submi t ted �or decision a�ter the parties have �iled their respective memorandum. Relevant to the resolution o� the issues at bar are Sections 243 <now Section 230> in relation to Section 246 ( 3) (now Section 240[3]) o� the Tax Code, as amended which are reproduced below: SEC. 243. Reco..,�ery of tax erroneously or ~llegalJ.y collected. No suit or proceeding shall be maintained in any court for the recovery ci� any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrong�ully collected, until a claim �or re�und or credit has been duly filed with the Commissioner: but such suit or proceeding 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 proceeding shall be bPgun aftPr the expiration of two years �rom the date o� payment o� the tax or penalty regardless of any supervening cause that may arise after the payment: Provided, however, that the Commissioner may, even withou t a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid. (Emphasis supplied. ) 330

DECISION �- C.T.A. CASE NOS. 4356 and 4441 -5- XXX SEC. 246. Authority of the Commissioner to compromise~ abate~ and refund/credit taxes. The Commissioner may - XXX <3> Credit or re�und taxes erroneously or illegally received, penalties imposed without authority, re�und the value o� internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or charge unused stamps that have been rendered unfit for use and refund their value upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two years after the Davment of the tax or penalty. <Emphasis supplied) The filing of a written claim for refund with the Commissioner of Internal Revenue, within two years after the payment of the ta:K, is an indispensable requirement � before any Court action may be commenced. In C.T.A. Case No. 4441, there is nothing in the records of the case to prove that petitioner filed in writing with the Commissioner of Internal Revenue a claim for refund of the purported excess tax payment for 1'387 in the amount of Pl,584,018.~~. Paragraph 7 of the petition for review in fact provides that: "Notwithstanding repeated Oral demands made by petitioner for respondent to reimburse it with the above - stated refundable amount, respondent has failed and refused and continues to fail and refuse the said amount to petitioner." <Emphasis supplied.) 331

DECISION - C.T.A. CASE NOS. 4356 and 4441 -6- The requirement of the law is very specific and leaves no doubt as to its interpretation. The failure of petitioner to comply with the mandatory filing of a written claim for refund with the BIR is fatal to its cause. Verily, this Court cannot take cognizance of CTA Case No. 4441 and hereby dismiss the petition for review for lack of jurisdiction. In Case No. 4356, the written claim for refund of the 1986 excess tax payment of ?3,993,067. 04 was filed with the BIR on April 14, 1989 and on the same day the court action was commenced~ Every corporation shall file a quarterly income tax return <Section 78 now Section 68> and a final adjustment return covering the total net income for the preceding calendar or fiscal year <Section 79 now Section 69>. The income tax due on the corporate quarterly returns and the final income tax return shall be paid at the time the declaration or return is filed in a manner prescribed by the Commissioner of Internal Revenue <Section 80(c) now Section 70Cc>>. Thus, the date of payment of the tax as prescribed under Section 243 <now Section 230) was construed to mean the period when the corporate income tax return is required to be filed. <Bank of the 332

DECISION - C.T.A. CASE NOS . 4356 and 4441 -7- Philippine Islands as Liquidator o~ Paramount Acceptance Corporation vs. Commissioner o~ Internal Revenue, CTA Case No. 4 257, December 20, 1993. > The time o~ �iling the corporate quarterly income tax return is within sixtyC60> days �allowing the close o� each o� the �irst three quarters of the taxable year. The final Adjustment return shall be filed on or before the 15th day of April or on or before the 15th day of the 4th month following the close of the fiscal year as the case may be. <Section 80Cb> now Section 70(b}.) In the case of Commissioner o~ Internal Revenue vs. TMX Sales Inc. and the Court o~ Tax Appeals, G.R. No. 83736, Januar y 15, 1992 the Supreme Court ruled: "Ther efore, the filing of quarterly income tax returns required in Section 85 (now Section 68) and implemented per BIR Form 1702-Q and payment of quarterly income tax should onlY be considered mere installments o� the annual tax due. These quarterly tax payments which are computed based on the cumulative figures o� ; t' gross receipts and deductions in order to arrive at a net taxable ~ncome, should be treated as advances or portions of the annual income tax due, to be adjusted at the end of the calendar or fiscal year. This is reinforced by Section 87 <now Section 69> which provides for the filing of adjustment returns and final payment o� income tax. Cons eque ntly, the two - year prescriptive period provided in Section 292 (now Section 230 of the Tax Code) should be computed from the time of filing the Adjustment Return or Annual Income Tax Return and �inal payment o� income tax." (Emphasis supplied. > 333

DECISION - C.T.A. CASE NOS. 4356 and 4441 -8- In the case of ACCRA Investments Corporat~on vs. the Hon. Court o1 Appeals, Et. AI., G.R. No. 96322, December 20, 1991, petitioner ACCRAIN's main argument in elevating this case to the Supreme Court is precisely the reckoning date for the commencement of the two-year p~escriptive period in filing a claim for refund of overpaid taxes for the taxable year 1981. The Supreme Court held: "The petitioner corporation's taxable year is on a calendar year basis, hence, with respect to the 1981 taxable year, ACCRAIN had until 15 April 1982 within which to file its final adjustment return. The petitioner corporation duly complied with this requirement. On the basis of the corporate income tax return which ACCRAIN filed on April 15, 1982, it reported a net loss of P2,957,142. 00 � Consequently, as reflected thereon, the petitioner corporation, after due computation, had no tax liability for the year 1981. Had there been any, payment thereof would have been due at the time the return was filed , pursuant to subparagraph (c) of the aforementioned codal provision which reads: 'Sec. 70(c) Time payment of the income tax. The income tax due on the corporate quarterly returns and the final income tax returns computed in accordance with Sections 68 and 69 shall be paid at the time the declaration or return is filed as prescribed by the Commissioner of Internal Revenue. The term 'return' in the case of domestic corporations like ACCRAIN refers to the final adjustment return as mentioned in Section 69 of the Tax Code of 1986, as amended, which partly reads: 334

DECISION - C.T.A. CASE NOS. 4356 and 4441 -9- 'Sec. 69. Final Adjustment. Return. Every corporation liable to tax under Section 24 shall file a final adjustment return covering the total taxable income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable income of the year the corporation shall either: <a > Pay the e>tcess ta>t s t i l l due~ or ( b ) Be refunded the e>eCeSS amount paid, as the case may be. Clearly , there is the need to file a return first before a claim for refund can prosper inasmuch as the respondent Commissioner by his own rules and . regulations mandates that the corporate taxpayer opting to ask for a refund must show in its final adjustment return the income it received from all sources and the amount of withholding taxes remitted by its withholding agents to the Bureau of Internal Revenue. The petitioner corporation filed its final adjustment return for its 1981 taxable year on April 15, 1982. In our Resolution dated April 10, 1989 in the case of Commissioner of Internal Revenue vs. Asia Australia Express, Ltd. <G.R. No. 85956), we ruled that the two - year prescriptive period within which to claim a refund co mmences to run, at the earliest, on the date of the filing of the adjusted final tax return. Hence, th~ ~titioner cor�poration had until April 15, 1984 within which to file its claim for refund. XXX It should be noted that herein petitioner adopts the calendar year basis of reporting its income and expenses. �. 335 '

DECISION - C.T.A. CASE NOS. 4356 and 4~41 - 10 - For calendar year ending December 31, 1986, petitioner �iled its Income Tax Return on April 15, 1987. The Tax Code states it has on or be�ore April 15, 1987 to �ile said return. Petitioner has then two years within which to �ile a written claim �or re�und with the Commissioner o� Internal Revenue and with the Court counted �rom April 15, 1987, the date when petitioner is required to file its �inal adjustment return. These requirements were duly complied with by petitioner. On April 14 , 1989, petitioner �iled in writing with the Commissioner o� Internal Revenue a claim �or re�und and on the same day �iled a court suit �or the re�und o� the alleged excess tax payments. Both the written claim �or re�und and the petition �or review were �iled within the two-year period as the law expressly and clearly provides. There� ore, the claim �or re�und in CTA Case No. 4356 has not yet prescribed. It bears emphasis at this point that the P3,993,067. 04 re�und being sought still has to be substantiated in order that petitioner may be entitled thereto. The evidence �ormally o��ered by petitioner which were evaluated and admitted by this Court are the �allowing: I. Excess income tax payment - P 2 , 240, 675. 77 336

DECISION - C.T.A. CASE NOS. 4 356 a nd 4441 - 11 - Exhibi t "ZZ" CB c o n~ ir ma t ion Receipt No. B8644454 Exhi bit "P - 1" Exhi bi t "AAA " da te d May 3 0,1986 in the name o~ F EBTC i n the amount o~ P 2 , 2 40,675. 7 7 FE BTC Ca s hie r's Check No. 196070 da t ed May 2 8, 1986 payable to the Commis s ioner o~ Internal Revenue in th e am o unt o~ P 2 , 2 40,675 . 77 FEBTC Income Ta x Return ~or quarter ending Ma r ch 31, 1986 s tamped r eceived by BIR qn May 3 0, 1 9 86 II. Creditabl e Wi t hholding tax - P 2 ,444,806. 2 7 Exhibit No. Withholding Aqent Type A�ount of Tax of Inco~e Withheld Inco~e DOD Central Bank of the Philippines Interest P 100,000. 00 P 15,000. 00 DDD-1 Central Bank of the Philippines Interest 84,000. 00 12,600. 00 DOD-2 Central Bank of the Philippines Interest 84,000. 00 12,600. 00 DDD -3 Central Bank of the Philippines Interest 168,000. 00 25,200. 00 000 -4 Central Bank of the Philippines Interest 3,600. 00 DOD -5 Central Bank of the Philippines Interest 24,()()(),00 3,600. 00 DDD -6 Central Bank of the Philippines Interest 15,000. 00 DDD -7 Central Bank of the Philippines Interest 24,000. 00 25,000. 00 DOD -8 Central Bank of the Philippines Interest 100,000. 00 51,300. 00 DDD -9 Central Bank of the Philippines Interest 168,000. 00 20,250. 00 DDD -10 Central Bank of the Philippines Interest 342,000. 00 135,000. 00 DDD -11 Central Bank of the Philippines Interest 135,000. 00 67,500. 00 DDD-12 Central Bank of the Philippines Interest DDD -13 Central Bank of the Philippines Interest 900,00(),00 21,937.~ DDD -14 Central Bank of the Philippines Interest DDD -15 Central Bank of the Philippines Interest 450,000. 00 16,875. 00 DOD-16 Central Bank of the Philippines Interest 146,250. 00 94,500. 00 DDD -17 Central Bank of the Philippines Interest 112,500. 00 8, 775. 00 000 -18 Central Bank of the Philippines Interest 6JO,ooo.oo 205,875. 00 DDD -19 Central Bank of the Philippines Interest 58,500. 00 13,500. 00 DOD -20 Central Bank of the Philippines Interest 1,372,500. 00 36,720. 00 DDD -21 Central Bank of the Philippines Interest 90,000. 00 67,500. 00 DDD -22 Central Bank of the Philippines Interest 244,800. 00 1,012."0 DOD-23 Central Bank of the Philippines Interest 450,000. 0 " 21,600. 00 DDD -24 Central Bank of the Philippines Interest 67,770. 00 DDD-25 Central Bank of the Philippines Interest 6, 750. 00 97,875. 00 DDD -26 Central Bank of the Philippines Interest 144,000. 00 27,000. 00 DD0 -27 Central Bank of the Philippines Interest 451,800. 00 259,470. 00 DDD -28 Central Bank of the Philippines Interest 652,500. 0 0 8, 775. 00 DDD -28 -a Central Bank of the Philippines Interest 180,000. 00 34,425. 00 DDD -29 Central Bank of the Philippines Interest 1, 729,800. 00 13,500. 00 58,500. 00 49,275. 0 0 229,500. 00 101, 250. 00 90,000. 00 328,500. 00 675, 000. 00 33 7

DECISION - C.T.A. CASE NOS. 4356 and 4441 - 12 - Type bount of Tax Withheld Exhibit No. Withholding Agent of Incoae Incoae DOD -30 Central Bank of the Philippines Interest 630,000. 00 94,500. 00 DDD-31 Central Bank of the Philippines Interest 459,000. 00 68,850. 00 DDD-32 Central Bank of the Philippines Interest 231,750. 00 34, 762.~0 DDD-33 Central Bank of the Philippines Interest DDD-34 Central Bank of the Philippines Interest 3,600. 00 540. 00 DOD-35 Central Bank of the Philippines Interest 628,200. 00 94,230. 00 DDD-36 135,000. 00 20,250. 00 DDD-37 DOD-38 Central Bank of the Philippines Interest 135.000. 00 20,250. 00 DDD -3 9 Central Bank of the Philippines Interest 373,950. 00 56,0'32."0 DDD-40 DDD-41 Central Bank of the Philippines Interest 27,000. 00 4,050,00 DDD -42 Central Bank of the Philippines Interest ODD-43 Central Bank of the Philippines Interest 114,750. 00 17,212.so DDD -44 Central Bank of the Philippines Interest 374,850. 00 DDI>-45 Central Bank of the Philippines Interest 13,950. 00 56,227.~ 0 DDD-46 Central Bank of the Philippines Interest 374,850. 00 DDD-47 13,950. 00 2,029. 150 DDD-48 56,227."0 DDD-49 2,092. 00 DDD-50 DDD-51 Central Bank of the Philippines Interest 23,750. 00 3,562.~ 0 Central Bank of the Philippines Interest 23,750. 00 3,562.~0 Central Bank of the Philippines Interest 225,000. 00 33,750. 00 Central Bank of the Philippines Interest 225,000. 00 33,750. 00 Central Bank of the Philippines Interest 374,850. 00 56,227."" Central Bank of the Philippines Interest 13,950. 00 2,092."" Central Bank of the Philippines Interest 13,950. 00 2,092. 00 Central Bank of the Philippines Interest 3741850. 00 561227,.,0 SUB .- TOTAL P14,885,985. 00 P2,252,863.~0 BBB Investment Planning Corp. of Prof. fee 12,000. 00 1,200. 00 Philippines BBB-1 Universal Robina Corp. Collateral fee 4,050. 00 202.eo BBB-2 450,00 Precision Electronics Corp. Prof. fee 4,600. 00 BBB-3 AGP Industrial Corp. Prof. fee 14,583. 2~ 729,17 BBB-4 BBB-5 Anglo Phil. Oil &ftining Corp. Transfer agent &,ooo.oo 300.00 10,200. 00 San Jose Oil Co., lnc. Prof. fee 51Q,OO BBB-6 FILftAG IPHILS.l, Inc. Prof. fee 41200. 00 210. 00 ,~� SUB - TOTAL p 55,633. 2~ P3,601. 87 T0 T AL Pl4,941,618. 2~ P2,256,465. 17 Exhibits "YY" "YY - 1" to "YY-3" were not considered as competent e vidence since these were not the proper BIR form but mere ce rtifi c ations of FEBTC that it withheld the tax on its own income from its investments in DPB Co untryside Bills. This is an aberration because the 33 8

DECISION - C.T.A. CASE NOS. 4356 and 4441 - 13 - recipient of the income withheld the tax rather than the payor or the source of the income. Exhibits "CCC", "CCC - 1" and "CCC - 2" were also set aside since the certificate of creditable withholding tax clearly show that they pertain to the period January to December 1985 when the refund sought is for 1986. Based on the foregoing, the 1986 creditable withholding tax which were duly supported with evidence only amount to P2 , 2 56,465. 17 , lower by P188,341. 10 than what is claimed. The income from which the various creditable income taxes were withheld were in all probability included as part of petitioner's 198~ reported income as the income tax r~turn filed will show. While the 1986 excess income tax payment and creditable withholding tax were carried over to the succeeding taxable year, only the 1987 FEBTC-FCDU income tax liability was applied against it for the reason that petitioner bank again incurred a loss in 1987 <See Exhibit "BB">. Having established its entitlement to the refund in accordance with the law and evidence, the amount which may be refunded to petitioner with regards to its 1986 claim may thus be computed as follows: 339

DECISION - C.T.A. CASE NOS. 4356 and 4441 - 14 - 1986 Excess income tax payment P2,240,675. 77 1986 Creditable withholding taxes 1986 Excess income tax payment 2,256,465.~ 7 Less: 1987 FCDM income tax liability 1986 Refundable amount P4,497,140. 94 692,415. 00 P3,804,725."'4 WHEREFORE, respondent Commissioner of Internal Revenue is hereby ordered to refund or issue tax credit certificate to petitioner Far East Bank and Trust Company for the amount of P3,804,725. 94 representing its 1986 excess income tax payment which have not been utilized/applied to any taxable period/year. The 1987 claim for refund of petitioner is hereby dismissed for lack of jurisdiction. SO ORDERED. Quezon City, Metro Manila, May 5, 199 . ~~Jf!( RAJ10N 0 DE VEY Associate Jud~e WE CONCUR: ,..,~Q.c ~..~....,()-~ ERNESTO D. ACOSTA Presiding GRUBA Judge 340

DECISION - C.T.A. CASE NOS. 4356 and 4441 - 15 - CERTIFICATION I hereby certi1y that this decision was reached a1ter due consultation among the members o1 the Court o1 Tax Appeals in accordance with Section 13, Article VIII o1 the Constitution. Q._x;-lQ.. ~ ERNESTO D. ACOSTA Presiding Judge Court o1 Tax Appeals