JARDINE LLOYD THOMPSON INSURANCE BROKERS, INC. v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY SPECIAL SECOND DIVISION JARDINE LLOYD THOMPSON CTA CASE NO. 8273 INSURANCE BROKERS, INC., Members: Petitioner, -versus- CASTANEDA, JR., Chairperson, CASANOVA, and MINDARO-GRULLA, 11. COMMISSIONER OF INTERNAL Promulgated: REVENUE, SEP Z8 2015 ~ Respondent. ~7 'f: J 6;-~ - x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x AMENDED DECISION CASANOVA, J.: For resolution is petitioner's Motion for Reconsideration (With Motion to Reopen Trial of the Case and Request for Leave to Submit Details of General Ledgers}, filed through registered mail on February 28, 2014, with respondent's Opposition (Re: Motion for Reconsideration with Motion to Reopen Trial of the Case and Request for Leave to Submit Details of General Ledgers), filed on March 27, 2014. Petitioner moves for reconsideration of the Court's Decision dated February 11, 2014, the dispositive portion of which reads: "WHEREFORE, premises considered, the instant Petition for Review is hereby PARTIALLY GRANTED. Accordingly, respondent is hereby ORDERED TO REFUND or TO ISSUE A TAX CREDIT CERTIFICATE~

AMENDED DECISION CTA CASE NO. 8273 in favor of petitioner in the reduced amount of P3,569,915.23, representing petitioner's excess and unutilized creditable income taxes withheld for calendar year 2008. SO ORDERED."1 In the assailed Decision, the Court partially granted petitioner's claim for refund or issuance of tax credit certificate representing unutilized creditable withholding taxes (CWf) for calendar year (CY) 2008 in the amount of P3,569,915.23, while the amount of P5,309,498.52 was denied on the ground that petitioner failed to prove that it complied with the third requisite, i.e., the income cwr payments upon which the claimed unutilized were withheld were declared as part of its gross income. Consequently, petitioner prays that it be allowed to reopen the trial and to submit details of its general ledgers so as to satisfactorily prove the P58,332,023.13 income payments were declared as part of its gross income, the corresponding cwr of which amounts to P5,309,498.52. On April 30, 2014, the Court granted petitioner's Motion to Reopen Trial of the Case and Request for Leave to Submit Details of General Ledgers, while the resolution of petitioner's Motion for Reconsideration was held in abeyance. Subsequently, petitioner's Assistant Vice-President, Maria Esperanza Rosario R. Dellosa, was recalled to the witness stand. 2 She identified her Supplemental Sworn Statement as Exhibit "CCCCC", her signature on page 14 thereof, as Exhibit "CCCCC-1", and additional documentary evidence.3 On May 11, 2015, the Court admitted petitioner's exhibits enumerated in its Supplemental Offer of Evidence filed on January 5, 2015.4 After petitioner filed its Memorandum on June 25, 2015, sans respondent's Memorandum, petitioner's Motion for Reconsideration was then submitted for resolution on June 30, 2015. In its Motion, petitioner claims to have proven by preponderance of evidence its entitlement to the refund of its excess~ 1 Decision, Docket (val. I), pp. 415-416. 2 Minutes of the Hearing dated October 20, 2014, Docket (val. II), p. 702. 3 Supplemental Sworn Statement of Ms. Maria Esperanza Rosario R. Dellosa to Questions Propounded by Atty. Reizel Ann A. Tanchico, Docket (val. II), pp. 687-701. 4 Resolution dated May 11, 2015, Docket (val. II), p. 752.

AMENDED DECISION CTA CASE NO. 8273 and unutilized CWT for C'f 2008. According to petitioner, the discrepancies between the gross income shown in the CWT Certificates and the gross income reported in the Income Tax Return (ITR) were the result of timing differences in reporting gross income and in the withholding of taxes, hence, do not necessarily mean that petitioner failed to include the income subjected to withholding tax in its gross income. Respondent, in her Opposition, contends that the Court correctly ruled that the income payments of P58,332,023.13 cannot be traced with certainty from petitioner's production report, general ledger and Annual ITR. Petitioner's Annual ITR merely provided a summarized data without the supporting schedule or notes that will allow the Court to verify petitioner's allegations. Moreover, respondent claims that the burden of establishing the factual basis of a claim for a refund rests on the taxpayer. We find petitioner's Motion for Reconsideration partly meritorious. In the case of Winebrenner & Ifiigo Insurance Brokers, Inc. vs. Commissioner of Internal Revenue, the Supreme Court enumerated the requirements to successfully claim a refund of excess and unutilized CWT, to wit: "As implemented by the applicable rules and regulations and as interpreted in a vast array of decisions, a taxpayer who seeks a refund of excess and unutilized CWT must: 1) File the claim with the CIR within the two year period from the date of payment of the tax; 2) Show on the return that the income received was declared as part of the gross income; and 3) Establish the fact of withholding by a copy of a statement duly issued by the payor to the payee showing the amount paid and the amount of tax with held.'#.- 5 G.R. No. 206526, January 28, 2015.

AMENDED DECISION CTA CASE NO. 8273 At the crux of petitioner's Motion for Reconsideration is its firm belief that it complied with the requirement of showing on the return that the income received was declared as part of the gross income, specifically, for the income payments of P58,332,023.13. Hence, petitioner provided additional supporting documents in the form of Billing Statements and Daily Premium Entries Generation Reports6, Production Reports for CYs 20077, 20088, and 20099; Details of General Ledgers (GL) for CYs 200710, 200811 and 2009 12 Trial ; Balance for CYs 200713, 200814 and 200915; reconciliation of the amounts of gross income as reflected in the GLs and in the Annual ITRs for CYs 200716, 200817, and CY 200918 as well as the Judicial Affidavit19 of Ms. Maria Esperanza Rosario R. Dellosa dated October 16, 2014. In the Supplemental Sworn Statement of petitioner's witness, Ms. Maria Esperanza Rosario R. Dellosa20, she explained why the Court cannot trace with certainty the disputed amount of P58,332,023.13 to petitioner's Production Reports and GL, to wit: "Q15: If all the income in the Production Reports are reported in the GL and all income in the GL are reported as gross income in the Company's Annual ITR, how come Court was not able to trace with.&": 6 Exhibits "YY" to "YY�3", "ZZ" to "ZZ-3", "AAA" to ''AAA-3", "BBB to BBB-9", "CCC' to "CCC-3", ''DDD" to "DDD-3", "EEE" to "EEE-11", "FFF" to "FFF-1", "GGG" to "GGG-3", ''HHH" to ''HHH- 2", "Ill" to "III-8", ''JJJ" to "JJJ-11", "KKK" to ''KKK-13", "LLL" to ''LLL-1", "MMM" to ''MMM- lu, "NNN, to "NNN-3", "000" to "000-39", "PPP" to "PPP-13", "QQQ" to "QQQ-3", "RRR" to ''RRR-22", "555" to "555-41" "TIT" to ''TTT-7", "UUU" to "UUU-9", "WV" to ''WV-71", ''WWW" to "WWW-34", "XXX" to ''XXX-57", "YYY" to "YYY-5,, "Zzzu to "ZZZ-11", "AAAA" to "AAAA-9", "BBBB" to "BBBB-9", "CCCC" to "CCCC-1" "DDDD" to "DDDD-24", "EEEE" to "EEEE-72", "FFFF" to "FFFF-29", "GGGG" to "GGGG-70", "HHHH" to "HHHH-48", "IIII" to "IIII-6", "JJJJ" to "JJJJ- 10", "KKKK" to "KKKK-34", "LLLL" to "LLLL-6", "MMMM" to "MMMM-4", "NNNN" to "NNNN-5", "0000" to "0000-11", "PPPP" to "PPPP-32", "QQQQ" to "QQQQ-62", "RRRR" to "RRRR-58", "SSSS" to "5555-1", "TTTT" to ''TTTT-20", ''UUUU" to ''UUUU-16", ''VWV" to ''VWV-5", ''WWWW" to ''W'WWW-10", "XXXX" to "XXXX-3", "YYYY" to "YYYY-40", "ZZZZ" to "ZZZZ-93", "AAAAA" to "AAAAA-116". 7 Exhibits "JJJJJ-15" to "JJJJJ-77". 6 Exhibits "KKKKK-16" to "KKKKK-85". 9 Exhibits "IIIII-10" to "IIIII-84". 10 Exhibits "JJJJJ-78" to "JJJJJ-180". 11 Exhibits "KKKKK-86" to "KKKKK-192". 12 Exhibits "IIIII-85" to "IIIII-195". 13 Exhibit "JJJJJ-1" to "JJJJJ-14" 14 Exhibits "KKKKK-1" to "KKKKK-15". 15 Exhibits "IIIII-1" to "IIIII-9". 16 Exhibit "JJJJJ". 17 Exhibit "KKKKK". 16 Exhibit "IIIII". 19 Exhibit "CCCCC". 20 Exhibit "CCCCC", Docket (vol. II), pp.687-700.

AMENDED DECISION CfA CASE NO. 8273 certainty the amount of income payments of Php58,332,023.13? A15: The total income payment of Php97,276,271.79 involved in this case, which includes the Php58,332,023.13, is based on the related CWT certificates the Company received and reported in 2008. It does not represent the total amount of income the Company earned in 2008 and reported as gross income in the 2008 Annual ITR. Some of the CWT certificates received in 2008 pertain to income in 2007 that was already reported as gross income in the Company's 2007 Annual ITR. On the other hand, a portion of the 2008 income reported in the Production Reports and in the GL for 2008 will only be paid in 2009 and the corresponding CWT certificates will only be received and reported in 2009. In short, portion of the Php97,276,271.79 income payment were already reported as gross income in 2007 Annual ITR and does not include income payment already reported as gross income in 2008 Annual ITR but the CWT certificates of which will only be received in 2009. Therefore, if you only compare the Php97,276,271.79 with the income in the 2008 Production Reports and 2008 GL, it will certainly not match because they came from different sources. They are not comparable."21 According to petitioner's witness, the Production Report contains the list of transactions, specifically, commission income that the Company earned for the particular taxable year from various clients and from each insurance policy that the Company was able to sell. These are daily transactions of income. The sum of the commission income and fees for the day is then posted in the GL for that day. The GL is effectively a repository of the Company's total revenues for the day. Hence, the total revenues in the Production Reports are included in the total revenues in the GL.22 In sum, it is petitioner's contention that the income reported in the Production Reports formed part of the Company's gross income as shown in its Annual ITR. 2~ 21 Q&A No. 15, Exhibit "CCCCC", Docket (vol. II), p. 691. 22 Q&A No. 10, Exhibit "CCCCC", Docket (vol. II), p. 689. 23 Q&A No. 15, Exhibit "CCCCC", Docket (vol. II), p. 691.

AMENDED DECISION CfA CASE NO. 8273 Finally, petitioner presented a breakdown of the income payments shown in the CWT certificates with additional supporting documents. Using the said breakdown found in the Supplemental Sworn Statement of Ms. Dellosa24, the Court summarized the amount of income payment and the corresponding amount of tax withheld, as follows: Exhibit No. of Amount of Income Amount of Tax Exhibit No. of Additional CWT certificates Payment p 688.04 Withheld Documents KK1 KK3 2,356.36 p 68.80 ZZ to ZZ-3 KK4 2 498.30 KK6 3 923.10 235.64 CCC to CCC-3 KKB 15,997.82 KK10 128 584.45 249.83 BBB to BBB-4 KK13 252 268.65 KK19 1,506.60 392.31 MMM to MMM-1 KK24 14,921.98 KK28 58 380.18 1,599.78 BBB to BBB-9 KK31 KK32 698.92 12 858.44 YY to YY-3 KK34 1,125.68 KK40 7 829.88 25 226.87 AAA to AAA-3 KK43 15 146.67 KK56 26 723.18 150.66 FFF to FFF-1 KK57 5,835.46 KK59 8 838.59 1,492.20 DDD to DDD-3 KK60 21 569.55 KK64 45 277.82 5 838.02 EEE to EEE-11 KK67 353,834.91 KK79 570 313.43 69.89 HHH-1 KK83 59 330.40 KK84 1,569.10 112.57 HHH and HHH-2 KK85 982 434.00 KK93 59 327.50 782.99 III to III-8 KK94 393 442.49 KK98 716 861.10 1 514.67 JJJ to JJJ-11 KK99 782 620.10 KK112 628 335.10 2 672.32 GGG to GGG-3 KK113 954 460.70 KK114 1 038 536.33 583.55 ITT to ITT-7 KK119 765 808.70 KK121 613 858.06 883.86 LLL to LLL-1 KK122 719 895.70 KK125 2 373 158.20 2 156.96 NNN to NNN-3 KK129 236 160.20 KK130 73 468.60 4,527.78 KKK to KKK-13 KK139 34 648.82 KK141 61 831.60 35 383.49 ZZZZ to ZZZZ-93 KK160 19 949.49 KK161 5,352 468.49 57 031.34 000 to 000-39 KK162 289 603.93 KK165 2 627 427.11 5 933.04 PPP to PPP-13 KK167 1,783 243.40 KK168 747 151.60 156.91 QQQto QQQ-3 KK184 566 315.30 71 966.80 98 243.40 RRR to RRR-22 5 932.75 SSS to SSS-41 39 344.25 UUU to UUU-9 71 686.11 VWtoVW-71 78 262.01 WWW to WWW-34 62 833.51 XXX to XXX-57 95 446.07 BBBB to BBBB-9 103 853.63 DDDD to DDDD-24 76 580.87 EEEE to EEEE-72 61 385.81 FFFF to FFFF-29 71 989.57 GGGG to GGGG-70 237 215.82 HHHH to HHHH-48 23 616.02 KKKK to KKKK-34 7 346.86 III! to III!-6 3 464.88 JJJJ to JJJJ-10 6 183.16 LLLL to LLLL-6 16 624.56 MMMM to MMMM-4 535 246.85 NNNN to NNNN-5 28 960.39 0000 to 0000-11 262 742.71 PPPP to PPPP-32 178 324.34 QQQQ to -62 74 715.16 RRRR to RRRR-58 56 631.53 SSSS to 5555-1 7 196.68 WWWW to WWWW-10 24 Q&A No. 19, Exhibit "CCCCC", Docket (val. II), pp. 692-696.

AMENDED DECISION CfA CASE NO. 8273 Page 7of 10 KK188 733 333.00 14 666.66 YYY to YYY-5 KK190 2 359,575.50 47,191.51 zzz to zzz-11 KK191 1217 525.50 24 350.51 AAAA to AAAA-9 KK194 19 773.62 ecce to cccc-1 KK197 227 283.00 170,000.00 XXXX to XXXX-3 KK199 1700 000.00 6,720.82 UUUU to UUUU-16 KK200 3 338.39 YYYY to YYYY-40 KK201 366,041.20 27 664.87 TITT to TITT-20 KK202 166 919.50 4,988.04 WWtoWW-5 TOTAL 1383 243.68 498,804.00 p 2,682,443.28 p 32,144,917.77 Contrary to petitioner's allegation that it was able to trace the amount of P34,077,756.7325 from its 2008 Production Report, the above summary shows that only the amount of P32,144,917.77 was supported by petitioner's additional evidence. As a result, out of the total appealed CWT of P5,309,498.52, only the amount of P2,682,443.28 pertaining to income payments supported by additional evidence shall be examined, while the CWT amounting to P2,627,055.24 shall remain disallowed for failure to substantiate. Upon re-examination of the CWTs amounting to P2,682,443.28, it is observed that not all amounts found in the additional supporting documents, particularly in the Production Reports where the debits/credits to Fees and Commissions are reflected, are equal to the amount of income payments shown in the CWT certificates. Hence, the Court cannot ascertain if a particular entry to the Production Report (and subsequently to the GL) truthfully represents the income payment per CWT being supported. The above findings on the examination made by the Court are summarized as follows: Findings of this Court: Amount of income Amount of Tax 1. Income payments properly supported by payment Withheld Production Reports that are traced to GL in p 2 245,690.79 p 221 614.42 exact amounts (see Schedule 1) 2. Income payments supported by Production 29 899 226.98 2460 828.86 Reports but are not equal to amount shown in the ONT certificates p 32,144,917.77 p 2,682,443.28 TOTAL Schedule 1 - Income payments properly supported by Production Reports that were traced to GL in exact amounts Exhibit No. of CWT Amount of Income Amount of Tax Exh. No. of Supporting Certificate Documents KK3 Payment Withheld CCC to CCC-3 KK4 BBB to BBB-4 KK6 p 2 356.36 p 235.64 MMM to MMM-1 2 498.30 249.83 3 923.10 392.31 25 Q&A No. 19, Exhibit "CCCCC", Docket (vol. II), p. 696.

AMENDED DECISION 252 268.65 25 226.87 MAtoMA-3 CTA CASE NO. 8273 1 506.60 150.66 FFF to FFF-1 DOD to DDD-3 Page 8 of 10 14 921.98 1 492.20 HHH and HHH-2 1125.68 112.57 III to Ill-S KK13 7 829.88 782.99 LLL to LLL-1 KK19 8 838.59 883.86 NNN to NNN-3 KK24 KK32 21 569.55 2 156.96 QQQtoQQQ-3 KK34 1 569.10 156.91 ecce to cccc-1 KK57 XXXX to XXXX-1 KK59 227 283.00 19 773.62 KK83 1 700 000.00 KK194 .. 2 245 690.79 .. 170 000.00 KK197 221 614.42 TOTAL Since there is no way to determine the truthfulness of petitioner's allegations, the Court cannot see the exact amounts of income payments in the CWT certificates when traced to the Production Reports and General Ledgers. Since the withholding agent per CWT and the named payee per billing statements and Production Reports are not the same, then the Court cannot verify that the income payment per CWT pertains to Commission and Fees income reported as part of petitioner's gross income. As explained by petitioner earlier, the CWT certificates are provided by the withholding agents upon payment of Commission Income and Service and Other Income. Petitioner could have provided additional reconciliations for those income payments per CWT that were not exactly reflected in the GL and supported the same with official receipts and/or invoices. Even petitioner's witness admitted that they were not able to trace some income payments to the Production Report, to wit: "A21: Some of the issuers of the CWT certificates identified by the Court did not give the Company a breakdown of which insurance policies the income payments pertain to. Hence, it is difficult, if not impossible, to trace them to the Production Report. We have requested a breakdown from the withholding agents who issued those CWT certificates but they were unable to provide us the breakdown." 26 The burden of proof to establish entitlement to refund is on the claimant taxpayer. Being in the nature of a claim for exemption, refund is construed in strictissimi juris against the entity claiming the refund and in favor of the taxing power. This is the reason why a_.... 26 Q&A No. 21, Exhibit "CCCCC", Docket (vol. II), p. 696.

AMENDED DECISION CfA CASE NO. 8273 claimant must positively show compliance with the statutory requirements provided for under the NIRC in order to successfully pursue one's claim.27 For failure to adequately substantiate the entire appealed amount, petitioner is entitled to a refund in the amount of P221,614.42 only, representing unutilized excess creditable income taxes withheld for taxable year 2008, in addition to the amount of P3,569,915.23 originally granted in the assailed Decision dated February 11, 2014. WHEREFORE, petitioner's Motion for Reconsideration is PARTIALLY GRANTED. Accordingly, the dispositive portion of the assailed Decision dated February 11, 2014 is hereby amended to read, as follows: "WHEREFORE, premises considered, the instant Petition for Review is hereby PARTIALLY GRANTED. Accordingly, respondent is hereby ORDERED TO REFUND or TO ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner in the reduced amount of THREE MILLION SEVEN HUNDRED NINETY ONE THOUSAND FIVE HUNDRED TWENTY NINE PESOS and 65/100 (P3,791,529.65), representing petitioner's excess and unutilized creditable income taxes withheld for calendar year 2008. SO ORDERED." SO ORDERED. ._# CAESAR A. CASANOVA Associate Justice WE CONCUR: Sk~�A:, C? .Q.;f-.,._u~ 1 ~ � ~N.M~ .. 6~ fuANITO C. CASTANEDA, JR. CIELITO N. MINDARO-GRULLA Associate Justice Associate Justice 27 Winebrenner & Inigo Insurance Brokers, Inc. vs. Commissioner of Internal Revenue, G.R. No. 206526, January 28, 2015.

AMENDED DECISION CTA CASE NO. 8273 ATTESTATION I attest that the conclusions in the above Amended Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. ~ C. C. ;:tv G;.t.. . g_ iUANiro C. CASTANEtfA, 'JR. Associate Justice Chairperson CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, and the Division Chairperson's Attestation, it is hereby certified that the conclusions in the above Amended Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court. Presiding Justice