CTA Case No. 5766 (Decision)

/I REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZ ON CITY GOLDEN ARCHES DEVELOPMENT CORPORATION Pe titi o ne r, - versus - C.T.A. CASE NO. 5766 COMM ISS IONER OF INTE RNAL Promulgated : REVENUE, 7 APR 25 2001 :lf:~~ R es pond e nt. X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - X DECISION Case at bar is a judicial c laim for refund tiled by the Petitioner on April 7, 1999 involvin g the amount of P38 ,565 .623. 76 represe ntin g a ll eged excess unutili zed creditab le withho ldin g tax covering th e yea rs 1996 and 1997 . The antecedent fac ts of th e case are as follows: Petiti one r is a domestic corporation dul y organized and existing under and by virtue of the laws of the Philippines. lt is primarily e ngage,~ in the business of leasing real pro perty. Records show th at Petiti oner fil ed its Corporation A nnu al Income Tax Return on April I 5, 1997 for ca lend ar yea r endin g Dece mber 31. 1996 w hich it s ubseq uently amended on October 9. I998 . In its amended re turn , Petiti o ne r reported a gross income of P464,459,6 76 .00 o ut of whi ch amount P4 18,2 I0,534.00 a llegedl y rep rese nted rental 533

DEC ISION- CTA CASE NO . 5766 PAG E 2 income derived from its leasing business which was subjected to creditable withho lding tax of P24,043,380.00. Petitioner. allegedly. was not able to fully utili ze the aforesaid withholding tax payments because its total income tax due lor the sa me taxable year amounted to P 14,485 ,33 4 .00, thus resulting to an excess withholding tax credit of P9,558,046.00 computed as follows: Gross Income p 464,459.676.00 Less: Deductions 423.073,007.00 Taxable Income p 41.386.669.00 Tax Due p 14,485,334.00 Less: Creditable Withholding Taxes 24,043,380.00 Excess Tax Credit p 9.558.046.00 In 1997, Pet itioner was not able to full y apply its al leged excess creditable withholding tax fo r th e calendar year ending December 31, 1997 because it only has an income tax due amounting to P5.0 5 1,045.00. In the sar.ne year, Petitioner also withheld from its rental income the amount of P34,058,622. 76. f-or calendar year 1997, Petitioner reported, as re fl ected in its Amended A nn ual Income Tax Return, a total excess withheld .~ : ' :� . ~...: �, : � ~ I ' tax credits in th e amount of P38, 56J,.62 3.76 computed as follows : Gross Income p 709,854,807.00 . .��.��."''�. 695,423,250 .00 ~J ess: D e duction ~ p 14,431.557.00 Taxable Income . Tax Due p 5,051,045.00 Less: C reditabl e Withholding Taxes (a) 1996 Excess credit p 9,558,0116.00 (b) 1997 Creditable tax withheld 34.058,622.76 43,616,668.76 Amount Refundable p 38.565.623.76

DEC IS ION - CTA C ASE NO . 5766 PAG E 3 On Fe bruary 17, 1999, Petiti oner fil ed with the Bureau of Internal Reve nue an admini strat ive clai m for refund in the amount of P38,565,623 .76. Unabl e to obtain an immedi ate reli ef rrom the Respondent and to to ll the running of the two-yea r prescripti ve peri od within which to fil e a claim for refund, Petitioner fi led the instant Petiti on fo r Review on J\ pril 7, 1999 . On May 26, 1999, Respo ndent fi led hi s J\ nswe r and therein contradicted Petiti oner' s assert ions and in te rposed th e fo ll owin g Special and Affi rm ati ve Defenses: 5. The petiti on states no cause of acti on as it doe not all eged (s ic) the dates when th e taxes so ught to be re fund ed we re actuall y pai d; 6. Claim s fo r re fund are co nstrued stri ctl y aga inst claimant, the same being in th e nature of exempti on from taxes (Co mmi ss ioner of Internal Revenue vs. Ledesma, 3 1 SC RA 95; Manil a Elec tri c Company vs. Commi ssioner of Internal Revenue, 67 SC RA 35); 7. One who claims to be exempt from the pay ment of a parti cular tax must do so under clear and unmi stakabl e term s fo und in the statute (Asiatic Petro leum vs. Ll anes, 49 Phil. 466; Uni on Garment Co. vs . Co urt of Tax Appeals, 4 SC RJ\ 304) ~ .'.. �: 8. In nn ac ti on lo r tax re fLi n ~l- the burd en is upon the tax paye r to prove that he is entitl ed thereto, a n ~l fa ilure to sustain the sa me is fatal to the actio n ' l i . � :~ .� lor tax re fun d; I � 9. It is inc um bcn ~ upop pe~ il 1 .> ne r tq show compli ance with the pro visions of Secti on 229 of the Natioiial lqlci'l]al Reve nue C'odc; ' I. '�. ... . ��. � . . I0. Taxes paid and collected arc pres um e (s ic) to have been made 111 accorllar. with law and regul ati ons, hence, not refun da bl e. The iss ues in thi s case as stipul ated by th e parties arc as fo ll ows:

DEC ISION- CTA CASE NO . 5766 PA GE 4 I. Whether or not Petitioner has excess or unutilized creditable w ithholding taxes as of Dece mbe r 31, 1997 arising from its rental income for CY 1996 and 1997 which is a proper object of a claim for refund pursuant to Sect ion 69 (now Section 76) of th e National Inte rn a l Revenue Code. as amended; 2. Whether or no t sa id creditable withholding taxes of Pe titione r for CY 1996 and 1997 are duly s ub stantiated by docume ntary ev idence; 3 . Whether or not sa id cxcess/ unutili zed crditabl e withholding ta xes as o f December 31, 1996 and December 3 1, 1997 were not applied as tax cred it aga in s t Petiti o ne r' s tax li ab ility Cor the respective s ucceed ing y e a r/ s: 4 . Whether or not th e rental incom e of Petitioner upon which the ta xes were withheld were declared in its 1996 and 1997 income tax re turn s; and 5. Whether or not the Petition er is entitled to the refund of P38 ,565 .623.76 representing excess and unutili zed creditable wi thh o lding taxes for CY I996 and 1997 as of December 3 I. 1997. Ce ntral to Petiti o ner' s bo ne of contention in c laiming a refund of excess unutilized creditable withholding taxes is Sect io n 69 o f th e National Internal Re ve nu e Code and We quote. thus: Section 69. Fiua/ Ad ~:;,\�tment Returu. - Every corporation liabl e to tax und er Sec ti o n 24 shf\11 fil { i final adjustment return covering the total net . t; ~ �. 1 ! ,. . ' �� income for the preced hiH. ~~ ~~~ida r ql~ fi scal year. If the sum of the qu arterly ef fax paym e nts ~11a9~ dll rfn� !!J~~M icl r11xable year is not equal. to the tot~! tax .. "' ).~�� ~~~e on the enure ~~ xab!e !1~~��H:cqme � th at year the corporation s hall e tther: �.�:.���. t : : : . \~ ' . : ',: � ' �� ? (a) Pay the excess tq.xstili d~te ; �;. (b) Be refunded the excess amo unt paid. as th e case may be. In case th e corporation is entitled to a rel'Lli cl of th e excess estimated quarterly income taxes paid. th e refund ab le amo unt show n on its fin al

DECIS ION- CT/\ C/\SE NO. 5766 P/\GE 5 adjustm ent return may be c redi ted aga inst th e es timated quarterly income tax li abi liti es for the taxab le quarters of the succeeding taxable year. Afte r a ca refu l co nside ratio n o f the evide nce prese nted and th e app li cab le laws on the mat ter. thi s Co urt is co nvi nced that Petiti one r is entitl ed to a refund of excess unu tili zed creditable withholdi ng tax. In its 1996 a nnu a l income tax return. Petitione r dec lared a total gross income of P464,459 ,676 .00 . In the sa me year, it incurred a to tal or P423,073 ,007 .00 as expenses which , whe n deducted from Petitioner's gross inco me will yield to a taxable income of P41 ,386,669.00 a nd a corres pondin g tax clue of P 14,386,669.00. Out of the afo resaid gross inco m e, P418.21 0,534.00 pertains to its re nta l income . Since Petitioner acc umul ated a to ta l of P6 1,37 1.247.00 as credits/payments co ns isting of th e prior years excess credi t of P37 ,327,867.00 and a cred itab le tax w ithhe ld of P24,043,380.00 for th e yea r 1996, it ap pli ed the sa me agai nst its tax liab ility uf P 14.48 5,334 .00 in 1996, thus leavi ng nn excess cred itab le w ithh o ldin g taxes of P46,885.9 13.00 as of Dece mbe r 3 1, 1996. On Jul y 8. 1998 . reco~n i /. 1pg so me mi s takes in its re turn for the yea r 1996, ., ' .:; . . Petitione r amended its 9 nnu ~~ J ~1 ~~~ -l~C lax i ~ turn and re flect ed the following : . .. ; . � ~ . ' ...."'~�. Gross Inco me p 464.459.676.00 '�� . Less: Decluctio ps 423,073,007.00 Taxa ble In come p 41 386 669.00 Tnx Due p 14,485,334.00 Less: C reditnbl e Wi thho ld ing Taxes 24,043,380.00 Excess Tax Cred it p 9.558 .046.00 53 '(

DEC ISION- CTA CAS E NO. 5766 PAGE 6 On April 15 , 1998, Petitioner fil ed its annual income ta x return for the yea r 1997 and declared the foll owing: Gross Inco me p 709,854,807.00 Less: Dedu cti ons 695,423,250.00 Taxable In co me p 14.431.557.00 Tax Due p 5.05 1,045.00 Less: Cred itab le Withholding Taxes (a) 1996 Excess credit p 9,558.046.00 (b) 1997 Cred itabl e tax withheld 34,058.6L2.76 43.616,668.76 Amount Refundable p 38 565 623.76 Presc inding !'rom the abo ve, it is undi sputabl e that Petitioner has excess creditable withholding tax in the amount of P38,565,623.76. We now proceed to the iss ue of whether or not Petiti oner was ab le to substantiate its claim for re fund by releva nt documentary ev id ence. In the cou rse o f the proceed in gs, Peti ti oner was able to present various Certificates of Inco me Tax Withheld at So urce lo r the ca lend ar yea rs 1996 and 1997 to prove its rental income and the corresponding taxes withheld therefro m (Exhs. E- 1 to E-35 and F-1 to F-8 8) . Ho wever, thi s Co urt . idler a thorough scrutin y of Petition er's ev idence di sa llows a porti on of the cl~in1 lp r refund since it fail ed to present the certificates : �� � � " 1, corresponding to the income q~c�l'li�ed in :jts annual income tax returns. ln the same !I .~ ' ~ .� ':" , . . ~ ' :~ .. breath, Petiti oner failecj to prcive tht1t ali 0f the income reflected in the Certificates ~~ ' . \ ~ �I t.,� � In come Tax Withheld at Source we re declared as part of its gross income in its annual inco me tax ret urn fo r th e yea rs 1996 and 1997. We arrived at thi s concl usion when this Court compared th e income declared in Petitioner's ce rtifi cates wit h its in come refl ected 5J o

DEC ISION- CTA CASE NO. 5766 PAGE 7 in the Sched ul e of Income Producing Properties and Inco me therefrom (CTA Records, pages 118 to 12 1 and 146 to 147). Co nverse ly, some of the inco me renected in the said schedu les have lesser amounts than those slated in the ce rtifi cates and so me of the income reflected in the certificates are not included in Petitioner's schedul e. Accord in gly, it is proper that an adjustment should be made all owing only the portion of inco me taxes withheld that corresponds to the rental income declared in Petitioner's Annual Income Tax Return (Annexes A and B) . Bearin g in mind the above-stated di screpancy, thi s Co urt is inclined to grant only the amo unt o r P34.907,956.86, the amount substantiated by Petitioner computed as rollows: 1996 Taxable In come (Exhs. J\ & 8) p 41 .3 86.66.2..Q.Q Tax Due p 14,485,334 .00 Less: All owab le Cred itab le Tax 20,444,421.58 p 5,9591087.58 Withheld (Annex A) <, :~�.: Excess Crecl it - : -;..."''~~ .... Taxable Inco me (p xh. {:) P 14A3 L 557.00 . ~/ :. : ' ' ;,t.~\: ' r ~ I, ' i ' . �~ \ P ~ , q ~ J,045.Qt:L ~. !,�. l~ax Due ~ �'.' �~1 � ....~ . ._ !~ess : Cred itab le W ithl1o l ~i n g Taxes t� -- !'�.�. - �� � 4 :-' � (a) 1996 Excess ci�ecl it p 5,959,087.58 (b) 1997 All owab le Creditabl e Tax Withheld (Annex B) 33,999,7 14.28 39,958.80 1.86 Refundable Amount p 34,907,756.86

DEC ISION- CTA CASE NO. 5766 PAGE 8 WHEREFORE, in view of all the forego in g, Respondent is hereby ORDERED to REFUND or in th e alternati ve to ISSUE a Tax Credit Ce rtifi ca te in the amount of P34,907,756.86. in l~wo r o f the Petiti oner. re1resent; �1g excess unu tili zed creditable withho lding tax for the yea rs 1996 and 1997. SO ORDERED. I CONCUR: ERNESTO D. ACOSTA Pres iding Judge -l :ERTIFICATION \. \, �. ~��~ ~ : f hereby certiry tj1at tl)e ~ ~, -~ ~~~' dec i s i o n was reached a ft er due consultation with the \ ... .. 'I ' 1 ~ . ~ .~.... _::.., _,_ ._....:\,. ' mep1pers o f the Co urt of Tctx A~i~i:-J;\~ ip acco rd ance with Secti on 13 , Arti cle VII1 of th1 � ~ 1f ~ � ' . ' '� 1 I�. � .� -1 � Cons~i~q ti on . L -LO~ Q_t-vA-- ERNESTO D. A COST A Pres iding .Judge 5 40

GOLDEN ARCHES DEVELOPME NT CORPORATION A NNEX A SUMMARY OF ALLOWABLE CREDITABLE TAXES WITHHE L D FOR THE YEAR ENDED DECEM BER 31 , 1996 LESSE E PER SCHEDULE PE R CERTIFI CATE EXH I B I T INCOME TAX A TTACHED TO FS OF CREDITABLE PAYMENT W ITH HELD TAX W/HELD 216 ,702 .10 169.425 77 A .B,C & G Co. p 4.322.375.00 p 4,334.041 .88 E-5 p 4.322 ,375.00 p 265 ,617.11 3,429.794 .00 3,388.516 22 100 .000 .00 Alfonso Ng 5 .688 , 149 .00 3.388 .516.22 E-3 5,312 ,342 13 125.384 .86 2.000,000 .00 2 ,0 0 0 .000 .00 Arlene Recto 2.129.511.00 5.312.342 . 13 E-11 . E-27 2.129 ,511 .00 97 ,120.88 2 ,428 ,022.00 2,428 .022.00 194 ,516.81 .Blue Dairy ,_ 3.162. 509.00 2 ,000 .000 .00 E-28 3 ,162.509 .00 157 .319 .13 3. 149.209.00 3.146 ,382.40 Cebu Golden Food Industries 1.041.414 .00 3,134,621 .50 E-25 1.041.414 .00 78 ,019.30 2 .338 . 148 .00 2,338 ,148.00 11ti,111.95 Cebu Golden Ventures 6.486 ,652 .00 3,058.166 75 E-23 6 ,486 ,651 .83 324 ,332.59 2,702,999.00 2 ,657.579.40 132 ,878.97 ....Davao Cil�'~'1rldustries 3.846.982 .00 3 ,890,335 .54 E-20 14.272.564 .00 14 .272.564 .00 725 .917.17 .ID~f~ 3.146.382.40 E-15 408 ,135 .00 1,575 ,377.00 80.626 .23 .. Fun tei.sL:rez.loe,; > � � . : .... ''t 1.575 ,377.00 1,560.386 .00 E-29 3.633.439.03 169 .236.68 3 .747,958 .00 2,309 .373 .60 115,468.69 G~. f.oods. Inc. 2 .895,205 .0 0 2.354 ,700.10 E-21 2.271 ,681.90 113,584.10 2.293 ,588 .00 1,893 ,015.00 GianfA:rches Food Corp 1 893 ,015.00 6,486 ,651 .83 E-12 97 ,978.21 .GMCrf:oo.ds� �. �� ., .� 2.027, 721.00 321,476 ,731 .20 2,657,579.40 E-10 1,921 ,590.00 16.073,836.56 17,779.00 2 ,668 .266 .63 105,51 5.91 c..n Gotoen�c-rty-Food Industries 321,476 ,732.00 NO CERTIFICATE 3,484,249 .60 133363.33 884,208 .00 174 ,212.48 .&:a Havi Food Services 1.921,590.00 14,291 ,851 .80 E-30 TO E-33 44 ,210 .4 0 .......... 4,284,497 .00 10,200.821 .00 516,621.59 Information Tech . & Edu. Ctr 4,530.719 .00 NO CERTIFICATE 2,328,41 5.00 116.420. 76 1.610,654 .00 Mariels Food Industry 10.200,82 1.00 1,612 ,524.63 E-26 :;.,~.444-,421 .58 2,328 ,4 15.00 McBros Food Corporation 3.63~ 439 .03 E-18 418,210,534.00 p McColby's Food 2,309 ,373.60 E-22 McDaniels Food Corp 2,271,681.90 E-17 McDLC Foods. inc. 1.959 ,564 .13 E-19 McDonald's Clark NO CERTIFICATE McFerry Food Services - NO CERTIFICATE McGeorge Food Industries 321 ,476,731 .20 E-34 M~Gill Food Industries 2 ,110,318.31 E-24 �M cJola Food Industries 2,668 ,266.63 E- 13 McMary's Food Center 3,484 ,249.60 E-6 TO E-9 McMighty Foods Corp. 884 ,208.00 E-16 McPhilips Food Industries 10 ,33 2 ,4 31.45 E-1, E-2 � ; ~..R<i!Y Food Industries 2,328, 4 15.40 E-14 --. J ;.... " '�-:r.::::l AL p 410 ,686 ,779.43 p 407,333,182.94 p

GOLDEN ARCHES DEVELOPMENT CORPORATION ANNEX B SUMMARY OF ALLOWABLE CREDITABLE TAXES WI THHELD FOR THE YEAR ENDED DECEMBER 31 , 1997 LESSEE PER SCHEDULE PER CERTIFICATE EXHIBIT IN COME TAX ATTAC HED TO FS OF CREDITABLE PAYMENT W ITH HELD TAX W/HELD 251 ,465.53 201.612 .09 A BC & G Corp. p 5,238 ,124.08 p 5.029 .310 .60 F-1 9 to F-22 p 5.029.310.60 p 374 ,200.15 3,931 ,201.45 3,931 ,201.45 Al fonso Ng 8 ,084,920 .71 4,032,241 .80 F-23 to F-26 7,484 '003 .00 100 ,000.00 1,049,234 .18 150 ,303.12 Ansei -A 2.000 .000.04 7,484 ,003.00 F-27 to F-28 2.000.000 00 158 .0 03 .70 3,523 ,238 .56 3. 006.062 .40 Arlene Recto 3,624,841 .71 NO CERTIFICATE 3,160.074 .00 191 ,824.70 Blue Dairy 2,469 ,261.49 225 ,023.25 3.8 13,190.63 2,000,000 .00 F-10 to F-13 3 ,813.190 .63 4.537 ,732 .07 4 .500 .465 .00 71 ,972.04 Cebu Golden Food Industries 1,079.580 .13 3,006,062.40 F-62 1.079 .580 . 13 139.723 .93 2.811 .591.41 2.794,478 .66 409.985 .38 �eeou 'Golden Food Ventures 8 ,199.664 . 12 3.160,074 .00 F-63 8,199 ,664 .12 2,095 .851 .81 1,803,552 .00 90 ,177.60 Clark Mac 3 ,152 ,194 .85 NO CERTIFICATE 3.116.944 .00 155 ,847.20 4.036 .120.93 4.036.120 93 228 ,672.66 .- �n-~l'ood Industries 21 ,388 ,183.27 3.836 ,494 .00 F-67 to F-70 20,744 ,881.40 1 ,037,244.07 4,500,465 .00 F-29 to F-32 :�.J:DSAl:DOd Industries 507 ,253 .50 1,439,440 .80 2, 147 ,152 .60 107,357 .63 2.466 .841 .77 F-1 4 1, 189 ,464 .08 59,473 .20 �.: Fun l:.e!S1Jre .: ~ :yl 1 ,975.343.20 46,465 .32 1,052,627 .84 929 ,306.40 'Geneva Foods. Inc. :.t �. 3,278 ,242.89 2,794 ,478 .66 F- 33 2,636 ,995.40 131 ,849.77 2.4 72,62 5.66 8.199,707 .60 F-71 to F-74 2,4 72,625 .66 124.294 .96 Gi ant Arches Food Corp. 3.998 ,997 .56 3,939.944 .00 196 ,997.20 557,832.780.21 557 ,832.780.21 27.891,639 .08 cr. .Glenn Lim 2 ,958 ,386 .23 1,803.552.00 F-75 2,782,474 .47 139,123.72 7 ,983,159.08 5.764 ,492.00 288 .224.60 ~ GMC Foods, Inc. 1,908 ,307 .02 3,116,944 .00 F-34 1,908 ,307 .02 181,253 .14 Golden City Food Industries 1,69 4 ,702.45 4 ,573.453 .31 F-35 to F-36 1,658 ,018 .26 l\J HAVI Food Services 12,230,986.72 12,042,191 .88 82 ,900.89 2.664 ,004.04 2,664 ,004.00 602 ,109.59 2.607 ,860.99 20,744 ,881.40 F-6 to F-9 2,602 ,759.60 133 ,200 .20 2,368,555 .9 4 1,972 ,631 .60 1,30,137.98 Information Technology 1,91 4,856.09 NO CERTIFICATE 98,631 .58 Jessica Gollayan Lim 1' 198,454 .26 2. 147 ,152 .60 F-37 to F-38 Marie! Food Industries 33 ,999 ,714.28 McBros Food Corp 1'189,464 .08 F-59 929 ,306.40 F-39 McColby's Food , Inc. 2 ,636 ,995 .40 F-40 to F-44 2,48 5.899 .67 F-45 McDaniels Food Corp. McDLC Foods. Inc 3,939 ,944 .00 F-46 to F-50 McGeorge Food Industries 557 ,832,780.26 F-1 McGill Food Industries 2,782 ,474.47 F-51 McJola Food Industries 5,76 4 ,492.00 F-53 to F-54 McMary's Food Center 3,625,062.80 F-76 to F-83 1.658 ,018.26 F-55 McM ighty Food Corp . McPhilips Food Industries 12,042,191 .88 F-56 to F-58 2,664 ,004.00 F- 15 to F-18 McRey Food Industries Nee Mee Food Corp. 2,602 ,759.60 F-64 to F-66 1,972,631.60 F-84 to F-86 Nestor de Ia Merced Noemi Cabuay NO CERTIFICATE Vicky Marbella NO CERTIFICATE TOTAL p 692,148,916.89 p 679,994,285.59 p (6'/7,242,675.50 p