CTA Case No. 5686 (Decision)

6J . II REPU LIC OF THE ES COURT OF TAX EALS QUEZON C EQUITABLE BANKING CORPORATION, C.T.A CASE NO. 5686 Petitioner, -versus- COIMISSIONER OF INTERNAL Pr om ulg ated : JUL 0 3 2000 ?� , REVENU. E' Respondent. X - - - - - - - - -- - ----- - - - - - - - - -- --- ------ -- - - - --- - - --- - ---- - - - - - - ;: DECISION This is a Petition for Review filed by Petitioner EQUITABLE BANKING CORPORATION against Respondent C01'Th�1ISSIONER OF INTERNAL REVE1\TU1 for the latter's failure to act on the fmmer's claim for refun(UtJx credit in the amount of P1,770,274.60, allegedly representing Petitioner's overpaid gross receipts tax lor the quarter ended September 30, 1996. As represented, Petitioner is a banking instit11tion organi zed and existing under the laws of the Philippines \Vith head office address located at 262 Juan Lun;: St., Binondo, Manila. On October 21, 1996, Petitioner filed with Respondent its Quarterly Percentage Tax Retum for the quarter ended Scptembr 30, 1996 and paid the corresponding gross receipts tax (GRT) for the said quarter in the total a mount ofP-1-6,064,040. .:1.6, the tax b.::se of which includes the passive income which was subjected to twenty percent (20�(,) fin::d ta xes. 934 1 J

DECISION- CTA CASE NO. 5686 PAGE2 Of th aforementioned GRT payments, P20,712,606.35 represents the GRT paid by the Petitioner's Head Office (Exhibits A-1 & B). After taking into account the decision of this Court, dated January 30, 1996, in the case of Asian Bank Corporation vs. Commissioner or Internal Revenue, CTA Ca:-;e No. 4720, 'rvhich held that the 20�o final withholding tax on interest income should not form part of the taxable gross receipts for purposes of co1nputing the gross receipts tax, Petitioner filed with Respondent on April 24, 1997 a claim for refund or issuance of a tax credit certificate of the alleged overpaid GRT of its Head Office for the quztn..r ended September 30, 1996 in the total a mount of Pl,770,274..60 (Exh. D-1), computed :1s follows: Gross Receipts Subjected to Tax P653,406,067.GO Less: 20�o P01iion of Tax Paid Income 2,-+58,653.33 Investment Income Subject to 32,946.838.83 20�o Final Tax Booked at Gross P618j)QQ,2_7 5. 44 Adjusted Gross Receipts Tax Base Computation of Adjusted Gross Receipt Tax: Gross Receipts Tax Due oo,/0 P 215,606,555.76 p 0.00 1 �<> 10,316,445.62 103,164.46 3% 38,235,570.67 1,147,067.12 5�0 353.842.003.39 p 618,000,575.44 17.692.100.17 p 18,942,331.76 Gross Receipts Tax Paid P20,712,606.35 Adjusted Gross Receipts Tax 18.942.331.76 Tax Refund P 1,770,27-LGO On October 21, 1998, Petitioner filed with this Court the instant Petition for Review in order to toll the mnning of the t\vo-year prescriptive period to judicially claim for the 935

DECISION�- CTA CASE NO. 5686 PAGE3 refund of overpaid internal revenue tax, pursua nt to Section 230 (no\v 229) of the Tax Code . Petitioner presents the proposition that the gross receipts tax pa id by it for the third qum1er of 1996 were based on the total gross r eceipts inclusive of the passive income, which were subje cted to the 2Qg�o fmal withhold ing tax at source thus, it argued, tl1at in t he lig ht of this Coll11's ruling in the Asian Bank case, supra, which states that the 2(no fmal vvith.holcling tax on interest income should not fmm part of th e taxable gross r eceip ts, Petitioner had actually overpaid the amount legally due from it, insofar as its GRT obligations are concemed, hence, a refund is, therefor e, in order. Respondent in his Answer, specifically in his "Special and Affirmative D efense ", pointed out that Petitioner's claim for refund of alleg ed overpaid gross rec eip ts taxes for the third quatter of 1996 should be denied on the following grounds: X XX 11. The dccision in Asian Bank Cotvorat i on vs. Commissioner of Internal Revenue (CTA Case No. 4720) is pending appeal vvith t he Court of Appeals. Hence, invocation thereof at this po int in time is premature: 12. Revenue Regulations No. 13-80 datcd November 7, 1980 govems the taxation of minerals and mineral products a nd, therefore, it is i.ITelevnt to this case since petitioner is a banking ii1sti tution; 13. The petition does not state a cause of action as there is no allegation that the tax sough t to be refunded was actua lly paid to the Bureau of Internal Revenue i.I1 accor dance with the provis ions of the T:-x Code; 14-. T he claim for r efund is pending administrative investigation; 15. Taxes arc presumed to have been collected in acconbnce with law. Hence, petitioner must prove that the taxes sought lo be re funded were erroneously r illegally collected; 936

DECISION- CTA CASE NO. 5686 PAGE<l 16. Petitioner muc;t show that it has complied \Vilh the provisions of Sections 204(3) and 230 ofthc l993 Tax Code; and 17. Claims for refund of taxes arc construed strictly agali1st claimants, the same being in the nature of an exemption fi�om taxation (Manila Electric Co. vs. Cmmnissioner oflntemal Revenue, 67 SCRA. 351). In order to support its claim for refund, Pditioner submitted the following evi denc e : 1. EBC's Transmittal Sheet of Percentage Tax of the Head Office and Branches/Units of Large Taxpayers for the Quarter Ended Sep tember 30, 1996, consisting of four pages (Exhs. A, A-1 to A-4); 2. Quarterly Percentage Tax Return for the quarter ended September 30, 1996 (Exhs. B, B-1 to B-5); 3. EBC Head Office Income & Expense Statement for the qu.1. rter ending September 30, 1996 (Exh. C & C-1); and 4. Written claim for refund dated April 21, 1997 with the Bureau of Internal Revenue (Exhs. D, D-1 to D-8). Respondent, on the other hand. submitted his case for decision based on the pleadings. Eventually this case was submitted for (keision after botl1 parties submilted their respective memorandum. The legal issue to be resolved by the Court is whether or not the 20g�o fmal withholdli1g tax on certain passiv�e income of the Petitioner should be excluded in lhe total gross receipts of said Petitioner for GRT purposes, and the factu;d issue is whether or not Petitioner has adduced sufficient evidence to be entitled to the amount sought to be refunded. 937

DECISION- CTA CASE NO. 5686 PAGES With respect to the legal issue, We rule the same in the alTmnati\ c. Thjs is not a case of first impression. As conectly stated by the Petitioner, this Courl lws resolvcJ the same issue in bvor of the Petitioner in the case of Asian Bank C o rporat ion vs. Commissioner of Internal Revenue, supra, which is anchor.:d on similar factu:1l circumstances and on all fours with the case at bar. Said decision states in part: "We agree with the Petitioner that the 2t)<h) fmal withholding !;1:-.: on its interest income should not fotm part of its taxable gross receipts. XXX XXX This conclusion is in accord with the interpretation of the Supreme Court in the case entitled Collector of Internal Revenue vs. .l\Janila Jockey Club, 108 Phil. 821, as quoted by this Cowi in disposing of a simil ar issue in the case entitled Compania .iviaritima vs. Acting Cmm11issioner of Intcmal Revenue, CTA Case No. 1426 dated November 14, 1996, thus: In U1e second place, the highest tribunal of the land interpreted the term: "gross receipts" to mean all receipts or a taxpayer excluding those which have been especially earmarked by law or regulation for the govenunent or some person other than the taxpayer. Thus, it was held: "xx x.. The Government could not have meaut to tax as gross receipts of the Manila Jockey Club the ,<.u which it directs same Club to turn over to the Board of Races. The latter b eing a Government institution, there vvould be; double taxation, which should be rvoided unless ,'m theansntaertu, tethaedmGitosveorfnnmoenotthecrouinldternporettahtiaovne. ln the samc intended to consider as gross receipt the pmiion of the funds which it di1�ected the Club to give, or know the Club vvould give, to winning horses and Jockeys- admitted 5<?-�o. It is true tbal the law says that out of the total wager funds 12��1<% shall be set aside as the � conunission' of the track owners but the la\v itself takes official notice, and virtually approves or directs payment of the portion that goes to mvners of horses as prized and bonuses of jockeys, which portion is admittedly 5%> out of the 1212% conunission. As it did no I at that time contemplate the application of 'gross receipts' 838

DECISION- CTA CASE NO. 5686 PAGE6 revenue principle, the law in making a distribution of the total wager funds, took no trouble of separating one item from the other; and for convenience, grouped t1u�ee i tems under one conm1on denomination. "Needless to say, gross receipts of the prop1ietor of the amusement place should not include any money which although delivered to the amusement place has been especially eannarked by law or regula tion for some person other than the proprietor." (The C01mnissioner of Internal Revenue vs. .i\1anila Jockey Club, Inc. G.R. Nos. L-13890 and L-13887, June 30, 1960) It is to be noted that, under Section 260 of the Tax Code, a race-track is subject to an amusement tax of 20�\J of its gross receipts and the tenn 'gross receipts' embraces all the receipts of the proprietor, lessee, or operator of the amusement place." Notwithstanding the broad and all-embracing clefmition of the tenn "gross receipts" found in our amusement tax law, our Supreme Com1 did not adopt a literal interpretation of the said term in the case of the lvlanila Jockey Club, Inc., supra." Moreover, the Court of Appeals in the case of Commissioner or Internal Hevenue vs. Citytrust Investment Philippines, Inc., CA G.R. Sp No. 52707, August 17, 1999, affm11ed our stand that the 20�o fmal withholding tax on interest income should not fonn part of the taxable gross receipts, and we quote: ''Accordingly the 20�o fmal tax withheld against the Responden t 's passive income was already remitted to the Dureau of Internal Re�venue, for the co1Tesponding year that the same was actually withheld and considered finincalul d\�ei' tthhehosladmineg taxes under Section 50 of the same Code. Indubitably, to gross receipts for the year 1994- to Respondent's (Citytmst) woulcl be to tax tvvice the passive income derived bv the Respondent for the said vear. which vvould constitute double taxation anathema to our taxation laws." (Underlining supplied). The legal issue having been settled, what remains to be resolved by the Court is the factual issue, that is, whether or not Petitioner has established by evidence its claim for refund. 839

DECISION- CTA CASE NO. 5686 PAGE7 This Court has ruled time and agam that to be entitled to a refund of excess/overpaid GRT, Petitioner taxpayer must show compliance with the following requisites: 1. That its claim for refund was filed within the two (2) year period prescribed under Section 230 (now 229) of the Tax Code; 2. That it paid the gross receipts tax; 3. That it enoneously overpaid its gross receipts tax by including ti1e 2tNo final withholding tax derived on its passive income as part of the gross receipts declared in the quarterly percentage tax returns for the period involved; and 4. That the withholding agent certifies that the 20% fmal withholding tax was paid on such passive income. (Bank of the Philippine Islands YS. Commissioner of Internal Revenue, CTA Case No. 5458, February 15, 1999; and BPI Capital vs. Commissioner oflnternal H.evenue, CTA Case No. 5457, :March 1, 1999; cited in Solid Bank Corporation vs. Commissioner of Internal Revenue, CTA Case No. 5408, April 14, 1999). Evidence on record clearly show that the administrative claim for refund and the filing of the instant petition are within the two year period from the d;J te of payment of the tax, hen,ce, there is no question as to the timeliness of the instant petition. Petitioner has complied with the first requirement aforestated. Likewise, Petitioner was able to prove that it complied with the number t\vo requirement that indeed its Head Office paid its gross receipts tax ;Jmounting to P20, 712,606.35. This Court fmds that Petitioner f1iled to comply with the third and folllih requirements thus, the Court is constrained to deny the refund of the amount of 940 /

DECISION- CTA CASE NO. 5686 PAGES Pl, 770,274.60, allegedly representing the difference bct\vcen its gross receipts tax paid pertaining to EBC Head Office and the Adjusted Gross Receipts Tax, since there is no wav... bv... which the Court would be able to verif.v.. the accurac.v.. and the fact of actual withholding of the 20'o fmal tax on its passive incomc in the amount of Pl,770,27.f.60. Petitioner should have presented in evidence the certilicatcs of flnal taxes withheld issued by its withholding agents or issuers of the investmcnt securities shmving the amount of interest income payment and the conesponding 20�o final withholding taxes. In the same token, Petitioner failed to substan tiate its allegation that the 20% fmal withholding taxes fonned pa1t of its gross receipts subjected to the gToss receipts tax. }.1Ioreover, the Court could not asce1tain whether the passive income reflected thereon vvere recorded at gross or net of the 20% fmal vvithholcling taxes. In this regard, the source documents such as the detailed transaction records, confirmation of purchase, confumation of sale, trading sheets, credit/debit advises, accounting tickets, and certificates of fmal taxes withheld could serve as the best evidence tlwt \VouJd clearly establish its entitlement to the claimed refund. Absence of these documents therefore, is fatal to the taxpayers cause. Thus, ,pplying the settled mle in this jurisdiction that t1x rcfuncb partake of the nature of tax exemptions and as such are regarded as in derogation of sovereign au thority and is to be constmecl stiictly against the person or entity clai ming the refund. the burden of proof then is upon the claimant to establish its claimed refund, and since in the case at bar, Petitioner failed to discharge this burden, the Court has no other recourse but to deny the instant claim for refund. 841 l

DECISION- CTA CASE NO. 5686 PAGE9 IN THE LIGHT OF ALL THE FOREGOING, the instant Petition for Revic\v is DENIED due to insufficiency of evidence. SO ORDERED. llbN. J{ Associate Judge ?A 'VE CONCUR: ERNESTc:g D. ACOSTA Presiding Judge (Dissenting) AMANCIO Q. SAGA Associate Judge CERTIFICATION I hereby certify that the above decision was reached af1er due consultation with the members of the Com1 of Tax Appeals in accordance with Section 13, Article VIII of the Constitution. '--. ERNESTO D. ACOSTA Presiding Juclge 942'