CTA Case No. 5647 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TA.,"X APPEALS QUEZON CITY PI-ITLIPPINE NATIONAL BANK, Petitioner, -versus - C.T.A. CASE NO. 5647 THE COMl\lliSSIONER OF INTERNAL REVENUE, � Promulgated: ' -MAR-Q --3-!B Respondent. X - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - J.l'l DECISION Tllis petition for review is seeking for the refund or issuanc.e of tax credit certificate in the original amount of P31,899,605.57 but w as later reduced to P31,283,262.62, allegedly representing oveqJaid gross receipts tax for the period June 30, 1996 to June 30, 1997. The facts are briefly stated as follows: Petitioner,Pllilippine National Bank, is a private fmancial institution organized and existing under the laws of the Philippines with office address bcated at PNB Financial Center, Roxas Blvd.,Pasay City. For the following calendar quat1ers, petitioner season.1bly filed its Quarterly Percentage Tax Returns reflecting gross receipts in the total amo�mt ofP9,712,670,769.86 with conesponcling gross receipts tax payments in the sum ofP4+2,619,126.10, to wit: Quat1er Ended Exh. Gross Receipts Gross Reeipts J:ax June 30, 1996 A-6 p 2,637,487,724.88 p 120,877,204.63 September 30,1996 B-3 461,936,933.75 December 31, 1996 C-3 9,506,521,828.87 141,049,001.50 March 31, 1997 D-3 3 ,118,759,317.74 156,965,167.40 June 30, 1997 E-3 3,438,241,754.26 144 604,957.20 Tota1 3, 1 55,669,797.86 p 442,619,12.10 P9,712,670J69.86

DECISION- CTA CASE NO. 5647 PAGE2 In aniving at the computation of the gross receipts tax, petitioner alleged that it enoneously included in the t axable gross receipts the final withholding taxes on interest income and trading gain derived from passive investments and deposits in the total sum ofP635,257,769.46, broken clown as follows: Ouarter Ended Final Withholding Taxes June 30, 1996 p 22,055,202.83 September 30,1996 531,999,540.34 December 31, 1996 12,692,894.73 March 31, 1997 65,361,237.25 June 30, 1997 3.145,894.31 Total P635,257,769.46 On January 30, 1996, this Court rendered a decision i1 C.T.A. Case No. 4720 entitled Asian Bank C011Joration vs. Commissioner of lntemal Revenue w�herein it was held that the 20% final withholding tax on bank's interest inconre should not fonn part of its taxable gross receipts for pmvoses of computing the gross receipts tax. As a consequence, petitioner on December 5, 1997, simultaneously amended its percentage tax retums for the calendar qumters involved (Exhs. A-3, B, C, D, and E). It also filed on December 9, 1997, a letter-request for refund or issuance of a tax credit cettiftcate with the Bureau of lntemal Revenue in the an:ount of P31,899,605.57 anchoring its stand on the aforementioned decision (Exh. A), to wit: Quarter Ended GRTPer Original GRTPcr Claim For June 30, 1996 Percentage Tax Retum Amended �'{eturn Refund September 30,1996 p119,774,.:.44.48 December 31, 1996 p 120,877,204.63 p 1,102,760.15 March 31, 1997 461,936,933.75 435,336,956.73 26,599,977.02 June 30, 1997 141,049,001.50 140,414,.356.76 634,644.74 T o ta 1 156,965,167.40 153,696,105.54 3,268,061.86 144,604,957.20 144,310.795.40 294,161.80 P993,532,558.91 P1,025,432,264.48 P31,899,605.57 �j �.' ) .)I\. I..;�

DECISION- CTA CASE NO. 5647 PAGE3 On June 24, 1998, petitioner lodged its appeal to this Court in order to toll the mnning of the two-year prescriptive period to judicially claim f 'Jr the refund of overpaid internal revenue tax pursuant to Section 230 of the Tax Code, as amended. Respondent, in his Answer, raised the following Special aNI Affmnative defenses: 4. Petitioner's clain1 for refund is still undergor1g administrative routinary investigation/examination by respondent; 5. Petitioner miserably failed to demonstrate that 1he tax subject of the case at bar was erroneously or illegally collected; 6. Taxes paid and collected are presumed to ha �e been made m accordance with law and regulations, hence, not refundabll; 7. In an action for tax refund/credit, the burden of proof is on the taxpayer to establish its right to refund and ftilure to adduce sufficient proof is fatal to the action for ta,'{ refund/ credit; 8. It is incumbent upon the petitioner to show that it has complied with the provisions of Section 204 in relation to Section 229 of the Tax Code , as amended; and 9. Claims for refund are constmed strictly against th claimant for the same patiakes the nature of exemption from taxation (,:ommissioner of Internal Revenue vs. Ledesma, G.R. No. L-13509, Jatm1ry 30, 1970, 31 SCRA 95) and as such, they are looked upon with c'isfavor (Westem :tvfinolco Corp. vs. Commissioner oflntemal Revenue, 124 SCRA 121). The Court is now tasked to resolve the following issues: 1. Whether or not the 20�o fmal withholding tax 0:1 bank's interest income should form part of the taxable gross receipts for purposes of computing the gross receipts tax; and 2. Whether or not petitioner adduced sufficient evidvnce to support its cause.

DECISION- CTA CASENO. 5647 PAGE4 Anent the first issue, this Court in a long line of cases 1 as already ruled that the 20% fmal taxes on interest income should no longer fonn par! of taxable gross receipts for purposes of computing the gross receipts tax. Tllis is the m:txim behind our decision in the case of Asian Bank Corporation vs. Commissioner oflnt<- rnal Revenue, CTA Case No. 4720, dated January 30, I 996, supra, pertinent portions of \Yhich read as follows: "We agree with the petitioner that the 20% fmal wi;hholding tax on its interest income should not form part of its taxable gross receipts. XXX XXX XXX This conclusion is in accord with the interpretatic�n of the Supreme Comt in the case e ntitled Collector of Internal Revenue vs. Manila Jockey Club, 108 Pllil. 821, as quoted by this Court in disposing of a similar issue in the case entitled Campania Maritima vs. Acting Cmmnissioner of Internal Revenue, CTA Case No. 1426 dated November 14, 1996, 1hus: In the second place, the highest tribunal of the land interpreted the term: "gross receipts" to mean all receipts of a taxpayer excluding those which have been especial iy e armarked 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 meant to tax as gross receipt of the Manila Jockey Club the 1;2% which it directs same Club to turn over to the Board of Races. The latter being a Government instituti.)n, there would be double taxation, which should be avoided unless the statute admits of no other inteq)retation. In the same manner, the Government could not have int' nded to consider as gross receipt the portion of the funds which it directed the Club to give, or know the Club wouk give, to winning horses and Jockeys - admitted 5�o. It is tme that the law says that out of the total wager funds 121 ).<% shall be set aside as the 'commission' of the track owners but the Jaw itself takes official notice, and virtually approves or direct<; payment of the pottion that goes to owners of horses as prizes and bonuses of jockeys, which rortion is admittedly 5% out of the 12Yz% cmmnission. As it did not

DECISION CTACASE NO. 5647 PAGES at that time contemplate the application� of 'gross receipts' 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 tiYee items under one common denomination. "Needless to say, gross receipts of the proprietor of the amusement place should not include any mon y which although delivered to the amusement place J tas been especially earmarked by law or regulation for some person other than the proprietor." (The Conunissioner oc' Intemal Revenue vs. Manila 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% of its gross receipts .md the tenn �gross receipts' embraces all ti1e receipts of the proprietor, lessee. or operator of the amusement place." Notwithstanding the broad and all-embracing defmition of the tetm "gross receipts" found in our amusement tax law, our Supreme Court did not adopt a literal interpretation of the said tern 1 in ti1e case of the Manila Jockey Club, Inc., supra." Our mling in the above decision has already been affinen ci by the Comi of Appeals m the recent case entitled Commissioner of Internal evenue vs. Citytrust Philippines, CA G.R SP No. 52707, August 17, 1999, which involves a similar issue, thus: Accordingly the 20% fmal tax withheld against the Respondent's passive income was already remitted to the Bureau of Intemal Revenue, for the coiTesponding year that the same was actually withhdd and considered fmal withholding taxes under Section 50 of the same Code. Indubitably, to include the same to Respondent's (Citvttust) gross receiph for the vear 1994 would be to tax twice the passive income derived by the espondent for the said year, which would constitute double taxation anathuna to our taxation laws." (Underlining supplied). The legal issue having been settled, what remains to bL: resolved is the factual aspect of the case. ') b,, (: ..�,,. , __

DECISION CTACASE NO. 56<47 PAGE6 Section 230 of the Tax Code, as amended, provides that a claim for refund, both with the Bureau of Intemal Revenue and with this Court, must be filed within two years from the date of payment of the tax. In counting for the two-ye 1r prescriptive period, the filing of the qumterly percentage tax retum should be considerc� t as the "elate of payment of the tax" (Solid Bank Corporation vs. Commissioner of )nternal Revenue, CTA Case No. 5408, April 14, 1999; and Citytrust Investment Philippines, Inc. vs. Commissioner of Internal Revnue, CTA Case No. 5403, Ar:ril 19, 1999). Applying the above mling in the case at bar reveals that petitioner was able to file its claim for refund with the Bureau of Internal Revenue on December 9, 1')97, and the Petition for Review with this Comt on June 24, 1998, both within the two-year reglementary period, considering that the original 1996 second quarter percentage ta. return was filed on July 22, 1996. Aside from proving that the petition for review was fi'ed within the two-year reglementary period under the law, petitioner must also prove it<; compliance with the following requisites: 1. That it paid the gross receipts tax; 2. That it erroneously overpaid its gross receipts tax by including the 20% fmal withholding tax derived on its passive income as pmt of the gross receipts declared in the quarterly percentage tax returns for the period involved; anJ 3. g That the withholding a ent certifies that the 2og�o fmal withholding tax was paid on such passive income. (Bank of the Philippine Islands vs. Commissioner of Internal Revenue, CTA Case No. 5458, February 15, 199 ; and BPI Capital vs.

DECISION- CTA CASE NO. 5647 PAGE7 Commissioner of Internal Revenue, CTA Case No. 5457, Iarch 1, 1999; cited in Solid Bank Corporation vs. Commissioner of Internal Revenue, CTA Case No. 5408, April 14, 1999.) A meticulous examination of all the evidence on record reveals that petitioner was able to show that it paid gross receipts tax for the calendar q<Jarters of June 30, 1996, September 30, 1996, December 30, 1996, IV1arch 31, 1997, and June 30, 1997, as evidenced by the machine validations appearing on the low,r pmiion of its original qumterly percentage tax retums (Exhs. A-6, B-3, C-3, and D-3). It was attested to by IV1r. Ruben R. Rubio, the independent CPA commissioned by the Cmti to check the veracity of petitioner's claim for refund, that the alleged 20%> fmal witL1wlding taxes on interest income derived from passive investments were included in the .:?-ross receipts reflected in petitioner's quarterly percentage tax retums (Exh. 0, inclusive of submarkings). However, from among the passive income which were allegec:ly subjected to fmal tax, only interest income from treasury bonds for the third qumter o:�� 1996 were supported by certifications of withholding and remittance. The rest of the p tssive investments which are composed of CB Bills, Treasury Bills, Deposit with Local Banks, and Treasury Bonds (for the other quarters), have no certifications. The certific:�tion of withholding and remittance of fmal tax is important for the Comt to verify, if indeed the final tax on passive income was paid and remitted to the Bureau of Internal Revenue -- the rationale behind the Asian Bank case which was earlier quoted.

DECISION- CTA CASE NO. 5647 PAGES Hence, petitioner is only entitled to the amount of P25.201,701.15, representing overpaid gross receipts tax on fmal tax on interest income of treasury bonds for the third quarter of 1996, computed as follows: l\1onth Covered Exh. Interest Income Final Tax July 1, 1996 R-1 Withheld August 1, 1996 p 413,883,874.80 p 82,776,774.96 Total R-3 421,257.248.00 Multiply by GRT Rate 2,106,286,240.00 P504,034,022.96 Amount Refundable _Eb52QJ]_Q, l14.80 5% p 25_d01,701.15 �wHEREFORE, in view of the foregoing, the instant pe1ition for review is hereby PARTIALLY GRANTED. Respondent is ORDERED tc REFUND in favor of petitioner the sum ofP25,201,701.15. SO ORDERED. Q (D 0..-.;L ERESTO D. ACOSTA Presiding Judge t. . R10N 0. DE V RA Associate Ju AMANCIO Q. SAGA Associate Judge

DECISION- CTA CASE NO. 5647 PAGE9 CERTIFICATION I hereby certify that the above decision was reached aft.::r due consultation with the members of the Comt of Tax Appeals in accordance with Svction 13, A.tticle VIII of the Constitution. OQ o .. ER.l\ESTO D. ACOSTA Presiding Judge