CTA Case No. 5721 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY EQUITABLE BANKING CORPORATION, Petitioner, -versus- C.T.A. CASE NO. 5721 COMMISSIONER OF INTERNAL Promulgated: ..- REVENUE, 2000 JUN 08 Respondent. X - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -X DECISION This is a judicial claim for refund of the amount of TWO MILLION NINE HUNDRED SEVENTEEN THOUSAND ONE HUNDRED SIXTY SIX AND 20/100 PESOS (P2,917,166.20) filed by the Petitioner on January 20, 1999, representing allegedly overpaid gross receipts tax for the last quarter of taxable year 1996. The facts are simple. Petitioner is a banking corporation duly organized and existing under and by virtue of the laws of the Philippines with principal office at 262 Juan Luna Street, Binondo, Manila. Records reveal that Petitioner filed with the Respondent Bureau of Internal Revenue its various quarterly percentage tax returns, covering those of its Head Office and branches, for the period ending December 31, 1996, and allegedly paid its Gross Receipts Tax due in the amount of P53,096,548.39, as evidenced by a "Transmittal Sheet of Percentage Tax of the Head Office and Branches/Units of Large Taxpayers for the Quarter ended December 31, 1996". (Exhibit A).

DECISION- CTA CASE NO. 5721 PAGE2 Petitioner alleges that, of the said amount of P53,096,548.39, P31,068,242.67 pertains to percentage tax paid by its Head Office as shown in its Quarterly Percentage Tax Return for the quarter ended December 31, 1996. (Exhibit B, B-1, B-2). On the strength of the decision of this Court in the case of Asian Bank Corpol'ation vs. Co11U11isisoner of Intenzal Revenue., CTA Case No. 4720, Jamw1:P 3, 1996, where We ruled that the 20% fmal tax on passive income should not form part of the taxable gross receipts for Gross Receipts Tax purposes, Petitioner filed m administrative claim for refund of its alleged overpaid gross receipts l<lX with the Respondent on April 24, 1997, computed as follows: Gross Receipts Subjected to Tax P711,475,2GG.54 Less: 20;() Pmtion of Tax 1,597,837.45 Paid Income (Annex B1 of 2) 56,745, 486. 54 Investment Income subject to 20% fmal tax booked at gross (Armex B2 of2) Adjusted Gross Receipts Tax Base PG53,131,942.55 Computation of Adjusted Gross Receipt Tax: Gross Receipts Tax Due o�o P 69,452,096.18 p 0.00 1% ' 10,729,421.40 3%, 107,294.21 5% 30,186,949.33 542,763,475.64 905,608.-!8 P653,131,942.55 27,138, l73._Zli P28, 151,07<).�!1 Gross Receipts Tax Paid P31,068,242.G7 Adjusted Gross Receipts Ta'i 28,151,076.47 Tax Refund p 2,917, 166,2() '- ) 0 (_)

DECISION- CTA CASE NO. 5721 PAGE3 Unable to secure an affumative response from the Respondent and fearing that its cause might prescribe, Petitioner elevated its grievance to this Court on January 20, 1999, via Petition for Review. In opposi tion ther eto, Respondent filed its Answer to the Petition for Review on March 24, 1999, and intetvosed the following Special and Affmnative Defenses, to wit: "SPECIAL AND AFFIRlVIATIVE DEFENSE 11. The decision in Asian Bank Corporation vs. Commissioner of Internal Revenue (CTA Case No. 4720) is pending appeal with the Court of Tax Appeals. (should be Com1 of Appeals). Hence, invocation thereof at this point in time is premature. 12. There is no provision in the Tax Code or any Special Law which excludes the 20;() fmal income tax withholding under Section 50(a) of the Tax Code, as no longer fanning part of the gross receipts for I he purpose of the computation of gross receipt tax umlcr Seclion 119 of the Tax Code. 13. Revenue Regulations No. 13-80 elated November 7, 1980 governs the taxation of minerals and mineral products and, therefore, it is inelevant to this case since petitioner is a banking corporation. 14. The petition does not state a case of action as there is no allegation that the tax sought to be refun ded was actually paid to the Bureau of Internal Revenue and that the 20% fmal withholding tax on income was actually remitted by its withholding agents in accordance \Vith the provision ofthe Tax Code. 15. The claim for refund 1s pending administrative investigation. 16. Taxes are presumed to have been collected in accordance with law. Hence, petitioner must prove that d ' �- . I

DECISION- CTA CASE NO. 5721 PAGE4 taxes sought to be refunded were erroneously or illegally collected. 17. The non inclusion of the 20% fmal withholding tax on income from the gross income for pmvoses or the gross receipts tax operates as an exemption from tax. l-Ienee, the same must be construed strictly against the one who asse11s the claim of exemption, considering that tax exemption can only be given effect when the grant is clear and categorical inasmuch as taxation is the rule and exemption is the exception. 18. Claims for refund of taxes are to be construed stri ctly against claimants, the same being in the nature.: of an exemption from taxation (Manila Electric Co. vs. Cmmnissioner oflntemal Revenue, 67 SCRA 351). 19. Petitioner must show that it has complied with the provisions of Section 204(3) and Section 230 of the Tax Code, as amended." To prove its stance, Petitioner presented m evidence, among others, the following documentary exhibits, to wit: 1. EBC's Transmittal Sheet of Quarterly withholding Tax Returns filed by Banks and other Financial Institutions classified as Large Taxpayers with Branch Offices for the Quarter Ended December 31, 1996. (Exh. A); 2. - , Written claim for refund (Exh. C); and 3. EBC Head Office Income and Expense Statement (Exh. D). On March 3, 2000, after the pm1ies have submitted their respective memoranda, this case was considered submitted for decision. Fomung the crux of the controversy, legal and factual, posed lor consideration by this Court are: ,., -- I ! ,.) . J

DECISION- CTA CASE NO. 5721 PAGES 1) Whether or not the 20�& fmal withholding tax on bank's passive income fonn part of the gross receipts of a taxpayer for GRT purposes; and 2) Whether or not, on the basis of the evidence presente d and submitted to this Court, Petitioner is entitled to a refund in the amount of P2,917, 166.20 representing alleged ove1vaid gross receipts tax. With regard to the first issue, We consistently hold that the 20% fmal withholding tax should not fmm part of the gross receipts of the taxpayer for purposes of the 5%> gross receipts tax (China Banking Corporation vs. Commissioner of Internal Revenue, CTA Case No. 5433, October 7, 1998; Equitable Banking Corporation \lS. Commissioner of Internal Revenue, CTA Case No. 4720, January 20, 1996). This is in accord with the tluust of Our decision in the Asian Bank Case, supra, vvhere this Court emphatically ruled, thus: "We agree with the petitioner that the 20% fmal withholding tax on i ts interest income should not fonn part of its taxable gross receipts. XXX This conclusion is in accord with the interpretation of the Supreme Court in the case entitled Collector of Internal Revenue vs. fV[anila Jockey Club, entitled Compania :Maritima vs. Acting Commissioner of' Internal Revenue, CTA Case No. 1426 dated November 14, 1966, thus: 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 especially eannarked by law or regulation for the government or some person other than the taxpayer. Thus, it was held: "x x x x. The Govcnuncnt could not have mant to tax as gross receipt of the l\.!fanila Jockey Club the 1/2g�o which it directs same Club to tum over to the Board of Races. The bttP.r hP.ino ; GnvP.t,mP.nl in<.:litnfinn lhP.I'P. \,\J)Jdd h.- rlnnhle: - '-) J

DECISION- CTA CASE NO. 5721 PAGE6 taxation, which should be avoided unless the statute admits of no other interpretation. In the same manner, the Gowrnment could not have intended to consider as gross receipt the portion of the funds which it directed the Club to give, to winning horses and jockeys admitted 516. It is true that the law says that out of the total wager funds 12 Y2% shall be set aside as the ' commissio1 1 ' of the track owners but the law itself takes official notice, and vi rtually approves or directs payment of the portion that goes to owners of horses as prizes and bonuses of joekeys, which pmtion is admittedly 5'o out of the 12 W�o commission. As it did not 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, grmqJcd tlu�ee items under one cmmnon denomination. Needless to say, gross receipts of the proprietor of the amusement place should not include any money which although delivered to the amusement place has been especially eannarked by l aw or regulation for some person other than the proprietor." (The Commissioner oflnternal Revenue vs. �Manila .Joclry Club, Inc., G.R. Nos. L-13890 & 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 and the term 'gross receipts' embraces all the receipts of the proprietor, lessee, or operator of the amusement place." Notwithstanding the broad and all-embracing defmition of the tenn "gross receipts" found in our amusement tax law, our Supreme Court did not adopt a literal intcq)retation of the said term in the case of the �Manila .Jockey Club, Inc., supra." Parallel to this, the Court of Appeals, in the case of Commissioner of Internal -' Revenue vs. Citytrust Investment Philippines Inc., CA-GR SP. NO. 52707, promulgated on August 17, 1999, ruled on the same subject matter in this wise: "Accordingly, the 20%� fmal tax withheld against the Respondent's passive income was already remitted to tilL: Bureau of Intemal Revenue for the conesponding year that the same was actually withheld and considered fmal withholding taxes under Section 50 of the same code. Indubitably to include the same to the Respondent's gross rP.r.P.int<.: f(w thP. VP.:Jt" 1 QQd urnnld hP. tn t:Jy turir.P. thP. n;t<.:<.:i'\ro inr.nmP.

DECISION- CTA CASE NO. 5721 PAGE7 derived by the Respondent for the said year which vmulcl constitute double taxation anathema to our Taxation Laws." Tested by these pronouncements, it would appear that the P.:titioner is ent itled to a refund. However, a sedulous review of the evidence on record docs not sustain Petitioner's stance, accordingly, the claim for refund must be denied, not on legal grounds, but for insufficiency of evidence. In a litany of cases, this Court has invariably held that in a refund of overpaid gross receipts tax, the taxpayer must prove that it has complied with the follO\ving requisites: 1) That it actually paid the 20% final withholding taxes on its gross receip ts from passive income; 2) That the 20% fmal withholding tax on passive income fanned part of its gross receipts subjected to the gross receipts tax; and 3) That it actually paid the GRT due on its gross receipts fi�om passive income inclusive of the 20% fmal withholding taxes. Concededly, Petitioner was able to prove that indeed, it paid its gross receipts tax amounting to P53,096,548.39. However, this Court fmds it ineluctable to deny the refund of the amount of P2,917, 166.20, allegedly representing the difh.:rence between its gross receipts tax paid pertaining to EBC Head Office and the Adjusted Gross Receipts Tax, since there is no way by�which We \Vould be able to decipher with accuracy the fact of actual withholding of the 20% fmal tax on its p;-ssive income in the amount of P2,917, 166.20. Petitioner should have presented, in evidence the certificates of fmal taxes withheld issued by its withholding agents or issuers of the investment ..''v. ) ..L.

DECISION- CTA CASE NO. 5721 PAGES securities showing the amount of interest income payment and the corresponding 20�o final withholding taxes. In the same breath, Petitioner failed to substantiate that the 20% final withholding taxes fonned pati of its gross receipts subjected to the gross receipts tax. �while it is ttue that Petitioner's 1996 last quarter taxable gross receipts and the corresponding gross receipts tax appearing on its last quarter percentage tax retum tally with those appearing on its general ledger, this Court, however, camwt ascertain whether the passive income reflected thereon were recorded at gross or net of the 20<?.�(, final withholding taxes. In this respect, the source documents such as the detailed transaction records, corrfmnation of purchase, confirmation of sa le, t rading sheets, credit/debit advises, accounting tickets, cettificates of fmal taxes withheld could serve as the best evidence that would merit a weightier p robative value. Absence of these documents, therefore, is fatal to the taxpayers cause. With these circumstances in mind and considering that refunds of taxes are in the nature of an exemption and must be construed in strictissimi juris against the taxpayer and in favor of the taxing authority, the instant c laim for refund must be denied. WHEREFORE, in view of all the foregoing, the instant Petition for Review i s hereby DENIED for insufficiency o f evidence. SO ORDERED. - ERNESTO D. ACOSTA Presiding J uclgc .) 0. ) ., {.,

DECISION- CTA CASE NO. 5721 PAGE9 WE CONCUR: /)� i / I RM10N 0. DE V 'RI\ Associate Judge (Dissenting) AMANCIO Q. SAGA Associate Judge CERTIFICATION I hereby certify that the above decision was reached after due consultation with the members of the Court of Tax Appeals in accordance with Secti on ] 3 Article VIII of the Coru;titution . ERNESTO D. ACOSTA Presiding Judge '' ! ,__) t)