CTA Case No. 5034 (Decision)

Republic of the Philippines COURT OF TAK APPEALS Question City RABIE TEXTILES INC�� Petitioner, - versus - C.T.A�� CASE NO. 5034 THE COKKISSIONER OF INTERNAL REVENUE. Respondent. X- DE C I S I 0 N This case involves a claim for refund in the amount of P8,193,750.00 representing overpaid creditable withholding tax. Petitioner is a corporation duly organized and existing under the laws of the Philippines with principal �office at the 4th floor, Emmanuel House, 115 Aguirre Street, Legaspi Village, Makati, Metro Manila. As alleged, petitioner suffered continued losses in its operations and on July 13, 1990 it filed a petition :for suspension of payment to creditors with the Securities and Exchange Commission.

DECISION - C.T.A. Case No. 5034 - -2- Under the terms o� its Repayment and Restructuring plan, petitioner's business will be closed and its assets will be sold to pay off its creditors. On February 19, 1991, petitioner sold to San Miguel Corporation several parcels of lane;~ including improvements thereon located at Valenzuela, Metro Manila in the .total amount of Three Hundred Forty Five Million Pesos <P345,000,000.00) which is payable ?n installment. Then on June 1993, San Miguel Corporation made a partial paym' ent in favo,r of the petitioner the amount o� P163, 875, 000. 00 and withheld P8, 193, 750. 00, representing 5Y. creditable withholding tax, computations o� which are as follows: IIIBt.all..t Papeal 51 Credit.Ult> Tu litw.l'ld ad Paid to till' BII DR Datl' -.at Datl' PO/CIIl"ls .a-t 02-19-91 p 86,250,000 10-15-91 P0-11424575/602 P4,312,500 12-10-92 P2,587,500 11-19-92 p 51,750,000 06-10-93 CR-21143219/221 P1,293, 750 05-19-93 p 25, 875, 000 Bank lacbint> Validation U743 I) Bank lachine Validation (1743 ,, 1UTALS p 165, 875, 000 P8,193, 750 Petitioner alleged that it included in its petition and its claim for refund the creditable withholding taxes o� P2, 587, 500. 00 and P1, 293, 750~ 00 which was paid on December 10, 1992 and June 10, 1993 respectively, likewise it also alleged that the tentative financial statement re�lects net loss of P50,620,214.00 for FY ended June 30, 1993. ') c f'.

DECISION - C.T.A. Case No. 5034 - -3- Petitioner filed a claim for refund with the Bureau of Internal Revenue but up to this date, the same remains unacted upon. Thus, to toll the running of the two-year prescriptive period, petitioner filed this petition for review. The issues posed before Us are the following: 1. Whether or not petitioner's claim for refund has prescribed. 2. Whether or not -petitioner is entitled to the refund in the amount of P8, 193, 730. 00 which represents the 5Y. creditable income tax withheld at source. In resolving the issues posed before Us it is material to deal with Section 230 of the National Internal Revenue Code. Section 230 of the National Internal Revenue Code provides: "Sec. 230. Recovery of tax erroneously or illegally collected. - No suit or proceeding shal.l be maintained in any court for the recovery of any national inter-nal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner of Internal Revenue; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress. In any case, no such suit or proceeding shall be begun after the expiration of two years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment. x x�x " <Emphasis supplied>

DECISION - C.T.A. Case No. 5034 - -4- As the law requires, the filing of a claim :for re:fund with the Commissioner of Internal Revenue must be made within two years from the date of payment o:f the tax. Inso:far as pertinent Sec. 204<3> of the Tax Code provides:- "Sec. 204. Authority of the Commissioner to make compromises and to refund taxes. - The Commissioner may: (1 ) XXX XXX XXX <2> XXX XXX XXX <3 > credit or refund taxes erroneously or illegally received, or penalties imposed without authority; refund the value of internal revenue stamps when they are returned in good condition by the purchaser, and in his discretion, redeem or change unused stamps that have ben rendered un:fit for use and refund their value upon proof of destruction. No credit or refund o:f taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two years a:fter the payment of the tax or penalty. <Underscoring supplied> Taking the case of the petitioner, its :final income tax return for the year ended June 30, 1991, the same return was filed with the Bureau of Internal Revenue on October 15, 1991. Now, the two-year prescriptive period starts to run on October 15, 1991, when petitioner filed its final income tax return, therefore it has until October 15, 1993 to :file a petition for review.

DECISION - C.T.A. Case No. 5034 - -5- Obviously when petitioner �iled this petition �or review on October 8, 1993, the two-year prescriptive period has not yet expired. Moreover, this Court treads the line o� reason held by the High Court in the case o� Accra Investments Corporation v. The Hon. Court o� Appeals, Et. Al., G.R. No. 96322, December 20, 1991, wherein it held thus: "The petitioner corporation's taxable year is on a calendar year basis, hence, with respect to the 1981 taxable year, ACCRAIN had until 15 April 1982 within which to �ile its �inal adjustment return. The petitioner corporation duly complied with this requirement. On the basis o� the corporate income tax return which ACCRAIN �iled on April 15, 1982, it reported a net. loss o� P2,957,142.00. Consequently, as re�lected thereon, the petitioner corporation, a�ter due computation, had no tax liability �or the year 1981. Had there been any, payment thereo� would have been due at the time the return was� �iled pursuant to subparagraph <c> o� the a�orementioned codal provision which reads: 'Sec. 70 <c> - Time payment o� the income tax. The income tax due on the corporate quarterly returns and the final income tax returns computed in accordance with Sections 68 and 69 shall be paid at the time the declaration or return is filed as prescribed by the Commissioner of Internal Revenue. ' XXX XXX The term �return' in the case o� domestic corporations like ACCRAIN refers to the final adjustment return as mentioned in Section 69 of the Tax Code o� 1986, as amended, which party reads: 'Sec. 69. Final Adjustment Return. - Every corporation liable to tax under Section 2~ shall file a �inal adjustment return covering the total taxable income for the preceding calendar or �iscal

DECISION - C.T.A. Case No. 5034 - -6- year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the tax due on the entire taxable income of that year the corporation shall either: (a) Pay the excess tax still due; or ( b > Be refunded the excess amount paid, as the case may be. Clearly, there is the need to i:ile a return first before a claim for rei:und can prosper inasmuch as the respondent Commissioner by his own rules and regulations mandates that the corporate,- taxpayer opting to ask for a rei:und must show in its i:inal adjustment return the income it receive from all sources and the amount o� withholding taxes remitted by its withholding agents to the Bureau of Internal Revenue. The petitioner corporation filed its final adjustment return for its 1981 taxable year on April 15, 1982. In our Resolution dated April 10, 1989 in the case o� Commissioner of Internal Revenue v. Asia Australia Express, Ltd. (G. R. No. 85956 >, we ruled that the two-year prescriptive period within which to claim a refund commences to run, at the earliest, on the date of the filing of the adjusted i:inal tax return. Hence, the petitioner corporation had until April 15, 1984 within which to i:ile its claim for refund. XXX XXX XXX It bears emphasis at this point that the rationale in computing the two-year prescriptive period with respect to the petitioner corporation's claim for refund from the time it filed its final adjustment return is the fact that it was only then that ACCRAIN could ascertain whether it made profits or incurred losses� i.n its busi.ness operati.on. The date of payment; therefore, in ACCRAIN's case was when its tax liabi.li.ty, if any, fell due upon its filing of i.ts final adjustment return on April 15, 1982.�

DECISION - C.T.A. Case No. 5034 - -7 - From the foregoi.ng i.t i.s settled that wi.th respect to i.ncome tax payments effected through the wi.thholdi.ng tax system as i.n thi.s case, the two-year prescriptive period starts to run from the date the taxpayer's i.ncome tax li.abi.li.ty falls due, or at the earli.est, from the date of the filing of the adjusted fi.nal .tax return. On the second i.ssue, peti.ti.oner was able to prove that the gai.n on its sale of real properties on which the 57. credi.table wi.thholdi.ng tax were withheld was i.ncluded as part of i.ts gross i.ncome. <see Exhi.bi.t �H� p. 117, CTA records) Likewise it gains better ground by establishing the fact �' of the withholding and the payment to the BIR of the 57. / creditable withholding tax at source in the total amount of P8,193,750.00, as evidenced by its Certificates of Creditable Income Tax Withheld at Source. <see Exhibits "0", "E", "F", p. 101, 104, 106 > Lastly, petitioner incurred losses for the years 1991, 1992 and 1993, thus it had no income tax liabilities against which to credit the creditable taxes withheld as supported by its Income Tax Returns and audited financial statements for 1991, 1992 and 1993. (see Exhibits "G�, "H", "I", �J�, "K" > All told, we find petitioner's claim for refund to be in order. 395

... DECISION - C.T.A. Case No. 5034 - -8- WHEREFORE. in view o� the �oregoing premises, respondent \ is hereby ordered to refund to the petitioner the amount o� P8,193,750.00 as overpaid creditable withholding tax. SO ORDERED. / GRUBA Judge WE CONCUR: (~\.~.~-~&. ~ ERN TO D. ACOSTA Pr siding Judge ~;(J:/1 CERTIFICATION I hereby certify that this decision was reached a�ter due consultation among the members o� the Court o� Tax Appeals in accordance with Section 13, Article VIII o� the Constitution. (~\Oc~ ERNESTO D. ACOSTA Presiding Judge Court o� Tax Appeals 396