BANK OF THE PHILIPPINE ISLANDS v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES Coon of Tax Appeals QUEZON CITY SECOND DIVISION BANK OF THE PHILIPPINE C.T.A. CASE NO. 6833 ISLANDS, Petitioner, Members: -versus- CASTANEDA, JR., Chairperson UY, and PALANCA-ENRIQUEZ, JJ. COMMISSIONER OF INTERNAL Promulgated: REVENUE, Respondent. MAR 1 5 2007 / ~ - X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - --------X DECISION CASTANEDA, JR., .j_.: Before Us is a Petition for Review under Section 11 of Republic Act No. 1125, as amended by Section 9 of Republic Act No. 9282 , seeking a refund or issuance of a tax credit certificate in the amount of Five Hundred Forty Seven Thousand Forty Six Pesos and 72/100 (P547 ,046.72) allegedly representing double remittance of withholding tax on compensation income of American Express International , Inc. employee Ms. Emma Lopez for the period ended December 2001 . The Bank of the Philippine Islands ("petitioner") is a corporation duly organized and existing under and by virtue of the laws of the Republic of the

DECIS ION C.T.A. CASE NO. 6833 Philippines. It is engaged in the banking business with principal office located at the BPI Building , Ayala Avenue , corner Paseo de Roxas Streets , Makati City. The Commissioner of Internal Revenue ("respondent") is authorized, among others , to decide and approve refunds of erroneously or excessively paid internal revenue taxes under the 1997 National Internal Revenue Code (" NIRC"), as amended , with office address at the Bureau of Internal Revenue ("BIR") National Office Building , Agham Road , Diliman , Quezon City. On December 28 , 1994, Far East Bank and Trust Company ("FEBTC") forged a Trust Agreement with American Express International, Inc. - Travel Related Services ("AMEX") for the creation of a retirement fund which would benefit the employees of American Express in the Philippines . The parties stipulated that FEBTC as trustee shall receive , hold , invest, administer and distribute the fund .1 On March 23, 2000, the Bangko Sentral ng Pilipinas ("BSP") approved the Articles of Merger and Plan of Merger executed between petitioner and FEBTC .2 As a result of the merger, FEBTC ceded its rights and obligations in favor of petitioner as the surviving entity,3 including its commitment as trustee pursuant to the Trust Agreement. A certa in employee of AMEX in the person of Ms . Emma Lopez resigned/ retired from her employment effective December 31 , 2001 and received the corresponding separation/retirement pay. Being the trustee and withholding agent, petitioner collected and remitted the amount of 1 Exh ibi t A. 2 Exhibit T. 3 Exhibi t R.

DEC IS ION C.T.A. CASE NO. 6833 P547,046.72 representing income tax due on the separation/retirement pay of Ms . Lopez. Petitioner later discovered that AMEX earlier advanced , withheld and remitted to the BIR income tax on compensation of Ms. Lopez in the amount P476,141 .87.4 The double remittance of income tax withheld on the separation/retirement benefit of Ms. Lopez prompted petitioner, through its Asset Management and Trust Group, to file with the BIR Large Taxpayer's Division , a request for a refund/tax credit in the amount of P547 ,046.72 on March 7, 2002 .5 On December 9, 2003, petitioner appealed by way of a Petition for Review before this Court due to respondent's failure to immediately act on its claim for refund or tax credit. In a letter dated December 16, 2003, the respondent through Deputy Commissioner OIC of the Large Taxpayer's Service Division Estelita C. Aguirre , denied petitioner's request for tax refund due to the latter's failure to submit the 2001 Income Tax Return of Ms . Lopez.6 After both parties have presented their testimonial and documentary evidence , this case was submitted for decision on September 21 , 2006 without any memorandum filed by the respondent. The lone issue raised by the parties for this Court's resolution is whether or not petitioner is entitled to a refund or tax credit in the amount of P547,046.72 allegedly representing double remittance of withholding tax on compensation for taxable year 2001. 4 Rollo, pp. 2-3 and Exhibits 6 and 7; Exhibit BB. sPar. 3, Stipulated Facts, Rollo, p . 110. 6 Exhibit 8.

DECIS ION C.T.A. CASE NO. 6833 The petition is meritorious. The parties do not dispute the fact that the creditable income taxes were withheld and remitted in the amounts of P547 ,046.72 and P476 ,141 .87 to the BIR by petitioner and AMEX, respectively , on the same compensation received by Ms . Emma M. Lopez for the taxable year 2001. Respondent does not dispute either that the creditable income tax of P547,046.72 was erroneously charged by petitioner against Ms . Emma Lopez. What is put to issue is whether or not Ms. Lopez utilized both the creditable withholding taxes of P547 ,046.72 and P476 ,141 .87 reflected in the Certificates of Income Tax Withheld on Compensation issued by petitioner and AMEX , respectively, for taxable year 2001 . Petitioner asserts that the proffered documentary evidence identified as Exhibits 'A' to 'Z', 'AA' to 'CC' sufficiently establish its entitlement to a refund or tax credit in the amount of P547 ,046 .72 , namely: the Trust Agreement dated December 28, 1994; Monthly Remittances of Income Taxes Withheld on Compensation of petitioner and AMEX ; verified Certificate of Income Tax Withheld on Compensation issued by petitioner and AMEX ; petitioner's Annual Information Returns of Income Taxes Withheld on Compensation Income and Final Withholding Taxes; Employer's Certificate of Compensation Payment of Tax Withheld of Ms. Lopez; and the 2001 Annual Income Tax Return of Ms. Lopez. Respondent, on the other hand , denied petitioner's claim due to its failure to submit the Income Tax Return of Ms . Emma Lopez for taxable year 2001 despite several notices . According to the respondent, the 2001 Income Tax Return of Ms . Emma Lopez is necessary to determine if both the tax

DEC ISION C.T.A. CASE NO . 6833 withheld per Certificates of Income Tax Withheld on Compensation issued by petitioner and AMEX were claimed or utilized by Ms. Emma Lopez. A scrutiny of the 2001 Annual Income Tax Return filed by Ms. Emma M. Lopez on April 15, 20027 discloses the following details : Gross Taxable Income P1 ,638 ,318.33 Less: Total Personal & Additional Exemptions 41 ,000.00 Taxable Income P1 .597.318 .33 Tax Due p 476,141 .87 Less: Tax Withheld per BIR Form No . 2316 476141.87 Amount Still Due p -0- Clearly, from the aforesaid return , only the amount of P476,141 .87 was actually due from the compensation received by Ms. Emma Lopez from AMEX for taxable year 2001 and that the said income tax liability was paid by Ms . Emma Lopez by utilizing only the creditable withholding taxes reflected in the certificate issued by AMEX. Thus , the creditable withholding tax of P547 ,046.72 remitted by petitioner to the BIR on the same compensation income received by Ms. Emma Lopez for the taxable year 2001 constitutes erroneously paid tax which the respondent must refund or credit provided the said erroneously paid tax is being claimed within the period allowed by law. To quote: SEC . 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes . - The Commissioner may- XXX (C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value 7 Exh ibit X.

DEC ISION C.T.A. CASE NO. 6833 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 been rendered unfit for use or refund their value upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty: Provided, however, That a return filed showing an overpayment shall be considered as a written claim for credit or refund . SEC . 229. Recovery of Tax Erroneously or Illegally Collected. - No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected , or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected , until a claim for refund or credit has been duly filed with the Commissioner; 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 filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment Provided, however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made , such payment appears to have been erroneously paid . In the case at bar, petitioner filed the subject Monthly Remittance Return of Income Taxes Withheld on Compensation on December 10, 2001 ,8 counting the two-year prescriptive period therefrom , both the administrative claim filed on March 7, 2002 and the instant Petition filed on December 9, 2003 are well within the statutory period . WHEREFORE , premises considered , the Petition for Review is hereby GRANTED . Accordingly , respondent is hereby ORDERED TO REFUND or in the alternative, TO ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner in the amount of P547,046.72 representing double remittance of 8 Exhibi t C.

DEC IS ION C.T.A . CASE NO. 6833 withholding tax on the compensation income of Ms. Emma Lopez for the taxable year 2001 . SO ORDERED. c .a .. CJ~ ~h> c<ru.A.N1ro c. ~ ~ \J., , cAsr'A'N.EDA, JKV"' � Associate Justice WE CONCUR: ~/pif?N~EZ AE~ s~~ce�y Associate Justice ATTESTATION attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the write r of the opinion of the Court's Division. Q __ -~~ C2.~~ Q � c:JuANiro c. CASTANEDA~ SR. Associate Justice Cha irperson

DEC IS ION C.T.A. CASE NO. 6833 CERTIFICATION Pursuant to Article VIII , Section 13 of the Constitution , and the Division Chairperson's Attestation , it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court. t"--~~ ~ ERNESTO D. ACOSTA Presiding Justice