CTA Case No. 5516 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY RIZAL COMMERCIAL BANKING CORPORATION, Petitioner, - versus- C.T.A. CASE NO. 5516 u J t;/#;)' COMMISSIONER OF INTERNAL REVENUE, Respondent. x---------------------------------------------------------x DECISION This is a petition seeking for the refund or issuance of a tax credit certificate in the amount of 1!3,531,051.03 representing alleged overpaid gross receipts tax for the four quarters of 1995. The factual backdrop of the case are as follows: Petitioner is a corporation duly organized and existing under and by virtue of Philippine laws and is engaged in general banking business. During the year 1995, Petitioner, pursuant to Section 119 of the Tax Code imposing a tax on gross receipts derived from sources within the Philippines by all banks and non-bank financial intermediaries, filed its Quarterly Percentage Tax Returns detailed as follows:

DECISION- CTA CASE NO. 5516 PAGE2 Exhibit Date Filed Period Covered Gross Receipts Tax Paid A April 20, 1995 Jan.-March 1995 P 541,537,248.06 p 24,083,728.50 B July 20, 1995 Apr.-June 1995 850,678,408.12 39,799,657.71 c October 20, 1995 July- Sept. 1995 789,957,154.13 36,938,561.29 D January 22, 1996 Oct. -Dec. 1995 755,339,549.73 35,175,811.39 TOTAL 1!2.937.512.360.04 1!135.997.758.89 Part of Petitioner's gross receipts subjected to the gross receipts tax included interest income or yield derived from passive investments amounting to 1!353,105,103.33 (Exh. F), inclusive of the 20% final withholding tax. Petitioner, citing this Court's decision in CTA Case No. 4720 entitled Asian Bank Corporation vs. Commissioner of Internal Revenue promulgated last January 30, 1996, where We ruled that the 20% final withholding� tax on interest income should not form part of taxable gross receipts, it filed on April 16, 1997 a claim for refund with the Bureau of Internal Revenue of its overpaid gross receipts tax for the year 1995 in the amount of 1!3,531 ,051.03 (Exh. E), computed as follows: Gross receipts derived from passive 1!353,105,103.33 investments subjected to the final tax X 20% 20% Final Tax Withheld at Source p 70,621,020.66 x5% Overpaid 5% Gross Receipts Tax p 3.531.051.03 The following day, that is, on April 17, 1997, the instant Petition for Review was filed in order to toll the running of the two-year prescriptive period. In his Answer, Respondent claimed by way of Special and Affirmative Defenses that:

DECISION- XXX XXX CTA CASE NO. 55I6 PAGE3 XXX 6. Petitioner has no clear right to a refw1d. 7. In an action for refund of taxes, it is incumbent upon the taxpayer to show that the taxes paid were erroneously or illegally collected. Failure to meet this burden is fatal to the action for refund. In the instant case, petitioner has not shown any evidence that the tax claimed was erroneously or illegally collected. 8. Moreover, as a claim for refund partakes of the nature of an exemption, it cannot be allowed unless granted in the most explicit and categorical language. The issues We are tasked to resolve are: 1. Whether or not the 20% final withholding tax derived from passive investments form part of gross receipts subject to the gross receipts tax; and 2. Whether or not Petitioner is entitled to the amount of P3,531,051.03 representing alleged overpaid gross receipts tax paid for the year 1995 on the basis of the evidence presented. As rega.t:ds the first issue, this Court has already ruled in a number of cases involving claims for refund of overpaid gross receipts tax that the 20% final withholding tax on interest income should not form part of taxable gross receipts. As aptly cited by Petitioner, in the case of Asian Bank Corporation vs. Commissioner of Internal Revenue, (CTA Case No. 4720) this Court ruled: "We agree with the petitioner that the 20% final withholding tax on its interest income should not form part of its taxble gross receipts. l'?u

DECISION- CTA CASE NO. 5516 PAGE4 XXX XXX XXX This conclusion is in accord with the interpretation of the Supreme Court in the case entitled Collector of Internal Revenue vs. Manila Jockey Club, 108 Phil. 821, as quoted by this Court in disposing of a similar issue in the case entitled Compania Maritima vs. Acting Commissioner of Internal Revenue, CTA Case No. 1426 dated November 14, 1996, 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 earmarked by law or regulation for the government or some person other than the taxpayer. Thus, it was held: "xx xx. The Government could not have meant to tax as gross receipt of the Manila Jockey Club the Y:z% which it directs same Club to turn over to the Board of Races. The latter being a Government institution, there would be double taxation; which should be avoided unless the statute admits of no other interpretation. In the same manner, the Government could not have intended to consider as gross receipt the portion of the funds which it directed the Club to give, or know the Club would give, to winning horses and Jockeys - admitted 5%. It is true that the law says that out of the total wager funds 12\l:z% shall be set aside as the 'commission' of the track owners but the �law itself takes official notice, and virtually approves or directs payment of the portion that goes to owners of horses as prized and bonuses of jockeys, which portion is admittedly 5% out of the 12\l:z% 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, grouped three items under one common 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 earmarked by law or regulation for some person other than the proprietor." (The Commissioner of Internal Revenue vs. Manila Jockey

DECISION- CTA CASE NO. 5516 PAGES 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 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 definition of the term "gross receipts" found in our amusement tax law, our Supreme Court did not adopt a literal interpretation of the said term in the case of the Manila Jockey Club, Inc., supra." In fact this aforequoted ruling was affirmed by the Court of Appeals in the case entitled Commissioner of Internal Revenue vs. Citytrust Investment Philippines, Inc., CA- G.R. SP No. 52707, dated August 17, 1999 when it ruled, thus: "Accordingly, the 20% final tax withheld against the Respondent's passive income was already remitted to the Bureau of Internal Revenue for the corresponding year that the same was actually withheld and considered final withholding taxes under Section 50 of the same code. Indubitably, to include the same to the Respondent's gross receipts for the year 1994 would be to tax twice the passive income derived by the Respondent for the said year, which would constitute double taxation anathema to our taxation laws. In support of its case, Petitioner presented the foltowing: "-- . Exhibits Description A toD Quarterly Percentage Tax Returns of Petitioner for the four (4) quarters of 1995. E Letter-claim for refund dated April 16, 1997 filed with the BIR G&J Debit Advice Memos issued to Petitioner by the Central Bank H&K Credit Advice memos issued to Petitioner by the Central Bank I, P-1 to P-2, Certificates of Tax Withheld issued by the Central Bank for U-1 to U-5, various investments of Petitioner l'?u

DECISION- CTA CASE NO. 55I6 PAGE6 L, M-1, N, V Letter-reports prepared by the duly commissioned independent CPA 0-1 to 0-3, Z-1 Trading Sheets of Fixed Rate Treasury Notes Q-1 to Q-3 Trading Sheets of Commercial Papers S-1 to S-7, Trading Sheets of CB Bills (Liquidity Floor) W-1 to W-10 T-1 to T-10, Trading Sheets of CB Bills (Trading Account Securities) X-1 to X-55 Y-1 to Y-4 Trading Sheets of CB Bills (Trust Duties) Respondent, on his part, manifested that no investigation was conducted on this case and so, there being no evidence to present, he submitted his case for decision based on the pleadings. After examining the evidence adduced by Petitioner, this Court finds that a refund to be in order but in a reduced amount. According to SGV & Co., the independent auditing firm engaged by Petitioner and commissioned by the Court to conduct an examination of the documents relative to the instant claim for refund, out of the amount of P70,621,020.71 of final withholding tax claimed to be included in its gross receipts for the year 1995, only the amount of P30,373,374.84 was verified to have been included in its gross receipts subjected to the 5% gross receipts �tax. Thus, the report shows that only PI ,518,668.74 out of the total claim of P3,531,051.03 represent overpayment of gross receipts tax for the year 1995, sun1marized as follows: ' . ., l'?i

DECISION- CTA CASE NO. 5516 PAGE 7 Per Bank's Claim Per SGV Verification Difference 1995 Index FWT GRT FWT GRT FWT GRT 151qtr N-3 2ndqtr. N-8 17,708,471.80 885,423.59 8,906,950.43 445,347.52 8,801,521.37 440,076.07 3'dqtr N-13 41hqtr N-18 24,351,933.80 1,217,596.69 10,719,782.17 535,989.11 13,632,151.63 681,607.58 13,426,009.54 671,300.48 6,146,309.87 307,315.49 7,279,699.67 363,984.99 15,134,605.57 756,730.27 4,600,332.37 230,016.62 10,537,273.20 526,713.65 70621 020 71 3 531 051 03 30 373 374 84 1 518 668 74 4025064587 2012 38229 A review, however, of Petitioner's supporting documents revealed that out of the PI ,518,668.74 overpaid gross receipts tax per SGV verification, only the amount of P797,929.70 was duly substantiated. Petitioner failed to establish the fact of withholding as to the balance of P720,739.08. The certifications coming from the issuers of the securities (see Annex A) in order to confirm the amounts of withholding taxes reflected in its domestic trading sheets as well as certifications of interest rates for commercial papers issued by secondary market were not submitted by Petitioner. In view thereof, this Court is constrained to reduce further the amount of refund/tax credit of Petitioner to P797,929.70, detailed as follows: "-- Overpaid 5% GRT Disallowances Per SGV Verification Per Court's Verification Amount 1995 (Exh.V) (Annex A) Refundable 151 Quarter p 445,347.52 p 153,753.32 p 291,594.20 2nd Quarter 535,989.11 239,080.81 296,908.30 431'hd 307,315.49 167,236.59 140,078.90 Quarter 230,016.62 160,668.32 69,348.30 Quarter p :1,5:18,668.H p Z2Q,Z39.Q P Z9Z 929 7Q Total: WHEREFORE, in v1ew of the foregoing, judgment is hereby rendered ordering the Respondent to REFUND or ISSUE a tax credit certificate in the reduced 180

DECISION- CTA CASE NO. 5516 PAGE8 amount of P797,929.70 representing overpaid GRT payment for the four quarters of 1995. The remaining amount claimed is DENIED for insufficienc of evidence. SO ORDERED. r:d RAMON 0. DE VE Associate Judg WE CONCUR: / / U>.o { ERNESTO D. ACOSTA Presiding 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 Section 13, Article VIII of the Constitution. Q.C- ERNESTO D. ACOSTA Presiding Judge ldl

'' ANNEXA Rizal Commercial Banking Corporation vs. Commissioner of Internal Revenue CTA Case No. 5516 Schedule of Court's Disallowances on Petitioner's Excess 1995 GRT Payment as Verified by SGV Dis a l l ow a n c e s Particulars 1st Qtr. 2nd Qtr. 3rd Qtr. 4thQtr. Total 1.) Final taxes on interest income from commercial 56,980.45 paperswithout certificates of final taxeswithheld 76,406.17 1stQtr. Exh. 20% FWT 9,848.64 Month N-6-a 791.65 January N-6-b p 340,325.83 February N-6-c March 415,428.66 383,854.59 Subtotal p 1 '139,609.08 Multiply by GRT rate x5% p 56,980.45 p p p 2nd Qtr. Exh. p 20% FWT Month N-11-a 523,517.01 April N-11-b 511,691.68 May N-11-c 492 914.79 June 1,528,123.48 Subtotal p x5% Multiply by GRT rate 76,406.17 \__ 3rd Qtr. Month July Exh. p 20% FWT August N-16-a 8,728.39 Sept. N-16-b N-16-c 26,138.96 162 105.53 Subtotal p 196,972.88 Multiply by GRT rate x5% 9,848.64 4th Qtr. Exh. p 20% FWT Month N-21-a 1,452.41 Oct. N-21-b Nov. 14 380.57 15,832.98 Subtotal p x5% Multiply by GRT rate 791.649 2.) Final taxes on interest income from CB treasury billswithout certificates of final taxeswithheld 1st Qtr. Exh. Ref. Series 20% FWT Month N-7-a 642,300.36 "--- N-7-a 16369 4A-D-05 p 60,552.82 January N-7-b 873,528.48 January V-6-a 16769 4A-D-05 23,643.77 February V-6-a 14,418.73 February V-6-a 16369 4A-D-05 20,340.99 February N-7-d 194,115.64 February N-7-d 17140 4A-D-05 14,397.98 March V-7-a 69,207.45 March V-7-a 17141 4A-D-05 22 951.11 March March 17155 4A-D-05 1,935,457.33 x5% 17474 5A-J-02 17492 5A-J-02 17509 5A-J-01 17510 5A-J-02 Subtotal p Multiply by GRT rate 96.772.87 96,772.87 2ndQtr. Exh . Ref. Series 20% FWT 157,567.32 Month N-12-a 111 ,815.30 page 1 of 2 N-12-a 17547 5A-I-02 p April N-12-a 1 ,203,516.99 April V-13-a 17474 5A-J-02 111,584.32 April V-13-a 49,882.72 April V-13-a 17492 5A-J-02 74,825.80 April N-12-c 132,479.95 April N-12-c 17509 5A-J-01 111,815.30 June N-12-c June N-12-d 17510 5A-I-02 1,203,516.99 June V-14-a 111 ,584.32 June 17510 5A-I-02 26,006.89 June 14 317.86 17547 5A-I-02 3,151 ,346.44 17474 5A-J-02 x5% 17492 5A-J-02 17815 5A-I-02 18199 5A-G-35 Subtotal p Multiply by GRT rate 157,567.32 3rd Qtr. ld

ANNEXA Rizal Commercial Banking Corporation vs. Commissioner of Internal Revenue CTA Case No. 5516 Schedule of Court's Disallowances on Petitioner's Excess 1995 GRT Payment as Verified by SGV Dis a l l ow a n c e s Particulars liLillL 2nd Qtr. 3rd Qtr. 4th Qtr. Total Month Exh. Ref. Series 20% FWT Aug. N-17-a 111,815.30 Aug. N-17-a 17547 5A-I-02 p Aug. N-17-a 1,203,516.99 Aug. V-20-a 17474 5A-J-02 111,584.32 Aug. V-20-a 16,552.57 Aug. V-20-a 17492 5A-J-02 26,042.89 Aug. V-20-a 17,515.62 Aug. V-20-a 18980 5A-E-36 47,217.20 Aug. V-20-a 20,218.05 Aug. V-20-a 18986 5A-E-36 72,806.53 Sept. N-17-a 10,891.43 Sept. N-17-a 19007 5A-E-36 111,815.30 Sept. N-17-a Sept. V-21-a 19007 5A-E-36 1,203,516.99 111,584.32 18530 5A-F-11 14 957.01 18532 5A-E-37 3,080,034.52 x 5% 18962 5A-F-23 17547 5A-I-02 17474 5A-J-02 17492 5A-J-02 18453 5A-F-23 Subtotal p Multiply by GRTrate 154,001.73 154,001.73 \__ 4th Qtr. Exh. Series 20% FWT Month 1 '164,693.87 Oct. N-22-a 17474 5A-J-02 p 107,984.83 34,806.77 Oct. N-22-a 17492 5A-J-02 1 '164,693.87 Oct. V-24 19821 5A-D-33 107,984.83 74 585.95 Nov. N-22-c 17474 5A-J-02 2,654,750.12 Nov. N-22-c 17492 5A-J-02 x 5% Nov. V-25 19821 5A-D-33 Subtotal p Multiply by GRTrate 132,737.51 132,737.51 3.) Final taxes on interest income from treasury notes without certificates of final taxeswithheld 2nd Qtr. Exh. Series 20% FWT Month V-10 54,658.15 V-11 9 p 47 488.19 May June Subtotal 9 102,146.34 x 5% 3rd Qtr. p Aug. 9,547.50 Sept. Multiply by GRTrate 37,224.31 5,107.32 5,107.32 Sept. 20,952.59 ( p 67,724.40 '-- x 5% V-17 9 N-14-a 10 V-18 9 Subtotal p Multiply by GRTrate 3,386.22 3,386.22 4th Qtr. N-19-a 10 p 101,520.84 Oct. 101 520.84 Nov. N-19-b 10 542,783.16 Subtotal p x 5% Multiply by GRTrate 27 139.16 27 139.16 720,739.04 To t a I p 153,753.32 239,080.81 167,236.59 p 160,668.31