PHILIPPINE NATIONAL BANK v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY PHILIPPINE NATIONAL BANK, Petitioner, -versus - C.T.A. CASE NO. 5792 THE COMMISSIONER OF INTERNAL Promulgated: REVENUE, JUN ~~~,~~ Respondent. x-----------------------------------------------------------x DECISION This is a petition filed by the Petitioner on April 14, 1999, seeking for a refund of the amount of P5,30 1,403.00 representing alleged overpaid unutilized creditable income tax for the taxable year 1996. The antecedent facts ofthe case are as follows: Petitioner is a private commercial bank organized and existing under and by virtue of the laws of the Philippines. In the Joint Stipulation of Facts and Issues, the parties,stipulated on the following jurisdictional facts: 1. On April 15, 1997, PNB reported its income for 1996 and filed its Tentative Annual Income Tax Return for 1996, consisting of the following documents: a) Tentative Annual Income Tax Return for 1996, Schedule of Gross Income, Schedule of Depreciation, Reconciliation of net , _u I ' � ,,

DECISION- CTA CASE NO. 5792 PAGE2 income and analysis of changes m retained earnings/computation of tax due (Exhs. C, C-1 to C-4, inclusive); b) List of attachments to the annual income tax return for 1996, Comparative balance sheets and income statements for the year ended December 3I, 1996 accompanied by the auditor's report, Schedule of Taxes and Licenses, First page of 1995 annual income tax return (Exhs. C-5, C-6, C-6-a to C-6-e, C-6- e-1 ' C-6-f' C-6-f-I to C-6-f-9' D' and H)�' 2. Quarterly returns for the I5 2 11 and 3rd quarters of 1996 were also ', d duly filed by petitioner (Exhs. E, E-1 to E-6, F, F-1 to F-7, G, G-1 to G-16) ; 3. On November 19, I997, PNB filed an Amended Annual Income Tax Return (Final Adjustment Return) for I996, consisting of the following documents: a) Amended Annual Income Tax Return for 1996, with List of attaclm1ents (Exhs. B, B-1, B-2, B-3); . ' b) Copy of PNB ' s Tentative Annual Income Tax Return for 1996 (consisting of the documents listed in paragraph I above), and c) Revised schedule of creditable withholding taxes with certiJicates of creditable income tax withheld at source (Exhs. I, L, M, N, 0, P, Q, R, S, T, U, V, W, X, Y, Z, AA, BB, CC, DD, EE, FF, GG, HH, II, JJ, KK); 4. On April 13, 1999, PNB under letter dated April 12, 1999 (Exh. A, A-I), filed with the Commissioner of Internal Revenue a claim for refund of the amount of P5,30I,403 .00, representing PNB's excess payment of its income tax liability for the year I996. 5. PNB's claim for refund with the Bureau o+: Internal Revenue under letter dated April I2, 1999, as well as the above-entitled petition, were filed by petitioner PNB within the two-year reglementary period provided under the Revenue Code.

DECISION- CTA CASE NO. 5792 PAGE3 Petitioner alleged that its claim for refund represents the creditable taxes withheld from PNB's income from sale of real property, rent0l income and professional fees pertaining to taxable year 1996 after excluding prior year's excess credits. In an Answer filed on June 18, 1999, the Respondent interposed the following Special and Affirmative Defenses, to wit: "4. Petitioner has applied for tax credit to the next succeeding year the amount of P5 ,30 I,403.00 subject matter of the petition, hence, no longer refundable; 5. The amendment made on the 1996 return on November 19, 1997 has no bearing in the instant case since three taxable quarters for the year 1997 had already elapsed and Petitioner has not shown whether the amount claimed was not utilized in the said quarter_s; 6. The petition states no cause of action as it does not allege the date/s when the amount sought to be refunded were actually paid; 7. In an action for tax refund/credit, the burden of proof is on the taxpayer to establish its right to the refund and failure to sustain the burden is fatal to the action for refund ; 8. Taxes paid and collected are presumed to have been made in accordance with rules and regulations, hence, not refundable; and 9. Well-settled is the rule that claims for refund are construed strictly against the claimants since it partakes of the nature .of an exemption from taxation . (Resins, Inc. vs. General Auditor, 75 SCRA 754, 1968). In its Memorandum filed on January 25, 200 l , Petitioner asserts that it is entitl ed to the refund of the amount sought based on Section 69 of the National Internal Revenue Code, thus: ' I ~U

DECISION- CTA CASE NO. 5792 PAGE4 Section 69. Final Adjustment Return. - f;.very corporation liable to pay tax under Section 24 shall file a final adjustment return covering the total net income for the preceding calendar year or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable net income of that year the corporation shall either: (a) Pay the tax still due; or (b) Be refunded the excess amount paid, as the case may be. In case the corporation is entitled to a refund of the excess estimated quarterly income taxes paid, the refundable amount shown on its final adjustment return may be credited against the estimated quatterly income tax liabilities for the taxable quarters of the succeeding taxable year. To support its stance, Petitioner alleged that, on �the basis of its final adjustment return or amended income tax return for 1996 (Exhs. B, B-1, B-2) which disclosed that it suffered a negative income of P936,657,987.00 and refundable tax credits in the amount of P5 ,30 I ,403 .00, which credits remained unutilized in the years 1996 and 1997 since it was at a net loss position in both periods, the grant of the refund sought is ineluctable. As agreed upon by the contending parties, the issue in this case is whether or not Petitioner PNB overpaid its income tax for the year 1996 in the amount ofP5 ,301 ,403.00 and is entitled to a tax refund or issuance of a tax credit certificate for the aforesaid amount. After thoroughly evaluating all the relevant documents on hand and the applicable jurisprudence on the issue raised by the parties, We find for,the Petitioner. Well-settled is the rule that the grant of refund of overpaid, unutilized creditable taxes of a taxpayer is dependent upon its compliance with the following requisites set

DECISION- CTA CASE NO. 5792 PAGE 5 forth by the Supreme Court in the case of Citibank N.A. vs. Court of Appeals, Commissioner oflnternal Revenue, G.R. No. 107434, dated Octobe�-10, 1997, to wit: 1) That the claim for refund is filed within the two-year period pursuant to Section 230 of the Tax Code, as amended; 2) that the income upon which the taxes were withheld were included as part of the gross income declared in the income tax return ofthe recipient; and 3) that the fact of withholding is established by a copy of the statement duly issued by the payor to the payee showing the amount paid and the amount oftax withheld therefrom. A close scrutiny of the records of this case show that Petitioner has substantially complied with all the aforesaid requirements. First, as stipulated by the contending parties, the judicial and administrative claims for refund were both filed within two-years from April 15, 1997, the date the Petitioner filed with the Respondent its final adjustment return for the year 1996. Record shows that the written claim for refund was filed with the BIR on April 13, 1999 (Exh. A) while the Petition for Review was filed with this Court on April 14, 1999. Anent the second requisite, this Court is convinced that Petitioner's income from sale of properties, rental, professional and management services and fi�om which taxes were withheld were included as part of its income declared in the annual income tax return. As duly explained by the Petitioner in its "Notes to Parent Company Financial Statements" (Exh. C-6-f), income derived from the aforementioned transactions were under the caption "Other Income" in the parent company's (Petitioner) statement of mcome . ' .... I ' ) ) {...-

DECISION- CTA CASE NO. 5792 PAGE6 Proceeding now to the last requirement, Petitioner, in support of its claim for refund, presented in evidence various Certificates of Creditable Tax Withheld at Source, the payor's Monthly Remittance Returns of Income Taxes Withheld and the Deeds of Absolute Sale to prove the fact of withholding (Exhs. J to Z and AA to KK) as follows: WITHH_OLDING EXHIBIT SOURCE INCOME TAX AGENT OF INCOME PAYMENT WITHHELD PNB Forex, Inc. GG, GG-1, Management fee p 852,655.70 p 42,632 .78 PNB Forex, Inc. HH , HH-1 Management fee 928,632 .22 46,431 .61 PNB Forex, Inc. Management fee 1,751 ,857.03 87 ,592.85 II , 11-�1 3,533,144.95 p 176,657.24 Subtotal p 795,000.74 p 39,750.04 PNB Forex, Inc. J, J-1 Professional fee p Gulf Express Corp. cc Rental 3,345,900.00 66,918 .00 Gulf Express Corp. Rental 100,000.00 2,000 .00 Gulf Express Corp. CC-2 Rental 689,180.00 DD, DD- �1, DD-2 34,459 .00 Subtotal p 4,135,080.00 p - -1-03-,37-7.0-0 Irene Briones AA, AA-1 to AA-3 Sale of property 420,000 .00 6,300 .00 Bay Area Phil. Ind. BB, BB-1, BB-2 Sale of property 62,400,000.00 3,120,000 .00 James Gemzontan EE, EE-1 , EE-2 Sale of property 12,000,000.00 Edison Gemzontan FF, FF-1, FF-2 Sale of property 600 ,000 .00 Jennie Rose Fernando JJ, JJ-1 to JJ-6 Sale of property 2,200,000.00 66,000 .00 Rufino Jasmin Sale of property 205 ,000 .00 15,4'75.50 Virginia C<.1ballero K. K-1, K-2 Sale of property 540,000.00 20 ,550.00 Freida G. Glacildo I<K, KK-1 , KK-2 Sale of property 428,000 .00 34 ,765 .20 Crispin C. Sarmiento Sale of property 480 ,000 .00 36 ,000.00 Ma . Luz Declaro L, L-1 to L-3 Sale of property 179,400.00 2,691.00 Romeo Jamerlan M, M-1, M-2 Sale of property 238,640 .00 17,898.00 Romeo Jamerlan N, N-1 , N-2 Sale of property 994,500 .00 74,587.50 Pacita Flaminiano 0,0-1 , 0-2 Sale of property 605,000 .00 51 ,528 .75 Albert Co P, P-1, P-2 Sale of property 330,000 .00 4 ,950 .00 Maryline Ramos Q. Q-1,0-2 Sale of property 900,000.00 27 ,000 .00 Angel Laya R, R-1 , R-2 Sale of property SKS Cons!. & Devl't S, S-1, S-2 Sale of property 2,380,300.00 119,015 .00 Gerardo S. Rescober T, T-1 ,T-2 Sale of property 2,030 ,000 .00 101 ,500.00 Asterio Bernardo U, U-1 to U-3 Sale of property 2,843,333.33 142 ,166 .67 Martin Abadiano V, V-1, V-2 Sale of property 4 ,205,000 .00 315,375 .00 Nancy Lee Chua W, W-1 , W-2 Sale of property X, X-1, X-2 688 ,000.00 34,400 .00 Y, Y-1 , Y-2 768,595 .00 57 ,644 .63 2,373 ,200 .00 118 ,660 .00 ''I .....,) �...)

DECISION- CTA CASE NO. 5792 PAGE 7 Rommel Pretta Z, Z-1, Z-2 Sale of property 5 0 3 ,7 0 0 . 0 0 15,111 .00 Subtotal P 97,712,668.33 p 4,981,618.25 Total p 106,175,894.02 p 5,301,402.53 Time and agam, this Court has invariably held that these Certificates of Tax Withheld are the best evidence which a taxpayer can offer in order to prove the fact of withholding. Equally important in Petitioner's claim for refund is the fact that the creditable taxes for taxable year 1996 amounting to P5,30 1,403.00 were never applied to any income tax liability in the succeeding taxable years 1997 and 1998, since Petitioner was at a net loss position in the year 1997 while in taxable ye(lr 1998, Petitioner disclosed a nil prior year's excess credits. Hence, We conclude that the amount now sought to be refunded remained unutilized and, therefore, must be refunded . After fully substantiating by documentary exhibits its claim for refund, this Court finds the Petitioner to be entitled to the same. WHEREFORE, in view of all the foregoing , Respondent is hereby ORDERED to REFUND or in the alternative, to ISSUE a Tax Credit Certificate in the amount of P5,30 1,402.53 in favor of the Petitioner, representing overpaid unutilized creditable taxes for taxable year 1996. SO ORDERED. ~t2.Q~ ERNESTO D. ACOSTA Presiding Judge

DECISION- CTA CASE NO. 5792 PAGE 8 I CONCUR: 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. ERNESTO D. ACOSTA Presiding Judge '. :. '~ ' .. . U I