CTA Case No. 6070 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY BELLE CORPOR-\TlON, Pe titioner, - 'v'ersus - C.T.A. CASE NO. 6070 COl\11\�TI SSIO NER OF INTERNAL Promulgated: REVENUE , APR 1u2001 _/J Respondent. . "- qJO!zcve-c:;)~? x-----------------------------------------------------------x DECISION This is a Petition for Review seeking for the refund or for the issuance of a Tax Credit Certificate in the amount of ONE HUNDRED SIX 11ILLION FOUR HlJNDRED FORTY SEVEN THOUSAND THREE HUNDRED EIGHTEEN PESOS (Pl06,447,318.00) representing overpaid or excess income tax of Petitioner for the year ended December 31, 1997. Petitioner is a domesiic corporation duly registered and organized under Philippine laws, wilh principal office localed. al Lhe 281h Flour, Philippine Slock Exchange Cenlre, East Tower, Exchange Road, ortlgas Center, City of Fasig. It is duly licensed to do it business in the Philippines '�l,!,!:4:< princiP'l!lY engaged in the real estate and property . ' business. (Joint Stipulation 'pffacts and ~~~ues, CTA docket p. 146) � j ; ' �I ~ ' �, ' '� V Record" show that on May 30, 1997, Petitioner flled with the Bureau of Internal Revenue (BIR, for brevity) its Corporation Quarterly Income Tax Return for the quarter 4 ~6

DECISION - CTA CASE NO. 6070 PAGE 2 tmd~J 1v1arch 31, 1997 which rdl~cl~J an im:um~ l.ax due of P236,679,254.00 cumpul~J as follows: (see Joint Stipulation, CTA docket p. 146). Gross Income P741 ,607,495 Less: Deduction 65,381,054 Taxable Income 676,226,441 Tax Rate X 35% Tax Due P236,679,254 Less: Tax Credits/Payments (a) Prior year's excess Tax Credit -0- (b) Tax payments for the Previous quarter -0- (c) Creditable withholding tax -0- 0 P236,679,254 (see Exhs. B, B-2) T/\X PAYABLE Petitioner paid the above income tax due on May 30, 1997 with PCI Bank, Tektite Tower Branch, an Authorized Agent Bank of the BTR as shown hy the machine validation appearing on the lower portion of the return and as supported by Official Receipt No. 005510. (Joint Stipulation ofFacts, CTA docket p. 147) On April 15, 1998, Petitioner filed with the BIR its Tentative Corporation Annual Income Tax Retum for taxable year ended December 31, 1997 (Joint Stipulation of Facts, CTA docket p. 147). On April30, 1998, Petitioner..filed its Final Corporation Annual Income Tax Return for the taxable year ended Decet11~~r 31, 1997 (Joint Stipulation ofFacts, CTA docket p. 147) which reflects the e~cORR or r~fundahle income tax in the amount o1 : , . :'' � � ~.: ~ � !~ l. P132,043,528.00 comppted f!S foUpw~t : ~ . E) �' ' ', .a I ( (. \.� � � ~ ~ I � � �~ .// 4 ,, .. la .� ; Gross Income P1,182,473,910 Less: Deduction 8 7 9 , 4 8 5,�2 $ Taxable Income 302,98lt~2 Tax Rate X 35% Tax Due p 106,046,021 Less: Tax Credits/Payments (a) Prior year's excess Tax Credit -O- (b) Quarterly payment P236,679,254 (c) Creditable tax withheld 1,410,295 238,089,549 4 ~'r'

DECISION- P 132 043 528 (see Exh. E-1) CTA CASE NO. 6070 PAGE3 REFUNDABLE AMOUNT On the said amended return, Petitioner indicated its option to apply above reftmdable income tax as credit to the succeeding taxable year of 1998 (See Exhibit E-3) On April 15, 1999, Petitioner filed with the BIR its Tentative Corporation Annual lncome Tax Retwn for Taxable year ended December 31, 199S (Joint Stipulation of Facts, CTA docket p. 147) On May 31, 1999, Pdiliom:r fiku its Final Corporation Annual Incomt: Tax Rt:tum for taxable year ended December 31, 1998 (Joint Stipulation of Facts, CTA docket p. 147) which reflected a net loss of P66,743,057.00 and an overpayment of P106,447,318.00 computed as follows: (Exhibit I) Gross Income P1 ,279,810,489 1.346,553,546 Less: Deduction ( 66,743,057) Taxable Income (Loss) 34% Tax Rate NIL p 25,596,210 Tax Due (Regular Income Tax) 25,596,210 Minimum Corporate Income Tax p 132,041,528 Tax Due 0 0 Less: Tax Credits/Payments � (P 106 447 318) (Exh. I) (a) Prior year's excess Tax Credits (b) Quarterly payment (c) Creditable tax withheld )~-~~ Tax Payable/Overpayment . ,;- � �_;� . ~ On April12, 2000, Petifi?Per '�through its auditor Sycip Gorres Velayo & Company, .i~~~~: :.�~.:' . .?: )~ filed with the BIR an ~dmin~srr~Hv~ ' cla~m for the refund or tax credit (Exh. K) of !!!~ excess or overpaid income ~~_ fbr~f~e fa~~ple year ended December 3J; 1997 amolijlthl �. ~ .. ~\ ~ ::�':' ' ~~~� :. ;:-~~.-~-- .� ~:J~t. :� to Pf0,6,447,318.00 (Jofnt Sf~~~~~!~il pfF~~ts, GTA docket p. 147).~:. :.~~.,;._..�_..; >:>;;'j Petitioner elevated the,.m.atter before this Court by way of Petition for Revi((~ o~. Aprill4, 2000. 4 ~8 l�

DECISION- CTA CASE NO. 6070 PAGE4 In answt=r lo Pt:lilioner's asserlions, Rt=spomlenl advam.:ed lht= following Spt:cial and Affirmative Defenses, to wit: "4. Petitioner's alleged claim for refund/tax credit is subject to administrative routinary investigation/examination by Respondent's Bureau; 5. Petitioner failed miserably to show that the total amount of P106,447,318.00 claimed as overpaid or excess income tax is refundable; 6. Taxes paid and collected are presumed to have been paid in accordance with law; hence, not refundable; 7. In an action for tax refund, the burden is on the taxpayer to establish its right to refund, and failure to sustain the burden is fatal to the claim for refund; 8. It is incumbent upon Petitioner to show that it has complied with the provisions of Section 204 (c) in relation to Section 229 of the Tax Code; 9. Well-established is the rule that refunds/tax credits are construed strictly against the taxpayer as they partake the nature of tax exemptions." On September 14, 2000, Petitioner filed its "Formal Offer of Evidence" and ,, presented the following relevant 49~umentary exhibits in order to substantiate its claim, ,.,,) !. . '.t -'. thus: '"'. . ~-. -.."' . Exhibits �. �' Description ~~ .~ ... Qua -~~f!Y. c~wor~~~ Income Tax Return JwR~er �..://�. .?' ~pqirtg l\1arp~~ 301 ~997 ;�� ; :1~ 1 :~,:, � :\ �.,~�� :,-:� '� .�, ;_ .._� . :-: �. _:" _: �� ; \ _-' :,, .. ,~;. -._:.~: � ~-- �: ..., _. �� �� p andH Tept~tive Corporate Atmual Income T .-_Rettf;�n for 5~ � ~~:.,.)~�: ' Calendar Year ended December 31, 1997' an~r � December 31, 1998 , E, I and J Final Corporate Annual fucome Tax Return for Calendar Year ended December 31, 1997, December 31, 1998 and December 31, 1999 4 ~8

DECISION- Letter Claim for Refund filed with the BIR CTA CASE NO. 6070 PAGE5 Official Receipt issued by PCI Bank showing income tax payment made by the Petitioner in the K amount ofP236,679,254 c On February 2, 2001, Petitioner submitted its :Memorandum and further bolstered Hs stand 1hat it made an overpayment of income tax for calendar year ended December 31, 1997. Respondent did not submit controverting evidence nor ftle memorandum to support his defenses. The Parties in their "Joint Stipulation of Facts and Issues" submitted the following issu~s tub~ resulwu by this Cuurl, tu wit: 1. Whether or not the excess or overpaid income taxes being clain1ed by Petitioner as a refund or tax credit are substantiated by documentary evidence; 2. Whether or not Petitioner overpaid its income taxes for the taxable year 1997; 3. Whether or not Petitioner's excess or overpaid income taxes for the taxable year ended December 31, 1997 were carried forward to the succeeding taxable year and applied against the income tax due for the succeeding periods; and 4. Whether or not Petitioner is entitled to a refund or tax credit of the excess or overpaid inc.om~':~ftX for taxable year ended December 31, 1997 in the amount ofP106,441.;l.l8.00 (see CTA docket p. 148). � �- .v ~' ,. Defore we proceed to discJ~:~�:.:the pivotal issues involved in the case at bar, it is �;_i\ ~~'��:. . ;S necessary first to deterqline tpq.. $p~_9_~c pfovision of law applicable to the facts of the \, ~1'~.~::.::-:~~�.�:j_}~. ~:~~. ~; ~: case. A perusal of the recor~ p{fpis ;~aso would reveal that the subject claim for refund �-> � covers calendar year ended December 31, 1997. Contrary to Petitioner's assertion, the more applicable provision of law is that which pertains to the old Tax Code because the provisions of the 1997 Tax Reform Act became effective only on January 1, 1998 (Read 'Suo

DECISION- CTA CASE NO. 6070 PAGE6 Rite Philippines, Inc. (formerly Sunward Technologies, Phils., vs. CIR, CTA Case No. 5717, October 9, 2000). Thus, we do not subscribe to the Petitioner's contention that since the 1997 Tax Code was already effective when Petitioner ftled its 1997 income tax return on Apri115, 1998 then the 1997 Tax Code would be applicable. It is clear from the 1997 Tax Code itself that it would take effect only on January 1, 1998, and no retroactive application can be had if the law is silent on the matter. Section 69 of the old Tax Code explicitly provides: "Section 69. Final Adjustment Return. - Every corporation liable to tax under Section 24 shall file a final adjustment retum covering the total taxable income for the preceding calendar year or fiscal year. If the sum of the quarterly tax payments made during said taxahle year is not equal to the total 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. In case the corporation is entitled to a tax credit or refimd of the excess estimated quat1erly income taxes paid, the refwtdable amow1t shown on its fmal adjustment return may be credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable year." (underscoring supplied) Based on the foregoing provi~i,ori, i1;' the corporate taxpayer is not able to utilize its �..�:.._::.-... . ovt:rpaid im:omt: l.ax in tht: su~fft:~0g lax~plt: yt.:ar, such corporalt: l.axpayt:r is t:nlillt:<.l L~ . ;j .r.;:� ' . . : ': the cash refund of the e~-pess � J.!nio~f?r ~ ~1e alternative be issued a tax credit certific~t for said amount. How~er, 1b~te~ �:~. ~ Jd ~-~ "��. . '' cti� ~r' i� also� clearly pro�vides that th~ :~.� xpaye . -~'�-~.~. .- 1 . .. . \ ~ ! ..._ ;...'; -~, :. .' � .. ._. ~ � :. . ~ ." ~:�~;.,�; . . t -,'".., . ..:. carry over any of its unlltilized mdo~e �P,.x cinJy .io the next succeeding-~~r.-b{e ye~ ~~;.�!'::-~ �. ' . i ~~' ~l \ ; � r � �~<ft. :'�'. ;, ~ Going back to the issues involved in the case at bar, this Court, after going ove h~ records of this case believes that all the allegations made by the Petitioner as well as the 5ul

DE C ISI ON - CTA CASE NO. 60 70 PAGE 7 figures accompanying Pelilioner's claim are subslanlialed by documenlary evidence but noticed some flaws in Petitioner's application of the pertinent laws involved. It bears stressing that the applicable provision in the case at bar is Section 69 of the old Tax Code and not Section 76 of the 1997 Tax Code. Settled is the rule that under Section 69 of the old Tax Code, the carrying forward of any excess/overpaid income tax for a given taxable year is limited only up to the succeeding taxable year. A painstaking scrutiny of Petitioner's income tax returns would show that Petitioner carried over its 1997 refundable tax of Pl32,043,528.00 to the succeeding year of 1998 yielding an overpayment uf P106,447,318.00 (Exhibit I-1) a.O.er deducting therefrom the minimum Corporate Income Tax of P25,596,210. However, Petitioner even went further to the taxable year 1999 and applied the Prior Year's (1998) Excess Credit ofP106,447,318.00 to its income tax liability. Tme enough, upon verification of Petitioner's 1999 Corporate Annual Income Tax Return (Ex.h. I), this Court found that the whole amount ofP106,447,318.00 representing its prior year's excess credit (subject of this claim) was carried forward to its 1999 income tax liability, details of the 1999 Income Tax Return are shown below as follows: Gross Income p 708,888,638 1,328, "101.776 Less: Deduction ( 619,213, 138) Taxable Income '" 14,185,874 Tax Due � �� Minimum Corporate Income T~x Less: Tax Credits/Payments 1'::- � (a) Prior year's ~xcess .'. '::t~,: Credit .: P106,447,318 ~~ .. t '�~ (b) Tax Pavments' for the 1st & 3rcf Qtrs. 0 (c) Creditable tax withheld _ _ _ _.::._0 106,447,318 TAX PAYABLE/REFUhlDABLE (P 92,261 444) 5 u~

DECISION - CTA CASE NO. 6070 PAGES IL is an elemenlary rule in laxaliun lhal an aulumali~..: ~..:arry over uf an ex~..:ess inwme tax payment should only be made for the succeeding year. (Paseo Realty and Devt. Corp. vs. CJR, CTA Case No. 4528, April 30, 1993) True enough, implicit from the provisions of Section 69 of the NIRC, as amended, (supra) is the fact that the refimdable amO\mt may be credited against the income tax liabilities for the taxable quarters of the succeeding taxable year not succeeding years; and that the carry-over is only limited to the quatters of the succeeding taxable year. (citing ANSCOR. Hagedorn Securities inc. vs. CJR, CA-GR SP 38177, December 21, 1999) To allow the application of excess taxes paid fur lwu su~..:~..:essive years would run wunlt:r lu lhe spe~..:ili~..: provision uf lhe law above-mentioned. WHEREFORE, in view of the foregoing, the instant Petition for Review is hereby DENIED for lack of merit. SO ORDERED. T CONCTJR: ~U2.8~ . I ERNESTO D; ACQSTA Presiding fudg~� . ~ 5U~

DECISION- CTA CASE NO. 60 70 PAGE9 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 Vill of the Constitution. a-:: .~ Qc.-vA- EAA'ESTO D. ACOSTA Presiding Judge ,,. ... ��.. 5U4