CTA Case No. 4596 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY AYALA LIFE ASSURANCE, INC., C.T.A. CASE NO. 4596 Petitioner, Promulgated: - versus - JAN 0619~ COftftiSSIONER OF INTERNAL REVENUE, Respondent. X- - - - - - - - - - - - - - - - - - - - - - - - - - - X DECISION Thi~ is a judicial action for the issuance o� a tax credit certificate in the sum o� P204,254.86, representing overpaid creditable withholding taxes �or year ended December 31, 1988. Petitioner Ayala Life Assurance, Inc. (�ormerly Filipinas Life Assurance Co. is a domestic corporation duly organized and existing under the laws o� the Philippines. On April 14, 1989, 'petitioner �iled its 1988 annual income tax return re�lecting a net loss �rom operation in the amount o� P17,420,014.76, a nil income tax liability and a creditable withholding tax payments in the amount of P204,254.86 arising �rom rentals and other income <Exh. "A" >. 70

DECISION - C.T.A. CASE NO. 4596 -2- Petitioner cannot apply said tax payments in 1988 or in 1989, as an automatic tax credit, because in both years, the business operation is unfruitful. On April 3, 1991, petitioner requested the respondent Commissioner o� Internal Revenue �or the issuance o� a tax credit memo in the amount o� P204,254.&6 so that it can credit the tax payments against current internal revenue tax liabilities ( Exh. "F">. On April 11, 1991, petitioner �iled the instant petition as a way o� tolling the running o� the prescriptive period under Sec. 230 o� the National Internal Revenue Code, as amended. Upon these �acts, respondent raised as special and affirmative defenses that petitioner's claim for re�und is still under investigation. The provisions on tax refund and credit are construed strictly against the taxpayer as they are in the nature o� tax exemption. The taxpayer has the burden'to show that the taxes paid were erroneously or illegally paid ,and �ailure to sustain said burden is fatal to the action for re�und or credit. It is incumbent upon the petit.ioner to show that the claim for tax credit has been filed on time. The judicial action taken by petitioner is already barred by prescription. 71

DECISION - C.T.A. CASE NO. 4596 -3- The issues to be decided by this Court are: 1. whether or not petitioner's claim for refund has prescribed; and 2. whether or not petitioner was able to substantiate with sufficient evidence its claim for refund. Respondent contended that the instant case is filed out of time. The judicial action having been filed beyond the two-year prescriptive period allowed under Sec. 230 (formerly 292> of the National Internal Revenue Code, as amended, which reads: Sec. 230. 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 excessive 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 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: Provided, however, that the ~ommissioner may, even without a written claim therefor, refund or credit any tax, where on face of the return upon which payment was made, such payment appears clearly to have been erroneously paid. <Underlining supplied) 72

DECISION - C.T.A. CASE NO. 4596 - 4- She stressed that the last day for filing judicial action ends on December 31, 1990, counting from December 31, 1988, as point of reference in computing the two-year period citing the case of Pacific Procon Li�ited v. Com111issioner of Internal. Revenue <G. R. No. 68013, November 12, 1984) in support of her allegation. Thus, the instant petition having been filed on April 11, 1991, has prescribed. However, the Pacific Procon ruling was reversed in a recent case of the Supreme Court entitled, Co��issioner of Internal. Revenue v. TKX Sal.esr Inc.r et al..r G.R. No. 83736r January 15r 1992, where the High Court held: XXX XXX XXX A re-examination of the aforesaid minute resolution of the Court in the Pacific Procon case is warranted under the circumstances to lay down a categorical pronouncement on the question as to when the two-year prescriptive period in cases of quarterly corporate income tax commences to run. A full-blown decision in this regard is rendered more imperative in the light of the reversal by the Court of Tax Appeals in the instant case of its previous ruling in the Pacific Procon case. XXX XXX XXX <C>onsequently, the two-year prescriptive period provided in Section 292 <now 230> of the Tax Code should be computed from the time of filing of the Adjustment Return or Annual Income Tax Return and final payment of the income tax. 73

DECISION - C.T.A. CASE NO. 4596 -5- Applying the above ruling in the instant. case, t.he two-year prescriptive period is counted :from t.he :filing o:f t.he Adjustment Return on April 14, 1989. There:fore, petitioner is not yet. barred by prescription when t.he petition was :filed on April 11, 1991. As t.o t.he second issue, petitioner, in claiming :for the excess creditable withholding tax payments, must. show compliance with the :following requisites: 1. that. it :filed a claim :for re:fund within the two <2) year period as prescribed under Section 299 <now 230) o:f t.he National Internal Revenue Code; 2. that the income upon which t.he taxes were wi t.hheld were included in t.he return o:f the recipient; and 3. t.he :fact o:f withholding is established by a copy o:f statement. ( BIR Form 1743. 1) duly issued by the payor <wit.hholding agent) to the payee, � showing t.he amount. paid and t.he amount o:f tax withheld t.here:from. <Sec. 10, Rev. Reg. 6-85; see Citytrust Finance Corporation vs. The Commissioner o� Interna1 Revenue, CTA. Case No. 4134, November 11, 1991~ and Citytrust Finance Corporation <Former1y Investor's Finance Corp~ration/FNCB Finance) vs. Commissioner o� Interna1 Revenue, CTA Case No. 4046, February ' 24, 1993. ) Based on the previous discussion, petitioner was able to comply with t.he :first requirement when it. :filed within two years the claim� :for re:fund. The second was complied with by petitioner when it declared t.he rent.a1 income o:f PS, 091, 416. 82 and other income o:f P560, 010.31 in it.s 1988 income tax return <Schedules 2 and 4, Exh.

DECISION - C.T.A. CASE NO. 4596 -6- "A">. However, some evidence, which will establish the fact of withholding, were denied by the Court in its resolution dated May 21, 1993. These are Exhs. "H-6" and "H-7". Hence, cannot be considered in granting for the refund. Likewise, Exhs. "H-2", "H-3", "H-5", "H-12", "H- 13", "H-14", "H-15", and "H-16" which were in the name of First Makati Condominium Corporation and bearing a different tax account number with that of petition~r cannot be considered in the computation. Further, the amount specified in Exh. "I" is disallowed because the taxes withheld as listed therein were not established by an appropriate document required by law�<BIR Form 1743.1> and was certified only by petitioner's witness, Mr. Manlincon, thus self-serving. Well settled is the rule that tax refunds are strictly construed against the taxpayer for they are in the nature of tax exemption. It is noteworthy to point, at this juncture, that the income tax returns'of petitioner for the years 1988 and 1989 were already examined by the respondent and the deficiency taxes found thereat were already settled by petitioner <Exh. "G">. Therefore, the Court finds petitioner entitled to the refund of creditable withholding taxes only as follows:

DECISION - C.T.A. CASE NO. 4596 -7- Vithholdi!i Agent Exh. bount of bount of Inco11e PaiEnt Tax Withheld Airoh ledia Services, Inc. H� , p 29,050.60 p 1,452.53 Borden International Phils., Inc. H-1 437,872.20 21,893.61 103,640.00 5,182.00 Crown Philippines H-4 52,032.38 2,624.38 35,235.40 1,761.76 J.P. Tolentino &Co., CPAs H-8 52,032.40 2,601.68 116.447.65 Lolita S. Dizon Dental Office H-9 51822.38 P411 338.34 Kanage.ent Asso. of�the Phils. H-10 lurray Fishet Group H-11 T 0 T AL WHEREFORE, finding the petition �or review meritorious, respondent is hereby ordered to issue a tax credit certificate in favor o� petitioner in the sum o� P41,338.34 representing overpaid creditable withholding taxes �or the year 1988. No cost. SO ORDERED. GRUBA Judge WE CONCUR: siding Judg ~� t?-~ RAIION 0. DE 78

DECISION - C.T.A. CASE NO. 4596 -8- CERTIFICATION I hereby certify that this decision was reached after due consultation between the members of the Court of Tax Appeals in accordance with Section 13, Article VIII of the Constitution. c". ~-::- c.a. ~ ~0 D. ACOSTA Presiding Judge Court o� Tax Appeals ' 7'/