CTA Case No. 4257 (Decision)

.. REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY BANK OF THE PHILIPPINE ISLANDS as Liquidator of PARAMOUNT ACCEPTANCE CORPORATION, Petitionee, - versus - C.T.A . CASE NO. 4257 COMMISSIONER OF INTERNAL REVENUE, Respondent. X- - - - - - - - - - - - - - - - - X DECISION Petitioner seeks to recover an aggregate amount of P65,259.00 representing income tax alleged to have been overpaid by Paramount Accept-1nce Corporation for the year 1985. Petitioner, Bank of the Philippine Islands (BPI for short) is a bank and trust corporation duly organized and existing under Philippine la-vvs . It acts as U1e liquidator of Paramount Accept:mce Corporation after its dissolution on March .31, 1986. 121/

DECISION- C.T.A. CASE NO. t'El - Pa~2 - On April 2, l 986, Paramount Acceptance Corporation (Paramount for brevity) filed its Corporate Annual Income Tax � Return, for calenda~ year ending December 31, 1985, declaring a Net Income of P3,32 4,802.00 (Exh . A). The income tax due thE?reon is P1_.153,68 1.00. However, Paramount paid the BIR its quartert;1 income tax, to 'Nit: Qtr. CR/ROR Date Bank Amount Exh. 1st 6& 17293 5-30-85 DBP p .308,779.00 c 2nd 5613316 3rd 7720471 8-29-85 DBP 626,000.00 C-1 11-29-&5 DBP 284.161.00 C-2 TOTAL P 1) 18/HO.OO After deducting Paramount's total quarterly income tax payments of P 1,218,940.00 from its income tax of PC 153,681.00, the return showed a refundable amount of P65,259.00. The appropriate box in the return was marked 'With a cross (x) indicating "To be refunded '' the amount of P65,259.00. On April 14, 1988, petitioner BPI, as liquidator of Paramount, tl1rougll counsel filed a letter dated April 12, 1988 reiterating its claim for refund of P65,2 59.00 as overpaid income tax for the calendar year 1985. The follov.,ing day or on April 15, 19&8, BPI filed the instant petition with tl1is Court in order to toll the running of the prescriptive period for filing a. claim for refund of overpaid in<;ome taxes. In a.nsvvTer to the petition, respondent as a special and affirmative defenses alleged that:

DECISION- C.T.A. CASE NO. 4Zil - Page 3 - ( 1) the petition is defective since it failed to state that a claim for refund vvas duly filed v.Tith the respondent's office and this ~~ase does not in~lolve an erroneous or illegally collected tax therefore the same should be dismissed; (2) the amount sought to be refunded is self-serving since it vvas cortlputed by petitioner itself and the income t3.x return standing alone is not sufficient proof to be entitled to the refund claimed; (3) granting wit11out admitting, that petitioner is entitled to a t.:m refund, the daim for refund has prescribed considering the petition was filed on April 15, 1988, which is way beyond the two-year presc iptive period for filing a suit for refund, it app~~aring that Paramount paid its quarterly income taxes on May 20, 1985, August 29, 1985 and November 29, 1965 all payments having been ma<le prior to April 1S, 1986; and (4) U1e burden of proof in daims for refund lies vvith tl1e taxpayer ecause taxes paid are presumed to have been collected in a.ccordanc~ witll l w. After the p e'"'entation and offer of evidence by petitioner, respondent. Vv"aived her right to present any evidence instead she moved to submit this case for decision. Both parties failed to submit any memorandum in support of their cases. The issues present-d are: 1. vVhether or not this Court has jurisdiction over tl1e petition (;;onsidering this case does not involve an erroneously collect~d tax and for failure on the part of petitioner to allege that a claim for refund �was filed with the respondent;

DF.CISION - C.T.A. CASE NO. 4251 - Page 4 - 2. Whether or not the two-year prescriptive period to claim a refund as provided for in Section 292 (now Section 230) of th e National Internal Revenue Code commence to run from the date the quarterly income tax was paid or from the date of filing of the Final Adjustment Return (final payment); and 3. Whether or not the petitioner has esta blished by C:()tnpetent evidence its entitlement to tlle refund claimed . Focus should be made on Section 292 (now Section 230) of the National Internal Revenue Code in resolving issues one and Section 292 (now Section 230) of the National Internal Revenue Code provides: "Sec. 292. 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 an)r penalty claimed to have been collected without authority, or of any sum alleged to have been excessi~le or in any manner wrongfully collected, until a claim for refund or credit has been duly filed v\7itll the Commissioner of Internal Revenue; but such suit or proceeding may be maintained, ~,..rhether 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 afwr tlle e&mira.t.ion of two years from tl1e date of payment of the tax or penalty regardless of any supervening cause tl1at may arise after payment: x x x." (Emphasis supplied)

DFaSION - C.T.A. CASE NO. 4ZSl The filing of a claim for refund With the Commissioner of Internal Revenue, Within two years from the date of payment of the tax, is a prerequisite before any court action can be commenced. Section 295(3) of the Tax Code provides: "SEC. 295. Authority of the Commissioner to make compromises and to refund taxes. - The Commissioner may: (1) X X X XXX XXX. (2) X X X XXX XXX. (3) Credit or r~fund taxes erroneously or illegally received, or penalties imposed Without authority; r~fund the value of .internal revenue stamps when they are returned in good condition by th<1 urchaser. and, in his discretion, redeem or change unuse stamps that have been rendered unfit for use and refund their value upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpaye fil~? in writing with the Commissioner ~t~a&m !2r gedit or refund within two y~ars after the Ra2:rntnt of t.he tax� or penalty." (Underlining supplied.) Respondent alleged that petitioner failed to state in its Petition for Review tl1at it. filed a claim for refund With the respondent. Paragraph 3 of the Petition For Review reads: ".3. Not'Y,Tithstanding such claim for refund in the return, respondent has failed to make a refund; since the prescriptive period for filing a claim and filing a suit for such refund is about to expire, petitioner filed today with .the respondent a written claim for rMund. a copy of V\:rbich is hereto attached as Annex B." (Emphasis ours.)

DF.CISION- C.TA. CASE NO. 4Z.1l - Pa.~6 - A reading of the petition shoV�lS that petitioner stated that a written claim for refund v.~as filed with the respondent. Attached with the Petition was Annex "B" (Exh. D) which is the letter of petitioner, asking for a refund, filed with the Bureau of Internal Revenue on April 14, 1988. It is evident that petitioner had substantially complied with the requirement that the "Petition for Review shall contain allegations showing jurisdiction in the Court, a --oncis~ statement of the ultimate facts and a summary statement of the issues involved in the case" as embodied in Section 2 of Rule 5 of the Rules of the Court of Tax Appals in relation to Section 295 of the Tax Code, . / Now, whether the date of filing a claim for refund with the BIR on April 14, 1988 and tl1e filing of the Petition with this Court on April 15, 1988 caused petitioner's suit to prescribe shall be dealt witl1 taking into consideration the provisions of Sections 292 and 295 of th~ NIRC. The rule is a taxpayer has two years from the date of payment of the tax to claim for refund with the Commissioner of Internal Rev~nu~ and commencement of a suit for refund with this Court. Where the tax is payable in quarterly installments, tl1e final payrnent is the last quarter payment at the end of the tax year When it is iinally ascertainable that the taxpayer eitl1er made profits or suffered losses in its operations. (Commissioner of Internal Revenue v . Asia Australia Express Ltd., G.R. No. 65956~ April 10, 1969; Ateneo De Manila University

IJF.CISION C.TA. CASE NO. 4?SI - Page7 - v . Commissioner of Internal Revenue. CTA Case No. 3213. July 28. 1989). In the case of a corporate taxpayer, it pays its income taxes in quarterly installments. "The income tax due on the corporate quarterly returns .and t11e final income tax returns shall be paid at the tim~ the d~claration or r~turn is fil~d in a manner prescribed by the Commissioner of Internal Revenue" (Section 37(c) NIRC). Thus, the date of payment of the tax as prescribed und~S-r Section 292 of t11e Tax Code was construed to mean the period when th(t corporate income tax return is required to be filed . The time for filing the annual corporate income tax return is on or before t11e 15th day of April (if on a calendar basis ) or on . or before the 15th day of .the fourth month following the close of the fiscal year. (Section 87(b) NIRC; Unibake Inc . v . Commissioner of Internal Revenue. CTA Case No. 3987. July 31. 1989.) Where the law-making authority intended to impose a two-year prescriptive period from the date of payment of t11e tax for filing a claim for rMund �with the Commissioner of Internal Revenue under Section 295(3) and the same period to file a suit for the recovery of exc~ss payment of taxes as a condition for tlle grant of refund und~r Section 292, tlle legislature does so expressly and clearly. In the case of ACCRA Investments Corporation v . The Hon . Court of Appeals.. Et. AI.~ G.R. No. 96322.. December 20.. 199 1, petitioner ACCRAIN's main argument in elevating this case t.o the Supreme Court is precisely the reckoning date for the

DF.CISION- C.T.A. CASE NO. liEf - PageS - ,' comnvmcement of the two-year prescriptive period in filing a claim for refund .of overpaid taxes for the t3.xable year 198 1. The Supreme Court held_: "The petitioner corporation's taxable year is on a calendar }Tear basis, hence, with respect to the 1981 taxable }rear, ACCRAIN had until 15 April 1982 within which to file its final adjustment return. The petiti()ner corporation duly complied with this requirement. On the basis of the corporate income tax return which ACCRAIN filed on April 15, 1982, it reported a net loss of P2 ,95 7, 142.00. Consequently, as reflected thereon, the petitioner corporation, after due computation, had no tax liability for the year 1981 . Had there been any, payment thereof would have been due at t11e time the return was filed pursuant to subparagraph (c) of the aforementioned codal provision which reads: 'Sec. 70(c) - Time payment of the income ta.x. - The income tax due on t11e corporate quarterly returns and the final income tax returns computed in accordance v.litll Sections 68 and 69 shall be paid at tlle time the declaration or return is filed as prescribed by the Commissioner of Internal Revenue.� XXX XXX XXX. The term 'return� in the case of domestic corporations like ACCRAIN refers to t11e final adjUstment return as mentioned in Section 69 of the Tax Code of 1986, as amended, which partly reads: �sec. 69. Final Adjustment Return . - Every corporation liable to tax under Section 24 shall file a final adjustment return covering the total taxable income for the preceding calendar or fiscal year. If the sum of tlle quarterly tax payments made during the said taxable year is not

DECISION- C.T.A. CASH NO. 4151 - Page9- equal to the total tax due on the entire taxable income of that year tlle corporation shall eiU1er: (a) Pay tl1e excess tax still due; or (b) P.e refunded the excess amount paid, as U1e case may be.� �' Clearly, U1ere is the need to file a return first before a claim for refund can prosper inasmuch as the respondent Commissioner by his ov.m rules and regulations mandates that the corporate tak-payer opting to ask for a refund must show in its final adjustment return the income it receive from all sources and U1e amount of Vvithholding taxes remitted by its withholding agents to the Bureau of Internal Revenue. The petitioner corporation filed its final adjustment return for its 1qa 1 taxable year on April 1'2. 19&2 . In our Resolution dated April 10, 19&9 in the case of Commissioner of Internal Revenue v. Asia Australia EhT>ress, Ltd. (G.R. No. &5956), we ruled that the two-year prescriptive period within ~Alhich to claim a refund commences .to run, at the earliest, on the date of the filing of the adjusted final tax return. Hence, the petitioner corporation had until April 15. 1984 vvitJ1in which to file its claim for refund. XXX XXX XXX. It bears emphasis at this point that the rationale in computing the two-year prescriptive period with respect to the petitioner corporation's claim for refund from the time it filed its final adjustment return is the fact that it was only then that ACCRAIN could ascertain whether it made profits or incurred losses in its business operation. The 'date of payment', therefore, in ACCRAIN's case v..ra.s '"'hen its tax liability_, if any, fell due upon its filing of its final adjustment return on April 1 ~1, 19&2 ." 1 ' ),.- '/'"I. �;...:I

_, DF.CISION- C.T.A. CASH NO. 4257 In th~ case at bar, pt tltloner adopts the cal'ndar basis of reporting its incom and eoxpenses. For tile cal~ndar year ending December 3 1, 1985, petitioner filed its Income Tax Return on April 2, 1 9~6 . The Tax Code says it has on or b'fore April 15, 1986 to file the return. It. has two years to file a claim for refund with t11~ Commissioner of In~rnal Revenue and With �this Court counted from ARril 15, . 19a6. the datJ~ when petitioner is required to file its final adj ustm~nt return . Petitioner corporation 'july complied with this requir~ment. Petitioner filed a written claim for refund Vvitll respondent on April 14, 1988 and subsequently the folloWing day it filed ~Nith this Court on April 15_. 19 ~ 8 a P~~ttition seeking the refund of the amount stated in the return. Petitioner has up t..o April 15. 1988 to file a suit for the refund of verpaid income tax. Both the claim for refund and the petition -vva.s filed Vvithin the two year period. Therefore, petition�~r�s claim for r~f\md has not yet prescribed. Respondent further all~ged tbat this is not a case of erroneously or illegally <.;011~cte<l tax therefore U1e petition should be dismissed . Whil~ this cas~ do~s not involve an erroneous or illegally collected tax since the cr rporate quarterly tax was rightiully paid at the time it fell due still this is a case covered under Section 292 (now Section 230) of the Tax Code. Section 292 provides that "no suit or proceeding shall be maintained in any court for the recO'lery 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 (Ollected 'V'Vithr,)ut. authority, or of any sum alleged to

DECISION - C.T.A. CASE NO. liEf - Pagett - have been excessive or in any manner vvrongfully 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 the case of Citytrust Banking Corporation v . Commissioner of Internal Revenue. CTA Case No. 4099, May 26. 1991, affirmed by the Court of Appeals on July 31, 1992 under G.R. SP No. 26639, the Court ruled: "Although the title of Sec. 230 of the Tax Code is 'Recovery of Tax Erroneously or Illegally Collected', the title alone is not controlling. By the tenor of Sec. 2.30, tl1e two-year limit app1ies to actions to recover - 1. any national int rna1 revenue tax erroneously or illegaly assessed or collected; 2. any penalty claimed to have been collected without autl10rity; or .3. any sum alleged to have been excessive or in any manner ...Nrongfully collected {See Muller & Phipps v. Commissioner of Internal Revenue, 103 Phil. 145, March 20; 1958). The overpaid income taxes in tl1is case falls under # 3 for although they were legally collected by virtue of tl1e v.,.rithholding tax system and the requirement for quarterly income tax payments, they were nonetheless �excessive'." With regard to U1e second issue on whether or not the two- year prescriptive period to claim a refund of overpaid tax commences to run from the date the quarterly income tax was paid, the Supreme C01Jrt en bane has already resolved the same

DF.CISION - C.TA. CASE NO. 4151 - Page 12 - in the case of Commissioner of Internal Revenue v. TMX Sales. Inc.. and the Court of Tax Appeals. G.R. No. 83736. January 15. 1992 ~ when it declared: "Therefore, the filing of quarwrly income tax returns requ.ired in Section 85 (now Section 68) and implemented per BIR Form 1702 -Q and payment of quarterly income t1x should only be considered mere installments of the annual tax due. These quarterly tax payments which an~ computed based on the cumulative figures of gross receipts and deductions in order to arriv . at a net taxable income_. should be treated as advanc~s or portions of the annual income tax due, to be adjuswd at the end of the calendar or fiscal year . This is reinforced by Section 87 (now Section 69) vvllich provides for the filing of adjustment returns and final payment of income tax. Consequently, the two_-year prescriptive period provided in Section 292 (novv Section 230 of the Tax Codt:) shQuld be com~u:ttd from the ttme of filing the Adjustn1~nt Return or Annual Income Tax Return and tinal Rayme11t of incom~ tax." (Underlining ours.) The U1ird issue is vvhether or not petitioner was able to substantiate its cla.itt1 for r~fund . Respondent alleged that t11e income tax return standing alone is not suffici~nt proof of $tltitlement to the sum sought to be refunded. Besides the computation submitted by petition~r is self -servin g. During the hearing, petitioner submitted and offered in evidence its 1985 Corporate Annual Income Tax Return (Exh. A), Quarterly Income Tax Returns for the First, Second and Third Quarters ending March 31, 1985, June 30, 1985 and September 30, 1985, respectively (EXhs. B, B-1 and B-2 ), BIR Payment Orders and Confirmation Receipts shoV'ling payments for the three

DF.CISION - C.T.A. CASE NO. 4:El - Page 13 - quarters of 1985 (Exlls . C, C-1 and C-2) and the letter aslrJng for �a daim for refund filed with the respondent on April 14, 1988. Respondent did not object to the admission of these exhibits but took exc~ption to the contents or veracity of the data contained therein . When it was respondent's turn to present her evidence, her counsel waived the presentation thereof and instead moved to sul)mit this case based on the pleadings alone. ~spite the reservation of respondent with respect to the veracity of the return still up to the time given for respondent to present her evidence and up until the submission of this case for decision nothing was shown during the hearing that the return vr~ s e-rroneous nor was there evidence presented that there ~xist any irregula~rity itl til~ ~omputation or pre a.ration of the return vv11ic11 will t..3.int their reliability or sufficiency and competency as proof of overpaid income tax for the year 1985. At the time the return �....vas filed on April 14, 1986, respondent's examiners had all the time to examine and audit the return. Up to this time nothing vvas heard from the respondent disputing the correctness of the return for other~Nise she vvould have, upon knowledge of any irregularity, issued an assessment for said year or at least notified this Court if there was any. It is within the competenQ~ of respondent to examine petitioner's financial statements and audit report as these are documents necessarily attached tc tile return filed l)y petitioner and formed part of tile BIR records. Respondent is ther~by considere~ to have admitte~ the truth of the contents of these exhibits. Hence, in tl1e absence of contrary evidence, the Income Tax Returns and the Confirmation Receipts

DF.CJSION - C.TA.CASErlO. 4"157 - Page14 - of payment of the quarterly taxes should be given credence as proof of overpaid income tax for 1985 in the amount of P65,259 .00 . WHEREFORE.. the respondent is hereby ordered to REFUND in favor of petitioner, the sum of P65,259.00, representing overpaid income tax of Paramount Acceptance Corporation for the calendar )'~ear 1985. No pronouncement as to costs. SO ORDERED. Quezon City, Metro Manila, December 20, 1993. ~UE K. GRUBA Associate Judge WE CONCUR: '2~((2. c:~ .ERNESTO D. COSTA Presiding Judge (dissenting) RAMON 0 . DE VEYRA Associate Judge

DF.CISION- C.TA. CASE NO. 4'El - Paget5- L.~TIF/L.~ T/ON I hereby certify that this decision V.fas reached after due (.:onsultation between the members of the Court of Tax Appeals in accordance with Section 13, Article VI II of the Constitution_ ~0--~ ERNESTO D_ ACOSTA Presiding Judge Court of Tax Appeals