THE PHILIPPINE BANKING CORPORATION v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPI NES COURT OF TAX APPEALS QUEZON CI TY THE PHILIPPINE BANKI NG CORPORAT ION, P e t i t i o n e ,.~, COMMISSIONER OF INTERNAL REVENUE, C.T.A. CASE NO. 5507 Respondent. _:�s, Pt��omul qat ed: APR 30 to99 X- - - - - - - - - - - - - - - - - - - - - - - - - - - X DECISION This case involves a claim f or refund in the amount of P2,405,458.86 allegedly unutilized creditable with h olding tax for calendar year 1994. Petitioner is a banking corporation duly organized and existing under and by virtue of the laws of the Philippines with principal office at Philbank Building, Ayala Avenue, 1226 Makati City. For calendar year 1994, Petitioner foreclosed a number of real propert ies previously mortgaged to it. As a t~esult, P e t i t i onet~ sold sevet~al of these properties wherein the co r resp onding withholding taxes were allegedly withheld and remitted to the Bureau of Intern al Revenue by the buyers - its withholding agents, in the to t al a mount of P2,911, 178.47, P'-lt~suant to BIR

DECISION - C.T.A. CASE NO. 5507. .-. 0::. Revenue Regulations No. 6-85 undet~ the Expanded Withholding Tax System <EWT, fot~ bt~evity). In the same year, Petitioner likewise claims to have leased cet~tain properties to several entities wherein the total amount of P145,531.93 were allegedly withheld and remitted to the BIR as withholding taxes by the lessees, pursuant to the same Revenue Regulations under the EWT system. On Decembet~ 7, 1995, Petitioner filed its Amended Income Tax Return for calendar year 1994 which shows a "NIL" income tax due and tax l'~efundable in the amount of P2,405,459.00. This amount allegedly represents creditable withholding taxes rental income and sale of real properties which cannot be applied against any taxable income for the year 1994 because of Petitioner's claimed net loss in the amount of P1,414, 170.00 for the same year. Petitioner signified its intention in the return to refund the amount of P2,405,459.00 by marking an uxu in the box "to be r�efunded on the face of the ,.~eturn" <Exh. III>. Subsequently, on Januat~y 24, 1996 and Ap1�~il 11' l 997, Petition et~ filed claims fot~ tax credit/refund amounting to P2,405,459.00 with the Revenue District Office No. 50 of the Respondent <Exhs. LLL and MMM).

DECISION - C.T.A. CASE NO. 5507. 3 As Respondent did not grant nor act upon Petitioner's claim for tax credit/refund, Petitioner filed the instant Petition for Review on April 14, 1997. Upon these facts, Respondent advances the following special and affirmative defenses, thus: 1. Petitioner's claim for refund is still pending administrative investigation and evaluation; 2. The total amount of ~2,405,458.86 claimed by Petitioner allegedly representing creditable withholding taxes for the year 1994 was not properly documented; 3. Taxes paid and collected are presumed to have been made in accordance with law and regulations, hence, not refundable; 4. In an action for tax refund 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 corresponding action; 5. It is incumbent upon Petitioner to show that it has complied with the provisions of Section 204 in relation to Section 230 of the Tax Code, as amended; 6. Well-settled is the rule that claims for refund are construed strictly against claimants since it partakes the nature of an exemption from taxation. The only issue to be resolved in this case is whether or not Petitioner has satisfactorily proven its entitlement to the claim for refund of alleged unutilized creditable withholding taxes for the year 1994.

DECISION - C.T.A. CASE NO. 5507. - 4- In suppot~t of its case, Petitioner presented in evidence various documents which, among othet~s, consist of the following: a. Certificate of Creditable Withholding Tax at Sout~ce <Exhs. A to FFF, inclusive); b. Tentative, Final and Amended Corporate Income Tax Returns for the year 1994 <Exhs. GGG, HHH and III>; c. Corporate Income Tax Returns for the years 1995 and 1996 <Exhs. JJJ and KKK>; d. Administrative claims for refund duly filed with the BIR <Exhs. LLL and MMM); e. PBC's Statement of income for the year~ 1994 (Exh. NNN>. At this point, it is best to review the applicable provision of law and revenue r~egulat ions, plus the evidence presented to determine whether there has been compliance with the requirements sufficient to warrant the refund of the amount claimed for taxable year 1994. Under Section 230 of the Tax Code, as amended, the claim for refund/tax credit must be filed with the BIR within two years from the payment of tax. It fur~thet~ provides that when the two-year period is about to prescribe and the claim for refund/tax credit with the Commissioner of Internal Revenue has not been acted upon, the taxpayer should file a petition for review with the

DECISION - C.T.A. CASE NO. 5 507. 5 of Tax Appeals within the said two-year period, otherwise, if the decision of the Commissioner is adverse to the taxpayer and it was made after the reglementary period, he can no longer appeal the same to the Court of Tax Appeals <Martinez, Summary of 1995 SC rulin gs, January to June 1995 part I , p. 651, citing Gonzales and Gonzales, NI RC, 1986 ed. p. 384, Gibbs vs, Collector o f Internal Revenue and CTA, 107 Phil. 232 ) . To be entitled to the refund/tax credit of unutilized creditable withh o lding tax, a taxpayer must comply with the following basic requirements set forth in Section 10 of Revenue Regulations No. 6-85, to wit: 1. That it filed a claim for refund/tax credit within the two-year period from date of payment of the tax as prescribed under Section 230, NIRC, as amended; 2. That the income upon which the taxes were withheld at source under Section 50 were included as part of the income declared in the income tax return of the recipient; 3. The fact of withholding is established by a copy of the statement duly issued by the payor to the payee <BIR Form No. 1743-1750) showing the amount paid and the amount of tax withheld therefrom. Compliance with these ~~equi~~ements has bem in a number of cases decided by this Court <Citytru s t Fi nance Corp. vs. CI R, CTA Ca se No . 4143, November 1 1, 199 1 ; Or anbo Realty Corp. vs. CIR, CTA Case No. 5082, Janua ry 16, 19 97; Aya l a v s. CI R, CTA Ca se No.

DECISION - C.T.A. CASE NO. 5507 . - 6- 5081, March 31, 1997; PDCP vs. CIR, CTA Case No. 5237., March 23, 1997; FEB Investments, Inc. vs. The Commissioner of Interna l Reve nue, CTA Case No. 5353, August 22, 1997; Benguet Corporation vs. Commissioner of Internal Revenue, CTA Case No. 5323, August 25, 1997). As disclosed by the records of this case, Petitioner filed its administrative claim with the BIR on January C::-4, 1996 and t h e ins t ant petition f ot~ r~evie w on Apt~il 14, 1997' well wi thin the two-year period required by law (Commissioner of Internal Revenue vs. Philippine American Life Insurance Co., G. R. No. 105208, May 29, 1995; Commissioner of Internal Revenue vs. TMX Sales, Inc., G. R. No. 837736, January 15, 1992; ACCRA Investments Corp. vs . Court of Appeals, G.R. No. 96322, December 20, 1991>. These dates when reckoned from the date of filing of Petitioner ' s c o rporate annual inco me t a x r e t u rn for taxable year~ 199L~ on Apt~il 17, 1995, fall within the two-- year prescriptive p eriod provided b y Secti on 230 of the Tax Code, thus f ulfilling the aforementioned r��eq u i t~ e ment. As to the sec ond it has been established that Petitioner declared the income ft~om which t he taxes were withhe l d in its income tax return covering the taxable year 1994. The rental income and the income from th e sale o f r e al prope r ties f orm part o f the miscellaneous income in the total amount of

DECISION - C.T.A. CASE NO. 5507. - 7 �-- P114,508,378.00 referred to in Schedule 2 of Petitioner's corporate income tax return (Exhs. HHH, HHH-2 and HHH-3). This was further proven by Petitioner's Statement of Income for the year 1994 <Exh. NNN> which was duly testified to by Mr. Melencio 'J i cent e ( TSN, August 1997, pp. 18 to 19). With regard to the third requirement, the fact of withholding was established by the copies of the ~;tatements duly issued by the withholding agents to the Petitioner as payee showing the amount paid and the amount of tax withheld therefrom. of withholding i !:; we 11 established by the presentation of numerous Certificates of Creditable Income Tax Withheld at Soul�~ce CBIR Form 1743-1750) showing the amount which is the subject of the herein claim was in fact withheld by the withholding agents CExhs. A to FFF, inclusive, pp. 109 to 161' Thus, Petit i onet~ has satisfactorily proven its claim for refund/tax credit. It is also unrebutted that Petitioner incurred losses in its business operations for the taxable years 1.994 and 1995, thus, has no tax liability upon which to apply the creditable withholding taxes. a f t e1�~ computing the total amount of ct~editable income taxes withheld at source excluding Exhibits Y and Z since no pet~i od were indicated therein and Exhibit SS since the withholding agent did not sign the certificate, the

DECISION - C.T.A. CASE NO. 5507. - 8- conclusion is that the total amount withheld is only P2,346,889.36 contrary to the claim of the Petitioner in the amount of P2,405,458.86. Hereunder is a detailed computation of Petitioner's allowable refund: Amount of Withholding Agent Income Payment Tax Withheld Exh. Rita A. Gusto p 216,000.00 p 5,400.00 A 165, 251.66 B Hem~y Vi llat'ica 2,000,000.00 167,640.00 c Amelia Go 2,514,600.00 13,000,000.00 325,000.00 D Timothy c. Te 21,500.00 E Gilda Leo Po 860,000.00 2,250.00 F 95,050.00 G Ederlina G. Olivet~os 90,000.00 552.32 H Jacqueline de Lucia 2,000,000.00 5,400.00 I 15,675.00 J M. Ct~esencia Ct~uz 11,046.40 66,000.00 K 8,750.00 L Benjamin G. Legaspi 216,000.00 9,180.00 M 5,600.00 N Estel ito M. Mendoza 627,000.00 15,532.50 0 10,800.00 p Aida M. Lucet~o 1,320,000.00 11,016.00 Q 120,000.00 9,180.00 R Vivian c. Ramos 15,000.00 s Ely A. Jamo 162,000.00 10,115.00 T Wi 11 iam E. Caballero 224,000.00 29,312.50 u Belen T. Lucero 310,650.00 8,796.25 v Ester M. Co 216,000.00 4,590.00 w Jacinto J. Decena 92,880.00 3,600.00 X 11,880.00 AA Albert Malimban 183,600.00 6,585.00 BB Josephine L. Bon 300,000.00 5,130.00 cc Danilo Olmo 202,300.00 2,754.00 DD Martin R. Litten 500,000.00 4,666.50 EE 1,250.00 FF Ong Ching Liong 351,850.00 3,570.00 GG Edinda Raiz 183,600.00 499.95 HH 144,000.00 3,570.00 II Paolo c. San t~at eo 3,368.70 JJ 831,231.20 KK Elvit~a Cabdto 475,200.00 3,000.00 LL 57,346.80 MM Natividad del Rosat~io 439,000.00 Antonio Aligaen 342,000.00 c. Mat~ciame 108,000.00 Gala Jose B. Int et~no 183,000.00 Marilda D. Dimasangal 25,000.00 Amelyn T. Ibugan 238,000.00 Mat~y Aida Kat~ en Queen Silveron 27,270.00 Amelyn T. Ibugan 238,000.00 Ruben Diaz 224,580.00 Jet~t~y Navat~t~ete 6,112,000.00 Cat~melita 01 i gad o 200,000.00 Ng Tong Guan 2,293,872.00

DECISION - C.T.A. CASE NO. 5507. - 9- Angeles Sevilla- Guevart�a 2,000,000.00 60,000.00 NN 3,240.00 DO Rupet't o Mat i enzo 216,450.00 160,000.00 pp Nonesio R. Rivera 3,200,000.00 4, 221.75 QQ Norberta Nazarene 281,450.00 807.30 RR 21,000.00 TT Rev. Fr. Luciano 6,045.00 uu Bongcac 41,860.00 15,000.00 vv Dante Daypuyat't 700,000.00 45,132.00 XX Eduat�do Manue 1 403,000.00 24,517.50 yy JH Trading House Co. 300,000.00 534.06 XX 2,333.27 AAA Lee Design Inds. 902,640.00 26,652.00 BBB 2,225.35 CCC Isla Communications Co. 490,350.00 969. 75 DDD Soledad Q. Rianzares 10,681.20 10,150.00 EEE 181018.00 FFF PBC Insurance Brokerage 46,665.65 P22 3462 889.36 Sun Holidays Inc. 533,040.00 Glaser Loans & Credit 44,507.00 PET & Pension Plans 19,395.00 Phil. Dvet�seas Employ. 203,000.00 Stanley Sales 360,360.00 TOTAL REFUNDABLE TAX On the part of Respondent, he failed to manifest any reasonable effort to rebut or controvert the oral and documentary evidence presented by Petitioner's counsel. Respondent's defense, which is anchored as usual on the principle that claims for refund are strictly construed, cannot possibly withstand as it is always vulnerable to overwhelming evidence which Petitioner was able to present before this Court to prove its claim <Shangri-La Plaza Cor po r ati on vs. CIR, CTA Cas e No. 534 6, January 9, 1998 ) . All told, We find Petitioner's claim for refund/tax credit to be in order. WHEREFORE, in view of the foregoing p1��e mise s, Respond<:mt is hereby ORDERED to REFUND in favor of Philippine Banking Corporation the total amount of

DECISION - C.T.A. CASE NO. 5507. - 10 - 1='2,346,889.36, unutilized ct~editable withholding taxes for the year 1994. SO ORDERED. WE CONCUR: G-tl.Q~ ERNESTO D. ACOSTA Pt~esiding 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. ~o,n. ERNESTO D. ~ Pt~esiding Judge