CTA Case No. 5436 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY AB CAPITAL INVESTMENT CORPORATION, C.T.A. CASE NO. 5436 Petitioner, Pr~amulgated: COMMISSIONER OF INTERNAL REVENUE, Respondent. ~ 071999 X- - - - - - - - - - - - - - - - - - - --- X DECISION This is a Petition fat~ Review filed by th e Petitioner~, AB CAPITAL AND INVESTMENT CORPORATION, against Respondent COMMISSIONER OF INTERNAL REVENUE, for the inaction on s Petitioner~' claim for~ refund/tax credit in the amount of P663,281.69, allegedly representing its overpaid gross receipts taxes for the third and fourth quarters of 1994, the four quarters of 1995 and the first and second quarters of 1996. As represented, Petitioner is a corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines, with principal office at 3/F Asian Bank Center, Sen. Gil J. Puyat Avenue, Makati City . For the third and fourth quarters of 1994, the f om~ quarters of 1995 and the first and second quarters of 1996, Petitioner filed with Respondent Percentage Tax Returns and paid the corresponding gross

DECISION - C.T.A. CASE NO. 5436 - .c-:,. - t~eceipts tax <GRT> fat~ each of the said quarters, hereunder summarized, the t a x bases of which includes the passive income which was subjected to twenty percent (201.) final taxes, already withheld and paid to Respondent by the various clients of Petitioner. Period Covered GRT Date Paid Exh. 3t'd Qtr. (July to Sept., 1994) PS, 734, 510. 11 10-20-94 A 4th Qtr. (Oct. to Dec., 1994> 2, 811,464.08 1st Qtr. (Jan. to Mar., 1995) 663,461.62 01-20-95 B 2nd Qtr. <Apr. to June, 1995) 1,735,951.79 c 3rd Qtr. (July to Sept., 1995) 4,321,174.75 04-20-95 4th Qtr. <Oct. to Dec., 1995> 12,493,166.26 1st Qtr. (Jan. to Mar., 1996) 3,695,854.35 07-20-95 D 2nd Qtr. <Apr. to June, 1996) 4,355,767.83 10-20-95 E 01-19-96 F 04-19-96 6 07-19-96 H After taking into consideration the Decision of this Com~t in the case of Asian Bank Corporation vs. Commiss i oner of Internal Reven u e, CTA Ca se No. 472 0 , January 30, 1996, which ruled that the 20~ final withholding tax on interest income should not form part of the taxable gross receipts, Petitioner filed with the Respondent on October 17, 1996 an application for a tax refund/tax credit of its alleged overpaid GRT for the last two quarters of 1994, the four quarters of 1995 and the fit~st two quat~ters of 1996, in the total amount of ~663,281.69 <Exh. Q). A day aftet~, or on October 18, 1996, Petition et~ filed with this Court the instant petition for review. Petitioner presents the proposition as reason of the Petition for Review that the gross receipts tax paid by

DECISION - C.T.A. CASE NO. 5436 3 it for aforesaid period were based on the total s s gt~o receipts, inclusive of the passive income which were subjected to the 20~ final withholding tax at thus, it pointed out that in the light of this Court's ruling in the Asian Bank case, supr~a, which states that the 20~ final withholding tax on interest income should not form part of the taxable gross receipts, Petitionet~ has actually overpaid the amount legally due from it insofar~ as its GRT obligations are concerned, hence, a On the other hand, Respondent in his special and affirmative defenses, alleges that (1) the Petitioner's claim has partially, if not totally prescribed; (2) the administrative claim for refund was not filed within a reasonable time before the lapse of the two-year period in order to give the Respondent a chance to act on it; ( 3) inter~est from deposits and yield at~ any othet~ monetary benefit from deposit substitutes and from trust fund and similar eat~ned by a domestic corpot~at ion is subject to a 20~ tax in accordance with Section E:4<e> (1) of the National Internal Revenue Code, which is the law applicable on this mattet~; ( 4) the ~�~uling in the case of Asian Bank Corporation vs. Commissioner of Internal Revenue, CTA Case No. 4720, is not applicable in the instant case; (5) in claiming fat~ t~efunds, it is incumbent upon Petitioner~ to prove that it

DECISION - C.T.A. CASE NO. 5436 - 4- is indeed entitled thereto. x x x; (6) claims for refund are construed strictly against the claimant, the same being in the nature of exemption from taxes; and (7) it is incumbent upon Petitioner to show compliance with the provision of Section 230 of the Tax Code. is no legal impediment in filing the ad minis tt~at i v e claim with the BIR simultaneously with the Petition for Review with this Court as long as these two acts fall within the two-year prescriptive period prescribed by Section 230 of the Tax Code (f:;ee Gibbs vs. Collector, L-153543, February 29, 1 960) ' t h us ' the at~gument by Respondent that the claim for refund was not filed within a reasonable time for the Court to act on it is devoid of merit. The decisive issue that comes to the fore for Our cons i det~at ion i s : whethet~ at~ not the 20'1. final withholding tax on cet~tain passive income of the Petitioner should be excluded in the total gross receipts of Petitioner for GRT purposes, hence, Petitionet~ is entitled to the amount sought to be refunded. in the affirmative. This is not the first time that this Court has been confronted with such issue. As correctly stated by the Petitioner, this Co1.wt has resolved the same issue in the case of Asian Bank Corporation vs. Commissioner of Internal Revenue, supt'a, which is anchored on similar factual circumstances and is

DECISION - C.T.A. CASE NO. 5435 - 5- in all fours with the case at Hence, we find no cogent t~eason at~ justification to depart the Decision We have rendered, a precedent having already been established. Our Decision states in part, thus: "The assessment fat~ GRT is based on Section 119 of the Tax Code, quoted het~eundet~ thus: SEC. 119. Tax on banks and non- bank ri nancial intet'lllediat' i es. Thet'e shall be collected a tax on gross receipts derived from sources within the Philippines by all banks and non-bank financial intermediaries in accordance with the following schedule: (a) On interest, commissions and discounts from lending activities as well as income from f i nancial leasing, on the basis of remaining maturities of instruments from which such receipts are derived. Short-term maturity not in excess of two (2) years 5~ Medium-term maturity-over two years but not exceeding fout~ (4) years 3~ Long-term maturity: ( i) Ovet~ fout~ (4) years but not exceeding seven (7) yeat~s 1~ ( i i) Ovet~ seven (7) 0~ (b) On dividends 0~ (c) On royalties, t~entals of pt~opet~ty, t~eal 01�~ pet~sonal, pt~ofits from exchange and all other items

DECISION - C.T.A. CASE NO. 5436 - 6- treated as gross income under Section 28 of this Code 51- p,.~o~-'ided, hoNeve,.~, That in case the maturity period referred to in pat~agt~aph (a) is sh ot~t en ed t ht~u pretermination, then the maturity period shall be reckoned to end as of the date of pretermination for purposes of classifying the transaction as short, medium or long term and the correct rate of tax shall be applied accordingly. Nothing in this Code shall preclude the Commissioner from imposing the same tax herein provided on persons performing similar banking act i vi t i e s. The aforequoted provision of the law speaks of gross receipts as the basis of the 51- bank tax or GRT, and it is petitioner's contention that the interest income included as part of such gross receipts should be computed minus the final tax already withheld by various withholding agents for the reason that such amount did not actually go to its funds, hence was not actually received by them. We agree with the petitioner that the 201- final withholding tax on its interest income should not form part of its taxable gross t~ece i pt s. Revenue Regulations No. 12-80 dated November 7, 1980 on Taxation of Certain income Derived from Banking Activities provides that the rates of tax to be imposed on the gross receipts of such financial institution; shall be based on all items of income actually t~eceived. Ft~om the fot~egoing, i t is but logical to infer that the final tax, not having been received by the petitioner but instead went to the coffers of the government, should no longer form part of its gross receipts for the purpose of computing the GRT. x x x In the second place, the highest tt~i bunal of the land interpreted the term "gt~oss receipts: to mean all receipts of a tax payer~

DECISION - C.T.A. CASE NO. 5436 -7 excluding those which have been especially by law or regulation eat~mat~ked some person other for~ the govet~nment taxpayer~. than the The legal issue having been settled, what t'emains to be resolved by Us involves factual matters and, that is, whether or not Petitioner has established by evidence its claim for refund. Aft et' a cat'e fu 1 of the Petitioner~' s evidence, the Court finds that the evidence adduced by the Petitioner did not clearly establish with accuracy the amount being claimed as refund. The petition for tax refund was filed within the two-year period as provided under Section 230 of the Tax Code. Petitioner filed its claim for refund with the Bm~eau of Intet'nal Revenue on Octobet~ 17, 1996 and with this Court on October 18, 1996, which are both within two years from Petitioner's payment of gross receipts tax for the third quarter of 1994 (July 1 to September 30, 1994) on October 20, 1994 <Exh. A>. Petitioner engaged the services of SGV & Co., an auditing firm, to verify the accuracy of its passive interest income and quarterly GRT payments for the period July 1, 1994 to .June 30, 1996. However~, it was stat e d in the report submitted by R. J. Galve, a Partner at SGV & Co. , dated June 13, 1997 <Exh. 00) and July 14, 1997 <Ex h. NNNNNNJ that the extent of the tests and audit procedures undertaken by the said firm were solely

DECISION - C.T.A. CASE NO. 5436 - 8- determined by the Petitioner. Such limitation would obviously affect the ability of the said auditing firm to render an informed and independent opinion. Thus, SGV &� Co. rendered a disclaimer regarding Petitioner's passive interest income and quarterly GRT payments for the period July 1, 1'3'34 to June 30, 1'3'36. And, therefore, the SGV reports cannot be relied upon as solid basis for granting the claim for refund. A re-examination of the documents presented shows that the amounts reported by Petitioner as gross passive interest income from bank deposits (inclusive of the 20% final tax) for which the gross receipts taxes were paid fat~ the pet~iod July 1, 1'394 to June 30, 1'3'36 (Exhs. I, J- 1, K-1, L-1, M-1, N-1, 0-1, P-1) included interest income from dollar deposits which were not subjected to 20% final tax as evidenced by the account entries per general ledger (pp to PP-133, EXhs. QQQ to QQQ-104, QQQQ to QQQQ- 104, QQQQQ to QQQQQ-10)' s Petitionet~' peso/dollat~ passbooks <Exhs. NNN to NNN-3'3, NNNN to NNNN-2'3, NNNNN to NNNNN-32) and schedules of interest in bank <L-1 to LL- 2). The amount of interest income from bank deposits which were actually subjected to 20% final taxes for the pet~iod July 1, 19'34 to June 30, 1'3'36 was only P80,050.'31 as shown by Petitioner's savings passbook (Exh. NNN>, general ledger entries (Exhs. PP to PP-133) and schedules of interest in bank (Exhs. LL-1 to L.L-2), thus, the

DECI S ION - C.T.A. CASE NO. 5 436 - g- corresponding re f undab l e gross receipts tax on the 20~ fi na l t ax is onl y P 1,000. 63, summarized hereund er: Exhibits Net Refundable Interest Final Tax 5% SRT on (20%) 20% Final Tax 1994 July NNN 1, QQQQCH 1 p 2,191.32 p 547.83 p 27.39 August NNNl, QQQQQ28 28.58 NNNl, QQQQQ46 2,286.40 571.60 17.56 Sept. 73.53 1, 404.44 351. 11 TOTAL 5,882.16 1,470.54 Oct. NNN1, QQQQQ62 p 698.64 p 174.66 8.73 468.02 23.40 Nov. NNN1, NNN5 1,872.08 0.32 Dec. NNN1, QQQQQ96 25.48 6.37 32.45 649.05 TOTAL 2,596.20 1995 Jan. NNN1, NNNN1, QQQ10 p 4,723.72 p 1,180.93 59.05 Feb. 17.04 NNN1, NNNN2, QQQ26 1,362.94 340.73 35.88 March 111.97 TOTAL NNN1, NNNN2, QQQ44 2,870.31 717.57 8,956.97 2,239.23 April NNNl, NNNN4, QQQ63 p 3,050.76 p 762.68 38.13 May 27.33 NNN1, NNNN5, QQQ80 2,186.37 546.59 45.35 June TOTAL NNNl, NNNN6, QQQ100 3,627.64 906.90 110.81 a,864.n 2,216.17 July NNN1, QQQQ8 P 25.88 p 6.46 0.32 August NNN1, NNNNN1, 1,994.96 99.75 Sept. 866.30 43.32 NNNNN2, QQQQ28 7,979.89 143.39 TOTAL 2,867.72 NNN2, NNNNN3, QQQQ45 3,465.24 11,471.01 Oct. NNN2, NNN3, p 7,730.88 p 1,932.72 96.64 NNNNN4, QQQQ67 Nov. 2,257.87 564.46 28.22 NNN2, NNN3, 3,595.44 898.82 44.94 Dec. NNNNN5, QQQQ78 13,584.19 3,396.00 169.80 TOTAL NNN6, NNN3, QQQQ93 1996 Jan. NNN4, NNN7, p 6,040.31 p 1,510.06 p 75.50 Feb. NNN2, PP127 March NNN4, NNN8, 2,735.07 683.75 34.19 TOTAL NNN2, PP109 NNN4, NNN8, 4,765.17 1,191.30 59.57 NNN2, PP87 13,540.55 3,385.11 169.26 April NNN4, NNN9, e 6,613.24 e 1,653.30 Q 82.67 NNN2, PP64

DECISION - C.T.A. CASE NO. 5436 - 10 - May NNNlO, NNN4, NNN2, PP40 3,409.91 852.48 42.62 June NNN11, NNN4 64.15 189.44 NNN2, PP12 5,131.91 1, 282.99 P1,000.6J 15,155.06 3,788.77 TOTAL P80,0S0.91 P20,012.62 GRAND TOTAL ledger balances of interest in c ome fr~om go v er~n ment secur~ities, commer~cial paper~s /pr~ i vat e securities and bonds <E xhs. PP to PP-133, QQQ to QQQ-104, QQQQ to QQQQ-104, QQQQQ to QQQQQ-10) tallied with the amounts reported per Petitioner's schedules of GRT paid on gross passive interest income (inclusive of the 20% final tax) for~ the per~iod July 1, 1994 to June 30, 1996 <Exhs. I, J-1, K--1, -1, M-1, N-1, 0-1, P-1). account entries in the general ledger cannot be verified, whether or not said amounts included the 20% final tax. Documents supporting the general ledger entries, such as journal vouchers, purchase abstracts, confi r~mat ion of purchase, certificates of final taxes withheld submitted by Petitioner~, were incomplete to enable Us to confirm that the recorded amounts per general ledger were actually subjected to 20% final tax. the corresponding GRT rates applied by Petitioner~ t o said inter~est income fr~om gover~nment secur~ities, commer~cial pa pers/private securities and bonds, cannot be ascertained from the schedules of GRT paid on gross passive interest income for the period July 1, 1994 to June 30, 1996 submitted by Petitioner~ <Exhs. I, J-1, K-1, -1, M-1, N-1, 0-1, P-1), because it was not

DECISION - C.T.A. CASE NO. 5436 - 11 - specifically identified by Petitioner for which items of passive interest income the GRT rates of 5%, 3% and 1% were to be applied. IN THE LIGHT OF ALL THE FOREGOING, the instant petition is partially GRANTED . Respondent is hereby ORDERED to REFUND or ISSUE a TAX CREDIT CERTIFICATE to Petit i onet~ in the amount of I=' 1 ' 000. 63' representing Petitioner's proven overpaid gross receipts taxes for the last two quarters of 1994, the fom~ quarters of 1995 and the first two quarters of 1996. No costs. ~� l4 SO ORDERED. RAMON 0. DE V RA Associate Ju ge WE CONCUR: ~o~o.~ Pt~ es id i ng Judge <Dissenting) AMANCIO Q. SAGA Associate 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. G(Q.~ ERNESTO D. ACOSTA Pl�~esiding Judge

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY AB CAPITAL INVESTMENT CORPORATION, C.T.A. CASE NO. 5436 Petitionet~, COMMISSIONER OF INTERNAL REVENUE, Respondent. X- - - - - - - - - - - - - - - - - DISSENTING OPINION Where the center of controversy involves the basis of the 51. gt~oss t~eceipts tax, I have been fit~m in my belief that the ruling of the majority based on the case of Asian Bank Corporation vs. Commissioner of Internal Revenue, CTA Case No. 4720, is erroneous. Contrary to the majority opinion, the gross receipts for purposes of computing the 51. gross receipts tax should not exclude the 201. final income tax withheld on certain kinds of passive income. Section 8(c) of Revenue Regulations No. 12-80 dated November 7, 1980, as amended by Section 7(c), Revenue Regulations No. 17-84 dated Octobet~ 12, 1984, pt~ovides: "If the t~ecipient of the above-mentioned items of income are financial institutions, the same shall be included as part of the tax base upon which the gt~oss t~eceipts tax is imposed."

DISSENTING OPINION - C.T.A. CASE NO. 5436 - 2- It can be concluded from the aforequoted provision that the taxable base for purposes of gross receipts tax is the gt~oss-up amount, inclusive of the 20'1. final income tax withholding. With due respect to the opinion held by my esteemed colleagues, I vote to DENY the petition. ~ltf ~As~s~o=c~1~4a-t~e� S_tdgAe