CTA Case No. 5742 (Decision)

r ,., / REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY MONARCH INSURANCE COMPANY, INCORPORATED, Petitioner, -versus- C.T.A. CASE NO. 5742 COMMISSIONER OF INTERNAL REVENUE, Promulgated: Respondent. MAR 14 2001 . ll ') t1j1Xlfl!l4MvA0 t/0~ x------------------------- --- -------------------------------x DECISION The case at bar seeks the refund/tax credit of the amount of P611 ,488.00 allegedly representing Petitioner's unutilized/excess creditable withholding tax for the taxable years 1996 and 1997. As represented, Petitioner is a corporation duly organized and existing under Philippine laws, with principal office address at 4/F JAYCEM Building, 104 Rada Street, Legaspi Village, Makati City. On April 15, 1997, Petitioner filed with the Bureau of Internal Revenue (B!R) its tentative Corporation Annual Income Tax Return for Calendar year ended December 31, 1996 (Paragraph 3, Joint Stipulation of Facts, p. 92, CTA Records). On July 14, 1997, Petitioner filed an amended ,--:orporation Annual Income Tax Return for the calendar year ended December 31, 1996, which reflected a taxable loss of P6,619,049.00 (Exh. "E") and an excess creditable withholding tax in the amount of P696,41 S.OO (Paragraph 4, Joint Stipulation of Facts) consisting of prior year's excess /

DECISION- CTA CASE NO. 5742 PAGE2 credit of P460,648.00 and current year's (1996) creditable tax withheld of P235 ,770.00 (Exhs. "E-3", "E-4" and "E-5"). Petitioner indicated in that amended return its option to refund its P696,418.00 excess creditable income tax (Exh. "E-1 "). On April 15, 1998, Petitioner filed its tentative Corporation Annual Income Tax Return for calendar year ended December 31, 1997 (Paragraph 5, Joint Stipulation of Facts). On July 3 and September 30, 1998, Petitioner filed its amended Corporation Annual Income Tax Returns for calendar year ended December 31, 1997 which reflected a taxable loss ofP1,858,944 (Exhs. "B" and "C") and an excess creditable withholding tax ofP611,488.00 consisting of prior year's (1996) excess credit ofP235,770.00 and current year's (1997) creditable tax withheld of P375,718.00 (Exhs. "C", "C- 1", "C-3", "C-4" and "C-6"). As indicated in those amended returns, Petitioner likewise opted to refund the excess creditable income tax in the amount ofP611,488.00 (Exh. "C-1 "). Petitioner filed its Corporation Annual Income Tax Return for calendar year ended December 31, 1998 with the BIRon April 15, 1999 (Exhs. "K" and "K-2"). On January 08, 1999, within the two (2) year prescriptive period, Petitioner filed with the BIR an administrative claim for refund of excess creditable income taxes withheld at source for the calendar years ended December 31, 1996 and 1997 in the total amount of P611 ,488.00 (Paragraph 7, Joint Stipulation of Facts). This amount consists of creditable tax withheld for 1996 amounting to P235,770.00 (Exhs. "E-3", "E-4", and "E- 5") and creditable tax withheld for 1997 amounting to P375,718.00 (Exhs. "C", "C-1", "C-3", "C-4" and "C-6"). Petitioner opted not to file a claim for refund of its prior year's excess credit ofP460,648.00 admittedly due to prescription.

DECISION- CTA CASE NO. 5742 PAGE3 The same was not acted upon by Respondent, hence, in order to suspend the running of the two-year prescriptive period within which to file a judicial claim for refund, Petitioner filed the instant Petition for Review with this Court on March 12, 1999, pursuant to Sections 204 (C) and 229 of the 1997 Tax Code which provides as follows: "SEC. 204. Authority ofthe Commissioner to Compromise, Abate and Refund or Credit Taxes.- The Commissioner may- XXX XXX XXX "(C) Credit or refund taxes ~rroneously or illegally received or penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or change unused 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 taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty: Provided, however That a return filed showing an overpayment shall be considered as a written claim for credit or refund. XXX XXX X X x" "SEC. 229. 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 excessively 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 filed after the expiration of two (2) 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 Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid.

DECISION- CTA CASE NO. 5742 PAGE4 On the other hand, Respondent raised in his Answer the following Special and Affirmative Defenses, to wit: "4. Petitioner's claim for refund is under verification/investigation by Respondent Commissioner of Internal Revenue; 5. In an action for tax refund, Petitioner must show that taxes were paid erroneously or collected illegally. Failure to sustain this burden is fatal to the action for refund; 6. Claims for refund are construed strictly against the claimants since they are in the nature of exemptions from taxation. (Manila Electric Co. vs. Commissioner ofInternal Revenue, 67 SCRA 351); 7. Taxes are presumed to have been paid and collected in accordance with law. During the hearing of the case, Petitioner offered in evidence among others, its Corporate Annual Income Tax Returns for the years 1996 and 1997 (Exhs. A to E), the various Certificates of Creditable Tax Withheld at Source (BIR Form No. 1743-750) duly issued to Petitioner by its withholding agents (Exhs. G, H, I, J and M), and letter-claim for refund of Petitioner received by the Respondent on January 8, 1999 (Exh. F). Respondent on his part did not present any testimonial or documentary evidence to dispute the claim for refund of Petitioner and merely submitted this case for decision based solely on the evidence adduced by the Petitioner. The issue submitted by parties for the resolution of this Court may be summarized into one that is: WHETHER OR NOT PETITIONER HAS PROVEN THE LEGAL AND FACTUAL COMPONENTS OF ITS CLAIM FOR REFUND FOR THE YEAR 1996 and 1997. We rule in the affirmative. Records show that Respondent did not present any countervailing evidence against the claim for refund of Petitioner. Thus, what is left to be 4 1. I .. I

DECISION- CTA CASE NO. 5742 PAGES done is to see whether Petitioner has complied with t:1e requirements of a refund for overpaid income tax/excess creditable withholding tax. The legality of the Petitioner's claim for refund is well established under Section 58 (D), and Section 69 (now Section 76) of the Tax Code, to wit: "SEC. 58. Returns and Payments ofTaxes Withheld at Source . - XXX XXX XXX "(D) Income of Recipient. - Income upon which any creditable tax is required to be withheld at source under Section 57 shall be included in the return of its recipient but the excess of the amount of tax so withheld over the tax due on his return shall be refunded to him subject to the provisions of Section 204; if the income tax collected at source is less than the tax due on his return, the difference shall be paid in accordance with the provisions of Section 56. All taxes withheld pursuant to the provisions of this Code and its implementing rules and regulations are hereby considered trust funds and shall be maintained in a separate account and not commingled with any other funds of the withholding agent. "SEC. 69. Final Adjustment Return. -Every corporation liable to tax under Section 24 shall file a final adjustment return covering the total net income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable net 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 refund of the excess estimated quarterly income taxes paid, the refundable amount shown on its final adjustment return may be credited against the estimated quarterly income tax liabilities for the taxable qum1ers of the succeeding taxable year."

DECISION- CTA CASE NO. 5742 PAGE6 Inasmuch as Petitioner's Amended Corporate Income Tax Return (ITR) for 1997 (Exh. C-3) show that there was an unutilized/excess creditable withholding tax (CWT) for the years I996 and I997 and considering that the ~aid excess CWT were opted by Petitioner to be refunded as it suffered a net loss of PI ,858,944.00 for the year I997 (Exh. C), and further considering that the said excess CWT were not carried over to the succeeding year I998 (Exhs. K and N) it is clearly entitled to its claim for refund pursuant to paragraph (b) of Section 69, supra. Thus, what remains is the determination of whether or not Petitioner has satisfied the factual requisites of its claim for refund in the total amount of P6II ,488.00 . In a litany of cases, such as Citytrust Finance Corporation vs. Commissioner of Internal Revenue, CTA Case Nos. 4134 and 4046, dated November 11, 1991 and February 24, 1993, respectively; FEB Investments, Inc. vs. The Commissioner of Internal Revenue, CTA Case No. 5353, August 22, 1997; Oranbo Realty Corporation vs. Commissioner of Internal Revenue, CTA Case No. 5335, July 24, 1998; AP Industrial Corporation vs. Commissioner of Internal Revenue, CTA Case No. 5360, January 20, 1999, this Court ruled that the requisites required for the grant of refund when the creditable withholding tax is in excess of the amount of tax due comprise of the following, to wit: 1. That the taxpayer filed a claim for refund within the two (2) year period as prescribed under Section 230 (now 229) of the Tax Code; 2. That it was shown on the return of the recipient that the income payment received was declared as part of the gross income (Sec. I0, Revenue Regulations No. 6-85, ACCRA Investment Corp. vs. Court of Appeals, 204 SCRA 957); 41 .J

DECISION- CTA CASE NO. 5742 PAGE 7 3. The fact of withholding is established by a copy of a statement (BIR Form No. 1743.1) duly issued by the payor (withholding agent) to the payee, showing the amount paid and the amount of tax withheld therefrom. These aforementioned requirements were affirmed by the Supreme Court in the case entitled Citibank N.A. vs. Court of Appeals, et al., G.R. No. 107434, October 10, 1997,280 SCRA 459. There is no doubt as to the timeliness of the instant petition. The Supreme Comi in the case of Commissioner of Internal Revenue vs. Asia Australia Express, Ltd., G.R. No. 85956 promulgated on April 10, 1989, ruled that the two-year prescriptive period within which to claim a refund commences to run, at the earliest, on the date of filing of the adjusted final tax return (ACCRA Investment Corp. vs. Court of Appeals, supra). Records show that Petitioner seasonably filed its administrative claim for refund with the Respondent's bureau on January 8, 1999 (Exh. F) and its Petition for Review with this Court on March 12, 1999, well within the two-year prescriptive period provided under the Tax Code, reckoned from the date of the filing of its 1996 ITR on April 15, 1997 (Exh. 0). With regard to the second requisite, We find merit in Petitioner's submission that the income subjected to the withholding tax was included in its 1996 and 1997 gross income. The fact that Petitioner's rental income from which the creditable income taxes were withheld had been declared as part of its gross income is clear from Section C of its Corporation Annual Income Tax Returns for the taxable years 1996 and 1997 (see Exhs. "A", "B", "C", "0" and "E"). 4~ 0

DECISION- CTA CASE NO. 5742 PAGES As regards the third requisite, Petitioner partially complied with the same when it submitted in evidence its Certificates of Creditable Tax Withheld at Source duly issued by the income payor (withholding agent) to Petitioner,. showing the amount of income paid and the amount of tax withheld therefrom (Exhs. G, H, I, J and M), enum~rated below: Period Covered Name of Payor Amt. Paid TaxW/held Exh. Jan to Dec. 1996 Jan to Dec. 1996 Sun Hun Kai P2,319,000 .00 P115,950.00 G Jan to Dec. 1997 Securities May to Dec. 1997 1,054,296.00 52,714 .80 H Jan to Dec. 1997 Lina Holdings Oleochemicals, Inc. 1,249,536.00 62,476.80 TOTAL Lina Holdings 2,148,720 .00 107,436.00 J Oleochemicals, Inc. 3,511,365.00 175,568.00 M Petronas Energy Philippines Sun Hun Kai Securities e5:l4, :115.60 It is clear that out of the P611 ,488.00 claimed by Petitioner, only the amount of P514, 145.60 was supported by Certificates of Creditable Tax Withheld at Source, as tabulated above. Thus, taking into account the above findings and the Respondent's failure to controvert or dispute the documentary and testimonial evidence of Petitioner and considering further the explicit provisions of Section 51 (f) [now 58 (D)] of the Tax Code, which states that any excess of the amount of tax so withheld over the tax due on the taxpayer's return should be refunded, the Court has no other recourse but to partially grant the tax credit/refund prayed for by Petitioner in the instant Petition for Review. 42-L

DECISION- CTA CASE NO. 5742 PAG E9 IN THE LIGHT OF ALL THE FOREGOING, the instant Petition for Review is PARTIALLY GRANTED. Respondent is hereby ORDERED to REFUND or ISSUE a TAX CREDIT CERTIFICATE in favor of herein Petitioner in the amount of P514,145 .60 representing the latter's unutilized/excess \reditable withholding tax for the years 1996 and 1997. No costs. SO ORDERED. I CONCUR: ~19-0~ ERNESTO D. ACOSTA Presiding 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. ~LQ.Q~ ERNESTO D. ACOSTA Presiding Judge �� 'N,