COMMISSIONER OF INTERNAL REVENUE v. DE LA SALLE UNIVERSITY, INC.

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY ENBANC COMMISSIONER OF INTERNAL CTA EB No. 622 REVENUE, (CTA Case No. 7303) Petitioner, Present: -versus- Acosta, P.J., Castaneda, Jr., Bautista, Uy, Casanova, Palanca-Enriquez, Fabon-Victorino, Mindaro-Grulla, and Cotangco-Manalastas, JJ.: DE LA SALLE UNIVERSITY, INC., Respondent. Promulgate~hA/:'.'"'.f'M~,, OEC 1 0 2010 / / tlfJI' ' nv � x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x DECISION CASTANEDA, JR., J.: Before Us is the Petition for Review, including the Supplemental Petition for Review under Section 11 of Republic Act No. 9282 assailing the Amended Decision dated July 29, ~ 15'7 4

DECISION CTA EB Case No. 622 (CTA Case No. 7303) 2010, the Decision dated January 5, 2010 and the Resolution dated April 6, 2010 issued by the Court's Special First Division in the case entitled, "De La Salle University, Inc. vs. The Commissioner of Internal Revenue" docketed as CTA Case No. 7303. THE FACTS The Commissioner of Internal Revenue ("Commissioner'') is a public official tasked to perform among others the refund of excessively or erroneously paid taxes under the 1997 National Internal Revenue Code ("NIRC''); while De La Salle University ("DLSU'') is a non-stock and non-profit domestic educational institution organized and existing under and by virtue of the laws of the Republic of the Philippines. The Bureau of Internal Revenue (''BIR'') Special Large Taxpayers Task Force on educational institutions issued a Preliminary Assessment Notice (''PAN'') dated May 19, 2004 which was received by DLSU on May 31, 2004. 1 On October 12, 2004, DLSU received a Formal Letter of Demand dated August 18, 2004 from the Commissioner through then Officer-in-Charge, Large Taxpayer Service, Ms. Kim Jacinto-Henares assessing its alleged liabilities on income tax derived from rental income on restaurants and bookstores, value-added tax (''VAT'') on business income and documentary stamp taxes ("DST'') on its loan transactions and lease ,__ 1 Docket , CTA Case No. 73 03, Joint Stipulat ion of Facts and I ssues, p. 286 . 15'75

DECISION CTA EB Case No. 622 (CTA Case No. 7303) contracts in the cumulative amount of P17,303,001.12, inclusive of the applicable surcharge, interest and penalty for the fiscal years 2001, 2002 and 2003. 2 In response to the Formal Letter of Demand, DLSU timely protested the Commissioner's assessment. 3 DLSU submitted its documents on January 7, 2005 and February 8, 2005. 4 The Commissioner's inaction on its protest prompted DLSU to file a Petition for Review docketed as CTA Case No. 7303 with the Court's Special First Division on August 3, 2005. In the Decision dated January 5, 2010, the Court's Special First Division partially granted DLSU's Petition for Review. The Court in Division ordered the cancellation of DST assessment on loan transactions in the amount of P1,681,774.00 and payment by DLSU of income tax, VAT and DST deficiencies on its lease contracts, inclusive of 25% surcharge and 20% delinquency interest for fiscal years 2001, 2002 and 2003 in the total amount of P18,421,363.53, the dispositive portion of which reads: WHEREFORE, the Petition for Review is PARTIALLY GRANTED. The DST assessment on the loan transactions of petitioner in the amount of P 1,681,774.00 is hereby CANCELLED. However, petitioner is ORDERED to PAY deficiency income tax, VAT and DST on its lease contracts, plus 25% surcharge for the fiscal years 2001, 2002 and 2003 in the total amount of P18,421,363.53, computed as follows: ~ 2 Docket, CTA Case No. 7303, Joint Stipulation of Facts and Issues, pp. 286, 45-48. 3 Docket, CTA Case No. 7303, Joint Stipulation of Facts and Issues, p.287. 4 Docket, CTA Case No. 7303, Joint Stipulation of Facts and Issues, p. 287 . 1576

DECISION CTA EB Case No. 622 (CTA Case No. 7303) Income Tax VAT DST TOTAL Basic P 9,248286.56 P 2,627,354.14 P 28,904.89 p 11,904,545.59 Surcharge(25%) 2,312,071.64 656,838.54 7,226.22 2,976,136.40 Interest 2,879,890.61 651,790.36 9,000.57 3,540,681.54 TOTAL P 14.440;248.81 P 3.935.983.04 P 45.131.68 p 18.421.363.53 In addition, petitioner is hereby held liable to pay 20% delinquency interest on the total amount due computed from September 30, 2004 until full payment thereof pursuant to Section 249(C)(3) of the NIRC. Further, the compromise penalties imposed by respondent were excluded, there being no compromise agreement between the parties. SO ORDERED.5 Dissatisfied, both the Commissioner and DLSU moved for the Court's Special First Division to partially reconsider its Decision dated January 5, 2010. In ruling against the Commissioner, the Court in Division issued a Resolution dated April 6, 2010 denying her Motion for Partial Reconsideration for lack of merit. However, DLSU's Motion for Partial for Reconsideration was held in abeyance. The case was set for the pre- marking and identification of DLSU's documents identified as Annexes "A" to "E" on April 13, 2010 and April 20, 2010. 6 Unfazed, on May 13, 2010, the Commissioner now as the petitioner appealed to the Court En Bane by way of a Petition for Review. On June 25, 2010, DLSU as the respondent filed its Comment to the Petition.)k- 5 Penned by Presiding Justice Ernesto D. Acosta and concurred in by Associate Justices Lovell R. Bautista and Caesar A. Casanova constituting as the Special First Division. See Rollo, pp. 17-47. 6 Rollo, pp. 49-57. 1577

DECISION CTA EB Case No. 622 (CTA Case No. 7303) Meanwhile, the Court's Special First Division issued an Amended Decision dated July 29, 2010, partially granting DLSU's Motion for Partial Reconsideration. The Court in Division ordered DLSU to pay income tax, VAT and DST deficiencies plus 25% surcharge for the fiscal years 2001, 2002 and 2003 in the reduced total amount of P5,506,456. 71, including 20% per annum deficiency interest on its basic deficiency taxes and 20% per annum delinquency interest. 7 THE ISSUES The Commissioner interposed the following errors committed by the Court's Special First Division: THE HONORABLE COURT DID NOT HAVE TO EXAMINE HOW RESPONDENT USED THE INCOME IT SOUGHT TO BE EXEMPTED. RESPONDENT DID NOT PROVE THE FACT OF REMITTANCE OF DOCUMENTARY STAMP TAX (DST) TO THE GOVERNMENT. 8 On the basis of the Court's Special First Division Amended Decision dated July 29, 2010, the Commissioner filed a Motion for Leave of Court to File Supplement to the Petition for Review9 which the Court En Bane granted in a Resolution dated September 1k- 14, 2010. 10 Accordingly, she filed her Supplemental Petition for Review and DLSU its 7 Rollo, pp.134-135. 8 Rollo, pp.lO & 12. 9 Rollo, pp. 96-99. 10 Rollo, pp.l02-106. 1578

DECISION CTA EB Case No. 622 (CTA Case No. 7303) Comment thereto. In her Supplemental to the Petition for Review, the Commissioner ascribed another error by the Court's Special First Division: THE ADMISSION OF RESPONDENT'S ADDITIONAL EVIDENCE SHOULD NOT HAVE BEEN ALLOWED BY THE SPECIAL FIRST DIVISION OF THE HONORABLE CTA. 11 After the submission of the Commissioner's Supplemental Petition for Review and the DLSU's Comment, the case was submitted for decision per Resolution dated October 21, 2010. 12 THE COURT'S RULING ON 2001, 2002 and 2003 INCOME TAX DEFICIENCIES According to the Commissioner, DLSU 's use of its assets for non-educational or commercial purposes immediately removed such assets from the exemption coverage under Article XIV, Section 4(3) of the 1987 Philippine Constitution. Although, she agrees with the result, it is unnecessary to examine the use of revenues. The Commissioner anchors its claim in the Supreme Court case of Abra Valley College, Inc. v. Aquino 13 where the lease of a portion of the school building or lot for Jc-- commercial purposes cannot be considered incidental to the purpose of education. 11 Rollo, p.113. 12 Rollo, p. 159. 1579

DECISION CTA EB Case No. 622 (CTA Case No. 7303) DLSU on the other hand counters that the canteens and bookstores cater only to the university's students and faculty. DLSU exercises supervision over the quality of services or food being served, the quality of books being sold, as well as their respective prices. The rental revenue from canteens and bookstores are specifically used to pay DLSU's promissory note to Philippine Trust Company, the loan used in the construction of the University Physical Education Sports Complex and repairs and renovation of the physical assets. It has a policy to obtain funding for all disbursements for educational purposes primarily from rental revenue earned from its lease contracts. In this situation, DLSU first exhausts its rental revenue earned from its lease agreements before it utilizes income from other sources. The Commissioner's arguments lack merit. Article XIV, Section (4)(3) of the 1987 Constitution recognizes the importance of education in nation building and provides incentives to non-stock and non-profit educational institutions engaged in educational purposes as follows: All revenues and assets of non-stock, non-profit educational institutions used actually, directly, and exclusively for educational purposes shall be exempt from taxes and duties. Upon the dissolution or cessation of the corporate existence of such institutions, their assets shall be disposed of in the manner provided by law.~ 13 G.R.No. L-39086, June 15, 1988, 162 SCRA 106. 1580

DECISION CfA EB Case No. 622 (CfA Case No. 7303) Incentives such as or in the form of income tax exemptions are afforded to non- stock and non-profit educational institutions pursuant to Section 30(H) of the 1997 NIRC: "SEC. 30. Exemptions from Tax on Corporations. - The following organizations shall not be taxed under this Title in respect to income received by them as such: � XXX "(H) A nonstock and nonprofit educational institution; xxx The case of Commissioner of Internal Revenue �v. Court of Appeals/ et a(14 synthesized the elements for an educational institution to be entitled to income tax exemption under the Constitution and the law, namely: As previously discussed, the laws allowing tax exemption are construed strictissimi juris. Hence, for the YMCA to be granted the exemption it claims under the aforecited provision, it must prove with substantial evidence that (1) it falls under the classification non-stocly non-profit educational institution; and (2) the income it seeks to be exempted from taxation is used actually, directly, and exclusively for educational purposes. However, the Court notes that not a scintilla of evidence was submitted by private respondent to prove it met the said requisites. 15 Thus, in the very wordings of the Supreme Court, it is essential to ascertain how the taxpayer as a non-stock and non-profit educational institution utilizes income f:- earned sought to be exempted. Revenues, howsoever, generated are covered by the 14 G.R. No. 124043. October 14, 1998, 298 SCRA 83, 97. 15 Ibid. 1581

DECISION CTA EB Case No. 622 (CTA Case No. 7303 ) constitutional exemption provided they will be used for educational purposes or will be held in reserve for such purposes. 16 As to the first requisite, the parties have stipulated in this case that indeed DLSU is a non-profit and non-stock educational institution. 17 DLSU's nature as non-profit and non-stock educational institution is reflected in its Amended Articles of Incorporation. 18 In the Amended Decision, the Court in Division previously explained that DLSU derived income from its lease contracts for canteen and bookstore services with the concessionaires, namely: Alarey, Inc., Capri International, Inc., Zaide Food Corporation, La Casita Raja and MTO International Product Mobilizer, Inc. and DLSU further alleged that the rental income received from the foregoing concessionaires has been added to Depository Fund - PE Sports Complex Fund and to the Physical Plant Fund (PPF); and such income has been limitedly spent on the Current Fund - Capital Project Accounts (CF-CPA). 19 Concerning the second requisite, the Court's Special First Division in its Amended Decision correctly made the following observation why DLSU is liable for the reduced amount of income tax deficiency of P4,167,867.12 covering the fiscal years 2001, 2002 and 2003 on the basis of the substantiation of rental income received from MTO-PE r Sports Complex and La Casita: 16 Joaquin G. Bernas, S.J., 1987 Constitution of the Republic of the Philippines: A Commentary, 2009 Edition, p. 1291. 17 Docket, CTA case No. 7303, p. 285. 18 Docket, CTA Case No. 7303. Annex "E" as attached to the Petition for Review. p. 86. 19 Amended Decision dated July 29, 2010, Rollo, p. 128. 1582

DECISION CTA EB Case No. 622 (CTA Case No. 7303) XXX XXX XXX In the Assailed Decision, the Court found insufficient substantiation on the part of petitioner to prove that the proceeds of petitioner's loan from Philippine Trust Company� (PTC) were duly accounted for or reported as an addition to the PE-Sport Complex Fund . Specifically, the Court found petitioner's Statement of Receipts, Disbursements and Fund Ba lance for the year 2001 unwarranted for failure to show a beginning balance, considering that the loans were made for fisca l years 1999 and 2000; xxx In ord er to cure this defect, petitioner submitted its Statement of Receipts, Disbursements and Fund Balance for the fiscal year 2000 and Statement of Fund Charges as of May 31, 2000 to prove that proceeds of the PTC loan were included in the fund. Examination of the same documents showed "External Borrowing" as a source of fund in the amount of P93,860,675.40. Petitioner's controller testified that it pertains to the loan obtained from PTC less deductions for interest and other charges. The Court now finds the foregoing substantiation of petitioner to be in order. Thus, the Court concludes that the petitioner's rental income from MTO-PE Sports Complex and La Casita which were transmitted and used for the payment of the PTC loan on the PE- Sports Complex were used actually, directly and exclusively used for educational purposes. xxx Anent Petitioner's rental income from Alarey, Inc., Zaide Food Corp., Capri International and MTO Bookstore which were transmitted to the CF- CPA, petitioner again fail ed to fully account for and substantiate all the disbursements from the CF-CPA. The Court, again, cannot ascertain whet her th e rental income from the foregoing concessionaires was indeed used for educational purposes. xxx According to !CPA's findings, the petitioner was able to show only the disbursements from the CF-CPA amounting to P7,305,104.71, P8,747,116.40 and P6,259,078.30 for the fiscal years 2001, 2002 and 2003, respectively. Thus, only the portion of the rental income pertaining to the substantiated disbursements of th e CF-CPA will be considered as used actually, directly and exclusively for educational purposes. For failure to sufficiently account for t he unsubstantiated disbursements, however, the same must be subjected to income and value added tax. XXX XXX XXX~ 1583

DECISION CTA EB Case No. 622 (CTA Case No. 7303) WHEREFORE, petitioner's Motion for Partial Reconsideration is hereby PARTIALLY GRANTED. Petitioner is hereby ORDERED to PAY for deficiency income tax, VAT and DST plus 25% surcharge for the fiscal years 2001, 2002 and 2003 in the total adjusted amount of P5,506,456.71, computed as follows: 2001 2002 2003 Total Income Tax p 845,31 7.14 p 939,83 5. 23 p 1,549,141.33 p 3,334, 293.69 Basic Tax Surcharge 211 ,329. 29 23 41958.8 1 3871285.33 833 1573 .4 2 Subtotal p 1, 056, 646.43 p 1, 174,794.OJ p 1,930 426.66 p 4, 167;867. 12 VAT p 264,161. 61 p 293 ,698.51 p 484,106.66 p 1,041,966.78 Basic Tax Surcharge 66, 040 .40 . 73 424.63 121 ,026.67 260,491.69 Subtotal p 330,202.01 p 367, 123.14 p 60~133.33 p 1, 302, 458.47 DST p 8,644. 71 p 9,647.80 p 10,612.38 p 28 ,904 .89 Basic Tax Surcharg e 2, 16 1.1 8 2,41 1.95 2 653.10 7 226.23 Subtotal p 10, 805.89 p 1Z059.75 p 1~265. 48 p 36, 131.12 Total Deficiency Tax p 1,397,654.32 p 1,553,976.92 p 2,554,825.47 P 5,506A56.71 In addition, petitioner should be held liable to pay 20% per annum deficiency interest on the following basic deficiency taxes, computed from the dates indicated herein until full payment thereof pursuant to Section 249(B) of the NIRC of 1997, as amended: 2001 2002 2003 Income Tax p 845,3 17.14 p 93 9,835. 23 p 1,549,141.33 Computed from September 15, 2003 September 15, 200 1 Se ptember 15, 2002 VAT p 26 4, 161.6 1 p 293 ,698.51 p 484,106.66 Computed from June 25, 2001 June 25, 2002 June 25, 2003 DST p 8,644 .71 p 9,647. 80 p 10,612.3 8 Computed from Ju ne 10, 200 1 June 10, 2002 June 10, 2003 Further, Petitioner is hereby held liable to pay 20% per annum delinquency ?v interest on the deficiency taxes, surcharge and deficiency interest which have accrued as stated from September 30, 2004 until fully paid. 158 �1

DECISION CTA EB Case No. 622 (CTA Case No. 7303 ) SO ORDERED. 20 (Emphasis supplied.) Moreover, the Commissioner's reliance on the Abra Valleycase is misplaced. The Supreme Court in the case of Commissioner of Internal Revenue v. Court of Appeals explained that the Abra Valley College case involves exemption from payment of real property tax, not income tax. Thus, the Abra Valley case is inapplicable to the instant case which basically pertains to deficiency income tax as among the internal revenue taxes subject of the assessment. PROOF OF REMITTANCE OF DST ON DLSU's 2001, 2002 AND 2003 LOAN AND MORTGAGE TRANSACTIONS TO THE GOVERNMENT The Commissioner further alleges that DLSU did not establish the fact of remittance of DST to the Government. Aside from its promissory notes, real estate mortgage deed and letters from the creditor-bank, there has been no proof of actual remittance of DST to the government. DLSU should have presented a certification from the proper government office. There was no direct evidence to show proof of actual remittance. Thus, DLSU was rightfully assessed of DST deficiency on its loan and mortgage transactions. DLSU maintains that DST payments on loan documents have been remitted to ift- the BIR through DST metering machine, thus, it is exempt from DST. 20 Amended Decision dated July 29, 2010, Rollo, pp. 128- 135. 1585

DECISION CTA EB Case No. 622 (CTA Case No. 7303) We are persuaded with DLSU's posture. Actual payment and remittance of DST are generally made through the filing of a DST return, or also known as "constructive stamping of DST on the taxable document or facility evidencing the transaction or the receipt system". 21 Another mode of payment and remittance may be undertaken through the purchase of loose documentary stamps tax or imprinting of stamps through a documentary stamp tax metering machine under Section 200 (D) of the 1997 NIRC and Section 2 of Revenue Regulations f'R.R.") 15-2001: Sec. 200. Payment ofDocumentary Stamp Tax - "(A) In General. - The provisions of Presidential Decree No. 1045 notwithstanding, any person liable to pay documentary stamp tax upon any document subject to ta x under Title VII of this Code shall file a tax return and pay the ta x in accordance with the rules and regulations to be prescribed by the Secretary of Finance, upon the recommendation of the Commissioner. XXX XXX XXX (D) Exception. - In li eu of the foregoing provisions of this Section, the tax may be paid either through the purchase and actual affixture, or by imprinting the stamps through a documentary stamp metering machine, on the taxable document, in the manner as may be prescribed by rules and regulations to be promulgated by the Secretary of Finance, upon recommendation of the Commissioner. XXX XXX XXX p SECTION 2. Mann er of Payme nt of Documentary Stamp Ta x (DST). - 21 HectorS. De Leon and Hector M. De Leon, Jr., The National Internal Revenue Code Annotated, Volume 2, 2003 Edition, p. 329. 1586

DECISION CTA EB Case No. 622 (CTA Ca se No. 7303) SEC. 2. MANNER OF PAYMENT OF DOCUMENTARY STAMP TAX (DST). - 2 .1. In Genera l. - The payment of the documentary stamp tax due on any ta xable docum ent/ transaction, irrespective of the amount thereof, shall be made by the filing of a tax return and the payment of the ta x in accordance with th e existing rules and regu lations . xxx This general manner of payment is commonly known as "constructive stamping of DST on the taxab le document/facility evidencing the transaction" or the "receipt system" whereby constructive affixture is done by affixing to the taxable document/facility evidencing the transaction the duplicate copy or the certified true copy of the DST return/proof of payment of DST. x x x 2.2. Exceptions - In lieu of the constructive stampi ng, Section 200(D) of the Code, however, allows the payment of DST im posed in Title VII thereof either through the purchase and actual affixture of loose documentary stamps or by imprinting of stamps through a documentary stamp metering machine (conventional electro- mechanical document ary stamp metering machine or on - line electronic DST imprinting machine) of the proper value to the document or facility evidencing a transaction sought to be taxed, subject to the following conditions: XXX XXX XXX 2.2 .2 Imprinting/ Affixture of DST through Documentary Stamp Metering Machine - Purchase of documentary stamps for future applications not covered by Subsections 2.1 and 2.2.1 above shall be allowed only to persons authorized to use the conventional electro- mechanical BIR Registered Metering Machines under Revenue Regulations No . 7-92 (RR 7-92) and those classes of taxpayers which are mandated by Revenu e Regulations No. 9-2000 (RR 9-2000) and subsequ ent regulations and orders to use the " on-line electronic DST imprinting machin e" in the payment of th eir DST. (Emphasis supplied.) Clearly, DLSU's payment and remittance of DST evidenced by United Cocon ut Planters Ba nk (UCPB's) imprinting of stamps through a DST metering machine exonerates it f rom the Commissioner's DST assessment on its loan and mortgage 7- transactions for the fiscal years 2001, 2002 and 2003. 158 7

DECISION crA EB Case No. 622 (crA Case No. 7303) ADMISSIBILITY Of DLSU's ADDITIONAL EVIDENCE The Commissioner argues that DLSU was indirectly reopening the trial of the case because it sought to introduce additional documentary evidence and prayed for the setting of a hearing for th e marking thereof. Despite the Commissioner's objections, presentation of additional documentary evidence was allowed. DLSU should have presented the question ed documentary pieces of evidence during the administrative proceedings and subsequently during presentation of its evidence-in- chief. In this case, the documentary pieces of evidence constitute as forgotten evidence not newly discovered evidence whi ch were presented only after an unfavorable decision of the Court's Special First Division, specifically through a Motion for Reconsideration . DLSU insists that there was no comment nor objection raised by the Commissioner when it formally offered th e questioned documentary pieces evidence. We disagree with the Commissioner's conte ntion. The questioned documentary pieces of evidence were eventually formally offered and are admissible even if th e sa me were proffered through a Motion for /k-- Reconsideration. In the ca se of BPI-Family Savings Banly Inc. v. Court of Appeals, 22 22 G.R. No. 122480, April 12, 2000, 330 SCRA 507. 1588

DECISION CfA EB Case No. 622 (CfA Case No. 7303) the Supreme Court recognized the 1990 Final Adjustment Return of the taxpayer which was attached to the Motion for Recon sideration. The Highest Tribunal explained that: True, strict procedural rul es generall y frown upon the submission of the Return after the trial. The law creating the Court of Tax Appeals, however, specifically provides that proceedings before it "shall not be governed strictly by the technical rules of evidence." The paramount consideration remains the ascertainment of truth. Verily, the quest for orderly presentation of issues is not an absolute. It should not bar courts from considering undisputed facts to arrive at a just determination of a controve rsy. In the present case, the Return attached to the Motion for Reconsideration clearly showed that petitioner suffered a net loss in 1990. Contrary to the holding of theCA and the CTA, petitioner could not have applied the amount as a tax credit. In failing to consider the said Return, as well as the other documentary evidence presented during the trial, the appellate court committed a reversible error. It should be stressed that the ration ale of the rul es of procedure is to secure a just determination of every action. Th ey are tools designed to facilitate the attainment of justice. But there can be no just determination of the present action if we ignore, on grounds of strict technicality, the Return submitted before the CTA and even before this Court. To repeat, the undisputed fact is that petitioner suffered a net loss in 1990; accordingly, it incurred no tax liability to which the tax credit could be appli ed. Consequently, there is no reason for the BIR and this Court to withh old th e ta x refund which rightfully belongs to the petitioner. Public respondents maintain that what was attached to petitioner's Motion for Reconsideration was not th e final adjustment Return, but petitioner's first two quarterly returns for 1990. This allegation is wrong. An examination of the records shows that the 1990 Final Adjustment Return was attached to the Motion for Reconsideration. On the other hand, the two quarterly returns for 1990 mentioned by respondent were in fact attached to the Petition for Review filed before the CTA. Indeed, to l'ebut respondents' specific contention, petitioner submitted before us its Surrejoind er, to which was attached the Motion for r Reconsideration and Exhibit "A" th ereof, the Final Adjustment Return for 1990.23 (Emphasis supplied.) 23 Ibid. 1589

DECISION CfA EB Case No. 622 (CfA Case No. 7303) The Supreme Court upheld th e findings of the Court of Appeals in considering the 1998 Income Tax Return attached to the Motion for Reconsideration as ruled in the case of Commissioner of Internal Revenue v. PERF Realty Corporation 24 citing Filinvest Development Corporation v. Commissioner ofInternal Revenue25: XXX The CIR takes the view th at the CA erred in con sidering the 1998 ITR of PERF. It was not formall y offered in evid ence . Section 34, Rule 132 of the Revised Rules of Court states that th e cou rt: shall co nsider no evidence which has not been formally offered. The reasoning is speciou s. PERF attached its 1998 ITR to its motion for reconsideration. The 1998 ITR is a part of the records of the case and clearly showed that income taxes in the amount of P1, 280,504.00 were not claimed as tax credit in 1998. In Filinvest Development Corporation v. Commissioner of Internal Revenue, the Court held that the 1997 ITR attached to the motion for reconsideration is part of the records of that case and cannot be simply ignored by the CTA. Moreover, technicalities should not be used to defeat substantive rights, especia lly those that have been held as a matter of right. We quote: In the proceedings before th e CTA, petitioner presented in evidence its letter of claim for refund before the SIR to show that it was made within the two-year reglementary period; its Income Ta x Returns for the years 1995 and fk- 1996 to prove its total creditable wi thholding ta x and the fact that the amounts were declared as part of its gross income; and several certificates of income tax 24 G.R. No. 163345. July 4, 2008, 557 SCRA 165. 25G.R. No. 146941, Aug ust 9, 2007, 529 SeR-A GOS. 1590

DECISIO N CTA EB Case No. 622 (CTA Ca se No . 7303) Pag e 18 of 20 withheld at source corresponding to the period of claim to prove the total amount of th e ta xes errone9usl y withh eld. More importantly, petitioner attached its 1997 Incom e Ta x Return t o its Moti on for Reconsideration , making the same part of th e records of th e case. Th e CTA cann ot simpl y ignore thi s docum ent. Thus, we hold th at petiti one r has co mpli ed with all th e requirements to prove its claim for tax refund . Th e CA, th erefore, erred in denying the petition for review of the CTA's denial of peti tioner's cl ai m for ta x refund on the ground that it fail ed to prese nt its 1997 Income Tax Retu rn. Th e CA's re li ance on Rul e 132, Section 34 26 of th e Rul es on Evidence is misplaced. This provision mu st be taken in the light of Republic Act No. 1125, as amended, th e law creatin g th e CTA, which provid es that proceeding s therein shall not be govern ed strictly by technica l ru les of evid ence . Moreover, this Court has held time and ag ain that technica liti es should not be used to defeat substantive rights, especiall y th ose th at have bee n established as a matter of fa ct. XXX That no one shall unjustl y enrich on ese lf at th e expense of another is a long-standing prin ci pl e prevaili ng in our legal system. This applies not only to individuals but to th e State as we ll . In the fie ld of taxation wh ere th e State exacts stri ct compliance upon its citizens, the State must likewise deal with taxpayers wi th fai rn ess and honesty . Th e ha rsh power of taxation must be tempered with evenhand edness. Hence, � under the principle of solutio indebitt; th e Gove rnm ent has t o restore to petiti one r the sums represe nting erroneous payments of ta xes.26 ( Em phasis supp lied.) The questi oned documentary pi eces of evid ence whi ch were eventually forma lly offered justify th eir admi ssibility because th e Court of Tax Appeals is not governed r stri ctly by techn ical rul es of evidence Y 26 lbtd. 27 Calamba Steel Center; I nc. (formerly JS Steel Corporation) v. Commissioner ofInternal Revenue, G. R. No. 151851; Apri l 28, 2005 , 457 SCRA 482 . 159 1

DECI SION GA EB Case No. 622 (GA Case No. 7303) WHEREFORE, premi ses co nsidered, th e Petition is hereby DISMISSED. SO ORDERED. ~~c..~Q.. f UANITO C. CASTANEDA,CfR.: Associate Justice WE CONCUR: ~~.,. c~ ERNESTO D. ACOSTA Presiding Justice ER~UY Associate Justice ~7~~ OLGA PALANCA-ENRIQUEZ Associate Justice ~ NM~~ ~G~ CIELITO N�. MINDARO-GRULLA Associa te Justice ~ /. -./1-4-- AMELIA R. COTANGCO-MANALASTAS Associate Justice 159 2

DECIS ION CTA EB Case No. 622 (CTA Case No. 7303) CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in the above decision were reached in consultation before the case was assigned to the writer of the opinion of the Court. ~-\..-"- Q..._A..._ ERNESTO D. ACOSTA Presiding Justice .1593