AYALA CORPORATION v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES Coon at Tax Appeals QUEZON CITY SECOND DIVISION AYALA CORPORATION, CTA CASE NO. 8262 Petitioner, Members: - versus - CASTANEDA, JR. , Chairperson CASANOVA, and COTANGCO-MANALASTAS, JJ. COMMISSIONER OF INTERNAL Promulgated: REVENUE, MAR Z 1 2014 Respondent. / X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ~- - - - - - - - X AMENDED DECISION " 'f:~ f�"'� CASTANEDA, JR., J.: Before this Court are: (a) petitioner's " MOTION FOR PARTIAL RECONSIDERATION" filed on November 29 , 2013, witho ut respondent's comment; and (b) respondent's "MOTION FOR PARTIAL RECONSIDERATION (RE: Decision dated 11 November 2013)" filed through registered mail on November 28 , 201 3 and received by this Court on December 4, 2013 , with petitioner's "OPPOSITION" filed on December 27, 2013. Both Motions are assailing the Decision promulgated on November 11 , 2013, which reads : "WHEREFORE, premises considered , the instant Petition for Review is hereby PARTIALLY GRANTED. Accordingly, respondent is hereby ORDERED TO ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner in the amount of P64,970,643.22 , representing petitioner's unutilized and excess creditable withholding taxes for calendar years 2008 and 2009. SO ORDERED."jv'

AMENDED DECISION CTA CASE NO. 8262 Page 2 of8 Petitioner's Motion for Partial Reconsideration Petitioner contends that this Court committed a reversible error in disallowing a portion of its claimed excess creditable withholding tax (CWT) for calendar years (CYs) 2008 and 2009 , in the amount of P35,384, 746.22, on the ground that the income payments per Schedules of Creditable Taxes Withheld on Sale of Services and Properties and Lease of Properties do not tally with the income indicated in the Summary of Rental Income, Summary of Directors' Fees and Summary of Other Income, as found in the Final Amended Report, submitted by the Court-commissioned Independent Certified Public Accountant (ICPA). The details of the disallowances are as follows 1: Exhibit Period Payor Income Payment Income Tax CY Covered Withheld HR Mall Inc. 2008 1st quarter lsuzu Automotive Dealership, p 33,819 .84 p 676.40 Inc. - lsuzu Alabang J7 lsuzu Cebu Inc. - lsuzu Cebu Manila Water Company J14 1st quarter 1,281 ,032 .59 64 ,051 .63 HR Mall Inc. 1,108,611 .00 55 ,430 .55 J15 1st quarter Honda Cars AlabanQ 16,768 ,089 .60 2,515 ,213.44 Honda Cars Makati J16 1st quarter Incorporated 33 ,281.46 665.63 lsuzu Automotive Dealership, 70,513 .50 1,410.27 J19 2nd quarter Inc. - lsuzu Alabang lsuzu Cebu Inc. - lsuzu Cebu J21 3rd quarter Manila Water Company Honda Makati J41 4th quarter lsuzu Automotive Dealership, 29 ,679 ,569.77 1,483 ,978.49 Inc. - lsuzu Alabang J48 4th quarter lsuzu Cebu Inc. - lsuzu Cebu 1,366,798.00 68 ,339.90 Honda Cars 806,702 .80 40 ,335 .14 J51 4th quarter lsuzu Automotive Dealership, 4,390 ,594 .70 Inc. - lsuzu AlabanQ 29 ,270,631 .32 500 ,963 .81 J55 4th quarter lsuzu Automotive Dealership, 10,019,276 .20 Inc. - lsuzu Alabang K12 2nd quarter lsuzu Automotive Dealership, Inc. - lsuzu Alabang K16 2nd quarter lsuzu Cebu Inc. - lsuzu Cebu 1,276 ,605.49 63 ,830.27 Manila Water Company 891 ,622 .20 44 ,581 .11 K17 2nd quarter 1,596,277.26 31 ,925 ,545 .20 K34 3rd quarter K36 3rd quarter 1,338,945 .20 66,947 .26 K37 3rd quarter 1,160,176.80 58,008 .84 K38 3rd quarter 1,390 ,825.40 69,541 .27 931 ,895.40 46 ,594 .77 K39 3rd quarter 7,803,404 .86 52 ,022 ,765.72 p 18,870,845.60 K40 3rd quarter p 181,376,707.49 TOTAL - CY 2008 CY 1st quarter Honda Cars Makati, Inc. p 36,023 ,978.28 p 1,801 ' 198.91 2009 2nd quarter Honda Cars Makati, Inc. 33 ,462 ,593 .04 1,672 ,272.13 J75 J89 1 Decision, pp. 17-18.

AMENDED DECISION CTA CASE NO. 8262 Page 3 of8 J94 2nd quarter lsuzu Cebu Inc. - lsuzu Cebu 776 ,869.20 38 ,843.66 J95 2nd quarter 41 ,805,416.66 6,270 ,812 .50 J124 3rd quarter Manila Water Company 29,945 ,007.45 4,491 ,751 .02 L5 4th quarter L19 4th quarter Manila Water Company 107 ,249 .28 9,547.46 L26 4th quarter 200 ,000.00 4,000 .00 Asiacom Philippines Inc. 38 ,770 ,738.40 2 , 168 ,097 .81 L30 4th quarter Bank of the Philippine Islands 1' 135,542 .60 56 ,777.13 L36 4th quarter Honda Cars Makati, Inc. 30 ,000.00 600 .00 lsuzu Automotive Dealership, Inc. - lsuzu Alabang John Clements Consultants Inc. TOTAL - CY 2009 p 182,257,394.91 p 16,513,900.62 Grand Total- CYs 2008 and 2009 p 363,634,102.40 p 35,384,746.22 Petitioner points out that if there are discrepancies between the two schedules as found by this Court, the same can be clarified and fully explained through cross-reference with other documentary exhibits forming part of the Final Amended Report2 and in the testimony of the ICPA through her Judicial Affidavit. 3 Petitioner attached to its Motion as Annex "A", a detailed list of explanation for each disallowance with cross-reference to relevant pieces of documentary evidence, to easily assist this Court in arriving at the desired reconciliation. With the aforesaid list, this Court was able to ascertain that the income of P355,335, 182.47, related to petitioner's claimed CWT in the amount of P34,228,507.42, formed part of the taxable income reported in its Annual Income Tax Returns for taxable years 2008 and 2009. Thus, the CWT of P34,228,507.42, detailed below, shall be refunded to petitioner in addition to the amount of P64,970,643.22 , which was previously granted in the assailed Decision: Exhibit Period Payor/Withholding Agent Income Income Tax CY Covered Payment Withheld 2008 1st quarter lsuzu Automotive Dealership, Inc. - lsuzu 1,281 ,032.59 64,051 .63 J14 Ala bang 859 ,226.83 42 ,961 .34 2,515 ,213.44 J15 1st quarter lsuzu Cebu Inc. - lsuzu Cebu 16,768 ,089.60 500 ,963 .8 1 10,019 ,276 .20 63 ,830.27 J16 1st quarter Manila Water Company 44 ,031 .90 1,276 ,605.49 1,596 ,277 .26 K12 2nd Honda Makati 880,638.00 quarter 31 ,925 ,545.20 K16 2nd lsuzu Automotive Dealership, Inc. - lsuzu quarter Ala bang K17 2nd lsuzu Cebu Inc. - lsuzu Cebu quarter K34 3rd Honda Cars quarter 2 Exhibit "AAA". 3 Exhibit "888".

AMENDED DECISION CTA CASE NO. 8262 Page 4 of8 K36 3rd lsuzu Automotive Dealership, Inc. - lsuzu 1,338,945 .20 66 ,947 .26 quarter Ala bang K37 3rd lsuzu Automotive Dealership, Inc. - lsuzu 1,160,176.80 58 ,008 .84 quarter Ala bang K38 3rd lsuzu Automotive Dealership, Inc.- lsuzu 1,390 ,825.40 69,541 .27 quarter Ala bang K39 3rd lsuzu Cebu Inc. - lsuzu Cebu 931 ,895.40 46 ,594.77 quarter K40 3rd Manila Water Company 51 ,092 ,71 0.35 7,663,896.56 quarter J41 4th quarter Honda Cars Makati Incorporated 29,679,569.77 1,483,978.49 J48 4th quarter lsuzu Automotive Dealership, Inc. - lsuzu 1,365 ,477.59 68 ,273.88 Ala bang J51 4th quarter lsuzu Cebu Inc. - lsuzu Cebu 716,180 .17 35,809.0 1 J55 4th quarter Manila Water Company 22,752 ,134.40 3,412 ,820.17 TOTAL CY 2008 173,438,328.99 17,733,199.90 CY 1st quarter Honda Cars Makati, Inc. 36,023,978.28 1,801 ,198.91 2009 2nd Honda Cars Makati, Inc. 33,462,593 .04 1,672 ,272.13 J75 quarter lsuzu Cebu Inc. - lsuzu Cebu J89 Manila Water Company 771,512 .24 38 ,575 .82 J94 2nd Manila Water Company J95 quarter 41 ,805 ,416.66 6,270,812 .50 J124 L5 2nd 29 ,870,347.14 4,480,551 .97 quarter 107,249 .28 9,547.46 3rd quarter 4th quarter Asiacom Philippines Inc. L26 4th quarter Honda Cars Makati, Inc. 38 ,770,738.40 2,168,097.81 L30 4th quarter lsuzu Automotive Dealership, Inc. - lsuzu 1,085 ,018.44 54,250 .92 Ala bang TOTAL CY 2009 181,896,853.48 16,495,307.52 Grand Total- CYs 2008 and 2009 355,335,182.47 34,228,507.42 However, the denial of petitioner's claimed CWT in the amount of P1, 156,238.80 shall remain due to the following reasons: Exhibit Period Payor/Withholding Agent Income Income Tax Covered Payment Withheld CY 2008 1) CWT allegedly pertaining to advances made by petitioner to payor but no documents were submitted by petitioner to corroborate the said advances J7 1st quarter HR Mall Inc. 33 ,819.84 676.40 33 ,281.46 665 .63 J19 2nd HR Mall Inc. 70 ,513 .50 1,410.27 quarter J21 3rd quarter Honda Cars Alabang 2) CWT supported by SIR Forms No. 2307 but formed part of the total CWT of P1 ,452 ,575 .57 not claimed by petitioner (see

AMENDED DECISION CTA CASE NO. 8262 Page 5 of8 Exhibit "AAA ", page 5, Procedures and Observations, par. 5) J15 1st quarter lsuzu Cebu Inc. - lsuzu Cebu 249,384 .17 12 ,469 .21 10 ,984 .20 549 .21 K17 2nd lsuzu Cebu Inc. - lsuzu Cebu quarter 930 ,055.37 139,508 .30 1,320.41 66 .02 K40 3rd quarter Manila Water Company 90 ,522 .63 4,526.13 J48 4th quarter lsuzu Automotive Dealership, Inc. - lsuzu 6,518 ,496.92 977,774 .53 Alabanq 7,938,378.50 1,137,645.70 J51 4th quarter lsuzu Cebu Inc. - lsuzu Cebu J55 4th quarter Manila Water Company TOTAL - CY 2008 CY 200,000 .00 4 ,000 .00 2009 30,000 .00 600 .00 1) CWT pertaining to advances made by petitioner to payor but no 5,356.96 267 .84 documents were submitted by petitioner to corroborate the said 74,660 .31 11,199.05 advances 50 ,524.16 2 ,526.21 L19 4th quarter Bank of the Philippine Islands 360,541.43 18,593.10 L36 4th quarter John Clements Consultants Inc. 2) CWT without BIR Forms No. 2307 , thus not claimed by petitioner J94 2nd lsuzu Cebu Inc. - lsuzu Cebu quarter J124 3rd quarter Manila Water Company 3) CWTsupported with BIR Form No. 2307 but the rental income was not recorded in the general ledger, thus not claimed by petitioner L30 4th quarter lsuzu Automotive Dealership, Inc. - lsuzu Alabang with 2307 but not claimed TOTAL - CY 2009 Grand Total - CYs 2008 and 2009 8,298,919.93 1'156,238.80 In sum , this Court finds petitioner entitled to the issuance of a Tax Credit Certificate in the amount of P34,228 ,507.42, representing excess CWT for calendar years 2008 and 2009 , in addition to the amount of P64,970,643.22 originally granted to petitioner per Decision dated November 11 , 2013. Respondent's Motion for Partial Reconsideration Respondent argues that petitioner failed to prove its compliance with Revenue Memorandum Order (RMO) No. 53-98 and Revenue Regulations (RR) No. 2-2006, in connection with the filing of its administrative claim for refund through the submission of the mandatory documentary requirements provided therein . Respondent contends that such failure of petitioner deprived her of the opportunity and time to study petitioner's claim for refund and to fully exercise her ~

AMEN DED DECISION CTA CASE NO. 8262 Page 6 of8 function. Thus, respondent posits that the instant Petition for Review was filed prematurely, in violation of the doctrine of exhaustion of administrative remedies. In opposition , petitioner contends that respondent was given sufficient time to investigate its claim for the issuance of tax credit certificate and that respondent failed to present testimonial or documentary evidence to warrant the denial of its claim . This Court finds respondent's arguments without merit. It must be stressed that Revenue Memorandum Order (RMO) No. 53-98 , dated June 1, 1998 and entitled "Checklist of Documents to be Submitted by a Taxpayer upon Audit of his Tax Liabilities as well as of the Mandatory Reporting Requirements to be Prepared by a Revenue Officer, all of which Comprise a Complete Tax Docket", refers mainly to the requirements in the administrative level for claims for refund/tax credit, wherein the taxpayer is required to submit for audit purposes, all his/its pertinent documents/records, to establish the veracity of his/its claim. However, when a taxpayer's claim reaches the judicial level or when the claim is elevated to this Court, the Rules of Court and this Court's own Rules govern the matter of proving the said claim . Moreover, RR2-2006 indeed prescribes the attachment of the Summary of Alphalist of Withholding Agents of Income Payments Subjected to Tax Withheld at Source (SAWT) to tax returns , with claimed tax credits due to creditable tax withheld at source. However, this Court, in numerous cases, held that the following are the requisites that must be complied with in order to claim a Tax Credit Certificate or Refund of excess creditable withholding tax (CWT): (a) that the claim for refund was filed within the two-year prescriptive period as provided under Section 204(C) in relation to Section 229 of the National Internal Revenue Code (NIRC) of 1997, as amended ; (b) that the fact of withholding is established by a copy of a statement duly issued by the payor (withholding agent) to the payee, showing the amount paid and the amount of tax withheld therefrom; and (c) that the income upon which the taxes were withheld were included in the return of the recipient. These requisites r were also adopted by the Supreme Court in the case of United International Pictures AB vs. Commissioner of Internal Revenue.4 4 G.R. No . 16833 1, October II , 20 12.

AMENDED DECISION CTA CASE NO. 8262 Page 7 of8 WHEREFORE, respondent's "MOTION FOR PARTIAL RECONSIDERATION (RE: Decision dated 11 November 2013)" is DENIED for lack of merit. On the other hand, petitioner's "MOTION FOR PARTIAL RECONSIDERATION" is PARTIALLY GRANTED. Accordingly, the Decision promulgated on November 11 , 2013 is MODIFIED and respondent is ordered to issue a Tax Credit Certificate in favor of petitioner in the amount of P99,199,150.64, representing excess CWT for calendar years 2008 and 2009. SO ORDERED. Q~~ G~~~/~ ifuANITO C. CASTANEDA, JR. Associate Justice WE CONCUR: ~~~ CAESAR~SANOVA AMELIA R. COTANGCO-MANALASTAS Associate Justice Associate Justice ATTESTATION I attest that the conclusions in the above Amended Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division . Q~h c. QJ!--~;.(...< Q ' JU'ANITO C. CASTANEuK,"JR. Associate Justice Chairperson

AMENDED DECIS ION CTA CASE NO. 8262 Page 8 of8 CERTIFICATION Pursuant to Article VIII , Section 13 of the Constitution , and the Division Chairperson 's Attestation , it is hereby certified that the conclusions in the above Amended Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court. Presiding Justice