CTA Case No. 5699 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY 'I YUPANGCO COTTON MILLS, INC., Petitioner, -versus- C.T.A. CASE NO . 5699 COMMISSIONER OF INTERNAL Promulgated: REVENUE, FEB I 0 20~t#- Respond ent. x-- ---- ------------------------------------ - ----------------x DECISION This is a petition for rev1ew fil ed by the PetLioner, YUPANGCO COTTON MILLS , INC., against Respondent Commissioner of In ternal Revenue, for the latter's inaction on Petitioner's claim for refund in the amount of P3,60 1,2 89.07 representing Petitioner's alleged overpaid/excess creditable withholding tax for the taxable year ending December 31 , 1997. As represented, Petitioner is ~ ~or:~estic corpo rati on, engaged in the manufact ure of yarns, grey clotl1 and fabrics, with otftc~ 'flddress at 119 Hoover St. San, Juan, Metro I ~; '~ � J �: . �, . ' . .: ~ :f Manila. On April 14,. 1998, ~e titi oPer filed with the Far East Bank and Trust Co, it.-- Corporate Annual Income Tax Return (ITR) for the calendar year 1997 (Exh. B). The � said ITR was amended on September 25, 1998 (Exh. C) and was further amended on April 27, 1999 (Exh. D). In the said return, Petitioner declared among others a net loss of 3 . , .., I

�' DECISION� CTA CASE NO. 5699 PAGE2 P13,349,905.44 and a cumulative overpaid creditable withholding tax of P3,601 ,289.07 computed as follows: TAXABLE NET LOSS CP13,349,905.44) TAX DUE P1,945,732.37 3,601,289.07 0.00 p 3.601.289.07 Less: a) Prior Year's Excess Credit _LQ2_5,556.70 b) Quarterly Payment c) Creditable Tax Withheld EXCESS TAX CREDIT The unutilized/excess income tax credit of P3,60 I,289. 07 for 1997 was not carried over to the succeeding taxable year 1998 because the Petitioner decided to apply for a refund pursuant to the provision of Section 204(3) in rtlation to Section 230 of the Tax Code, as amended. Thus, when the annual income tax return for CY 1998 was filed on April11, 1999, Petitioner reported in Part II Item 13A- Prior Year's Excess Tax Credit- "0" clearly showing that the subject cumulative excess in CY 1997 withholding taxes were never carried over nor applieq i!1, t!1e following year of 1998 (Exhibit "E"). The 1998 atmual i~come tax return showln!(a� taxab le net loss of (P27,416,855.56) and total '). ~ ��� > U 'I , :. , lr � ..~ , �: tax credit ofP1,368,660.87 tha!. ~~~: ~fJplie{lagainst its income tax due showing an exces~ ~ l~:�~�;~�.�-~~; ~ �� ~ �.: � r1. I � payment ofP59,148.95 was c~n~puted as fo pows: � TAXABLE NET LOSS CP27,416,855.56) TAX DUE (Minimum Corporate Income Tax) p 1,309,511.92

DECISION- p 0.00 CTA CASE NO. 5699 PAGE3 0.00 Less: - 1,3 68,660.87 _j_J68,660.87 a) Prior Year's Excess Credit p 59.148.95 b) Quarterly Payment c) Creditable Tax Withheld EXCESS TAX CREDIT On December 24, 1998, Petitioner tiled a letter-claim for refund dated December 10, 1998 with the Respondent in the amount ofP3,601,289.07 representing its cumulative overpaid income tax payment for the Calendar Year ended 1997 (Joint Stipulation of Facts, p. 59, docket). The aforesaid claim was not acted upon by the Respondent, hence, on December 29, 1998, Petitioner filed with this Court the instant Petition for Review. Petitioner posited that it is entitled to the refund orthe aforementioned amount as it is clearly provided under Section 51 (f) [now Section 58(D)] and Section 69 (now Section 76) taken in relation to Section 204(3) [now Section 204(c)] of the Tax Code, which states, to wit: Section 51. Returns and Payment of Taxes With held at Source. - -. (/) Income of Recipient.; p !ns;qme upon which any creditable tax is required to be withheld at the ~ourc~. �~mder Section 53 (now 50) shall be included in the return of its reciplei1t �~~t the: excess of the amount of tax so withheld ove�r the tax due on his i�etuni.shall be refunded to him subject to the provisions of Section 225:~now 204)';','{f the income tax collected at source is less than the tax due on the return, the.difference shall be paid in accordance with the provisions of Section 50. Section 69. Final Adjustment Retum. - Every corporation liable to pay tax under Section 24 shall tile a final adjustment return covering the total net income for the preceding calendar year or fiscal year. If the sum of 3.<J :I

DECISION- CTA CASE NO. 5699 PAGE4 the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable net income c.f 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 quarters of the succeed ing taxable year. Section 204. Authority of tlze Commissioner to compromise, abate, and refund/credit taxes. - x x x (3) Credit or refund taxes erroneously 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 years after the payment of the tax or penalty. Petitioner pointed out that the instant claim for refund was well within the two (2) year period prescribed in Section 2~q qfH1e Tax Code, which provides: �.' t /! _), � ~��.!. ~. I Section 230. Recp. yery .oj ta.~ h roueously or illegally collected. - No suit or proceediBg shall h~ maintained in any court for the recovery of any national internal t:eventte''iax 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 excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly tiled 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. 33 0

DECISION- CTA CASE NO. 5699 PAGES In any case, no such suit or proceeding shall be begun 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. Respondent in his Answer, admitted the corporate existence of the Petitioner, the filing and existence of the Petitioner's Annual Income Tax Returns for CY 1997 filed on April 14, 1998 and the Amended Annual Income Tax Returns for CY 1997 filed on September 25, 1998 as well as the filing of the admi�1istrative letter-claim for refund dated December 10, 1998 (Answer, par. 1, 3 and 4). He, however, denied the other allegations in the Petition for being mere conclusions of fact and law. Further, Respondent raised in the usual token of a defense that (1) in order to be entitled to tax refund or tax credit, the claim must be proved by clear and convincing evidence, (2) the claim for refund is still being investigated by Respondent, and (3) such being the case, the instant Petition for Review is premature. The issue to be resolved by, ~he Court is whether or not Petitioner has indeed overpaid its income taxes in the .an10lll1t of P3 ,60 1,289:07 for the calendar year ending :, :~ . .. �� / ...... �.j December 31, 1997. �~ . f,.: ;} We find nothing� ambigt!OHS no!� obsdu're in the language of Section 51 (f) of the Ta~ in Code, insofar as the same is brought to bear upon the circumstances of the Petitioner the case at bar. The provision itself furnishes the best means of its own exposition that any excess of the amount of tax so withheld over the actual income tax computed and

.. DECISION- CTA CASE NO. 5699 PAGE6 shown in the adjustment or final corporate income tax return shall be refunded to the taxpayer. The issue before Us is nothing new. The Court has already laid down the requisites needed for a grant of refund of creditable withholding taxes, to wit: 1.) that it was shown on the return of the recipi ent that the income payment received was declared as part of the gross income (Sec. 10, Revenue Regulations No. 6-85, ACCRA Investment Corp. vs. CA, 204 SCRA 957); 2.) the fact of withholding is established by a copy of a statement (BIR Form 1743.1) duly issued by the payor (withholding agent) to the payee, showing the amount of income paid and the amount of tax withheld therefrom (ibid.); 3.) that the taxpayer filed its claim for refund , within the two (2) year period prescribed under Section 230 of the Tax Code. The foregoing requirements were affirmed by the Supreme Court in the case of Citibank, N.A. vs. Court of Appeals and Commissioner of Internal Revenue, 280 SCRA 459. In establishing its claim for refund , Petitioner during trial presented evidence (Exhs. .....~_ ;~� ;: ~~�� ..� -~f. . � A to 0) to substantiate its claim tl~ qt ( 1) .i~...J1l c d its Co rp o rat e Annual Income Tax Ret~ll]} . . . 4, . ... . for 1997 on April 14, 1998, (2) '�~be income upon whi ch the taxes were withheld wet.~ . _I'~.' ,..� ',. �. ~: �\;:,.":, included in the returns pf tl)e r~di �~p~r; �fin~ (3) the amC.:unt claimed to be refunded w~re ........ \ �'" ' ! ~: . ' . . ~ � ,..,~� . in fact withheld .and remitt~d..to ~';!W Resp,kndent by the withholding agents. Petition~r � J,' -;~" .-~ . adduced as evidence. the Certificates of Ci�editable Tax Withheld at Source (BIR Form . :� 2307 and Form No. 1743 .750) (Exhs. F-6 to F-21 and G-8 to G-30, inclusive) to show the amount of income tax withheld by various withholding age nts during the period covered by the claim for refund. 332

DECISION- CTA CASE NO. 5699 PAGE7 Likewise, Petitioner presented its ITR for the succeeding year 1998 (Exh. E) to show that it suffered a net loss position for year 1998 and that the excess income tax credit of P3,601,289.07 for 1997 were not carried over to the year 1998. Moreover, Petitioner was able to establish that it filed its administrative claim for refund with Respondent on December 10, 1998 (see Joint Stipulation of Facts, p. 59, docket). On the other hand, Respondent interposes no objection to the cidmission of the exhibits offered by the Petitioner as proof of its claim of excess payments, neither was it heard to complain about the authenticity of the contents of these documents nor has it shown any irregularity in the same which will taint their reliability or sufficiency as proof of excess payments or excess creditable withholding tax despite the fact that it is well within their competence to do so. Respondent is thereby considered to have vouched the veracity of these exhibits. With regard to the timeliness of the instant petition, We find merit 111 the Petitioner's ratiocination that its claim for refund has not yet prescribed. As resolved by the Supreme Court on April 10, 1989 in the case of Commissioner of Internal Revenue vs. Asia Australia Express, Ltd., G.R. No. 85956, the two-year prescriptive period within which to claim a refund com,' m. ences. to run, at the earliest, on the date of the filing of the adjusted final tax retl!rP (4{:CR~ �Investment vs. Court of Appeals, supra)~ �,� . ' �,\ ' ; Records show that Petitioner fil ed its Corporate Annual Income Tax Return for the y �a~� 1997 on April 14, 1998 (Exh. B). The date of the filing of the instant petition which was on December 29, 1998 is clearly within two (2) years from April 14, 1998, the date when Petitioner filed its final adjustment return for the year 1997.

.r DECISION- CTA CASE NO. 5699 PAGES Thus, in view of the above findings and considering that Respondent failed to dispute or controvert the testimonial and documentary evidence of the Petitioner, the Court has no other recourse but to grant Petitioner's claim for refund in the amount of P3,601,289.07 representing its overpaid/unutilized creditable withholding tax for the year 1997. IN THE LIGHT OF ALL THE FOREGOING, the Petition for Review is GRANTED. Respondent is hereby ORDERED to- REFUND in favor of herein Petitioner the amount of P3,60 1,289.07 representing the latter's overpaid/unutilized creditable withholding tax for the year 1997. No costs. SO ORDERED. ~tQ-~ ERNESTO D. ACOSTA Presiding Judge CERTIFICATION ' ! . . .. ~ I hereby certify that the above decision was reached after clue consultation with the members of the Court of Tax Appeals in accordance with Section 13, Article VIII of the Q {"_� . Constitution. ~~. ~ ERNESTO D. ACOSTA Presiding Judge