ALLIED INFORMATION SERVICES OF THE PHILIPPINES, INC. v. COMMISSIONER OF INTERNAL REVENUE

-- REPUBLIC OF THE PHil.IPPINES COURT OF TAX APPEALS QUEZON CITY ALLIED INFORMATION SERVICES OF THE PHILIPPINES, INC., Petitioner, -versus- C.T.A. CASE NO. 5809 COMMISSIONER OF INTERNAL REVENUE, Promulgated: Respondent. AUG 29 200 0 X - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -X DECISION This is a judicial claim for refund in the amount of P2,338,935.00 filed by the Petitioner on April 15, 1999, representing its alleged unutilized income taxes withheld for the taxable year 1996. The facts are simple. qworatipn ; Petitioner is a dolllestiq . . : �/ \, :!� ' imarily engaged in providing electronic dab telepmi,\HJ1 fc;.!.Jttms H ::: processipg services to th ; : :.. >!.-.; ,:_\ iqc;H.;stry. �\; . 11 - > ��1!:j:J . .!", � >\(: . : :t. ! . . . .. . ,.;.. . fp f H ; Hq cu < (; re course�, . processi. n:.gi services of it1sn96_?rrlPp,a.it,s'L::c::j..e.i�:.:-'t.s... f,- _re! rer allegedly ren�l:��;\ t: . ftroq- -.- r.-;:.y� in . , , ; ' '��; :.- - _: :. received incoi " .oents I r which it alleged were to have been subsequently subjected to income tax payment u P1,291,129.00 and to withholding taxes amounting to P1,502,412.00 or a total of P2,793,541.00. On the same year, Petitioner is alleged to have incurred a loss or "no 125

DECISION- CTA CASE NO. 5809 PAGE2 income tax due" position. Consequently, Petitioner was not able to utilize its creditable income taxes for taxable year 1996 which it decided to carry over to the succeeding taxable year. In the taxable year 1997,Petitioner incurred an income tax due ofP454,606.00 and it allegedly utilized a portion of its creditable income tax carried over from 1996, to pay said liability, computed as follows: Income tax due ( 1997) p 454,606.00 Less: Creditable income ( 2,793,541.00) tax withheld ( 1996) P2.338.935.00 Amount Refundable Premised on the above computation,Petitioner claims to have an unutilized income taxes withheld in the amount ofP2,338,935.00 as of taxable year 1997. Consequently,Petitioner filed an administrative claim for refund with the Bureau of ' Internal Revenue on April 15, 1999 (Exhibit "C"). On even date, Petitioner filed with this Court the instantPetition for R_ yjew. ' '. 7. The alleged ciectitable/refundable withholding taxes were collected and paid pursuant to law and BIR implementing rules and regulations, hence, not refundable; 8. Claims for tax refund/tax credit are construed in strictissimi juris against the taxpayer (Commissioner of Internal Revenue vs. Ledesma, GR No. L-13509, 30 January 1979, 31 SCRA 95) a they partake the !1ature of 1260 I i.

DECISION- CTA CASE NO. 5809 PAGE 3 an exemption from tax, and it is incumbent upon the Petitioner to prove that it is entitled thereto under the law. Failure on the part of the Petitioner to prove the same is fatal to its claim for tax refund/tax credit; 9. Moreover, Petitioner must prove that it has complied with the governing rules with reference to tax recovery or refund, which are found in Sections 204 and 229 of the Tax Code, as amended, which are quoted as follows: "Sec. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. - The Commissioner may - XXX (C) 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 (2) years after payment of the tax or penalty: Provided, however, That a return filed showing an overpayment shall be considered a written claim for credit or refund." .. ,:f.-r - "Section 229. ,(:vetj. of tax erroneously or illegally collected. - No suit 53fpl:oceeding shall be maintained in any court for the recP.vr)r1 of aq national internal revenue tax i hereafter alleed te n . P,en !ro?eously or illegally assessed or : ijt.' J pcocwrrr1eolmdlhceieoctaeuthndetydmas,umgbtohealrepnl;�ln�pn?Yetdfyr,w!e.oYrJlL.mpfP.Ap:J.!CgmP..ifff.WQ�J.J'YRi"tfy ct'qf'..-�J:yi.le.,a-.rhlccllmteeeg-d-e,ddruntotioostri.slhinhoaaoanvtcveelserau;1cmebbheuentfetoanserxux;r cceeo:fluln:\.-d�.j.,g!(! ,.,. . . ��. or sum has bn Pf.J!!lt prqW. }t or duress. ,.; . � .... . . :.ct.:.t� � .. :�� �... / 4! , .. .......'... \. In any :nd case, such I 'l.f'l"'-'1 suit or proceeding shall be begun afi:er the expiration of twp (2) years from the date of payment of the tax or penalty regard}e�s of any supervening cause that may arise after payment: Prbvided, however, That the Commissioner may, even without a written claim therefor, refund or credit an where on the face of the return upon which payment was made. such payment appears clearly to have been erroneously paid. 12�31

DECISION- CTA CASE NO. 5809 PAGE4 On July 3, 2000, after the parties have submitted their respective memorandum, this case was deemed submitted for decision. As stipulated by the parties in their Joint Stipulation of Facts and Issues (pages 38 to 40, CTA records), the issues to be resolved are: I) Whether or notPetitioner is entitled to the refund or the issuance of a Tax Credit Certificate in the amount ofP2,338,935.00. 2) Whether or notPetitioner's excess/unutilized creditable withholding taxes for the taxable year 1996 in the aggregate amount ofP2,793,541.00 is fully substantiated by documentary evidence. As basis of its claim for refund,Petitioner relied on the provisions of then Section 69 (now Section 70) in relation to Section 230 (now Section 229) of the National Internal Revenue Code, which provides, thus: Section 69. Final Adj1JIJI,le11( Return. - Every corporation liable to pay tax under Section 24 shl!lU file a final adjustment return covering the total net income for the Pfce fng calndar year or fiscal year. If the sum of opqaythmeennttt. fPe}HHtldbule:, ngttmecosamide taxable year is not equa to of that year the corporatwn ,' � �. the quarterly tax ,. ' ::; .-: : tshthea1t1oeta1"tlhtearx.. due ;�, .,�'� .: ;_ '� ':�:..�r'::,.'-:'.'.!� �. : ., ..�:�...-- ' :: 1� : ::, ' (.)::�:.\1:, :: :. : 1--: (a) Pay the tax still Ql-li P.r � :'_:." ,� ,./ � ; .. ., � � � �pid, .bi/(,: the �etces inoithf .,. ' , ; :h:,, �' (b) Be refuqded . �,:.I7_ ;'.:_, ' as the case may ;.j.',:!;",.. -;A;-f..._ "..;.'. �-':r.;-..�_.\,-K.-... � j�'. : ;..., ',;.>�''� .. �� !.� i ; . �.,, In case the corpora-.-'.t�i�.9;.,r4;:rfl,r,�_;s�"-.e� .n,� ��tit�l�e.:d to a refund of the excei! :':s! atec' quarterly income taxes. paid, the refundable amount shown on hs finai adjustment return may l)e,redited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable year. On the contrary, Respondent asserts that the provisions of Sectio.,.., 6'J ;... . v d��Q �nf legal basis for the denial ofPetitioner's claim for refund since what -�'(' l;e ';��e ��b:t' : r � refund under the said provision is the excess of the quarterly tax payments TW" �p �'1�' 1262

DECISION- CTA CASE NO. 5809 PAGES the calendar year or fiscal year over the estimated total tax due during the same taxable year and not the excess creditable income tax paid in the previous year that has not been applied to the succeeding taxable year. Moreover, Respondent asserts that the remedies provided under Section 69 involving a claim for refund and of a claim for an automatic tax credit for the succeeding taxable year are in the alternative and the choice of one precludes the other. Thus, having manifested the option for an automatic tax credit in its 1996 Income Tax Return, Petitioner cannot now be allowed to make another option of claiming administrative and judicial claims for refund. As an additional argument, Respondent asseverates that Petitioner made no option of either a refw1d or automatic tax credit of its alleged remaining balance in its return ended December 31, 1997 after application to its 1997 taxable amount due to its alleged tmutilized 1996 creditable income tax excess payments which runs contrary to the express requirement under paragraph 2, Section 7 of Revenue Regulations No. 10-77 which reads, thus: . ;-t �.,.. �.. ' "any excess of the quartyrly payment over the actual income tax computed tflpdjutls1Pf.m�Pentt pfqpr'pf\J10aPt(foorrpo(rba)teminacyombee tax rturn and shown in the credited asghaam.ll setiththeer be refunded fa) felsPxtliamWblatIteysdmaqrtue. anttilheoreqlrs";"o:ihrnpecptlwrJidnt}:"l9]f't]tPfQj;JttjseatssUjti$ptnireifstyfeionrreittsheadnnqouuaaorltecerorrpopaftdrtah�teW- p!estemad_xiennsg.t. Pfclatm for automatic :f� teft,., bq ppfted agamt Its mcomAt!tbthtle fpr the quarter of te supcping taxable year by fillmg up the 'lPUfO :(Jate bo, flU the corporate tax ret{Jrtl{ B IR Form No. 1702)." (Underscoring supplied) ; i ';:._ ; - .=� � .:> ' ,: . Considering the above �arguments a11d the applicable jurisprudence on the m - coupled with pertinent documentary evidence, led this Court to hold for the Petif ( against the Respondent.

DECISION- CTA CASE NO. 5809 PAGE6 Whatever merit the Respondent's arguments might have against subject claim for refund, this Court cannot simply go against settled jurisprudence on the matter. In a litany of cases, this Court has repeatedly ruled that the grant of refund tt1 taxpayer of its excess unutilized creditable withholding tax is dependent upon its compliance with the following requisites, to wit: a) That the claim for refund was filed within two years as prescribed under Section 230 (now 229) of the Tax Code; b) That the income upon which the taxes were withheld were included in the return of the recipient; c) That the fact of withholding is established by a copy of a statement duly issued by the payor to the payee showing the amount paid and the amount of tax withheld therefrom. (Ayala Life Assurance, Inc. vs. Commissioner of Internal Revenue, CTA Case No. 5631, dated May 11, 2000; Stock Transfer Service, Inc. vs. Commissioner of Internal Revenue,CTA Case No. 5796,dated May 3,2000; Union Bank of the Philippines,CTA Case No. 5623,dated April 12,2000) 1�1t>: �:.1;.�.:;H,. . In fact these aforementioned ft!quiretl)ents were affirmed by the Supreme Court in � :'� I_ (', !J. the case of Citibank N.A. v C9Jtrt ') . ' . - of Appeals and Commissioner of Intern . ' -.) Reve1 n:ue,280SCRA45��. � . tl. �""; "'7 ��"* -:.I!S, .� '� -- -; ��'f>,.t' � ' ;�'; �"':.A.\ i r .r'J i., �._: :. -. .. . , f' r mn 1f.r< �� ere is no dispue tht t- . r' ! ':. 1;1 . er cmpJ d with the first re of fil fTITf? Bif , Jfh!n . .. �;;;:\-"� :{.�. cl .. :::'�..refund with the I : li ' � � : l . } �,..._: two,years as prescribed und .- '4 � '� 230 ;., . . ,'� , I I ,. : i -.J,: " t 't� , Tax qde and the instant Petition for Review with this Court on April ), 1999, .. . .. _ ,.\:-;, .t:- two years reckoned from the 4ate it filed its annual income tax return for calend 1996 on April 15, 1997 (Exh. A). , Parallel to this, Petitioner also complied with the second ... u disclosed the fact that its total income of P40,984,399.00 earned a v� Ue-:c,m!;"

DECISION- CTA CASE NO. 5809 PAGE 7 1996, the amount from which the creditable tax was withheld, and reflected in Petitioner's Certificate of Creditable Tax Withheld at Source (Exh. E) were included in the annual income tax return of the Petitioner for calendar year 1996. And lastly, Petitioner was able to establish the fact of withholding when it presented in evidence the certificate of final tax withheld at source (Exh. E), thus, proving that the amount of PI ,502,317.43 has been withheld from Petitioner. Thus, having substantially proven its entitlement to the refund sought for by having complied with the conditions set by law, conformably, We hold that the Petitioner must be extended the relief prayed for. WHEREFORE, in the light of all the foregoing, Respondent is hereby ORDERED to REFUND or in the alternative to ISSUE a Tax Credit Certificate for the amount of P2,338,935.00 in favor of the Petitioner representing unutilized creditable withholding tax for the year 1996. SO ORDERED. WE CONCUR: �� I /:. _!'i ! . t '. \ � '. . '. : ...".'..;f. ,_.. . A.. . �, . ,. . -. .. , .. 1265

DECISION- CTA CASE NO. 5809 PAGE 8 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. � 0\.--V ERNESTO D. ACOSTA Presiding Judge .... ' ' . I ' �� y .... ,. . ., .. �. .. .,. !�f .. : f.. ,� ��". I, '' ' '�.:\ t. '� ' .. . 1260 l