CITYTRUST BANKING CORPORATION v. COMMISSIONER OF INTERNAL REVENUE

/ REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY CITYTRUST BANKING CORPORATION, Petitioner, - versus- C.T.A. CASE NO. 5519 COMMISSIONER OF INTERNAL REVENUE, Promulgated: Respondent. MAY 1 0 2000 x-------------------------------------------- -------------- DECISION Before Us for consideration is a Petition for Review filed by the Petitioner on April 18, 1997 seeking for a refund or the issuance of a tax credit certificate in the amount of P4,576,429.72 allegedly representing overpaid gross receipts taxes for 1995. As represented, Petitioner is a domestic banking COllJOration, duly registered with the Securities and Exchange Commission, with principal office located at 379 Sen. Gil J. Puyat Ave., Ivlakati City. For the four quarters of 1995, herein Petitioner filed with Respondent its quarterly percentage tax retums and paid the conesponding gross receipts tax (GRT) for each of the said quarters, hereunder sururnarized as follows: PERIOD COVERED GRT DATE PAID li:XH. 1�sf Qtr. (Jan. to March) p 24,421,495.70 April 20, 1995 A 2nd Qtr. (April to June) 27,619,936.95 July 20, 1995 B 3 rd Q�tr. � to Sept.) 28,671,506.35 October 20, 1995 C (July 41h Qtr. (Oct. to Dec.) 28,203,675.42 January 22, 1996 D T ot a1 P108,916,614.42

DECISION CTACASE NO. 5519 PAGE2 From the total gross receipts tax of P108,916,614.42, Petitioner allege that it erroneously included in the tax base, gross receipts derived from passive income which were ah�eady subjected to fmal withholding tax in the amount ofP98,547,311.10. Thus, Petitioner further allege that it has a refundable amount of P4, 576,429.72, the breakdown of which are as follows: 5% 3% 1% 0% TOTAL 1,827,875.633.79 Income per 521,535,791.51 187,675,898.05 122,654,688.82 2.659,742,012.17 GRT return 86,726,146.68 Less FWT on 1,741 '149,487.11 6,183.295.77 5,462,351.18 175.517.48 98,547,311.10 Income subject to20% 5% 515,352,495.74 182,213,546.87 122,479,171.34 2,561 '194,701.07 Net Taxable 87,057,474.36 3% 1% 0% Base 91,393,781.70 Tax Rate 15,460,574.87 1,822,135.47 0.00 104,340,184.70 Should be Tax Due 15,646,073.74 1,876,758.98 0.00 108,916,614.42 Less: Taxdue per return (185 498 8Z) (54623 51) (LQlJ (45Z6 429l2) Over remittance (4 336 3QZ 34) After taking into consideration the Decision of this Court in the case of Asian Bank Corporation vs. Commissioner of Internal Revenue, CTA Case No. 4720, January 30, 1996, which mled that the 201o fmal withholding tax on interest income should not fonn part of the taxable gross receipts, Petitioner filed with the Respondent on April 17, 1997 an application for a tax refuncVtax credit of its alleged overpaid GRT for the taxable year 1995 in the total amount of P4, 576,429 .72 (Exh. F). The aforesaid claim for refund was not acted upon by Respondent. Thus, a day after, or on April 18, 1997, Petitioner filed with this Court the instant Petition for Review.

DECISION- CTA CASE NO. 5519 PAGE3 Petitioner reiterate its proposition that the 20%> fmal withholding tax on the interest and other income remitted to the government were enoneously included in its taxable gross receipts, thus, it stressed that on the strength of the aforementioned mling of this Court in the Asian Bank case, supra, it has actually overpaid the amount legally due from it, insofar as its gross receipts' tax obligations are concemed, hence, a refund is in order. Respondent, on the other hand, by way of Special and Affmnative Defenses, alleges that: (8) Petitioner's claim for refund is still undergoing administrative routinary investigation/examination by Respondent's Bureau considering that the claim for refund with the Bureau was filed two clays earlier on the elate the instant case was filed with this Honorable Court; (9) The total amount of P4,576,429.72 claimed by Petitioner as alleged overpaid GRT for the year 1994 is not properly documented; (10) The alleged refundable GRT was collected and paid pursuant to law and pettinent Bil.l implementing mles and regulations, hence, the same is not refundable; (11) Petitioner's allegations that it excessively paid its GRT dming the year under review does not ipso facto wanant the refund. Petitioner must prove that the exclusions claimed by it from its gross receipts must be an allowable exclusion under the Ta\: Code and its pertinent implementing rules and regulations; (12) Claims for refund are constmecl in strictissimi juris against the taxpayer, as it partakes the nature of an exemption from tax and it is incumbent upon the Petitioner to prove that it is entitled thereto under the law. Failure on the pmt of the Petitioner to prove the same is fatal to its claim for refund. In order to support its claim for refund, Petitioner presented the following evidence, to wit:

DECISION CTACASE NO. 5519 PAGE4 Exhibits Description A, B, C, D Quarterly percentage tax returns f or taxable year 1995 E and E-1 C omputati on ofGRT overpayment f or 1 995 F Letter-claim f or refund with the Bill. G and G-1 Certificati on of final taxes withheld from Central Bank to prove that petitioner's interest income on treasury bills was subjected to the 201o fmal withholding H, H-1 t o H-8 Certification i ssued by the SGV and C o. stating the agreed upon pr ocedures with the Petitioner and the outcome of the audit l-1 t o I-14 Financial Statement s f or taxable year 1 995 J 1995 Annual Income Tax Return The C omi directed b oth patties t o submit their respective memorandum after which, the case was submitted f or decision. The issues p osed f or adjudicati on in th1s case are: (1) \\'nether or not Petitioner is entitled to the refund of gr oss receipts tax c onesponding t o the 20% fmal withholding tax on its passive income; and (2) Wl1ether or not Petitioner has proven its claim by sufficient and substantial evidence. As regards the first issue, this Court has already ruled in numerous cases involving claims f or refund of oveqJaid gross receipts tax that "the 20% final withholding tax on ils passive income sh ould no l onger f orm part of the taxable gross receipts for puq1oscs of c omputing the gr oss receipts tax." suo

DECISION CTACASE NO. 5519 PAGES As aptly cited by Petitioner in Asian Bank Corporation vs. Commissioner of Internal Revenue (CTA Case No. 4720, January 30, 1996), this Court mled: "We agree �with the petitioner that the 20�/o final withholding tax on its interest income should not form part of its taxable gross receipts. XXX XXX XXX This conclusion is in accord with the interpretation of the Supreme Court in the case entitled Collector of Intemal Revenue vs. Manila Jockey Club, 108 Phil. 821, as quoted by this Court in disposing of a similar issue in the case entitled Campania .Maritima vs. Acting Commissioner of Intemal Revenue, CTA Case No. 1426 dated November 14, 1996, thus: In the second place, the highest tribunal of the land interpreted the term: "gross receipts" to mean all receipts of a taxpayer excluding those which have been especially earmarked by law or regulation for the govetnment or some person other than the taxpayer. Thus, it was held: "xx xx. The Government could not have meant to tax as gross receipt of the Manila Jockey Club the iz�& which it directs same Club to tum over to the Board of Races. The latter being a Govemment institution, there would be double taxation, which should be avoided unless the statute admits of no other inteqJretation. In the same manner, the Goverrunent could not have intended to consider as gross receipt the portion of the funds which it directed the Club to give, or know the Club would give, to winning horses and Jockeys - admitted 5%. It is true that the law says that out of the total wager funds 12'/z% shall be set aside as the 'commission' of the track owners but the law itself takes official notice, and virtually approves or directs payment of the p01tion that goes to owners of horses as prized and bonuses of jockeys, which p01tion is admittedly 5% out of the 1212% commission. As it: did not at that time contemplate the application of 'gross receipts' revenue principle, the law in making a distribution of the total wager funds, took no trouble of separating one item from the other; and for convenience, grouped three items under one conunon denomination. 6 J..

r DECISION CTACASE NO. 5519 PAGE6 "Needless to say, gross receipts of the proprietor of the amusement place should not include any money which although delivered to the amusement place has been especially emmarked by law or regulation for some person other than the proprietor." (The Commissioner of Internal Revenue vs. Manila Jockey Club, Inc. G. R. Nos. L-13890 and L-13887, June 30, 1960) It is to be noted that, under Section 260 of the Tax Code, a race-track is subject to an amusement tax of 20% of its gross receipts and the term �gross receipts' embraces all the receipts of the proprietor, lessee, or operator of the amusement place." Notwithstanding the broad and aU-embracing defmition of the term "gross receipts" found in our amusement tax law, our Supreme Court did not adopt a literal interpretation of the said tetm in the case of the Nlanila Jockey Club, Inc., supra." Recently the Com1 of Appeals affumed the wisdom of this Court's ruling in a case involving a similar cause of action, thus: Accordingly the 20?-o final tax withheld against the Respondtmt's passive income was already remitted to the Bureau of Internal Revenue, for the conesponding year that the same was actually withheld and considered fmal withholding taxes under Section 50 of the same Code. Indubitably, to include the same to Respondent's (Citytrust) gross receipts for the year 1994 would be to tax twice the passive income derived by the Respondent for the said year, which would constitute double taxation anathema to our taxation laws." (Commissioner of Internal Revenue vs. Citytrust Philippines, CA G.R. SP No. 52707, August 17, 1999). Having settled the legal issue in the affumative, what remains to be resolved are factual matters, more particularly, as to whether or not Petitioner has established by clear and substantial evidence its claim for refund. Section 230 of the Tax Code, as amended, provides that a claim for refund, both with the Bureau of Intemal Revenue and with this Cout1, must be filed within two years from the date of payment of the tax. In counting for the two-year prescriptive period, the

r DECISION CTACASE NO. 5519 PAGE7 filing of the qumierly percentage tax retum should be considered as the "date of payment of the tax" (Solid Bank Corporation vs. Commissioner of Internal Revenue, CTA Case No. 5408, April 14, 1.999; and Citytrust Investment Philippines, Inc. vs. Commissioner of Internal Revnue, CTA Case No. 5403, April 19, 1999). Applying the above mling in the case at bar reveals that Petitioner was able to file its claim for refund with the Bureau of Internal Revenue on April 17, 1997 and the Petition for Review with this Court on April 18, 1997 both within the two-year reglementary period, considering that the 1995 first quarterly percentage tax retum was filed on April 20, 1995. Equally important in the gran ting of the instant case is Petitioner's compliance with the following requisites: 1. that it paid the gross receipts tax; ..,. that it etToneously overvaid its gross receipts tax by including the 20% final withhol ding tax on its passive income as part of the gross receipts declared in the quarterly percentage tax ret1lfllS for the year 1995; and 3. that the "vithholding agent certifies that there is 20<% fmal withholding tax on such passive income. (Bank of the Philippine Islands vs. Commissioner of Internal Revenue, CTA Case No. 5458, February 15, 1999; and BPI Capital vs. Commissioner of Internal Revenue, CTA Case No. 5457, 1arch 1, 1999; cited in Solid Bank Corporation vs. Commissioner of Internal Revenue, CTA Case No. 5408, April 14, 1999.) A meticulous examination of all the evidence on record reveals that Petitioner 'vas able to show that it paid gross receipts tax for the year 1995 as evidenced by the machine validations appearing on the lower portion of its quarterly percentage tax retums (Exhs.

r DECISION- CTA. CASE NO. 5519 PA.GE8 A, B, C, and D, inclusive of sub-markings). The evidence also established that the alleged 20% fmal withholding taxes on interest income on passive investments were included in the gross receipts reflected in Petitioner's quarterly percentage tax returns. This was a ttested to by IVlr. Renato Galve, the commissioned independent CPA by Ute Court (TSN, August 1 7, 1998, p.14). However, from among !he passive income which was allegedly subjected to fmal tax, only interest income from treasury bills were suppotied by certifications of withholding and remittance. The rest of the passive investments which is composed of deposits with banks, interbank call loan receivables, trading gain, and from other sources have no such certifications. The certification of withholding and remittance of fmal tax is important for the Court to verif�y, if indeed the fmal tax on passive income was paid and remitted to the Bureau of Intemal Revenue. This is the rationale behind the Asian Bank case, CTA Case No. 4720, quoted earlier. It would appear then that Petitioner is only entitled to a partial refund of ovetvaicl gros� receipts tax pertaining to the 20qt(, fmal tax on interest income of treasury bills. However, even after a further painstaking scmtiny of the documents presented as evidence, the Court carmot compute with accuracy how much refund can he granted to Petitioner. Nowhere in the evidence.on record can Vve verif-y the exact amount of final : . :/ tax on treasury bills. We carmot soily rely on the certification issued by Bangko Sentral qf' ng Pilipinas because the u nottnt fm.al tax stated therein is huge and in its original ' d ; . - :> - f � � I �I .� - value. We would like to emphasiz that tre;tsury hills are hear�er securities and can be ! i .! ' . '�. : �. ' .' � l t' .,; : , transfened by mere physical �,(l. el. iv. ery. Thus, whenever Petitioner sells some of its treasury bills to the secondary market, the withholding tax originally paid by it is also

DECISION CTACASE NO. 5519 PAGE9 shifted (TSN, October 6, 1997, pp. 16 to 19). The only figure appearing in lhe record of the case is the amount of P76,417,833.00 representing trading accounts secw"ities (TAS, for brevity) and government securities (GS, for brevity) (Exh. H-8). But again, the Court cannot base the refund on tlus amount. It is to be pointed out that TAS and GS are not all treasury bills. TAS may include commercial papers while GS may include treasury notes (TSN, October 6, 1997, pp. 7 and 8). In sum, We find the procedures supposedly agreed upon by the Petitioner and the independent auditor to be insufficient to come-up with the desired result in ascertaining the correctness of Petitioner's claim for refund. The procedures merely limited the examination on the verification of the amounts of passive income and the provision for ftnal tax. It failed to scrutinize the accuracy of the composition of the passive income accounts and the con�esponding computation for gross receipts tax and tlte supporting documents for fmal taxes. To the Court's mind, a more detailed and better procedure, ( . such as tracing, test computation, and analysis of individual transaction pertaining to the passive income accounts should have been conducted and by checking, if the final taxes on these passive income are duly supported. Further, Petitioner's failure tp present in evidence vital documents such as trading orders, outright purchase conft.r..!.nati on, outright sale confmnation and accmal ledger I rfr,c,. proved fatal to its clairp. for . It is WH"th stressing that under CTA Circular 1-95, as '. ; �� - amepded, � S\l: p' porting the claim for �> � the "volumipus�, pc!J!"Tle!lts refund, should have br,ri I' '\. , > � � ,� .. :: p. re-arked and submitted to 'ihe Court after the independent auditor shall h<n:e examini'" . ,

DECISION CTACASE NO. 5519 PAGE 10 and compared them with the otiginals. Without these pre-marked documents, the Cowt ca.tmot verifY the correctness of the independent audi tor ' s conclusion. 1n htct, We have already denied a petition with a similm cause of action, wherein We ruled: "In earning its income, Petitioner is of course expected to have in its possession documents and computerized records of each and every transaction it has entered into from which the aggregate amoun t of gross receipts as declared in the qum1erly returns were based. In this regard, Petitioner should have endeavored to prove that the alleged receipts of interest and passive income were the ones duly reported as such in each of the quruterly percentage tax retums. Inasmuch as the gross receipts reported in said return pertain to a conglomeration of various income subjected to final and creditable withholding taxes, there was therefore a need for the Petitioner to show that the particulru� pottion of reported passive income tallies with its proof of individual transactions (Bank of the Philippine Islands Ys. Commissioner of Internal Revenue, CTA Case No. 5458, February 15, 1999). Petitioner's failure to present the pertinent documents and individual transactions which would suppm1 the cet1ification of the independent auditor as well as the schedule corttained thereir1 proved fatal to its claim for refund. \Ve11-setlled is the rule in this jurisdiction that a claim for refund is in the nature of a claim for exemption, hence should be construed in strictissimi juris against the taxpayer (Commissioner of Internal Revenue vs. Tokyo Shipping Co., Ltd., 244 SCRA 332). WHEREFORE, in the light of the foregoing, the instant Pelition for Review IS hereby DENIED due to insufficiency of evidence. I SO ORDERED. fON O. D E 0 J Associate Judge I

DECISION- CTA CASE NO. 5519 PAGE 11 WE CONCUR: -(9 .. ERNESTO D. ACOSTA Presiding Judge (Dissenting) A.:MANCIO Q. SAGA Associate Judge CERTIFICATION I hereby certify- that this 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. Gt2- ERNESTO D. ACOSTA Presiding Judge fit)',l