CTA Case No. 4063 (Decision)

- REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY FILIPINAS SYNTHETIC FIBER C.T.A. Case No. 4063 CORPORATION, Petitioner, - versus - THE COMMISSIONER OF INTERNAL REVENUE, Respondent. X- - - - - - - - - - - - - X DECISION This Is a claim for tax credit In the total amount of P5,594 , 137.53 representing alleged overpaid Income tax for the taxable year ended December 31, 1984. The facts and the antecedents of this case are not ' In dispute. Petitioner corporation, Fl I lplnas Synthetic Fiber Corporation, Is a preferred pioneer enterprise registered with the Board of Investments (B.O. I.) under Republ lc Act (A.A.) No. 5186, the Investment Incentives Act, as amended by Presidential Decree (P.O.) No. 1789, otherwise known as the Omnibus Investments Code. During the taxable year 1984, petitioner fl led Its quarterly income tax returns deta l Is of which are as follows : March 31, 1984 Net taxable Income p 6,577,907.89 (January to March) p 2,299,767.76 Income tax due (TCC No. 02899-A)

DECISION - C.T.A. Case No. 4063 - 2- June 3 1984 Net taxable income P16,210,865.00 (January to June) 5,668,802.76 2,299,767.76 Income tax due Less: Quarterly payment 3.369.035.00 Balance <PO No. B-3636105, CR No. B-4128046) September 30, 1984 Net taxable income P17,944,814.00 (January to September) 6,273,185.00 5,668,802.76 Income tax due Less: Quarterly payments 604,382.24 Balance (TCC No. 616) Petitioner fl led Its final adjustment income tax return on Apr I I 15, 1985 with a tax refundable in the amount of P5,594,137.53 computed hereunder: December 31 1984 Net taxable income P1,971,323.00 (January to December) 679,047.47 Income tax due 6,273,185.00 Less: Quarterly payments 5,594,137.53 Tax refundable .. .. On March 14, 1986, petitioner filed with the respondent Commissioner of Internal Revenue a claim for tax credit of the said amount. To Interrupt the two-year prescriptive period and to preserve petltloner,' s right to judicially claim the tax credit, petitioner fl led the Instant petition for review on May 24, 1986.

DECISION - C.T.A. Case No. 4063 - 3- Respondent however In her Answer (C.T.A. Records, pp. 25-26) denied the claim raising the following special and affirmative defenses: 1 � Petitioner's claim for tax credit Is pending investigation; 2. The amount of P679,047.47 claimed by petitioner as outside service Income and withheld by Its alleged withholding agent Is not supported by evidence. 3. The amount of P3,369,035.00 and P679,047.47 allegedly paid and withheld respectively by the withholding agent of petitioner, assuming the same to be true, were co I Iected In accordance with law and regulations; hence, not refundable; 4. It Is Incumbent upon the petitioner to show compl lance with the provisions of Sections 292 and 295 of the Nat Iona I I nterna I Revenue Code of 1977, as amended; 5. Claim for tax refund/credit are strictly construed against claimants since they are In the nature of an exemption from taxation. Wh I I e the case was pending before this Court, petitioner furnished the respondent a letter of approval by the B.O.I . , dated September 11, 1985) stating among �'� others that the application of the petitioner for Reduced Income Tax (RIT) In the amount of P26,048,563.00 has been approved leaving the amount of P13,257,941.00 as unauthorized deduction representing Income from non- registered operations <Exhibit "G"; C.T.A. Records, p. 164) .

DECISION - C.T.A. Case No. 4063 - 4- Based on that letter, respondent computed the amount refundable to the petitioner as follows: (Exhibit "H" C.T.A. Records, pp. 165-166) Income from non-registered P13,257,941.00 operations p 3,087,854.11 Income from technical services P16,345,795.11 p 5,711,028.00 Tot a I income subject to regu Iar corporate Income tax rates p 6,274,100.53 p 563,072.53 Tax due thereon P6,273,185.00 Less: Payments 915.53 Quarterly payments Expanded withholding tax Net refundable amount Respondent recommended that the cJaim for the 1984 Income tax refund "be reduced to only P536,072.53 without prejudIce to the rIght of the subject taxpayer to f I Ie a subsequent ,protest demanding the detal Is of the B.O. I.'s computation of the aforementioned unauthorized deduction". <Exhibit "H", Ibid) Dissatisfied with the recommendation, petitioner filed before the B.O. I. a request for the approval of the disallowed portion of RIT In the amount of P13,257,941.00 (Exhibit "J", C.T.A. Records, p. 168). The hearings of this case were repeatedly postponed due to the late release of resolutlon . from the B.O.I. On May 20, 1992, petitioner filed Its Formal Offer of Exhibits for which this Court totally admitted In a Resolution . dated September 1, 19~2. Among the exhibits offered were two letters from the B.O. 1., both dated December 6, 1990, one addressed to the petitioner and the r!. I-. -1 {:l, I

DECISION - C.T.A. Case No. 4063 - 5- other, to the respondent (Exhibits "M" and "N"; C.T.A. Records, pp 182-183). In the said letters, the B.O.I. reduced the unauthorized deduction from P13,257,941.00 to P6,938,236.00. Respondent waived presentation of evidence and submitted her case for decision without memorandum (January 21, 1993 Session, C.T.A. Records, p. 200). On June 15, 1993, this Court considered this case submItted for decIsIon for fa I I ure on the part of the petitioner to file its memorandum within the allowed period . The sole issue for determination of this Court Is whether or not petitioner is entitled to a tax credit in ~he total amount of P5,594,137.5~ representing overpaid income tax for 1984. It is undisputed that petitioner is a registered pioneer Industry under P.O. No. 1789, otherwise known as the Omnibus Investment Code of 1981. Article 49(d) of ..... the said Code provides: ART. 49. Incentives to Registered Export Traders. - A registered export trader shal I be entitled to: XXX XXX XXX (d) For the first five(5) years from registration or commercial operation, to deduct from its taxable income from the domestic and export sales as wei I as income from other registered operations, in addition to the normal deduction allowed by the National Internal Revenue Code, an amount equivalent to h' ,' (..I, U

DECISION - C.T.A. Case No. 4063 - 6- twenty per cent (20%) of Its total export sales: Provided, That the Board upon app I I cat I on of the registered export trader may grant to registered export producer exporting products through the registered export trader not more than 10% of this deduction irrespective of whether the registered export producer has been registered or In commercial operation for five (5) years: Provided, further, That the deduction of the registered export producer shall be applicable to Its registered operations only; XXX XXX xxx" The said statute excluded some portions of the petitioner's Income from the computation of income tax. <Gonzales and Gonzales, National Internal Revenue Code, 1984 Rev. Ed. p. 79) The only reasons for the respondent's objection In granting the refund or tax credit in full amount are the �B.O.I. 's � disapproval of unauthorized deductions and petitioner's technical services income. However, In respondent's recommendation, she stated that the reduced amount of refund amounting to P563,072.53 was "without prejudice to the right of the subject taxpayer to file a subsequent protest demanding the details of the B.O. I.'s computation of the aforementioned unauthorized deduction" (Exhibit "H", supra>. The evidence submitted by the petitioner showed that It requested the B.O.I., in a letter dated September 18, 1989, to appr.ove the dlsal lowed portion of Its RIT amounting to P13,257,941.00. <Exhibit "J", C.T.A. Records, p. 168). ( j I ,- h., ~ J

DECISION - C.T.A. Case No. 4063 - 7- The B.O. I., on December 6, 1990, approved the amount ~ of P6,319,705.00 by reducing the unauthorized deduction from P13,257,941.00 to P6,938,236.00 � after considering the financial statements submitted by the petitioner. <Exhibit "M", C.T.A. Records, p. 182) Based on the B.O.I.'s resolution, the tax credit In favor of the petitioner should be P2,774,968.99 computed as fo I Iows: Unauthorized qeductlon p 6,938,236.00 Technical services income 3,087,854.11 Total Income from P10,026,090.00 non-registered operations 3,499,131.54 6,274,100.53 Tax due thereon Deduct: Payments p 2,774,968.99 Net refundable amount This Court, as a judicial body, adheres to a wei 1- established principle that findings of administrative agencies like B.O.I. or B. I. R. which have expertise because their jurisdiction Is confined to specific matters are generally accorded not only respect but even final lty and they may be disturbed or set aside by the judicial department only If there Is a clear error of law, or abuse of power, or lack of jurisdiction, or grave abuse of discretion. (Sesbreno vs. Ala 208 SCRA 359, Peralta vs. Clvl I Service Commissioner 212 SCRA 425, VI I lanueva, Sr. vs. Leogardo, Jr. 215 SCRA 835). With regard to technical services Income In the amount of P3,087,854.11, well settled Is the rule that refund partakes of the nature of a tax exemption and 2lj u

DECISION - C.T.A. Case No. 4063 - 8- therefore cannot be allowed unless grant,ed in the most expl lclt and categorical language. The grant of refund privileges must be strictly construed against the taxpayer. (Insular Lumber Co. vs. Court of Tax Appeals 104 SCRA 710 , Commissioner of Internal Revenue vs. Rio Tuba Nickel Mining Corporation 207 SCRA 549) Moreover , petitioner did not question the additional P3,087,854.11 as part of its Income from non-registered operations. It did not even bother to submit a memorandum to support its case. WHEREFORE, In view of all the foregoing, the respondent is hereby ORDERED to issue In favor of the petitioner a tax credit in the amount , of P2,774,968.99 � 'representing overpaid income tax for the taxable year 1984. SO ORDERED. / Quezon City , Metro Mani Ia , Apri I 4, 19'94. .. ~. 'o.1".D~E~ Associate Judge WE CONCUR: ~Q.~ ERNESTO D. ACOSTA Presiding ~l GRUBA Associate Judge

�. DECISION - C.T.A. Case No. 4063 - 9- CERTIFICATION hereby certify that this decision was reached after due consultation among the members of the Court of Tax Appeals in accordance with Section 13, Article VI I I, of the Constitution. 0 0 ~-0 -:---(9D. . -J-.- ACOSTA Presiding Judge Court of Tax Appeals