BANK OF AMERICA NT & SA v. COMMISSIONER OF INTERNAL REVENUE

I ./ REPUBLIC OF THE PHILIPPI ES COURT OF TAX APPEALS QUEZON CITY BANK OF AMERICA NT & SA, Petitioner, -versus- C.T.A. CASE NO. 5557 THE COMMISSIONER OF Promulgated: INTERNAL REVENUE, UL 0 6 2000 (9< Respondent. 7- - x- - ----------------------------- - - - - - - ---- - - ---- - - - ---------x DECISION This is a petition which seeks the refund or issuance of a tax credit ccrtificttc in t1c amount of Pl,538,958.17, allegedly representing overpaid gross receipts tax for the quarter ended September 30, 1995. The antecedent facts follow. Petitioner is the Manila branch of Bank of America NT & SA, a bank inco; por::cd and existing under the laws of the United States of America. It is l icensed to c!v bw;iiF.:-;s ,, in the Philippines by the Securities and Exchange Commission, in accordance \�ViLh the laws of the Republic of the Philippines. On October 20, 1995, Petitioner fileo its Quarterly Percentage Tax rzeturn F,)r the quarter ended September 30, 1995 (Exh. C) and paid gross receipts lax (CiRT) lutnilin:__ P6,759,179.17, detailed as follows: 10UO

DECISION- CTA CASE NO. 5557 PAGE2 Interest, Commission and Gross Receipts Tax Rttc Tax DllC Discount on Gross Receipts P72,223,124.38 5% PJ,6 11,156.22 Short-term Maturity LN 274,073.62 S,222.21 Medium-term Maturity LN 96,371.45 3% 963.71 Long-term Maturity LN 743,686.55 1(/)'o Over Seven (7) Years LN 62,776,740.65 00'/.0 0.00 Other Income 5% _1,_1 JR,JU7.03 Tax Paid r__,2SCJ,J!2.J} On March 4, 1996, however, Petitioner filed an amended Quarterly Pc;�een::.:: Tx Return for the quarter ended September 30, 1995 (Exh. A). The Jmcndmcnt wa; h<�otlL1lL about by an alleged error made in the Original return when the ckfcrrcd itKOi1l'. Lax expense amounting to P30,779,163.43 (Exh. D-1) was included in the "OU:.-;- Lico:l::.:" account of Petitioner for purposes of computing the GRT. Consequently, tli-.: L,r'-':>:> receipts tax due from the Petitioner for the said quarter was reduced to P5,220,22l.OO, broken down as follows: Interest, Commission and Gross Receipts 5% P3,61J,l5G.22 Discount on Gross Receipts P72,223,124.38 3% 0,222.2] Short-term Maturity LN 274,073.62 Medium-term Maturity LN 96,371.45 1% 9u3.7l Long-term Maturity LN 743,686.55 0% o.co Over Seven (7) Ycars LN 31,997,577.22 5'% __L.2.:' S7ii .,di Other Income L)-l t"o'J Tax Paid On March 8, 1996, Petitioner filed with Revenue District 0 !Tice No. 50 of the Bureau of Internal Revenue, a claim for the refund of its overpaid gross receipts tax Cor the third quarter of 1995 in the amount of Pl ,538,958.17 (Exh. E), co:11put<>.! s :�:)l k�w:;:

DECISION- CTA CASE NO. 5557 PAGE3 GRT per original return P6,759,179.17 GRT per amended return Overpayment 5,22022 LQ.Q p 1_,_5_3j5h9 8.Jl There being no action on the part of herein Respondent, the instant Pctilion \\lls filed on October 20, 1997. In his Answer, Respondent raised the following Spscial and Affirmative Defenses: "4. Petitioner's claim for refund or 1ssuanee of tax credit ccrti:icatc 1s subject to and yet under administrative investigation; 5. In an action for tax refund or credit, the taxpayer ha:-; the ln;;(!' :1 of' showing that the taxes paid were erroneously collected t;H.i !li:L�i,: :o sustain said burden is fatal to the action; 6. Claims for refund/credit are construed strictly against claim;-1:.; si;1..: they are in the nature of tax exemption. They cannel be aJlo'.':�-�d unless granted in the most explicit and categorical language. U��Lni l:.1 Electric Co. vs. Commissioner oflnternal Revenue, '17 SCRA 351).'' The sole issue We are tasked to resolve is whether or not Petitioner is cntitL�d to tb refund of its alleged overpaid gross receipts tax arising from an erroneous inc!u:;io;l o[ t:1c deferred income tax expense in the computation of the gross receipts tax on the ba:::.; of the evidence presented. To suppmt its case, Petitioner submitted the following: Exhibits Description A B Amended Quarterly Percentage Tax Return for the qu;u�:er c!(kd September 30, 1995 Worksheet on Gross Receipts Tax CompuLltiun 10U2

DECISION- CTA CASE NO. 5557 PAGE4 c QuatterlyPercentage Tax Return for the quarter cmkd Scptcmb.:r: 30, 1995 D Worksheet on Gross Receipts Tax Computation E Letter-claim for Refund on Overpaid GRT addressed to the I3 U.. dated March 8, 1996. Petitioner likewise presented its Assistant Vicc-Prc::;idcnt fer Fin:t:;c-.:, .is. Ma. Christina del Carmen, who testified, among others, on the contents or ll;c Qu:; lcr:y Percentage Tax Return, original and amended, as well as on tl;c alleged ovcqtym�.::<1l or gross receipts tax (see TSN dated February 12, 1998). Respondent, on his part, submitted his case based on the plcaclinr;s a; he \';:::; not able to get hold ofthe records of the case (p. 65, CTA Records). After a caref-ul evaluation of the evidence adduced by Petitioner, this Court finJ:; against the latter. While both the administrative and judicial claims for refund filed by Pcli:-0:;�:;� on March 8, 1996 (Exh. E) and October 20, 1997, respective l y, bll w:Lhin the \VJ-)'(tr prescriptive period counted from October 20, 1995, the date when Petitioner's i9S'5 U:ird ', qmutcr GRT payment was made (Exh. C), the latter, however, fa1icd to ::;ub:.,LliltiaLc iL:.; claim. That Petitioner actually paid gross� receipts tax of P6,759, 179.17 ;; ;� ll:c tL::u quarter of 1995 is not disputed. The said amount included the 5% G !\T p:tymcnt of P3,138,837.03 on its Other Income ofP62,776,740.65 as shown in its original Qu:.:rtcrly Percentage Tax Return for the same period (Exh. C). Dul the probkm lies on tbc 1003 J

DECISION- CTA CASE NO. 5557 PAGES evidence submitted by Petitioner to prove the inclusion of the amount of Deferred Income Tax Expense in its Other Income account which resulted to the overpayment of the gross receipts tax. Petitioner merely presented the worksheet showing how the total earnings subjected to the gross receipts tax with the corresponding tax due 'vVas arrived at (Exb. D). The said worksheet showed that an amount of P30,779, 1 63A3 t.cscribcd GS "Inc. Tx. E7xp.-Fgn-Deferred" (Exh. D-1) was included as one of the income items subjected to gross receipts tax. Petitioner contended that the said amount refers to a lk:l"l:rrccl income tax expense account and was erroneously treated as an income item in computing the GRT. However, based on this document alone, this Court cannot verily whether the soid amount is actually a deferred income tax expense and no1: an income ilc:n suhjecL to GRT. Petitioner failed to submit the underlying documents from which the ,;iwunt of P30,779,163.43 was based. And in its attempt to fmiher prove its case, Petitioner's lone vvitncs:.;, f,'is. Chri:,tina l del Carmen, was recalled to the witness stand on August 24, 1999 to testi y on the nature of deferred income tax expense, thus: "ATT�: ALCAZAR: Q. Ms. Witness, during the last hearing on february 12, 1 998, you testified that the overpayment of GRT arose f;�om t:>c en-oneous inclusion of the deferred income (lX C:\ r::n: :.;c- Gi t.h;; items of Gross Receipts subjected to GRT ll.)r lLc 'E:i�d Quarter of 1995, is that correct, ivis. �witness? MS. DEL CARMEN: A. Ys, that is correct. lOUij

DECISION- CTA CASE NO. 5557 PAGE6 Q. What particular item of Gross Receipts was th i :; Dc1crrtd :llcomc Tax erroneously included? A. It was included on the "Other Income" portion. Q. Why was the inclusion of the Deferred Income T;-:x cxpcnc iu n..: computation of the GRT erroneous? A. Because the Deferred Income Tax is an unrcl!izeu Lax cxpc:1:.c;. which we compute on unrealized income. Q. Ms. Witness, could you please tell this Court the nn:urc or ih:s deferred income tax expense which caucd the 0\'erpay:ncnl of GRT? A. Deferred Income Tax is a financial accounting pr:ctice \Vlh:;�c \YC are required to assess the tax effects on umc:lit.cd inc:o:11':. Q. How do you determine or compute the amount oi co'r..�,::, '; deferred income tax? A. We calculate the income that we expect to receive at a future c.btc and subject to the 33% income tax rate. Q. Why does your company provide for this Deferred lncomc Tdx Account? A. It is generally accepted accounting practice that we arc required o do so. Q. You said earlier that the unrealized DeferrcJ Income Tax Expcn:>c ,' is computed from the umealized income, is that corrccl, Ms. Witness? A. Yes, that is correct. Q. Could you elaborate further on that? A. For example: We have assets which earn interest income. Up tv a certain point, up to the present elate or mca::;uring <L!c, il i:; ilK0!:1C that is already earned. Since the asset willm:turc at a Ltlmc cblc, w have income that we expect to receive. So, it is still UJJrr::llizcd 10U5

r DECISION- CTA CASE NO. 5557 PAGE7 income. So income such as this is subjected Lo u JJ<Yu t�t:�: r:1 . ml .. this we record/book as a Deferred lncomc Tax." XXX XXX XXX XXX "ATTY. NAPUTO: Where does the unrealized income come in? MS. DEL CARMEN: Unrealized Income, in our Accounting Books, we have incom e that we already realized like on loans that have matured and vven; already paid, we have interest income. But on loans and securities that have to mature at a future dLllc, Y.'C ;:lVC unearned income, income that is still u;:::ollcdccl. V/-.: d:.;o have unrealized income like when we do revaluation of our forward contracts based on the foreign exchange 1Ac we h;wc either unrealized gains or losses. We alo do that on sccl'riLics. So, the portion that is still unrealized bcemsc the nsset is maturing at a future date, that is the unrealized income portion. ATTY. NAPUTO: You mentioned forward contracts, what relation has it got to do with what you are testifying right now? MS. DEL CARMEN: When we compute deferred tax, forward contract is one of the items we take into account. We do monthly mark to market on ,' our forward contract to assess if we arc gaining or lo::;ing on these contracts that have not yet matured. So when \\'C revalue this contracts and we sec that there is a gain it still is not realized because the contrac t will mature at a future date. I3ut for :financial accounting purposes, it is book.cd as unrealized gain on the forward contract and then, we c<dculatc the deferred tax on that assuming it realized. Thtt's just ::m example of our unrealized income." (TSN, August 24, 1999, pages 4 to G ; 11 to l2) .lOUG

r DECISION- CTA CASE NO. 5557 PAGE 8 Unfortunately, though, this Court finds the above testimony unst1pportt:d l1y documentary proofs as inadequate to establish PetiLioner's claim. Except for the worksheets which to Us are self-serving, nothing more was presented by Petitioner to bolster its claim and convince this Court that indeed, there was an erroneous inclusioil in the Other Income account of a deferred income tax expense that resulted to an overpayment of gross receipts tax. "A claim for refund partakes of the nature of an exemption which crumot be allowed unless granted in the most expl icit mJ categorical language. Being in the nature of an exemption from taxa lien, a claim L;r refund is strictly construed against the claimant and the fa;!u��_; a discharge said burden is fatal to the claim (Emmanuel & Zenaida i\:_:,uilar v. Commissioner, CA-GR No. Sp. 16432, March 30, 1990, cited in the L:w of Basic Taxation, Aban, p. 206). WHEREFORE, in view of the foregoing, the instant Petition lor Revie\V is hereby DENIED for insufficiency of evidence. SO ORDERED. EKNESTO D. ACOSTA Presiding Judge WE CONCUR: .o:t./ . p I MONO.DEV RA Associate Ju e .Al ANC IO Assoeiate Judge

( DECISION- CTA CASE NO. 5557 PAGE9 CERTIFICATION I hereb y certify that the above decision was reached after due cousul:ation '.\�ith the members ofthe Court ofTax Appeals in accordance with Section 13, Article Vlli of the Constitution. L�u.- 0 . ERNESTO D. ACos�:�A Prcsidint;, .J w:l.c 1UU6