GOLDEN ARCHES DEVELOPMENT CORPORATION v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY GOLDEN ~RCHES DEVELOPMENT C.T.A. CASE NO. 5484 CORPORATION, Pro11ulgated: Petit i onet~, HAR 26 1999 - Vel�'SUS - THE COMMISSIONER OF INTERNAL REVENUE, Respondent. X- - - - DECISION This case involves a judicial action for the refund or issuance of a tax credit certificate in the sum of P2,556,063.00, representing overpaid income tax resulting from an excess payment of creditable withholding taxes for the calendar year ended December 31, 1'3'34. Petitioner is a domestic corporation duly organized and existing under the laws of the Phil ippines with office address located at 17th Flr., Citibank Center, Paseo de Roxas, Makati City. It is engaged in the business, among othet~s, to lease real and personal properties <Exhs. A and A-1). On 17' 1'3'35, Petitioner filed its 1'3'34 Corporation Annual Income Tax Return reflecting a net income in the sum of P22,056,411.00 with a corresponding tax liability of P7,71'3,744.00 but with a refundable income tax payment in the amount of P34, 178,711.00, detailed as follows: CExhs. B, B-1 to B-5a)

DECISION - - 2- C.T.A. CASE NO. 5484. P248, 1451042.00 Gross Inco1e 65,329.00 Rent, Lease, etc. (Sch. 3) Sales of property (Sch. 5) P2481210,371. 00 Total 266, 153,960.00 p 22,056,411.00 Less: Deductions Net Inco1e Tax Due (P2210561 411.00 x 35j) p 7,719,744.00 Less: Tax Credits/Pay�ents (Fro� Section El 41,898,455.00 a. Prior year's excess credit P31,6221 648.00 p 34,178,711.00 b. Quarterly pay1ents 1ade this year c. Creditable tax withheld 10,275,807.00 Total A1ount Refundable On Ma..-~ch 21, 1'3'36, Petitionet~ filed a lettet~ claim for refund with the Bureau of Internal Revenue covering its 1'3'34 overpaid creditable withholding tax at source in the amount of P2,556,063.00, computed as follows: <Exh. G> 1'3'34 Tax Due p 7,71'3,744.00 Less: 1'3'34 Creditable Tax Withheld 10,275,807.00 Amount Refundable p 2,556,063.00 The inaction of the Respondent on the aforementioned claim for refund, compelled Petitioner to file the instant Petition for Review on April 7, 1'3'37 in order to preserve its right to judicially claim for the refund of said amount pursuant to Section 230 of the Tax Code, as amended. Respondent, in his Answet~, raised as special and affirmative defenses, that Petitioner's claim for refund

DECISION - C.T.A. CASE NO. 5484. - 3- is still undergoing administrative investigation; taxes paid and collected are deemed to have been made in accor~dance with law and per~t in ent existing BIR regulations; claims for tax refund/credit are construed strictly against the claimants; it is incumbent upon Petitioner~ to show that it has complied with the provisions of Section 204 in relation to Section 230 of the Tax Code, as amended; and the claim for taxes paid prior to April 7, 1995 are already barred by prescription pursuant to section 230 of the Tax Code, as amended. The issues posed before Us are as follows: 1. Whether or not Petitioner is legally entitled to the claim for refund; and ..:-:. .. Whether or~ not Petitioner was able to substantiate its entitlement thereto. Petitioner is firm in its stand that it is entitled to the refund sought. It cites as legal basis, Section 69 of the 1994 Tax Code, as amended, to wit: Sec. 69. Final adjustment return. Every corporation liable to tax under Section 24 shall file a final adjustment return covering the total income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable income of that year the corporation shall either: (a) Pay the excess tax still due; or

DECISION - C. T. A. CASE NO. 5484. 4- (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 succeeding taxable year. (Underlining supplied). Petitioner further submitted various documents in support of the claim for refund, to wit: 1. Amended Articles of Incorporation <Exhs. A and A-1) ; 2. Corporation Annual Income Tax Returns for 1994 and 1995 CExhs. B, D, and F, inclusive of sub-mat~kings); 3. Various Certificates of Creditable Income Tax Withheld at Source <Exhs. C to C-22); and 4. Letter~-claim for refund with the Bureau of Internal Revenue <Exh. G). Respondent, on the other hand, is convinced that Petitioner is no longer entitled to the refund of P2,556,063.00. He presented in evidence the memorandum submitted by Revenue Officer, Juan D. Yap, Jr., dated May 15, 1998, recommending the setting aside of the instant claim, although found to be t enc3bl e, pending the settlement of value-added tax liability in the amount of P37, 108,501.00 <E><hs. 1, 1-a, 1-b, 5, and 5-a).

DECISION - C.T.A. CASE NO. 5484. - 5- It appear~s then, that the only hindrance why Petitioner cannot be accorded a refund is the existence of a probable assessment for deficiency value-added tax. Be that as it rna y, no formal assessment has been issued by the Respondent to Petitioner at the time this case was submitted for decision. We are then confronted only with the determination of the legal and factual bases of Petitioner's cause that is, to determine whether or not it has successfully established the right to the refund based on the evidence presented <PERF Realty Corporation vs. Commissioner of Internal Revenue, CTA Case No. 4680, June 28, 1995). Based on Section 69 of the 19'34 Tax Code, as amended, a taxpayer is entitled to a refund of excess income tax payment of a given year which was not applied as an automatic tax credit against the tax liability of the succeeding taxable year. In the case at bar, Petitioner~ has successfully established that its excess income tax payment for~ the year 1'3'34 was not utilized in ca 1 end at~ yeat~ 1'395 due to the net loss position of Petition et~ in 1'395 <Exhs. D and F, inclusive of sub- mat~k i ngs), thus, legally entitling Petitioner to the r~efund sought.

DECISION - C.T.A. CASE NO. 5484. - 6- As regards the substantiation requirements, which is the second issue at bar, the following requisites have to be met: 1. That it filed a claim for refund within the two (2) year period from date of payment of the tax as prescribed under Section 2'3'3 <now 230) of the National Internal Revenue Code, as amended; 2. That the income upon which the taxes were withheld at source under Section 53 were included as part of the income declared in the income tax return of the recipient; and 3. The fact of withholding is established by a copy of statement <BIR Form 1743. 1) duly issued by the payor (withholding agent) to the payee, showing the amount paid and the amount of tax withheld therefrom. [Sec. 10, Rev. Reg. 6-85; see Ci tytrust Finance Corporation vs. The Commissioner of Internal Revenue, CTA Case No. 4134, Nove�ber 11, 1991; affirmed by the Court of Appeals in Citytrust Finance Corporation vs. Court of Tax Appeals and the Co�missioner of Internal Revenue, CA-G.R. SP No. 28239, March 14, 1994; and Citytrust Finance Corporation <Formerly Investor's Finance Corporation/FNCB Finance> vs. Co��issioner of Internal Revenue, CTA Case No. 4046, February 24, 1993; affir�ed by the Court of Appeals in Com�issioner of Internal Revenue vs. Citytrust Finance Corporation <Formerly Investors Finance Corporation/FNCB Finance) and the Court of Tax Appeals, CA-G.R. SP No. 31104, April 18, 1994]. Petitioner satisfactorily complied with the first requirement when it filed its claims for refund with the Bureau of Internal Revenue and in this Court within the two-year period. The letter-claim for refund with the BIR was filed on March 21, 1'3'36 and the instant petition

DECISION - C.T.A. CASE NO. 5484. - 7- for review on April 7, 1997. The two-year period com menced to run on April 17' 1995, the date when Petit i onet~ filed its 1994 annual income tax return <Commissioner or Internal Revenue v. TMX sales, Inc. et al., G.R. No. 837736, Januar y 15, 1992 ) . As to the second requirement, Petitioner was able to show that the income payments upon which the creditable withholding taxes for 1994 were paid were included in the !;WOSS income pot~tion of Petitioner's annual income tax retut~n. This was testified to by Petitioner's witness, Cot~n e 1 i a M. Naguit, and, as vet~ified, was duly reflected in s Petitionet~' 1994 income tax return <TSN, Octobet~ 21, 1997, pp. 19 to 21; and Exh. B-3). And lastly, the 1994 creditable withholding taxes at in the total amount of P10,275,807 was duly by Cet~tificates of Ct~editable Income Tax Withheld at Source CExhs. C, C-1 to C-22). WHEREFORE , in view of the foregoing, and as prayed jugdment is hereby rendered ordering Respondent to REFUND m~ t o ISSUE a tax credit certificate in favor of Petitionet~ in the sum of P2,556,063.00 representing overpaid income tax for the calendar ye r 1994. SO ORDERED. 'I. # RA~O. D~ Associate Jud 8

DECISION - C.T.A. CASE NO. 5484. - 8- ERNESTO D. ACOSTA Pt~esiding 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. Q - .-;:;---0- Q ~ ERNESTO D. ACOSTA P-r~esiding Judge Court of Tax Appeals