G.R. No. 206526 January 28, 2015 SEC. 76.Final Adjustment Return.
SEC. 76.Final Adjustment Return. Every corporation liable to tax under Section 27
WINEBRENNER & IIGO INSURANCE BROKERS,
INC., Petitioner, vs.COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
MENDOZA, J.:
In this petition for review under Rule 45 of the Rules of Court and Rule 16 of the
Revised Rules of the Court of Tax Appeals, Winebrenner&Ifiigo Insurance Brokers,
Inc. (petitioh ner) seeks the review of the March 22, 2013 Decision1 of the Court of
Tax Appeals En Banc (CTA-En Banc). In the said decision, the CTA-En Banc affirmed
the denial of petitioner's judicial claim for refund or issuance of tax credit certificate
for excess and unutilized creditable withholding tax (CWT) for the 1st to 4th quarter
of calendar year (CJ} 2003 amounting toP4,073,954.00. In denying the refund, the
CTA-En Banc held that petitioner failed to prove that the excess CWT for CY 2003 was
not carried over to the succeeding quarters of the subject taxable year. Under the
1997 National Internal Revenue Code (NJRC), a taxpayer must not have exercised the
option to carryover the excess CWT for a particular taxable year in order to qualify for
refund.
The Factual Antecedents
On April 15, 2004, petitioner filed itsAnnual Income Tax Return for CY 2003.
About two years thereafter or on April 7, 2006, petitioner applied for the
administrative tax credit/refund claiming entitlement to the refund of its excess or
unutilized CWT for CY 2003, by filing BIR Form No. 1914 with the Revenue District
Office No. 50 of the Bureau of Internal Revenue (BIR).
There being no action taken on the said claim, a petition for review was filed by
petitioner before the CTA on April 11, 2006. The case was docketed as CTA Case No.
7440 and was raffled to the Special First Division (CTA Division).
On April 13, 2010, CTA Division partially granted petitioners claim for refund of
excess and unutilized CWT for CY 2003 in the reduced amount of P2,737,903.34 in its
April 13, 2010 Decision2 (original decision). The dispositive portion of the decision
reads:
In view of the foregoing, the Petition for Review is hereby PARTIALLY GRANTED.
Accordingly, respondent is hereby ORDERED to REFUND or ISSUE A TAX CREDIT
CERTIFICATE in favor of the petitioner in the reduced amount of P2,737,903.34
representing its excess/unutilized creditable withholding taxes for the year 2003.
SO ORDERED.3
Petitioner filed a Motion for Partial Reconsideration with Leave to Submit
Supplemental Evidence. It prayed that an amended decision be issued granting the
entirety of its claim for refund, or in the alternative, that it be allowed to submit and
offer relevant documents as supplemental evidence.
Respondent Commissioner of Internal Revenue (CIR) also moved for reconsideration,
praying for the denial of the entire amount of refund because petitioner failed to
present the quarterly Income Tax Returns (ITRs) for CY 2004. To the CIR, the
presentation of the 2004 quarterly ITRs was indispensable in proving petitioners
entitlement to the claimed amount because it would prove that no carry-over of
unutilized and excess CWT for the four (4) quarters of CY 2003 to the succeeding four
(4) quarters of CY 2004 was made. In the absence of said ITRs, no refund could be
granted. In the CIRs view, this was in accordance with the irrevocability rule under
Section 76 of the NIRC which reads:
TaxRemedies_new cases1
shall file an adjustment return covering the total taxable 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 balance of tax still due; or
(B) Carry-over the excess credits; or
(C) Be credited or refunded with the excess amount paid, as the case may be.
In case the corporation is entitled to a tax credit or refund of the excess estimated
quarterly income taxes paid, the excess amount shown on its final adjustment return
may be carried over and credited against the estimated quarterly income tax liabilities
for the taxable quarters of the succeeding taxable years. Once the option to carry-
over and apply the excess quarterly income tax against income tax due for the
taxable quarters of the succeeding taxable years has been made, such option shall be
considered irrevocable for that taxable period and no application for cash refund or
issuance of a tax credit certificate shall be allowed therefor.
On July 27, 2011, the CTA-Division reversed itself. In an Amended Decision,4 it
denied the entire claim of petitioner. It reasoned out that petitioner should have
presented as evidence its first, second and third quarterly ITRs for the year 2004 to
prove that the unutilized CWT being claimed had not been carried over to the
succeeding quarters. Thus:
WHEREFORE,in view of the foregoing, petitioners Motion for Partial Reconsideration is
hereby DENIED while respondents Motion for Reconsideration is hereby GRANTED.
Accordingly, the Decision dated April 13, 2010 granting petitioners claim in the
reduced amount of P2,737,903.34 is hereby REVERSED AND SET ASIDE.
Consequently, the instant Petition for Review is hereby DENIEDdue to insufficiency of
evidence.
SO ORDERED.5
Aggrieved, petitioner elevated the case to the CTA EnBancpraying for the reversal of
the Amended Decision of the CTA Division.
In its March 22, 2013 Decision,6 the CTA-EnBancaffirmed the Amended Decision of
the CTA-Division. It stated that before a cash refund or an issuance of tax credit
certificate for unutilized excess tax credits could be granted, it was essential for
petitioner to establish and prove, by presenting the quarterly ITRs of the succeeding
years, that the excess CWT was not carried over to the succeeding taxable quarters
considering that the option to carry over in the succeeding taxable quarters could not
be modified in the final adjustment returns (FAR).Because petitioner did not present
the first, second and third quarterly ITRsfor CY 2004, despite having offered and
submitted the Annual ITR/FAR for the same year, the CTA-En Banc stated that the
petitioner failed to discharge its burden, hence, no refund could be granted. In
justifying its conclusions, the CTA-EnBanccited its own case of Millennium Business
Services, Inc.v. Commissioner of Internal Revenue (Millennium)7 wherein it held as
follows:
Since the burden of proof is upon the claimant to show that the amount claimed was
not utilized or carried over to the succeeding taxable quarters, the presentation of the
succeeding quarterly income tax return and final adjustment return is indispensable
to prove that it did not carry over or utilized the claimed excess creditable withholding
taxes. Absent thereof, there will be no basis for a taxpayers claim for refund since
there will be no evidence that the taxpayer did not carry over or utilize the claimed
excess creditable withholding taxes to the succeeding taxable quarters.
Significantly, a taxpayer may amend its quarterly income tax return or annual income
tax return or Final Adjustment Return, which in any case may modify the previous
intention to carry-over, apply as tax credit certificate or refund, as the case may be.
But the option to carry over in the succeeding taxable quarters under the
irrevocability rule cannot be modified in its final adjustment return.
The presentation of the final adjustment return does not shift the burden of proof that
the excess creditable withholding tax was not utilized or carried overto the first three
(3) taxable quarters. It remains with the taxpayer claimant. It goes without saying
that final adjustment returns of the preceding and the succeeding taxable years are
not sufficient to prove that the amount claimed was utilized or carried over to the first
three (3) taxable quarters.
The importance of the presentation of the succeeding quarterly income tax return and
the annual income tax return of the subsequent taxable year need not be overly
emphasized. All corporations subject to income tax, are required to file quarterly
income tax returns, on a cumulative basis for the preceding quarters, upon which
payment of their income tax has been made. In addition to the quarterly income tax
returns, corporations are required to file a final or adjustment return on or before the
fifteenth day of April. The quarterly income tax return, like the final adjustment
return, is the most reliable firsthand evidence of corporate acts pertaining to income
taxes, as it includes the itemization and summary of additions to and deductions from
the income tax due. These entries are not without rhyme or reason. They are
required, because they facilitate the tax administration process, and guide this Court
to the veracity of a petitioners claim for refund without which petitioner could not
prove with certainty that the claimed amount was not utilized or carried over to the
succeeding quarters or the option to carry over and apply the excess was effectively
chosen despite the intent to claim a refund.
In the same vein, if the government wants to disprove that the excess creditable
withholding tax was not utilized or carried over to the succeeding taxable quarters,
the presentation of the succeeding quarterly income tax return and the annual income
tax return of the subsequent taxable year indicating utilization or carrying over are
[sic] indispensible. However, the claimant must first establish its claim for refund,
such that it did not utilize or carry over or that it opted to utilize and carry over to the
1 st, 2nd, 3rd quarters and final adjustment return of the succeeding taxable year.
Concomitantly, the presentation of the quarterly income tax return and the annual
income tax return to prove the fact that excess creditable withholding tax was not
utilized or carried over or opted to be utilized and carried over to the 1st, 2nd, 3rd
quarters and final adjustment return of the succeeding taxable quarter is not only for
convenience to facilitate the tax administration process but it is part of the requisites
to establish the claim for refund. Section 76 of the NIRC of 1997 provides that if the
taxpayer claimant carries over and applies the excess quarterly income tax against
the income tax due for the taxable quarters of the succeeding taxable years, the
same is irrevocable and no application for cash refund or issuance of a tax credit
certificate shall be allowed.8
Hence, this petition.
Noteworthy is the fact that the CTA-EnBancruling was met with two dissents from
Associate Justices Juanito C. Castaeda (Justice Castaeda) and Esperanza R. Fabon-
Victorino (Justice Fabon-Victorino).
In his Dissenting Opinion9 which was concurred in by Justice FabonVictorino, Justice
Castaeda expressed the view that the CTA-En Banc should have reinstated the CTA-
Divisions original decision because in the cases of Philam Asset Management Inc. v.
Commissioner of Internal Revenue (Philam);10 State Land Investment Corporation v.
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Commissioner of Internal Revenue (State Land);11 Commissioner of Internal Revenue
v. PERF Realty Corporation (PERF Realty);12 and Commissioner of Internal Revenue v.
Mirant (Philippines) Operations, Corporation (Mirant),13 this Court already ruled that
requiring the ITR or the FAR for the succeeding year in a claim for refund had no
basis in law and jurisprudence. According to him, the submission of the FAR of the
succeeding taxable year was not required under the law to prove the claimants
entitlement to excess or unutilized CWT, and by following logic, the submission of
quarterly income tax returns for the subsequent taxable period was likewise
unnecessary. He found no justifiable reason not to follow the existing rulings of this
Court. Petitioners reasoning in this petition echoes the dissenting opinion of Justice
Castaneda. It further submits that despite the non-presentation of the quarterly ITRs,
it has sufficiently shown that the excess CWT for CY 2003 was not carried over or
applied to itsincome tax liabilities for CY 2004, as shown in the Annual ITR for 2004 it
submitted. Thus, petitioner insists that its refund should have been granted.
Petitioner further avers, in its Reply,14that even if Millennium Business case was
applicable, such must be given prospective effect considering that this case was
litigated on the basis of the doctrines laid down in Philam, State Landand PERF Realty
cases wherein the submission of quarterly ITRs in a case for tax refund was held by
this Court as not mandatory.
In its Comment,15 the CIR counters that even if the taxpayer signifies the option for
either tax refund or carry-over as tax credit, this does not ipso facto confer the right
to avail of the option immediately. There is a need, according to the CIR, for an
investigation to ascertain the correctness of the corporate returns and the amount
sought to be credited; and part of which is to look into the quarterly returns so that it
may be determined whether or not excess and unutilized CWT was carried over into
the succeeding quarters of the next taxable year. Because the pertinent quarterly
ITRs were not presented, the CIR submits that the petitioner failed to prove its right
to a tax refund.
Issue
The sole issue here is whether the submission and presentation of the quarterly ITRs
of the succeeding quarters of a taxable year is indispensable in a claim for refund.
The Courts Ruling
The Court recognizes, as it always has, that the burden of proof to establish
entitlement to refund is on the claimant taxpayer.16 Being in the nature of a claim for
exemption,17 refund is construed in strictissimi juris against the entity claiming the
refund and in favor of the taxing power.18 This is the reason why a claimant must
positively show compliance with the statutory requirements provided for under the
NIRC in order to successfully pursue ones claim. As implemented by the applicable
rules and regulations and as interpreted in a vast array of decisions, a taxpayer who
seeks a refund of excess and unutilized CWT must:
1) File the claim with the CIR within the two year period from the date of payment of
the tax;
2) Show on the return that the income received was declared as part of the gross
income; and
3) Establish the fact of withholding by a copy of a statement duly issued by the payor
to the payee showing the amount paid and the amount of tax withheld.19
The original decision of the CTA-Division made plain that the petitioner complied with
the above requisites in so far as the reduced amount of P2,737,903.34 was
concerned. In the amended decision, however, it was pointed out that because
petitioner failed to present the quarterly ITRs of the subsequent year, there was an
impossibility of determining compliance with the irrevocability rule under Section 76
of the NIRC as in those documents could be found evidence of whether the excess
CWT was applied to its income tax liabilities in the quarters of 2004. The irrevocability
rule under Section 76 of the NIRC means that once an option, either for refund or
issuance of tax credit certificate or carry-over of CWT has been exercised, the same
can no longer be modified for the succeeding taxable years.20 For said reason, the
CTA-En Banc affirmed the conclusion in the amended decision that because of the
said impossibility, the claim for refund was not substantiated.
The CIR agrees with the disposition of the CTA-En Banc, stressing that the petitioner
failed to carry out the burden of showing that no carryover was made when it did not
present the quarterly ITRs for CY 2004.
Petitioner disagrees, as the dissents did, that the non-submission of quarterly ITRs is
fatal to its claim.
Hence, the issue on the indispensability of quarterly ITRs of the succeeding taxable
year in a claim for refund.
The Court finds for the petitioner.
There is no question that those who claim must not only prove its entitlement to the
excess credits, but likewise must prove that no carry-over has been made in cases
where refund is sought.
In this case, the fact of havingcarried over petitioners 2003 excess credits to
succeeding taxable year isin issue. According to the CTA-EnBancand the CIR, the only
evidence that can sufficiently show that carrying over has been made is to present
the quarterly ITRs. Some members of this Court adhere to the same view.
The Court however cannot.
Proving that no carry-over has been made does not absolutely require the
presentation of the quarterly ITRs.
In Philam, the petitioner therein sought for recognition of its right to the claimed
refund of unutilized CWT. The CIR opposed the claim, on the grounds similar to the
caseathand, that no proof was provided showing the non-carry over of excess CWT to
the subsequent quarters of the subject year. In a categorical manner, the Court ruled
that the presentation of the quarterly ITRs was not necessary. Therein, it was written:
Requiring that the ITR or the FAR of the succeeding year be presented to the BIR in
requesting a tax refund has no basis in law and jurisprudence.
First, Section 76 of the Tax Code does not mandate it. The law merely requires the
filing of the FAR for the preceding not the succeeding taxable year. Indeed, any
refundable amount indicated in the FAR of the preceding taxable year may be
credited against the estimated income tax liabilities for the taxable quarters of the
succeeding taxable year. However, nowhere is there even a tinge of a hint in any
provisions of the [NIRC] that the FAR of the taxable year following the period to which
the tax credits are originally being applied should also be presented to the BIR.
Second, Section 5 of RR 12-94, amending Section 10(a) of RR 6-85, merely provides
that claims for refund of income taxes deducted and withheld from income payments
shall be given due course only (1) when it is shown on the ITR that the income
payment received is being declared part of the taxpayers gross income; and (2)
when the fact of withholding is established by a copy of the withholding tax
statement, duly issued by the payor to the payee, showing the amount paid and the
income tax withheld from that amount.
It has been submitted that Philam cannot be cited as a precedent to hold that the
presentation of the quarterly income tax return is not indispensable as it appears that
TaxRemedies_new cases3
the quarterly returns for the succeeding year were presented when the petitioner
therein filed an administrative claim for the refund of its excess taxes withheld in
1997.
It appears however that there is misunderstanding in the ruling of the Court in
Philam. That factual distinction does not negate the proposition that subsequent
quarterly ITRs are not indispensable. The logic in not requiring quarterly ITRs of the
succeeding taxable years to be presented remains true to this day. What Section 76
requires, just like in all civil cases, is to prove the prima facie entitlement to a claim,
including the fact of not having carried over the excess credits to the subsequent
quarters or taxable year. It does not say that to prove such a fact, succeeding
quarterly ITRs are absolutely needed.
This simply underscores the rulethat any document, other than quarterly ITRs may be
used to establish that indeed the non-carry over clause has been complied with,
provided that such is competent, relevant and part of the records. The Court is
thusnot prepared to make a pronouncement as to the indispensability of the quarterly
ITRs in a claim for refund for no court can limit a party to the means of proving a fact
for as long as they are consistent with the rules of evidence and fair play. The means
of ascertainment of a fact is best left to the party that alleges the same. The Courts
power is limited only to the appreciation of that means pursuant to the prevailing
rules of evidence. To stress, what the NIRC merely requires is to sufficiently prove the
existence of the non-carry over of excess CWT in a claim for refund.
The implementing rules similarly support this conclusion, particularly Section 2.58.3
of Revenue Regulation No. 2-98 thereof. There, it provides as follows:
SECTION 2.58.3. Claim for Tax Credit or Refund.
(A) The amount of creditable tax withheld shall be allowed as a tax credit against the
income tax liability of the payee in the quarter of the taxable year in which income
was earned or received.
(B) Claims for tax credit or refund of any creditable income tax which was deducted
and withheld on income payments shall be given due course only when it is shown
that the income payment has been declared as part of the gross income and the fact
of withholding is established bya copy of the withholding tax statement duly issued by
the payer to the payee showing the amount paid and the amount of tax withheld
therefrom.
x xx x xx x xx
Evident from the above is the absence of any categorical pronouncement of requiring
the presentation of the succeeding quarterly ITRs in order to prove the fact of non-
carrying over. To say the least, the Court rules that as to the means of proving it,
Ithas no power to unduly restrict it.
In this case, it confounds the Court why the CTA did not recognize and discuss in
detail the sufficiency of the annual ITR for 2004,21 which was submitted by the
petitioner. The CTA in fact said:
In the present case, while petitioner did offer its Annual ITR/Final Adjustment Return
for taxable year 2004, it appears that petitioner miserably failed to submit and offer
as part of its evidence the first, second, and third Quarterly ITRs for the year 2004.
Consequently, petitioner was not able to prove that it did not exercise its option to
carry-over its excess CWT.22
Petitioner claims that the requirement of proof showing the non-carry over has been
established in said document.
Indeed, an annual ITR contains the total taxable income earned for the four (4)
quarters of a taxable year, as well as deductions and tax credits previously reported
or carried over in the quarterly income tax returns for the subject period. A quick look
atthe Annual ITR reveals this fact:
Aggregate Income Tax Due
Less Tax Credits/Payments
Prior Years excess Credits Taxes withheld
Tax Payment (s) for the Previous Quarter (s) of the same taxable year other than
MCIT
x xx x xx x xx
Creditable Tax Withheld for the Previous Quarter (s)
Creditable Tax Withheld Per BIR Form No. 2307 for this Quarter
x xx x xx x x x23
It goes without saying that the annual ITR (including any other proof that may be
sufficient to the Court)can sufficiently reveal whether carry over has been made in
subsequent quarters even if the petitioner has chosen the option of tax credit or
refund inthe immediately 2003 annual ITR. Section 76 of the NIRC requires a
corporation to file a Final Adjustment Return (or Annual ITR) covering the total
taxable income for the preceding calendar or fiscal year. The total taxable income
contains the combined income for the four quarters of the taxable year, as well as the
deductions and excess tax credits carried over in the quarterly income tax returns for
the same period.
If the excess tax credits of the preceding year were deducted, whether in whole or in
part, from the estimated income tax liabilities of any of the taxable quarters of the
succeeding taxable year, the total amount of the tax credits deducted for the entire
taxable year should appear in the Annual ITR under the item "Prior Years Excess
Credits." Otherwise, or if the tax credits were carried over to the succeeding quarters
and the corporation did not report it in the annual ITR, there would be a discrepancy
in the amounts of combined income and tax credits carried over for all quarters and
the corporation would end up shouldering a bigger tax payable. It must be
remembered that taxes computed in the quarterly returns are mere estimates. It is
the annual ITR which shows the aggregate amounts of income, deductions, and
credits for all quarters of the taxable year. It is the final adjustment return which
shows whether a corporation incurred a loss or gained a profit during the taxable
quarter.24 Thus, the presentation of the annual ITR would suffice in proving that prior
years excess credits were not utilized for the taxable year in order to make a final
determination of the total tax due.
In this case, petitioner reported an overpayment in the amount of P7,194,213.00 in
its annual ITR for the year ended December 2003:
Annual ITR 2003
Income Tax Due 1,259,259.00
Less: Prior Years Excess Credits (2002 Annual ITR) (4,379,518.00)
Creditable Tax Withheld for the 4th Quarter (4,073,954.00)
Tax Payable / (Overpayment) (7,194,213.00)
For the overpayment, petitioner chose the option "To be issued a Tax Credit
Certificate." In its Annual ITR for the year ended December 2004, petitioner did not
TaxRemedies_new cases4
report the Creditable Tax Withheld for the 4th quarter of 2003 in the amount
of P4,073,954.00 as prior years excess credits. As shown in the 2004 ITR:
Annual ITR 2004
Income Tax Due 1,321,409.00
Less: Prior Years Excess Credits -
Creditable Tax Withheld for the 4th (3,689,419.00)
Quarter
Tax Payable / (Overpayment) (2,368,010.00)
Verily, the absence of any amount written in the Prior Year excess Credit Tax
Withheld portion of petitioners 2004 annual ITR clearly shows that no prior excess
credits were carried over in the first four quarters of 2004. And since petitioner was
able to sufficiently prove that excess tax credits in 2003 were not carried over to
taxable year 2004 by leaving the item "Prior Years Excess Credits" as blank in its
2004 annual ITR, then petitioner is entitled to a refund. Unfortunately, the CTA, in
denying entirely the claim, merely relied on the absence of the quarterly ITRs despite
being able to verify the truthfulness of the declaration that no carry over was indeed
effected by simply looking at the 2004 annual ITR.
At this point, worth mentioning is the fact that subsequent cases affirm the
proposition as correctly pointed out by petitioner.State Land, PERF and
Mirantreiterated the rule that the presentation of the quarterly ITRs of the subsequent
year is not mandatory on the part of the claimant to prove its claims.
There are some who challenges the applicability of PERF in the case at bar. It is said
that PERFis not in point because the Annual ITR for the succeeding year had actually
been attached to PERFs motion for reconsideration with the CTA and had formed part
of the records of the case. Clearly, if the Annual ITR has been recognized by this
Court in PERF, why then would the submitted 2004 Annual ITR in this case be
insufficient despite the absence of the quarterly ITRs? Why then would this Court
require more than what is enough and deny a claim even if the minimum burden has
been overcome? At best, the existence of quarterly ITRs would have the effect of
strengthening a proven fact. And as such, may only be considered corroborative
evidence, obviously not indispensable in character. PERF simply affirms that quarterly
ITRs are not indispensable, provided that there is sufficient proof that carrying over
excess CWT was not effected.
Stateland and Mirantare equally challenged. In all these cases however, the factual
distinctions only serve to bolster the proposition that succeeding quarterly ITRs are
not indispensable. Implicit from all these cases is the Courts recognition that proving
carry-over is an evidentiary matter and that the submission of quarterly ITRs is but a
means to prove the fact of ones entitlement to a refund and not a condition sine qua
non for the success of refund. True, it would have been better, easier and more
efficient for the CTA and the CIR to have as basis the quarterly ITRs, but it is not the
only way considering further that in this case, the Annual ITR for 2004 is sufficient.
Courts are here to painstakingly weigh evidence so that justice and equity in the end
will prevail.
It must be emphasized that once the requirements laid down by the NIRC have been
met, a claimant should be considered successful in discharging its burden of proving
its right to refund. Thereafter, the burden of going forward with the evidence, as
distinct from the general burden of proof, shifts to the opposing party,25 that is, the
CIR. It is then the turn of the CIR to disprove the claim by presenting contrary
evidence which could include the pertinent ITRs easily obtainable from its own files.
All along, the CIR espouses the viewthat it must be given ample opportunity to
investigate the veracity of the claims. Thus, the Court asks: In the process of
investigation at the administrative level to determine the right of the petitioner to the
claimed amount, did the CIR, with all its resources even attempt to verify the
quarterly ITRsit had in its files? Certainly, it did not as the application was met by the
inaction of the CIR. And if desirous in its effort to clearly verify petitioners claim, it
should have had the time, resources and the liberty to do so. Yet, nothing was
produced during trial to destroy the prima facie right of the petitioner by
counterchecking the claims with the quarterly ITRs the CIR has on its file. To the
Court, it seems that the CIR languished on its duties to ascertain the veracity of the
claims and just hoped that the burden would fall on the petitioners head once the
issue reaches the courts.
This mindset ignores the rule that the CIR has the equally important responsibility of
contradicting petitioners claim by presenting proof readily on hand once the burden
of evidence shifts to its side. Claims for refund are civil in nature and as such,
petitioner, as claimant, though having a heavy burden of showing entitlement, need
only prove preponderance of evidence in order to recover excess credit in cold cash.
To review, "[P]reponderance of evidence is [defined as] the weight, credit, and value
of the aggregate evidence on either sideand is usually considered to be synonymous
with the term greater weight of the evidence or greater weight of the credible
evidence. It is evidence which is more convincing to the court asworthy of belief than
that which is offered in opposition thereto.26
The CIR must then be reminded that in Philam, the CIRs "failure to present[the
quarterly ITRs and AFR] to support its contention against the grant of a tax refund to
[a claimant] is certainly fatal." PERF reinforces this with a sweeping statement holding
that the verification process is not incumbent on PERF[or any claimant for that
matter]; [but] is the duty of the CIR to verify whether xxx excess incometaxes [have
been carried over].
And should there be a possibility that a claimant may have violated the irrevocability
rule and thereafter claim twice from its credits, no one is to be blamed but the CIR for
not discharging its burden of evidence to destroy a claimants right to a refund. At
any rate, a claimant who defrauds the government cannot escape liability be it
criminal or civil in nature.
Verily, with the petitioner having complied with the requirements for refund, and
without the CIR showing contrary evidence other than its bare assertion of the
absence of the quarterly ITRs, copies of which are easily verifiable by its very own
records, the burden of proof of establishing the propriety of the claim for refund has
been sufficiently discharged. Hence, the grant of refund is proper.
The Court does not, and cannot, however, grant the entire claimed amount as it finds
no error in the original decision of the CTA Division granting refund to the reduced
amount of P2,737,903.34. This finding of fact is given respect, if not finality, as the
CTA,27 which by the very nature of its functions of dedicating itself exclusively to the
consideration of the tax problems has necessarily developed an expertise on the
subject.28 It being the case, the Court partly grants this petition to the extent of
reinstating the April 23, 2010 original decision of the CTA Division.
The Court reminds the CIR that substantial justice, equity and fair play take
precedence over technicalities and legalisms.1wphi1 The government must keep in
mind that it has no right to keep the rponey not belonging to it, thereby enriching
itself at the expense of the law-abiding citizen29 or entities who have complied with
TaxRemedies_new cases5
the requirements of the law in order to forward the claim for refund. Under the
principle of solution ihdebiti provided in Article 2154 of the Civil Code, the CIR must
return anythihg it has received.30
Finally, even assuming that the Court reverses itself and pronounces the
indispensability of presenting the quarterly ITRs to prove entitlement to the claimed
refund, petitioner should not be Brejudiced for relying on Philam. The CTA En Banc
merely based its pronouncement on a case that does not enjoy the benefit of stare
deciset non quietamovere which means "to adhere to precedents, and not to unsettle
things which are established."31 As between a CTA En Banc Decision (Millennium) and
this Court's Decision (Philam), it is elementary that the latter should prevail.
WHEREFORE, the Court partly grants the petition. The March 22, 2013 Decision of the
Court of Tax Appeals En Banc is REVERSED. The April 13, 2010 Decision of the Court
of Tax Appeals Special First Division is REINSTATED. Respondent Commissioner of
Internal Revenue is ordered to REFUND to petitioner the amount ofP2,737,903.34 as
excess creditable withholding tax paid for taxable year 2003.
SO ORDERED.
DISSENTING OPINION
LEONEN, J.:
I disagree with the ponencia that the submission of quarterly income tax returns of
the succeeding year is not indispensable in a claim for refund of the previous year's
excess or unutilized creditable withholding taxes.
Section 76 of the 1997 National Internal Revenue Code is clear and categorical that
once the taxpayer chooses to carry dver and apply its income tax overpayments
against the income tax due for the quarters of the succeeding taxable year, such
option shall be considered irrevocable. The taxpayer can no longer make a turnaround
and claim instead a refund of the overpayments. I submit that both the quarterly
income tax returns (for the first to third quarters) and the income tax returrl/final
adjustment return (ITR/FAR) of the succeeding year are indispensable proofs to show
whether the taxpayer availed of the carry-over option or not.
It must be emphasized that this is the first time that the indispensability of presenting
the quarterly returns in tax refund claims in light of Section 76 of the 1997 National
Internal Revenue Code is raised.
The cases cited in the ponencia, namely, Philam Asset Management, Inc. v.
Commissioner of Internal Revenue,1State Land Investment Corporation v.
Commissioner of Internal Revenue,2 Commissioner of Internal Revenue v. PERF
Realty Corporation,3 and Commissioner of Internal Revenue v. Mirant (Philippines)
Operations Corporation4are not squarely in point.
Philams ruling in G.R. No. 1563375 that the presentation to the Bureau of Internal
Revenue of the ITR/FAR of the succeeding year has no legal basis was premised on
the old provision (Section 69 of the 1977 National Internal Revenue Code), which did
not yet contain the "irrevocable clause." Instead, the old provision merely provided
that "[i]n 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."
Section 69 provides:
Section 696. Final Adjustment Return.-- Every corporation liable to tax under Section
24 shall file a final adjustment return covering the total net 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 net income of that
year[,] the corporation shall either:
(a) Pay the excess tax still due; or
(b) Be refunded the excess amountpaid, 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. On the other hand, Section 76 included that
"[o]nce the option to carry-over and apply the excess quarterly income tax against
income tax due for the taxable quarters of the succeeding taxable years has been
made, such option shall be considered irrevocable for that taxable period and no
application for cash refund or issuance of a tax credit certificate shall be allowed
therefor." Moreover, the presentation in Philam of the 1998 ITR/FAR was not
necessary because the taxpayer had apparently submitted its quarterly returns for
1998 showing it did not carry over and apply its 1997 excess creditable taxes,
coupled with the filing of its administrative claim for refund on September 11, 1998
even before the years end.
State Land was likewise decided on the basis of Section 69 of the 1977 National
Internal Revenue Code. This court held that "if the excess income taxes paid in a
given taxable year have not been entirely used by a . . . corporation against its
quarterly income tax liabilities for the next taxable year, the unused amount of the
excess may still be refunded, provided that the claim for such a refund is made within
two years."7 Accordingly, the amount of State Lands excess tax creditin 1997 that
was not used in 1998 was allowed to be refunded. In this regard, this court further
held that it was not necessary on the part of State Land to file its 1999 income tax
return because pursuant to then Section 69, it could not utilize its 1997 excess credits
beyond 1998.8
PERF was similarly decided on the basis of the old tax provision. This court held that
PERFs failure to indicate its option in its income tax return to avail of either the tax
refund or tax credit was not fatal to its claim for refund.9Moreover, it was determined
that there was no need to rule on the admissibility of the income tax return for the
succeeding year (1998 income tax return) because it had actually been attached to
PERFs Motion for Reconsideration before the Court of Tax Appeals and had formed
part of the records of the case. The income tax return showed that the excess credits
in 1997 were not carried over and applied in 1998.10
On the other hand, while Mirant was decided on the basis of Section 76 of the 1997
National Internal Revenue Code, it did not touch on the issue of presenting the
quarterly income tax returns. Understandably, because in that case, Mirant opted to
carry over its tax overpayment for 1999 by ticking the box in the return signifying
that the overpayment was "to be carried over as tax credit next year/quarter." 11 This
court held that pursuant to the irrevocability rule in Section 76, Mirant was barred
from applying for the refund/issuance of tax credit certificate of the overpayments.12
In all of these cases Philam, State Land, PERF, and Mirant the issue on the
indispensability of presenting the quarterly income tax returns of the succeeding year
in a refund claim was never raised especially in light of the "irrevocability rule" that
was added by Republic Act No. 8424 in Section 76. Here, this question was squarely
raised as the core issue.
The ponencia is of the view that the presentation of the quarterly income tax returns
for 2004 is not indispensable because petitioner already submitted its 2004 income
tax return.
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I submit that the presentation of boththe quarterly income tax returns and the
income tax return of the succeeding year is indispensable in a refund claim. This is
implicit in Section 76:
SEC. 76. Final Adjustment Return. Every corporation liable to tax under Section 27
shall file a final adjustment return covering the total taxable 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 balance of tax still due; or
(B) Carry-over the excess credit; or
(C) Be credited or refunded with the excess amount paid, as the case may be.
In case the corporation is entitledto a tax credit or refund of the excess estimated
quarterly income taxes paid, the excess amount shown on its final adjustment return
may be carried over and credited against the estimated quarterly income tax liabilities
for the taxable quarters of the succeeding taxable years. Once the option to carry-
over and apply the excess quarterly income tax against income tax due for the
taxable quarters of the succeeding taxable years has been made, such option shall be
considered irrevocable for that taxable period and no application for cash refund or
issuance of a tax credit certificate shall be allowed therefore. (Emphasis supplied)
Section 76 introduced two significant changes in the National Internal Revenue Code:
first, once the taxpayer has chosen the carryover option, such option is irrevocable;
and second, the excess tax payments may be carried over and applied against the
income tax liabilities for the succeeding quarters of the succeeding taxable years until
fully utilized.
This court elucidated the differences between the two provisions in Asiaworld
Properties Philippine Corporation v. Commissioner of Internal Revenue:13
Under [Section 69 of the old National Internal Revenue Code], the option to carry-
over the excess or overpaid income tax for a given taxable year is limited to the
immediately succeeding taxable year only. In contrast, under Section 76 of the 1997
NIRC, the application of the option to carry-over the excess creditabletax is not
limited only to the immediately following taxable year but extends to the next
succeeding taxable years. The clear intent in the amendment under Section 76 is to
make the option, once exercised, irrevocable for the "succeeding taxable years."
Thus, once the taxpayer opts to carry-over the excess income tax against the taxes
due for the succeeding taxable years, such option is irrevocable for the whole amount
of the excess income tax, thus, prohibiting the taxpayer from applying for a refund
for that same excess income tax in the next succeeding taxable years. The unutilized
excess tax credits will remain in the taxpayers account and will be carried over and
applied against the taxpayers income tax liabilities in the succeeding taxable years
until fully utilized.14
Section 76 is clear and categorical that once the carry-over option is chosen, it shall
be considered irrevocable for the whole amount of the excess income tax and no
application for a tax refund or issuance of a tax credit certificate shall then be
allowed.15 It has been held that "the irrevocable rule was evidently added to keep the
taxpayer from flip-flopping on its options, and avoid confusion and complication as
regards the taxpayer's excess tax credit."16
In Philippine Bank of Communications v. Commissioner of Internal Revenue,17 this
court ruled that a corporation must signify in its ITR/FAR (by marking the option box
provided inthe Bureau of Internal Revenue form) its intention, whether to request for
a refund or claim for an automatic tax credit for the succeeding taxable year. Item 31
of the income tax return (BIR Form No. 1702) indicates that "if overpayment, mark
one box only: (once the choice is made, the same is irrevocable)."18
Accordingly, when a taxpayer has marked the carry-over option box in its ITR/FAR, it
is not entitled toa refund even though the excess tax credit was not utilized.19 The
question of whether the taxpayer was able to actually apply the tax credit is
irrelevant. In such case, since the taxpayer is automatically barred from claiming a
refund of the overpayment, there is no need to look at the ITR/FAR or the quarterly
returns for the succeeding year.
However, while a taxpayer is required to mark its choice (i.e., carry over, refund, or
issuance of tax credit) in the ITR/FAR, this requirement is only for the proper
management of claims for refund or tax credit.20 Hence, failure to signify ones
intention inthe ITR/FAR does not mean outright barring of a valid request for a
refund, should one still choose this option later on.21
It may also happen that a taxpayer may have marked the refund box in its return but
nevertheless may have actually applied its excess tax payments to the taxable
quarters of the succeeding taxable year by filling out the portion "prior years excess
credits" in any of its first, second, or third quarterly income tax returns.22 In such
case, the taxpayer is deemed to have effectively negated its previous intention to
claim for a refund. Consequently, since it had effectively opted to carry over its
overpayments, the taxpayer can no longer revert back to its original choice.
Therefore, in both cases when the taxpayer failed to mark its chosen option or
when it marked the refund option the examination of the quarterly income tax
returns and the ITR/FAR of the subsequent taxable year becomes significant, in order
to determine the taxpayers compliance with the explicit and categorical requirement
under Section 76, i.e., that it did not actually carry over its excess tax credit to the
succeeding quarters of the succeeding taxable year.
True, petitioners 2004 income tax return shows that it did not carry over its claimed
unutilized creditable withholding taxes to the succeeding taxable year 2004 because
the item "prior years excess credits" was left blank. However, this is not enough to
conclude that petitioner did not apply the said excess or unutilized creditable
withholding taxes against the income tax due for the first three quarters of 2004. The
2004 quarterly returns would have shown if petitioner effectively opted to carry over
the 2003 excess or unutilized creditable withholding taxes to the subsequent taxable
year. If petitioner applied the said excess or unutilized creditable withholding taxes
against the income tax due for the first three quarters of taxable year 2004, it
therefore effectively exercised the option to carry over the 2003 excess or unutilized
creditable withholding taxes to the succeeding year 2004. Thus, its claim for refund
should be denied.
Indeed, Section 75 of the National Internal Revenue Code requires corporate
taxpayers to file quarterly income tax returns showing "a quarterly summary
declaration of its gross income and deductions on a cumulative basis for the
preceding quarter or quarters upon which the income tax shall be paid." Section 76
allows excess tax payments to be applied against estimated quarterly tax liabilities.
Therefore, the earliest opportunity when taxpayers may carry over and apply their
previous years excess tax payments would be the first quarter of the succeeding
year.
It is granted that the taxes computedin the quarterly returns are mere estimates such
that Section 76 requires the filing of the final adjustment return covering the total
taxable income for the whole year. Section 232 of the National Internal Revenue Code
requires that the books of accounts of companies or persons with gross quarterly
sales or earnings exceeding P150,000.00 be audited and examined yearly by an
TaxRemedies_new cases7
independent Certified Public Accountant and their income tax return be accompanied
by certified balance sheets, profit and loss statements, schedules listing income
producing properties and the corresponding incomes therefrom, and other related
statements. Hence, the figures of gross receipts and deductions in the quarterly
income tax returns are subject to audit and adjustment by the end of the year in the
final adjustment return.23
This means that a taxpayer may realize a net income in the first quarter but incur an
estimated loss inthe succeeding quarters resulting in a net loss by the end of the
year.24 It may happen then that the previous years over payments, which a taxpayer
seeks tobe refunded by the end of the year, was actually carried over and included
as"prior years excess credits" in the first quarter of the succeeding year. As such, the
refund claim by the end of the year cannot prosper because having exercised the
carry-over option in the first quarter, the taxpayer is bound bythe irrevocable rule.
This is the significance of requiring the presentation of the quarterly returns in
addition to the ITR/FAR of the succeeding year.
While a taxpayer is allowed to modify or amend its quarterly income tax returns or
annual income tax return under Section 6 of the National Internal Revenue Code,25 an
exception would be the irrevocable rule under Section 76 such that a taxpayer which
opted to carry over its previous years overpayments in the succeeding first, second,
or third quarterly returns can no longer change its previous intention to carry over.
To reiterate, the 2004 ITR/FAR aloneis not sufficient proof that petitioner did not
exercise the carry-over option in any of the quarters of 2004. The best evidence to
prove thatit did not exercise the carry-over option in any of the quarters would be the
quarterly returns.
Thus, petitioners failure to present sufficient evidence to justify its claim for refund is
fatal to its cause. After all, it is axiomatic that a claimant has the burden of proof to
establish the factual basis of its claim for tax credit or refund. Tax refunds, like tax
exemptions, are construed strictly against the taxpayer.26 "The taxpayer is charged
with the heavy burden of proving that [it] has complied with and satisfied all the
statutory and administrative requirements to be entitled to the tax refund." 27
Even if the claim for refund was filed within the two-year prescriptive period, the fact
of withholding of creditable taxes by the withholding agents was proven and the
income upon which the withholding taxes were withheld was included as part of the
gross income and was reflected in the preceding income tax return, nonetheless, the
taxpayer should prove that the excess creditable withholding tax was not carried over
to the taxable quarters of the succeeding taxable years. Hence, the taxpayer-claimant
must necessarily present the quarterly income tax returns and final adjustment return
of the succeeding taxable year. "Entitlement toa tax refund is for the taxpayer to
prove and not for the government to disprove."28
Parenthetically, it would be faster to process claims for refund if all the pieces of
information necessary to verify the veracity of the taxpayers claims were furnished
by the taxpayer-claimant, including the quarterly returns and income tax return of
the succeeding year than to have the Bureau of Internal Revenue search for these
documents in its files. Given the limited manpower of the Bureau of Internal Revenue
to investigate all returns and requests, expediency necessitates that evidentiary
matters be within the control of the taxpayer claiming a refund. The Bureaus primary
function of tax collection should notbe unduly delayed or hampered by incidental
matters. Requiring the taxpayer to submit sufficient evidence ensures a more prompt
action on its claim for refund and promotes a more efficient outcome.
Efficiency is achieved when tasks, which necessarily entail costs, are allocated to
those who could best bear them.1wphi1 A party that could best bear the cost is not
necessarily the one who could do the task with the least cost, but a partys
opportunity costs29 should also be taken into consideration. This concept is known as
comparative advantage.30 This is contrasted with absolute advantage,31 which does
not take into consideration the opportunity costs.
At first glance, it might seem that the Bureau of Internal Revenue is in a better
position to assess if a taxpayer has already selected to carry over excess income tax
payments. It could besaid that the Bureau of Internal Revenue has the absolute
advantage over gaining this information, considering that the returns are filed with it.
However, the Bureau of Internal Revenue does not have comparative advantage over
producing a single taxpayer's previous returns for purposes of tax refund. The Bureau
of Internal Revenue manages millions of taxpayers returns. Assessing if a taxpayer's
claim for refund has not yet been subject to carry over will entail the opportunity cost
of the other functions of the Bureau of Internal Revenue.
On the other hand, the taxpayer manages only its own taxes. The taxpayer is. aware
of whether it has selected the option to carry over or the option to refund in its
adjusted returns. Requiring the taxpayer to present the adjusted returns does not
entail substantial opportunity costs to it. Hence, the allocation of the burden of proof
to the taxpayer is more efficient than requiring the Bureau of Internal Revenue to do
the same task.
Indeed, why petitioner failed to present such a vital piece of evidence even during the
trial phase of this case confounds this court. The delay in this case could altogether
have been avoided had it presented its quarterly income tax returns for 2004. The
"[non-production] of a document which courts almost invariably expect will be
produced 'unavoidably throws a suspicion over the cause.'"32 Negligence consisbng of
the unexplained failure to offer a material document should not be rewarded with
undeserved leniency.
Finally, it must be emphasized that there would be no unjust enrichment: to the
government in the event of denial of the claim for refund under such circumstances
because there would be no forfeiture of any amount favoring the government. The
amount being claimed as a refund would Temain in the account of petitioner
creditable[ against its future income tax liabilities until fully utilized.33
ACCORDINGLY, I vote to DENY. the Petition. The Decision dated March 22, 2013 of
the Court of Tax Appeals En Banc should be AFFIRMED.
G.R. No. 188016 January 14, 2015
REPUBLIC OF THE PHILIPPINES, represented by the COMMISSIONER OF
INTERNAL REVENUE, Petitioner, vs.TEAM (PHILS.) ENERGY CORPORATION
(formerly MIRANT (PHILS.) ENERGY CORPORATION), Respondent.
DECISION
BERSAMIN, J.:
The Republic of the Philippines, represented by the Commissioner of Internal
Revenue, appeals the decision promulgated on April 15, 2009,1 whereby the Court of
Tax Appeals En Banc (CTA En Banc) upheld the decision of the CTA in Division
rendered on May 15, 2008 ordering the Commissioner of Internal Revenue to refund
or to issue a tax credit certificate in favor of the respondent in the modified amount
of P16,366,412.59 representing the respondent's excess and unutilized creditable
withholding taxes for calendar years 2002 and 2003. Antecedents
Respondent Mirant (Philippines) Energy Corporation, a domestic corporation, is
primarily engaged in the business of developing, designing, constructing, erecting,
TaxRemedies_new cases8
assembling, commissioning, owning, operating, maintaining, rehabilitating, and
managing gas turbine and other power generating plants and related facilities for
conversion into electricity, coal, distillate and other fuel provided by and under
contract with the Government, or any subdivision, instrumentality or agency thereof,
or any government-owned or controlled corporations or any entity engaged in the
development, supply or distribution of energy.2 On August 16, 2001, the respondent
filed with the Securities and Exchange Commission (SEC) its Amended Articles of
Incorporation stating its intent to change its corporate name from Mirant (Philippines)
Mobile Corporation to Mirant (Philippines) Energy Corporation; and to include the
business of supplying and delivering electricity and providing services necessary in
connection with the supply or delivery of electricity. The SEC approved the
amendment on October 22, 2001.3
The respondent filed its annual income tax return (ITR) for calendar years 2002 and
2003 on April 15, 2003 and April 15, 2004, respectively, reflecting overpaid income
taxes or excess creditable withholding taxes in the amounts of P6,232,003.00
and P10,134,410.00 for taxable years 2002 and 2003, respectively.4 It indicated in
the ITRs its option for the refund of the tax overpayments for calendar years 2002
and 2003.5
On March 22, 2005, the respondent filed an administrative claim for refund or
issuance of tax credit certificate with the Bureau of Internal Revenue (BIR) in the
total amount of P16,366,413.00, representing the overpaid income tax or the excess
creditable withholding tax of the respondent for calendar years 2002 and 2003.6
Due to the inaction of the BIR and in order to toll the running of the two-year
prescriptive period for claiming a refund under Section 229 of the National Internal
Revenue Code (NIRC) of 1997, the respondent filed a petition for review in the Court
of Tax Appeals (CTA) on April 14, 2005.7 In the answer, the petitioner interposed the
following special and affirmative defenses, to wit:
x xxx
3. He reiterates and repleads the preceding paragraphs of this answer as part of his
Special and Affirmative Defenses;
4. Petitioners claim for refund is still subject to the administrative routinary
investigation/examination by the respondent's Bureau;
5. Taxes paid and collected are presumed to have been made in accordance with law
and implementing regulations, hence, not refundable.
6. Petitioner's claim for refund/issuance of tax credit in the amount
of P16,366,413.00, as alleged overpaid income taxes or excess creditable withholding
taxes for taxable year ended December 31, 2002 and December 31, 2003 were not
fully substantiated by proper documentary evidence.
7. Petitioner failed to prove that the amount of P16,366,413.00as alleged overpaid
income taxes or excess creditable withholding taxes for taxable year ended December
31, 2002 and December 31, 2003 were included as part of its gross income for the
said taxable years 2002 and 2003, and did not carry-over to the succeeding taxable
quarter/year the subject of its claim, and the same were not utilized in payment of its
income tax liability for the succeeding taxable quarter/year.
8. The filing of the instant petition for review with this Honorable Court was
premature since respondent was not given an ample opportunity to examine its claim
for refund;
9. Assuming but without admitting that petitioner is entitled to tax refund, it is
incumbent upon the latter to show that it complied with the provisions of Sections
204in relation to Section 230 (now 229)of the Tax Code. Otherwise, its failure to
prove the same is fatal to its claim for refund.
10. Claims for refund are construed strictly against the claimant for the same partake
the nature of exemption from taxation (Commissioner of Internal Revenue v.
Ledesma, 31 SCRA 95) and as such, they are looked upon with disfavor (Western
Minolco Corp. v. Commissioner of Internal Revenue, 124 SCRA 121).8
On May 15, 2008, the CTA in Division rendered its decision in favor of the respondent,
disposing thusly:
WHEREFORE, the instant "Petition for Review" is hereby GRANTED. Accordingly,
respondent is hereby ORDERED TO REFUND or TO ISSUE A TAX CREDIT CERTIFICATE
in favor of petitioner in the modified amount of SIXTEEN MILLION THREE HUNDRED
SIXTY-SIX THOUSAND FOUR HUNDRED TWELVE AND 59/100 (P16,366,412.59),
representing petitioner's excess and unutilized creditable withholding taxes for
calendar years 2002 and 2003. SO ORDERED.9
The CTA in Division found that the respondent had signified in its ITRs for the same
years its intent to have its excess creditable tax withheld for calendar years 2002 and
2003 be refunded; that the respondents administrative and judicial claims for refund
had been timely filed within the two-year prescriptive period under Section 204 (C) in
relation to Section 229 of the NIRC; that the fact of withholding had been established
by the respondent because it had submitted its certificate of creditable tax withheld at
source showing that the aggregate amount of P17,168,749.60 constituted the CWT
withheld by the respondent onits services to Republic Cement Corporation, Mirant
(Philippines) Industrial Power Corporation and Solid Development Corporation for
taxable years 2002 and 2003; and that the income from which the CWT had been
withheld was duly declared as part of the respondents income in itsannual ITRs for
2002 and 2003.
The petitioner then filed a motion for reconsideration, but the CTA in Division denied
the motion on September 5, 2008.
The petitioner brought a petition for review before the CTA En Banc raising two
issues, namely:
I.
THE SECOND DIVISION OF THISHONORABLE COURT ERRED IN HOLDING THAT
RESPONDENT IS ENTITLED TO ITS CLAIMED REFUND OF EXCESS ANDUNUTILIZED
CREDITABLE WITHHOLDING TAXES FOR CALENDAR YEARS 2002 AND 2003, SINCE
THERE WAS A VIOLATION ON THE PART OF THE RESPONDENT TO FULLY
COMPLYWITH THE REQUIREMENTS UNDER SECTION 76 OF THE 1997 TAX CODE.
II.
THE SECOND DIVISION OF THIS HONORABLE COURT ERRED IN NOT APPLYING THE
RULE THAT TAX REFUNDS BEING IN THE NATURE OF TAX EXEMPTION ARE
CONSTRUED STRICTISSIMI JURIS AGAINST THE PERSON OR ENTITY CLAIMING THE
EXEMPTION.10
On April 15, 2009, however, the CTA En Banc rendered its assailed judgment,
disposing thus: WHEREFORE, the instant petition is hereby DISMISSED. Accordingly,
the assailed Decision and Resolution are hereby AFFIRMED.
SO ORDERED.11
The CTA En Banc held that the defenses raised by the petitioner were general and
standard arguments to oppose any claim for refund by a taxpayer; that the trial
proper was conducted in the CTA in Division, during which the respondent presented
evidence of its entitlement to the refund and in negation of the defenses of the
TaxRemedies_new cases9
petitioner; and that the petitioner raised the issue on the non-presentment of the
respondents quarterly returns for 2002 and 2003 only in the petition for review,
which was not allowed, stating thusly:
This cannot be allowed. Petitioner had the opportunity to raise this issue either during
the trial or at the latest, in his Motion for Reconsideration of the assailed Decision of
the Court in Division but he cited only the following grounds in his motion: x xx
x xxx
In its assailed Resolution, the Court in Division reiterated its finding that respondent
had complied with the substantiation requirements for its entitlement to refund. It
also ruled that the alleged under-declaration of respondent cannot be determined by
the Court since it is the duty of the BIR to investigate and confirm the truthfulness of
each and every item in the ITR. It finally declared that respondent, by presenting
copies of CWT certificates of unutilized CWT, sufficiently complied with the
requirements of the fact of withholding.
Thus, petitioner's averment that Section 76 of the NIRC speaks of quarterly income
tax payments which consequently requires the offer in evidence of quarterly income
tax returns is raised for the first time on appeal with the Court En Banc. It is a well-
settled rule that points of law, theories, issues and arguments not adequately brought
to the attention of the lower court need not be considered by the reviewing court as
they cannot be raised for the first time on appeal. x xx
x xxx
In the present case, petitioner could have simply exercised his power to examine and
verify respondent's claim for refund by presenting the latter's quarterly income tax
returns. The BIR ought to have on file the originals or copies of respondent's
quarterly income tax returns for the subject years, on the basis of which it could
rebut respondent's claim that it did not carry-over its unutilized and excess creditable
withholding taxes for taxable years 2002 and 2003 to the succeeding taxable quarters
of taxable years 2003 and 2004. Petitioner's failure to present these vital documents
before the Court in Division to support his contention against the grant of a tax
refund to respondent, is fatal.
At any rate, Section 76 of the 1997 NIRC speaks only of the filing of the Final
Adjusted Return and as held by the Supreme Court, the Annual ITR or "(t)he Final
Adjustment Return is the most reliable first hand evidence of corporate acts
pertaining to income taxes. In it are found the itemization and summary of additions
to and deductions from income taxes due. These entries are not without rhyme or
reason. They are required, because they facilitate the tax administration process."
And in this case, respondent offered in evidence its Annual ITRs for calendar years
2002, 2003, and 2004.12
As to whether the respondent proved its entitlement to the refund, the CTA En Banc
declared:
However, petitioner's entitlement torefund is still subject to the satisfaction of the
requirements laid down by the NIRC of 1997, as amended, namely:
1. That the claim for refund was filed within the two-year reglamentary period
pursuant to Section 230 of the Tax Code, as amended;
2. That the fact of withholding isestablished by a copy of the statement duly issued by
the payor to the payee showing the amount paid and the amount withheld therefrom;
and
3. That the income upon which the taxes were withheld is included as part of the
gross income declared in the income tax return of the recipient.
Petitioner complied with the first requisite. The subject claim involves calendar years
2002 and 2003. Petitioner filed its Annual Income Tax Returns on April 15, 2003 and
April 15, 2004. Counting from these dates, petitioner had until April 15, 2005 and
April 15, 2006 within which to file its administrative and judicial claims for refund.
Petitioner filed with the BIR its administrative claim for refund on March 22, 2005.
The instant petition was filed on April 15,2005. Hence, both the administrative and
judicial claims for refund weretimely filed within the two-year prescriptive period.
Anent the second requirement, the Supreme Court enunciated in the case of Banco
Filipino Savings and Mortgage Bank v. Court of Appeals, Court of Tax Appeals and
Commissioner of Internal Revenue that the fact of withholding isestablished by a copy
of the statement duly issued by the payor to the payee through the Certificates of
Creditable Taxes Withheld at Source. In the present case, petitioner submitted to this
Court as part of its documentary evidence ten (10) Certificates of Creditable Taxes
Withheld at Source. x xx
x xxx
The aggregate amount of P17,168,749.60 constitutes the creditable withholding taxes
withheld from the Certificates of Creditable Tax Withheld at Source on its services to
Republic Cement Corporation, Mirant (Philippines) Industrial Power Corporation and
Solid Development Corporation for taxable years 2002 and 2003.
Regarding the third requisite, the income from which the creditable taxes were
withheld were duly declaredas part of petitioner's income in its Annual Income Tax
Returns for 2002 and 2003.13 x xx
Aggrieved, the petitioner has brought this appeal.
Issue
The issue is whether or not the respondent proved its entitlement to the refund.
The petitioner asserts the necessity of submission of the quarterly return of the
respondent to prove its entitlement to the refund pursuant to Sec. 76 of the NIRC
because such quarterly returns would establish the correctness of the total amount of
payments made and the taxes due as reported on the adjusted return at the end of
the year. The petitioner insists that the amount claimed for refund was not carried
over to the succeeding year; that the submission of the quarterly return would
prevent the possibility of a claimant carrying over the excess credit and then claiming
a refund for it; that the final adjustment return was not sufficient to establish the
respondents claim for refund because it only reflected the sum of the payments made
and the taxes due for the year; that the quarterly return was necessary to prove that
the sum, as stated in the adjusted return, was correct; and that should the
respondent chose to carry over the previous years excess credit, the quarterly
returns would prove that the carrying-over was properly done during the succeeding
year.
In its comment/opposition, the respondent, while admitting having the burden of
proving the factual basis for its claim for refund, contends that it discharged its
burden. It counters that with the presentation of its annual ITRs for the years 2002,
2003 and 2004, it already properly established that its excess creditable withholding
taxes for taxable years 2002 and 2003 were not carried over to succeeding taxable
periods.
In its reply, the petitioner states that the issue on the respondents failure to present
its quarterly income tax returns for taxable years 2002 and 2003, even if not raised
by the petitioner at the trial, could be raised before the CTA En Banc, because it was
interposed as a defense in the answer; and that every issue raised in an answer may
be raised on appeal even if it was not taken up in the court of original jurisdiction.
TaxRemedies_new cases10
Ruling
The petition is without merit.
Section 76 of the NIRC outlines the mechanisms and remedies that a corporate
taxpayer may opt to exercise, viz:
Section 76. Final Adjusted Return.- Every corporation liable to tax under Section 27
shall file a final adjustment return covering the total taxable income for the preceding
calendar of 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 balance of the tax still due; or
(B) Carry over the excess credit; or
(C) Be credited or refunded withthe excess amount paid, as the case may be.
In case the corporation is entitled to a tax credit or refund of the excess estimated
quarterly income taxes paid, the excess amount shown on its final adjustment return
may be carried over and credited against the estimated quarterly income tax liabilities
for the taxable quarters of the succeeding taxable years. Once the option to carry
over and apply the excess quarterly income tax against income tax due for the
taxable years of the succeeding taxable years has been made, such option shall be
considered irrevocable for that taxable period and no application for cash refund or
issuance of a tax credit certificate shall be allowed therefor. (emphasis supplied) The
two options are alternative and not cumulative in nature, that is, the choice of one
precludes the other. The logic behind the rule, according to Philam Asset
Management, Inc. v. Commissioner of Internal Revenue,14 is to ease tax
administration, particularly the self-assessment and collection aspects. In Philam
Asset Management, Inc., the Court expounds on the two alternative options of a
corporate taxpayer on how the choice of one option precludes the other, viz:
The first option is relatively simple. Any tax on income that is paid in excess of the
amount due the government may be refunded, provided that a taxpayer properly
applies for the refund.
The second option works by applying the refundable amount, as shown on the FAR of
a given taxable year, against the estimated quarterly income tax liabilities of the
succeeding taxable year.
These two options under Section 76 are alternative in nature. The choice of one
precludes the other. Indeed, in Philippine Bank of Communications v. Commissioner
of Internal Revenue, the Court ruled that a corporation must signify its intention
whether to request a tax refund or claim a tax credit by marking the corresponding
option box provided in the FAR. While a taxpayer is required to mark its choice in the
form provided by the BIR, this requirement is only for the purpose of facilitating tax
collection.
One cannot get a tax refund and a tax credit at the same time for the same excess
income taxes paid. x xx (emphasis supplied)
In Commissioner of Internal Revenuev. Bank of the Philippine Islands,15 the Court,
citing the pronouncement in Philam Asset Management, Inc., points out that Section
76 of the NIRC of 1997 is clear and unequivocal in providing that the carry-over
option, once actually or constructively chosen by a corporate taxpayer, becomes
irrevocable. The Court explains: Hence, the controlling factor for the operation of the
irrevocability ruleis that the taxpayer chose an option; and once it had already done
so, it could no longer make another one. Consequently, after the taxpayer opts to
carry-over its excess tax credit to the following taxable period, the question of
whether or not it actually gets to apply said tax credit is irrelevant. Section 76 of the
NIRC of 1997 is explicit in stating that once the option to carry over has been made,
"no application for tax refund or issuance of a tax credit certificate shall be allowed
therefor."
The last sentence of Section 76 of the NIRC of 1997 reads: "Once the option to carry-
over and apply the excess quarterly income tax against income tax due for the
taxable quarters of the succeeding taxable years has been made, such option shall be
considered irrevocable for that taxable periodand no application for tax refund or
issuance ofa tax credit certificate shall be allowed therefor." The phrase "for that
taxable period" merely identifies the excess income tax, subject of the option, by
referring to the taxable period when it was acquired by the taxpayer. In the present
case, the excess income tax credit, which BPI opted to carry over, was acquired by
the said bank during the taxable year 1998. The option of BPI to carry over its 1998
excess income tax credit is irrevocable; it cannot later on opt to apply for a refund of
the very same 1998 excess income tax credit.
The Court of Appeals mistakenly understood the phrase "for that taxable period" as a
prescriptive period for the irrevocability rule. This would mean that since the tax
credit in this case was acquired in 1998, and BPI opted to carry it overto 1999, then
the irrevocability of the option to carry over expired by the end of 1999, leaving BPI
free to again take another option as regards its 1998 excess income tax credit. This
construal effectively renders nugatory the irrevocability rule. The evident intent of the
legislature, in adding the last sentence to Section 76 of the NIRC of 1997, is to keep
the taxpayer from flip-flopping on its options, and avoid confusion and complication
as regards said taxpayer's excess tax credit. The interpretation of the Court of
Appeals only delays the flip-flopping to the end of each succeeding taxable period.
The Court similarly disagrees in the declaration of the Court of Appeals that to deny
the claim for refund of BPI, because of the irrevocability rule, would be tantamount to
unjust enrichment on the part of the government.1wphi1 The Court addressed the
very same argument in Philam, where it elucidated that there would be no unjust
enrichment in the event of denial of the claim for refund under such circumstances,
because there would be no forfeiture of any amount in favor of the government. The
amount being claimed asa refund would remain in the account of the taxpayer until
utilized in succeeding taxable years, as provided in Section 76 of the NIRC of 1997. It
is worthy to note that unlike the option for refund of excess income tax, which
prescribes after two years from the filing of the FAR, there is no prescriptive period
for the carrying over of the same. Therefore, the excess income tax credit of BPI,
which it acquired in 1998 and opted to carry over, may be repeatedly carried over to
succeeding taxable years, i.e., to 1999, 2000, 2001, and so on and so forth, until
actually applied or credited to a tax liability of BPI.16(emphasis ours) In the instant
case, the respondent opted to be refunded or to be issued a tax credit certificate, not
to carry over the excess withholding tax for taxable year 2002 to the following
taxable year. The taking of the option was duly noted by the CTA En Banc, citing the
decision of the CTA in Division, as follows:
Under Line 30 of the 2002 Annual ITR, petitioner marked "x" the box "To be
refunded". In order toprove that petitioner did not carryover its 2002 excess
withholding tax, petitioner presented its 2003 Annual ITR which does not have any
entry inLine 27A "Prior Year's Excess Credits." Under Line 31 of the same2003 Annual
ITR, petitioner marked "x" the box "To be refunded" and petitioner presented its 2004
Annual ITR, showing no entry in Line 27A "Prior Year's Excess Credit" to prove that it
did not carry-over its 2003 excess withholding tax.17
Consequently, the only issue that remains is whether the respondent was entitled to
the refund of excess withholding tax.
TaxRemedies_new cases11
The requirements for entitlement of a corporate taxpayer for a refund or the issuance
of tax credit certificate involving excess withholding taxes are as follows:
1. That the claim for refund was filed within the two-year reglementary period
pursuant to Section 22918 of the NIRC;
2. When it is shown on the ITR that the income payment received is being declared
part of the taxpayers gross income; and
3. When the fact of withholding is established by a copy of the withholding tax
statement, duly issued by the payor to the payee, showing the amount paidand
income tax withheld from that amount.
We do not expound anymore on the first requirement because even the petitioner
does not contest that the respondent filed its administrative and judicial claim for
refund within the statutory period.
With regard to the second requirement, it is fundamental that the findings of fact by
the CTA in Divisionare not to be disturbed without any showing of grave abuse of
discretion considering that the members of the Division are in the best position to
analyze the documents presented by the parties.19 Consequently, we adopt the
findings of the CTA in Division, which the CTA En Banc cited, as follows.
The above mentioned declarations are further supported by the testimonies of Ms.
Imelda Dela Cruz Tagama, petitioners Accounting Manager and Mr. Ruben R. Rubio,
the Independent Certified Public Accountant (ICPA) duly commissioned by the Court,
proving that the total amount of Creditable Withholding Tax per petitioner's Annual
ITRs for calendar years ended December 31, 2002 and December 31, 2003 agrees
with the total amount of Creditable Withholding Tax presented on petitioners
Schedule of Creditable Withholding Tax Certificates for the calendar years ended
December 31, 2002 and December 31, 2003. Moreover, the total amount of gross
sales/revenue reported in the Annual ITRs for calendar years 2002 and 2003 is equal
to the amounts recorded in the General Ledger Listing of the Creditable Withholding
Tax on the Transfer of Real Property and Sale of Electricity, 2002 Reconciliation of
Revenue per ITR and per General Ledger. Hence, the third requirement is satisfied.20
With respect to the third requirement, the respondent proved that it had met the
requirement by presenting the 10 certificates of creditable taxes withheld at source.
The petitioner did not challenge the respondents compliance with the requirement.
We are likewise unmoved by the assertion of the petitioner that the respondent
should have submitted the quarterly returns of the respondent to show that it did not
carry-over the excess withholding tax to the succeeding quarter. When the
respondent was able to establish prima facie its right to the refund by testimonial and
object evidence, the petitioner should have presented rebuttal evidence to shift the
burden of evidence back to the respondent. Indeed, the petitioner ought to have its
own copies of the respondents quarterly returns on file, on the basis of which it could
rebut the respondent's claim that it did not carry over its unutilized and excess
creditable withholding taxes for the immediately succeeding quarters. The BIR's
failure to present such vital document during the trial in order to bolster the
petitioner's contention against the respondent's claim for the tax refund was fatal.21
WHEREFORE, we DENY the petition for review on certiorari, and AFFIRM the decision
promulgated on April 15, 2009.
SO ORDERED.
SEPARATE CONCURRING OPINION
SERENO, CJ:
I agree with the result of the voting, which is, to deny the Petition. However, I would
like to express an alternative analysis of the statements in the Decision in this case
that may prove more coherent with the applicable provision of the National Internal
Revenue Code (NIRC) of 1997.
Only the option to carry over is irrevocable.
I agree with the ponencia that pursuant to Section 76 of the NIRC of 1997, a
corporate taxpayer whose total quarterly income tax payments exceed its tax liability
has two options. The first option is to file an application for a refund or an issuance of
tax credit; the other option is to carry over the excess tax credit to the quarterly
income tax liabilities of the succeeding taxable year.
I believe it is not correct, however, to reiterate the pronouncement of the Court in
Philam Asset Management, Inc. v. Commissioner of Internal Revenue (Philam)1 that
the two options are alternative and not cumulative in nature: that the choice of one
precludes the other. I believe that such pronouncement should be read in relation to
the factual milieu of Philam and should not encompass all claims under Section 76.
Philam is not applicable as it is not on all fours with the present case. Here, unlike in
Philam, respondent has categorically opted for a tax refund. On the other hand, there
were two situations contemplated in Philam: (1) in G.R. No. 156637, wherein the
taxpayer failed to indicate a choice in the Final Adjustment Return (FAR), the Court
ruled that such failure did not mean the outright barring of the request for a refund,
should one still choose this option later on; and (2) in G.R. No. 162004, the taxpayer
filled up the portion on "Prior Year's Excess Credits" in its subsequent FAR, an act that
was then interpreted by the Court to mean that the taxpayer had constructively
chosen the carry-over option.
A careful reading of Section 76 suggests that the irrevocability rule applies only to the
option to carry over. The provision reads:
SEC. 76.Final Adjustment Return. -Every corporation liable to tax under Section 27
shall file a final adjustment return covering the total taxable 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 balance of tax still due; or
(B) Carry-over the excess credit; or
(C) Be credited or refunded with the excess amount paid, as the case may be.
In case the corporation is entitledto a tax credit or refund of the excess estimated
quarterly income taxes paid, the excess amount shown on its final adjustment return
may be carried over and credited against the estimated quarterly income tax liabilities
for the taxable quarters of the succeeding taxable years. Once the option to carry-
over and apply the excess quarterly income tax against income tax due for the
taxable quarters of the succeeding taxable years has been made, such option shall be
considered irrevocable for that taxable periodand no application for cash refund or
issuance of a tax credit certificate shall be allowed therefor. (Emphasis supplied) The
last sentence of the above provision shows the intention of the law to limit the
irrevocability rule to the carry-over option. Simply stated, if the taxpayer originally
opted for a refund, there is nothing in the law that prevents it from changing its
choice and carrying over its tax credits to succeeding taxable quarters in which it
incurs a tax liability. Once it carries over to succeeding taxable quarters the excess
tax for the previous taxable year, the act becomes irrevocable for that taxable period.
The subsequent quarterly return must be presented.
TaxRemedies_new cases12
To my mind, in claims for a refund under Section 76, the requirement of presenting
the subsequent quarterly returns is indispensable to show that the taxpayer did not
apply its tax creditsto succeeding taxable quarters. We should be mindful of the basic
principle in taxation that the burden of proving entitlement to a refund is on the
taxpayer; therefore, it is the taxpayer that has the burden of proving that it has not
carried over its creditable tax to succeeding quarterly returns.
I would agree that Philam categorically ruled that the presentation of subsequent
returns is not necessary in claims for a refund. However, I believe that such principle
should be revisited. Although the Court ruled in the first case (Philam, G.R. No.
156637) that the requirement of presentation of the ITR or FAR of the succeeding
year has no basis in law or in jurisprudence, it is worth emphasizing that the Court
still found the importance of the succeeding FAR in the resolution of G.R. No. 162004,
in which the subject of the claim for a refund was the 1998 excess tax credits. In
determining that petitioner in Philamhad effectively chosen the carry-over option in
G.R. No. 162004, the Court ruled:
First, the fact that it filled out the portion "Prior Years Excess Credits" in its 1999 FAR
means that it categorically availed itself of the carry-over option. In fact, the line that
precedes that phrase in the BIR form clearly states "Less: Tax Credits/Payments."
The contention that it merely filled out that portion because it was a requirement --
and that to have done otherwise would have been tantamount to falsifying the FAR --
is a long shot. (Emphasis supplied)
After the Court examinedthe succeeding FAR, it found that there was a constructive
carry-over choice. The Court contradicted its own pronouncement in the first case
when it effectively recognized the importance of the presentation of the succeeding
return in the second case. It could not have disposed of G.R. No. 162004 in the same
manner had it not examined the succeeding return. Undeniably, that is the logic
behind the requirement of presenting not just the preceding but also the subsequent
returns.
Mere filling up the portion on "Prior Years Excess Credits" is tantamount to a
constructive carry-over choice.1wphi1 This portion is clearly available for the
taxpayer to fill up, notjust in the FAR but even in the quarterly returns.2 Logically
also, upon the filing of subsequent quarterly returns, the entries in that portion may
be utilized and tax liabilities for the quarter deducted therefrom. I therefore find it
significant to require taxpayers to present subsequent returns to the court to avoid
the possibility of granting a refund even when the amount claimed had actually been
applied to tax liabilities for the succeeding taxable quarters or year after the claim
was filed.
It must be emphasized that this requirement is evidentiary, as the CTA (being the
trial court) has no access to these documents; and so when the quarterly returns are
not submitted, the court cannot verify whether the choice was amended and excess
credits were utilized during the succeeding quarters. The duty of the court in
resolving claims for a refund of creditable withholding taxes is not confined to the
computation of the creditable tax, but includes making sure that the excess tax was
not applied to the taxpayers liabilities through the carry over option. This precaution
is in keeping with the thrust that the taxpayer cannot claim a refund and at the same
time apply its excess tax to its succeeding tax liabilities. The presentation of the
quarterly returns, apart from the final adjusted return, is for the purpose of
ascertaining that the taxpayer did not apply (carry over) its creditable tax to its
current tax liabilities. Once this option is availed of, it becomes irrevocable, and the
taxpayer can no longer change its option and apply for a refund.
Also, contrary to the observation of the ponencia, the burden of rebutting (the
evidence of the taxpayer by presenting its subsequent returns) was not shifted to the
government, considering that the taxpayer has not completely shown that it did not
utilize its creditable withholding taxes against its current liabilities. In short, taxpayers
ought to show through all means and documents that they have not yet utilized their
creditable taxes, and that they have complied with the law (Section 7 6).
To address the position that since the quarterly returns are with the Bureau of
Internal Revenue (BIR) then the BIR, and not the taxpayer, that must present them,
it must be stressed that it was the taxpayer who brought the case to court in order to
claim a refund. Thus, it has the responsibility and the burden to prove its case and
not rely on the BIR to prove otherwise. Parenthetically, taxpayers also ought to have
copies of their quarterly returns as it is their statutory obligation to file those with the
BIR within a certain period; the requirement of presenting the succeeding returns
cannot be a superfluity or just another burden, considering that the quarterly returns
are readily available in their own files. Hence, it would be appropriate and even more
practical for the court to require the taxpayer to present these documents to prove
that the creditable tax has not yet been carried over and utilized, rather than for the
court to grant a refund simply because the BIR has neglected to present the quarterly
returns. It would be more in keeping with the thrust of justice and equity that we
protect the coffers of the government than allow some taxpayers to avail themselves
of double benefits in view of the negligence or weakness of the counsel for the BIR.
Accordingly, I vote to DENY the Petition, but with qualifications to the statements,
adverted to above, made in the Decision.
G.R. No. 179962 June 11, 2014
DR. JOEL C. MENDEZ, Petitioner, vs.PEOPLE OF THE PHILIPPINES and COURT
OF TAX APPEALS, Respondents.
BRION, J.:
Before the Court is a petition for certiorari and prohibition under Rule 651 filed by Dr.
Joel C. Mendez (petitioner) assailing the June 12, 2007 and August 13, 2007
resolutions2 of the Court of Tax Appeals (CTA)3 The assailed resolutions granted the
prosecution's Motion to Amend Information with Leave of Court and denied the
petitioner's motion for reconsideration.
ANTECEDENTS
The Bureau of Internal Revenue (BIR) filed a complaint-affidavit4 with the Department
of Justice against the petitioner. The BIR alleged that the petitioner had been
operating as a single proprietor doing business and/or exercising his profession for
taxable years 2001 to 2003 under the following trade names and registration
addresses:5
1. Mendez Body and Face Salon and Spa
Registered with Revenue District Office (RDO) No. 39 South Quezon City
2. Mendez Body and Face Salon and Spa
Registered with RDO No. 39 South Quezon City
3. Mendez Body and Face Salon and Spa
Registered with RDO No. 40 Cubao
4. Mendez Body and Face Skin Clinic
Registered with RDO No. 47 East Makati
5. Weigh Less Center
TaxRemedies_new cases13
Registered with RDO No. 21
6. Mendez Weigh Less Center
Registered with RDO No. 4 CalasiaoPangasinan
Based on these operations, the BIR alleged that petitioner failed to file his income tax
returns for taxable years 2001 to 2003 and, consequently evaded his obligation to
pay the correct amount of taxes due the government.6
In his defense, the petitioner admitted that he has been operating as a single
proprietor under these trade names in Quezon City, Makati, Dagupan and San
Fernando. However, he countered that he did not file his income tax returns in these
places because his business establishments were registered only in 2003 at the
earliest; thus, these business establishments were not yet in existence at the time of
his alleged failure to file his income tax return.7
After a preliminary investigation, State Prosecutor Juan Pedro Navera found probable
cause against petitioner for non-filing of income tax returns for taxable years 2001
and 2002 and for failure to supply correct and accurate information as to his true
income for taxable year 2003, in violation of the National Internal Revenue
Code.8Accordingly an Information9 was filed with the CTA charging the petitioner with
violation of Section 255 of Republic Act No. 8424 (Tax Reform Act of 1997). The
Information reads:
That on or about the 15th day of April, 2002, at Quezon City, and within the
jurisdiction of [the CTA] the above named accused, a duly registered taxpayer, and
sole proprietor of "Weigh Less Center" with principal office at No. 31 Roces Avenue,
Quezon City, and with several branches in Quezon City, Makati, San Fernando and
Dagupan City, did then and there, wilfully, unlawfully and feloniously fail to file his
Income Tax Return (ITR) with the Bureau of Internal Revenue for the taxable year
2001, to the damage and prejudice of the Government in the estimated amount
of P1,089,439.08, exclusive of penalties, surcharges and interest.
CONTRARY TO LAW.10
The accused was arraigned11 and pleaded not guilty on March 5, 2007.12 On May 4,
2007, the prosecution filed a "Motion to Amend Information with Leave of
Court."13 The amended information reads:
That on or about the 15th day of April, 2002, at Quezon City, and within the
jurisdiction of [the CTA] the above named accused, doing business under the name
and style of "Weigh Less Center"/Mendez Medical Group", with several branches in
Quezon City, Muntinlupa City, Mandaluyong City and Makati City, did then and there,
wilfully, unlawfully and feloniously fail to file his income tax return (ITR) with the
Bureau of Internal Revenue for income earned for the taxable year 2001, to the
damage and prejudice of the Government in the estimated amount ofP1,089,439.08,
exclusive of penalties, surcharges and interest (underscoring and boldfacing in the
original).14
The petitioner failed to file his comment to the motion within the required period;
thus on June 12, 2007,the CTA First Division granted the prosecutions motion.15 The
CTA ruled that the prosecutions amendment is merely a formal one as it "merely
states with additional precision something already contained in the original
information."16The petitioner failed to show that the defenses applicable under the
original information can no longer be used under the amended information since both
the original and the amended information charges the petitioner with the same
offense (violation of Section 255). The CTA observed:
the change in the name of his business to include the phrase "Mendez Medical Group"
does not alter the fact the [petitioner] is being charged with failure to file his Income
Tax Return... The change in the branches of his business, likewise did not relieve [the
petitioner] of his duty to file an ITR. In addition, the places where the accused
conducts business does not affect the Courts jurisdiction... nor ... change the nature
of the offense charged, as only one [ITR] is demanded of every taxpayer. We likewise
see no substantial difference on the information with the insertion of the phrase for
income earned for it merely stated the normal subject matter found in every income
tax return.
The petitioner filed the present petition after the CTA denied his motion for
reconsideration.17 THE PETITION
The petitioner claims in his petition that the prosecutions amendment is a substantial
amendment prohibited under Section 14, Rule 110 of the Revised Rules of Criminal
Procedure. It is substantial in nature because its additional allegations alter the
prosecutions theory of the case so as to cause surprise to him and affect the form of
his defense.18 Thus, he was not properly informed of the nature and cause of the
accusation against him.
Adopting the observation of a dissenting CTA justice, he claims that to change the
allegation on the locations of his business from San Fernando, Pampanga and
Dagupan City to Muntinlupa and Mandaluyong cities would cause surprise to him on
the form of defense he would have to assume.
The petitioner adds that the change in the date of the commission of the crime from
2001 to 2002 would also alter his defense considering that the difference in taxable
years would mean requiring a different set of defense evidence. The same is true with
the new allegation of "Mendez Medical Group" since it deprived him of the right,
during the preliminary investigation, to present evidence against the alleged
operation and or existence of this entity.19 In sum, the amendments sought change
the subject of the offense and thus substantial.20RESPONDENTS COMMENT
The respondents claim that the petitioner availed of the wrong remedy in questioning
the CTA resolutions. Under Rule 9, Section 9 of the Revised Rules of CTA, the remedy
of appeal to the CTA en banc is the proper remedy, to be availed of within fifteen
days from receipt of the assailed resolution. The filing of the present petition was
clearly a substitute for a lost appeal. Even assuming that certiorari is the proper
remedy, the CTA did not commit an error of jurisdiction or act with grave abuse of
discretion. On the contrary, the assailed resolutions were in accord with
jurisprudence. The amended information could not have caused surprise to the
petitioner since the amendments do not change the nature and cause of accusation
against him. The offense the petitioner probably committed and the acts or omissions
involved remain the same under the original and the amended information, i.e., his
failure to file his ITR in 2002 for income earned in 2001 from the operation of his
businesses.21
Neither would the change in the date of the commission of the crime nor the inclusion
of the phrase "Mendez Medical Group" cause surprise to the petitioner since he was
fully apprised of these facts during the preliminary investigation. Likewise, the original
information already alleged that the petitioners failure to file an ITR refers to "taxable
year 2001."
Contrary to the petitioners contention, the preparation of the defense contemplated
in the law does not strictly include the presentation of evidence during the preliminary
investigation because this stage is not the occasion for the full and exhaustive display
of the parties evidence. ISSUES:
1. Is the remedy of certiorari proper?
TaxRemedies_new cases14
2. Whether the prosecutions amendments made after the petitioners arraignment
are substantial in nature and must perforce be denied?
COURTS RULING
We resolve to dismiss the petition.
Preliminary consideration
The petitioner correctly availed of the remedy of certiorari. Under Rule 65 of the Rules
of Court, certiorari is available when there is no appeal or any plain, speedy and
adequate remedy in the ordinary course of law. After failing in his bid for the CTA to
reconsider its admission of the amended information, the only remedy left to the
petitioner is to file a petition for certiorari with this Court.
Contrary to the prosecutions argument, the remedy of appeal to the CTA en banc is
not available to the petitioner. In determining the appropriate remedy or remedies
available, a party aggrieved by a court order, resolution or decision must first
correctly identify the nature of the order, resolution or decision he intends to assail.
What Section 9 Rule 922 of the Rules of the CTA provides is that appeal to the CTA en
banc may be taken from a decision or resolution of the CTA division in criminal cases
by filing a petition for review under Rule 43 of the Rules of Court. Under Section 1,
Rule 43, the remedy of a petition for review is available only against a judgments or a
final order.
A judgment or order is considered final if it disposes of the action or proceeding
completely, or terminates a particular stage of the same action; in such case, the
remedy available to an aggrieved party is appeal. If the order or resolution, however,
merely resolves incidental matters and leaves something more to be done to resolve
the merits of the case, as in the present case, the order is interlocutory and the
aggrieved partys only remedy after failing to obtain a reconsideration of the ruling is
a petition for certiorari under Rule 65.
Nonetheless, while we rule that the petitioner availed of the correct remedy, we
resolve to dismiss the petition for failure to establish that the CTA abused its
discretion, much less gravely abused its discretion.
Amendment of information
Section 14, Rule 110 of the Revised Rules of Criminal Procedure governs the matter
of amending the information:
Amendment or substitution. A complaint or information may be amended, in form
or in substance, without leave of court, at any time before the accused enters his
plea. After the plea and during the trial, a formal amendment may only be made with
leave of court and when it can be done without causing prejudice to the rights of the
accused.
However, any amendment before plea, which downgrades the nature of the offense
charged in or excludes any accused from the complaint or information, can be made
only upon motion by the prosecutor, with notice to the offended party and with leave
of court. The court shall state its reasons in resolving the motion and copies of its
order shall be furnished all parties, especially the offended party.
There is no precise definition of what constitutes a substantial amendment. According
to jurisprudence, substantial matters in the complaint or information consist of the
recital of facts constituting the offense charged and determinative of the jurisdiction
of the court.23 Under Section 14, however, the prosecution is given the right to amend
the information, regardless of the nature of the amendment, so long as the
amendment is sought before the accused enters his plea, subject to the qualification
under the second paragraph of Section 14.
Once the accused is arraigned and enters his plea, however, Section 14 prohibits the
prosecution from seeking a substantial amendment, particularly mentioning those
that may prejudice the rights of the accused.24 One of these rights is the
constitutional right of the accused to be informed of the nature and cause of
accusation against him, a right which is given life during the arraignment of the
accused of the charge of against him. The theory in law is that since the accused
officially begins to prepare his defense against the accusation on the basis of the
recitals in the information read to him during arraignment, then the prosecution must
establish its case on the basis of the same information.
To illustrate these points, in Almeda v. Judge Villaluz,25 the prosecution wanted to
additionally alleged recidivism and habitual delinquency in the original information. In
allowing the amendment, the Court observed that the amendment sought relate only
to the range of the penalty that the court might impose in the event of conviction.
Since they do not have the effect of charging an offense different from the one
charged (qualified theft of a motor vehicle) in the information, nor do they tend to
correct any defect in the trial courts jurisdiction over the subject-matter, the
amendment sought is merely formal.
In Teehankee, Jr. v. Madayag,26 the prosecution sought during trial to amend the
information from frustrated to consummated murder since the victim died after the
information for frustrated murder was filed. The accused refused to be arraigned
under the amended information without the conduct of a new preliminary
investigation. In sustaining the admission of the amended information, the Court
reasoned that the additional allegation, that is, the supervening fact of the death of
the victim was merely supplied to aid the trial court in determining the proper penalty
for the crime. Again, there is no change in the nature of offense charged; nor is there
a change in the prosecutions theory that the accused committed a felonious act with
intent to kill the victim; nor does the amendment affect whatever defense the
accused originally may have.
In short, amendments that do not charge another offense different from that charged
in the original one;27 or do not alter the prosecution's theory of the case so as to
cause surprise to the accused and affect the form of defense he has or will assume
are considered merely as formal amendments.
In the present case, the amendments sought by the prosecution pertains to (i) the
alleged change in the date in the commission of the crime from 2001 to 2002; (ii) the
addition of the phrase "doing business under the name and style of Mendez Medical
Group;" (iii) the change and/or addition of the branches of petitioners operation; and
(iv) the addition of the phrase "for income earned." We cannot see how these
amendments would adversely affect any substantial right of the petitioner as accused.
The "change" in the date from 2001 to 2002 and the addition of the phrase "for
income earned"
At the outset we note that the actual year of the commission of the offense has
escaped both the petitioner and prosecution. In its Motion to Amend the Information,
the prosecution mistakenly stated that the information it originally filed alleged the
commission of the offense as "on or about the 15th day of April, 2001" even if the
record is clear that that the actual year of commission alleged is 2002. The petitioner
makes a similar erroneous allegation in its petition before the Court.
Interestingly, in its August 13, 2007 resolution, denying the petitioners motion for
reconsideration, the CTA implicitly ruled that there was in fact no amendment of the
date in the information by correctly citing what the original information alleges. This,
notwithstanding, the petitioner still baselessly belaboured the point in its present
petition by citing the erroneous content of the prosecutions motion to amend instead
TaxRemedies_new cases15
of the original information itself.28 This kind of legal advocacy obviously added nothing
but confusion to what is otherwise a simple case and another docket to the High
Courts overwhelming caseload.
That the actual date of the commission of the offense pertains to the year 2002 is
only consistent with the allegation in the information on the taxable year it covers,
i.e., for the taxable year 2001. Since the information alleges that petitioner failed to
file his income tax return for the taxable year 2001, then the offense could only
possibly be committed when petitioner failed to file his income tax return before the
due date of filing, which is on April of the succeeding year, 2002. Accordingly, the
addition of the phrase "for the income earned" before the phrase "for the taxable year
2001" cannot but be a mere formal amendment since the added phrase merely states
with additional precision something that is already contained in the original
information, i.e., the income tax return is required to be filed precisely for the income
earned for the preceding taxable year.
The nature of the remaining two items of amendment would be better understood,
not only in the context of the nature of the offense charged under the amended
information, but likewise in the context of the legal status of the "Mendez Medical
Group."
The addition of the phrase "doing businessunder the name and style of
MendezMedical Group and the changeand/oraddition of the branches of
petitionersoperation
Under the National Internal Revenue Code (NIRC), a resident citizen who is engaged
in the practice of a profession within the Philippines is obligated to file in duplicate an
income tax return on his income from all sources, regardless of the amount of his
gross income.29 In complying with this obligation, this type of taxpayer ought to keep
only two basic things in mind: first is where to file the return; and second is when to
file the return. Under Section 51 B of the NIRC, the return should "be filed with an
authorized agent bank, Revenue District Officer, Collection Agent or duly authorized
Treasurer of the city or municipality in which such person has his legal residence or
principal place of business in the Philippines."
On the other hand, under Section 51 C of the NIRC, the same taxpayer is required to
file his income tax return on or before the fifteenth (15th) day of April of each year
covering income for the preceding taxable year.30 Failure to comply with this
requirement would result in a violation of Section 255 of the NIRC which reads:
Section 255. Failure to File Return, Supply Correct and Accurate Information, Pay Tax
Withhold and Remit Tax and Refund Excess Taxes Withheld on Compensation. - Any
person required under this Code or by rules and regulations promulgated thereunder
to pay any tax, make a return, keep any record, or supply any correct and accurate
information, who wilfully fails to pay such tax, make such return, keep such record, or
supply correct and accurate information, or withhold or remit taxes withheld, or
refund excess taxes withheld on compensation, at the time or times required by law
or rules and regulations shall, in addition to other penalties provided by law, upon
conviction thereof, be punished by a fine of not less than Ten thousand pesos
(P10,000) and suffer imprisonment of not less than one (1) year but not more than
ten (10) years. [emphasis supplied]
Since the petitioner operates as a sole proprietor from taxable years 2001 to 2003,
the petitioner should have filed a consolidated return in his principal place of
business, regardless of the number and location of his other branches. Consequently,
we cannot but agree with the CTA that the change and/or addition of the branches of
the petitioners operation in the information does not constitute substantial
amendment because it does not change the prosecutions theory that the petitioner
failed to file his income tax return.
Still, the petitioner cites the case of Matalam v. Sandiganbayan, Second Division31 in
claiming that the deletion of San Fernando (Pampanga City) and Dagupan City
deprives him of the defenses he raised in his counter-affidavit.
In Matalam, the prosecution charged the accused with violation of RA No. 3019 for
"[c]ausing undue injury to several [government employees] thru evident bad faith
xxx by illegally and unjustifiably refusing to pay [their] monetary claims xxx in the
nature of unpaid salaries during the period when they have been illegally terminated,
including salary differentials and other benefits." After a reinvestigation, the
prosecution sought to amend the information to allege that the accused
[c]ause[d] undue injury by illegally dismissing from the service [several government]
employees, xxx to their damage and prejudice amounting to P1,606,788.50 by way of
unpaid salaries during the period when they have been illegally terminated including
salary differentials and other benefits.32
The accused moved to dismiss the amended information for charging an entirely new
cause of action and asked for preliminary investigation on this new charge of illegal
dismissal.
The Sandiganbayan observed that (i) there is a clear change in the cause of action
(from refusal to pay to illegal dismissal); and (ii) the main defense of all the accused
in the original information the lack of a corresponding appropriation for the
payment of the monetary claims of the complaining witnesses would no longer be
available under the amendment. After finding, however, that the complainants
demand for monetary claim actually arose from their alleged illegal dismissal, the
Sandiganbayan allowed the amendment because an "inquiry to the allegations in the
original information will certainly and necessarily elicit substantially the same facts to
the inquiry of the allegations in the Amended Information."33
As to when the rights of an accused are prejudiced by an amendment made after he
had pleaded to the original information, Montenegroruled34 that prejudice exists when
a defense under the original information would no longer be available after the
amendment is made, and when any evidence the accused might have, would be
inapplicable to the Information as amended.35 Applying this test, the Court disallowed
the amendment for being substantial in nature as the recital of facts constituting the
offense charged was altered.36
The inapplicability of Matalam to the present case is obvious. Here, the prosecutions
theory of the case, i.e., that petitioner failed to file his income tax return for the
taxable year 2001 did not change. The prosecutions cause for filing an information
remained the same as the cause in the original and in the amended information. For
emphasis, the prosecutions evidence during the preliminary investigation of the case
shows that petitioner did not file his income tax return in his place of legal
residence37 or principal place of business in Quezon City or with the Commissioner. In
short, the amendment sought did not alter the crime charged.
At first, a change in the location of branches alleged in the information may appear to
deprive the petitioner of his defense in the original information, i.e., the petitioners
branches in Dagupan and San Fernando were registered only in 2003 and were
therefore "in existent" in 2001. However, this is not the kind of defense contemplated
under the Rules of Criminal Procedure, and broadly under the due process of law.
Contrary to the petitioners claim, the opportunity given to the accused to present his
defense evidence during the preliminary investigation is not exhaustive. In the same
manner that the complainants evidence during preliminary investigation is only
TaxRemedies_new cases16
required to establish the minimal evidentiary threshold of probable cause, the
evidence that the respondent may present during trial is not limited to what he had
presented during the preliminary investigation, so long as the evidence for both
parties supports or negates the elements of the offense charged.
To be sure, the jurisprudential test on whether a defendant is prejudiced by the
amendment of an information pertains to the availability of the same defense and
evidence that the accused previously had under the original information. This test,
however, must be read together with the characteristic thread of formal amendments,
which is to maintain the nature of the crime or the essence of the offense charged.38
In the present case, this thread remained consistently under the amended
information, alleging the petitioners failure to file his return and consequently to pay
the correct amount of taxes. Accordingly, the petitioner could not have been surprised
at all.
We also reject for lack of merit petitioners claim that the inclusion of the phrase
"doing business under the name and style of Mendez Medical Group" after his
preliminary investigation and arraignment deprives him of the right to question the
existence of this "entity."
The petitioner however has not drawn our attention to any of his related operations
that actually possesses its own juridical personality. In the original information,
petitioner is described as "sole proprietor of Weigh Less Center." A sole proprietorship
is a form of business organization conducted for profit by a single individual, and
requires the proprietor or owner thereof, like the petitioner-accused, to secure
licenses and permits, register the business name, and pay taxes to the national
government without acquiring juridical or legal personality of its own.39
In the amended information, the prosecution additionally alleged that petitioner is
"doing business under the name and style of Weigh Less Center/Mendez Medical
Group." Given the nature of a sole proprietorship, the addition of the phrase "doing
business under the name and style" is merely descriptive of the nature of the
business organization established by the petitioner as a way to carry out the practice
of his profession. As a phrase descriptive of a sole proprietorship, the petitioner
cannot feign ignorance of the "entity" "Mendez Medical Group" because this entity is
nothing more than the shadow of its business owner - petitioner himself.
At any rate, we agree with the prosecution that petitioner has no reason to complain
for the inclusion of the phrase "Mendez Medical Group." In the Reply-Affidavit it
submitted during the preliminary investigation, the prosecution has attached copies of
petitioner's paid advertisements making express reference to "Mendez Medical
Group."40
WHEREFORE, premises considered, we DISMISS the petition for lack of merit, with
costs against the petitioner.
SO ORDERED.