PRESCRIPTION
As applied to the present case, the CIR had three (3) years
BPI VS CIR (2008)
Facts: BPI, the surviving bank after its merger with Far East Bank and Trust
Company, is a corporation duly created and existing under the laws of the
Republic of the Philippines. CIR issued to the petitioner a pre-assessment
notice (PAN) dated November 26, 1986. BPI requested for the details of the
amounts alleged as 1982-1986 deficiency taxes mentioned in the November
26, 1986 PAN. On April 7, 1989, the CIR issued to the petitioner,
assessment/demand notices for deficiency withholding tax at source (Swap
Transactions) and DST for the years 1982 to 1986. On April 20, 1989, BPI
filed a protest on the demand/assessment notices. BPI executed several
Waivers of the Statutes of Limitations, the last of which was effective until
December 31, 1994. On August 9, 2002, the CIR issued a final decision on
petitioners protest ordering the withdrawal and cancellation of the
deficiency withholding tax assessment in the amount of P190,752,860.82
and considered the same as closed and terminated. On the other hand, the
deficiency DST assessment in the amount of P24,587,174.63 was reiterated
and the petitioner was ordered to pay the said amount within thirty (30)
days from receipt of such order. Petitioner received a copy of the said
decision on January 15, 2003.
Issue: Whether the collection of the deficiency DST is barred by
prescription?
Held: No. The statute of limitations on assessment and collection of national
internal revenue taxes was shortened from five (5) years to three (3) years
by Batas Pambansa Blg. 700. Thus, the CIR has three (3) years from the date
of actual filing of the tax return to assess a national internal revenue tax or
to commence court proceedings for the collection thereof without an
assessment. When it validly issues an assessment within the three (3)-year
period, it has another three (3) years within which to collect the tax due by
distraint, levy, or court proceeding. The assessment of the tax is deemed
made and the three (3)-year period for collection of the assessed tax begins
to run on the date the assessment notice had been released, mailed or sent
to the taxpayer.
from the time he issued assessment notices to BPI on 7 April 1989 or until 6
April 1992 within which to collect the deficiency DST. However, it was only
on 9 August 2002 that the CIR ordered BPI to pay the deficiency.
In BPI v. Commissioner of Internal Revenue, the Court emphasized the rule
that the CIR must first grant the request for reinvestigation as a
requirement for the suspension of the statute of limitations. The Court went
on to declare that the burden of proof that the request for reinvestigation
had been actually granted shall be on the CIR. Such grant may be expressed
in its communications with the taxpayer or implied from the action of the
CIR or his authorized representative in response to the request for
reinvestigation. There is nothing in the records of this case which indicates,
expressly or impliedly, that the CIR had granted the request for
reinvestigation filed by BPI. What is reflected in the records is the piercing
silence and inaction of the CIR on the request for reinvestigation, as he
considered BPIs letters of protest to be. In fact, it was only in his comment
to the present petition that the CIR, through the OSG, argued for the first
time that he had granted the request for reinvestigation. There is no
evidence that the CIR actually conducted a reinvestigation upon the request
of BPI or that the latter was made aware of the action taken on its request.
Hence, there is no basis for the tax courts ruling that the filing of the
request for reinvestigation tolled the running of the prescriptive period for
collecting the tax deficiency.
Neither did the waiver of the statute of limitations signed by BPI supposedly
effective until 31 December 1994 suspend the prescriptive period. The CIR
himself contends that the waiver is void as it shows no date of acceptance in
violation of RMO No. 20-90. At any rate, the records of this case do not
disclose any effort on the part of the Bureau of Internal Revenue to collect
the deficiency tax after the expiration of the waiver until eight (8) years
thereafter when it finally issued a decision on the protest. The inordinate
delay of the CIR in acting upon and resolving the request for reinvestigation
filed by BPI and in collecting the DST allegedly due from the latter had
resulted in the prescription of the governments right to collect the
deficiency.
BPI vs CIR (2005) –
Facts:BPI, sold $500,000 in June 6 and 14 1985 to the Central Bank for the
total amount of $1,000,000.On October 1989, the BIR assessed BPI for tax
deficiency of documentary tax on such sales of foreign bills of exchange. BPI
filed and protested the assessment on 1989, BPI did not receive any
immediate reply to its protest. On 1992 BIR issued a warrant of Distraint
and/or Levy against the petitioner. The warrant was served on 1992 but
never heard anything from the BIR until the 1997 when the reconsideration
was denied.
BPI filed a petition for Review with the CTA and raised prescription as a
defense. It alleged that the right to collect must be done within 3 years only,
but the BIR waited more than 7 years to deny the protest. BIR reiterated its
position and remained silent as regards the issue on prescription.
CTA rendered the decision in favor BIR stating that the action has not
prescribed but the sale of foreign currency is not subject to documentary
stamp tax. Further the assessment was order for cancellation because the
transaction between BPI and the Central Bank was tax exempt. The CA
sustained the finding of the CAT that the action has not yet prescribed, but
it adopted the position of the BIR that the sale of foreign currency was not
tax exempt.
Issue:Whether or not BIR’s right to collect the tax deficiency on
documentary stamps has prescribed
Ruling:Yes. The period for the BIR to assess and collect an internal revenue
tax is limited to three years by Section 203 of the Tax Code of 1977:
“SEC. 203. Period of limitation upon assessment and collection. – Except as
provided in the succeeding section, internal revenue taxes shall be assessed
within three years after the last day prescribed by law for the filing of the
return, and no proceeding in court without assessment for the collection of
such taxes shall be begun after the expiration of such period: Provided, That
in a case where a return is filed beyond the period prescribed by law, the
three-year period shall be counted from the day the return was filed. For
the purposes of this section, a return filed before the last day prescribed by
law for the filing thereof shall be considered as filed on such last day.”
It may only be interrupted or suspended by a valid waiver executed in
accordance with paragraph (d) of Section 223 of the Tax Code of 1977
“(d) Any internal revenue tax which has been assessed within the period
agreed upon as provided in paragraph (b) hereinabove may be collected by
distraint or levy or by a proceeding in court within the period agreed upon
in writing before the expiration of the three-year period. The period so
agreed upon may be extended by subsequent written agreements made
before the expiration of the period previously agreed upon.”
and the existence of the circumstances enumerated in Section 224 of the
same Code, which include a request for reinvestigation granted by the BIR
Commissioner.
“SEC. 224. Suspension of running of statute. – The running of the statute of
limitation provided in Section[s] 203 and 223 on the making of assessment
and the beginning of distraint or levy or a proceeding in court for collection,
in respect of any deficiency, shall be suspended for the period during which
the Commissioner is prohibited from making the assessment or beginning
distraint or levy or a proceeding in court and for sixty days thereafter; when
the taxpayer requests for a reinvestigation which is granted by the
Commissioner; when the taxpayer cannot be located in the address given by
him in the return filed upon which a tax is being assessed or
collected: Provided,That, if the taxpayer informs the Commissioner of any
change in address, the running of the statute of limitations will not be
suspended; when the warrant of distraint and levy is duly served upon the
taxpayer, his authorized representative, or a member of his household with
sufficient discretion, and no property could be located; and when the
taxpayer is out of the Philippines.”
None of the conditions and requirements for exception from the statute of
limitations on collection exists herein:
1) Petitioner BPI did not execute any waiver of the prescriptive period on
collection as mandated by paragraph (d) of Section 223;
2) The protest filed by petitioner BPI was a request for reconsideration, not
a request for reinvestigation that was granted by respondent BIR
Commissioner which could have suspended the prescriptive period for
collection under Section
BIR Commissioner and other BIR officials failed to act promptly in resolving
and denying the request for reconsideration filed by petitioner BPI and in
enforcing collection on the assessment. They presented no reason or
explanation as to why it took them almost eight years to address the protest
of petitioner BPI. The statute on limitations imposed by the Tax Code
precisely intends to protect the taxpayer from such prolonged and
unreasonable assessment and investigation by the BIR.
CIR vs. PHILIPPINE GLOBAL COMMUNICATION, INC.
G. R. No. 167146; October 31, 2006
FACTS: Respondent, a corporation engaged in telecommunications, filed its
Annual Income Tax Return for taxable year 1990 on 15 April 1991. Through
its counsel Ponce Enrile Cayetano Reyes and Manalastas Law Offices, it filed
a formal protest letter against Assessment Notice then filed another protest
letter on 23 May 1994, through another
counsel Siguion Reyna Montecillo & Ongsiako Law Offices. In both letters,
respondent requested for the cancellation of the tax assessment, which
they alleged was invalid for lack of factual and legal basis. On 16 October
2002, more than 8 years after the assessment, the Ponce Enrile
Cayetano Reyes and Manalastas Law Offices received from the CIR a Final
Decision denying the respondents protest against Assessment
Notice. Respondent filed a Petition for Review with the CTA. The CTA ruled
on the primary issue of prescription and found it unnecessary to decide the
issues on the validity and propriety of the assessment. It decided that the
protest letters filed by the respondent cannot constitute a request
for reinvestigation, hence, they cannot toll the running of the prescriptive
period to collect the assessed deficiency income tax. Thus, since more than
3 years had lapsed from the time of the Assessment Notice, the CIRs right to
collect the same has prescribed.
ISSUE: Has the CIR’s right to collect respondent’s alleged deficiency income
tax prescribed?
RULING:Yes.
The 3-year statute of limitations on the collection of an assessed tax
provided under Section 269(c) of the Tax Code of 1977, a law enacted to
protect the interests of the taxpayer, must be given effect. In providing for
exceptions to such rule in Section 271, the law strictly limits the suspension
of the running of the prescription period to, among other instances,
protests wherein the taxpayer requests for a reinvestigation. In this case,
where the taxpayer merely filed 2 protest letters requesting for a
reconsideration, and where the BIR could not have conducted a
reinvestigation because no new or additional evidence was submitted, the
running of statute of limitations cannot be interrupted. The tax which is the
subject of the Decision issued by the CIR on 2002 affirming the Formal
Assessment issued 1994 can no longer be the subject of any proceeding for
its collection. Consequently, the right of the government to collect the
alleged deficiency tax is barred by prescription.
CIR vs. Hambrecht & Quist Philippines, Inc., G.R. No. 169225, November
17, 2010
“Reinvestigation”
Facts: On November 4, 1993, Hambrecht received a tracer letter or follow-
up letter dated October 11, 1993 issued by the Accounts Receivable/Billing
Division of the BIR’s National Office demanding for payment of alleged
deficiency income and expanded withholding taxes for the taxable year
1989 amounting to P2,936,560.87. On December 3, 1993, Hambrecht,
through its external auditors filed with the same Accounts Receivable/Billing
Division of the BIR’s National Office, its protest letter against the alleged
deficiency tax assessments for 1989 as indicated in the said tracer letter.
The alleged deficiency income tax assessment apparently resulted from an
adjustment made to respondent’s taxable income for the year 1989, on
account of the disallowance of certain items of expense. On November 7,
2001, nearly eight (8) years later, respondent’s external auditors received a
letter from herein petitioner Commissioner of Internal Revenue advising the
respondent that petitioner had rendered a final decision denying its protest
on the ground that the protest against the disputed tax assessment was
allegedly filed beyond the 30-day reglementary period prescribed in then
Section 229 of the National Internal Revenue Code. Hambrecht appealed to
the CTA the final decision of the Commissioner of Internal Revenue denying
its protest against the deficiency income and withholding tax assessments
issued for taxable year 1989.
CTA Ruling: The assessment had become final and unappealable for failure
of respondent to file a protest within the 30-day period provided by law.
However, the CTA (a) held that the CIR failed to collect the assessed taxes
within the prescriptive period; and (b) directed the cancellation and
withdrawal of Assessment Notice.
CIR filed a Petition for Review with the CTA En Banc but this was denied.
CIR insists that its right to collect the tax deficiency it assessed on
respondent is not barred by prescription since the prescriptive period
thereof was allegedly suspended by respondent’s request for
reinvestigation
Issue: Has the period to collect the assessment prescribed?
In order to suspend the running of the prescriptive periods for assessment
and collection, the request for reinvestigation must be granted by the CIR.
Consequently, the mere filing of a protest letter which is not granted does
not operate to suspend the running of the period to collect taxes. In the
case at bar, the records show that respondent filed a request for
reinvestigation on December 3, 1993, however, there is no indication that
petitioner acted upon respondent’s protest.
There is nothing in the record that would show what action was taken in
connection with the protest of the respondent. In fact, petitioner did not
hear anything from the respondent nor received any communication from
the respondent relative to its protest, not until eight years later when the
final decision of the Commissioner was issued. In other words, the request
for reinvestigation was not granted. Thus, the prescriptive period for the
CIR’s right to collect was not suspended and has prescribed.

Ruling: Yes. The pertinent provision of the 1986 NIRC is Section 224, to wit:

Section 224. Suspension of running of statute. – The running of the statute

of limitations provided in Sections 203 and 223 on the making of
assessment and the beginning of distraint or levy or a proceeding in court
for collection, in respect of any deficiency, shall be suspended for the period
during which the Commissioner is prohibited from making the assessment
or beginning distraint or levy or a proceeding in court and for sixty days
thereafter; when the taxpayer requests for a re-investigation which is
granted by the Commissioner; when the taxpayer cannot be located in the
address given by him in the return filed upon which a tax is being assessed
or collected: Provided, That, if the taxpayer informs the Commissioner of
any change in address, the statute will not be suspended; when the warrant
of distraint and levy is duly served upon the taxpayer, his authorized
representative, or a member of his household with sufficient discretion, and
no property could be located; and when the taxpayer is out of the
Philippines.

The plain and unambiguous wording of the said provision dictates that two
requisites must concur before the period to enforce collection may be
suspended: (a) that the taxpayer requests for reinvestigation, and (b) that
petitioner grants such request.
CREDIT/REFUND
CIR vs PNB
G.R. No. 161997, October 25, 2005
FACTS: In 1991, PNB issued to the BIR PNB Cashier’s Check for P180M which
represented PNB’s advance income tax payment for the bank’s 1991
operations and was remitted in response to then President Corazon
Aquino’s call to generate more revenues for national development. PNB
then requested the issuance of a tax credit certificate (TCC) to be utilized for
future tax obligations. By the end of 1991, PNB had credit balance in its
favor in the amount of P73.3M. This credit balance was carried-over to
cover tax liability for the years 1992 to 1996, but was never applied owing
to the bank’s negative tax position for the said inclusive years, having
incurred losses during the 4-year period.
On 1997, PNB requested for the issuance of a TCC for the unutilized balance
of its advance payment made in 1991 amounting to P73.3M. BIR denied
PNB’s claim for tax credit on the ground that it has already prescribed
having been filed beyond the 2-year period provided in the Tax Code.
ISSUE: Is the two-year prescriptive period as provided for in the Tax Code
applicable?
RULING: No. PNB’s request for issuance of a tax credit certificate on the
balance of its advance income tax payment cannot be treated as a simple
case of excess payment as to be automatically covered by the 2-year
limitation. The tax credit sought by PNB is not simply a case of excess
payment, but rather for the application of the balance of advance income
tax payment for subsequent taxable years after failure or impossibility to
make such application over the preceding 4-year period when no tax liability
was incurred by petitioner due to losses in its operations. It is truly
inequitable to strictly impose the 2-year prescriptive period as to legally bar
any request for such TCC. Thus, PNB is entitled an issuance of a TCC.
Silkair vs. CIR GR 173594 Feb 6, 2008
FACTS: Petitioner is a corporation organized under the laws of Singapore
which has a Philippine representative office, is an online international air
carrier. Silkair filed with the Bureau of Internal Revenue (BIR) for the refund
of excise taxes for their purchase of jet fuel. The CIR, in their reply, said that
petitioner failed to prove that the sale of the fuel was directly made from a
domestic oil company to them. The excise tax on petroleum products is the
direct liability of the manufacturer/producer, and when added to the cost of
the goods sold to the buyer, it is no longer a tax but part of the price which
the buyer has to pay to obtain the article. The CTA denying Silkair’s petition
stated that as the excise tax was imposed manufacturer of petroleum
products, any claim for refund should be filed by the latter; and where the
burden of tax is shifted to the purchaser, the amount passed on to it is no
longer a tax but becomes an added cost of the goods purchased.
ISSUE: Whether Silkair can claim for tax credit.
RULING: No. The proper party to question, or seek a refund of, an indirect
tax is the statutory taxpayer, the person on whom the tax is imposed by law
and who paid the same even if he shifts the burden thereof to another.
Thus, Petron Corporation, not Silkair, is the statutory taxpayer which is
entitled to claim a refund based on Section 135 of the NIRC of 1997. Even if
Petron Corporation passed on to Silkair the burden of the tax, the additional
amount billed to Silkair for jet fuel is not a tax but part of the price which
Silkair had to pay as a purchaser.
CIR vs. Smart Communications
G.R. No. 179045-46 August 25, 2010
FACTS: Smart Communication (Smart), is a domestic corporation and duly
registered with the Board of Investment.
Respondent Smart entered into three agreements for Programming and
Consultancy Services with PRISM Transactive, a non-resident corporation
duly organized and existing under the law of Malaysia. Under the
agreement, PRISM was to provide programming and consultancy service for
the installation of SDM and CM, for the implementation of SIM.
PRISM billed respondent of US$547822.45 and respondent withheld the
25% royalty tax of US$136,955.61.
Respondent filed a claim of refund with the BIR of the amount
PhP7,008,840. Respondent claim that it is entitled to a refund because the
payment made to PRISM are not royalties but business profits pursuant to
the definition of royalties under the RP-Malaysia Tax Treaty.
Issue #1 Whether or not Smart had the right to file the claim for refund
Ruling:
Yes. Smart, as withholding agent, may file the claim for refund. The person
entitled to claim a tax refund is the taxpayer [Sections 204(c) and 229 of the
National Internal Revenue Code (NIRC)]. However, in case the taxpayer does
not file a claim for refund, the withholding agent may file the claim. Thus, in
Commissioner of Internal Revenue v. Procter & Gamble Philippine
Manufacturing Corporation (204 SCRA 377), a withholding agent was
considered a proper party to file a claim for refund of the withheld taxes of
its foreign parent company.
The CIR was incorrect in saying that this ruling applies only when the
withholding agent and the taxpayer are related parties, i.e., where the
withholding agent is a wholly owned subsidiary of the taxpayer. Although
such relation between the taxpayer and the withholding agent is a factor
that increases the latter’s legal interest to file a claim for refund, there is
nothing in the decision in said case to suggest that such relationship is
required or that the lack of such relation deprives the withholding agent of
the right to file a claim for refund. Rather, what is clear in the decision is
that a withholding agent has a legal right to file a claim for refund for two
reasons. First, he is considered a “taxpayer” under the NIRC as he is
personally liable for the withholding tax as well as for deficiency
assessments, surcharges, and penalties, should the amount of the tax
withheld be finally found to be less than the amount that should have been
withheld under law. Second, as an agent of the taxpayer, his authority to file
the necessary income tax return and to remit the tax withheld to the
government impliedly includes the authority to file a claim for refund and to
bring an action for recovery of such claim.
Silkair (Singapore) Pte, Ltd. vs. Commissioner of Internal Revenue (supra),
cited by the CIR, was inapplicable as it involved excise taxes, not withholding
taxes. In that case, it was ruled that the proper party to question, or seek a
refund of, an indirect tax “is the statutory taxpayer, the person on whom
the tax is imposed by law and who paid the same even if he shifts the
burden thereof to another.”
As an agent of the taxpayer, it is the duty of the withholding agent to return
to the principal taxpayer what he has recovered. Otherwise, he would be
unjustly enriching himself at the expense of the principal taxpayer from
whom the taxes were withheld, and from whom he derives his legal right to
file a claim for refund.
Issue #2 whether Smart’s payments to Prism constituted “business profits”
or royalties.
(2) The payments for the CM and SIM Application Agreements constituted
“business profits” which were not taxable under the RP-Malaysia Tax Treaty.
However, the payment for the SDM Agreement constituted taxable
“royalty” under the same treaty.
The RP-Malaysia Tax Treaty defines “royalties” as payments of any kind
received as consideration for: “(i) the use of, or the right to use, any patent,
trade mark, design or model, plan, secret formula or process, any copyright
of literary, artistic or scientific work, or for the use of, or the right to use,
industrial, commercial, or scientific equipment, or for information
concerning industrial, commercial or scientific experience; (ii) the use of, or
the right to use, cinematograph films, or tapes for radio or television
broadcasting.” They are taxed at 25% of the gross amount.
Under the same Treaty, the “business profits” of an enterprise of a
Contracting State is taxable only in that State, unless the enterprise carries
on business in the other Contracting State through a permanent
establishment. The term “permanent establishment” is defined as a fixed
place of business where the enterprise is wholly or partly carried on.
However, even if there is no fixed place of business, an enterprise of a
Contracting State is deemed to have a permanent establishment in the
other Contracting State if it carries on supervisory activities in that other
State for more than 6 months in connection with a construction, installation
or assembly project which is being undertaken in that other State. In this
case, it was established during the trial that Prism did not have a permanent
establishment in the Philippines. Hence, “business profits” derived from
Prism’s dealings with Smart were not taxable.
Under its agreements with Smart, Prism had intellectual property right over
the SDM program, but not over the CM and SIM Application programs as
the proprietary rights of these programs belonged to Smart. Thus, out of the
payments made to Prism, only the payment for the SDM program was a
royalty subject to a 25% withholding tax; the payments for the CM and SIM
Application programs constituted Prism’s non-taxable “business profits.”
The BIR should, therefore, refund the erroneously withheld royalty taxes for
the payments pertaining to the CM and SIM Application Agreements.
TheBIR was ordered to issue a Tax Credit Certificate to Prism in the amount
of P3,989,456.43.
COMMISSIONER OF INTERNAL REVENUE, vs. FORTUNE TOBACCO
CORPORATION
Facts: After much wrangling in the Court of Tax Appeals (CTA) and the Court
of Appeals, Fortune TobaccoCorporation (Fortune Tobacco) was granted a
tax refund or tax credit representing specific taxes erroneouslycollected
from its tobacco products. The tax refund is being re-claimed by the
Commissioner of Internal Revenue(Commissioner) in this petition. Section
145 of the Tax Code mandates a 12% increase effective on 1 January
2000based on the taxes indicated under paragraph C, sub-paragraph (1)-(4).
However, Revenue Regulation No. 17-99went further and added that "the
new specific tax rate for any existing brand of cigars, cigarettes packed by
machine,distilled spirits, wines and fermented liquor shall not be lower than
the excise tax that is actually being paid prior toJanuary 1, 2000". Fortune
now assails the validity of said Revenue Regulation.
Issue: W/N Revenue Regulation No. 17-99 is valid
Ruling: No. Parenthetically, Section 145 states that during the transition
period, i.e., within the next three (3) years from the effectivity of the Tax
Code, the excise tax from any brand of cigarettes shall not be lower than the
tax due from each brand on 1 October 1996. This qualification, however, is
conspicuously absent as regards the 12% increase which is to be applied on
cigars and cigarettes packed by machine, among others, effective on 1
January 2000.Clearly and unmistakably, Section 145 mandates a new rate of
excise tax for cigarettes packed by machine due to the 12% increase
effective on 1 January 2000 without regard to whether the revenue
collection starting from this period may turn out to be lower than that
collected prior to this date.
By adding the qualification that the tax due after the 12% increase becomes
effective shall not be lower than the tax actually paid prior to 1 January
2000, Revenue Regulation No. 17-99 effectively imposes a tax which is the
higher amount between the ad valorem tax being paid at the end of the
three (3)-year transition period and the specific tax under paragraph C, sub-
paragraph (1)-(4), as increased by 12% — a situation not supported by the
plain wording of Section 145 of the Tax Code.
Tax refunds or tax credits are not founded principally on legislative grace
but on the legal principle which underlies all quasi-contracts abhorring a
person's unjust enrichment at the expense of another. The dynamic of
erroneous payment of tax fits to a tee the prototypic quasi-contract, solutio
indebiti, which covers not only mistake in fact but also mistake in law. The
Government is not exempt from the application of solutio indebiti. Indeed,
the taxpayer expects fair dealing from the Government, and the latter has
the duty to refund without any unreasonable delay what it has erroneously
collected. If the State expects its taxpayers to observe fairness and honesty
in paying their taxes, itmust hold itself against the same standard in
refunding excess (or erroneous) payments of such taxes. It should not
unjustly enrich itself at the expense of taxpayers. And so, given its essence,
a claim for tax refund necessitates only preponderance of evidence for its
approbation like in any other ordinary civil case.
CIR v. FEBTC (BPI) GR No. 173854 March 15, 2010 refund. The taxpayer must still present substantial evidence to prove his
claim for refund
Facts: On April 10, 1995, FEBTC filed with the BIR (2) Corporate Annual
Income Tax Returns for its Corporate Banking Unit (CBU) and another for its
Foreign Currency Deposit Unit (FCDU) for the taxable year Dec. 31, 1994.
The return consolidated the corporation’s overall income tax liability for
1994. It reflected a refundable amount of income tax of P12M. This amount
was carried over to 1995. On April 25, 1996, FEBTC filed its annual income
tax return, which showed a total of overpaid income tax amount of P17M.
FEBTC sought to refund P13M and applied with the BIR. Due to the failure of
the CIR to act on the application of tax refund, FEBTC brought the matter to
the CTA via petition for review. Trial ensued. FEBTC submitted its ITR for
1994 and 1995 for both CBU and FCDU, Certificates of Creditable tax
withheld, monthly remittance returns of income taxes issued by various
withholding agents. BIR did not present any evidence. On Oct. 4, 1999, CTA
rendered a decision denying FEBTC’s claim for refund on the ground that it
failed to show that the income derived from rentals and sale of property
form with the taxes were withheld were reflected in its 1994 annual ITR. On
Oct. 20, 1999, FEBTC filed a motion for new trial based on excusable
negligence and to present additional evidence to support its claim. It was
denied by the CTA. The matter was elevated to the CA. CA found that FEBTC
has duly proven that the income derived form rentals and sale of real
property upon which taxes were withheld were included in the return as
part of Gross income. CA therefore, reversed the CTA’s decision.

Issue: WON, respondent FEBTC has proven its entitlement to the refund?

Ruling: No.CTA’s decision was reinstated. A perusal of the respondent’s

annual income tax return shows that the foss income was derived solely
from sale of services. In fact, the phrase “not applicable” was printed on the
schedule pertaining to rent, sale of real property and trust income. Thus,
based on the entries in the return, the income derived from rentals and
sales of real property upon which the creditable income taxes are withheld
were not included in respondent’s gross income as reflected in its return.
Since no income was reported, it follows that no tax was withheld. FEBTC’s
contention that rentals were part of other income was not supported by
evidence. CA also erred that the certificates of creditable tax withheld at
source. It immediately granted the refund without first verifying whether
the fact of withholding was established by the certificates as required by the
RR 6-85 The burden is on the taxpayer to prove its entitlement to the