Case Digest - Taxation

Cagayan Valley Drug vs. CIR
GR 151413                  February 13, 2008
Velasco, J.:
              Petitioner filed with BIR a claim for tax refund of the full amount of the 20% sales discount it granted to senior citizens for the year 1995. BIR inaction prompted petitioner to file petition for review before CTA in order to forestall the 2-year prescriptive period. CTA dismissed/rejected refund as discount extended to Senior Citizens in granted as tax credit and not refund. CTA reasoned that while petitioner may be qualified for a tax credit, it cannot be so extended on account of its net loss in 1995. CA dismissed petition on procedural grounds.
              Whether or not petition is entitled to a tax refund or tax credit of 20% sales discount granted to senior citizens under RA 7432 or whether the deduction should be treated as a deduction from gross income.
              Appellate Tax Court correctly ruled that the 20% sales discounts petitioner granted to qualified senior citizens should be deducted from petitioner’s income tax due and not from gross sales as erroneously provided in RR 2-94. However, CTA erred in denying the tax credit to petitioner on the ground that petitioner had suffered net loss in 1995, and ruling that the tax credit is unavailing.
              The fact that petitioner suffered a net loss in 1995 will not make the tax credit due to petitioner unavailable. This is the core issue resolved in Central Luzon (case) where it was ruled that the net loss for a taxable years does not bar the grant and of the tax credit to a taxpayer pursuant to RA 7432 and the prior tax payments are not required for such grant.

GR 157264                  January 31, 2008
Carpio Morales;J.:
              PLDT terminated and compensated affected employees in compliance with labor law requirements. It deducted from separation pay withholding taxes and remitted the same to BIR. In 1997, it filed a claim for tax refund and CTA contended that petitioner failed to show proof of payment of separation pay and remittance of the alleged with held taxes. CA dismissed the same and PLDT^ assailed the decision arguing against the need for proof that the employees received their separation pay and proffers actually received by terminated employees.
              Whether or not the withholding taxes remitted to the BIR should be refunded for having been erroneously withheld and paid to the latter.
              Tax refunds, like tax exemptions, are considered strictly against the taxpayer and liberally in favor of the taxing authority, and the taxpayer bears the burden of establishing the factual basis of his claim for a refund.
              A taxpayer must do two things to be able to successfully make a claim for tax refund: a) declare the income payments it received as part of its gross income and b) establish the fact of withholding.
              At all events, the alleged newly discovered evidence that PLDT seeks to offer does not suffice to established its claim for refund as it would still have to comply with Revenue Regulation 6-85 by proving that the redundant employees on whose behalf it filed the claim for refund, declared the separation pay received as part of their gross income. The same Revenue Regulation required that the facts of withholding is established by a copy of the statement duly issued by the payor to the payee showing the amount paid and the amount of tax withhold therefrom.

Stateland Investment Corp vs. CIR
G.R. 171956                January 18, 2008
Sandoval-Guiterrez, J.:
              Petitioner filed income tax return for 1997 having an accumulated tax credits of P23,632,959.05 from which 1997 tax was deducted, leaving P13,929,793.51 unutilized. Petitioner opted to apply this amount as tax credit to the succeeding taxable year 1998. For 1998, petitioner still had an unutilized tax credit after deducting 1998 tax, thus filed for a refund. CTA ruled that failure of petitioner to present its 1999 corporate annual income tax return shows that it incurred a net loss thus no tax liability.
              Whether or not petitioner is entitles to the refund representing the excess creditable withholding tax for 1997.
              A corporation entitled to a refund of excess creditable withholding tax may either obtain the refund or credit the amount to the succeeding taxable year. Sec 76 states “In case the corporation is entitled to a refund of the excess estimated quarterly 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 years.”
              Petitioner filed with BIR its claim for the refund within the two-year statutory limitation. Both CTA and CA failed to consider that petitioner’s intention was to apply the tax credit to 1997 to its income tax due for 1998. It was not necessary for petitioner to file it ITR for 1999, thus requiring ITR of the succeeding year be presented has no basis in law.
              This Court held that if a tax payer suffered a net loss in the succeeding year, incurring no tax liability to which a previous years tax credit could be applied there is no reason for BIR to withhold the refund that rightfully belongs to the tax payer.

Systra Phils vs. CIR
September 21, 2007               G.R. 176290
Corona, J.:
              This is a case where a second motion for reconsideration was filed by petitioner. Systra likewise questioned the substantive aspect of CTA decisions. The facts on the tax case.
              Petitioner had creditable taxes which they opted to carry over to the succeeding year 2001. In 2001 ITR, it indicated that creditable withholding taxes will also be carried over to next year’s tax as credit. However, on August 9, 2001, petitioner instituted a claim for refund of its unutilized creditable withholding taxes. Due to BIR’s inaction, petitioner filed a petition for review. CTA partially granted the petition but denied claim for refund because petitioner was precluded from claiming a refund. Once it was made for a particular taxable period, the option to carry over become irrevocable.
              Whether or not the exercise of the option to carry-over excess income tax credits bars a taxpayer from claiming the excess tax credits for refund.
              It was in the year 2000 that petitioner derived excess tax credits and exercised the irrevocable option to carry them over as tax credits for the next taxable year. The excess credits will only be applied “against income tax due for the taxable quarters of the succeeding taxable years.”
              Section 76 of the present tax c ode formulates an irrevocability rule which stresses and fortifies the nature of the remedies or options as alternative, not cumulative. It also provides that the excess tax credits “may be carried over and credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years until fully utilized.
              Nevertheless, the amount will not be forfeited in favor of the government but will remain in the taxpayer’s account.”

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