G.R. No. 206019 - Philippine National Bank vs. Commissioner of Internal Revenue

GotescoTyan Ming Development, Inc. (Gotesco), a Filipino corporation engaged in the real estate business, entered into a syndicated loan agreement on April 7, 1995, with Philippine National Bank (PNB) and three other banks.
To secure the loan, Gotesco mortgaged a six-hectare property known as the Ever Ortigas Commercial Complex through a mortgage trust indenture agreement in favor of PNB, which acted as trustee via its Trust Banking Group.

After Gotesco defaulted on its loan obligations, PNB foreclosed the mortgaged property through a notarial sale held on July 30, 1999, and was issued a certificate of sale on August 4, 1999. The certificate allowed Gotesco a one-year redemption period upon inscription with the Register of Deeds of Pasig City (November 9, 1999).
Gotesco challenged the foreclosure by filing a civil case before the Regional Trial Court (RTC) of Pasig on October 20, 2000, seeking annulment of the foreclosure proceedings, specific performance, and damages, with the additional prayer for a temporary restraining order (TRO) and/or preliminary injunction.
The RTC initially granted a TRO (November 9, 2000) and subsequently issued a writ of preliminary injunction (December 21, 2000). PNB’s motion for reconsideration was denied.
PNB elevated the matter to the Court of Appeals (CA) via a Petition for Certiorari. The CA reversed and set aside the preliminary injunction, and Gotesco’s motion for reconsideration before the CA was denied on December 22, 2003, thereby rendering the foreclosure final and executory.

As PNB prepared to consolidate its ownership of the foreclosed property, it paid the Bureau of Internal Revenue (BIR) the Documentary Stamp Tax (DST) amounting to ₱18,615,000 on October 31, 2003.
PNB also withheld and remitted taxes at a six percent (6%) rate on the bid price of the foreclosure sale, which produced amounts of approximately ₱1,240,000,469.82 and ₱74,400,028.49 (the latter being the withholding tax amount in question), on October 31 and November 11, 2003.

Pending the issuance of the Certificate Authorizing Registration (CAR), the BIR imposed interests, penalties, and surcharges on both the capital gains tax and the DST totaling ₱77,172,555.28. PNB paid these additional amounts on April 5, 2005.
Believing that it had erroneously remitted an excess in creditable withholding taxes (at a 6% rate instead of a 5% rate provided in Revenue Regulation provisions), PNB filed an administrative claim for refund on October 27, 2005.
Subsequently, on October 28, 2005, PNB filed its petition for review before the Court of Tax Appeals (CTA), docketed as CTA Case No. 7355, asserting that the applicable creditable withholding tax should have been 5%, and thus claiming an excess refund of ₱12,400,004.71.

PNB’s refund claims were split into two CTA cases (Cases No. 7355 and 7588) and later consolidated.
In its July 12, 2010 consolidated Decision, the Special First Division of the CTA ordered a refund for surcharges, interests, and penalties in Case No. 7588 but denied the refund claim for excess creditable withholding tax in Case No. 7355 due to insufficient evidence that Gotesco had not utilized the withheld taxes to settle its liabilities.
PNB subsequently filed a Motion for Reconsideration (MR) on July 30, 2010, attaching Gotesco’s 2003 Income Tax Return (ITR) and its Schedule of Prepaid Tax, which was, however, denied on April 5, 2011, for lack of corroborative evidence—most notably, the absence of BIR Form No. 2307 to confirm non-utilization of the creditable tax.

PNB later filed a Petition for Review (CTA EB Case No. 762) before the CTA En Banc, arguing that the evidence (including Gotesco’s 2003 audited financial statements, ITRs, and the testimony of Gotesco’s former accountant) demonstrated that Gotesco did not utilize the withheld taxes because it continued to list the foreclosed property as an asset.
Supporting evidence included:

Gotesco’s 2003 Audited Financial Statements showing the retention of the foreclosed property in the asset accounts.
The 2003 ITR and its accompanying Schedule of Prepaid Tax, which itemized creditable tax amounts that did not include the excess withheld by PNB.
Judicial affidavits and remittance returns (BIR Form No. 1606) confirming the withholding and remittance practices.

Based on these evidences, PNB maintained that the amount of ₱12,400,004.71 alleged to be in excess was not applied by Gotesco in settling its tax liabilities.

Whether or not PNB is entitled to a refund of the excess creditable withholding taxes (amounting to ₱12,400,004.71) erroneously withheld and remitted to the BIR in relation to the foreclosure sale of the mortgaged property.

The evidentiary value and necessity of submitting BIR Form No. 2307 to prove that Gotesco did not utilize the excess credited withholding taxes to offset its tax liabilities.
Whether the other documentary evidence (Gotesco’s 2003 audited financial statements, ITRs, Schedule of Prepaid Tax, and the remittance returns) suffices to establish non-utilization of the tax credit in lieu of BIR Form No. 2307.