Case Summary (G.R. No. 206079-80)
Petitioner
Philippine Airlines, Inc., seeking refund of final income taxes withheld on interest earned from peso and dollar deposits with Agent Banks.
Respondent
Commissioner of Internal Revenue, contesting PAL’s entitlement to refund on grounds that remittance by the withholding agents was not adequately proven for certain banks.
Key Dates
• 2002 – PAL’s peso and dollar time deposits and corresponding interest income periods.
• November 3, 2003 – PAL’s written refund request filed with the CIR.
• February 24, 2004 – Case elevated to Court of Tax Appeals (CTA) upon deemed CIR denial.
• November 9, 2010 – CTA Special First Division Decision: granted refund of ₱1,237,646.43 (JP Morgan) and denied refund of ₱510,223.16 and US$65,877.07 (other banks).
• August 14, 2012 – CTA En Banc Decision affirming Special Division.
• January 17, 2018 – Supreme Court Decision.
Applicable Law
• 1987 Philippine Constitution (Article VI, sec. 28 – grant of tax exemptions by law).
• Presidential Decree No. 1590 – franchise granting PAL exemption from taxes except basic corporate income tax or 2% gross revenue tax, in lieu of all other taxes.
• National Internal Revenue Code (NIRC), as amended by Republic Acts No. 8424, 9282, 9334, 9337 – provisions on final withholding tax on interest income (sec. 27(D)(1)), withholding at source (sec. 57), returns and payment of withheld taxes (sec. 58).
• Revenue Regulations No. 02-98 – implementing rules on withholding and remittance by payor‐withholding agents and treatment of evidence in CTA.
Factual Background
- PAL placed peso and dollar deposits in four banks during 2002, earning interest income on which each bank deducted a 20% final withholding tax (7.5% for foreign currency placements under FCDU).
- Agent Banks issued Certificates of Final Tax Withheld at Source (BIR Form 2306) and bank‐issued letters certifying both withholding and remittance to the BIR.
- PAL’s franchise under PD 1590 exempts it from income tax on interest; any withholding constitutes excess payment eligible for refund or credit (sec. 14).
Procedural History
– PAL filed administrative claim for refund of ₱1,747,869.59 and US$65,877.07 on November 3, 2003. CIR took no action; claim deemed denied on February 3, 2004.
– CTA Special Division, after formal trial de novo, found PAL exempt but denied refund for three banks due to insufficient proof of remittance; granted refund for JP Morgan.
– CTA En Banc affirmed, requiring proof of remittance by withholding agents for each specific payment.
– PAL and CIR filed separate Rule 45 petitions before the Supreme Court.
Issues
- Whether the CTA may consider evidence not presented at the administrative level.
- Whether PAL satisfactorily proved remittance of withheld taxes by Agent Banks.
- Whether proof of remittance is a prerequisite to refund under PAL’s tax-exempt franchise.
CTA Rulings
– Trial de novo allows formal offering of new evidence (CTA is a court of record not bound by administrative submissions).
– PAL proved remittance only with respect to JP Morgan via monthly remittance returns; failed to show that total remittances by other banks corresponded to PAL’s withheld amounts.
Supreme Court Analysis and Ruling
- Scope of CTA review – CTA exercises exclusive appellate jurisdiction over refund claims; it is not confined to arguments or documents in the administrative phase. As a court of record, it conducts formal trial de novo, admits new evidence, and re-evaluates factual findings.
- Factual findings – Under Rule 45, findings of fact by CTA are final absent exceptional circumstances (gross abuse, misapprehension of facts, etc.). Petitioners failed to demonstrate any such exception. CTA’s finding that PAL did not link aggregate remittances to its specific withheld amounts for three banks is supported by evidence.
- Legal entitlement
Case Syllabus (G.R. No. 206079-80)
Facts
- In 2002, Philippine Airlines, Inc. (PAL) placed peso and dollar deposits with China Banking Corporation, JP Morgan Chase Bank, Philippine Bank of Communications, and Standard Chartered Bank (Agent Banks).
- These Agent Banks deducted final withholding tax from the interest income earned on said deposits.
- PAL claimed the withheld amounts under its franchise exemption in Presidential Decree No. 1590 and requested a refund on November 3, 2003.
- Certificates and bank‐issued certifications showed the amounts of interest income and corresponding final taxes withheld; some documents also stated that the taxes were remitted to the Bureau of Internal Revenue (BIR).
- The Commissioner of Internal Revenue failed to act on PAL’s administrative refund claim, prompting PAL to elevate the matter to the Court of Tax Appeals (CTA).
Procedural History
- PAL’s administrative request for refund filed November 3, 2003; deemed denied by BIR inaction on February 24, 2004.
- CTA Special First Division (November 9, 2010) partially granted PAL’s petition as to JP Morgan Chase Bank withholding (₱1,237,646.43) and denied refunds for China Banking, PBCom, and Standard Chartered withholdings (₱510,223.16 and US$65,877.07) for lack of proof of remittance.
- CTA En Banc (August 14, 2012 Decision; February 25, 2013 Resolution) affirmed Special First Division: PAL exempt from tax, but must prove remittance by withholding agents; only JP Morgan proof sufficient.
- Both parties’ motions for reconsideration denied; two Rule 45 petitions filed before the Supreme Court: G.R. Nos. 206079-80 (PAL vs. CIR) and G.R. No. 206309 (CIR vs. PAL).
Issues
- May CTA admit new and additional evidence not submitted at the administrative level?
- Did PAL prove, as a matter of fact, that the Agent Banks remitted the final withholding taxes to the BIR?
- Is proof of actual remittance a necessary prere