REPUBLIC OF THE PHILIPPINES

COURT OF TAX APPEALS

QUEZON CITY

ENBANC

MERMAC, INC., EB CASE NO. 699

Petitioner, (C.T.A. CASE NO. 7758)

Members:

ACOSTA, PJ,
CASTANEDA, JR.,
- versus- BAUTISTA,
UY,
CASANOVA,
PALANCA-ENRIQUEZ,
FASON-VICTORINO,
MINDARO-GRULLA, and,
COTANGCO-MANALASTAS, JJ.

COMMISSIONER OF INTERNAL
REVENUE, Promulgated:
Respondent. /ha#t~~
JUL 2 7 2011 "r?/n' et,~ r

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

DECISION

ACOSTA, PJ:

Before this Court of Tax Appeals En Bane! is a Petition for Review filed on
December 6, 2010 assailing the Decision of the Court of Tax Appeals Former
Second Division 2 dated June 28, 2010 and the subsequent Resolution dated

1
Court En Bane.
2
Court Former Second Division.
DECISION
CTA EB No. 699
CTA Case No. 7758
Page2

November 2, 2010, affirming the assailed Decision. The dispositive portion of the
assailed Decision reads:

"WHEREFORE, premises considered, the instant Petition for Review is

hereby PARTIALLY GRANTED. Accordingly, respondent Commissioner of
Internal Revenue is hereby ORDERED TO REFUND, OR ISSUE A TAX CREDIT
CERTIFICATE in the amount NINETY TWO THOUSAND EIGHT HUNDRED
NINETY NINE PESOS AND EIGHTY CENTAVOS (P92,899.80) in favor of
petitioner, representing petitioner's excess and unutilized creditable withholding
tax for taxable year 2005.
SO ORDERED.

THE FACTS

The Court Former Second Division found the pertinent facts 3 to be as follows:

Culled from the records of this case and as stipulated by the parties in the
Joint Stipulation of Facts and Issues, the facts of the case are as follows.

Petitioner Mermac, Inc. is a corporation duly organized and existing under

the laws of the Republic of the Philippines, with principal place of business at the
35th Floor, Tower One and Exchange Plaza, Ayala Triangle, Ayala Avenue, Makati
City. It was incorporated with the following primary purpose:

''To acquire, subscribe to, invest in and own, hold, use, assign,
transfer, mortgage, pledge, exchange, or otherwise dispose of, real and
personal property of every kind and description, including shares of stock,
bonds, debentures, notes, evidences of indebtedness, and other securities,
contracts or obligations of any corporation or association, domestic or
foreign, and to pay therefor in whole or in part in cash or by exchanging
therefor stocks, bonds, or other evidences of indebtedness or securities of
this or any other corporation, and while the owner or holder of any such
real or personal property, stocks, bonds, debentures, notes, evidences of
indebtedness or other securities, contracts, or obligations, to receive,
collect and dispose of the interest, dividends and income arising from such
property, and to possess and exercise in respect thereof, all the rights,
powers and privileges of ownership, including all voting powers on any
stocks so owned without being a broker of securities or investment
corporation."

Petitioner is a registered taxpayer of the Bureau of Internal Revenue

(BIR), Large Taxpayers District Office (LTDO), with Taxpayer Identification No.
000-317-278-000.

3
Decision promulgated on June 28, 2010, pp.l-4.
DECISION
CTA EB No. 699
CTA Case No. 7758
Page 3

Respondent is the duly appointed Commissioner of the Bureau of Internal

Revenue (BIR), vested with authority to carry out all the functions, duties and
responsibilities of said office, including, inter alia, the power to decide, approve,
and grant refunds or tax credits of overpaid and erroneously paid or collected
internal revenue taxes. He holds office at the 5th Floor, BIR National Office
Building, BIR Road, Diliman, Quezon City.

On April 17, 2006, petitioner filed with the BIR, through the Electronic
Filing and Payment System (EFPS), its Annual Income Tax Return (or Final
Adjustment Return) for taxable year 2005.

On November 17, 2006, petitioner filed with the BIR LTDO its
administrative claim for refund of excess creditable withholding taxes for taxable
year 2005 in the amount of P1,671,632.80.

On August 9, 2007, petitioner filed with the same office a letter dated
August 2, 2007, amending the amount of its claim for refund to P2,010,452.00. 7
It explained that the increase in the amount of the claim (i.e., P338,819.20)
represents the minimum corporate income tax for taxable year 2005 which was
inadvertently credited against the total creditable withholding tax for purposes of
computing the amount of overpaid creditable withholding tax.

Due to respondent's inaction on its refund claim, petitioner filed the

instant Petition for Review before this Court on April 10, 2008.

Respondent filed his Answer through registered mail on May 6, 2008,

alleging the following Special and Affirmative Defenses:

"4. Granting arguendo that Petitioner filed a claim for

refund, the same is subject to investigation by the Bureau of Internal
Revenue.
5. Petitioner failed to demonstrate that the alleged tax
sought for refund or tax credit has been or erroneously or illegally
collected in violation of the tax laws relied upon by the petitioner.
6. Well-settled is the rule that the interpretation placed
upon a statute by executive officers, whose duty is to enforce it, is
entitled to great respect by the courts. Nevertheless, such interpretation
is not conclusive and will be ignored if judicially found to be erroneous.
Thus, the courts will not countenance administrative issuances and
rulings that override, instead of remaining consistent and in harmony
with the law which they seek to apply and implement (Philippine Bank of
Communications v. Commissioner of Internal Revenue, G.R. No.: 112024,
302 SCRA 241, January 28, 1999).
7. Taxes paid and collected are presumed to be made in
accordance with the laws and regulations, hence, not creditable or
refundable.
8. It is incumbent upon the Petitioner to show that it has
complied with the provisions of Sections 108 and 112 in relation to
Section 229 of the 1997 Tax Code, as amended.
DECISION
CTA EB No. 699
CTA Case No. 7758
Page4

9. In an action for tax credit or refund, the burden is

upon the taxpayer to prove that he is entitled thereto, and failure to
discharge the said burden is fatal to the claim . (Emmanuel & Zenaida
Aguilar v. Commissioner, CA-GR No. Sp. 16432, March 30, 1990 cited in
Aban, Law of Basic Taxation in the Philippines, 1st Edition, p. 206).
10. Claims for refund are construed strictly against the
claimant, the same partake the nature of exemption from taxation
(Commissioner of Internal Revenue vs. Ledesma, 31 SCRA 95) and, as
such, they are looked upon with disfavor. (Western Minolco Corp. vs.
Commissioner of Internal Revenue, 124 SCRA 121)."

During trial, petitioner presented testimonial and documentary evidence

primarily aimed at proving its supposed entitlement to the refund or issuance of a
tax credit certificate in the total amount of P2,010,452.00, representing
petitioner's excess and unutilized creditable withholding taxes for taxable year
2005.

When it was respondent's turn to present evidence on May 13, 2009, his
counsel manifested that he is submitting the case for decision based on the
pleadings. Accordingly, the Court granted the parties thirty (30) days to file their
respective memorandum, after which, this case shall be deemed submitted for
decision.

On July 24, 2009, petitioner filed its Memorandum. Respondent, however,

failed to file his memorandum.

On June 28, 2010, the Court Former Second Division rendered the assailed
Decision, which partially granted the Petition for Review and ordered herein
respondent Commissioner of Internal Revenue (CIR) to refund to herein petitioner
Mermac, Inc. the amount of P92,899.80 representing petitioner's excess and
unutilized creditable withholding tax (CWT) for taxable year 2005.

Herein petitioner filed its Motion for Reconsideration of the said Decision
on July 16, 2010. Respondent failed to file any Comment. The Court Former
Second Division, in a Resolution dated November 2, 2010, denied petitioner's
Motion.

Hence, petitioner filed this instant Petition for Review before the Court En
Bane seeking the reconsideration of the Former Second Division's Decision and
Resolution, and praying that said Decision and Resolution be reversed and set
DECISION
CTA EB No. 699
CTA Case No.7758
Page 5

aside and another one be rendered ordering respondent to refund or issue in

favor of petitioner a tax credit certificate in the total amount of P2,010,452.00,
representing its excess and unutilized creditable withholding taxes for CY 2005.

On July 1, 2010, the Court En Bane issued a Resolution directing

respondent to file a Comment on the instant Petition for Review. No Comment
was filed by respondent. Thus, the Court En Bane, in a resolution promulgated on
January 21 , 2011 ordered the parties to submit their respective Memorandum
within a non-extendible period of thirty (30) days from receipt thereof.

On February 25, 2011, petitioner filed its Memorandum. Again, respondent

failed to file her Memorandum.

On March 29, 2011, the Court En Bane promulgated a Resolution

submitting the herein case for decision.

THE ISSUE

Herein petitioner assigns the following error on the part of Court Former
Second Division with the Court En Bane, to wit

The Second Division erred in denying petitioner's (Mermac, I nc. 's) claim
for refund of the amount of P1,917,552.00 on the ground that the Withholding
Tax Remittance Return (BIR Form No. 1606) (Exhibit " M-5") submitted by
petitioner is insufficient proof of the CWT being claimed for refund, because it did
not emanate from the income payor. In this regard, petitioner respectfully
submits that:

PETITIONER'S ARGUMENTS

Petitioner anchors its Petition for Review4 on the following arguments:

4
Petition for Review, pp. 9-10.
DECISION
CTA EB No. 699
CTA Case No. 7758
Page 6

1. Petitioner argues that the fact of withholding and the existence of

crw may be established by documents other than the Certificate of
Creditable Tax Withheld at Source (BIR Form No. 2307). Petitioner
avers that there is no statutory basis for the Court Former Second
Division to conclude that the only acceptable evidence of
withholding is BIR Form No. 2307 and that the absence of such
document would result to the outright nullification of the income
recipient's CWT;

2. The Second Division failed to consider the rationale behind Section

2.58.3 (B), RR No. 2-98 when it ruled that "the only acceptable
evidence is BIR Form No. 2307 to establish the fact of withholding";

3. The Second Division and this Court En Bane already ruled in the
Roxas Land Case that the Withholding Tax Remittance Return (BIR
Form No. 1606) is sufficient proof of the fact of withholding and
remittance to the BIR of the CWT on sales of real property;

4. In BIR Ruling No. DA-319-99, respondent has already ruled that the
remittance of withholding taxes by the seller of real property, on
behalf of the buyer, constitutes substantial compliance with the
withholding tax regulations;

5. The Supreme Court's ruling in the Banco Filipino Cas£! is

inapplicable to the case at bar;

6. There is no factual basis for the Court Former Second Division's

finding that petitioner failed to explain why it was the one who filed
BIR Form No. 1606 with the BIR, and not the Nolledo spouses; and

7. The Second Division disregarded reality and gave more importance

to form than to substance when it ignored the evidentiary value of
petitioner's Withholding Tax Remittance Return (BIR Form No. 1606)
(Exhibit "M-5'').

THE COURT EN BANC's DECISION

The petition is bereft of merit.

5
CIR vs. Roxas Land Corporation, CTA EB No. 393, October 15, 2008.
6
Banco Filipino Savings and Mortgage Bank vs. C4, CTA & CIR, GR No. 155682, March 27, 2007.
DECISION .
CTA EB No. 699
CTA Case No. 7758
Page 7

The issues and arguments raised by petitioner in its Motion for

Reconsideration with the Court Former Second Division are replicated in herein
Petition for Review. The Court En Bane does not find any justifiable reason to
disturb the findings of the Court Former Second Division.

To reiterate, a claim for refund of excess creditable withholding taxes, in

accordance with settled jurisprudence, must comply with the following
requirements in order to be granted:

1. That the claim for refund was filed within the two-year prescriptive period
prescribed under Section 204 (Cf, in relation to Section 229 8 of the NI RC of
1997, as amended;

2. That it is shown on the return of the recipient that the income payment
received was declared as part of the gross income, and

3. That the fact of withholding is established by a copy of a statement duly

issued by the payor (withholding agent) to the payee, showing the amount paid
and the amount of tax withheld therefrom. 9

There is no question that petitioner complied with the first two

requirements since, first, its filing of administrative claim on November 17, 2006

7
SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. - The
Commissioner may - xxx
(C) Credit or refund taxes erroneously or il legally received or penalties imposed without authority, refund the value
of internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or
change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction . No credit or
refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or
refund within two (2) years after the payment of the tax or penalty: Provided, however, That a return filed showing an
overpayment shall be considered as a written claim for credit or refund.
8
SEC. 229. Recovery of Tax Erroneously or Illegally Collected. - No suit or proceeding shall be maintained in any
court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed
or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been
excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the
Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid
under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the
tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the
Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon
which payment was made, such payment appears clearly to have been erroneously paid.
9
Section 2.58 of Revenue Regulations (R.R.) No. 2-98, as amended; Citibank N.A. vs. Court ofAppeal~ eta!., G.R. No.
107434, October 10, 1997; ACCRA Investments Corporation vs. The Honorable Court ofAppeal~ eta!. , G.R. No. 96322,
December 20, 1991.
DECISION
CTA EB No. 699
CTA Case No. 7758
Page8

and its amendment thereof on August 9, 2007, as well as the Petition for Review
on April 10, 2008 are well within the two-year prescriptive period required in
Section 204(C), in relation to Section 229 of the 1997 National Internal Revenue
Code (NIRC), as amended; and second, that the income from the sale of real
property, from which the creditable tax of P1,917,552.00 was withheld, was
proven to be reported in petitioner's Annual Income Tax Return for taxable year
2005 .10

The question which now besets the Court is whether the petitioner
complied with the third condition by presenting documents other than a copy of a
statement duly issued by the payor (withholding agent) to the payee, showing the
amount paid and the amount of tax withheld therefrom.

The Third Condition

On the outset, the third condition is imposed by Section 2.58.3(B) of

Revenue Regulations (RR) No. 2-98, which states:

Sec. 2.58.3. Claim for Tax Credit or Refund. -

XXX XXX XXX
(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 by a copy of
the withholding tax statement duly issued by the payor to
the payee showing the amount paid and the amount of tax
withheld therefrom . (Emphasis provided)

Corollary to the condition set forth, the same RR No. 2-98 establishes the
requirement on the part of the payor to furnish the payee the withholding tax
statement using the prescribed form (BIR Form No. 2307), which shows the
income payments made and the amount of taxes withheld. Otherwise, the failure
of the payor to furnish the same shall be a ground for mandatory audit, viz.

10
CfA Former Second Division Decision promulgated on June 28, 2010, pp. 10- 11.
DECISION
CTA EB No. 699
CTA Case No. 7758
Page 9

Sec. 2.58. RETURNS AND PAYMENT OF TAXES

WITHHELD AT SOURCE. -
XXX XXX XXX
(B) Withholding tax statement for taxes withheld. -
Every payor required to deduct and withhold taxes under
these regulations shall furnish, in triplicate, each payee,
whether individual or corporate, with a withholding tax
statement, using the prescribed form (BIR Form No.
2307) showing the income payments made and the
amount of taxes withheld therefrom, for every month of the
quarter, within twenty (20) days following the close of the taxable
quarter employed by the payee in filing his/its quarterly income
tax return. The payor, nonetheless, should always retain a copy
of duly issued BIR Form 2307. Failure to furnish the same shall be
a ground for the mandatory audit of payor's income tax liabilities
(including withholding tax) upon verified complaint of the payee .
For final withholding taxes, the statement should be given
to the payee on or before January 31 of the succeeding year.
Upon request of the payee, however, the payor must
furnish such certificate simultaneously with the income payment.
(Emphasis provided)

The rules are clear. The income-payor, as the withholding agent, is

required to furnish the recipient-payee of the statement of withholding or BIR
Form No. 2307. And for purposes of claims for refund or tax credit of creditable
income tax, the claim shall only be given due course when the income and
withholding are established by a copy of the withholding tax statement or BIR
Form No. 2307 issued by the income-payor to the recipient-payee.

Notably, in order to prove compliance with the third condition, petitioner

presented the following documents to prove the total amount of P2,010,452.00,
representing the creditable withholding tax that were supposedly withheld from
the income payments it received in taxable year 2005 (i.e., P19,538,680.00) :

1. Summary of Creditable Withholding Tax for the year 2005; 11

2. Certificates of Creditable Tax Withheld at Source (BIR Form No. 2307)
issued by petitioner's lessee, Sonoma Services, Inc.; 12 and
3. Withholding Tax Remittance Return (BIR Form No. 1606).13

11
Exhibit "M", Rollo, p. 279.
12
Exhibits "M-1" to "M-4", Rollo, pp. 280 to 283.
DECISION
CTA EB No. 699
CTA Case No. 7758
Page 10

The breakdown of the total claim of petitioner amounting to P2,010,452.00

and the following pieces of evidence corresponding thereto are summarized as
follows: 14

Exhibit Withholdina Aaent Period Covered CWT

M-1
(BIR Form 2307) Sonoma Services Inc. 1/1/2005 3/31/2005 p 23 224.95
M-2
(BIR Form 2307) Sonoma Services Inc. 4/1/2005 6/30/2005 23 224.95
M-3
(BIR Form 2307) Sonoma Services Inc. 7/1/2005 9/30/2005 23 224.95
M-4
(BIR Form 2307) Sonoma Services Inc. 10/1/2005 12/31/2005 23 224.95
M-5 Nolledo, Nico Jose S. &
(BIR Form 1606) Maita A. 8/31/2005 1 917 552.00
TOTAL p 2 010 451.80

BIR Form No. 2307 is an inevitable

requirement in a claim for refund or
credits of any creditable income tax which
was deducted and withheld on income
payments.

The petitioner seeks to exempt compliance with the required submission of

BIR Form No. 2307 in its claim for refund of creditable withholding tax for year
2005 insofar as that relative to the sale of property by petitioner to the Nolledo
Spouses. Instead of BIR Form No. 2307, petitioner submitted the Withholding
Tax Remittance Return (BIR Form No. 1606) reflecting the total amount of
P2,010,452.00 in order to prove its claim from its sale of property to the Nolledo
Spouses.

Furthermore, the petitioner asserts that BIR Form No. 2307 is not the sole
acceptable evidence of withholding and the absence of which would not
necessarily result to an outright nullification of the income recipient's CWT.

13
Exhibit "M-5", Rollo, p. 285.
14
Supra, pp. 12-13.
DECISION
CTA EB No. 699
CTA Case No. 7758
Page 11

The petitioner's arguments are unmeritorious. The submission of BIR Form

No. 1606 cannot and is not a substitute to BIR Form No. 2307 in a claim for
refund of creditable withholding taxes.

Sections 2.58.3(B) and 2.58 (B) of RR No. 2-98 are clear. Sections 2.58.3
(B) explicitly provides that the claim for tax credit or refund of creditable income
tax shall only be given due course when it is established by a copy of the
withholding tax statement issued by the payor to the payee. And what is this
withholding tax statement issued by the payor to the payee? Section 2.58(B) of
RR No. 2-98 answers that and provides that the withholding tax statement issued
by the payor to the payee is BIR Form No. 2307.

What better way to interpret RR No. 2-98 but by its literal interpretation?
For administrative issuances have the force and effect of law 15 , they benefit from
the same presumption of validity and constitutionality enjoyed by statutes. 16 Just
as where the law is clear and unambiguous; it must be taken to mean exactly
what it says and the Court has no choice but to see to it that its mandate is
obeyed. 17 RR No. 2-98, having the same effect of a law, is clear on the
requirement for the submission of BIR Form No. 2307 in a claim for refund or tax
credit over creditable income tax, hence, the Court must also apply it as it is.

DA-318-88 and the Ruling in the Roxas

Land Case are inapplicable.

The petitioner further avers that the Supreme Court's ruling in Banco
Filipino Savings and Mortgage Bank vs. CA18 (Banco Filipino Case) is inapplicable
to the herein case but instead BIR Ruling No. DA-319-88, as well as, CIR vs.

15
Chevron Phil., Inc. vs. Bases Conversion Dev't Authority, Et AI., GR No. 173869, September 15, 2010 citing Mirasol vs.
Department of Public Works and Highways, G.R. No. 158793, June 8, 2006, 490 SCRA 318, 347, citing Eslao vs.
Commission on Audit, G.R. No. 108310, September 1, 1994, 236 SCRA 161, 175.
16
Id. citing Mirasol vs. Department of Public Works and Highways, G.R. No. 158793, June 8, 2006, 490 SCRA 318, 347,
citing JMM Promotion and Management, Inc. v. Court of Appeals, G.R. No. 120095, Aug ust 5, 1996, 260 SCRA 319.
17
Abello vs. CIR, GR No. 120721, February 23, 2005 citing Chartered Bank Employees Association vs. Ople, 138 SCRA 273;
Luzon Surety Co., Inc. vs. De Garcia, 30 SCRA 111; Quijano vs. Development Bank of the Philippines, 35 SCRA 270.
18
Supra.
DECISION
CTA EB No. 699
CTA Case No. 7758
Page 12

Roxas Land Corporatiorr 9 (Roxas Land Case) which provides that the Withholding
Tax Remittance Return (BIR Form No. 1606) is sufficient proof of the fact of
withholding and remittance to the BIR of the CWT on sales of real property, must
be applied.

The Court cannot countenance petitioner's arguments.

The Banco Filipino Case has applied RR No. 6-85 (the precursor to RR No.
2-98 in the withholding of taxes and claim for refund over creditable income tax)
to require BIR Form No. 1743.1 (now BIR Form No. 2307) as the complete
acceptable evidence of the fact of withholding and such must emanate from the
payor itself and not merely from the payee. Also, the Supreme Court said that the
form must indicate the name of the payor, the income payment basis of the tax
withheld, the amount of tax withheld and the nature of the tax paid, viz.

I n fine, the document which may be accepted as evidence of the third

condition, that is, the fact of withholding, must emanate from the payor
itself, and not merely from the payee, and must indicate the name of the
payor, the income payment basis of the tax withheld, the amount of the
tax withheld and the nature of the tax paid.

At the time material to this case, the requisite information

regarding withholding taxes from the sale of acquired assets can be
found in BIR Form No. 1743.1. As described in Section 6 of Revenue
Regulations No. 6-85, BIR Form No. 1743.1 is a written statement
issued by the payor as withholding agent showing the income or other
payments made by the said withholding agent during a quarter or year
and the amount of the tax deducted and withheld therefrom. It readily
identifies the payor, the income payment and the tax withheld. It is
complete in the relevant details which would aid the courts in the evaluation of
any claim for refund of creditable withholding taxes. (Emphasis provided)

The ruling in Banco Filipino Case was confirmed and further applied in CIR
0
vs. Far East Bank & Trust Company (Now Bank of the Philippine Islands} (Far
East Bank Case), wherein the Supreme Court ruled that:

19
Supra.
20
GR No. 173854, March 15, 2010.
DECISION
CTA EB No. 699
CTA Case No. 7758
Page 13

Respondent failed to present all the Certificates of Creditable Tax Withheld at

Source.
The CA likewise failed to consider in its Decision the absence of several
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
of Creditable Tax Withheld at Source as required under Section 10 of Revenue Regulation
No. 6-85. As correctly pointed out by the CTA, the certifications (Exhibit UUJ
issued by respondent cannot be considered in the absence of the required
Certificates of Creditable Tax Withheld at Source. (Emphasis provided)

Thus, it is inevitable for a claimant of tax refund or credit over creditable

income tax to submit the certificates of creditable tax withheld at source. As
clearly pointed out in RR No. 2-98 and the foregoing jurisprudence, the certificate
of creditable tax withheld at source is BIR Form No. 2307.

The petitioner cannot merely rely on BIR Ruling No. DA-319-88. It bears
stressing that interpretations of administrative agencies in charge of enforcing a law are
entitled to great weight and consideration by the courts, unless such interpretations are
in a sharp conflict with the governing statute or the Constitution and other laws. 21

Since BIR Ruling No. DA-319-88 is not in perfect harmony with RR No. 2-98 and
the Banco Alipino case and Far East Bank case, the interpretation in BIR Ruling No.
DA-319-88 which ruled that the remittance of withholding taxes by the seller of
real property, on behalf of the buyer, is substantial compliance with the
withholding tax regulation, cannot apply to the instant case.

The petitioner cannot also rely on the Roxas Land case. The Supreme Court, as
the final arbiter of all disputes, has already ruled in the Far East Bank case, a case which
is more recent than the Roxas Land case, the requisite of presenting a certificate of
creditable tax withheld at source or BIR Form No. 2307 for a claim of refund or
tax credit of any creditable income tax which was deducted and withheld on
income payments.

21
Nestle Philippines, Inc. vs. Court of Appeals, G.R. No. 86738, November 13, 1991.
DECISION
CTA EB No. 699
CTA Case No. 7758
Page 14

The provisions of the law must be applied

accordingly. An industry practice does not
justify non-compliance with the law.

Petitioner asserts that there is no basis for the Court Former Second
Division to conclude that petitioner failed to explain why it was the one who filed
BIR Form No. 1606 and that it is an industry practice for the real esate company
to remit on behalf of its clients (who are mostly individual buyers) the creditable
withholding due on its income from the sale of property.

The same cannot be countenanced.

Analyzing Exhibit "V" or the Deed of Absolute Sale 22 alleged by petitioner, it

appears that indeed the Seller, in this case the petitioner, is the one responsible
for the payment of the tax liability. However, the said Deed of Absolute Sale
appears to only make an acknowledgement from where or whom the payment
would originate but does not indicate any relinquishment on the part of the
Nolledo Spouses, the buyer, to act as withholding agent. There was no
stipulation of any withholding on the part of petitioner. In fact, the only
transaction that the petitioner should have been involved in was to secure the
necessary tax clearance and certificate authorizing transfer and/ or registration of
title. If the parties intended the petitioner to be the withholding agent, then it
should have stipulated said role in the contract.

The assertion of the industry practice as a way to justify petitioner's failure

to present BIR Form No. 2307 for its claim of refund or tax credit is not only
disturbing but is also violative of existing laws.

Enlightening and important is the disquisition of the Court Former Second

Division in its Resolution dated November 2, 2010 rejecting petitioner's allegation
that such is an industry practice that should be given credence, to wit:

22
Rollo, p. 4 12.
DECISION
CTA EB No. 699
CTA Case No. 7758
Page 15

It must be remembered that in the operation of the withholding tax system, the
withholding agent is the payor, a separate entity acting no more than an agent of the
government for the collection of the tax in order to ensure its payment, while the payer is
the taxpayer or the person subject to tax imposed by law. Furthermore, one of the
reasons why such system was devised is to merely provide the said taxpayer a convenient
manner to meet his probable income tax liability. As corollary, taxes withheld on the
income payment is intended merely to equal or at least approximate the tax due. Thus,
the role of the withholding agent is entirely different from that of the income recipient in
the operation of the withholding tax system. Such being the case, if the Nolledo Spouses
indeed intended to designate petitioner as the person who would perform their obligation
as withholding agents, they have couched the said Deed of Absolute Sale in a more
explicit language.

Petitioner further manifest that it is standard practice in the real estate industry
for the real estate company to remit on behalf of the clients (who are mostly individual
buyers) the creditable withholding tax due on the latter's income payments. It then
concluded that the real estate company no longer issue Certificates of Creditable Tax
Withheld (BIR Form No. 2307) to the real estate company as proof of withholding .

We find this revelation disturbing. It discloses two things: {1) in

general, it alludes to the participation of the real estate industry, including
petitioner, for violating the positive provisions of the NIRC of 1997 and its
implementing regulations, and (2) in particular, it is an implied admission on
the part of petitioner that no BIR Form No. 2307 was ever issued in its
transaction with the Nolledo Spouses. In any event, the same is apparently
without merit, since it is violative of the law.

The law indicates separate and distinct provisions for the filing of the
withholding tax return, and for the furnishing of each income recipient by the
withholding agent of the withholding tax statement pertinent to the
transaction - both of which must be done by the withholding agent, Section
58( A) of the NIRC of 1997 provides:

"SEC. 58. Returns and Payment of Taxes Withheld

at Source.-

"(A) Quarterly Returns and Payments of Taxes

Withheld. - Taxes deducted and withheld under Section 57 by
withholding agents shall be covered by a return and paid
to, except in cases where the Commissioner otherwise permits,
an authorized agent bank, Revenue District Officer, Collection
Agent, or duly authorized Treasurer of the city or municipality
where the withholding agent has his legal residence or principal
place of business, or where the withholding agent is a
corporation, where the principal office is located.
XXX XXX XXX

"xxx, while the return for creditable withholding

taxes shall be filed and the payment made not later than the
last day of the month following the close of the quarter during
which withholding was made: Provided, That the Commissioner,
with the approval of the Secretary of Finance, may require these
withholding agents to pay or deposit the taxes deducted or
DECISION
CTA EB No. 699
CTA Case No. 7758
Page 16

withheld at more frequent intervals when necessary to protect the

interest of the government. " (Emphasis provided)

And Section 2.58 (A)(1)&(2)(a) of RR 2-98 provides:

"SECITON 2.58. Returns and Payment of Taxes Withheld at

Source.

(A) Monthly return and payment of taxes withheld at source

(1) WHERE TO FILE - Creditable and final withholding taxes

deducted and withheld by the withholding agent shall be paid
upon filing a return in duplicate with the authorized agent
banks located within the Revenue District Office (RDO) having
jurisdiction over the residence or principal place of business of the
withholding agent. In places where there is no authorized agent
banks, the return shall be filed directly with the Revenue District
Officer, Collection Officer or the duly authorized Treasurer of the
city or municipality where the withholding agent's residence or
principal place of business is located, or where the withholding
agent is a corporation, where the principal office is located except
in cases where the Commissioner otherwise permits.

XXX XXX XXX

Anent the furnishing of each income recipient by the withholding agent of

the withholding tax statement, We quote anew Section 58(B) of the NIRC of 1997
and Section 2.58 (B) of RR No. 2-98, as amended by RR 3-2002, for easy
reference:

"(B) Statement of Income Payments Made and Taxes

Withheld. - Every withholding agent required to deduct
and withhold taxes under Section 57 shall furnish each
recipient, in respect to his or its receipts during the
calendar quarter or year, a written statement showing the
income or other payments made by the withholding agent during
such quarter or year, and the amount of the tax deducted and
withheld therefrom, simultaneously upon payment at the request
of the payee, but not later than the twentieth (20th) day
following the close of the quarter in the case of corporate payee,
or not later than March 1 of the following year in the case of
individual payee for creditable withholding taxes . For final
withholding taxes, the statement should be given to the payee on
or before January 31 of the succeeding year."

" "Section 2.58. RETURNS AND PAYMENT OF TAXES WITHHELD

AT SOURCE.

XXX XXX XXX

(B) Withholding tax statement for taxes withheld. - Every

payor required to deduct and withhold taxes under these
regulations shall furnish, in triplicate, each payee,
whether individual or corporate, with a withholding tax
DECISION
CTA EB No. 699
CTA Case No. 7758
Page 17

statement, using the prescribed form (BIR Form No.

2307) showing the income payments made and the amount of
taxes withheld therefrom, for every month of the quarter, within
twenty (20) days following the close of the taxable quarter
employed by the payee in filing his/its quarterly income tax
return. The payor, nonetheless, should always retain a copy of
duly issued BIR Form No. 2307. Failure to furnish the same shall
be a ground for the mandatory audit of payor's income tax
liabilities (including withholding tax) upon verified complaint of
the payee. xxx"

Codal provision on withholding tax are mandatory and must be

complied with by the withholding agent. So important is the compliance
with, or the observance of, the foregoing provisions that the NIRC of
1997 makes non-compliance thereof a crime, to wit:

SEC. 275. Violation of Other Provisions of this Code or

Rules and Regulations in General. - Any person who violates any
provision of this Code or any rule or regulation promulgated by
the Department of Finance, for which no specific penalty is
provided by law, shall, upon conviction for each act or omission, be
punished by a fine of not more than One thousand pesos (Pl,OOO) or
suffer imprisonment of not more than six (6) months, or both. (Emphasis
provided)

It cannot be gainsaid that the petitioner is threading on perilous waters

which posits a dangerous precedent in the real estate industry. The petitioner
must bear in mind that laws are repealed only by subsequent once, and their
violation or non-observance shall not be excused by any disuse, customs or
practice to the contrary. 23 The Court therefore has no other recourse but to
uphold the law.

In sum, the Court finds petitioner's arguments unmeritorious. Petitioner

failed to comply with the third requirement in its claim for refund or credit set by
law insofar as the withholding taxes emanating from the sale of property to the
Nolledo Spouses. The same cannot be refunded.

It is well settled in our jurisprudence that tax refunds are in the nature of tax
exemptions and as such, they are regarded as in derogation of sovereign authority.24
Thus, tax refunds are construed in strictissimi juris against the person or entity claiming

23
Article 7, Repu blic Act No. 386, Civil Code of the Philippines.
24
Commissioner oflntemal Revenue vs. L~, GR No. L-17509, January 30, 1970.
DECISION
CTA EB No. 699
CTA Case No. 7758
Page 18

the same. 25 In this case, not only should petitioner establish that it is entitled to the
claim but it must, most importantly, show proof of compliance with the requirements as
mandated by law or regulations. Unfortunately in this case, petitioner failed to discharge
said burden.

WHEREFORE, the instant Petition for Review is hereby DENIED for lack
of merit. The assailed Decision dated June 28, 2010 and Resolution dated
November 2, 2010 of the Former Second Division of this Court are hereby
AFFIRMED.

SO ORDERED.

Lx-~ Q~
ERNESTO D. ACOSTA
Presiding Justice

WE CONCUR:

a~ c . ~~~ {On leave)

iUANITO c. CASTANEDN JR. LOVELL R. BAUTISTA
Associate Justice Associate Justice

.
ER~P.UY
Associate Justice
CAESAR A. CASANOVA
Associate Justice

L ~~-t:~
OLGA PALANCA-~JiQUEZ
Associate Justice

~ N ~ M,~- 6'~ (On Leave)

CIELITO N. MINDARO-GRULLA AMELIA R. COTANGCO-MANALASTAS
Associate Justice Associate Justice

25
Commissioner of Internal Revenue ~.s: Procter & Gamble Philippines Manufacturing Corporation, GR No. 66838, December 2, 1991;
Commissioner oflntemal Revenue ~.s: Tokyo Shipping Co., Ltd., GR No. 68282, May 26, 1995.
DECISION
CTA EB No. 699
CTA Case No. 7758
Page 19

CERTIFICATION

I hereby certify that the above decision was reached after due consultation
with the members of the Court of Tax Appeals in accordance with Section 13,
Article VIII of the Constitution.

Q:..,.;: y.' 0~
ERNESTO D. ACOSTA
Presiding Justice