G.R. No.

107434 October 10, 1997

TOPIC: Remedies available to taxpayer -> After payment -> Refund -> Must be strictly construed against the
taxpayer

FACTS:
 Citibank N.A. Philippine Branch (CITIBANK) is a foreign corporation doing business in the Philippines. In 1979 and
1980, its tenants withheld and paid to the Bureau of Internal Revenue the P270,160.56 and P298,829, respectively,
taxes on rents due to Citibank, pursuant to Section 1(c) of the Expanded Withholding Tax Regulations.
 Citibank filed its corporate income tax returns for the year ended December 31, 1979, showing a net loss of
P74,854,916.00 and its tax credits totalled P6,257,780.00, even without including the amounts withheld on rental
income under the Expanded Withholding Tax System.
 For the year ended December 31, 1980, Citibank's corporate income tax returns showed a net loss of
P77,071,790.00, while its available tax credit (refundable) at the end of 1980 amounting to P11,532,855.00 that was
not utilized or applied, and did not include the amounts withheld by Citibank's tenants from rental payments in 1980.
 On October 31, 1981, Citibank submitted its claim for refund of the aforesaid amounts totalling to P568,989.85; and
on October 12, 1981 filed a petition for review with the Court of Tax Appeals concerning subject claim for tax refund
 Court of Tax Appeals adjudged Citibank's entitlement to the tax refund sought for.
 CA reversed CTA decision.
 Petitioner maintains that it is entitled to a refund of the five percent creditable withholding tax in 1979 and 1980,
since its operations resulted in a net loss and thus did not have any income tax liability for such years. Respondent
Court refused to allow the claim for refund for the reason that the taxes were "not illegally or erroneously collected

ISSUE:
 Whether petitioner is entitled to the said tax refund.

HELD: YES
 Tax refunds are allowed under Section 230 of the National Internal Revenue Code.
 Like the corporate quarterly income tax, creditable withholding taxes are subject to adjustment upon determination
of the correct income tax liability after the filing of the corporate income tax return, as at the end of the taxable year.
This final determination of the corporate income tax liability is provided in Section 69, NIRC.
 As petitioner posted net losses in its 1979 and 1980 returns, it was not liable for any income taxes. Consequently
and clearly, the taxes withheld during the course of the taxable year, while collected legally under the aforesaid
revenue regulation, became untenable and took on the nature of erroneously collected taxes at the end of the
taxable year.
 Claimant has the burden of proof to establish the factual basis of his or her claim for tax credit or refund.
 A refund claimant is required to prove the inclusion of the income payments which were the basis of the withholding
taxes and the fact of withholding. However, detailed proof of the truthfulness of each and every item in the income
tax return is nor required.
 After this case was filed, the Commissioner clarified on June 27, 1994, the onus probandi of a taxpayer claiming
refund of overpaid withholding taxes in Revenue Regulation No. 12-94, Section 10.
 Prior to Rev. Reg. 12-94, the requisites for a refund were: (1) the income tax return for the previous year must show
that income payment (rental in this case) was reported as part of the gross income; and (2) the withholding tax
statement of the withholding tax agent must show that payment of the creditable withholding tax was made.
However, even without this regulation, the commissioner may inspect the books of the taxpayer and reassess a
taxpayer for deficiency tax payments under Sections 7, NICR. We stress that what was required under Rev. Reg.
12-94 was only a submission of records but the verification of the tax return remained the function of the
commissioner.
 Worth emphasizing are these uncontested facts: (1) the amounts withheld were actually remitted to the BIR and (2)
the final adjusted returns — which the BIR did not question — showed that, for 1979 and 1980, no income taxes
from petitioner were due. Hence, under the principle of solutio indebiti provided in Art. 2154, Civil Code, the BIR
received something when "there [was] no right to demand it," and thus "the obligation to return arises."

For reading purposes only:

WHEREFORE, the assailed Decision is hereby REVERSED and the decision of the Court of Tax Appeals is
REINSTATED.

Section 230 of the National Internal Revenue Code:

Sec. 230. 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 excessive 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.

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 In any case, no such suit or proceeding shall be begun after the expiration of two 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.

Section 69 of the National Internal Revenue Code

Sec. 69. Final Adjustment Return. — Every corporation liable to tax under Section 24 shall file a final
adjustment return covering the total taxable income for the preceding calendar or fiscal year. If the sum of the
quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable
net income of that year the corporation shall either:

(a) Pay the excess tax still due; or

(b) Be refunded the excess amount paid, as the case may be.

In case the corporation is entitled to a refund of the excess estimated quarterly income 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 year.

Revenue Regulation No. 12-94, Section 10:

Sec. 10. Claim for Tax Credit or Refund.—

(a) Claims for Tax Credit or Refund of income tax deducted and withheld on income payments shall be
given due course only when it is shown on the return that the income payment received 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.

(b) Excess Credits. — A taxpayer's excess expanded withholding tax credits for the taxable
quarter/taxable year shall automatically be allowed as a credit for purposes of filing his income tax
return for the taxable quarter/taxable year immediately succeeding the taxable quarter/taxable year in
which the aforesaid excess credit arose, provided, however, he submits with his income tax return a
copy of his income tax return for the aforesaid previous taxable period showing the amount of his
aforementioned excess withholding tax credits.

If the taxpayer, in lieu of the aforesaid automatic application of his excess credit, wants a cash refund
or a tax credit certificate for use in payment of his other national internal tax liabilities, he shall make a
written request therefor. Upon filing of his request, the taxpayer's income tax return showing the
excess expanded withholding tax credits shall be examined. The excess expanded withholding tax, if
any, shall determined and refunded/credited to the taxpayer-applicant. The refunded/credit shall be
made within a period of sixty (60) days from date of the taxpayer's request provided, however, that the
taxpayer-applicant submitted for audit all his pertinent accounting records and that the aforesaid
records established the veracity of his claim for a refund/credit of his excess expanded withholding tax
credits.

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