G.R. No. 129130 . December 9, 2005.
FAR EAST BANK AND TRUST COMPANY, Petitioner, vs. COURT OF APPEALS, COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE, Respondents.

FACTS

Petitioner Far East Bank and Trust Company (FEBTC) is the surviving entity from a merger with Cavite Development Bank (CDB). During 1990 and 1991, CDB sold certain acquired assets and allegedly withheld and remitted creditable withholding taxes amounting to ₱755,715. CDB filed income tax returns for those years reflecting net losses, resulting in no tax liability against which to credit the withheld amounts. As the surviving corporation, FEBTC filed an administrative claim for refund of these excess creditable withholding taxes, which was unacted upon, prompting a petition before the Court of Tax Appeals (CTA).
The CTA and subsequently the Court of Appeals (CA) denied the claim for refund. The appellate courts found that FEBTC failed to sufficiently prove that the taxes were indeed withheld and remitted to the Bureau of Internal Revenue (BIR) in connection with the specific sales of acquired assets. The CA emphasized that FEBTC did not submit BIR Form No. 1743.1, the quarterly return for creditable taxes withheld, as required by Revenue Regulation No. 6-85, and that the other evidence presented was inadequate to establish its right to the refund.

ISSUE

Did the petitioner adduce sufficient evidence to prove its entitlement to a refund of excess creditable withholding taxes?

RULING

No. The Supreme Court denied the petition and affirmed the CA decision. The Court held that claims for tax refunds are in the nature of tax exemptions and are construed strictly against the taxpayer. The burden of proof rests on the claimant to establish the factual basis of the claim by competent evidence. In this case, the findings of fact by the CTA, a specialized court on tax matters, affirmed by the CA, are generally conclusive and binding.
The legal logic is anchored on the mandatory nature of withholding tax procedures. The withholding agent has specific obligations, including the filing of quarterly withholding tax returns (BIR Form 1743.1) and the issuance of corresponding certificates to the payee. Petitioner’s failure to present the required quarterly returns was fatal to its cause. The alternative evidence presented—confirmation receipts, payment orders, and an internal accounting schedule—were correctly deemed insufficient by the lower courts. These documents did not conclusively link the tax payments to the specific sales of acquired assets nor substitute for the official return that would detail the payees, the income payments, and the taxes withheld. Therefore, petitioner did not discharge its burden of proof, and the denial of the refund was proper.