G.R. No. 206079 , January 17, 2018
PHILIPPINE AIRLINES, INC. (PAL), Petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, Respondent.

FACTS

Philippine Airlines, Inc. (PAL) filed a claim for refund of final withholding taxes on interest income from its peso and dollar deposits with several banks, asserting exemption under its franchise, Presidential Decree No. 1590. The Commissioner of Internal Revenue (CIR) denied the claim, arguing PAL failed to prove the banks’ remittance of the withheld taxes to the Bureau of Internal Revenue (BIR). The Court of Tax Appeals (CTA) Special First Division partially granted PAL’s petition, ordering a refund only for taxes withheld and remitted by JP Morgan Chase Bank, amounting to ₱1,237,646.43. It denied the claims for refunds from taxes withheld by China Banking Corporation, Philippine Bank of Communications, and Standard Chartered Bank, totaling ₱510,223.16 and US$65,877.07, due to insufficient proof of remittance. The CTA En Banc affirmed this decision.

ISSUE

Whether PAL is required to prove the actual remittance to the BIR of the final withholding tax on its interest income to be entitled to a tax refund.

RULING

Yes. The Supreme Court affirmed the CTA En Banc’s ruling, denying the refund for taxes withheld by China Banking Corporation, Philippine Bank of Communications, and Standard Chartered Bank. The Court clarified that while PAL is exempt from the final withholding tax under its franchise, a claim for refund presupposes that the tax was erroneously or illegally collected. Therefore, the claimant must prove not only its entitlement to the exemption but also that the tax was actually withheld and remitted to the government. Proof of remittance is a prerequisite for a refund because the government cannot refund a tax it never received. For the claim against JP Morgan, the refund was granted because PAL successfully presented the required BIR Form 1743-W, which is a Return of Final Income Tax Withheld, serving as competent evidence of both withholding and remittance. For the other banks, PAL only submitted bank certifications and letters stating the amounts withheld and allegedly remitted. These documents were deemed insufficient to prove actual remittance as they did not constitute official returns or provide specific details linking the withheld amounts from PAL’s accounts to actual tax payments made to the BIR. The claim, being in the nature of a tax exemption, is strictly construed against the taxpayer, and PAL failed to discharge its burden of proof for the disputed portions.