G.R. No. 201665 FIRST DIVISION August 30, 2017
EDISON (BATAAN) COGENERATION CORPORATION, Petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, Respondent.

FACTS

Edison (Bataan) Cogeneration Corporation (EBCC) received a Final Assessment Notice from the Commissioner of Internal Revenue (CIR) for various deficiency taxes for taxable year 2000, including a substantial amount for Final Withholding Tax (FWT). EBCC protested and, after CIR inaction, elevated the case to the Court of Tax Appeals (CTA). During the pendency, EBCC availed of a tax amnesty, leading the CTA Second Division to cancel the assessments for deficiency income tax and VAT. The CTA Second Division also cancelled the assessments for Expanded Withholding Tax and withholding tax on compensation but partially affirmed the FWT assessment, though at a significantly reduced amount. It ruled EBCC was not liable for FWT on interest payments to Ogden Power International Holdings, Inc. for 2000, as the obligation to withhold only arose in 2002. However, it held EBCC liable for FWT on interest from syndicated loans due to insufficient proof of remittance.
Both parties appealed to the CTA En Banc. The CIR argued the assessment should stand, while EBCC contested its remaining FWT liability. The CTA En Banc denied both appeals, sustaining the Second Division’s findings. It emphasized that under Revenue Regulation No. 02-98, the obligation to withhold tax on interest accrues only when the amount is paid, payable, or becomes due and demandable. For the Ogden loan, this occurred in 2002, not 2000. Regarding the syndicated loan interest, it found EBCC’s evidence of tax remittance inadequate.

ISSUE

The primary issue is whether EBCC is liable for deficiency final withholding tax for the year 2000, specifically on the interest payments from its loan agreements.

RULING

The Supreme Court denied the petitions and affirmed the CTA En Banc’s decision. The Court upheld the CTA’s factual findings, emphasizing that such findings are generally conclusive and accorded great respect, especially given the CTA’s expertise on tax matters. The legal logic centers on the application of Revenue Regulation No. 02-98, which governs the timing of the withholding obligation. The Regulation states that the duty to withhold tax on interest payments arises at the earliest of three events: actual payment, the time it becomes payable, or when it becomes due, demandable, or legally enforceable.
Applying this rule, the Court agreed with the CTA that EBCC had no obligation to withhold taxes on the interest payments for the Ogden loan in the taxable year 2000. The loan agreement stipulated that interest would be paid at maturity, and the obligation became due and demandable only on June 1, 2002. Consequently, the assessment for FWT on this interest for the year 2000 was correctly cancelled. For the syndicated loan interest payments, the Court sustained the CTA’s finding that EBCC failed to substantiate its claim of having already remitted the corresponding withholding taxes. EBCC’s presented evidence was deemed insufficient to overturn the presumption of correctness accorded to the CIR’s assessment. Therefore, EBCC remained liable for the deficiency FWT on these payments as modified by the CTA. The ruling reinforces the principle that the obligation to withhold is triggered by a specific taxable event as defined by law and regulation, not merely by the accrual of the underlying interest expense.