CTA Case No. 4035

DECISION -

_ decision upon the filing of their respective memoranda .

By and large petitioner contends that the terminal lea‘s pay or what amounts to it such as the money value of the unused vacation and = sick leaves upon retirement is an income tax exempt benefit contemplated under existing statutes providing insofar as pertinent, viz.:

C.A. No. 186, as amended Sec. 26(c). Except as herein Otherwise provided, the Government Service Insurance System, all benefits granted under this Act, and all its forms = and ses seereeomnnnoreneetecaneannnamtynnaen netinecamevorentintney AeerStenem EST documents required of the members shall be exempt from all types of taxes, documentary stamps, duties and contributions, fiscal or municipal, established or to be established: x x x F.D. No. 1146 ; Sec. S32(2). The benefits granted under this Act shall not be subject, among others, to attachment, garnishment, levy or other processes. This however, shall not apply to obligations of the member to the System, or to employer or when the benefits granted herein are assigned by the member with the Authority of the System.

F.D. No. 220 Sec. 1. That, provisions of any existing laws to the contrary notwithstanding, social security benefits, ‘retirement gratuities, pension, and other similar benefits received by retiring 144 DECISION CTA CASE NO. 403 5 -·- 4 .....

f~ .ITU?..1~1Y~-~.?.. a nd wo,~kers ~ 1-'-! he ther..

r·ec e i. ve cl from Philippines or foreign government agencies and other institutions, private or p u b 1 i c , ?.l.l? lj _______ Q..§ ___ f~ .. 0.~.rrm.t. _____ .f..L9 .. m .. ___ JJ~L~ P .. ~.Y..f!).f~_!:J.J ...... QJ.. ... ...:! .. U .. <; .. P.fiL?. ....... t?.-.. !i · (Underscoring supplied) The respondent considers the leave pay as compensation for service performed and not benefit conferred by the Goven1me n t Service In s urance System hence s u~j ect to withholding tax. The Commissioner would make muc h of the fact that statutes do not categorically mention terminal leave payment among the specified benefits e ntitled to the tax exemption privilege. All to 1 d t h r:: .. ~ ma t.e ,, .. :i. -:3. 1 facts-.

al' .. e r~?. l <::1. t i vel y simp J. f."-:' s o is the issue under resolve essentially addressed to t: he q t.ues t . .ion of whether or not the tf?nn.i na 1 1 Pi:":\ '/ E-) p ,=:\ y of Y" E! t.i. r· .i.ng o ·f ·f :i.e i a 1 / E'mp 1 oy(~e in the governmen t se rvice is tax exempt. The quest.icm mus t be a nswere d by looking into the language of the pertinent provision of the statute pr··ovi.ding, _!nt.~??r alia, "That , provisions of e:<.i.sting l a ws to the contrary notwithstanding, social security benefits, retirement gratuities, retiring employees and workers :-:

shall be 143

5 t h e payment of income L =:\:-:. "

(Sec. 1.)

Cons tr-ued in its plain a nd ordinary meaning, it appea r s c lear that the manifest presi d e nti al intent is to broaden the applicable scope a nd effect of "all bt.~ nf.~f .i t.s" i n f:3ec tion J C. f.~. No.

1.86, as amended (GSIS Charte r). The pe llucidity of intendment requires no further e xegesis.

to li mit tCl. :-:

exemption grante d under·· F'. D.

pur·p l y retirement benefits (gr;:,\t.uit:..ie ~:; a nd pE·'n s .i. on s ) f::\S ";ugqt.-!s tt-::?cl in t:h E' pPt.i. t.:.i.Cln for recnnsiderat:..i.on (by respon d ent Commission er of Interna l Revenue), is to render the said Decree u s elPss and ineffective, for na t.UI"·e o f retirement gratuities a nd pensions were a lready before the issuan ce of t he The President could not have the in t.!·::>n t.i.on to iss u e a u se l ess , .i.n p ff!~ctive or· ine·ffic:i.ent or· inefficient d ec r ee (Bird v. Alaska, 187 u.s.

p. 1.18); but rather to have promulgated a valid and permanent statute which would have the mos t: be n E'f :i.c: j .c":l. l :i. ts; language per·mi ts (Orl osky v.

Has ke ll, 155 A • .1..12)."

(Opinion l\lo.

l l l.l·, s.

.1.. '7'8 ~5 !J F'r·E·!side-:!n tia 1 Ass .i. s t.,:~n t:.

fo r Le gal 146

6 - A ·f 'f .:.d.r-s) • Thi s makes explicit what seems to Us already implicit in the statute itself. Moreover , We s ha ll be less than res pec ti n g the full and compelling i mport of the L;n-~ should We posit. a n a t·· r· o~~~ and unvarying me<Jnin<] to the ''other si milar· e ngl"'a 'ft€"!d in P.D.

22C), thus 'forec lose a n d stultify a ltogether its intE"mded sco pe.

''H <::~ n c:(·:·~, a n y ~".\ mount l'·ec:eived by <:'it.lc h of·ficet- or employee as a con sequence of ~::;uch se par·a ti.on from the service (like cash equivalent o f hi s vacation a nd sick l eaves to whi c h he i s e ntitled No. 186, as amended, and Section 286 of the Revi sed {.)cfm.i. n .i. s t t-a t:. i v r~~ CodF' F(eso lu \:.ion l'"o. 81 -·1158) as 1.. <- .::1 imp 1 em~? n b:~d by esc income ta:-:

pursuant to Section 29 (b)( 7) (8) of the Tax Code, as amended by P.D . No.

1158- A or Section 29 ( c: )( 7) (B) by Batas Pambansa Blg.

l ::';5.

Thus, whether taken under P.O.

No. 220 or under the Tax Code as amended by F'.D.

No.

1158-A and Batas F'amb.::msa Blg.

135, any amount received by a retiring government officer or worker as cash equivalr,,.mt of hi s unused vacation and sick leaves .i. s e :< r-:?m p t ·f r-c:Hn

i. n c ome ta :-: • " Accor"ding 1 y, 14 ('

DECISTON ~-

CTA CASE NO, 4035 f mobkhine ol and oambiquous aim hhe of othe pertinent provision of FD BRO tebves upon hes the pebitbianer in the cage ah bear. Suffice it, the 2a5ue now raised was squarely similar an many or soa am fenar ard terms , thyaris there, 80 bhe ruddy aqyually appli alrald oh fy een VF appilagcakian aes Bo Tgarass Peco bar as rep he heard 8 apply. 3 provided and at SE (cn) C7) (EB) Nad drorpad Poterral Rey cry se Corcles » clearly amp Loye padiey, a Ley Taw tharos memo Ley in FV.

mment ome dir arn, ach of pulylie Of grace op apd samp Dray ear tca fo pats . eoment anc be tlipinn peopde at Large . bis exempt lon fran hha payment oof hax am thede amon latverd animeiueadt eaves upon ihe nm “4 edgy beay chy tilocs retirenent most fave ho he, as wei ce hepedby Taher: construe the same in thei fayvear (Ambrosia Padilla, Civd » 19°54 Ed... Yok. IV, fe Tolantino, Cc nari on the Civil ¥ Vol. Ve Leas ny Ps 5 Carmelo v., Mongericat . SS Phil, 644; see Mertens, Liie! citing Estate of Emily St A Tait, Sly Comm, Ve White's Eata a reward for their f: : doand admittedly mot adequately ccompensa tect arew I in terms of the salary due bheie posihions. Moreover, the tax " iw isi camptian pravisilans in FD. . and ~tinonm 29 (c) 07) (CB) exemnt Lg them from the payment of income tax an the amoaunk of their accumulated accrued leaves Just t Taken eric boo co oo 2 plain to be mis categorical to be misinterpreted.

Tho mua have tea be stated and amphansi sec in this connec tion that as poriclean t Commi ss loner of Internal Reaveniie requeshec for reconsideration of Mian No. FF, which kh 1 that BIF Ruling 4AS2, dated Ougquat 14, I9S8, has been marctac bry ehion 1 oof Fresidantial No. @2O, bho the @enmed "x x x that any by ae retiring government 3 z the equivalent of ton and sick le Erecmea divs y he for Lagal Affairs, ; in Opianian Neo.

a in denial he 8 mohian For in effect that "x = ia ee yf EES We are oin full conformity QOpindian Ne, 114 of ihre Ferg Agaiatant for Legal Affairs, Offic Fresident, which nade A Very concise effort to make an incisive explanation and Lllucidation of, and then finally making a concise declaration of the true essence, intent, purpose, policy and objective of PID. No. 220 and Section @29(c)(7)(B) of the National Internal Revenue Code and Batas Pambansa Blg. 135, granting examptian from incame taxes on all benefite due to government ars and aMPlayees . the very office from whith ' 0 r .... 9 -- particularly P.D.

220 had proceeded a nd origi nated, which office a nd no other can aut horitative l y s tate what in exacti tud e, 1s, t o our mind, the essenc e , inte nt, purpose a nd objective, scope a n d ex t e nt, of the tax exemption gr a nted therein.

(Castaneda v.

Commissi oner of Internal Revenue, CTA Case No.

3809, Fe bruary 4, .1987)

WHEREFORE , res pondent to ,.-· c,:::- ·fund th E' pet :i. t. :i. o ne r·· ·t. h!:

i nco mE"!

t.a:-:

v~i thhe l d a nd/ or pai. d cor res ponding to the a moun t o f termi n a l leav e pay d ec l ared in the t a xable year involved.

No c:o ~:;ts.

GCJ mmEFE~D ..

Que zon City , Metro Manila, January 29, 1988. l,o.JE CONCUF\: ~ ~BJ F'res i · .ng Judge "--

• ROAQUIN

.Judge:!

15U DECISION.

- 10 - C E R T I F I C A T I 0 N I hereby certif y t ha t this decision was reached after due consu ltation amon g the members o f the Court of Tax Appeal s in acco rdance with Sec tion 13, Article VIII of the Constitution. 151

AMANTE F LLER

PresidinJ Judge Court of Tax Appeals