Republi c of the Philippines Court OF TAX Appeals Quezon C.i t y G C L Retirement P.lan, et al. vs. Comm.issioner of Internal. Revenue

Republi c of the Philippines

Court of Tax Appeals

Quezon C.i t y

G C L

Retirement P.lan,

x-eprPsented by the Trustee -

DirP.ctor,

Petitioner,

versus -

C. T. A .

Case

No. 4130

Comm.issioner of Internal.

Revenue,

Respondent.

X

- - ----- ---- - ------------

X

This

is a

c l a· m For reFund o F the amount

oF

P70,139.00 representing withholding tax

on

income

hank deposits, money placements and

oF

treasur y bill s pursuant to Presi dent ia l

Decree

No .

1959.

It appear s

t h at petitioner

G C L

P l

.~n ,

is an employees trust set up hy the

employer

r ot~

the

exclusive beneFit oF

it s

emplo ees,

to

pt· n vi de

them

retirement pen sion,

disabjlity

a n d

death beneFits.

The plan as submitted was approved

and

qualiFied

as

exempt

From

inco mP

ta x

by

respondent purs u a nt to Republic Act No. 4917.

That during the year 1985 up to and including

..I,-=~ n ua .. ~ y

1987 . withholding

agents

oF

t'e sponden t

.J

— ae wer

eC. T.A. CASE NO. 4130

—- DECISION —

withheld the 15 *, later increased to 20 *% final

withholding tax from petitioner’s deposits/Money

Placements and purchase of treasury bills, as

follows +:

Name of Bank Amount withheld and

remitted to the BIR

4. China Banking Corp. P 10,267. 41

2. Commercial Bank of Mla. 2,001.65

3. Far East Bank & Trust Co. 1, 750. 48

4. Manila Banking Corp. 11,623.49

5. PISO Bank 29,300. 18

6. Security Bank & Trust Co. 1,413.97

7. State Investment House, Inc. 4,717.76

8. United Coconut Planter’s Bank 12, 364. 66

TOTAL P 70,139.00

Petitioner filed a claim for refund with

respondent on January 21,1987 a claim for refund of

the sum of P70, 139.00. Petitioner earned from

money market Placements and purchase of treasury

bills from which was withheld the 15 *, later 20

final withholding tax imposed pursuant to

Presidential Decree No. 1959, and that it is tax

exempt by virtue of Republic Act 4917 and Section S56

———

(b) of the T. = —_

Without waiting for respondent to resolve its

Claim for refund, petitioner filed the instant

petition for review.

a5

C . J. n.

CASE NO.

41 30

-

DE CISION -

--

... ~

3

Th e

sole issue to be

re s olv ~d is whe t her

not

petitioner i s exempt From withholding

tax

in c ome

Ft' om

money

placements

and

pur hase

on

oF

tt'ea s ury

bills

imposed pt.tt's uant

t o

Pt"esident ial

De cree No.

1959.

Responden t

contends that und e r

the

present

law,.

Presidential

Decree

No.

195 9.,

which

took

eFFect on October 15., 1984, interest income derived

money

mat'l<et placements is s 1b_ject to

Fi na l

1 ithholding tax.

The

laws

involved in this c ase

q u oted For ready reFe r ence, to wit :

"Republic f:lct No. 4917"

"Rn

f:lct Providing

that

R Pt i t' e men t

BeneFits oF

Employees oF Priva te F irms

Shall

Not

Be Sub_ject

To

Rt t a c hmPnt.,

Levy, Execution, or Rny T a H wh a t s oe e '.

Be it

House

oF

Philippines

enacted by

the

Sen Mte

Represent a tiv es

or

in Congress a sse mbled :

a nd

the

Section 1.

Rny pt'OVision or law to

the

contrary

notwithst an d i ng,

the

J' e tirement

beneFits

received

by

oFFicials

and

employees

oF

private

F i rms, whether individual or corporate,

in accordance with a reasonable private

beneFit plan maintained by the employer

s hall

be

exempt From

all

taxes

and

shall

not

be

liable

to

attachment,

gat'nishment,

levy

or

seizure

by

or

under

any legal or

equitable

process

/~

15 "

c . r. n .

c n sE NO .

/fl 3 0

DE CJ S ION

-

4

-

whatsoever except to pay a deb t

oF

the

oFFicial

ot~ employee concet~ ned to

t he

priv~te

beneFit plan or

that

ari s .i ng

Fr om

liability imposed in

a

cri~inal

a ction

: Provided, That

t h e

retiring

oFFicial

or employee h a s

b e en

in

the

servic e

oF

the same employer

For

at

least

ten (10) years and i s

not

less

than FiFty years oF age at the time

oF

his

retirement

:

Provided,

Further,

That

the beneFits granted

under

this

Ret shall be . availed oF by any oFFicial

o r

employee

only

once

:

ProvidedL

Finally, That in case oF sepa ..-·ation

oF

an

oFFicial

or

employee

Ft ~ om

the

service

oF the employe~ due t o

death,

s i c kness

o r other physica l

disability

or For any cause beyond thP con t rol

oF

the

said

oFFicial

or

empl oyee,

a ny

a m o u rt t

t~ e c e i v e d by h .i m

o t~ by h i s

he i

, ~ s

Ft·o m

the e mployer a s

a con s e q llen c e

or

suc h

separation

shall

lik e wise

b e

e x empt as hereinabove provided .

"Rs

used

in

this

net,

the

tf"rm

reasonable private beneFit plan means a

pension,

gt~ativity,

s tocl<

b o nus

or

prorit

sha r ing plan

m~·nt a

·n e rl

by

a n

e mployer F or th e ben e F i t

or

~ o ~e or ~1

1

o r h i s

o r f' i c i a 1 s and e m p 1 o y P e c; 7

wh e 1 ~ P i n

c on t t~ i but · o n s

a t~ e

mAd e

b y

s 11 c h

P m p 1 o y e r

o t··· oFri ci a Is and emplo yees

o t ~ b oth,

F or

the

purpo s e

oF di s t r i b u ti1 g

to

such

o f" F i c i a 1 s

.. ct n d

e m p 1 o r' e e s

t h e

e r.u~ n .i n g s

A nd

pt~ in c ·p ,~ l

o F

the

Fund

t hus

accumulated, and wherein it is provided

in said plan that at no time shall

any

part

oF

the corpus or income

oF

the

Fund

thus accumulated, and wherein

i 't

is

provided

i n said plan that

at

no

time

shall any part oF the

corpus

or

income

oF the Fund be used For, or

be

diverted to, any purpose other than For

the

exclusive

beneFits

or

the

said

oFFicials and employees.

L. T R A.

cnsE r to. /' 1 30

-

DECI S ION --

Sec .

2 .

e-FFect upon its

-

5

-

This

approval.

shall

tal<e

"Appt-oved,

June.

17,

1967."

(Underscorin g suppli ed.) in relation to

Section

56 Cb )

ot= the Tax

Code

wh ich

reads as .Follows :

S e c. 56. Imposition or Tax -

a.)

~pplication

oF Tax

T he

taxes

impos ed by this title upon

ind ividual s

sha ll apply to the income oF estates or

ot= a ny l<ind oF property held in

trust ,

including.

1.)

J<XX

2.)

J<XJ<

3. )

XJ<X

4. )

J<XJ<

b.)

Exception

The tax

imposed

by

thi s

Title

sha ll

not

appl y

to

employee's trust which Forms part oF

a

pension,

s tocl<

bonu s

or

p roFit

sharin g

plan

oF an employer

For

the

beneFit ot= some or al l

oF his e mplo yees

(1)

iF contributions are made

to

the

purpose

oF

distributing

t o

such

em ployees,

ot- both For the p ut-pose

oF

distributing

t o

such

employees

th e

e.::u-n i ng s

.~ nd

pt-inci p a l

oF

the

Fund

accumulat e d by the tru st in

arcordance

with

such pla n ,

and (2) iF

under

the

trust

instrument it is impossible ,

at

an y

time prior to the satis Faction

o F

al l liabiliti es with re spect to employ -

es

under

the trust, Fo r

pa~t

oF

the

corpus

o r

income to

be

Cwithin

the

ta uable

year or thereaFter) used

For,

or

income

to be (within

the

taxable

year

or

the r eaFter )

used

For,

or

diverted

to, purposes other

than

For

the exclusive beneFit oF his employee s:

Pro v ided,

That

any

amount

actually

distributed

to

any

em ployee

or

distributee shall be taxa bl e to hi m

i n

L~ r. n. cnsE NO.

4 .t.~o

PECJS f DN -

~hF year in which

e •< t e n t

that

i t

contt~i buted

by

d i s t t~ i but e e • "

)( ){ ){

-

6

so di stribut e d to the

exceeds

the

amount

such

employee

or

)(X><

}{)()(

Presidential Decree No.

1 959

October 157

1984

Rmending

National

Certain

Sections

Internal Revenue as

oF

t:he

amended.

Whereas,

the

cut~rent

economic

cris is amounts to grave emPrge nc y which

eFFects the stability oF the nation and

requires immediate action ;

Whe reas ,

the

issuance

decree

is an essential

a nd

component

oF

the

nation ~]

recovery program Formulated to

overcome the emergency .

){)(){

oF

this

n eces s.:u~y

E>conomic

meet an d

)()()(

Section

1.

is

inset~ted

in

N ~t ional Internal

as Follows :

R new S ubsection

Section

;=?O

oF

Revenue Code to

( y)

the

,-· e·.=td

"(~/)

Deposit

subc;t·tut~=>

shall

mP ~n

an a lternativ e For

nF

obtaining

runds

Ft~ om

-the

publi c

o f;hrJ·'

th -~ n

deposits,

through

th e

issuance,

indorsement,

or

acceptanc e

oF

debt

i nstt~ument s

Fot~

the

bort~owet~ ' s

own

acco unt,

For -the purpose oF

relending

or purchasing oF receivables and

other

obligati ons,

or

Financing

their

own

needs

or the needs oF their

agent

or

de a 1 e r.

The s e

prom i s o .-~ y

not e s 7

repurchase agreements, certiFicates

oF

a ss ignment or participation and similar

in ~ trument

with

recourse

as

may

be

auf; hot~ized

by the Central Bank oF

the

C.T.n. cnSE NO .

4130

-

D - C I S ION -

-

7

-

P hilippines

For

banks

and

non-bank

Financial

intermediaries

or

by

the

Sec ut~i tie c;

and E)(change Comm i c; s ion

oF

the

Philippines

For

commercial,

ind I Stt~ial, Finance companies n. nd o

. het~

non - Financial

co mpanies.

Provide~

however

that only instruments

issued,

For

interbank

call

loans

to

cover

deFiciency in reserv e s

a g ainst

deposit

liabi lity

including tho se

betwee n

or

among

banks and quasi-banks shall

not

be

considered

as

depo sit

substitute

debt instruments."

Section 2. Section 21 (d) oF this

Code

as

amended,

is

hereby

Further

Amended to rea d as Fo ll ows :

"(d)

On

i nt erest

From

bank

depos"ts

and

yield

or

any

other

monetary

beneFit

From

depos its

s rbstitute

and

From

trust

Fund

and

similar

arrangemen t s. -

InterP st

From

Philippine

cln~t~enc).-· bank deposits

and

yield

or

any other

mon etary

beneFit

Ft~ om deposit subst itute and From

tt ~u~t

Fund

and similar arrangements

whethPr

received by ci ti zens oF the Philippines

ar ~ by

t~ esident Alie n individuAls, shall

be

s u b J e c t

t o

a

1 5

"

F i n a 1

t: a J<

t o

be

collected

and

paid

as

provirled

in

Sections 53 and 5t~ oF thi s CodP."

Section

3.

Section ~4

this Code, as amended is het~eby

amended to read as Follows :

(cc)

oF

Further

"(cc)

Rates oF tax

on

interest

Fro~ deposit

and yield or

any

other

•onetary

beneFit;

Fro•

deposit

substitutes

and

Fro• trust

Fund

a ~ d

similar

arranQements .

Interest

o n

Phi lippine

currency bank deposits

and

y .i e 1 d

ot~

any

othet~

monetary

beneFit

Fr m deposit substitute and

From

trust

Fund and similar

arrangements received

C. f .(}. CflSE NO.

'4130

-

DECIS ION -

-

B -

by

dome st~ c

or

resident

rorei gn

cot ~ pot·~ation sha1 1 . be s ubj ect to

A

15

"

Final

tax to be collect~d and p~id as

provided

in Section 53 and 54 oF

this

Code. "

Section 4. Section 53 (d)

(i)

oF

this Code is hereby amended to r ead

as

follows :

"Sec. 53 Cd)

Ci). Withholding

oF

Final

Tax

-

Every

bank

or

non-bank

Financial

ineermediary or

commercial,

industrial,

Finance

~ompanies,

and

other

non-Financial

compa n ies

authorized

by

the

Securities

and

Exchange

Commission to

i ssue

d e po sit

substitutes

shall deduct and

withhold

Ft-om

the

intet ~ est

on

bani<

deposits

substitutes

shall deduct and

wi thhold

Fro m

the intere st on bani< deposits

or

yi el d

or

any other

monetary

beneFit

fro m

deposit

sub s titute a

Final

tax

equal

to FiFteen g_er centu• (15 ")

DF

the

intere s t

on deposits or

yield

or

any other monetary beneFit From depo si t

substitutes

and

From trust

Fund

and

simi 1at~ at~t-angements".

Furthermore.,

it is undi s p uted that GCL

was qualiFi ed as exempt

Ft ~ om income

tax

by

Plan

the

Commissioner oF Internal Revenue in accordance with

r?epublic

Ret

No.

491 7 approved on 1 7

J une

Nhi c h reads as Follows :

Section 1.

Rny provisions oF law

!;o

the contt-ary

notwithstanding,

the

t-r:?tit~ement

beneFits

received

by

oFFicials

and

employees

oF

private

Fit~ms., wheth et, individual or- corporat e ,

in

accordance with reasonable

private

benefit plan maintained by the employer

1967,

A

8J..

I

C ~ T. R .

CflSE 1\10.

LJ1 3 0

-