CTA Case No. 4218

DECISION

Berore Us for consideration 16 a judicial claim for the rerund of finadi taxes allegedly erroneously and/or tihlegally withheld and collected from the income derived fay the above-caplioned various retirement funds (funds tor brevity) trom their respeetive bank deposits and investments in money market ~ placements, deposit substitutes and securities during the calendar years 1995 and 1786 in the amount of FLO, 181, 666. 90 aricl M14, 394, 4900, 90, respectively.

Fetitioner is a commercial banking corporation duly organized and existing under and by virtue of Fhilippine LAWS. It igs authorized to perform trust functions and aebavities,

BECISION —

C.7.A. Case No. 4218.

faack ave as herevprdaer slated.

and L?OG, mstitioner, acting &s a trustee cee MERELERRD iy tigwog ited, invested and arch reinvested the assets af the funds in savings anc time.

deposits, Honey markebl placements, and an securities such as treasury bills with various banking and financial inetitubkions. From the income earned by the funds, the SAIC aiunststutsons withheld a final tax of 15% pursuant to the provisirons ¢f Section el td), now Section 21 (ec), in roy relation to Seetion SS (cd ¢€1?, now GSGection Si (a) of the _ 1p 3 tax Lace. ‘Petition, p. 4: p. £1, CIA records) Un December 16, 1386, Aa supervening event made- petaitiuner reaisze that the income earned by the funds was exemot fram taxation. This was brought about by the promulgation By herein Court of its decision in the case of GCL Retirement Fund vs. The Commissioner of Internal Revenue, CTA Case No. 3888 wherein the Court confirmed the exemption of gualified retirement plans under Republic Aet Ne. “O17 from income tax, more particularly Che aincome or yield derived by the GCL Retirement Flan Trom money placements and purchase of treasury bills (Petition, B. 2p pp. cb, CTA records and letter claim to the DP. Geo ou. 36. Cre records) tw é

DECISION —

C.T.A. Case No. 4214.

Conseauentily, petitioner tiled two separate written with the Commissioner af internal Claas For rerun Revenue, ge oan DBecember a9, i?GY for the year 1985 and the other on January Le, i386 for the year (966. Taken boygevmer, the claims amounted to Pes, 176,164.00, which when broken dow consists of the already aforementioned RIO. 21, ooo. oo and Pie, 294,498,580 taxes sa withheld far the years L905 and 1986, respeetively.

Hlieging thal the two-year prescraptive period to commence yudroial proceedings for the recovery of tne tax deemed erroneously and/or allegaily collected was about to expire and that the claims for refund were still gunacted upon ty the Commissioner, patitioner elevated its case right befers this Vourk, Henee, this apnea, In its amended petition Filed on January 14, 1988. Mebitdoner maintained the sane arguments advanced before the Cyoamissioner, and further alleged that tne different banking and fananeral anatitutions, which inexplicably includes itself, ecantinued to withhold taxes an the income of the funds from investments.

in answer, responded contended, inter alia, that:

a) ny amount claimed to have been Withheld must be shown to have been paid to the novernmant, and in the case at bar, no shawing has been mace; ane ’ "9 ” 6 te

DECISION —-

C.T.A. Case No. 4218.

- 4&4 - ty) Canbrary to petitroner’s perception anc beliet, the exemption of employees trust fonags from withholding tax an interest from bank depugits and yield from deposit SubStrtuLves arose from Section £1 Cd} and 4 (ec) of the Tax Code, before, amendment by Presidential Decree No. 1959 and not from Republic Aet No. 4917 and Section S& (b) of the Tax floce.

Later cdevelopment would reveal that the legal issues “posed “by the parties have bean eventually resolved by the honorable Supreme Court in Commissioner of Internal Revenue vs. GEL Retirement Plan (5. R. Now OF March a, iosey e@uy SUR 487). It must be noted tnat the Latter case affirmed ihe decision af this Court over the game which was decketed a quoas CTA Case No. S868, supra. ip ovwphoicving eur decision, the Honorable bupreme Court stated, in part, timslys Tim so far as employees’ trusts are concerned, the foregoing provisions should be taken in relation to then Section oG (b) Liew 33 (b)] of the Tax Code, as amended iy Reo. Pack Ma. 1953, supra, which took effect oan me June Looe. Ihis provision ¢gpecifically exempted employees? trusts from income tax and is repeated Hereundenr for enphasiss “Geetion 36. Jupasitaen or Vaan {ea} Ayppiawat ron af father The taxes impused by this Tittle upon individuals shali apply to the income tf estates or of any kind of property Neld am trast.

“(td &sceptione-~ the tax amposed by this Title shali not appiy te employees? trust which Forms part of aA pension, stock bonus or profit sharing plan ot an empicyer for the benefit of some or ail of his employees “x x x.”

Lye

6 oad

DECISION —-

C.T.8. Case No. 4218.

fhe baxcexemption pooavidiege of eamminyees? LUG Be as Ggistimguished from any other Kind of art | fie lao in trust, mange the foregqad ny it 1S LANAaMbLguane. Manifest fe Lbiat Le Lé fas singled aut trusts for Lax exemption.

Bind ore aaihis Ly S04 by virtue of the raison de’ etre Oehiimed Lire ereation af employess’ brah se Lb Oy eas trusts oar bereFit blaens normally provide economic assistance to emplayvees upon the voourrance of certain contingencies, particularly, old age retirement , death, sickness, or disability. it provides gecurity against certain hazards to which embers of the Flan may be exposed. Lt is an independent and additional source of Bretvection far the working group. Whab 4s more, it a6 established for their exclusive benefit and for no ether purpase, The tax advantage in Rep. Act No. i983, Seobion wes (bh), was conceived in order to encourage the formation and establishment of such private Plans for the benefit of laborers and -amployees outside of the Social Security Act. Enlightening is a portion of the explanatory note to H.B. No. 6503, now R.A. ives, reading:

“Considering that uncer Gection 17 of the Sucial Security ict, all contributions collected and payments of sickness, unemployment, retirement, disability and death benebits made tiereunder together with the income of the pension trust are exempt from any LAX, agsgessment, fee, or charge, it is proposed that a similar system providing for retirement, ets. beneFits for employees outside the Social Security Aer be exempted from income taxes," (Congressional Record, House of Representatives, Voi. LV, Fart &, No. S7, p. 1659, May 3, lyo?/3 cited ain Commissioner of Internal Revenue vs. Visayan Electric (Co., et al., GR. Ne. L-EEG11, 27 May 1968, ES SCRA fioig ataliecs supplied, Lt LS evident that tax-exemption Ls likewise to be enjoyed by the income of the bou

DECISION —-

C.T7T.A. Case No. 4218.

ygeniion trust.

earning: woud acecunudealed i trust beneficdi truant Panic.

intendment of +t The only remai antaitlement afr gata evidences presanted.

We resolve ta a As borne fy evidence the follows La} The ret iredgent mba gf the retirem requirements « "Zo anch “ae?

Way eange dy wad the carrespen

Filacements Cexh

we ) Liat bearing loans

Funds for

(Exhibits "4B" to '45)-

4.) Summary - 6 Otherwise, do result ncoome anal taxation mn a dim r aries would This would nme law.

ning issue

Lioner

eny this to educe wh ot those imnubion of atever the receive ont of the run afoul of the very the records, Nig exhibits, various S$, and Tf ent plans f P.O.

toa "fab" me Non-Megatiahle

No

q tru rey At its elaim petition.

petitio to wits st agree letters camplyt

» 4917 CExhi

all inelusive of sub- er aqmissary cand Fixed Income

LOLts "CNN" to "44 U-1"

ef investments in made hy

Lovestment Department

the in yea oF t petitioner’s behalf of he 1985 “Be E4) 5

Fromiss

(Exhibits "45-0" to "4&-C-gat") 3

Se ) Guart

on’ interest prepared and f erly Returns

Haid by

iled by

Investment Department

"45-M", all inclusive lagily, 6.3} bine

Mr Ss a Kemedios

exhibits.

Ban

{Ex

oft testimony

Hlbeiloa

Oak

on

of Taxe

ks and

Petitioner's

hibits sub-mark of the based on ner adduced ments, the of approval mg with the bits "A" to

Notas and

Securities

5 interes:

Trust and

the various and 1986 ory Notes s Withheld

Quasi-Banks

Trust and

"4aj-D" to ings); and witness,

Foregoing

to be resolved thus is the the in

DECISION -

C.T.A. Case No. 4218.

- 7 - '"- f Ot't?q UCi t; ed e :d1 i bits l·'e.:Olc.1ily shov·J us that pc-!ti.tlonet' failed to establish p-::11 t;ici.p,:,;tlun of the func!~; inv•Jlvec.i he r'e in to the specific investments IIID.t.iE

1. '3E;::..i and. 1. 'JEk.i. among i;h•.::

sutJmltted e >(11 .L bits and the contents 'J i t: .:

t~"a;,sct'ip-\; o·f'· stenographic notes of the hear· i ngs conducterJ in the case at bar could we find any mention of each of the func: s as having been engaged in an invest men<;

fol' c\nfJ :J.tl theit' behe~.!.f.

Rt

least, the ty·ust account numbet·s l1 st ed .in the• v 21·· :. '-' '..i. c;

F :i. :--: ptJ· ·lnctJ ITit:o' Sr::t.:tw .i. ties P 1 .:~.cemt~nt s ( F ISP), supra, co=_tl.d hdve uf the situation if indeed they not but he t"' '.: o Identify ancJ intt'OdUC€•G in evidence the ty·ust o t·· sa v i. n y s account r11..tmbe1·' of each

the Funds

a.nd vigilant efffJt't to correlate them to those U.sted in the

FISP

in pt'ave theit' indub1table participation therein.

Returns of

laxes

Withheld

submitted p f-! t; i t i o n e t' a s proof of withholding and

DECISION —-

C.T.4. Case No. 4216.

remibttanie of the taxes te the BIR de not establi¢n with certainty the fart of actual remittance of all the taxes so withnheidid trom the income of the Funds. We have observed that the total af tne withholding taxes remitted to the BIR per returns amounted to FS5,805,067.G2 as compared to the amount of the claim which is Bem, L/S, 164. 00, We fave also nated that the returns were aii files in behaif of Citytrust Banking Corporation, as i a withholding agent. On this point, we would Like to refer toa one of the ultimate fants alleged by the petitioner ain its amended petition for review which we quote, in part, this:

dey In 19835 and 1986, petitioner, in the exercise of its Powers as trustee and investment manager, deposited, invested and reinvested the assets of the Funds in savings and time deposits, money market placements, and in securities (including government securities, such as treasury Bilis) with various banking and financial institutions, ingiuding Citibank Ne Fle y Citytrust Banking Corporation and Multinational Bancorporation, from which the Funds earned income. The said banking = and Financial institutions, however, erroneously and/or aiilegally withheld the final tax of 15% provided under the former Gection e#i(d), now Section eited, in relation to the former Section Std), now Section Sitad, af the NIRC, From the inceme or yield derived by the Funds on various dates during calendar years 1985 and 12a, as follows:

KKM «HH KH

the amount of taxes stated above were withheld b and financial institubions ! different banking

DECISION -

C.T.A. Case No. 4218.

geneduie =thereto attached as finmnex "A Lo forum am inteural mart tereaf, Hased on the above alleyation, it is clear that the amount of the taxes withheld and being claimed by petbiticnes for refund was withheld by different banking and Financial pnostabutaons For the years 1985 and 1966. While pwetLbioner is inecduaded as ane of the lnstvabutiorns Just stated. We can not understand why it 1s anly presenting tes own retirns of taxes withhetd for the entire amount of the claim when it admits of the fact thac other banking o Financial institutions also withheld taxes on the alleged transactions entered into by the Funds. Such other institutions were obviously the ones who remitted the final taxes they withheld from their own dealing With the Funds.

Petitioner, as trustee, should have endeavored to prove the actual remittance of the taxes so withheld from the ineome derived by the funds from their respective transactions with the other institutions.

In addition, the submitted quarterly returns do not demonstrate the fact that any of the taxes alleged to have been withheld really forms part of the larger amount actually ranitted ta the BIR by herein petitioner, in the absence of a detailed and complete schedule of all the bo “

DECISION -

C.T.A. Case No. 4218.

- 10 - k i. nd s of final taxes withheld by it ~here the parlicular k1nd and amount of taH 1nvolved herein can be verified The preceding circumstance is even made worse by the ol any allegedl; earned by the funds ft·om the other institutions.

Consequently, We can neveJ·' detP)'mine t1·1e spet~::.fj.c amount of taxes ~..;ithheld by such institut1ons.

~..Jithuut evidence on the amount of taxes w1thheld by the othe1·' lnstitutions, plus the fact that pet i t i o n e r· failed to establish the participation of the i"Unds in its

OI•Jn

investment activJ.ties above discussed., thus left with no but to reJect the instant claim.

"lt 111 ust be str·ess~:)d .at th1s point that a J·-·efund of p.:n·t ak e ,,_; the E' :·< e rr: p t ::. o n and is cnnstr··ued :i.n f avO'(' o 'I t n !'? t a l< i n ~l i:\IXt h Ol·' it y .. "

tCIR vs

Rio

Tuba

Nickel Mining Corp., 207 SCRA 549). fr·om above, we observed that pet i t; i one r~ fa i 1 e c.1 t o sub m i t·;

e v ide n c e on it s cla1m few pt'omis~;rH'Y notes covet··ing the month of J<.:1111..\c"il~v.

DECISION -

C.T.A. Case No. 4218.

- 11 - 1985 has already prescribed, because the payment of the tax for the third quarter of 1985 was made on the 25th day

of October

following the close of said quarter as required

by Section

54 of

the Tax

Code (1984, ed.) and which when reckoned from the date of filing of herein petition

on December

29, 1987 is clearly shown to be way beyond the two-year prescriptive period for the filing of a judicial claim as provided in Section 292 of the same Code.

WHEREFORE, in view of insufficiency of evidence, the instant

Petition for

Review is hereby DISMISSED for lack of me~~it.

WE CONCUR:

RAMON 0. DE L.

-~ \) Uu.

~ .. v.:x; IS2..-~ ERNESTO D. ACOSTA Pt' e siding Judge .-

DECISION -

C.T.A. Case No. 4218.

- 12 - C E R T I F I C A T I 0 N

I

hereby certify that this decision was reached after due consultation among the members of the Court of

Tax

Appeals in

accordance with Section 13, Article Vlii of the tonstitution.

~~~lv- ERNESTO D. ACOSTA Pt~esiding Judge

Court of Tax Appeals