CTA Case No. 4595

DECISION

CTA CASE NO.

459~ - 2 - Assistant Director in the Legal Department of the Cerrtt~al Barrk of the Philippines (Exh. "E", p.

50, During the period that said petitioner was employed in said g ovet~rrmerrt agency, he had accumulated unused vacation and sick leave credits with morrey value amor.mtirrg to P186, 117.97 at the time of his compulsory retirement (see Exh. B-1, p. 45, CTA t~ec. ) • From said leave credits, the amount of P41,084.75 was withheld in payment of income tax due agairrst petitiorret~ arrd t~emitted to the But~eau of Irrtet~rral Reverrue on Jarruat~y 10, 1989 (see Exh.

"A", p. 42, CTA t~ec.).

Orr Apt~il 15, 1989, petitiorret~ .jo:•irrtly with his wife f 1 1 ed his income tax t~et ut~r, fot~ 1988 ( Exh.

"B", p.

44, CTA t~ec.) showirrg that the to:•tal tax due the go:•vet~rrmerrt is P14, 034.00 as agairrst the amor.mt withheld by the govet~rrrllerrt of P56,517.95. the total t~efurrd of P42, 484.00 <Exh. "B-3", p.

44, CTA t~ec. ) • This total amourrt irrcludes the amourrt of P41,084.75 which refers to the tax withheld from the cash equivalent of petitioner's accumulated vacatio:•rr arrd sick leaves (Exhs.

"B-1" and "B-2", pp.

44-45, CTA rec.).

Howevet~, petit i orret~' s c 1 aim 137

- 3- Thus, or• Nov ern be t~ 6, 1 '3':3<7.:, petitioner filed a formal clai m for refund of P41,084. 75 which is equivalent to the cash value of petitionel·~'s accurnulated vacation ar·,d ~:;ick.

le,?.'lvef.;

tnc lud1ng the amount P1,39'3.25 representin g of P42,484.00 before respondent Commissioner of Internal Revenue <Exh.

"C"' pp.

46 and 47, CTA t·'ec. ) .

letter dated February 14, 1991, respondent den1ed petitioner's claim for refund. This denial refers only to the amount of P1,3'39.25 and does not touch on petitioner's cla•n for refund h1s appeal to this Court. The issues posed in this case are a~ follows: :l.

Whether' petit:i.onet~'s tet-·minal leio\\/e pi:\Y llpon the g 0\/E!l.~l'lrrtel'lt service is subject to withholding tax; and if not, ·:::.

'··~.

Whet he~~ t~es pol'•de..,.,t Comm iss i onet~ of Internal Revenue is liable to pay interest nn th e withheld tax on the money value of accumulated unused vacation and sick. leave credits if found due to the petitioner.

138

- 4 - The Second Div1sion of the S upreme Court in the case o f Commissioner of Ir.ternal Revenue v. The Court of Appeals and Efren Castaneda, G. R.

No.

9601E· elated Dcto:::•hf.?"r'' 17, 1g9:1.

~'u1ecJ C:'IS follows:

I XXX

XXX XXX The Court has already ruled that the t er'm ina 1 1 eave pay t'ece i ved ·-- _l:lY....__.§. qov:er'nmey,,-; ~-±~--= err:!_Q) oyee 1 <;,;

rr~2t s;ubject to withhc~lfling (iy·,cor .. o:.-.... -::;:·- .1.

1~, the r'ecerrt case c•f Jesus N. Bo~-··r'orneo v.

The Hon.

Civil Service Commission, et.

al., G.R.

No.

96032, 31 July 19':H, l~he Court explained the rationale beh1ncl the employee's entitlement to an exemption fi"····m withholding (incomE?)

tax cw·, h1s terminal leave pay as follows: ' X X cr·eclits.;, t er'rrll na 1 x commutatiort of leo,,E mor·e commonly known d· leave, 1s applied for' by~ an officer or employee who ret1re~, ~'esi~J"r"rs or' i:~ sepa~·'c.d;ed from the ser'vice tht'ough no fc:~ult of h ts own.

f Marrua 1 o:-:.rt L..eave Administration Course tor Effectiveness publ1shecl by the Civil Serv1ce Comm1ssion, pages 17).

Ir, the exer'cise of sc••.mcl pet'so::.r,y,e 1 po:::o J. icy, the Go:.•ver··nrnc·r·,t encourages unused leaves to be ace urn u 1 at ed.

The Gover'nrnerrt recognizes that for most public ser'VdY·.t;s, r·'etir'errlent pay is always lE?~;s than gener'O:•I..IS if rrc•t meaqer·· and sct'impy.

A rr1oclest nest e1_:]g which the seniol' citizen may } .... ' fol·'wc.·n'd to :1.

, thus avolclecl.

Te~'ftlirral leave pi:\yments ar·'e ~~iYEl'1 r ro:•t only at the same time but a'<,,., for' the same policy con•·;ide~·ra-1"1 "' governing retirement benefits.' 139 DECISION CTA CASE NO. 4393 - 3 - In fine, not being part of the gross salary or income of a government official or employee but a retirement benefit, terminal leave pay is not subject to income tax.

<Underscoring supplied) XXX XXX xxx" It is that in mer.lot~andum, he does r-.ot questior-. the t~ight of the Responder-.t notes Ol'"1ly that pet it i c•net~ lacks documentary evidence to support his claim documents submitted by petitioner are alleged to be ir-.admissable, ,-as they at'e r-.ot pt'opet~ly ider-.tified pursuant to Sec.

31, Rule 132 of the Rules of We find this contention without merit. the heat~ir-•g c•f this case or-. Octobet~ 7, 1991, the admitted all of petitioner's documentary evidence at the time they were offered the same in despite the vigorous objections of COUY"1Se 1.

it no:•tir-•g that ir-, the chat~tet~ of this Com~t <Rep. Act No::o.

11L::5> p.::n~t iculat~ly Sect ior• 8 of the said law, it pt~ovides that the pt'oceeding befot~e this Col.n't is not governed strictly by the technical rules of evider-.ce.

The Rules of suppletot~y, in the absence of specific t'ules that 140 DECISION .

the Tax Court can be guided with. Considering that love a specific provision on this matter an cur cnarter, then the Court is bound by that rule in 38 an 8 of R.A. 1125 rather than by that provided yo the Rules of Conrt.

} toa the second issue, petiticn ra nds th respendent shauld be held liable for legal toon the withheld tax or money vali: m his culutlated and unused vacatian and leave eredits alleging that respondent attended with rbitrariness, citing the cases af Collector of Internal Revenue v. Antonio Prieta, et. al. G.R, Na. L-11976, September 26, 1961, 3 SCR and Commissioner of Internal Revenue v. Asturias Sugar Central, Ime., L-15013, August Gi, oCRA ae) We find no arbitrariness in th ian oof nidert. The burden is om petitian prove 1 ase. Respondent ain pursuing mic was merely perferming his duties assigned » ‘co. law. Respondent’?s cause was guided by his han be ief that the amount withheld oan terminal leave ovav is cansidered as supplementary compensation paid to an employee for services performed and as such | is ubrsect ta the withholding tax on compen oy | See par. 14, Answer under Special and fF native Defenses). Surely, respondent carnmat be faulted 141

- 7=- for the delinquent performance of his duties. Herce, the court DENIES petiticner's claim far payment of legal interest against respondert.

WHEREFORE, petitioner claim for refund is hereb, GRANTED. Respondent is hereby cerdered ta refund ta the petiticner the amount of P42, 484.00 without pronouncement af legal interest.

Without cast.

I CONCUR:

CONSTANTE ‘C. IN AgGaciate Judge CERTIFICATION IT hereby certify that this decision was reached after due consultation between the members of the Court of Tax Appeals in accordance with Section 13, Article VIII of the Constitution.

ERNESTO D. ACOSTA Presiding Judge Court af Tax Appeals