BANK OF THE PHILIPPINE ISLANDS as Trustee of Retirement Fund the Employees' of Levi Strauss Administration and Officers, Levi Strauss <Plant> Employees, Ciba- Geigy Employees, Pilipinas Shell Petroleum Corporation, Johnson and Johnson Phils. Inc., Purefoods Corporation, Coca-Cola Export Corporation, Eli-Lilly Phils. Inc., Shell Chemical Co. Inc., PLOT Beneficial Trust, Du- Font Far East Filipinas, Hawaiian Phils. Co., Intel Phils. Mfg. Inc., Mobil Phils., Inc. Tapat Park Dev. Corp. Bristol Laboratories, Inc. Proctor & Gamble <Phils. Inc., Mapua Institute of Tech., Wellington Investments & Mfg. Corp., United Laboratories, Inc., Nestle Phils. Inc., Canlubang Sugar Estate, FL- Agency Force, Avon Cosmetics Inc., Benguet Corporation, International School, Goodyear Phils. Inc., IHSCOS Employees, Citibank H. A., Kimberly Clark Philippines, Inc., Astra Pharmaceutical, Inc., IBM Philippines, Inc., Eveready Battery Phils. Inc., American Microsystems, Inc., Engineering Equipment, Inc., Bank of America, H.A., Sime Darby Pilipinas, Inc., Mead Johnson < Phils. Inc., Del Monte Philippines, Inc., Visayan Electric Company, Inc vs. COKKISSIONER OF INTERNAL REVENUE

DECISION -

C.T.A. Case Nos. 4730 to 4770 - - 2 -

D

E

C

I

S

I

0

N

A consolidation of the above-mentioned forty-one <41) cases docketed as C.T.A. Case Nos. 4730 up to 4770 were ordered by this Court upon motion of petitioner Bank of the Philippine Islands. Considering that the subject matter, the parties and the antecedent facts of the abovementioned cases are similar in nature, it is but proper to have the case consolidated and tried jointly by this Court.

Petitioner as trustee of the employees' retirement fund o£ the various companies/institutions, uniformly seeks the refund o£ the final withholding taxes alleged to have been erroneously deducted and withheld by the Central Bank o£ the Philippines <CB> and remitted to the

Bureau

o£

Internal

Revenue

<BIR>

in connection with petitioner's purchases government securities, specifically treasury bills, £or the period beginning January 8, 1990 to December 12, 1990.

A written claim for refund was filed with the BIR on April 4, 1991 with respect to C. T. A;. Case Nos. 4732 to 4741, 4746 to 4770 and on February 13, 1992 with respect to CTA Case Nos.

4730 to 4732, 4742 to 4745 considering

DECISION -

C.T.A. Case Nos. 4730 to 4770 - - 3 - that the two-year prescriptive period to commence proceedings for the recovery/refund of the tax erroneously collected is about to expire and that the claim for refund remains unacted upon by the respondent, petitioner is compelled to file these petitions for review to interrupt said prescriptive period. Petitioner maintains that subject retirement plans meet the requirements of a reasonable benefit plan prescribed by Republic Act No. 4917, as implemented by Revenue Regulations No.

1-68.

They were approved as exempt from income tax, hence, the income/yield derived from its investment in government securities is likewise tax exempt.

In all the fourty-one ( 41 > peti tiona for review, respondent in its Answer argued that Presidential Decree No.

1959 which took effect on October 15, 1984, amended. the aforesaid sections by deleting the said proviso granting exemption from final tax on interest from bank deposits and/or deposit substitutes to those recipients who are exempted from income taxation. Respondent likewise maintain that the instant claim for refund has prescribed allegedly, for having been filed out of the two-year prescript~ve period mandated by law.

422

DECISION -

C.T.A. Case Nos. 4730 to 4770 - - 4 - Koreso, it also averred by respondent that the exemption from final tax on interest on bank deposits and deposit substitutes which petitioner previously enjoyed was in pursuant to R.A.

NO.

4917; in relation to Section SG<b> now Section SG<b> of the NIRC there£ore, it can no longer invoke the aforesaid section to claim exemption from the final tax imposed by Section 21 (d) and 24 <cc> now Section 21(c) <1> and 24(e) (i) o£ said Code on earnings derived from interest on bank deposits and or deposit substitut~s because Presidential Decree No. 1959, which took effect on October 15, 1984, amended said Section 2l(d) and 24(cc> of the Tax Code by deleting the provision granting such ~ax exemption. Respondent argues further that petitioner failed to establish that the tax subject of its claim for refund was actually withheld and remitted to respondent. <Answer, CTA Records) The sole issue to be resolved in this case is whether or not petitioner as trustee o£ the various retirement funds in these cases is entitled to a re£und of the taxes withheld by

the Central

Bank

of the Philippines on purchases of treasury bills from January 8, 1990 to December 12, 1990. A careful review of our jurisprudence would reveal that the arguments raised by respondent are already

DECISION -

C.T.A. Case Nos. 4730 to 4770 - - 5 - thrown into oblivion.

As held in the case o:f Commissioner o:f Internal Revenue vs. Court o:f Appeals, GCL Retirement Plan <G.R. No. 95022, March 23, 1992; 207 SCRA 487> wherein it held and We quote: •To begin with, it is signi:ficant to note that GCL Plan was qualified as exempt from income tax by the Commissioner o:f Internal Revenue in accordance with Rep. Act.

No.

4917 approved on 17

June

1967.

This law specifically provided:

•sECTION 1.

Any provision o:f law to the contrary notwithstanding, the retirement bene:fits received by officials and employees o:f private firms, whether individual or corporate, in accordance with a reasonable private bene:fit plan maintained by the employer shall be exempt from all taxes and shall not be liable to attachment, levy or seizure by or under any legal or equitable process whatsoever except to pay a debt o:f the of:ficial or employee concerned to the private benefit plan or that arising :from liability imposed in a criminal action;• x x x <emphasis ours>. In so far as employees' trusts are concerned, the foregoing provision should be taken in relation to then Section 56 <b> <now 53Cbl> of the Tax Code, as amended by Rep.

Act No.

1983, supra, which took e:f:fect on 22 June 1957.

This provision speci:fically exempted employees' trusts from income tax and is repeated hereunder :for emphasis:

DECISION -

C.T.A. Case Hos. 4730 to 4770 - - 6 ~ •sec.

56

Imposition

of Tax.

<a> Application of tax.

The taxes imposed by this Title upon individuals shall apply to the income of estates or of any kind o:f property held in trust.

XXX

XXX

XXX

• < b > Exception.

The tax imposed by this Title shall not apply to employee's 1 trust which forms part of a pension, stock bonus or profit-sharing plan of an employer :for the benefit of some or all of his employees x x x• The tax-exemption privilege of employees' trusts, as distinguished from any other kind o:f property held in trust, springs from the foregoing provision. It is unambiguous.

Manifest therefrom is that the tax law has singled out employees' trusts for tax exemption. And rightly so, by virtue of the raison d'etre behind the creation of employees' trusts.

Employees'

trusts or benefit plans normally provide economic assistance to employees upon the occurrence o:f certain contingencies, particularly, old age retirement, death, sickness, or disability.

It provides security against hazards to which members of the Plan may be exposed.

It

is an independent and additional source o:f protection :for

I

DECISION -

C.T.A. Case Nos. 4730 to 4770 - - 7 - the working group.

What is more, it is established £or their exclusive bene£it and £or no other purpose. The tax advantage in Rep. Act.

No.

1983,

Section

56<b>, vas conceived in o~der to encourage the £ormation and establishment o£ such private plans £or the bene£it o£ laborers and employees outside of the Social Security Aqt.

Enlightening is a portion o£ the . explanatory note to H.B. No. 6503, now R.A. 1983, reading: •considering that under Section 17 o£ the

Social

Security

Act, all contributions collected and payments o£ sickness, unemployment, retirement, disability and death benefits made thereunder together with the income of the pension trust are exempt £rom any tax, assessment, fee, or charge, it is proposed th~t, a similar system providing ~or retirement, etc. benefits -for employees outside the Social Security Act be exempted from income taxes. •

<Congressional

Record,

House

of · Representative, Vol.

IV, Part.

2, No.

57, p.

1859, Hay 3, 1957: cited in Co••issioner o:f Internal. Revenue vs. Visayan El.ectric Co., et. al.., G. R.

No.

L-22611, 27 Hay 1966,

23 SCRA

715>; <Underscoring supplied). It is evident that tax-exemption is likewise to be enjoyed by the income of the pension trust. Otherwise, taxation of those earnings would result in. a diminution of accumulated income and reduce whatever the trust beneficiaries would receive out of the trust £und.

This

_) would run afoul of the very intendment of the law. 426

DECISION -

C.T.A. Case Nos. 4730 to 4770 - - 8 - The deletion in Pres.

Decree

No.

1959 o:f the

J

provisos regarding tax exemption and pre:ferential tax rates under the old law, there:fore,. cannot be deemed to extend to employees' trusts.

Said

Decree, being a general law, cannot repeal by implication a speci:fic provision, Section 56(b) <now 53[bl) in relation to Rep.

Act

No.

4917 granting exemption :from income tax to employees' trusts.

Rep.

Act

1983, which exempted employees' trusts in Section 56( b > was e:f:fective on 22 June 1957 while Rep. Act No. 4917 was enacted on 17 June 1967, long be:fore the issuance of .Pres. Decree No. 1959 on 15 October 1984.

A subsequent statute, general in character as to its terms and application, is not to be construed as repealing a special or speci:fic enactment, unless the legislative purpose to do so is mani:fested. This is so even if the provisions o:f the latter are sufficiently comprehensive to include what was set :forth in the special act < Vil.l.egaa va.

Subido, G. R.

No.

L-

131711, 30 September 1971, 41 SCRA 190). Notably, too, all the tax provisions herein treated of come under Title II of the Tax Code on "Income Tax." Section 21<d>, as amended by Rep. Act No. 1959, re:fers_to the final tax on individuals and falls under Chapter II; Section 24 < cc > to the final tax on corporations under

DECISION -

C.T.A. Case Nos. 4730 to 4770 - - 9 - Chapter I I I; Section 53 on vi thholding of :final tax to Returns and Payment o:f Tax under Chapter VI; and Section 56< b) to tax on Estates and Trusts covered by Chapter VII.

Section 56< b >, taken in conjunction with Section 56< a), supra, explicitly excepts employees' trusts :from •the taxes imposed by this Title.• Since the :final tax and the withholding thereof are embraced within the title on

• Income Tax •

it follows that said trust must be deemed exempt therefrom.

Otherwise, the .exception becomes meaningless.

There can be no denying either that the :final vi thholding tax· is collected from income in respect of which employees' trusts are declared exempt <Sec. 56[bl>, (nov 53[ b],

Tax

Code>.

The application o:f the withholding system to interest on bank deposits or yield from deposit substitutes is essentially to maximize and expedite the collection of income taxes by requiring its payments at the source.

If an employee' trust like the GCL enjoys a tax-exempt status from income, we see no logic in withholding a certain percentage of that income which it is not supposed to pay in the first place.

Petitioner

also relies on

Revenue

Memorandum

Circular 31-84, dated 30 October 1984,

and Bureau of

Internal Revenue Ruling No. 027-e-000-00-005-85, dated 14

DECISION -

C.T.A. Case Nos. 4730 to 4770 - - 10 - January 1985, as authorities for the argument that Pres.

Decree

No.

1959 withdrew the exemption of employees' trusts from the withholding of the final tax on interest income.

Said Circular and· Ruling pronounced that the deletion of the exempting and preferential tax treatment ( provisions by Pres.

Decree

No.

1959 is a clear manifestation that the single 15Y. tax rate is imJ?osable on all interest income regardless of the tax status or character of the recipient thereof. But since we herein rule that Pres. Decree No. 1959 did not have the effect of revoking the tax exemption ~njoyed by employees' trusts, reliance on those authorities is now misplaced.w Af~er disposing all the legal issues raised in the petition, We will now deal squarely as to whether or not petitioner has established the ·factual elements of its cases.

We rule in the negative.

Although

petitioner was able to show that the individual retirement plan for each of the above trust funds were duly approved as ··such, and that most of the final taxes were withheld by the Central Bank of the Philippines on the interest income of the treasury bills it bought from the same bank, we are constrained to put 428

DECISION -

C.T.A. Case Nos. 4730 to 4770 - - 11 - little or no probative value to the other evidences it submitted.

Respondent's argument is well taken when it raised an objection to the purpose for which petitioner's

Schedules of

Investment

in

Government Securities and

their corresponding

Confirmation

of

Sale

Without

Recourse/Confirmation Advices are being offered. It was respondent's position that petitioner was not able to establish the fact that the assets of the various trust funds were actually used in the purchase of government securities by the latter, and that the final taxes withheld thereon were in behalf of said funds, and not by the petitioner in its own juridical capacity as a banking institution.

The records reveal that some of the treasury bills bought by petitioner through its Treasury Department were in turn sold to its Trust Department for the account of the various retirement funds.

-t

A

perusal of the

Confirmation Sale Without

Recourse/Confirmation

Advice

papers evidencing such sale shows that they were sold to the attention of either

BPI

Investment

Banking

For Various Tax-Exempt Accounts or BPI Investment Banking For Taxable Accounts.

It must be pointed out that sometime in 1991 before the promulgation by the High Court on

DECISION -

C.T.A. Case Nos. 4730 to 4770 - - 12 - Karch 23, 1992 o£ the GCL case, retirement plans were held liable £or the twenty percent < 20Y. > final tax on interest and/or yield on deposit substitute instruments paid or accrued beginning August 1, 1986 pursuant to Executive Order No. 37 which took e££ect on same date.

From

the foregoing, it shows that the Treasury Department sold treasury bills to BPI Investment Banking and not to the Trust Department per se as claimed by petitioner.

The records do not reveal that they are one and the same entity.

It can be said that the former could be catering to other non-trust clients with either tax-exempt or taxable status, or a combination o£ both. It. can very well be concluded that even though the individual sale o£ treasury bills was actually made to petitioner's Trust Department, it does not necessarily follow that such sale was intended £or a particular trust ·fund involved herein.

It could be that the sale was £or the account o£ individuals and corporations aside £rom retirement plans.

It is to be considered that in the year 1991, retirement plans were taxable as to .their income or interest and/or yield on d.eposit substitute instrument which de£initely includes treasury bills, .and yet the Confirmation o£ Sale Without Recourse/Con£irmation Advice 4 r,· ,.) ..l

DECISION -

C.T.A. Case Nos. 4730 to 4770 - - 13 - papers reveal that the Treasury Department o£ petitioner sold treasury bills to the attention o£ various tax- exempt accounts.

Verily, the sale o£ treasury bills to tax-exempt accounts at the time were really never intended £or the trust £unds involved herein. On the other hand, treasury bills sold by the

Treasury Department to BPI

Investment Banking £or the

various taxable accounts could not possibly re£er as a whole to the subject trust fund because it could have been invested to non-trust accounts or other categories of trust funds which is also taxable in the absence o£ any showing to the contrary. As viewed from another perspective, it can very well be noticed that some of the· treasury bills sold runs counter to petitioner's contention that said bills were actually bought from Central Bank. As pointed out by respondent there was an absence o£ evidence to show that the assets o£ the various trust fund were actually used in the purchase o£ treasury bills.

Instead, what was established was the transaction between the Treasury Department and Trust Department, but not the one between the

Trust

Department

and the individual trust fund.

DECISION -

C.T.A. Case Nos. 4730 to 4770 - - 14 - Evidently, the deposit accounts o£ the trust funds will have to be debited in the purchase o£ the treasury bills and the corresponding receipt or acknowledgment, in any convenient form, will have to be issued as proo£ o£ payment.

Petitioner must have documented or made entries on such transactions.

It is to be observed that under the "Other

Terms

and

Conditions"

clause o£ the

Confirmation

o£

Sale Without

Recourse

document, more particularly numbers 2 and 4 thereof, any sale, transfer or assignment o£ the treasury bills shall be valid only i£ said transaction is registered in the books o£ the petitioner.

Likewise, petitioner reserves the right to cancel the sale in the event that the check used £or the purchase o£ the securities has been dishonored

I

by the drawee bank/or the payment made ·thereon has not cleared or collected.

The foregoing incidents however are not shown in the records o£ the case.

To rely merely on the good faith o£ the petitioner, by taking as gospel truth the ~on~ents o£ the Schedule o£

Investments in

Government Securities

prepared by its employees, would be to upset.the scales o£ justice to the prejudice o£ the losing party. We cannot do that, after all

Court

decisions are based on incontrovertible 43~

DECISION -

C.T.A. Case Nos. 4730 to 4770 - - 15 - evidence on record and not on good £aith, or speculation or unsupported assumptions. It must be stressed at this point that a re£und o£ taxes partakes the nature of a tax exemption and are construed in strictissimi juris against the taxpayer and in favor of the taxing authority. <Associated Sugar, Inc. vs.

CIR, CTA Case No.

2944, May 6, 1994, p.

4 citing Insu1ar Lu•ber Co. vs. CTA, 104 SCRA 721 and CIR vs. Rio Tuba Nickel Mining Corp., 207 SCRA 549) t WHEREFORE, in view of insufficiency of evidence necessary to support the claims o~ the petitioner, the instant consolidated cases under petition £or review are hereby DENIED for lack of merit.

WE CONCUR:

- ut~GLcA-- TO D. ACOSTA ~d·i~ JudgV 1 e RAIIOH 0. DE~

Associate Jud

GRUBA

I

DECISION -

C.T.A. Case Mos. 4730 to 4770 - - 16 -

CERTJ:Fl:CATJ:ON

I

hereby certi£y that this decision was reached a£ter due consultation among the members o£ the Court o£ Tax Appeals in accordance with Section 13, Article VIII o£ the Constitution.

·' '2 .. ~Q .. ~ ERNESTO D. ACOSTA

Presiding Judge

Court o£ Tax Appeals