CTA Case No. 4857

DECISION

- C.T.A. CASE NO.

4857 - 2 - Business For So6ial Progress Retirement Fund, Phi I.

Commercial Credit Card, Inc. Retirement Fund, Phi I ippine Electric Corp.

Retirement Fund, Phi I.

Phosphate Ferti I izer Corp. Retirement Fund, Phi I. Institute of Certified Public Accountants (PICPA> RetirKLMnt Fund, Phi I ippine Pyrite Corpor
t
on Retirement Fund, Phi I ippine RaNing Club, Inc.

Retirement Fund, Rustan Commercial Corp. Retirement Fund, Superior Gas and Equipment Company, Inc. Retirement Fund, Union Carbide Phi I ippines <Far East), Inc.

Retirement Fund, Wirerope Corporation of the Phi Is.

Retirement Fund, The Zuel I ig Group of Companies Retirement Fund, Eastern Telecommunications Phi Is., Inc.

Employees' Retirement Plan, Oceanic Wireless Network Phi Is., Inc.

Employees' Retirement Plan, all represented by their Trustee, THE PHILIPPINE COMMERCIAL

INTERNATIONAL BANK

(PCIB), Petit i oner·s, - versus - THE COMMISSIONER OF INTERNAL REVENUE, Respondent.

X - - - - - - - - - - - DECISION C.T.A.

CASE NO.

4857 This is a petition for review filed by the various employees' trusts, herein represented by their trustee, Philippine Commercial International Bank (PCIB), against the respondent, Commissioner of I nterna I Revenue, for the refund of P3,685,770.56, representing erroneously withheld twenty

DECISION -

C.T.A.

CASE NO.

4857 percent (20%) - 3 - final tax on interest income earned from investments in treasury bills, bonds, deposits and deposit substitutes.

The facts are as fo I I ows: ·- '· - J.._ On various dates, f r om ·:t; h e p e r i o d J a n u a r y , 1 9 8 9 t o Apr i I , 1992, PCIB, as trustee, invested the funds of the trusts in treasury bills, money market placements and savings deposits.

These investments earned interest income from which the tweDtY percent (20%) final withholding tax was imposed pursuant to Presidential effective October 15, 1984.

Decree No.

1959, PCIB, as representative of the employees' trusts, filed several claims for refund in behalf of said trusts.

The dates of f i I i ng are enumerated in paragraph VI of the petition for review (pp.

11-14, CTA recor'ds).

These were not acted upon by the respondent.

Hence, the instant petition for review filed on October 8, 1992.

Petitioners contended that the Supreme Court En Bane in the case of Commissioner of Internal Revenue vs.

The Hon.

Court of Appeals, The Court of Tax Appeals, GCL Ret i r4fient Plan, represented by its Trustee-Director, G.R.

No.

95022, March 23, 1992 (207 SCRA 487), has ruled on the exemption of the employees' trusts from the income tax.

Wh i I e respondent does not dispute this ruling, she, however, argued:

DECISION -

C.T.A.

CASE NO.

4857 1 .

That when - 4 - Presidential Decree No.

1959 was promulgated on October 15, 1984, the employees' trusts ceased to be exempt from final withholding tax on interwst from bank deposits and/or dxposit substitutes . This is .. .) ......

because Presidential Decree Noyz1959 has deleted the proviso on exemption and preferential tax treatment under Sec. 21 (d) and Sec.

24(cc) of the 1984 Tax Code;

2.

That the petitioners have not shown that the tax sought to be refunded was actually withl1eld and remitted to the respondent;

and 3.

That petitioners failed to establish that the funds used in the purchase of treasury bi I Is were derived from the retirement funds. For the proper adjudication of the case at bar, the following issues have to be resolved by this Court, to wit:

I.

WHETHER OR NOT THE INTEREST INCOME OF THE EMPLOYEES' TRUST, SUBJECT TO THE

REPRESENTED HEREIN

BY PCIB, IS TWENTY PERCENT (20%) FINAL WITHHOLDING TAX IMPOSED UNDER PRES.

DECREE NO.

1959;

I I.

WHETHER OR

NOT PCIB

WAS ABLE

TO ESTABLISH/PROVE

THAT THE INVESTMENTS MADE

WERE

FOR THE ACCOUNT OF

THE EMPLOYEES'

TRUST;

and

DEC I S I ON -

C.T.A.

CASE NO.

4857 - 5 - I I I.

WHETHER OR NOT PETITIONERS

WERE ABLE TO PROVE THAT

THE TAX SUBJECT

OF THEIR

CLAIMS FOR

REFUND WAS ACTUALLY WITHHELD AND REMITTED TO THE RESPONDENT. With respect to the first issue, this has been settled
_-·)!::- by the Supreme Court in the case .of Commissioner of Internal Revenue vs.

Court of Appeals, The Court of Tax Appeals, GCL Retirement Plan, supra, pertinent portion of which is quoted hereunder:

"The deletion in Pres. Decree No. 1959 of the provisos regarding tax exemption and preferential tax rates under the old law, therefore, can not be deemed ·to extend to emp I oyees' trusts.

Said Decree, being a genera I I aw, cannot repea I by implication a specific provision, Section 56{b) {now 53[b]) in relation to Rep. Act 4917 granting exemption from income tax to employees' trusts.

Rep.

Act 1983, which excepted employees' trusts in its Section 56{b) was effective on 22 June 1957 while Rep.

· Act No.

4917 was enacted on 17 June 1967, long before the issuance of Pres.

Decree No.

1959 on 15 October 1984.

A subsequent statute, general in , character as to its terms and app I i cation, is not to be construed as repea I i ng a special or specific enactment, unless the legislative purpose is so manifested.

Tl1is is so even if the provisions of the latter are sufficiently comprehensive to include what was set forth-in the special act {Villegas v. Subido, G.R.

No.

L-31711, 30 September 1971, 41 SCRA 190).

XXX XXX XXX There can be no denying either that the final withholding tax is collected from income in respect of which employees' trusts are declared exempt {Sec.

56[b], now 53[bl, Tax Code).

The application of the withholdings system to interest on bank deposits or yield from deposit substitutes is essentially to maximize and expedite the DECISION - C.T.A. CASE NO.

4857 - 6 - collection of income taxes by requiring its payment at the source.

If an employees' trust I ike 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 a I so reI i"es on Revenue Memorandum Circular 31-84, dated 30·'0ctober 1984, and Bureau . - ....

of I nterna I Revenue Ru I e-No. 027-e-000-00-005-85, dated 14 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 C i rcu I ar and Ru I i ng pronounced that the deletion of the exempting and preferential tax treatment provisions by Pres. Decree No, 1959 is a clear manifestation that the single 15% tax rate is i mposab I e on a I I interest income regard I ess of the tax status or character of the recipient thereof.

But since we herein rule that Presidential Decree No.

1959 did not have the effect of revoking the tax exemption enjoyed by emp I oyees' trusts, reI i ance on these authorities is now misplaced."

The second and third issues are interrelated and involves both a question of fact.

A joint discussion wi I I thus prove to be facile. Petitioners are claiming for refund of the total amount of P3,665,770.56 itemized hereunder: T r e a s ur y b i 1 1 s Money market placement Savings deposits TOTAL PCIB purchased treasury and P3,559,993.52 54,433.84 71 343.20 .!:__. 68_ _ _, 770. 5f?_ Central Bank bills in bulk from the Bangko Sentral ng Pilipinas (BSP) during the years 1989, 1990 and 1991.

From these purchases the BSP withheld DECISION - C.T.A.

CASE NO.

4857 - 7 - the 20% f ina I tax (Exhs.

D, E, E-1 to E-4, inclusive).

A I I

final taxes withheld at source from discounts on taxable government securities for the years mentioned were remitted to the Treasurer of the Phi I ippines for the account of the . --- Bureau of I n tern a I Revenue ( Ex h-:-s • P , F- 1 and F-2 ) .

An Audit Report prepared by Punongbayan and Araullo, CPAs (Exh.

C) with Annexes from 1-5 (pp. 258-661, CTA rec.)

would show that the Trust Services Group of PCIB purchased treasury and Central Bank bi II s fr·om the BSP and other commercial banks for the account of the following employees' trust, where the corresponding 20% final tax have been withheld and remitted to the BIR (see Attachment 1 of Exh.

C, pp.

256-257, CTA rec. ).

The provisions of the Tax Code pertinent to the case at bar are Sections 51(a) and 230, which provide as follows: Sec.

51.

Returns and payment of taxes withheld at source.

(a) Quarterly returns and payment of taxes withheld. Taxes deducted and withheld under Section fifty-three (now 50) shal I be covered by a return and paid to the Revenue District Officer, Collection Agent, or duly a u t h o r-i z e d T r e a s u r e r of t h e c i t y , o r rn u n i c i p a I i t y where the withholding agent has his legal residence or principal place of business or where the withholding agent is a corporation, where the p r i n c i p a I of f i c e i s I o c at e d .

T t1 e t a x e s d e d u c t e d and withheld by the withholding agent shal I be held as a special fund in trust for the Government until paid to the collecting officers.

The Commissioner of I nterna I Revenue may, with the approval of the Secretary of Finance, require these withholding agents to pay or deposit the taxes deducted or withheld at more frequent

DECISION -

C.T.A. CASE NO.

4857 - 8 - intervals when necessary to protect the interest of the Government.

The return for final withholding tax shall be filed and the payment made within 25 days from the close of each calendar quarter, while the return for creditable withholding taxes shall be filed and the payment made not later than the .

last day of the month following the close of tt"\e quartcl' during which withholding was made.

Sec.

230.

Recovery of tax erroneously or illegally collected.

No suit or proceeding sha I I be rna i nta i ned in any court for the recovery of any national internal revenue tax hereafter a I I eged to have been erroneous I y or iII ega I I y assessed or collected, or of any penalty claimed to have been co I I ected without authority or of any sum a I I eged to have been excessive or in any manner wrongfully collected, unti I a claim for refund or credit has been duly filed with the Commissioner;

but such suit or proceeding may be rna i nta i ned, whether or not such tax, pena I ty, or sum has been paid under protest or duress. In any case, no such suit or proceeding shal I be begun after the expiration of two years from the date of payment of the tux or penalty regardless of any supervening cause that may arise after payment:

Provided, however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid.

Forfeiture of refund.

A refund check or warrant issued in accordance with the pertinent provisi ons of this Code which shall remain unclaimed or uncashed within five (5) years from the date the said warrant or check was ma i I ed or de I i vered sha I I be forfeited in favor of the government and the amount thereof shal I revert to the General Fund.

Based on our findings, we have disregarded the amounts withheld and paid prior to October 9, 1990.

The petition

DEC ISION

- C .T.A.

CA SE

NO.

4857 - 9 - was fi led on October 8 , 1992 and 1992 was a leap ye ar, the two-ye ar pres cription pe riod for the claims for a refund shoul d therefore be counte d from October 9, 199 0 .

Thus , all c l aim s for refund of final wi³hholding taxes paid prior to . ,.._ Oct ober 9 , 1 992 have pre s cribed:

F ur the rmore , the petitioner s did not submit any e vidence t o sub s t antiate their claims for refund of taxes withheld on i nte re s t in come from money placement s (P5 4 , 4 3 3 . 8 4) and s avings deposits <P7 1,3 4 3.20), neither did the audit re por t pr ovide for such finding.

Hen ce, the same are e x c l ude d fr om the Cour t's computation.

In view thereof, the Cour t h as computed the refund to be awarded in favor of pe t i tioners the following amount s:

PCIBank Trust Department Summ ary of Differences in Final Withholding Taxes on Treasury Bi I Is For the Period January 1989 to Apri I 1992 Name of Retirement Fund 1 .

ABS-CBN oadcasting Corp. P 2.

ACD, Inc.

3 .

AI legro Mlcrosystems P hi Is., Inc. 4.

A von Products Mf g ., Inc. 5.

Banque National de P aris 6 .

Boehringer Mannheim Phi Is., Inc.

7 .

Calumpit Institute, Inc. 8.

Col g ate-P almolive Phi Is., Inc. 9.

Engineering & Construction Corp. of Asia

10. F .E. Zuel I ig Group of Companies 11.

First Brands Phi Is., Inc.

12. I nterph i I Laboratories, Inc.

13. Kni ghts of Columbus Fraternal Assn. Per Audit Per Court's F 17' 641.95 p 1 7,641 .95 2.,432.87 34' 878. 19 /"1,635.91 30,817.56 9,339.63 3, 053.17 118,479.03 34,668.89 01,533.27 28,.1}69.00 7!5,4•+1.91 2'1 '346. 84 2,432.87 34,878.19 38,684.36 30,81 7.56 9,339 .63 2,040.76 79,853.90 1 8,882.49 82,970.94 28,469.00 60,644.71 9,375.85 DECISION - C.T.A.

C ASE NO.

4857 - 1 0 - 14.

Metro Kidapawan Water District

15. M 0 F Company

16. National Steel Corporation

17. Oriental Tin Can

18. PCI Automation Center, Inc.

- Gratuity

19. PC I Automat ion Center, Inc. - Provident

20. PCIBank - Gratuity

21. PCIBank - Provident ...

. !',,

22. PMI Col leges - Bohol

23. PM Col leges - Mani Ia 24.

Ph I ippine Business for Social Progress 25.

Ph I. Commercial Credit Card, Inc.

26. Ph I ippine Electric Corporation 27.

Ph I ippine Phosphate Ferti I izer Corp. 28.

Ph I ippine Institute of CPAs

29. Ph I ippine Pyrite Corporation

30. Rustan Commercial Corporation

31. Superior Gas & Equipment Co., Inc.

32. Union Carbide Phi Is.

33. Wirerope Corporation of the Phi I ippines 34.

The Zuel I ig Group of Companies

35. Eastern Telecommunications, Inc.

17,238.58 8,756.37 372, 113.12 14,015.33 12,455.12 4,154.07 1 , 1 06, 243. 03 566,981.87 7,356.77 20,837.02 4,786.90 12,997.27 48,439.18 21,758."14 16,419.05 6,343.28 44,295.32 7, 'j 11.29 6,362.05 15,271.79 27,704.79 __ "l_;_Q 78 . 90 15,205.92 8,756.37 213,088.87 9,375.38 12,455.12 4,154.07 857,376.48 7,356.77 18,289.81 4,786.90 12,363.26 48,439.18 21,758.74 16,419.05 6,343.28 44,295.32 5,339.58 6,362.05 15,271.79 24,939.93 1 378.90 P2,886,559.86 P1,769,788.98

WHEREFORE , prem i s es cons idered, the petition is

P ARTI ALLY

GR ANTED.

R es pondent is hereby ORDERED to REFUND i n fav or of petiti on ers the s pecific amounts above- e n um erat ed or a t otal of P 1 , 7 6 9 , 788.98, repres enting erron eous l y w ithheld 2 0% final tax on the income earned by t he vari ous trust fun ds from the purchas e of treas ury and C e ntral Ba n k bi lis by t he i r trustee, herein represented by P C I B.

No pron ouncement as to costs.

WE CONCUR:

QQ.Q ERNESTO D. ACOSTA CERTIFICATION I hereby certify that this decision was reached after due consultation with the members of the Court of Tax Appeals in accordance with Section 13, Article VIII of the Constitution.

Q...;c Q, (2 ERNESTO D.

ACOSTA Pr-esiding Judge Court of Tax Appeals