Republic of the Philippines Court of Tax Appeals (Jljezon C I Tv Semirara Employees' Coal Corporation Retirement Funo Represented by Its Trustee, the International Corporate Bank-Trusr Division vs. Commissioner of Internal Revenue, Hespondent. C.L.A. Case No. 4886 Prooc~Qot3d19sa ~·) ~- ----------------" -.. ··- / X - - - - - - - - - - - - - - - - - - - - - X

DECISION

lhls Is a claim for the refund of final withholding taxes In the amount of P898,191.72 alleged to have been erroneously deducted and withheld by the Central Bank of the Phi I lpplnes and remitted to the Bureau of Internal Revenue (BIR) In connection with Petitioner's purchases of government securities and/or Income/yield earned from bank deposits from January 1, 1989 until June 30, 1992. Petitioner Is an employees' trust set up by Its employer, Semlrara Coal Corporation (Semlrara for short), for the exclusive benefit of Its employees to provide t hem r e t I rem en t pens i on , d I sa b I I i t y an ct de at h t1 en t~ f I t s .

1101 DECISION C.T.A. CASE NO. 4886 - 2 - The retirement benefit plan, otherwise known as the Hsemlrara Coal Corporation Employees Retirement Plan", establ lshed by Semlrara for Its employees have been approved by the BIR as a reasonable retirement benefit plan within the contemplation of Section 28Cb)(7)(A) of the National Internal Revenue Code (NIRC) (Exh. C, p.

202, CTA l'ec. ) .

It Is administered by its trustee, The International Corporate Bank, Inc. (Interbank> - Trust Division, with offices at 111 Paseo de Roxas, Makatl, Metro Man I Ia, pursuant to the Trust Agreement entered Into by Semirara and Interbank on June 16, 1989 <Exh. A, pp. 184-102, CTA r·eo.). [Admitted In the Answer, p. 32, CTA reo.]. P e t I t I o n e r· , thru Its trustee, maintained savings deposit accounts and made Investments In Treasury Bl I Is and CB Bl I Is for the period January 1, 1989 up to June 30.

1992.

It earned Interest Income from savings deposits and Income from money market placements and treasury bi I Is for the said period.

A final tax of 20% was withheld by the Centr·al Bank on the interest earned from government securities and by Interbank from Interest earned on savings deposits.

For the period 1989 to June 1992, a total of P898, 191i72 was withheld, computed as f 0 I I ows I 110~~ DECISION C.T.A. CASE NO. 4886 -~ 3 - Jan. -June 1989 1990. 1991 1992. TOTAL Savings P 94.42 P 573.89 P 88.87 P 7.22 P 764.40 T Bills 39,554.25 202,509.73 353,132.50 258,765.39 853,961.87 CB Bilis 9.00 | 0.00 41,361.74 = 2,103.71 43,465.45 TOTAL P39,648.67 P203,083.62 P394,583.11 P260, 876.32 P898,191.72 recuerdo -gccerncnn reaps asonenaepasenasersarcov> oot nner attr nese ta A SNS ee Teeter ee ee On December 5, 1991, the interbank, Trust & Investment Services Division, as trustee of various retirement funds, filed a written claim for refund with y the respondent involving taxes withheld from Interest earned on government securities and savings deposits made for the account of its various trustor, from the period January 1, 1989 to September 30, 1991, in the total amount of P5,208,892.10 (Exh. D, pp. 204-216, CTA rec.). Out of the total amount clalmed for refund, P528 ,965,.46 represents the taxes withheld from Semirara, computed = as follows: (see Schedule attached to Exh. D, p 206, CTA rec.)

1989 1990 1991 Jan.-Dec. Jan.-Dec. Jan.-Sept. TOTAL CB/BILLS 0.00 0.00 2,764.40 2,764.40 SAVINGS 94.42 573.89 83.63 751.94 T/BILLS 39,554.25 202,509.73 283,385.14 525,449.12 39,648.67 203,083,62 286,233.17 528,965.46 On August 21, 1992, Interbank filed another written claim for refund of the taxes allegediy illegally and/or erroneously withheld from the income of the various retirement fund. (Exh. E, pp. 217-230, CTA reca.). Thus 1103 lH:i.:ISIOII

c. r.t~. Gf\~;t: rw. 4llUt3 - 4 - for the period October 1, 1991 to June 30, 1992, an amount equivalent to the sum of P369,226.26, was withheld from Semirara, broken down as ·followss (see Schodul,~ attaclu~d to Exh. 1':. p. f:24, CTA rae.) . T/BILLS CB/BILLS SAVINGS . , 991 Oct. -Dec:.

69,147 .. 36 38,59?.34 5.24 19fl2 Jan.-dune 2!JH, 7E35. ao 2,103.71 fOTAL 328,512.75 40,701.05 12.46 PetItioner· invokes the provisjons ul Aepubl lo Aot No. 4917 In r-t:Jiation t•J Section f'i~i(b) of the NIHC.

It also rei led on the Decision of the Supreme Court En Bane In the case nf Commls!loner or Internal Revenue vs.

lhe Hon.

Appeals, The t;ourt of rax Appeals, GCL Retirement Plen, r~epresented by its l'rustee-Oirector, G.R. No. 95022.. March 2.3, 1992, where It was held: "It Is evident that tax-exemption Is I I k e w i a e t o be ~Hl J o y ~ d b v t h e i n o c)!n e o 1' t h e pension trust.

Otherwise, taxation of those eArnings would result in a diminution of aooumul~ted Income and reduce whatever the trust lH~ner i c i ar 1 es worJ I cl rece I vf':

out of the trust fund.

This would run atnul of the very 1 n t e n d me n t o f t t1 ~l l a w • •• BespondfHlt did rtf)t act on said olaims for r-efund.

Hence, thIs appea I.

110 i}

DEC EE LOR

, er various CASE MO, 4826 During the course of the trial, petitioner offered documentary evidence for the purpose establishing entittemert to the refund claimed.

ares 3.

The Trust Agreement between Semirara Coal Corp. and interbank, dated June 16. igeg f{Exh, Ad;

Semirara Coal Corp. Retirement Plan Rules and Heguiations (Exh. 8), Letter of the BIR, dated March 13, 1991, addressed to Far East Bank and Trust COMPAny, stating that the Semirara Coal Cerp, Retirement Plan qualities as a reasonable retirement plan under Sec.

28(b) (7?) (ad of the NIHG (Exh. CO);

Clatm for refund of Interbank, dated Decamber 2, 1991. In behalf of fits various trusters among which jnefudes petitioner for the peried January 1, 1989 to SerlLember GO, 1991 (Exh. BD);

Clatm for refund of Interbank, dated August 20, 1992, in behalf of its various trustors, inctuding petitioner, covering the pertod October 1, 1991 to June 30, 1ee2 (Exh. EF);

Confirmat fons ot Sale ehowling the amount of tax withheld from Treasury Bille purchased (Exhs. H te H-20, tnelustve);

Gertifications fissued by the Ceantral Bank on February 27, 1990 (Exhs. 1, I-14, [-2), February 26, Moo CExh. [-3), Apr | 8, 1991 (Exhs. J, J-1 to J-9, Enetuslt va, and Exh. J-10), February 20, 1992 fExhs. K, K- 1 to K-10, Inclusive, and Exh, K-11), September 10. 1992 (Exh. i), and September 9, 1992 (Exh. L-t);

1105 of These

DECUS TON

G.T.A. (ASE NO. 4886 10.

11.

- & ~ Monthly Remittance Returns of Income Taxes Withheld by the Central Bank from January 1989 to June 1992 (Exhs. L-1 to L-55, inclusive);

Quarterty Returns of Tax Withheld on fnterest Paid on Time and Savings Deposits (BIR Form 1745) filed by interbank for the four (4) quarters of 1990 (Exhs. M, N, OQ and FP), 19891 (Exhs. R, S, T and ¥Y) and for the first two quarters of 1992 (Exhs. W and Kd;

Annual Returns of final Income Taxes Withheld on interest Paid on Deposits and Yield on -Deaposlt Substitutes/Trust/ete.

(BIR Form No. 1745-A) for the years 1990 {Exh. @), and 1991 (Exh. Vi; and BIR Paywent Orders and CB Confirmation Receipts of Inter bank te shaw payments made oorresponding tu the taxes withheld In Wo. 8 above (Exhs. M-1, M-2, N-1, N-2, O-1, O-2, Pet, P-2, A-1t, BeZ, S-t. S-2, T- tend T-2). Note: Payments made for the fourth quarter of 1991, first and second quarters of 1992 are atjready machine validated as shawn in the guarterty returns.

Respondent, on the other hand, chose not to present any Instead, reapondent submitted the case tor deciston, evidence to controvert the cilatm for refund.

Sans any memorandum, on the basts of the pleadings and records of the cage.

The petitioner only f[ssue to be resolved ts: Whether or is antitied to the retund = of PROS, 101 representing the final withhoiding taxes on 1106 not the ()f:C IS l ON G.f.~. GASE NO. 4006 - 7 - lncometlntere~t from Investments In government securities and bank deposits.

This onan Is not of first Impression as held In the case of Commissioner of Internal Revenue vs. The Hon.

Court of 1\pfH~a Is, The Court of Tax Appeals, GGl.

Ret I r·ernerrt Plan, Its lrustee-Director, G.R. 95022, Maret! 23, 1992, pertinent portion of which reads as follow·~= "lo begin v.ith, it Is slynil icant to note that BCI..

Plan was qualified as exempt from Income tax ly~:

the CommissIoner· of Interns I Revenue In accordance wltll Rep. Act. No.

4917' e p p r o v •s •J on 1 7 .J u n e 1 9 f.H • l h I s 1 ow speclflcal ly provided: "SECTION 1.

I ew t.~ ...... _.~"t~'?:. g~~!!.!.!f:!!:Y __ ___!l.2_~y:.J ~~!~J:.~.r.!.~.1.r1.S!, th•~ r'etlrement benefltR received by c.l"f r i r:: in! 2 and !?HIP I oyees of pr I VElte firms, whether Individual or cnrporate, In accor-liance with a r~asonable prlv8te benefit plan ma !uta I ned by th~ emp I oyHr aha I I tte .~ .• ~.!'. !.'l.P.:L.!.!P~ ____ f!JJ.~-~.!.~- and s h a I I n o t be I inble to Attachment, levy or ~~?>l.tu!'e by or under any leQal or equitable process whatsoever except to pay a debt of the o·fficll!l or employee conr::erned to the PI'IVAte ~nneflt plan or that arlstnq from liability imposed In a (;r·imlnal nr.tton:"

l( " x <emphasis ours).

In so 'far as employees' trusts ere eone•!!t·ne~J, the 1'or.:•golng pro'Vislon should be t-afnH1.

In relation to then Seotion 56(b) <now l..'la[bl >·of the Tax (.;Ode. as am~nded by Rep. 1\nt N o .

1 ~H) 2· , !!.~E.!.:_f!. , w h I c ll t o o k e f f e c t o n 2 2 J u n e 1957, This proviglon speclflcal ly exempted 1107 DECISION C.T.A. CASE NO. 4886 -~- §8- employees’ trusts from Income tax and is repeated hereunder for emphasis:

"Sec, 56 Imposition of Tax. -

(a) Application of tax. - The taxes imposed by this Title upon individuals shall apply to the [Income ef estates or of any kind of property held in trust.

KER KXXK XXX

"Cbh) Exception, ~ The tar imposed by this Title eshatt not apply to employee's trust which formes part of a pension, stock bonus or profit- sharing pian of an emplover for the penefit of some oor all of his employees x x x" The tax-exemption privilege of employees’ trusts, as distinguished from any ather kind af property held in trust, springs from the foregoing provision. tt Is unambiquous. Manifest therefrom is that the tax taw has ainglied out employees’ trusts for tax exemption.

And rightly so, by virtue of the raison d'etre behind the ereation of employees’ trustle, Employees’ trusts oor benefit nolans normally provide economic assistance to anployees upon the occurrence of certain contingencies, particularty, old age retirement, death, sickness, or disabltity. it Provides security against hazards to whieh members ef the Plan may be exposed, tt is oan independent and additienal source of protaction for the working group. What is more, it is established for their exclusive benefit and tor na other purpose, The tax advantage in Rep. Act. Ne, 1983, Sagtion 5OCb), Was conue) yer in onder to encourage the formation and establishment of such private plans for the benefit of fayorers and employees outside of the Sacial Security Aet. -Entighteninog is a portion of the 1106 DECISION C.T.A. CASE NO. 4866 - 9 - explanatory note to H.B.

1983, reading:

No. 6503, now R.A.

"Considering that under Section 17 of the Soc I a I SecurIty Act, a II contributions collected and payments of sickness, unemployment, retirement, dlsebl I lty and death benefIts made ther·eunder !.9Jl.!!th~~ ~l.!l!_~t ~.!__1_!.!.9 o '!!.~--~.!.-t h e __ £~!' s i on t r· u s t are exempt from any tax, assessment, f'ee, or· ohar'ge, It Is Pl'oposed that, a similar system providing for retirement, etc.

benefits for employees outside the Soolal Security Act be exempted from 111come taxes."

<Congressional Record, House of Rep I' e sent at I v e , V o I • I V , P a r t .

2 , No .

5-;, p.

11:369, May 3, 1957t cited In CommIssIoner of I uter-rra I Revenue vs.

Visay11n Electrl<.~ Co., et. al., No.

L-22611;

27 May 1966, 23 7·15); lUnderscor-ing supplied). G. H.

SCRA It is evident that tax-exemption Is I lkewlse to be enjoyed by the income of the pens I on tr'Ust.

Other·w I se, tax at I on of those earnings would result In a diminution of accumulAted Income and reduce whatever the trust beneficiaries would receive out of the trust fund.

This would run afoul of the very Intendment of the law. The deletion In Pres.

Decree No. 1959 of the provisos regarding tax exemption and preferential tax rates under the old law, therefore, cannot be deemed to extend to employees' trusts.

Said Decree, being a general law, cannot t'epeal by Implication a speclflo pr-ovision, Section 56(b) (now 53[b]) In relation to Rep.

Act No.

4917 granting exemption fr-om Income tax to employees' trusts. Rep. Act 1983, which excluded employees' trusts In its Section 56(b) was effective on 22 June 195-t wll i I~ Rep.

Aot No. 4917 was enacted on 17 June HHH, I ong befor'e the I ssuanoe of Pres.

Dec r- e e No .

1 9 59 on 1 5 0 c t o be I' 1 9 8 4 .

A subsequent statute, genera I In character as to Its tP.rtns and application, Is not to be ll.OS I DECISION C.T.A. CASE NO. 4886 - 10 - construed as repeal lng a special or specific enactmeht, unless the legislative purpose to do so Is manifested.

This Is so even If the provisions of the latter are sufficiently comprehensive to Include what was set forth In the special act CVI I legas vs. Subldo, G.R. No.

L-31711, ~~0 September 1971, 41 SCRA 190). Notably, too, all the tax provisions herein treated come under lltle I I of the lax Code on "l11come fax."

Section 2"1(d), as amended by nep.

Aot No.

1959, refers to the final tax on IndividuAls and falls under Chapter I I; Section ~4Cao) to the final tax on oorp(H'Rt i otlR under Chapter I I 1;

Sect I on 53 on withholding of final ta.x to Returns and t>ayment of Tax unrJer· Cl1apter VI:

and Seot I on 56< b) to t a x o n E s t at e s a n d T r· u s t s cove red by u hap t e r VII.

Seotlon 56(b). taken In conjunction with Sect I ~1n 56< a), !.!!2.!:!• exp I I o It I y exo I udes employees' trusts from "the tAxes Imposed by this fltle."

Since the rlnal tax and the withholding thereof are embraced within the title on "Income Tax" It fol tows that said trust must be deemed exempt thet·eft'om.

Otherwise, the exception becomes meaningless. fiii'H'a can be no denying· either that the final withholding tax Is collected fr·om .L!!_~~-~.1!!!!.

In respect of which employees' trusts are cleclar tH! exempt (Sec. [1€\[bJ), (now 53[bJ, Tax Code).

The appl lcatlon of the withholding system io Interest on bank deposits or yield from deposit substitutes Is easentlal ly to maximizE' E~nd expedite the collection of .!._1)_~9-1!!.~ ta~es by re~ulrlng its payments at the source.

If an employee' trust I Ike the GCL enjoys a ta~-exernpt status from Income, we see no logic i n w I t h h o I d I n g a c ~H· t a I n per· c e n t a !J e of t h a t Income which It Is not supposed to pay In the flr·st place.

Petitioner ai&P rei les on Revenue Memorandum Circular 31-64, dated 30 October 1 9 8 4 , ~ IHI B u r e a u of I r t e r n a I A eve n u e R u I I n g No . 027-e···OD0-00-005-85, dated 14 .. January 1985, as authorities for the argument that Pres. Decree No.

195H wlthdt·ew the exemption of employees' t1·usts fr<.om the withholding of the final tax on 111(J DECISION C.T.A. CASE NO. 4886 - 11 - Interest income.

Said Circular and

Ruling

pronounced that the deletion of the exempting and preferential tax treatment provisions by Pres.

Decree No.

1959 Is clear manifestation that the single 15% tax rate is lmposable on a I I I n t e r· e s t I nco me r ega r' d I e s s o ·f t he t a x 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 enjoyed by employees' trusts, reliance on those authorities Is now misplaced."

We do not Intend to depart from the wisdom of the above-mentioned decision on the legal question of whether or not an employees trust, qual If led by the BIR as a reasonable retirement benefit plan, Is ~xflmpt from taxation.

HowBver, with respect to the faotual issue of whether or not petitioner' has pr-oven Its entltlelltent to the amount olalmed Is another' question st I I I to be resolved.

In t 11e recent case of Interbank Employees' Retirement Plan, r·epresented by Its Trustee, The International Corporate Bank Trust Ofvlslon vs.

Commls~loner of Internal Revenue, CTA Case No. 4881, duly 30, 1996, this Court has ruled that pursuant to Sections 50 and 51 of the NIRC In relation with Section 2 of Revenue Regulations No. 3-85, further amending Section 5 of Revenue Regulations No.

23-84, "t lle r·et ut'n and remittance of final taxes wtthheld on Income derived from bank deposits and yield from deposit substitutes should ··1111 DECISION (.f.A. CASE NO. 4886 -~ 42 - be filed within twenty-five (25) days from the ctose of each calendar quarter". {p. 13, Decision CTA Gase No. 4881), Stoee the petition in this case was Filed on December ff, $992, alt claims for refund for the year 1989 up te the third yoarter of 1990 have prescribed. What remains to be determined fs the remaining balance of the amount clatmecd which have not yet prescribed. Was petitioner able te substantiate fits claim for tefundt The individual trustors managed by interbank specifically showed thelr account numbers in the t attachment to Interbank ’s claims for refund filed oan December f, 1991 (Exh. D) and August 21, 1992 (Exh. E). Thus, it can be pinpeinted for whose account the taxes were withteid, A careful review of the ayidence presented by petitioner fully cenvineed thie Court that petitioner has establisned its right to the refund of P8256 ,086.55, broken down as follows:

Period IBitis CB Bilis Savings total 4th utr, 1990 Pi6e,U5g.23° P - P574.89 F169,627.12 Jan,-Sept, 1991 283,384. 14 2,764.40 83.63 286,233.17 Oct.-Lec. 1994 69,747.36 38,597.34 5.24 108,349.94 wo * (gee fp. 215, GTA resoards) ~ Lile MEGISTGN » FLA. CASE NO. 4886

WHEREFORE, in att the foregoing, respondent is hereby ORDERED to REFUND In favor of the netitioner the amount oof Fees OBB LAS, repreeonting erraneousty and/or fitedailv withheld fina! taxes fram {te inoome on governnent securities investments and interests on savings deposits from the tourth quarter of 1936 to June 1c hy nanon QO, DE VE Associate Jug 30, i992.

SO UNDERED.

1 CONCUR:

qos 0 (QO ERNESTO D. ACOSTA Presiding Judde CleR TPF §cACr bon { here oertify that this decision was reached after due censutltationr with the member of the Court of Tax Appeals in aceordance with Seetion 12, Artiete Vill Cue Aw ERNESTO D. ACOSTA Freefding oudae Court of Tax Appeals of the Crretitutioan.

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