CTA Case No. 5415 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY BANK OF COMMERCE, Petitionet~, C.T.A. CASE NO. 5415 COMMISSIONER OF PAPitW1900~ INTERNAL REVENUE, Respondent. ------------------ ~ X -- - DECISION The case before Us presents another occasion for reaffirming what has been elaborately discussed and repeatedly ruled upon in a number of cases. This case involves a claim for refund or issuance of tax credit certificate representing gross receipts taxes alleged to have been paid erroneously by petitioner for the years 1994 and 1995 in the total amount of EIGHT HUNDRED FIFTY THREE THOUSAND EIGHT HUNDRED FORTY H.JO PESOS CP853,842.00). The antecedent facts of this case are not disputed. Petitioner is a banking institution duly organized and existing by virtue of the laws of the Philippines, with principal office located at S764 Ayala Ave., Ma~u:,~.t i City. In the years 1994 and 1995, petitioner allegedly earned/derived passive income in the form of interest or discount from its investments in government securities

DECISION - C.T.A. CASE NO. 5415 2 (sue~ as treasury bills/notes) as well as from private commercial papers. Records show that the petitioner paid on different occasions from the period 1994 and 1995, the <:l.mount representing the receipts tax on income earned/derived during the taxable year 1994 and 1995, as evidenced by its Quarterly Percentage Tax Returns <Exhs. "A" to "I"), inclusive. Far~ the taxable year��s in this case, petitioner paid the 5~ tax on the reported gross receipts as r~efl ect ed in the aforementioned Quarterly Percentage Tax Returns which allegedly included its gross receipts fr~om passive investments amounting to P85~384,254.51. This amount according to the petitioner, had al t'eady been subjected to 20~ final tax. On July 19, 1996, petitioner~ flied an administr~ative claim for refund with the respondent Commissioner for its alleged overpaid gross receipts tax covering the years 1994 and 1995 <Exhibit " L " ) i n t h e a g g t' e gat e am o u n t of P853,842.00 computed as follows: Gross receipts subjected to P85,384,254.51 Final Tax Derived from Passive Investment x c::o~ 20~ Final Tax Withheld at Source P17,070,850.90 X 5~ p 85.3,842.54

DECISION - C.T.A. CASE NO. 5415 3 On its claim for refund, petitioner relied heavily on the decision rendered by this Court in the case of Asian Bank Corporation vs. Commissioner of Internal Revenue, CTA Case No. 4720, January 30, 1996, where We categorically ruled that the 20% final tax on interest income withheld from the bank should not form part of its taxable gross receipts for Gross Receipts Tax <GRT) purposes. Without waiting for the decision of the Commissioner of Internal Revenue on the formal claim for refund and/or issuance of tax credit certificates, petitioner filed the instant petition for review before this Court lest it be barred by the mandatory two-year prescriptive period under Section 230 of the Tax Code (now Section 229 of the Tax Reform Act of 1997). Respondent, unable to file his Answer to the petition for review on time due to extremely heavy pressure of work and the exorbitant assiduity of its counsel in attending to other cases of equal importance, filed a motion for extension of time to file Answer. This Court granted the motion and allowed a fifteen-day extension for the respondent to file his Answer to the Petition far Review. On August 26, 1996, the respondent filed his Answer and maintained the following pro-forma Special and Affirmative Defenses:

DECISION - C.T.A. CASE NO. 5415 4- 4) Petitioner's c'aim for tax refund/credit is still undergoing administrative routinary investigation/ examination by respondent's Bureau; 5) The alleged refundable/creditable gross receipts ta~es were collected and paid pursuant to law and pertinent BIR implementing rules and regulations , hence, the same are not refundable. Petitioner must prove that the income from which the refundable/creditable taxes were paid from, were declared and included in its gross income during the taxable year under review; 6) Petitioner's allegation that it erroneously and excessively paid its gross receipt tax during the year under re vi ew does not ipso facto warrant the refund/credit. Petitioner must prove that the exclusions claimed by it from its gross receipts must be an allowable exclusion under the Tax Code and its pertinent implementing Rules and Regulations. Mor��eover~, i t must be suppm~ted by evidence; 7) Petitioner must likewise prove that the alleged refundable/creditable gross receipt taxes were neither automatically applied as tax ct~ed it ag,.'li nst its tax 1 iabi J. it y fo1�~ the succeeding quarter/s of the succeeding year nor included as creditable taxes declared and applied to the succeeding taxable year/s; 8) Claims for tax refund/credit are construed in strictissimi juris against the taxpayer as it partakes the nature of an exemption from tax and it is incumbent upon the petitioner to prove that it is entitled thereto under the law. Failure on the part of the petitioner to prove the same is fatal to its claim for tax refund/credit; 9) Ftwther'm Dl�'e, petitioner' must pr'O v e that it has complied with the provision of Section 230 (now Section 229) of the Tax Code, as amended.

DECISION -� C.T.A. CASE NO. 5415 - 5- On the other hand, to further prove its entitlement to a pet it ionet~, assiduously presented the following evidence: 1) Quarterly Percentage Tax Return for the period 1994 to 1995 <E><hs. "A" to "I", inclusive}; 2) Summary of Tax Paid Income for the taxable year 199'1�/1995 <Exhs. "J" and ''K"); 3) Pot~tion of Exhibit "J" showing the amo,.tnt of P49,221,901.31 and P9,944,360.26 to prove l;he amount of 20~ final tax that ~as withheld fr~om petitioner's passive income for the year 199LJ� <Exhs. "J-1. ", "J-2") 4) Por~tion of Exhibit "K" showing the amount of P36, 162,453.20 and P7,232,490.64 to prove the amount of 20~ final tax withheld fr~om petitioner's passive income for the year 1995 <Exhs. '' f\-1", "K-2"); 5) Name and Si gnat u1�~e o f Ms. Mat~issa F o w~ n i e t~ and Ms. Socor~r~o L. Abesamis to v e p1�~o the authenticity ancl dl.te execution of E"xhibits J ~1 If and uKn <Exhs. !IJ-311, "J-4", ffK-3u, "K-�.!J") ij 6) Letter-claim for refund filed by the petitioner with the BIR on July 19, 1996 <Exh. "L"); 7) Copies of vaYious debit and credit advices and certificates of Final Income -ax Withheld issued by the BSP to the petitioner for the year~ 1995 <Exhs. "M" to "BB", inclusive); 8) Copies of various debit and credit advices and certificates of Final Income Tax Withheld iss0ed by the BSP to the petitioner for the year~ 1994 (Exhs. "B", "C" to "FF", inclusive); 9) An annualized summary cons~sting of 7 pages (each) the actual computation per books CHead Office) of the gross ircome declared by petitioner in 1994 and 1995 for GRT purposes <Exhs. "J" and "KK"); 10) Name and Signature of Ms. Mar~ is sa F o ur~n i e1�~ to prove the due execution and authenticity of

DECISION - C.T.A. CASE NO. 5415 - 6- exhibits "JJ" and "KJ<" CExhs. ''JJ-1" and ''KI-<- 1") ; and 11) Bt~acketed pot~tion of Exhibit "JJ" showing in detail the tax paid interest .ncome of petitioner for 1994 and 1995 with reference to Specific GL. Codes (Exhs. "JJ-2", "KK-2" a n C:: "KI-<-3 ") . All the aforementioned evidence were included in the petitioner's Formal Offer of Evidence, clat ed Apt' i 1 1998, to whic'r the r~espondent, way of comment, respectfully stated that he has nc objection to their admissions , without however, necessarily admitting their relevancy, materiality and probative value for which the exhibits were offered in evidence. This case was, submitted for decision sans the memoranda of ~oth parties. The vortex of the controversy , legal and factual, posed for consideration by this Court are: W'rether or not the Final Income Tax Withheld forms part of the gross receipts of the taxpayer fo~ GRT s e s ; pi..n~po 2) Whether or not petitioner is entitled t o a refund of P853,842.00. Petitioner contends that its " gt'oss r-eceipts ", for' purposes of computing the gross receipts tax, should exclude the 20% final withholding tax. This is pi�~ed i cat eel upon t h e t~ �.ll i n 9 o ,.. this Cou 1�' L in afor��ecitec:l CC:lSe of Asian Bank Corporation vs.

DECISION - C.T.A. CASE NO. 5415 - 7- Commissioner o f Intern al Reve nu e where We emphatically t'td.ed, thus: X X X " We agr-ee w.i.th the petit ionet' that the 201- final withholding tax on its interest income should no form part t'eceipts. of its taxable gross Revenue Re g ulations No. 12-80, dated November 7, 1980, on taxation of Certain Income Derived from Banking Activities provides that the rates of tax to be imposed on the ~russ receipts of such financ~al institutions shall be based on all items of income actually t'eceived; thus: "SEC. 4. XXX XXX XXX (e) Gi�'oss i'eceipts o�r' tax on banks, non-bank financial intermediaries not performing quasi- banking activities, the rates of taxes to be imposed an the gross recei Jts of such financial 1nstitutians shall be based on all items of income actuallv received. Mere accrual shall not be considered , btd, once payments is r�eceived on such accrual or in cases of prepayments, then the amount actually received shall be included in the tax base of such financial institutions , as provided hereunder. <Underscoring supplied) Ft'OiR the fot'egoing, it is but lag:.cal to 1. n f e t' t hat t he f i n a l t ax , n o t h a v i n g be en received by the petitioner but instead went t o the coffers of the government, should no longer form part of its gross receipts for the purpose of computing the GRT . This conclusion is in accord with the interpretation of the Supreme Court in the case entitled Collector of I'ltet'nal Reven 1.,e vs .. Manila Jockey Club, 10B Ph~L 8E~1, as q ..wted by this Caur"'t in disposir.g similar issue in the case entitled Campania Maritima vs. Acting Commissioner of Internal

D':CISION - C.T.A. CASE NO. 5415 8 �- . Revenue~ CTA Case No. 1426~ dated November !. ''+, 1966, thus: "In the second place, the highest tribunal of the land inter~pr~eted the ter~m "cwoss r~eceipts" to mean all receipts of a taxpayer excluding ~hose which have been especial:v earmarked by law or regulation for the g overnment or some person other than that of the tax pa yer. <Underlining Ours) x x x. The gover~nment could not have meant to tax as gross receipt of the Manila Jockey Club the ~ % which it directs same club tc turn over to the Boar��d of Investment. The latter~ being a government institution, there would be double taxation which should be L(J'l~.:ider�ec! �.mless the sta:;ute admits of no other interpretation. XXX "Needless to say, g1�~oss r��eceipts of the proprietor of the amusement place should not include any money which although delivered to the amusement place has been earmarked by law or regulation for some person other~ than the pr�opr~ietor��. " <The Commissioner of Internal Revenue vs. Manila Jockey Cl�Jb, Inc. G. R. Nos. L- 13890 and L-13887, June 30~ 1960). On the basis of the above rul~ng , petitioner submits that inasmuch as included in its gt'O S S r��ece i pt s f01�~ the yeat~s 1994� and 1995 the r~nal tax withheld its passive income which �J d it.' n t .�~ ] ,\, actually receive having been earmarked as taxes to the go v e r~n men t, thus~ it is entitled to a ref~nd or issJance of tax credit certificates. Traversing petitioner's contentions, the ~~espondent, in i�; is memo~�andum, posits the view that while it

DECISION -- C.T.A. CASE NO. 5415 -9 that whU.t:~ the Supr'eme Cour't defined ''g;-~oss r-�eceipts" as "all t~eceipt�:. of taxpaye1�~s excluding those which have Leen especially earmarked by law or regulation for the gove~~nment or�' some pel�'son ethel�~ than the taxpayer'", it should be noted that said definition was applied on:y with reference to the gross receipts of a proprietor of an amusement place and not to a banking instil:;ution such as the petitioner in this case. Respondent avers that a ban!..:ing institution entir�ely distinct ft-�om an amusement place and as such this Court's ruling in the Manila Jockey Club case is not applicable to the case at We cannot agree with the respondent. Whi].e it is tr-�ue that the Manila Jockey Club case involves gross receipts of amusement places, it is not plausible to assume that the same ruling does not apply to banking institutions such as the petitioner in this case. It must be observed that the legitimate concern of thi.s CoUJ�'t in the case at bar is to resolve whether or not f.inal income tax withheld by the withholding agent which has already been paid should still be included in the bank's gross receipts for GRT purposes. Respondent concluded with its sweeping pontifi.cations that it would make a difference if the petitioner is an amusement place instead of a banking institution.

DEc:s:::oN -� C.T.A. CASE ~0. 541~ -- 10 �- These statements strike us as both presJm~tuoJs and :i.n nat u'���e of a pet. it .i o preci p.i i, co uc'�1 ed in generalities and short of any supporting evidence to boost their verity. The tet'm "g�'oss t'ece~pts", 'lO matte' how and when ~t is applied shall be defined, absent any decision of the Supreme Court interpreting the same those which have been especially earmarked by regJ:ation for the government or some other person other than the taxpayer. While it is tt'Ue that the interpretation of a statute Ly the courts ls not so sacrosanct ~s beyond modification ot' nullification, equally settled is l~he fact that, by statutot'Y fi<::~t, 1��uling~.; llf the co'..tr't of last resort applying or interpret:ng a statute become par~ of the statute itself. LEGIS INTERPRETRTO LEGIFl VJlrf O.BTINET. This Court therefore refuses to overthrow the long continued construction of the "gt�oss t'eceipts" enunciated in the case of Collector of Internal Revenue vs. Man:i.:.a. Jocke)' C~ub, 108 Ph.:.l. 821, as quoted ~y the Supreme Court in the case entitled Campania Maritima vs. Ac.ting ::::omrt is~,ioner� of Inter' na~ Revenue, CTA Case No . � --i-26' -~hat the t et'm " g Y' o s s t�� e c e i. p t s " s h a l l mean a II ,... , receipts of a taxpayer ex~lG~ing those which have ~een especially earmarked by law or regulation for the

DECISION - C.T. ~ . CASE NO. 5415 - 11 - g o'.ter-�nment or~ some per'son othet' than the T h�_. s , we reiterate that the 20~ final wi t hholding tax no lon ~ er of the 9 ross r eceipts for purposes oF t~e grass rece i ts tax. <China Ban king Corporatio n vs. Commissioner of Internal Reve nu e, CTA Case No. 5433, October 7, 1998; Equ i table Ban king Co rporation v s. Co mmissio n e r of Internal Reve n ue , CTA Case No. 4720, January 30, 1996) A Fter ~ettin d ~he le gal issue invol~ed we are now tasked to resolve based on the ev"derce adduced , whether or not the petitioner is entitled to a refund of the amount o f PB53, 842.00 representing gross r'ece:i.pts taxes alle ~ ed to hc;.ve been j:JC:�ici eiTOTH:. ou~,}.y by petitioner f or t~e t axable years 19S 4 and 1 9 95. this case and the evidence pr�eserted t'eveals l,l-�at t.' .e y r p e t i t i o n e r .:. s e n t i ~; 1 e d on 1 t o a p �:.�. t' t i a l 1�' t? .J n d d mo u. ' 1 !; �i 1:::. to P355 , 258.99 as this represents the clai~ which was ~ iled wi t hi~ the two ( i~ ) year' mandat or'y per'iod o f evidence. This is pursuant to Section 204 ' 3) of the Nat~onal Internal Reven~e Code , which provides: "Sec. 204. Ruthority of the Com�issioner to compromise, abate, and t'efund/ct'edit taxes. The Commissioner ma y ~ x < x ( 7 '. Credit or re f u.nu ~axes errone~0sly Dr '-'' il:e g a:!.:y r' e c e i v e cJ , t-J e n a l ~ :i. 1.:. ~ i mp o s e c' w i t h o u t a u t h o r' ~ t y , t'e f �_tnd t:�1e value of inte�r'n.:.:l.] r'&Vl.:''l lt P

:'::C H:l I ON �- C.T.P. CASE NO. 5415 - 12 - stamps ~-.iher v�.t=y a.t'e l'etu.r�ned in good concL.t.i.on by the p�.lt'._ha,er'1 and, ~n :-i.::> ~Ji�;c:�'etion,1 re~eem or cha~ge Jnused stamps that tave been rendered unfit for use and refund their ~al~e upon p~oof Gf destruct~on. ~o credit or refund of taxes or ~enalties ':> I a ]. ' b E� a 1 l 0 WE' cl U fl ]. f.' S S t'1 e C.:"\ }( (.' <o\ ;J 8 i�� f .; ;, e '::> j n v~�-�.: �( ~.n g with ~;;e Commiss~.oner' a claim "'or� c;�. . ed ~ t Of" r~e �funci ~"'it hi n :., wo ( C: ~ y ~~a1��.. s <i ...-~ .:.~t- ' ~.i payment of the tax m' pena:tv." (Undt'r ~ .i.r . ~ '<L 0 i..~ (~ s) the above-q>.,oted provision, the claim for refund shall be f~led with~n the two �year ~eriod from the cime of pay:nent, other-wise, the same is deemed ba1�r�ec~ 0 y p r e s c r' :i f.J t i em � pe1��usal of the of th.i.s ca.se that the amount 18'.07 representin~ receipts taxes on the 2)% ~�na: Lax on income the and secorci of ::.9'34 (Cxhii::d.ts A and B) prescribed, the Quarterly qet~rns ~aving been ~iled with the .j l..(d i cia 1 claim ~or refund was filed only with t'te claim in t;he amount rece~pts tax paid on interes~ income due be dL,nied in absence of supporting documents such as pass boo:-<, bani-< statemt:.'nts or~ cer~t ifica.tes ta><es. 7~e petitioner also failed to present evidence that its b\��.:mch income subject t.: 0 na"' ;-" .1 amounLi'lg 1� .�

D':C ISION - L~ T .a. CASE NOM 5415 was .:.n i -1- �,;, � ua ~-t e r� l y T �..ts , paym<?ncs. o f P 13 , 0S8.) 5 represen~in WHEREFORE, ~0 ~iew uf all 'he fore~oin] 1 i '" '�1 e r' (~ :::> y ORDERED to REFUND in the amount of P3 55 1 ~::: 5 8. '3'3 v a :. i d 1 y �� r~ o v en en�� on eo us : y wi t h! 1t: l c: i nco me d e r' i v e d its investments in SO ORDERED. ~- Q. ~ ERNESTO D. ACOSTA Assoc~ate .. ( D ~s~;,ent.: 6 ) AMANCIO Q. SAGA As~ oc -~ dt &.- ,.htL 8 E.. CERTIFICATION ~ :�1er~eb y cet"'�~i f y t:��lat tf""le above decision wa~ ,... ea.c �1eC .::1ftet due con::;.Jltat ion wit '-1 t~�;t,, memo~;.: �s o f �'t 'le Cour~t uf ~ ax Ap eals in accordance wi�h Sectior 13 , nrt.:.c:e 1 9 : of t:1e Constitut ion. ~ lS), ~ ERNESTO D. ACOSTA

Base~ on Section 230 in relation to Section 1~5 of the Tax Co~e the fo:lov.;ill9 c:'.lllOIJnts ',::~ve p�tscr�ibed, to wit: Date of ClaiiTo ~'er�� RF.! L ur r, fOl"' Rc rd<lC 'c-x.'1. Am u �.<n t Da�\"; s> Filed BIR C~A 1st A P6,074?340.21 04.24.94 07 .19.96 ;)7. 3'. 9G �:::nd B 6,743,0L0.22 07.20.94 07.19.96 07.31.'J6

A~'NEX B Tota: A1ount Per Clai1 P853 1 842.55 ~ess: hdjushents P216 1 030.50 P3971 184. 07 ~� ~rescribed clai1 181, 153.57 :994 - 1st quat�ter (21 1 6031 049. 76 x 2~ l< S~l (Exh. '' J" l 2nd quarter (181 115,356.57 x 20J' K 5):) iExh. ''J'' l 2l Without support~ng documents 430.51 4, 759.34 a. Due fro� local banks - tax paid 3, n:.43 83,582.09 :994 - 3rd quarter (43, 050. 57 x 20~ x 5%) (Ex~. .,J''} 30,543.65 53,038.44 4th quat'ter (3771 142. 65 x 20~ x 5~) (EKh. ''J") 1995- (551 740.23 x 20~ X 5%) (Exh. "!{") b. ~nterbank Call Loans Receivable - tax ~aid 1994 - 3rd qua~ter (31 0541365. 16 x 20~ x 5%) (Exh. "J'' l 3) ~995 Bt�anch incote subject to Lna~ tax 13,058.05 498,583.56 included per� cla ~ 1 but was not included in :995 c;uartet'ly paylients ::,305,804. 7; x 20:� K SlCl (Exh. '''H''i TAX REFUNDABi..E ?355,258.99

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY BANK OF COMMERCE, Petitioner, -versus- C.T.A. CASE NO. 5415 COMMISSIONER OF INTERNAL REVENUE, Respondent. x-- -------------------------------------------------- -----x DISSENTING OPINION Majority of my esteemed colleagues decided to grant petitioner's claim for refund in the amount of P355,25 8.99 representing alleged overpaid gross receipts tax for the taxable years 1994 and 1995. I disagree with their conclusion and vote for the denial of the petition for review for lack of merit. Numerous cases with similar issues have already been decided by this Court which uphold the ruling enunciated in the case of Asian Bank Corporation vs. Commissioner oflnternal Revenue, CTA Case No. 4720, January 20, 1996. I humbly suggest that the aforecited Asian Bank ruling be re-examined and consequently abandoned for the following reasons: 1) Section 8(c) of Revenue Regulations No. 12-80 dated November 7, 1980, as amended by Section 7(c), Revenue Regulations No. 17-84 dated October 12, 1984, clearly provides: (jiJ

DlSSENTING OPINION - CTA CASE NO. 5415 PAG E2 "If the recipient of the above-mentioned items of income are financial institutions, the same shall be included as part of the tax base upon which the gross receipts tax is imposed." It can be concluded from the aforementioned provision that the taxable base for purposes of gross receipts tax is the gross-up amount, inclusive of the 20% final income tax withholding; 2) Contrary to the Asian Bank ruling, the High Court' s decision in the case of Commissioner of Internal Revenue vs. The Manila Jockey Club, Inc., 108 Phils. 821, June 30, 1960, which was reaffirmed by the said Court in the case of Visayan-Cebu Terminal Co., Inc. vs. Commissioner of Internal Revenue, 13 SCRA 357, February 27, 1965, cannot be considered as precedent cases, hence, inapplicable to the two cases decided by this Honorable Court in the cases of Compania Maritima vs. Acting Commissioner of Internal Revenue, CTA Case No. 1426 dated November 14, 1966 and Asian Bank Corporation vs. Commissioner of Internal Revenue, CTA Case No. 4720 dated January 30, 1996, for the following reasons: In the Manila Jockey Club, Inc. case, the Club was authorized to operate horse races in which betting was made through the sale of tickets to the public. The total amount of bets called "wager fund" were distributed pursuant to Executive Order No. 320 and Republic Act No. 309, as follows : 81h% as dividends to holders ofwinning tickets 12 1h% as "commissions" of the Manila Jockey Club, of which 1h % was assigned to the Board on Races and 5% was distributed as prizes for owners of winning horses and authorized bonus for jockeys.

DISSENTING OPINION- CTA CASE NO. 5415 PAGE3 According to the above-mentioned distribution of the "wager fund", the then Collector of Internal Revenue assessed the Club on the whole amount of its "commission" of 12 1h But since the Club had already paid the amusement tax based on its 7% share of the "commission", the amount assessable pertains only to the 5 1 2% / for the period from November 1946 to October 1950. On various instances, the Club protested the proposed assessments and was sustained by the opinions of the Secretary of Justice rendered on three different occasions (Opinion No. 345 , series of 1941 ; Opinion No. 249, series of 1952 and Opinion No. 340, series of 1955). Notwithstanding the opinions of the Secretary of Justice to the effect that the amount corresponding to the 5 1 2 was held only by the Club in trust for the owners of / winning horses and authorized bonuses of jockeys, the then Collector of Internal Revenue demanded payment of amusement taxes for the period November 1946 to October 1950. Said demand letter was timely appealed to the Court of Appeals wherein a unanimous judgment was obtained reversing the Collector's stand on the matter. In the High Court, the position of the Secretary of Justice was sustained thereby upholding the Court of Tax Appeals' decision. Accordingly, gross receipts of the proprietor of the amusement place should not include any money which, although delivered to the amusement place was "especially earmarked" by law or legal rule and regulations for some persons other than the proprietor. Undeniably, they are money received by the racing club but they are moneys earmarked by law or regulations for winning horse owners and jockeys and never for a minute become the property of the race track. The same is true in the case

DISSENTING OPINION - CTA CASE NO. 5415 PAG E 4 of the 1 2% which the law directs the club to deliver to the Board on Races. The High / Court therefore agrees with the stand of the Court of Tax Appeals that such funds representing 5 1 2% of the 12 1 2% "commissions" of the race track do not form part of / / the gross receipts, hence not subject to the amusement tax of 20%. The above-mentioned decision of the High Court was also applied in the case of Visayan Cebu Terminal Co., Inc. vs. Commissioner of Internal Revenue, 13 SCRA 357, Nos. L-19530 and L-19444, February 27, 1965. The legal issue involved in this case is the interpretation of the management contract entered into by and between the Bureau of Customs and Visayan Cebu Terminal Co., Inc. whereby the latter as contractor was appointed the sole manager of the Arrastre Service at the Port of Cebu City. In the said Management Contract, it was further agreed and understood that in consideration of the rights and privileges granted the Contractor for the management of the Arrastre Service, the Bureau of Customs shall receive twenty eight (28%) percent of the total monthly gross income derived from whatever source in connection with the operations of the Arrastre Service, payable within ten (10) days of the succeeding month. The main legal issue involved in this case is whether or not the gross receipts corresponding to the 28% of the total gross income of the Service Contractor delivered to the Bureau of Customs within ten (1 0) days of the following month should form part of the gross receipts subject to 3% contractor' s tax under Section 191 of the Tax Code. The Court of Tax Appeals ruled in favor of the petitioner, holding the view that the said 28% payment by the Arrastre Contractor based on its monthly gross income should not form part of the gross receipts subject to 3% contractors tax and that paragraph 23 of the said Management Contract can

DISSENTING OPINION - CTA CASE NO. 5415 PAGES legally be construed as a "regulation". As the learned trial court has aptly observed: "x x x the government could not have intended to consider as gross receipts the 28% that went to one of its institutions, the Bureau of Customs, and thereby collect percentage tax on it from petitioner. To hold petitioner liable for the payment of percentage tax is unquestionably unjust and not contemplated by Section 191 of the Tax Code." All the above-mentioned decisions of the High Court made specific reference to gross receipts which are especially "earmarked by law or legal rule or regulation" as not forming part of the taxable gross receipts for purposes of the gross receipts tax under the Tax Code. For this purpose, it is pertinent to define the word "earmark" as a mark put upon a thing to distinguish it from another. Originally and literally, a mark upon the ear, a mode of marking sheep and other animals. Property is said to be earmarked when it can be identified or distinguished from other property of the same nature. To set apart from others (Black's Law Dictionary, 6th Edition, p. 508). In the case of the Manila Jockey Club, Inc. Executive Order No. 320 and Republic Act No. 309 made the specific "earmarking" for distribution of the total wager fund to different persons other than the proprietor. The same is true in the case of Visayan Cebu Terminal Co., Inc. where the specific earmarking of the 28% of the total monthly gross income to be delivered to the Bureau of Customs by the Contractor was provided in paragraph 23 of the Management Contract. Such specific earmarking of the twenty percent (20%) final income tax as not includible in the gross receipts for purposes of the gross receipts tax was not provided by any law or legal rule or regulations, hence the non-applicability of the above-cited High Court decisions to the

DISSENTING OPINION - CTA CASE NO. 5415 PAGE6 Asian Bank Corporation case. This legal observation is also in point in the case of Compania Maritima case where the non-inclusion of the 10% reserve from the total cash collection to avoid claim for refund on freight and passengers tickets not taken is not provided by any law or legal rule or regulations. WHEREFORE, in view of the foregoing, I hereby register my dissent to the majority opinion and vote to DENY the petition for lack of legal basis.