CTA Case No. 4035 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZ ON CITY OSCAR R. VICTORIANO , C.T.A. CASE NO . 403 5 Peti t.iDnr::,�r- ~ -.. P ~;>t:. i t:. i em e r� �- THE COMMISSIONER OF INTERNAL REVENUE , nespDndE�n t. X- - - - - - - - - n . D E C I S I 0 N The case is one of a claim for refund of income tax withheld on acc umulated termin al leave pay of a retiree from the Govern me nt service. Petitioner was a n Associate Ju stice of the Court of Appeals until hi s optional retirement o n Detember 31, 1982 under R.A. No. 910, as amended by R.A. No. He had for h is terminal leave pay t.hf? arnoun t a nd out. of wh ich Pl8,377.59 was withheld for i n co me tax purpose. For t he taxable year 1983 petitioner had a total gross i ncome of P294,915.95 dec l ared i n t he i ncome On May 3, 1985, petitioner filed with 1 42

DECISION CTA CASE NO. 4035 2 the respondent Commissioner a written claim for refund of the amount of P35,492.75 computed as �follows: Total tax withhe ld on'terminal P 1 F3 ~ 3T7. 59 leave pay~ Court of Appeals~ Manila ���������...� ��.���� Taxes withheld on - Salary/allowance/bonus~ Land Registration Commission~ Qt.tezon City . . :s � � � � " . . . . . . . . " 1 :.) ~ 566. 16 Hen or-�a,,- i urn~ National Housing :~T,, 220. 00 Authority In come from tea~hing - FEU & Lyceum � � � � � � � � � � � � � � � ________�_<) ~....2.~~ To ta l taxes withheld P35~353.50 Add: Taxes paid for 1983 in- .� orne ta:-: re:~tUt-n ����� -~-~~, 131 ._.:!1-9_ P61., 4�84. 99 To t.al � t. .:~:.;e::s 1-d.thheld 8< paid Less: All eged tax due if ter- min a l leave pay would be e:-:f.~ mpt ecl �.������� -~-~~_,..J.92.2...2 ::;~ Allege d overpayment P35,492.76 (refundabl e ) ��.���� Before respondent Commi ss ioner of Internal F~evenu e could ac: t on the c:laim for refund, petitioner filed this petition for review on Marc h 4 ~ 1986. Considering that the sole issue presented is pure 1y 1ega 1 ~ parties submitted t.he case for 143

'! DECISION CTA CASE NO . 4035 3 decision upon the �filing o �f their respe c tive memoranda. By and petitioner contends that the terminal lea �~ pay or what amounts to it such as the money value of the unused vacation and s1ck 1 ea.ves upon retir e ment is an income ta:-: e :-:empt benefit contempl a ted undel"� s tatutes providing insofar as pertinent~ viz.: Sec. 28 ( c:). E:-: ce pt. 2\S ht'! rE!in otherwi se provided~ the Governm e nt Service I n s ut-a n c e S y s t e m~ �L.L ___I;,>_gn e_f i 1.2......_.9.!:A!l_.t..f?..9. UIJ.9_�._1_:-__,_tJJl2.__ f:Lc;_t , an d 2\ 1 1 i t s f o ,,.. rn s an cl do c urne~n ts r�e qui red of the member-s stla .U .....!?.�l ~ :�: e f.!!.r!..'!;_,______.l..!.::~g.!.D_.___~]._]_,___,llQ e s ___,..Q..f. . ...-...... t ~.!:5..�..5.. , do c umentar~ stamps~ duties and contributions , fi s cal or municipal, establis hed or to be established; x x x Sec . T) ( 2 ) � ThE.� 9..f:' ng_f_-!,_ts _g_r,'!:.P t _�_<i U.U.!~.i~.r....... t hJ.5:i....f~_c;_.t,___?.J.).S:_L!.._.!l_Qj;:...... 9_~.--.S-~,\.Q.J...�ll.;_'t_ , <-'1m on g others ~ to a t t:achmE~n t, gan1 ishmE?n t, l..g_y_L or other pro ce sse s . Thi s however~ shall not apply to obligations of the member to the System, or to employer or when the benefits granted herein are assigned by the member with the Authority of the System. P.D. No. 220 Sec. 1. That, provisions of any existing laws to t he contrary notwithstanding, social security benefits, retirement gratuities, pension, and g_.!;h~..c. �.i..!!lilar:__ bene�fits l"�eceived by ret j._r:_i!J..g_ 14'!

DECISION CTA CASE NO. 403 5 -�- 4 ..... f~.ITU?..1~1Y~-~.?.. a nd wo,~kers ~ 1-'-! he ther.. r�ec e i. ve cl from Philippines or foreign government agencies and other institutions, private _____ ?.l.l? l j_______Q..�___f~..0.~.rrm.t. .f..L9.m. ___JJ~L~ or pu b 1 i c , P..~.Y..f!).f~_!:J.J......QJ.......:!.U..<;..P.fiL?........t?.-.!i � (Underscoring supplied) The respondent considers the leave pay as compensation for service performed and not benefit conf erred by the Goven1me n t Service In s urance System hence s u~j ect to withholding tax. The Commissioner would make muc h of the fact that statutes do not categorically mention terminal leave payment among the specified benefits e ntitled to the tax exemption privilege. All to 1d t h r::.~ ma t.e ,,.. :i. -:3. 1 facts-. al'.. e t r~?. l <::1. i vel y simp J. f."-:' s o is th e issue under resolve essentially addres sed to t:h e q t.ues t..io n of whether or not the tf?nn.i na 1 1 Pi:":\ '/ E-) p ,=:\ y of Y" E! t.i. r� .i.ng o �f �f :i.e i a 1 / E' mp 1 oy(~e in the governmen t se rvi ce is tax exempt. The quest.icm mus t be a nswer e d by looking into the language of the pertinent provision of the statute pr��ovi.ding, _!nt.~??r alia, "That , provisions of e:<.i.sting l a ws to the contrary notwithstan ding, social security benefits, retirement gratuities, retiring employees and workers :-: shall be 143

DECISION CTA CASE NO. 4035 5 t h e payment of income L =:\:-:. " ( Sec. 1.) Cons tr-ue d in its plain a nd ordinary mea ning, i t appea r s c lear that the manifest presid e nti al intent is to broaden the applicable scope a nd effect of "all bt.~ nf.~f .i t.s" i n f:3ec tion C. f.~. No. J 1.86, as amended (GSIS Charte r). The pe llucidity of intendment requires no further e xegesi s. to li mit tCl. :-: exemption grante d under�� F'. D. pur�p l y retirement benefits (gr;:,\t.uit:..ie ~:; a nd pE�'n s .i. on s ) f::\S ";ugqt.-!s tt-::?cl in t:h E' pPt.i. t.:.i.Cl n for recnnsiderat:..i.on (by respon d ent Commission er of Interna l Revenue), is to render the said Decree u s elPss and ineffective, for na t.UI"�e o f retirement gratuiti es a nd pensions wer e a lready before the issuan ce of t he The Pres ident could not have the in t.!�::>n t.i.on to is s u e a u se l ess , .i.n p ff!~ctive or� ine�ffic:i.ent or� inefficient d ec r ee (Bird v. Alaska, 187 u.s. p. 1.18); but rather to have promulgated a valid and p ermanent statute which would have the mo s t: b e n E'f :i.c: j .c":l. l :i. ts; language per�mi ts (Orl osky v. Has k e ll, 155 A� .1..12)." (Opinion l\lo. l l l.l�, s. .1.. '7'8 ~5 !J F'r�E�!side-:! n tia 1 Ass .i.s t.,:~n t:. fo r L e gal 146

DECISION CTA CASE NO. 4035 6- A�f 'f .:.d.r-s) � Thi s makes explicit what see ms to Us already implicit in the statute itself. Moreover , We s h a ll b e le ss than re s pec ti n g the full and compelling i mport of the L;n-~ should We posit. a n a t�� r� o~~~ and unv ar ying me<J nin<] to the ''other si milar� e ngl"'a 'ft"!d in P.D. 22 C), thu s 'forec lose a n d stultify a ltogether its intE"mded sco p e. ''H <::~ n c:(�:�~, a n y ~".\ mount l'� ec:eived by <:'i t.l c h of�ficet- or employee as a co n sequence of ~::;uch se par�a ti.on from the service (like cash equivalent o f hi s vacation a nd sick l eaves to whi c h he i s e ntitled No. 186, as amended, and Section 286 of the Revi sed {.)cfm.i. n .i. s t t-a t:. i v r~~ CodF' as imp 1 em~? n b:~d by esc F(e so lu \:.ion l'" o. 81 -�1158) 1. . <- in co me ta:-: .::1 pursuant to Section 29 (b)( 7) (8) of the Tax Code, as amended by P.D . No. 1158- A or Section 29 ( c: )( 7) (B) by Batas Pambansa Blg. l :'; 5. Thus, whether taken under P.O. No. 220 or under the Tax Code as amended by F'.D. No. 1158-A and Batas F'amb .::msa Blg. 135, any amount received by a retiring government officer or worker as cash equivalr,,.mt of hi s unused vac atio n and sick leaves .i. s e :<r-:? mp t �f r-c:Hn i. n c om e ta :-: � " Accor"ding 1 y, 14 ('

IJ J�'� DECISION ��- CTA CASE NO. 4035 -.., .. ~��� / i n <:Hl d noth.i.ncJ ,':\ mbir:;~u nus p Et t.i.. n P nt. p r� ov j _s; .ion of F'D t .he <;;a rn E' :i.�::; bi��� CJU(_:j ht. upon t:. hE~ ci rcumsta nc es of th e petitioner in the c ~se a t b ar. I !3uf"fi.c:e it;, the i' ssue now ra.is~d was sq u a r e ly met i n a recent case s 1m1lar in many or s o in tenor t�. h E1 l"� u. linq 1....1":"~:; "1.:: "' di. s t. cwt.r:.�d l e gal impress ion ':C� h .-3.1 l h r:.� r::: ,... r:� .:.~ t .c' d in th(o�' important s ubj ect f.) f t ..:;~ ;-:,=�,l."\:. :i. O f"\ !' 1:�. he-:~ f "l <'H T 0 li~ ' r�E!"; t:. ,.- .i. c:: t� :i.ve 01'" st ri ct a ppli ca tion of t : J���,(=.> r ��t...t 1 E' t .h;:,\t:. r.;> :-:em t:"' t : .i. c1n �.::; f r �nm t :<''� :< :1. s; <::~ 1 ~�~ <::\ y �::; d :.i.�:;:; fa vCJ ,.... E�?CI .i.n 1. .":\W ( :l ur'~::; nut a. l~'IJ -:~ys apply. ldh rc, r�r::~ t:.a. :-~ Ec~ :-: E-'Hl p t inn , d �;::; ha.d b E�C! n p t��� ov .i. d F�cl a.n d hu .i 1 t:. in F� .. D. ::::-:;,~0 �'H l t:l Sr.x:: ti.on ~?9(c) (7) (B ) o �f t .h F' t-.1 <01. t :i.( ln<::\ 1 I,.., .,_rc�r�n;:., l nE1 V �~ flf..l. e Cod E' :< ~�.J .::":l.<:'i c: l p;'.\r� l y q t�- "''' 1 t:F'd t.o gov er nment retiring p mp1oyees , precise ly as an act of publi c policy, a nd not as a matter of qrace or f '" vo I"" l �. c1 t h r�.�m �:::; :i. r�\ C::f?! qo vE! r�� n m c7~ n t off i c c� ,.... ,,.; <::~ n cl (:�~ m p l o y r-::~ c"" ". r-.! rH:k~ r�� <:J. vl-::,�,..-y �::; pE~C: i i':\ 1 pu.h l .i.c. r::lt. ' t ''/ n r� �=:"F�' v�v :i.c: f.':' tn t �. I�IE:' q o ve ,... n mE-~ n t ,;~n cl t. u �l:.h(:=! F~ili.p :ino pr"�'e>plt�? i'.\ l: l a nJ E'~ thi s E' :< E' rn p -1--. :.i.. nn frTHn thE:-~ p ;:~ y rnPn t. of t.a :-:: nn t. h e" .i ,... .:"') C: C:! .lfll !...l 1. <'J t:.P d ;:_\( :C I'"" U l'?cl J. E~d VE�1<::i U por�\ t ht" .i.. r� r� r.' t�. �i I'""F:?fl\P I "\ t. IJl! . t. <:;t 1�\ ,"�:\VP to he:� ~ ,;!.<::i ~�~e do t�\PF"f1 1:Jy Joi.h E~ I����;:,\lly C:CJI"l~::;t f'"" UE! t h ic' <::;,::\rnE' in t: h E� .i. r�� fA v ot�� ( r.1m b t- o s i. o Pad :i. 1 1 c:~ ~ ~.:i v :iJ . . . . ~oge f:!.r.'.flfJ.J.~~.t~.!.J. ~ .l9 ::"16 Ed � , Vo 1 � IV , p. 19 5; To 1 en t. in o , ~�J.!.D!!1�.!l};_~r- i...!:~ ~L.9. D.._.thi.L~..!. Y.�!...LJ:;..Q.g_~. , VoL V, 1959 Ed., p. ::'50; Car�melo v. Mon se rrat, 55 Phil. 644~ see Mert e n s~ lJl:!.!J. � ~ c: .i. t .i. r�H:: E s t:. a t. e o f Em .i 1 y S t. A T a .i. t. , .l.l TC 731; Comm. v. Whit e's Estate~ Q.Q~ �~.J.J.. ) a"' �3 r��l�?.v~i'~ r�d f o ,... the i. r� ~.;e l f 1 e~;s ~ dedicatPd and admitte dly not adequately �compPnsated s ervice in terms of the sa l ary duE~ "I:: I H~'~ i r�� pu s :i. t.i. on s. McH. E:>o ve r� , t h e ta.:-: 148

f , .. DEC ISION CTA CASE NO. 4035 �- f3 .... exemption provisions in P.D. 220 and Section 29(c) (7)(B) exemrti n g the m from the p~yment of income tax on th e amount of their acc umul ated accrued l eaves are just too plain to be mi sta ken a nd too ca tegorica l to be misinterpreted. It mu st h ave to be stated a nd emphasized i n this connection that respondent Commi ss ion er of Internal Revenue requested for r econs iderati on of Opinion No. 99~ which h e l d that BI R Rul i ng No. 432, dated August 14, 1958, has been by ~:; upE~ t-�~.;.;('?dr.-?d ~)p c: t..i.on .1. of Pr-es .i. dr~nt:i. a l Dec:r�eF:.' No . ?20, to th E~ c.�:,� ncl ":�: :.: :.: l::.h.a.t a n y a moun t r�ec:eived b y a : retiring gove rnment of fi cer or e mployee, as t he eq u iva l e nt of h 'i. s; ,:Jc:c t.tmu 1 <.1ted v <.~ c: at io n and s .i. c k 1 f:?i:' ve c: r�� r-~d i t s , i ~; f.~ ~{ c~rn p t:. �f t��� (JHl inc rJrn E~ i::. ~�.:r~< , " t .h e Presidenti a l Ass i s tant for Legal Affair s , Offic:P of t. h G~ F't'.. e<::,i d <:'�' tlt, in Opinion No .. l l l l , ~-3E' t" :i.F:~<::; of .1. 91:3~}, in d1c.? n .i.a l t:o aforesaid res pondent' s motion for r-r::~ c: on s .i. de r t �c:1. :i. on !I o pin (�:? d in "~ f f ec t . t. hat ":< ~< ~-~ ~tt�.~tJJJi:U:~---����t.t':J:~-~i~.r!...._.._..!:.-.~U.E-:~.-~~r~.--!::..!...D.. !'..______t~.~'?...~.-. . . ~-~~.2._. .9..r~ t~~u.s.;1.~~.r~_.. .ttlfL.........I.~~.:.::. . . . I;;s.>.(;!_(~---.f~~.~---�{'~J.l�~n..r:L~.g.........tJ..Y.......F~.'!...P....~.--J:!.9..~. !J..~.9.. . . .~n.d...-......f':.~~.�.t.:~.:i?.. .......... f:~."?.f!.l..~>-~~J:).?..f~:.............?. !.9. ...~...--....... . LT~ .J.__..9X!.Y .. . t:... ~.m.9.~::.t.!J... X::~.~.::.. q ..t.Y..~.rJ.............~.>.](..._.S:............E:.~.t .i.r:.J.._f.L9....... 9..9.:i._~J.:::IL!!l.f?..Q_t. g_J..L:i...t:;. ~~'.L......9L. . .........v.~~9X:I�::. ~.r: ~.2.........~..f;..s,.~;.t.J._.~~ 9.l.,t...i.:..Y..9...~:. ~.'lt._.. ..o t !...t2.......L..t.r:!.1:-:.t.?:.;.~.~j..............Y.9..G..{}..ti.. t:2.f.:l. ..... ~~.f.l._Q.............? ..Lc.:. L... . . .. .Le-:' ''~.Y.~X?. ___...:i:.:..?.. ~'~.:g~J.T:l P. t .. . J t.:::.c.:.>.rn. .. ...i.:fl..t:::.q mf.::~ .......t.<~\.::.. n II ( ~,lE:J.Q~_, :::.s..c...9.r.),JJ(J. ?..t::~f::.f~.LA.~~-~�1 ; p p , 6 7 -- 7 6 , CT () r �E~ c:: � ) We ~ r e in full confor �mity with the Opinion No. 114 of the Presi d e ntial Ass i sta n t for Legal Affair s , Offic e of t h e Pre side nt~ which made a very concise effort to make an incisive explanation a nd i llucidation of, a nd then fin a lly making a concise declaration of the true essence, intent, purpose, poli cy and objective of P.D . No. 220 a nd Section 29 ( c )(7)(B) of the National Intern al Revenue Code a nd Be:\ t <.~s Pa mban sa B1g. 135, g r�an ting exemptio n fr om income taxes on all ben ef its due to go v ern me nt officers and emp l oyees~ t he very office from which 143

r DECISION CTA CASE NO. 40 35 .... 9 -- particularly P.D. 220 had proceeded a nd origi n ated, wh ich office a nd no other can aut horitative l y s tate what in exacti tud e, 1s, t o our mind, the essenc e , inte nt, purpose a nd objective, scope a n d ex t e nt, of the tax exemption gra nted therein. (Castan eda v. Commi ssi on er of Internal Reve nu e, CTA Case No. 3809, Fe br uary 4, .1987) WHEREFORE , res pondent to ,.-� c,::- �fund th E' pet :i. t. :i.o ne r�� �t.h!: i n co mE"! t.a:-: v~i thhe l d a nd/ or pai. d cor res ponding to the a moun t o f termi n a l leav e pay d ec l ared in the t a xable year involved. No c:o ~:;ts. GCJ . mmEFE~D Que zon City , Metro Manila, January 29, 1988. l,o.JE CON CUF\: ~ ~BJ F'res i � .ng Judge �" -RO-AQUIN .Judge:! 15U

DECISION. CTA CASE NO. 40 35 - 10 - CERT I F I CAT I 0 N I hereby cer tif y t ha t this decision was reached after due co n su lt atio n amo n g the members o f the Court of Tax Appeal s in acco rdan ce with Sec tion 13, Article VIII of the Constitution. AMANTE F LLER PresidinJ Judge Court of Tax Appeals 151