CTA Case No. 4837 (Decision)

----------.�- ---�- -�-- ���--�-�-���----~ REPUBLIC OF THE PHILIPPINES jI COURT OF TAX APPEALS Quezon City STATE INVESTMENT HOUSE, INC. AND C.T.A. Case No. 4837 AFFILIATED COMPANIES RETIREMENT PLAN, Petitioner, - versus - COMMISSIONER OF INTERNAL REVENUE, Respondent. X- - - - - - - - - This is a petition for refund of twenty percent {20%) final taxes withheld from total intere~t income earned on investments of funds in treasury bills and deposit substitutes from 1988 to 1992 in the total 'amount of P247,806.26. Petitioner is a duly qualified retirement plan established under Philippine laws for the employees of State Investment House, Inc. (SIHI) and its affiliated companies. f+b~ 1992 1 pe~i~~pper remitted to r;e�~on~~~~:! ~; '~i'~h~~~4tn9 ~gent, ~~~r~nc1~rt, . . ' '' ' t ~wenty percen~ (2Q%) :1-n.al ~q.~~J\l in�� ~h~ am!=Nnt qf !�.~. ;�.~~~.::! --~: -~�:j~ .~ ~: \ Pl,239,031.4l which it earned on~ ' investments of its ~ �: : �;. �. . ' "! � ' I ~ ' ;' funds in tre~sqry bills and depo~i~ substitutes. I ~ t ~ : : .� ; ; ::. � I 578

DECISION - C.T.A. Case No. 4837 - 2- Citing the case of Comm' issioner of Internal Revenue versus The Honorable Court of Appeals, et. al., G.R. No. 95022, promulgated by the Supreme Court on March 23, 1992, which upheld exemption from final withholding tax on interest income from money placements and purchases of treasury bills of a retirement plan (GCL Retirement Plan) , petitioner wrote respondent on August 3, 1992 requesting for a refund of the 20% final taxes on the investment of its funds which it said it erroneously withheld/collected and remitted to respondent in the total amount of P247,806.26. Without any action taken by respondent Bureau on the request for refund, the present judicial proceeding was instituted purportedly to comply with the provisions of Section 230 of the National Internal Revenue Code (NIRC) with reference to the prescriptive period. Before us, the parties' litigant entered into a "Joint Stipulation" which is hereunder reproduced verbatim: 1. Petitioner is a duly qualified retirement plan established under Philippine laws. 2. Petitioner was established for the employees of SIHI and its affiliated companies. 3. Petitioner was certified by respondent to qualify as a reasonable benefit plan within the contemplation of Republic Act No. 4917, and as such, is entitled to all benefits and privileges provided for by said act. A copy of said certification is hereto attached ' :_. �.: )a~a~l~A~on~n.ex- ''A" ,\~and also attached as Annex ''A" of the � : :-::-:~ \~~{ �: ' "r:.�,� ' : ~� l � r <�. .�, . ~� 579 .J

DECISION - C.T.A. Case No. 4837 -3- 4. From 1988 to 1992; Petitioner remitted through respondent 1 s withholding agent 20% final taxes in the total amount of P247 1 806.26 from the total interest income of P1,239,031.41 which were earned by Petitioner on investments of its funds in treasury bills and deposit substitutes. A copy of the certificate of said remittance is hereto attached as Annex "B" and also attached as Annex "B" of the Petition. 5. Petitioner, through counsel, wIrote respondent a letter dated 3 August 1992, requesting for a refund of the 20\ final taxes it erroneously withheld/collected and remitted to respondent in the total amount of P247,806.26. A copy of said letter is hereto attached as Annex "C". 6. On 23 March 1992, the Supreme Court rendered a decision in the case of Commissioner of Internal Revenue vs. Honorable Court of Appeals, et. a1. , G.R. No. 95022 1 upholding the exemption of final withholding taxes on interest income from money placements and purchases of treasury bills of the GCL Retirement Plan. 7. Respondent admits the genuineness and due execution of the following documents: i. Confirmation Receipt issued by the Central Bank ii. Payment Order issued by the BIR iii. Cash Voucher issued by SIHI iv. Quarterly Return� of Taxes , Withheld on .Interest paid on deposits and yield on deposit substitutes/trusts/etc. v. Summary of Return of Remittance of Final Tax Withheld from interest I yield paid on deposit substitutes vi. Short Term Non-Negotiable Promissory Note vii. Non~Negotiable Repurchase Agreement viii. Cash/Journal Voucher ix. Confirmation of outright sale/ confirmation of purchase issued by SIHI. x. Security-In Receipt issued by SIHI. 8. Respondent admits that the photocopies marked as Exhibits for the Petitioner are faithful reproductions of the original document. 9. The foregoing evidence on remittance by Petitioner to withholding agent of 20% final taxes in the total amount of P247,806.26 from the total interest income of 580 - ________________)

DECISION - C.T.A. Case No. 4837 -4- P1,239,031.41 which were earned by Petitioner on investments of its funds in treasury bills and deposit substitutes. 10. The foregoing annexes shall be submitted to the Revenue Accounting Division of the Respondent's Bureau for verification. Petitioner and Respondent likewise stipulated that the issue to be litigated is: Whether or not Petitioner is entitled to a refund of the 20t final taxes it erroneously withheld/collected and remitted to respondent in the total amount of P247,806.26? As stated in the aforesaid Joint Stipulation, we agree� that the only issue to be resolved is whether or not petitioner is entitled to a refund of the 20% final taxes it alleged was erroneusly withheld/collected and remitted to respondent in the total amount of P247,806.26. The specific provision of law governing this case is Section 230 of the NIRC which provides: Sec. 230. Recovery of tax erroneously' or . illegally collected. - No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority or of any sum alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit has been fully filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress. In any case, no such suit or proceeding shall be begun after the expiration of two years from the date of payment of tax 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. 581

DECISION - C.T.A. Case No. 4837 -5- Under Section 292 (now 230) o� the National Internal Revenue Code, before a taxpayer may judicially recover a tax or penalty illegally or erroneously collected, whether paid or not under protest (protest is not required) or whether paid or not under duress, he must �irst ask �or refund (or credit) in writing but in no case must the �iling o� the action be beyond two years �rom date o� payment regardless o� any supervening cause that may arise a�ter payment. The judicial action contemplated is an appeal to the Court o� Tax Appeals. (Nolledo & Nolledo, The National Internal Revenue Code of the Philippines, Annotated, 1993, 16th and Revised Edition, p. 959; emphasis ours). The reasons for requiring the filing of a claim for refund of tax before recourse to court is had are the following: (1) To afford the Commissioner of Internal Revenue an opportunity to correct the action of subordinate officers; and (2) To notify the Government that such taxes have been questioned and the notice should then be borne in mind in estimating the revenue available for expenditure. (Bermejo vs. Collector, L-3028? July 29, 1950) . Under the "Joint Stipulation" entered into by the parties, it was substantiated that petitioner is a duly qualified retirement plan established for the benefit of the employees of SIHI and its affiliated companies. In fact, respondent confirmed that within the contemplation of R.A. No. 4917, petitioner is entitled to all benefits and privileges provided for in said Act which are as follows: 1. The retirement benefits to be received by the member- employees shall be exempt from all taxes; 582

DECISION - C.T.A. Case No. 4837 - 6- 2. The income of the Trust Fund from the investments are exempt from income tax; and 3. The contributions of the participating employer companies to the retirement fund are deductible from their gross income (Annex A, Joint Stipulation and Petition; emphasis ours) These exemption privileges afforded to petitioner was confirmed by the Supreme Court in the aforesaid case of Commissioner of Internal Revenue vs. Honorable Commissioner of Appeals, et. al., G.R. No. 95022, March 23, 1992, which is similarly situated as the petitioner. As aptly stated by the Supreme Court in said case: To begin with it is significant to note that the GCL Plan was qualified as exempt from income tax by the Commissioner of Internal Revenue in accordance with Republic Act No. 4917 approved on 17 June 1967. This law specifically provided: Section 1. Any provision of law to the contrary notwithstanding, the retirement benefits received by officials and employees of private firms, whether individual or corporate, in accordance with a reasonable private benefit plan maintained by employer shall be exempt from all taxes x x x 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 (b) , Tax Code] . The application of 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 payment at the source. If an employees' trust like the GCL enjoys a tax-exempt status from ineome, we see no logic in withholding a certain percentage o� that income which it is not supposed to pay in. the first place. The last remaining matter to be determined is the amount of refund or alleged erroneously withheld final taxes. To put it in another way, is petitioner entitled 583

DECISION - C.T.A. Case No. 4837 - 7- to the total amount of P24 7, 806.26 claimed and prayed for in this petition? Regrettably, it is not. Again, citing Section 230 of the NIRC, "x x x in any case, no such suit or proceeding shall be begun after the expiration of two years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment x x x�. [emphasis supplied] The general rule therefor is that the two-year period is counted from the act of payment and this period is mandatory. In the case of Gibbs vs. Commissioner, L-17406, November 29, 1965, it was ruled by the High Court that: A taxpayer who contributes to the withholding tax system does not really deposit an amount to the Commissioner of Internal Revenue, but in truth to perform and extinguish his tax obligation for that year. Consequently, a taxpayer whose income is withheld at source will be deemed to have paid his tax liability when the same falls due at the end of the tax year. It is from the latter date then or when the tax liability falls due_ that the two-year period in Section 292 (now 230) of the Revenue Code starts to run with respect to payments effected through the withholding tax system. [emphasis ours; see also ACCRA Investments Corporation vs. The Honorable Court of Appeals, et al, G.R. No. 96322, December 20, 1991] Section 51. of the Tax Code states that "{T)he return for final withholding tax shall be filed and the payment made within 25 days from the close of ~ach calendar quarter". Thus, the following returns were submitted by petitioner: Quarter Date of Exh. CBCR Payment Exh. Amount No. Exh. Order A-1 Claimed Cover~d i�Filing -'h� A-;::J J�'U.f' ii..-�..,..~�17 J\. -.~... ; . C4404565 p 2,780.69 ' . ,.-' .'1 ~ ~- 01-:l~:"'~, "' f .� t ~-; �..! 1~8h"~ 4th 584

DECISION - C.T.A. Case No. 4837 -8 - 1989: 04-20-89 8-3 817312927 8 C5009515 8-1 3,837.32 1st 07-25-89 C-3 817680928 c C5736479 C-1 4,269.43 2nd 10-25-89 D-3 818168711 D C6313768 D-1 3,572.79 3rd 01-25-90 E-3 818253138 E C6720393 E-1 3,654.19 4th ', C7469331 F-1 4,314.76 1990: C8413024 H-1 4,619.57 1st 04-25-90 F-3 819904745 F C8749766 I-1 5,239.83 2nd 07-25-90 H-3 820392265 H C9526695 G-1 5,467.04 3rd 10-25-90 I-3 820861096 I 4th 01-25-91 G-3 821175491 G C10154994 J-1 .. __7_,0__21. _.6__8 1991: 04-25-91 J-3 822678397 J T 0 TAL iii~zzz.~g 1st It appears then from the above table that payments of final withholding taxes on deposit substitutes from fourth quarter of 1988 to the second quarter of 1990 have prescribed. Note that two years have lapsed from the date of payment up to the date this petition for review was filed, to wit: Quarter Date of Amount Filed Filed Covered Filing/Payment 1988: Exh. __~c~l~a~i~m~e~d~--~wL/~8:IR~--~w~/~C~T~A _01-25-89 4th A-3 p 2,780.69 08-03-92 08-10-92 1989: 04-20-89 07-25-89 8-3 3,837.32 08-03-92 08-10-92 .1st 10-25-89 2nd 01-25-90 C-3 4,269.43 08-03-92 08-10-92 3rd 4th 04-25-90 D-3 3,672.79 08-03-92 08-10-92 1990: 07-25-90 1st TOTAL E-3 3,654.19 08-03-92 08-10-92 2nd F-3 - 4,314.76 08-03-92 08-10-92 H-3 4.619.57 08-03-92 08-10-92 P27.048.75 As to the final withholding tax on treasury bills likewise, has ;',1 585 -~-----~---

DECISION - C.T.A. Case No. 4837 - 9- Therefore, only the remaining final withholding taxes on deposit substitutes from the third quarter of. 1990 to the first quarter of 1991 and final withholding taxes on treasury bills from January 9, 1991 to June 3, 1992 can be refunded, as follows: INVESTI~NTS IN DEPOSIT SUBSTITUTES Quarter Date of C8CR Payment Amount Covered Filing Exh. No. Exh. Order Exh. Claimed 1990: 3rd 10-25-90 I-3 820861096 I C8749766 I~l p S, 23!L 83 4th 01-25-91 G-3 821175491 G C9526695 G-1 5,467.04 1991: 1st 04-25-91 J-3 822678397 J C10154994 J-1 7 t!l31.�� f17doHs.si INVESTMENTS IN TREASURY BILLS Document Maurity Interest/ Ta~ Number Date Discount Withbeld COP 0202 06-03-92 FF,FF-1 p 2,077.51 p 41!5. 50 EE,EE-1 cos 0316 03-31-92 DD,DD-1 433.54 98.71 COP 0184 04-22-92 CC,CC-.1 191,175.51 38,235.10 88,88-1 COP 0127 02-26-92) 2,520.37 504.07 AA,AA-1 01-08:-92) 1,583.30 316.66 Z, Z-1 COP 0055 01-22-92 Y, Y-1 209,477.96 41,895.59 X, X-1 COP 0021 11-27-91 W, W-1 4,562.31 912.46 V, V-1 cos 0240 01-22-92 U, U-1 73,400.55 14,680.11 cos 0203 T, T-1 cos 0182 09-25-91 S, S-1 811091.70 16,218.34 cos 0167 R, R-1 cos 0142 09-25-91 Q, Q-1 27,916.37 5,583.27 cos 0117 P, P-1 cos 0093 08-28-91 0, 0-1 3,749.96 749.99 cos 0076 N, N-1 cos 0051 06-06-91 M, M-1 380.81 76.16 cos 0046 L, L-1 cos 00516 07-24-91 34,390.85 6,979.17 cos 00506 K, K-1 cos 00501 07-10-91 117,146.07 23,429.21 cos 00500 . .~ -~ �. ~ �. _;;"- �:_: ~1>� cos 00499 06-26-91 " -~ �~ 32,011.79 6,402.36 04-24-91 17,953.37 3,590.67 05-29-91 4,489.31 897.86 04-24-91 7,336.19 11467.24 04-10-91 137,840.27 27,568.05 01-16-91 1,184.88 236.98 04-03-91 47,146.38 9,429.28 01-09-91 5,414.96 1,082.99 CO$ 00�:�.4'.�9�'~ 8 qt-.P~.:~~ s,414.96 1,082.9~ , '. ; :.? '.~..;;_} {~f .~�.;, ~~ .:~Jet.. j ;_ � : l' �; :� P~Ol t 741.76 -. '�� .. . .~i� ~. '1:1~~.. ~.?0 .3~ �... :; . . -~ �' . '�. ,.., . . ~ : ) '. 586

DECISION - C.T.A. Case No. 4837 - 10 - WHEREFORE, in view of the foregoing, respondent is hereby ordered to refund the amount of P219,470,31 representing erroneously paid final withholding taxes for the years 1988 to 1992 in favor of petitioner. SO ORDERED. , P~~ NO. DE Associate Jud WE CONCUR: ~aoa~ ERNESTO D. ACOSTA Presiding Judge ~L GRUBA Associate Judge CERTIFICATION I hereby certify that this decision was reached after due consultation among the 587