CTA Case No. 5525 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY NDC PROVIDENT FUND, represented by its trustee, the NDC PROVIDENT FUND COMIYIITTEE OF TRUSTEES, Pet 1 t 1 oner~~ t.::t:::- -ll:..:: .__l....;t:-_._: COMMISSIONER OF INTERNAL REVENUE, P�r~omul<~ateo:: . ~ .... f-?espondent. AU _f1.JL1999..---- X- - - - - - - - - - - - - - - - - - - - - - - - - - - X DECISION This is a judic1al cla1m for the ref0nd of 20% final i n e: r.l m"-" d. mo '-'� n t i n Q t o ~917~584.58 wh1ch allegedly were illegally w1thneld and collected from the 1ncome det~lved by the Petit1oner from 'l 't depos1ts, placem.;:nts and i.nvestments b~eastwy b i l l s . Peti~1oner is an employee's trust/pr ovi dent olan est a blished on November 1988 bv the National Develooment Company ("1\IDC" fa~~ br~�::vity) for-� the pur~pose of pt~oviding retirement, death, disability and separation benefits to the members of the plan. It is administered by its the NDC Provident Fund CnmmitteP of Trustees. witn off1ce address at NDC Bu1lding, 11 5 To r~d e s i 11 as Street, Salcedo VIllage, Maka~1 C1ty. The facts are simple.

DECISION -- C.T.A. CASE NO. 5525 2 For the years 1994 to 1996. the a b ov e mentioned Income of the Petitioner from its depostts. money market pl3cements and investments 1n treasurv b1l!s was subjected to 20~ final withholding tax, as follows= 20Y. Fi nal Wi thho l di ng Tax Particulars 1996 1995 1994 Tota l Savings Account 272.13 1,111.36 286.86 272.13 Land Bank 364.81 1,111.36 286.86 1,763.03 DBP 636.94 2,035.16 Investments 5 19, 232. 50 LBP T-bills 176,496.55 202,647.37 140, 088. 58 1,555.71 520,788.21 LBP Special Savings 202,647.37 1,555. 71 139,717.47 141,644.29 394,761.2 1 Account <SSA) 343,476.20 917,584.58 162 , 4 4 9 . 2 2 176, 496.55 304,380.37 BSP Fixed Ter11 Deposit 92.594.52 Brand Total 2691728.01 On July 22, 1995~ Respondent. tht~ough BIR Ruling No. DA-255-96, duly approved NDC's request for tax exemotion ~rom payment of income tax pursuant to Section 53(b) of <Exhibit C>, the oet~t i nent ~c~tion of which is hereby quoted, to wit: In view ~hereof, this Office Is of the opinion as it herecy holds that the NDC Provident Fund 1s an emo:oyees' trust exemot from income tax under Section 53(b) of the Tax Code, as amended aPd thet~efot~e. It need not file an income tax return; and that the income of the trust fund from 1ts Investments are exempt from income tax, provided, that 1n Its Investment activities, no part of the cor~us or income of the fund shall b e used for or diverted to purooses othe~ then for ~hP exclusive benefit of the member-employees or thel.r beneficiaries. Moreover, the National Development Company Provident Fund is no longer

DECISION - C.T.A. CASE NO. 5525 3 -- subiect to the 20% final tax on interest and/or yield on deposit substitute instruments and on interest on its Philippine Currency ba~~ deposits. <CIR vs. GCL Retit�ement Pl.an~ GR No. 95022, March 23, 1993) Armed with the above-mentloned rulinq. P (~ t i t i o n e t' filed w1th the Appellate Division of Resoonden~'s Bureau on Februar'Y 14�, 1997 a claim for refund amount1ng to ~'350' L:::75 � 8 1 coverinc the years <Exhibit II N 11) � Although it was only approved as a tax-exempt Pet1tioner contends or'OV i dent fund on ~Tu 1 y �=:�=1 1--i-- ';' pursuant to Revenue Regulations No. l-83, it 5 tax exemption privilege retroacts to the effectivity o~ the m�ovident fund. The claim was eventuallv referred to Revenue Distr1ct Office No. 50 l oca.t ed .:::;.t Metro Manila for factual investigation. ::Jubs equent l y, on ApY i 1 4 c:md 17? 1997, Petit:ionel�' f1led with the Revenue Distr1ct Off1ce No. 50 an amended claim for refund in the amount of ~917.584.58 representing the actual sum withheld f�r�om its ea�'"'"lings <Exhibit "Gl"). 1997, however',, Petitionel�' instituted the instant Petition for Review allegedly on account of Respondent's inaction on its claim and failure to conduct anv factual investigation. Petitioner reasserts On the l~f? <:; ponc.i ent i n t: f? J' ,.::~ .l .i a~ following special and affirmative defenses, to wit: 8. Petitioner's claim for already prescribed;

DECISION -- C.T.A. CASE NO. 5525 4 ':3. Republic i=kt No. 4':317 .::md Respondent's lette1��' dated July 22, 1':3':36 (Annex "B") contained built-in conditions which require continuous observance by the pet i t i on e t', h en c e , s u b j e c t t o ~, o u. t i n e d1 e c ~<-ups and investigation by the respondent for possible violations which may result to the nullity of the tax exemption granted; 10. 1ne NDC Pr'ovident Fund (the "Plan") Rules and Regulations was approved only on July 22. 1':3':36 by the r�'espondent, hencP, the tax exemotion privileges under the Plan commenced effectively only from that date and even, if granted, for the sake of argument, that the tax exemption privileges are retroactive, Revenue Rer.;~ulations No. 1--83 cannot be made to a.poly in the instant case sin~e the petitioner's Plan does not indicate its date of effectivity, so, there is no basis for retroactive application of the tax exemption privileges; x-�-x�--x x-x-�x x-x�-�x 12. The exemption from withholding on interest income from bank deposits and yield from deposit substitute and money market placements earned by petitioner has already been withdrawn by Presidential Decree No. 1959 which took effect on Octobet�'' 1~.5, i'::JBLt� and thus, repealing or amending the provisions/beneFits relied upon by the petitioner in Revenue Regulations No. -4-':317 (sic); x-x-x The issues having been joined; this Com't is confronted with the following 1ssues, to wit: L Whether' or' not the instant c .'I.. a1.m has 2. Whether' Or' not Pt'esidential Decree No. 1'359 has repealed or amended the benefits granted by Republic Act No. 4'317; _, Whether' or' not BIR Rul1ng No � D(~-�265-':36 ... .J . s r~et r~oact t o the effectivity of the NDC Provident Fund pursuant to Revenue Regulations l\lo. 1-83;

DEC IS I Oi\l -�- C. T. A. CASE NO. Whether or not Petitioner has proven the factual elements of its cl a im for refund. A~ent the First issue, this Court finds the claim of the Petitioner for the year 1994 as totally prescribed. The Quarterly Return of Final Income Taxes Withheld on Interest Paid on Deposits <:l.nd Yiold on Dor:losit Substitutes/Trus~/Etr. (BIR Form No. 1745) rcveri~g the last quarter of calendar year 1994 was filed on January 25? 19':35 and it �;;h ows t ht�o u.gh its machine validation that final income taxes withheld were remitted on th e same da.y .. When reckoned from the date of institution of the oresent judicial action, by way of a Petition for Review. 1997. the portion of the claim covering t~e year 1994 has been filed beyond the peremotory two-year pet'iod pr-�ovided in Section 230 of the Tax Code, amended, for the filing of a timely judicial claim for �r-�efund .. The other portion of the claim cover1ng the oeriod 1995 up to 1996, however, are still clearly w1thir the said two-year peremptory period. It 1 s obser'ved th<:J.t the quarterly return for the first quarter of 1995 was filed or A~"Ji��il E:5, 1':3'35, hence, making it within the tvw��- As regards the second issue~ this Court is quite amazed by the adamant insistence of the Responde~t invoke Presidential Decree No. 1959 as having amended or rarealed t~P benefits granted under Republic Act No. 4917 and Revenue F<egulations r~o. 1-83 .. Respondent's continLed

DECISION - C.T.A. CASE NO. 5525 pos:. i tion on this matter bespeaks of disrespect and unwarranted defiance of the final decision of the Honorable Supreme Court in Commissioner of Int ernal Revenue vs. The Hon. Court of Appeals , The Court of Tax Appe a ls , GCL Ret ir e men t P l a n , G. R. No . 95022, promu l g a ted on March 23, 1992, 207 SCRA 4 87, over which Respondent Commjssioner was hjmself the pet~tianer therein. In said case, the effect of Presidential Decree No. i 35'3 in 1�':::: 1 <.it :i. on t u had been specifically dealt with, thus: The deletion in Pt~es. Decr~ee No. 19~-59 of the proviso regarding tax exemption and pref e rential tax rates under the old l aw, therefore, can not be deemed to extend to employees' tt'usts. Said Decr��ee, being a general law, can not repeal by implication ~ specific provision, Section 56Cb) (now 53[bJ) :i.r ~�-e1<'~.t-ion to Rep. f~ct No.. i:~9l7 1;wanting exemption from income tax to employees' trusts. Republic Act 1983, which exceoted employees' trusts in its Section 56(b) was effective on 22 June 1':157 ~'Vhile Rep. Act l '~o. 4917 was enac�ted on 17 June 1967, long before the issuance of Pr'es. Dect''eP No. 1959 on l:':i DctobEn' 1.984. ~1 s1.tbsequent statute, gener~al in c h a t' actet~ as t o 1ts terms and application, 1s rot to be construed as repealing a special or specific enactment, unless the legislative purpose to do so is manifested. This is so even if the provisions of t~e latter are sufficiently comprehensive to include what was set forth in the special act CVi llE'Q<~.-:; v. Subicio, G., R. 1\lo. L-31711, 30 September 1971, 41 SCRA 190). Adding absurdity to the preceding legal committed by the Respondent, BH~ Ruling No. DA�-E:65-96 issuec:l on 3uly 1996 by h i s Bur'e.::'\u h<::1s qu::ilified Petitioner as tax exempt under Section 53(b) of the Tax

DECISION -� C.T.A. CASE NO. 5525 7 Code. as Retirement Plan case, supr�a. Such ruling has been referred to h:ls attention in the administrative claim filed bel Ol,'>l by Petitioner's trustee <Exhibit N) and is being alleged in the instant Petition. n Concer~n 1 g issue, this is of the firm belief that BIR Ruling No. DA 265-96 retroacts to the establishment of herein Petitioner e~fective November 1., 1988 ( s ubpat~. 1, Exhibit C) due tc the fact that the exempt 1 on P~""' i vi 1 ege under Section 53(b) has been in the time approval of the Respondent~s Bureau that Petitioner has met the conditions laid down 1n Section 53(b) any showing that such conditions the appr~oval, this Cotwt is inclined to !;.] i v e retroactivity to the tax exemption stat us of the Petitioner-� .. In fact. a close examina.t ion of f�1otnotes indicating amendments to the t"'tdes and regulations governing PetitioneY' CE:<hibit B at pp. 6, 8 & 9) shows that changes introduced in the provisions thereof were not related to the requirements set fot~th 1n Section 53(b) of the Tax Code, as amended, thus, ensuring the existence of such conditions for tax exemption since Petition et~' s esta.bl ishment in 1988. Besides~ the t.ax e><empt :i.on pr~ :i. v :i. l e g e of o. o n pet~s !�~elates to the effect i v i �~ y of the law undet~ which said oer~ son becomes

DECISIOhJ -� C.TuA. CASE NO. 5525 - 8- (~ntitled t o su.c:h <V. G. Sinco Educa tional Corporation vs. Collector of Internal Revenue . Civil Case No. 2929, May 20, 1955 ) .. Petitioner's reliance on the retroactive pr~ov is ions of F<evenue F<egu.lation'::: No .. l�--83 is account of the fact t hat it is anchored on the provisions of Republ :i.e !~ct No. 4917 which makes retirement benefits of employees of tax. The revised Charter of NDC reveals that it is a gove~~nment coq"Jorat ion (Exhibit A>, hence, its employee--member~s ar~e of the government and not Petitioner is thus disqualified from availing of the tax exemption privilege granted by Republic Act No .. 4917 as implemented by Revenue F\egulat1ons No,. 1-83. Go in ~l :i.nt o the last this Co ur't find�::. Petitioner to have almost entirely failed to prove the fact~al PlPments of its claim f or refund, miniscule amount. A review of the documentary and testimonial evidence pr�'<O~ sent ed shows t!tat is claiming refund nf final taxes that have been withhel d fro m interest income t>arned -":<nd S-3.vJ.ngs accounts mainta~ned 1n Land Bank of the Philippines and the Development B~':l.ni-< of the Phi l 1 p p 1. n e �:_; <"L.BP" "DBP", Y'e s pr::.>ct i vel y, and invest ments in Land Bank of the sa.vings

DECISION -- C.T.A. CASE NO. 5525 - ':3 - deposit account or special savings account as well as in Bangko Sentt�c.d ng Pi.lipinas fi><ed ter'm deposits. This Court takes note peculiarly of the fact except for the current and savings accounts in DBP and LBP <Exhibits D & E, inclusive), the bulk of the above savings and investments of the Petitioner were not deposited or invested in its account name but in th~? name of I\IDC. With respect to its investments, P�~titiotH~t' mf?t'ely presented the certifications of Mr. ,Jol<::\n \l. W~?dingco, ----, Manager of the Treasury Department of NDC <Exhibits F-1, G-1 and H-1) and the testimony of Ms. in the hE!at'ing of CJctobet' 9, 1997 in r.:n��oving that CJUt of th�~ total investments made by NDC in LBP and B,:,:mgt<o St:>ntra.l ng P.i .l.i p .i nas, certain portions thereof belong to the No other proof was adduced in evidence to establish by real evidence the joint participation of the money or asset of the Petitioner together with that of 1\IDC. As such, this Court gives scant probative valu�~ to said certifications and testimony for the reason that they are all self-serving and imbued with partiality of under the Trust executed by NDC, as trustor, to Petitioner's Committee of Tt'USt t!(~~; <Exhibit B--1. ) ' th�~ nam�~5 of ,Tolan V. Wedingco and Ms. Ana L. Garing appear as members of said

DECISION -�- C. T. ;1. CASE !\!0. 1<) - z:�o:nm:L�i:;tEf.~ .. cp�,-�tifyinq ana Ms. Garing 1s testifyino unde 0 oa~h something ~hat IS ~wo of them ~e1no ~ party tn interest to both NDC and herein Petitioner. T~ey may be considered b1asea w1tnesses. corroborative ev i dence, documentary or otherw1se, may be considered sel~-serv1ng. This Couy�t greatly wond er s as to why Petitioner opted not to subm:t documentary eviDence of the existence and the flow or�� tr�ansfe>�' of its money placed in inves.tment~; joint;ly trJith that o i' i\iDC. j_ t s Invested money which 1s II'Jell over ?150,000,000.00 as accounted for' separately In :ts name even �enough it been conglomerated with the account of NDC. fax refunds are in the nature of tax exemptions. As such, they are reoarded as in derogation of sovereign authority and to be C' o n s t t' tu~ d s h�' i c t: i c; c; .i 1r i i u /"' i s a o a i n s t t h e p (;) r' s o n o~ entity claiminq the exemption. The burden of oroof is uoon n1m who claims the exemption in h1s favor and he must be able to justify his c~aim by the clearest q~a~t o~ organic or s t a t u t e law and canna~ be pe~m1tted to exi~t upon vague implicat1o n s <Asiatic Petroleum Co. v. Llanes~ 49 Phil. 466; Northern Phil. Tobacco Corp. v. Mun. of Aqoo~ La Union, 31 SCRA 304; Reagan v. Commissioner, 30 SCRA 968; Asturias Sugar' Centr�al, Inc. v. Commissioner' of Customs, 29 SCRA S 17; Davao L j oht and Po wet' Co. . Inc. v. Commissioner of Customs~ 44 SCRA 122). Thus. when tax exempt1on 1s claimed. 1t must be shown 1ndub1tably to exist, for every presumption is against it, and a well founoed doubt 1s fatal to the rlaim <Farrington v. Tennessee & Country Sht.dby, 9~'.'i l..J.~3. E,7'3,68f,; iYianil.~ El~?ctr�J.c Co. v. Ver�a, L-�C::'3987, Oct. c~2, 1':37~5; l�lanila Electr�ic Co. v. rabio�::;~ . L-2384�7, Oct. c~c~ ,.':."3/':), 67 SCRI-1 351). [Towa Industr�y, Inc. v. Commissioner� of Internal Revenue. CTA Case no. Ma 13, 1'397]

DE:C IS I 0!\l -� C. T .. A. C~=ISE i\!0. - 1.1. - �T. r:. cont l���a~'� t to the above savings account maintained in DBP were duly supported by a photocopy of its passbook showing daily transactions covering the period October 8, 1992 to June 4, 1996 <E><hibit D., ir.c1.,_tsive) while its current and accounts in LBP J.ii-<ew:i.se duly suppor~ted by statements showing transactions made for�� the A�.tgust 1996 to September 30, 1'3'36 (Exhibits inclU.SlVE~)" Out of the ent i r~e claim o.f' the what remains refundable 1s the portion duly suppm�tecl by Exhibits D and E, inclusive .. into account Petitioner's prescribed cla1m the refundable amount of final taxes withheld on Petit i or.er'~ s interest income from savings deposits with DBP and LBP is computed as follows: Savings Account with Amount Amount AI!!Ount Dev' t. Bank of the Phils. Exh. of Clailil Prescribed Refundable 1994 D-10 to D-13 fi 286.86 p 286.86 p 1995 D-14 to D-17 1,111.36 1,111.36 1996 D- 18 364.81 364.81 Pl, 763.03 fi 286.86 P1,476. 17 Land Bank of the Phils. 1995 E-2 p. 272.13 p. p. 272.13 Total fi2l035.16 fi 286.86 91.748.30 WHEREFORE? in view of the foregoing~ the instant Pf~t it :i. on fo�r' F<E�:Vi.<':!l'\1 is hereby PA RTIALLY GRANTED ..

n-�- -r; roN ::.T.A. CASE NO. �- 12 - 5 he1 by ORDERED ~o REFUND t~e amoun t o f P1,748.30 to the Petitioner immedia Plv. SO ORDERED. WE CONCUR: CERTIFICATION I hereby certify that the above decision was reached a � ter oue con~ul'ation w1th t~e members of t~e Court of T1X A~pea!s in accordance Wlth Sectlon 13 , Artlcle VIII L~o~ ERNESTO D. ACOSTA Pt-es.LdlnCi .Juc;Je