CTA Case No. 4218 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS L!UEZON CITY CITYTRUST BANKING CORPORATION, as Trustee o~ various Retirement Funds, F'Pt it]. on et�, ��� v e 1�' ~~ u <:; ���� C.T.A. CASE NO. 4218 COMMISSIONER OF INTERNAL REVENUE, HespDnciPnt. X ..... ..... .... ..... ..... -.. ..... ------------- X DECISION t h f~ !Jel�oi�"�(:; I..J::; f'ui�' cnns:i.der�-atiorl i~; a ..JUdJc:ia.l. c.l<:tim fo1�' t'' e i�u n c! o I n f' :i r�, ;,\ .l l; c:\ >< f? s a .L 1 f? e c:l 1 y e r"� r�� o n t-~ o u <..; l ;.' 0:1 n cl I o r' .l.l.lE'!]D.I. .I.y VJJ.thhe.lLI -:Hlcl co.L.i.<?Ct(~Li h�om the incomf~ der��ived v ,,,, r�' J. o u. ~~ t' e t :i. t' f? mE� n t 'funcl~:; (funds I"Ol��� Ln��<~�v.lt:y> ., ..r�um th(~J.Y' �,.-.(~�;.pectiv<:� bani< depo~5its and i n v e ~; t rfl e n t: ~; in monpy ciE'posit substitutes and securities during the calendar years 1Y85 and in the amount of p 1 o, 181' bbb. ':Kl c:\nd I..J'f./1, ':J'~JII, 1.~':}0. UU~ f''PSpec:�t:i.vely. P P t i t :i. o n e t' i s a c o rn rn E~ 1�' c i a 1 ban k i n n c o t' p o 1� � '~" t :i. o n cl u J. y ur�q,:tn .i ;;: ��:~d inq ;:_\ 1i ci (-:' t\ ~ .L :�; I; 1..\lld ("' , ... ,3nd b~' vi j���t IJE' of l)h i 1 i ppinP .1. tH�J<:;. It :i ~~ c"tut hoy� i z �~ cl tu p e t' f o r�� rn tr..�u~:;t lunct i on~; <:\ntJ fJ ,--, r ,:, u

--......- DECISION - C.T.A. Case No. 4218. 2 I11 a. c t J. n y '"' " ,:.\nd ''-' n Ll t' e i f1 v e s t e U nf t;he funds in sc:wings anci time d�.!poslt~:., t t' t~ as u t"r ~J .1. .1. .l s with vat' 1 o '�' �; ban~<ing and financial in!:tii.:ut:i.on�~. earned by the funds, the !P�;;~,:�.t�.tt.ton!:; withheld a final tax of 15'/. pUt'suant to the pr� o �,; :;. s 1 on s c f� S c c 1; 1 o n c.: l ( d > , n o t'l S e c t i on 2 1 ( c ) , i n t'e 1 a t ion t o Section !:"J3 (dl <U, now S e c t i o n 51 (a) o f t h e Un Dec~:nber� lb, 1 '385, a super�vening event made [' ; 1ncome ea1�ned by th~~ funds ! e xemp \"; h�um t<1.><ati.on. lhis was bt�ought about by the p1�omul~]at ion Lotwt of its dec1sion in the case of GCL Retirement Fund vs. The Commissioner o~ Internal Revenue, ClA Case No. 3888 ~~IJet'fdn tile Cour�t confit'med the e><emptlon of qualified iJ1�~1n�; Republic Act No. ttle 1 nco me or� yield der1ved by the GCL Retil'ement Plan money placements and pu1��ct1ase of tt't?Cl.S'-tt'')i tnl.l.s n:.� e t i t i 0 n ' ':3; P� ClA records and letter claim to

- DECISION - C.T.A. Case No. 4218. 3 r-o !:l�:'li<'IS i the Commissioner~ of tJ 'C\ t.:~ u n �.l~. c::r::mbl2l' 2':1, the 1~88 for the year 1986. Taken the t:J.,2t:~ms .:Jmounted to 1.-'Jh i ch when b l'' o i�< e n L~ o ~"it r cur\'5L~>ts:; of the ah~eady afur�ementionec.l the years 1985 and 138G, respect1vely. i':hiJt the -t: 1��1 o ��- y <~ <:'<. t' p t~ e <:.; c 1� � ::. p t J v !~ to commence JUdLclal proceedings for the recovery of the tax illegally ~ollected was 0bout to exp1 t'e and that thi? claims for refund were ~;till H<incs, th:i.s ap~>ea:i. .. In i t <;, a me n ;i P d pet1t1on f1led on January 14, 1988. 1-'Et :it :i.OriC7\. the L:umm:i.ssionet�, and further alleged that the different c'.ncl t�.Lli":..ncc.�::.ll 1nr;t; i.tt.tt ion!;.1 ~~~h:i.ch i TH.; >qJ 1 i cab l y 1ncludes itself, cantinued to withhold taxes on the income of the funds i1��om investm~!nt;s. J:n ansltHH~, r~esponded ctJntended, intet~ alia, that: a) Any amount claimed to have been withheld must be shown to have been paid to the govtJ.rnmE)Ilt ~ and j n the case at bar, no showing has been made; and

DECISION - C.T.A. Case No. 4218. 4- !::)) C�~mtr�.:�i���y i;o pr-. 1.;itl.DT\Pl'''s PE'l'Tt!ptlon <":\ n c:i b e l 1 s~ t' , 1.; !1 e e x e mp t 1 o n o f e mp 1 o y e e s t t' u s t funcl:; ir':JIII l�vl.tllhulcl1.nq taH on inter��est ft'om bani-< depu~;1ts and yield ft�om deposit sub�.;;tJtutc's .::n"ose f~�om Section ~::l (d) and 24 (c) of the Tax Code, before amendment by ~res1dent1Rl Decree No. l959 and nut from Republic ~ct No. 4311 and Sect1on 55 (b) of the I a><: r:.:ode. Later development would reveal that the legal issues by the part1es hav~ been evPntually resolved by the r..:oui���t Commissioner of Internal Revenue vs. GCL Ret it�ement Plan f\1 0 " March 23, 1932; 2U7 SCR~ 487>. It must be noted that the l. iO:: t t e t' c c :3. �~ (? a f f i 1�� me Lht' clec:i�;,ion of tl1i:; Cou1�t. ovPr' the c:rn ~sdmE= lr'Ji1.:.ch lfJd"> dor::ke:;t-:~d a quo as C21~;e No. J.n L: o u r�� t s t; a t e c1 , i n par' t , t i lf.t s l y : . "ln '::;o 'f'.::1.1�' as E�mployee�; 1 tl~usts al'��e concet'ned, the forego1ng prov1sions should be taken in relation to then Sect~. on ::Jb (b) Lnow ~53 (tJ) J of the Ta}-: Code, as amE'!nded iJy Reo. (.)(.:�t No. 1'3!33, supra, which took effect on ;~~;=: J:..mp 1'3:5'/. llns pr�ovl.sl.on !opecificaJ.J.y f2HE!mptc.::d employees~ tr�usts fl�'olll income tax .-3nd is ~'E!pc.:\t ecJ i'lL'l' E UlidJ�'�; � r Dl'' cmpha<:> i ~;: ''Sect ion 5b.. l!itpO�>itlOII or� ;�.:.IX.� \<.d l)i-.J1~.'1.i' ./ t..:�a t; .ion o/ Jc.�!."" ... lhE.> taxes j,mpu~;;.,�Li h';i th i "' "li.tle upon inchvtduals ,,;hal.l apply to t11e inc u mE.' t� �i ~~ s t �o~. t t' s m�� o �1 any 1-: i n c:! of pr' ope 1�� t y h e 1 d .t. n t r�� u '3 t; � ��OJ) f::xception.---- file tax unposed by this Tj.tl.e si1.:~.J.J not apply to E?ntployees' tr��ust v-;r1ich f01���ms pa1��t of a petls:i.nn, stock bonus or� pr�ofit �>l1c:\l''iny p!<:.J; u1� an emr.;1.loyet' fo1�' t1�1e benf:li'~.t of s o me o t' a 1.t o f h i s e mp .l CJ y e e s x x x � "

DECISION - C.T.A. Case No. 4218. - 5- 'iht:� L-J.>(� E><f?mp'.lUll P'''J'!::.l.EqP of ~'mp:i rl\.!rocc;' Lrusts, ao dlsti~qu1shed trom any other k~nd of f.J r�� i..J ~-' E r�, t i l 1t:: J. Li i n 1,;;��.\o;t, ::pY�.:.nq�:, thl:~ fUi'ElA'�;j�\!,,1 provision. [t ]_ ~;, I}. f \ c:'. iri b .t ~:i '.J Cl U ~: � f71,:_\ 11 .l f (? 5 t �'� s tll:.:il 1- .��� , l '''' \�.: i , a ~:; s !. n u J. r:� d !.l u t ..... C:'li\ tt'U'~':;s. fU"1' tax c0xemption. l' .L ~:;I'!.: .l ';' s u ., lTv vi ~��t u e de' e t r e b r::; 1 '� r: u �, 1' '~ c r�edt i on o f em p 1 o y' <::' '2 s ' 1:.: 't'' u ~:; t ::'j �: L. ~Y! J..: -~. o y t:0 ~_.._, ~:.:, .. L '., u s t: s o y�� bE 1~ e f i t ~- >J .C:l ! l s normally provide economic assistance to e mrJ J o y ~~ P s u p n n t It '"' D c c :..'. t' t' e n c e o r c e 1�' t a i 11 contingencies, particularly, old age r�� e t ::. t � P mE' rd. , d �? a t h, s i c 1-: n e s s, o t' d i sa b :l J. t t y. I i; provides security against certain hazards to (-Jhict1 m~mLlf;l"S of LiH? Plan may be e:<posed. ll i':- an 11iclependent ,'3.nd addit1onal sour�ce of pl�.::\;~:>ct:J.on fol' the \�;cn��l(lilg ~~r�o�..q:l. l�.il1at is tn u t' <:? , i t 1 ~; e s t a iJ J i s h e d f tn' t h e i r' e x c l u s i v e bE'nF-'fit anc:l lor� r1o otl1er� pu1�'pu�.;;t�. The ta>< <?.clvantage in Hep. ~ct No. 1':383, Sec\~iur1 ~jb (b), was conceiv2d in ot��clet' to encourage the formation and establishment of such pr�l.vate 1=-'lans fot� the benefit of J.abOt'et��s and employees outside of the Social Sectwity Ret. Enlightening is a pot'tion of the explanatOr'Y note to H. B. No. 6503, now H. A. l':h:U, l�'eading: " Con s i d e t' J n g t hat unci e r�� Sec t i on 11 o f t h e S(.!L.i.C.d Gecur'ily net, all contt'ibutiOTIS collected and payments of sickness, unemploy'Wt.'nt, r�e�:;ii'Etnent~ disatlllity <:J.nd death beTH! I t 1:; s l'l,s.LI e t i 1e1�e und et' together Hi th the income of the pension trust ar��e exempt h�om any L:ix, d';::oessment, fee, or' char'ge, it is pt'oposed that ,::~ si.mi.lat' sys;tem pl'OVlliing fat' t'etit"�c?UieTd;, e t s � t b ~~tHo? f i ~:; for~ e mp 1 o y e e s o u t s i d e t h e Soc i a I SE'C:Ut'�ity net l>e f?l<empted fl'OITI income taHeS. !I <Congressional Record, House of hepl��espntatives, 'JoL 1\..', Par't 2, No. ~i'f, p. H3::)'J, l''iic\'f J, 1'::1~5/; cited in Commissioner' of Internal Revenue vs. Visayan Electric Co., et al., G.R. No. L-22611, 27 May 1968, 23 SCRA 71~) 1~al1cs suppl1ed. 1t .t'=� evillent thdt t,:\x-exempt 1on is to be enjoyed by the i.ncomc? of \:he

DECISION - C.T.A. Case No. 4218. - 6- pen~1on t r u s t . Otherwise, taxation ot those earning':; wnu.ld 1��esuJt in a diminution of e.ccu!:l'. \.l..:,.l!.;r.:d incomp cHILi t��ed,Jce whatevet�' the trust beneficiaries would receive out of the tt��u:.,!; �f�..tncl. -1-his I'JOIJld ~~un afoul ot thP VPl'~'-,' i n t e n 'J :n (~ n t u f t i1 e 1 a~t-J. T!l <~ unly r�ema:ininl;:t issue to be resolved thus is the �:>ntit lelllt!Jll.; claim Oil thp l.J e ,., e s o 1 v e t o d t-; n y t h 1 ~=, p e t :i. t i o li � bol�'n e �c;, the t~ecot�c.i petitioner adduced in f2 ._, i. d E n c E' t h c f o :t :t N-.1 1 n ~:.] e x h i Ll i t s ~ t o w i t : L) 'lhe v<:w�J.ou<=:. t~�ust ag~�eementr.>, the 1' (~ �!:; i l � F� 111 t' n t 1:_- L:'. n ~:; , i:.l.n d l:\3: f~ .l P t t; e ~� s o t a p p ~� o v a l of" i:;he i"'el: ll''ement p.lans as cumplying ~-11i.th the "n \"' !:~ C.l'J 11 em"'-' n �!; s u f r~:. t'-1. N0. !.!�'3 j 7 ( F }{ h i bit; <; t II 0 "l" anci "1-1(..)" to "fr11V1", all inclu~~ive of sub-- Hi <::l.: ' '-< 1 n ~; "' ) 2.) Non-Neyutiable Promissory Notes .:md t hc c n r� 1� � e s p u n d :;, n g r~ 3. }: e d I nco 111 c~ Secta�� it i e s t:::�l_a,_~ements U:�->dltbit;; "1'-JI\i" t;o "4'+ U-1") .-:;. > L.1st u f inv~~stments in 1 nt er-E'<; t bearing loans made by pet1tioner's Tr��ust and .1. 11 v t-> ~;I~ men t l) e p,;.u�t; men t; in be h .::d f of the vat�ious Funds for the years 1985 and 1986 (EHhibits "11::J�--�B" to "i!~J��B-�cA) l.j.� ) Summa1���-r u f the Pt~o miss rH'Y Notes 5.) Uuarterly Returns of Taxes Withheld on" Intet�est Paid tJy Banl-<s c:md L!uasi-�-Banl-<s prepared and filed by Petitioner's Trust and 1 n v e s t rn e n t D e p a,.� t me n t { E >< h i b i t s " '-t- 5- D " to "4~'5--M", all inclusive of sub-mat��kings); and L::.s i:.l y.1 b. l he testimony of witness, 1-lbel.lo on the f o r' e g a i n g rrli''S. i~f!llleci:LOS e 1d11 tJ it s.

DECISION - C.T.A. Case No. 4218. - 7- '"- f Ot't?q UCi t; ed e :d1 i b i t s l�'e.:Olc.1ily shov�J us that pc-!ti.tlonet' failed to establish p-::11 t;ici.p,:,;tlun of the func!~; inv�Jlvec.i he r'e in to the specific investments IIID.t.iE 1. '3E;::..i and. 1. 'JEk.i. among i;h�.:: sutJmltted e >(11 .L bits and the contents 'J i t: .: t~"a;,sct'ip-\; o�f'� stenographic notes of the hear� i ngs conducterJ in the case at bar could we find any mention of each of the func: s as having been engaged in an invest men<; fol' c\nfJ :J.tl theit' behe~.!.f. Rt least, the ty�ust account numbet�s l1 st ed .in the� v 21�� :. '-' '..i. c; F :i. :--: ptJ� �lnctJ ITit:o' Sr::t.:tw .i. t i e s P 1 .:~.cemt~nt s ( F ISP), supra, co=_tl.d hdve uf the situation if indeed they not but he t"' '.: o Identify ancJ intt'OdUC�G in evidence the ty�ust o t�� sa v i. n y s account r11..tmbe1�' of each the Funds a.nd vigilant efffJt't to correlate them to those U.sted in the FISP in pt'ave theit' indub1table participation therein. Returns of laxes Withheld submitted p f-! t; i t i o n e t' a s proof of withholding and

DECISION - C.T.A. Case No. 4218. - 8- taxes to the DlH do not establish with the fact of actual rem1ttance of all the taxes the 1ncome of the funds. l.JP ha.ve obset�ved t hat t h e t o t a 1 o f t h e ,..., i t h h o J. d i n g t ax e s t' e mi t t e d t o t h e B J. 1:~ p e t' r� t'! t u r� n s to ~35,B05,US7.62 as compat'ed to the ,:;~.mount of the claim which is ~�Je r1avt~ also noted that thf~ t'etut'ns wet'e all filed 1r1 behalf of' Citytt�ust Banking Cot'pOt'ation, as a w1thholding agent. On this point, we would of tht.' ultimate facts alleged by the pet i t i on e t' in its amended petition for review which we q u o t e , i n pat't , t h u s : "'1. In 1985 and 1986, petitioner', in the exerc1se of its powers as trustee and 1nvestment manager, deposited, invested and reinvested the assets of the Funds in savings and time deposits, money market placements, and in securities (including government securities, such as lreasury Bills> with various banking at1d fin.::':l.nci.al institutions, inc;luding Citibank N.A., Citylrust Banking Corporation and fthllt inat 1onal Hancol�'pOt'at ion, ft'om which the Funds '::'!at~ned income. The said banking and financial institutions, however, erroneously and/or illegally withheld the final tax of 15% pt�uvic:led undf~t' the fcwmet� Section c~l (d), now Section 21(c), in relation to the former Section 53\d), nm-J SPction 5l<a>, of the NIRC, ft' o m t he i nco me rn�� y i e 1d d e t' i v e d by t h e Fund s on va.r��J. c us d.::~t e s d u1��� in g c,?,l end at' y ear�s 1 '385 and l ':H:iG ~ as f o 11 o ~�~ s : ><X>< XXX XXX I h e am o u. n t o f t ax f.'~ s s t at e d abo v e we l'' e ~~~ i t II h !~ 1 d by d i f i e l"' P n t b .::m I< i n q C:\ rHJ f i n c.<. n c :i. a L i n s t 1 t u t 1 o n s

DECISION - C.T.A. Case No. 4218. -9 schedule tli(:' 2nd1ca::;ecf nn a�:; ~!nne>< "(.)'' I.; U fOl''lll hereto attached amount on the atJove a.J.leg;:~+.:1on 1 i t 1�:; cl.f~ai' tr�;at; the of the and be:tng claimed by pr:.�t :i.t icne.~�� by dii�f~;�r�Pnt Llanl�<ing a.nd fat� the years 1~85 and 1985. ~�Jh i J e p c t; L L i. '.J n �? 1� 1 :,; i :1 c .!. u t:l (~ (j :01 '3 Glll' of the ili~:;'LJ.tu~.lons t .) 1..1:5 can nut und et��s t .:~nd why is only pr�e'!:;er,t; 1 n!,J r� P t I.H.. Tl S 0 i tc:u<.es for' the amount of admits o 1" the fact tha\; financ1al institutions also w1thheld on thP alleged tr�ansactions ent et�ed into by the funcis. Uuch other institutions were obviously the ones who remitted the final taxes they withheld from their own P e t i t :i o n e t�� , as tt�ustee, should have end r~a v ot�ed to pt�uve ti-l:' acluaJ tfJntittancf~ of ti-le taxes so withheld fl-�om the i nco me d e t' i v e d by the funds fr�om their respective tl''dnsac~ti.clTls ltHt:h the other� lnstitutions. Jn addition, the submitted quat�tet�ly r'ettwns do not cj e mu n s t r' a t e the fact that any of the taxes allt;?ged to have been withheld really forms part of the larger amount y�, act ua ll y r' '"" o i t t E' cj t o t h e f3 I H by h e t' e :i. n p ~ t i t i on e in t he absence of a detailed and complete schedule of all the

DECISION - C.T.A. Case No. 4218. - 10 - k i. nd s of final taxes withheld by it ~here the parlicular k1nd and amount of taH 1nvolved herein can be verified The preceding circumstance is even made worse by the ol any allegedl; earned by the funds ft�om the other institutions. Consequently, We can neveJ�' detP)'mine t1�1e spet~::.fj.c amount of taxes ~..;ithheld by such institut1ons. ~..Jithuut evidence on the amount of taxes w1thheld by the othe1�' lnstitutions, plus the fact that pet i t i o n e r� failed to establish the participation of the i"Unds in its OI�Jn investment activJ.ties above discussed., thus left with no but to reJect the instant claim. "lt 111 ust be str�ess~:)d .at th1s point that a J�-�efund of p.:n�t ak e ,_; the E' :�< e rr: p t ::. o n and is cnnstr��ued :i.n f avO'(' o 'I t n !'? t a l< i n ~l i:\IXt h Ol�' i t y .. " tCIR vs Rio Tuba Nickel Mining Corp., 207 SCRA 549). fr�om above, we observed that pet i t; i one r~ fa i 1 e c.1 t o sub mi t�; e v ide n c e on it s cla1m few pt'omis~;rH'Y notes covet��ing the month of J<.:1111..\c"il~v.

DECISION - C.T.A. Case No. 4218. - 11 - 1985 has already prescribed, because the payment of the tax for the third quarter of 1985 was made on the 25th day of October following the close of said quarter as required by Section 54 of the Tax Code (1984, ed.) and which when reckoned from the date of filing of herein petition on December 29, 1987 is clearly shown to be way beyond the two-year prescriptive period for the filing of a judicial claim as provided in Section 292 of the same Code. .- WHEREFORE, in view of insufficiency of evidence, the instant Petition for Review is hereby DISMISSED for lack of me~~it. SO ORDERED. ~ ..v.:x; IS2..- ~ ERNESTO D. ACOSTA Pt' e siding Judge WE CONCUR: RAMON 0. DE U L. u-~ \.)

DECISION - C.T.A. Case No. 4218. - 12 - CE RT I F I CAT I 0 N I hereby certify that this decision was reached after due consultation among the members of the Court of Tax Appeals in accordance with Section 13, Article Vlii of the tonstitution. ~~~lv- ERNESTO D. ACOSTA Pt~esiding Judge Court of Tax Appeals