CTA Case No. 4130 (Decision)

Republi c of the Philippines Court of Tax Appeals Quezon C.i t y G C L R etirement P.lan, C. T. A . Case No. 4130 x-eprPsented by the Trustee - DirP.ctor, Petitioner, versus - Comm.issioner of Int ernal. Revenue, Respondent. X - - ----- ---- - ------------ X This is a c l a� m For reFund o F the amount oF .J P70,139.00 representing withholding tax on income hank deposits, money placements and oF treasur y bill s pursuant to Presi dent ia l Decree No . 1959. It appear s t h at petitioner G C L P l .~n , is an employees trust set up hy the employ er r ot~ the exclusive beneFit oF i t s emplo ees, to pt� n vi de them retirement pen sion, disabjlity a n d death beneFits. The plan as submitted was approved and qualiFied as exempt From inco mP ta x by respondent pur s u a nt to Republic Act No. 4917. That during the year 1985 up to and including .. ..I,-=~ n ua ~ y 1987 . withholding agents oF t'e sponden t

C . l.n . C AS E NO. 4 130 - DE CISION - withh e ld the 15 " 7 l a ter 20 " Fin a l , .., j t h h o 1. d i n g p e t i t i o net~ ' s depo s its/Money P l .==~c ements and purchase oF t r ea s u r y b i l l s , a s Follows : Name of Bank Amount withheld and remitted to the BIR 1. China Banking Corp. p 10,267. 41 2. Commercial Bank of /1la. 2,001.65 3. Far East Ba nk & Trust Co. 1,750.48 4. 11anila Banking Corp. 11,623.49 5. PISO Bank 29,300.18 6. Security Bank & Trust Co. 1,113.37 7 . State Investment House, Inc. 1,717.76 8 . United Coconut Planter's Bank 12�364.66 T0 TAL p 70,1:19. 00 P e t i t i on e t~ Filed a claim Fot~ reFund with r e s po n dent on January 2 1,1987 a claim For r eFund oF t h e s um oF P 7 0 7 1 3 9 . 0 0 . Pe t i t i on e t~ From money market pl ac ements and purch A.s e o F b i l l s F r om which was withheld the 1 5 "' J a ~er 20 " Final withholding ta.x i mposed purs uant to Pt~ e s i dent i a 1 Decree No. 1959, and that i t is tax e >c e mpt by virtue oF Republic Ac t 49 1 7 and Section 56 (b) oF the Ta.x od- � � Without waiting For respondent to resolve its c l c:dm For reFund, petitioner Filed the instant petition For review.

- -- ... ~ C . J. n. CASE NO. 41 30 - DE CISION - 3 Th e sole issue to be re s olv ~d i s whe t her not petitioner i s exempt From withholding tax on in c ome Ft' om money placements and pur hase oF tt'e a s ury bills imposed pt.tt's uant t o Pt" esident ial De cree No. 1959. Responden t contends that und e r the present law,. Presidential Decree No. 195 9., which took eFFect on October 15., 1984, interest income derived " money mat'l<et placements is s 1b_ject to 15 Fi na l 1 ithholding tax. The laws involved in this c ase q u oted For ready reFe r ence, to wit : "Republic f:lct No. 4917" "Rn f:lct Providing that R Pt i t' e men t BeneFits oF Employees oF Priva te F irms Shall Not Be Sub_ject To Rt t a c hmPnt., Levy, Execution, or Rny T a H wh a t s oe e '. Be i t enacted by the Sen Mte a nd House oF Representa tiv es or the Philippines in Congress a sse mbled : Section 1. Rny pt'OVision or law to the contrary notwithst and i ng, the J' e tirement beneFits received by oFFicials and employees oF private F i rms, whether individual or corporate, in accordance with a reasonable private beneFit plan maintained by the employer s hall be exempt From all taxes and shall not be liable to attachment, gat'nishment, levy or seizure by or under any legal or equitable process /~

c . r. n . c n sE NO. /fl 3 0 DE CJ S ION - 4- whatsoever except to pay a deb t oF the oFFicial ot~ employee concet~ ned to t he priv~te beneFit plan or that ari s .i ng Fr om l i a b i l i t y imposed in a cri~inal a ction : Provided, That t h e retiring oFFicial or employee h a s b e en in the service oF the same employer For at least ten (10) years and i s not less than FiFty years oF age at the time oF his retirement : Provided, Further, That the beneFits granted under this Ret shall be . availed oF by any oFFicial o r employee only once : ProvidedL Finally, That in case oF sepa ..-�a tion oF an oFFicial or employee Ft ~ om the se rvice oF the employe~ due t o death, s i c kness o r other physica l disability or For any cause beyond thP con t rol oF the said oFFicial or empl oyee, a ny a m o u rt t t~ e c e i v e d by h .i m o t~ by h i s he i , ~ s Ft�o m the e mployer a s a con s e q llenc e or suc h separation shall lik e wise be e x empt as hereinabove provided. "Rs used in this net, the tf"rm reasonable private beneFit plan means a pension, gt~ativity, s tocl< b o nus or p r o r i t sha r ing plan m~�nt a �n e rl by a n e mployer F or th e ben e F i t or ~ o ~e or ~1 1 o r h i s o r f' i c i a 1 s and y e m p 1 o e P c; 7 wh e 1~ P i n c on t t~ i but � o n s a t~ e mA d e b y s 11 c h P mp 1 o y e r o t� � oFri ci a Is and emplo yees o t ~ b oth, F or the purpo s e oF di s t r i b u ti1 g to such e r.u~ n .i n g s o f" F i c i a 1 s ..ct n d e mp 1 o r' e e s t h e A nd pt~ in c �p ,~ l o F the Fund t hus accumulated, and wherein it is provided in said plan that at no time shall any part oF the corpus or income oF the Fund thus accumulate d, and wherein i 't is provided i n said plan that at no time shall any part oF the corpus or income oF the Fund be used For, or be diverted to, any purpose other than For the exclusive beneFits or the said oFFicials and employees.

L. T R A. cnsE rto . /' 1 30 - DECI S ION -- -5- Sec. 2 . This shall tal<e e-FFect upon its approval. "Appt- oved, June. 17, 1967." (Underscorin g suppli ed.) in relation to Section 56 Cb ) ot= the Tax Code wh ich reads as .Follows : S e c. 56. Imposition or Tax - a . ) ~pplication oF Tax T he taxes impos ed by this title upon ind ividual s sha ll apply to the income oF estates or ot= a ny l<ind oF property held in t r ust , including. 1.) J<XX 2.) J<XJ< 3. ) XJ<X 4. ) J<XJ< b.) Exception The tax imposed by thi s Title sha ll not appl y to employee's trust which Forms part oF a pension, s tocl< bonu s or p roFit sharin g plan oF an employ er For the beneFit ot= some or al l oF his e mplo yees (1) iF contributions are made to the purpose oF distributing to such em ployees, ot- both For the p ut- pose oF distributing t o such employees th e e.::u- n i ng s .~ nd pt- inci p a l oF the Fund acc umulat e d by the tru st in arcordance with such pla n , and (2) iF under the trust instrument it is impossible , at an y time prior to the satis Faction o F al l liabiliti es w ith re spect to employ - es under the trust, Fo r pa~t oF the co rpus o r income to be Cwithin the ta uable year or thereaFter) used For, or income to be (within the taxable year or the r eaFter ) used For, or diverted to, purposes other than For the exclusive beneFit oF his employ ee s: Pro v ided, That any amount actually distributed to any em ployee or distributee shall be taxa bl e to hi m i n

L~ r. n. cnsE NO . 4 .t.~o PECJS f DN - -6 ~hF year in which so di stribut e d to the e �< t e n t that i t exceeds the amount contt~i buted by such employee or d i s t t~ i but e e � " )( ){ ){ )(X>< }{)()( Presidential Decree No. 1 959 October 157 1984 Rmending Certain Sections oF t:he National Internal Revenue as amended. Whereas, the cut~rent economic cris is amounts to grave emPrge nc y which eFFects the stability oF the nation and requires immediate action ; Whe reas , the issuance oF this decree i s an essential a nd n ec es s.:u~y compone nt oF the nation ~] E>conomic recovery program Formulated to meet and overcome the emergency. ){)(){ )()()( Section 1. R new S ub section ( y) Section ;=?O oF is inset~ted in Revenue Code to the ,-� e�.=td N ~t ional I n t e r n a l as Follows : "(~/) Deposit subc;t�tut~=> shall mP ~n an a lternativ e For nF ob taining runds Ft~ om -the publi c o f;hrJ�' th -~ n deposits, through th e issuance, indorsement, or acceptanc e oF debt i s nstt~ument Fot~ the s bort~owet~ ' own acco unt, For -the purpose oF relending or purchasing oF receivables and other obligati ons, or Financing their own needs or the needs oF their agent or de a 1 e r. The s e prom i s o .-~ y not e s 7 repurchase agreements, certiFicates oF a ss ignment or participation and similar in ~ trument with recourse as may be auf; hot~ized by the Central Bank oF the

C.T.n. cnSE NO . 4130 - D - C I S ION - - 7- P hilippines For banks and non-bank Financial intermediaries or by the Sec ut~i t i e c; and E)(change Comm i c; s ion oF the Philippines For commercial, ind I Stt~ial, Finance companies n. nd o . het~ non- Financial co mpanies. Provide~ however that only instruments issued, For interbank call loans to cover deFiciency in reserv e s a g ainst deposit liabi lity including tho se betwee n or among banks and quasi-banks shall not be considered as depo sit substitute debt instruments." Section 2. Section 21 (d) oF this Code as amended, is hereby Further Amended to rea d as Fo ll ows : "(d) On i nt erest From bank depos"ts and yield or any other monetary beneFit From depos its s rbstitute and From trust Fund and similar arrangemen t s. - InterP st From P h i l i p p i n e cln~t~enc).-� bank d e p o s i t s and yield or any other mon etary ben eFit Ft~ om deposit subst i t u t e and From tt ~u~t Fund and similar arra ngements whethPr received by ci ti zens oF the Philip pines ar ~ by t~ esident Alie n individuAls, s h a l l be s u b J e c t t o a 1 5 " F i n a 1 t: a J< t o be collected and paid as provirled in Sections 53 and 5t~ oF thi s CodP." Section 3. Section ~4 (cc) oF t h i s Code, as amended is het~eby Further amended to read as Follows : "(cc) Rates oF tax on interest Fro~ deposit and yield or any other �onetary beneFit; Fro� deposit substitutes and Fro� trust Fund a ~d similar arranQements. Interest o n Phi lippine currency bank deposits and y .i e 1 d ot~ any othet~ monetary beneFit Fr m deposit substitute and From trust Fund and similar arrangements received

C. f .(}. CflSE NO. '4130 - DECIS ION - - B- by dome st~ c or resident rorei gn cot ~ pot�~ation sha1 1 . be s ubj ect to A 15 " Final tax to be collect~d and p~id as provided in Section 53 and 54 oF this Code. " Section 4. Section 53 (d) (i) oF this Code is hereby amended to r ead as follows : "Sec. 53 Cd) Ci). Withholding oF Final Tax - Every bank or non-bank Financial ineermediary or commercial, industrial, Finance ~ompanies, and other non-Financial compan ies authorized by the Securities and Exchange Commission to i ssue d e po sit substitutes shall deduct and withhold Ft-om the intet ~ est on bani< deposits substitutes shall deduct and wi thhold Fro m the intere st on bani< deposits or yi el d or any other monetary beneFit fro m deposit subs titute a Final tax equal to F iFteen g_er centu� (15 ") DF the intere s t on deposits or yield or any other monetary beneFit From depo si t substitutes and From trust Fund and s i m i 1at~ at~t-angements". Furthermore., it is undi s p uted that GCL Plan was qualiFi ed as exempt Ft~ om income tax by the Commissioner oF Internal Revenue in accorda nce with r?epublic Ret No. 491 7 approved on 1 7 J une 1967, Nhi c h reads as Follows : Section 1. Rny provisions oF law !;o the contt-ary notwithstanding, the t-r:?tit~ement beneFits received by oFFicials and employees oF private Fit~ms., wheth et, individual or- corporat e , in accordance with reasonable private benefit plan maintained by the employer 8J.. I A

C ~ T. R . CflSE 1\10. LJ1 3 0 - DECISION - - 9- s h a l l be exempt; Ft~o_l!!_ a l l ta~ and s h a l l not be l i a b l e to attAchment~ levy or seizure by or under any legal or equitable process whatsoever except to pay a debt oF the oFFicial or e ployee concerned to the private beneFit plan or that arising From liability imposed in a criminal action; xxx (emphasig ours) regards employee's trusts are concerned, the Foregoing provi~ion should be taken in relation to then Section 56 (b) (now 53 fbJ J oF the Tax Code, as amended by Republic Act; No. 1983, which took eFFect on 22 June 1957. This pt~ovi s ion speciFically exempted employee's trusts From income tax a nd is repeated hereunder For emphasis : "Sec_. 56. Imposition oF Tax - (a) Application oF tax - The taxes imposed by this Title upon individuals s hall apply to the income oF estates or oF any kind oF p~~ope~�~ ty h e l d i n tt~ust., XXJ( XJ< )( XXX "(b) Exception -The tax imposed by this Titl e shall not apply to employee"s trusts which Forms part oF a pension, stock bonus or proFit shar ing plan oF an employer For the beneFit oF some or all oF his employees X><X" Rnd the rationale behind t h e creation oF trust or beneFits plan is to provide economic assistance to employees upon the occurence oF contingencies, particularly, old age /~ 82

..) C.T . ~ . C~SE NO. 4130 - DECISION - - 10 - retirement, death, sicknes s , or disabil i ty. It aFFords additional and independent protection For the working class. Tax - exemption should likewise be enjoyed by the income oF the pension trust. Because iF this would not be so, taxation oF the earnings would eventually result in the decrease oF accu�ulated income, thus reducing the beneFits the supposed beneFiciaries which in eFFect runs � counter to the very purpose oF the law. Further, the deletion in Pres. Decree No. 1 959 oF the provisos regarding tax exemption and preFerential tax rates under the old law, cannot extend to employee's trusts. The said Decree, being a general law, cannot repeal by implication a speciFic provision, Section 56(b) (now 53[bJ> in relation to Rep. ~ct. No. 4917 granting exemption From income tax to employees trusts. Republic 1983, which excepted employee's trust in its Section 56 (b) was eFFective on 22 June 1957 while Republic ~ct No. 4917 was enacted on 17 June 1967, long beFore the issuance oF Pres. Decree No. 1959 on 15 October 1984. ~1 so, a subsequent statute, general in charact et~ as to i t s terms and application, is not

C.T. n. Cn S E NO. 4130 -- DECISION -- - 11 to be construed a s r e pealing a special or specit='ic enactment. Thi s i s so even i f' the provi s ions ot= the l a t t e r at~ e sut=t='iciently c omprehen s ive to include what was set t=ot~th in the spe c ial act (Villegas vs. Subido, G.R.No. L-31711, 30 September 1971, 41 SCRA 190>. It is undeniable that the t='inal witholding tax is collected -From income in respect ot= which employees trusts are declared exempt CSec. 56 [bJ., now 53 [bJ, Tau Code). The subsequent application ot= the withholding s ystems to intere s t on banu depo s its or yield -From deposit substitutes is essentially to max imize and expedite the collection ot= income taxes by requit~ing i t s payment a t the source. In this connection, GCL which is an e mployee's trust enjoys a t a x - exempt status -From income, we -Find it absurd in withholding a certain percentage ot= that income which it is not obliged to pay in the -First place. It should be noted that in the same case of' Co�trtissioner of' Internal Revenue vs. The Honorable Court of' Appeals, et. al � ., G.R. No. 95022., which decision by the High Court was promulgated on March 23., 1992., it maintains I .)

c. r .R. cnsE NO. 4 1 30 - DECI S ION - - 12 - the same conclu s ion, t hat indeed G C L Retirement: Pla n is exempt: From Final withholding tax on income and that: it: enjoys a tax - ex~mpt: status in t:his aspect:. ln v iew o F t: h e Foregoing , respondent: Commissioner oF Internal Revenue is here b y ordered to reFund t;o petitioner the sum o F P70, 1 39.00 r e pt~ e sent; i n g wi thholding tax on income. No pronouncement as to costs. SO ORDERE D. Quezon City, Metro Manila, February 18, 1993. ( GRUBf:l Judge WE CONCUR : q,~ Q, ~ STO D. llCOSTf:l f:l ,..,._' J.. I~ D1(~ Rf:l MON 0 . Rssociate Ju ge so

.. . C.T.A. CASE NO. 4130 - DECISION - - 13 CERT:CF:CCAT:CCJN I hereby certiFy that this decision �was reached aFter due consultatiort among the �embers oF the Court oF Tax ~ppeal. s ~' n .Ii accordance with Section 13, ~rticle VIII oF the ConWtitu~ion. ~o... ~ ERNESTO D. ~COSTA Presiding Judge Court oF Tax ~ppeals i0 83