CTA Case No. 4595 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY PACIFICO T. TORRES, P e t i t ioY.et~, C. T.A. CASE NO. 4595 COMMISSIONER OF INTERNAL REVENUE, RespoY�deY�t. X- - - - ------X DE C I s I 0 N This case involves a claim for refund by the total amOUY"It of P42,484.00 ac~umulated unused vacation and sick leaves, as well as the excess withholdiY�g tax OY� salat~y of As gathet~ed ft~om the t~ecot~ds of t h i s case, i t appeat~s that petitioY.et~ Pacifico T. Tot~t~es was an employee of the CeY. tt~al BaYd{ of the PhllippiY.es from August 16, 1954 up to September 30, 1988 wherein he retired upon reaching the compulsory age of 65 yeat~s old. The said petitioner at the time of his retirement effective Octobet~ 1, 1988, was occupying the position of 136

DECISION CTA CASE NO. 459~ - 2- Assistant Director in the Legal Department of the Cerrtt~al Barrk of the Philippines (Exh. "E", p. 50, During the period that said petitioner was employed in said g ovet~rrmerrt agency, he had accumulated unused vacation and sick leave credits with morrey value amor.mtirrg to P186, 117.97 at the time of his compulsory retirement (see Exh. B-1, p. 45, CTA t~ec. ) � From said leave credits, the amount of P41,084.75 was withheld in payment of income tax due agairrst petitiorret~ arrd t~emitted to the But~eau of Irrtet~rral Reverrue on Jarruat~y 10, 1989 (see Exh. "A", p. 42, CTA t~ec.). Orr Apt~il 15, 1989, petitiorret~ .jo:�irrtly with his wife f 1 1 ed his income tax t~et ut~r, fot~ 1988 ( Exh. "B", p. 44, CTA t~ec.) showirrg that the to:�tal tax due the go:�vet~rrmerrt is P14, 034.00 as agairrst the amor.mt withheld by the govet~rrrllerrt of P56,517.95. the total t~efurrd of P42, 484.00 <Exh. "B-3", p. 44, CTA t~ec. ) � This total amourrt irrcludes the amourrt of P41,084.75 which refers to the tax withheld from the cash equivalent of petitioner's accumulated vacatio:�rr arrd sick leaves (Exhs. "B-1" and "B-2", pp. 44-45, CTA rec.). Howevet~, petit i orret~' s c 1 aim 137

DECISION CTA CASE NO. 4595 - 3- Thus, or� Nov ern be t~ 6, 1 '3':3<7.:, petitioner filed a formal clai m for refund of P41,084. 75 which is equivalent to the cash value of petitionel�~'s accurnula ted vaca tion ar�,d ~:;ick. le,?.'lvef.; tnc lud1ng the amount P1,39'3.25 representin g of P42,484.00 before respondent Commissioner of Internal Revenue <Exh. "C"' pp. 46 and 47, CT A t�'ec. ) . letter dated February 14, 1991, respondent den1ed petitioner's claim for refund. This denial refers only to the amount of P1,3'39.25 and does not touch on petitioner's cla�n for refund h1s appeal to this Court. The issues posed in this case are a~ follows: :l. Whether' petit:i.onet~'s tet-�minal leio\\/e pi:\ Y llpon the g 0\/E!l.~l'lrrtel'lt service is subject to withholding tax; and if not, �:::. Whet he~~ t~es pol'�de..,.,t Comm iss i onet~ of '��~. Internal Revenue is liable to pay interest nn the withheld tax on the money value of accumulated unused vacation and sick. leave credits if found due to the petitioner. 138

DECISION CTA CASE NO. 4595 - 4- The Second Div1sion of the S upreme Court in the case o f Commissioner of Ir.ternal Revenue v. The Court of Appeals and Efren Castaneda, G. R. No. 9601E� elated Dcto:::�hf.?"r'' 17, 1g9:1. ~'u1ecJ C:'IS follows: I XXX XXX XXX The Court has already ruled that the t er'm ina 1 1 eave pay t'ece i ved �-- _l:lY....__.�. o:.- .. -::;:�- qov:er'nmey,,-; ~-�~--= err:!_Q) oyee 1 <;,; rr~2t.1. 1~, s;ubject to withhc~lfling (iy�,cor.. the r'ecerrt case c�f Jesus N. Bo~-��r'orneo v. The Hon. Civil Service Commission, et. al., G.R. No. 96032, 31 July 19':H, l~he Court explained the rationale beh1ncl the employee's entitlement to an exemption fi"����m withholding (incomE?) tax cw�, h1s terminal leave pay as follows: ' X X x commutatiort of leo,,E cr�eclits.;, mor�e commonly known d� t er'rrll na 1 leave, 1s applied for' by~ an officer or employee who ret1re~, ~'esi~J"r"rs or' i:~ sepa~�'c.d;ed from the ser'vice tht'ough no fc:~ult of h ts own. f Marrua 1 o:-:.rt L..eave Administration Course tor Effectiveness publ1shecl by the Civil Serv1ce Comm1ssion, pages 17). Ir, the exer'cise of sc��.mcl pet'so::.r,y,e 1 po:::o J. icy, the Go:.�ver��nrnc�r�,t encourages unused leaves to be ace urn u 1 at ed. The Gover'nrnerrt recognizes that for most public ser'VdY�.t;s, r�'etir'errlent pay is always lE?~;s than gener'O:�I..IS i f rrc�t meaqer�� and sct'impy. A rr1oclest nest e1_:]g which the seniol' citizen may } .... ' fol�'wc.�n'd to :1. , thus avolclecl. Te~'ftlirral leave pi:\yments ar�'e ~~iYEl'1 r ro:�t only at the same time but a'<,,., for' the same policy con��;ide~�ra-1"1 "' governing retirement benefits.' 139

DECISION CTA CASE NO. 4393 - 3- In fine, not being part of the gross salary or income of a government official or employee but a retirement benefit, terminal leave pay is not subject to income tax. <Underscoring supplied) XXX XXX xxx" It is that in mer.lot~andum, he does r-.ot questior-. the t~ight of the Responder-.t notes Ol'"1ly that pet it i c�net~ lacks documentary evidence to support his claim documents submitted by petitioner are alleged to be ir-.admissable, ,-as they at'e r-.ot pt'opet~ly ider-.tified pursuant to Sec. 31, Rule 132 of the Rules of We find this contention without merit. the heat~ir-�g c�f this case or-. Octobet~ 7, 1991, the admitted all of petitioner's documentary evidence at the time they were offered the same in despite the vigorous objections of COUY"1Se 1. it no:�tir-�g that ir-, the chat~tet~ of this Com~t <Rep. Act No::o. 11L::5> p.::n~t iculat~ly Sect ior� 8 of the said law, it pt~ovides that the pt'oceeding befot~e this Col.n't is not governed strictly by the technical rules of evider-.ce. The Rules of suppletot~y, in the absence of specific t'ules that 1 40

DECISION CTA CASE NO. 4~9~ - 6- Considering that c..hal����tE~r~, tl..�, ~;?n t h e Co u r't is bo un d b y that r"�UlE~ i l"1 E)E�c. t 1un El of R. (-~. 11;::::=:-:i r~athet�' tha l"1 by that r.n�'ovide d 1n the Rules of Court. ns-; teo the ~:;econc:l :is~:;u~?, petit:iOY'I<'�:'r'' C'(Ol'ltP�nd s thdt r�t-)SpOl"iciE"~l",t shoulc:l be h;)ld liablE� fol�' let;la l :tr1c,P1 t."!f:,t Ol"l tht~ vJithh�?.lc:l ta>< o�r' rnoney valu.P 1.:1"' hi s acc..urnulatec:l and unused vacation and ~1c I c:�redits alleg1ng that wit h arbitrariness, citing the cases of Collector o f Interr.al Revenue v. Artt.on i o Prieto, e t. al � ., CJ. R. No. L.. -1:1.975, f.leptE�rnber' ;~:6, 19Gl, :3 SCF~ri t(Jl al"1d Commi ssioner of Intern a l Revenue v. Asturias Suga r Cer.tral , Inc. , L.-15013, 1.. bCR A I. �I Lf(). Respondent's cause was guided by his honp~t bPlie f that the amo tm t withheld on ter'nlil"�al leave p<<y i s cons1dered as supplementary compensation paid t) an �:;;ub JPCt teo the withholdin~J tax on corrq:.1E"I"'S"'t Lor, \Se e Answer under Special f'::lfr 1r��rnat ive Defenses ). 141

DECISION CTA CASE NO. 4595 - 7- for the delinquent performan c e of his duties. the court DENIES pet1tioner's claim for WHEREFORE , petitioner claim for refund is hto�r f. ,, GRANTED. He~~pol��der-.t i s hereby C�t~dered t c� lP���ncl t.-, the petittol'H~t~ the a mour.t of P4i::',484. 00 w.thout pronouncement of legdl interest. Wt.thout cost. SO ORDERED. Quez on City , Metro Mar-.ila, M.:n~ch �..�..,, 1992. t. ..y vz. ~ ERNESTO D. ACOSTA I CONCUR: '?Itt/A-.._ CONST NTE~. ~AQUIN A " '.::>Of:'late Judge CE RT I F I C AT I 0 N I heweby cel'~t i fy that r��eci( h ~d after~ due consttltat ion betweer-. the rner.lbt:�t~s �Yf' tht"~ Court of Tax Appeals 1n accor~dance w:~t h Seci i0n 13, Article VIII of the Constitution. ~~ez_ O .�A.. ERNESTO D. ACOSTA Pr~esuh r r �.Tud~1e Court of fax Appeals 142