CTA Case No. 5401 (Decision)

REPL BLIC UF THE PIIILIPPI~ES COTTRT OF T.\.X .\PPEALS QLTEZO~ CiTY CITYTRP. T B.\ .K!'iG C.T..\. C. S~2 NC.::; !01 CORPORATIO. -, Prom �!n3tnrl� Petitioner, _ A_U6 231999 ~� versus CO:\'ThUSSfONER OF fNTER!\l.\L REVEl\LiE, Respondent. DE< :ISIO. representin~ nverpai I ~o ~ recemt~ tax tor the calendar \'ear ended I>ecemher ~ 1 199-J. Petlttoner. l ttvtrust Bankmg ( 'orporatton. ts a domeshl. bankmg mstttutwn July orgamzcd and -.:XIStmg und~.;r the la\.\S o1 the Fhilippmes wtth ptmctpal o11tc~;. located at 37'J ;)en.ltor Gill Puyat Avenue, :\Iah.ati City. I'or ihe calendar year 199-t., peiirioncr 'i1.asonabiy flied its Quartcriy Percentage T.t. RetuJII~ 1dkding gw~~ It..1..xipts in the;; total <~tuOLmi of Pl,985, 79.f,590. 87 \\ith ~...mTcsponding gross r~L.t.ipts tax payments in the sum of P82,271, 70-l. 9.3, hrokcn down as follovv ~: Gross Pecetpt~ Tax January to ..1:1rch 1994 p 4~5. il>7. ~44 33 P2t) r.,.;; 1 1.+5.17 .\pril to June 1994 19,80.f,60..J..93 Tu!y t0 '-;eptemher 1994 477,95iS, 7.n 57 20,552, 57~.2.~ OdubcJ lv DcL.c.;mbt:r 199-+ 21,263,376.60 -N6.2.W.749 q 525. 798,555.-+0 Total p 1,985,79~.590.87 P82,271,70~.93

DECISION- C'.T.A. CASE NO. 5401 Page 2 Petitioner alleges that in amV1tlg at tht: gross receipts lax m the amount of P~G.27L 70-f.YJ. 1t mduded the sum ot P~Y.~56.6-t.-t..25. representmg 20'!o imal taxes derived on passive mcomc, as part of the totai gross receipts. On January 30, 1996, this Court rendered a decision in C.T.A. Case I"""o. -+720 miiikd Asian Ban.i-. Corpuraiiun vs. Cummission~;;r of Inkmal R~;;wnu~;; \\her~;;in ii \\<.ts held that the 20� ofmal \Vithholding tax on bank\ interest incorne should not form part of its taxable gross receipts for purposes of computh"lg the gross receipts tax. On Jut)~ 19, 1996~ on the strength of the ~foremen.tioned decision~ petitioner tiled ,~vith the Bttreatl of Internal Re,'enue a letter-request for the refund or issuance of tax credit certificate m the aggregate amount ot P4,148.880.65, representing allegedly overp;ml gro"" rece1pt" tax tor the year 1994 computed a'-' foUow" � Total Income Subject to GRT per P1.985. 794.590.87 GRT Returns - 1994 89,856,644.25 Less: Final Ta:~es on Passi\te L1con1e p 1,895,937,946. 62 Net Tax Base p ~2.271. 70-1-.65 GKl per return- 1994 Correct GRT '72 1 ")'') '7{)1 Q') Overpaid GRT IU,..L.L.t._,,,VTo./4J p 4,148,880.65 Without waiting for an action from the respondent, petitioner on the same day filed the instant petition for revie\v in onier to toll 1he mnning of the two-year prescriptive period to judicially claim tor the refund of overpatd mtemal revenue ta.\. pursuant to Section 230 of the Tax Code. as amended. By wav o! spcctal and atlmnat1ve detenses, respondent avt.:rs that pclllloncr's right to file a judicial action tor refund of all taxes paid bctorc july 19. 1994 has aiready prescribed; petitioner"s ciaim for refund is stili undergoing administrative mvesriganon;

DECISIO~- C. T.A CASE .:"{0. 5401 Page 3 the total amount of P-k 1-t-8,880.65 clam1ed by petitioner as oYerpaid gross recemts lax tor the year 199-t. ts not properly documented: alleged rctundablc gross re~etpts tax were collected and paid pursuant to iaw and pct1inent DIR impiementing ruks and regulations; petitioner's allegation that it cnon..:ousi~ paid gross receipts rax docs not Ipso }.:tao \vanani tax n.fund or credit; claims for rdund are construed in strie-�ussimt Jllns against Ihe taxpayer as iht;~ partahe the nature of an exemption from ta:'", and pt:titiom:r musi pwvc thai ii has wmplied vviih lh1.. provision of Sel..lion 230 of iht~ Ta.~ 11. order to suppm1 its claim for refund, petitioner presented the follo\ving e"idences� Quarterly Percentage Tax Retllms for the )'ear 1994 (Exhs. i\ to J)~ inclns!"ue of suhmarkings): J r'ertific<1t10n i~~ued hy the Centr:tl Bank on ta-xec;; withheld and remitted to the Bureau oflntemal Revenue (E:xhs. F to F-1-a) 3. Certification from SG\ and Co. stgned by Mr. R. J. Galve, the commtsswned mdependent CPA, who conducted an exammatton on petttwner�s documents relative to the instant ciaim for refund (Exhs. G, G-1 to G-9 ); -+. Audited ilnanciai statements of petiriontr for the year 199.+ (Exhs. H, H-1, H-2 aml Ij; anu 5. The adn1.inistrative clailn for refund with th~ Bureau oflniernal Re,�cnue (Exhs. J and J-] ).

DECISION- C.T A. CASE NO. 5401 Pa~e 4 Respondent, on the other hand. elect.;; not to submit controverting e\idenct.:. And evcntuallv. tlus cast; was subrrutted tor deciSIOn alter both patttes presentt;d thctr respective memoranda. The Court is now confronted with ihe following issues: a. \Vhelhi:r or nul iht: zoc,o fmai \vilhhukiing l,t.\. un bank�s inlt:n:si inwmt: should form pari of the taxable re~,~ipts for purposes of ~.ompuiing the gross rcceipb b. \\'het'ler or not petitioner has pro,:�en its claim v./ith suft1c1ent evidence �\nent the tirst i~sue, this (.,ourt flnds petitione,. ~ c:tuse to be meritoriotl~. ~fhe final taxes derived by petittoner on 1ts pa<osive i.11come should no longer form part of the gnw:: rt>ceipts for purpose<.; of enmputmg the grns<.; receipts t<1-x as We h:we alre<~dy ruled m the case entitled ..\sian Rank Corporation v~. Commissioner of Internal ReHnue, (' I A ( 'ase N"o 4720, dated January 30, 1996, pertment portion of wh1ch reads as t-ollows � "We agree with the petitioner that the 200,o final withholding tax on its interest it1.comc should not fonn part of its taxable gross receipts Revenue Regulations No. 12-80 dated Nov. 7. 1980 on Taxatwn of Certain Income Deri,ted from BarJcing Activities pro,ides that the rates ot tax to be unposed on the gross receipts of such financtal institution; shall be based on all items of income actuall)' recei,~ed, thus: SEC. 4. xxx XXX XXX (e) Gross receij7fs f(lX on ............ .,., J.. .--,,.,1,.. llVIS. VL.Cill\ f/nc:znciat mtermedzanes, finc:zncinR compame~. and other non ht.-tnA J'lnancial intermedi(:;ries quc:zsz-bc:znking activities. - The rates ot taxes to be itnposed on the gross receipts of such tlnancial institutions shall be based on all items_Qf inwme actually received. I'vfere accrual shall not be considered. hut once payment is received on such accrual or in ~.ascs of prepayment, then the am0unt actt!ally reee1"ed .;:hall he

DECISION - C T.A. CASE ~0. 5401 Page 5 included in the tax base of such financial mshtutwn~. ~ pro\�icled hereunder (Emphasis Stlj)i)Hed) From the toregomg, it is but logical to mfer that the final tax. not the govemmenl. should no longer 101m part of Hs gros~ re...eipts for the purpose of comp1,t1ng the G!~'f �rh1~ conclu~ion is in accord lvith the interpretation or the Suprtime Lourt in the case entitied Collector of Tnt~"~rnal ReYenu(- vs. '\fani!a Jockey ("'lub, 108 PI-til 821~ as quoted by this Coun in Jisposing of a similar issut, in the '-ase entitkd Compania \1ar!t!ma Ys. '\.cting Commi"l.-.ion~r nf !nt~rna! R~v~nu~, CTA ( ase ~o. U26 dated ~ovember 14, 1966, thus: fn the .;;ecnnd place. the h1g.l-te<;t tribun:1! of the iand i.nt(;;rpreied the tenn ""gro~s fi,.:'-eipts. to mean ail recetpt~ of a taxpaver excluding tho'>e which have heen ..:spe..,iall) eannm1.r..a.i b) ian� 01 reguialiun fur lhi. govemment or some pero;;on other than the ta'\payer TL ~ - - !� ~ -- --- L 1 .1. 111U~ , ll ~\ �I"> ll"-lU. "xx xx fh~ Government could not have m~.ant tc tax as gross rt.i..eipt o' th~ :\L~nil.:a Joche) Club the. 1' 2� o \vhich it directs same Club to turn q, ar to the Board of Paces . The latter being a l rOV(;t11111ent mstttutwn. thcrf- would be double taxatinna "�hich should be J"Voided t1rJess the statUI-.. admits of no other interpretation. In the <;!1me maru1er. the Go,�emment could not ha,re intended to conside1 as gross re<..eipt the ponion of the fund<.: wh1ch it directed the C!uh to give. or hrrU\\ the Ciub \\uuiu give, lu \\inning hursL:s ami Tockevo;; - admitted 5�/o. It t'> true that the law o says that out of the total \\ ager funds 12' ~" shall be set aside ao;; the 'commission' of the track owners but th"-- t:nv itself takes official notice, and \.1rtuallv approves or din::cts payment ot the porti 0~1 that goes to o\�vners of horses as prizes and bvnusi.:s of jockeys, \vhich portion is admittediy 5�h 011t of the 12 1 ~0'0 comrr-.ission. .L\.s it did not at that tm1c '"'ontempiate the application of 'gross receipts' revenue principle, the law i.11 mal<.ing t\ disttibution of the iotai wager funds, too1. no trouhle of c;;eparating one item from the other and for convenience, g1ouped tluee items unde1 ont. common denomination. ""'\Jeedkss to -,ay, g~.u~~ receipts of tho; proprietor of the amusement place should not

D~C ISION - C'.T..A. C'.-\SE ~0. 5~01 Page 6 include anv mone) which although delivered to the amusetnent has especially earmarked bv law or regulatwn tor some person internal Hevenue vs. 1Vlanila Jockey Club, lnc., G.R. 'los. I~-13890 & L- 13887, .Ju:1c 30, 1960) It ts to be noted that. under Sectton 260 of the 1ax Cod~. a ra..;~,.. tr:1cl~ is subject to an amusement ta~~ of 20�b of its gros~ receipt~ and the tenn 'gross rei..eipts; embrai..es all the recetpts of the propnctor, icssec, 01 operator of the amusement place." Notwithstanding the hroad and all- embracing defmition of rhe rerm "gross rt:cciprs" found in our 3mm:ement t3x law_ 0ur Supreme C'ollrt did not adopt a literal interpretation of the said ienn in ihc case of the .:\Ianiia Jocke) Ciub, Jnr., ~upra" cas... \Vhi..:h i" the second issue at har . vearc:: from thf date of paymfnt ot the tnx. Furthermore. m cmmti.11g tor the tu.'o-yf:Jr pre<.:cnpt1Ve penorl the filmg of the- qnttrterlv percent~ge tax retnm <.:honl<i he considered a<.: the ..date of payment ot the ta'\' (Solid Rank Corpor�atwn V'i. ('ornmis'iioner of rntE>rnal l<flv�lnue. CTt\ Case ~o. ~40R, .t\pril 14, 1999; and Citytrust Tm:flstnwnt Phili ppin�l'i, Inc. vs. Commissioner of 1nternal Revenu�l Cr.\ Case , -o. ~4fl3, \pril 19, 1999) 1he records show that petitioner ttled tts Ouarterl. Percentage Tax Return tor the ftrst quarter of 199-l on Apnl 20. 1994. whlle tht.: mstant petition for revie\>v was filed on Juh� 19, 1996. Constdenng thar CrR r return IS rcqum.d to be filed and pa1d on or betore the 20Lh dav after the end ot each quat1er, dearly, it l.an b~ conduded that oni) the pm1ion of the ciaim fur rt:fund of ov<..;rpaid gross receip1s rax for ih..: IU'Sl quart.:r of 199-+ l.an no ionger be ..:onsidcred due ro

DECISION- C.T.A. CASE .:\'"0. 5~01 Page 7 prescription. The remaining daun fm refund of petitiom:r for the three quarters of 199-J. 1s well w1thin the two-vear penod. \Vhat 1s now ieft for the petitioner to prove is its compliance with the follo\-\ing requisites: 1. that it paid ihe gross re~~.:ipis la.\.; 2. that it erroneously overpaid its gross re\.eipts tax by including the 20�o final with.t;.otding tax on its passive h1eome as part of the gross receipts declared in the qumtert,' percentage tax returns for the year 1994; and 3. that the \Vithholding agent certifies that there is 20�'0 fmal wi.thholdi11g tax on cmch passive income. (Bank of the Philippine Islands vs. Commissioner of Internal Revenue, CT.A~ Case No. 5458, February 15, 1999; and BPI Capital vs. Commissioner of Internal Revenue, CTA Case No. 5457, "\t!arch 1, 1999; cited in Solid Bank Corporation vs. Commissioner of Internal Revenue, CTA Case No. 5408, April 14, 1999, supra). A careful examination of all the ev1dence at hand reveals that petitioner on!v comphed w1th requirement number one Petitioner wa<.: ahle to <.:how that 1t p:ud gro<.:" receipts tax for the year 1994 as evidenced hv the quarterly percentage rax returns (Exhs. A to D, inclmave of suhmarkings). However, 1t failed to comply with the second and third requrremcnts. Petlhoncr lath.:d to submit documents which can iead this Court to conciude that the amount of P89,856,644.25, alleged by petitioner io be payments for fmal Lax, was induded as pari of gross n.:~eipls dedared in lht.: quarterl) pt.:n.:t.:nlagt.: ia.\. n:iums. Tht.:n.: is no detail sununary of gross re"'~ipts attached to the qumiedy percentage tax return in

DECISIO~- C.T.A. CASE ~~0. 5..;01 Page 8 order for the Cout1 to determine if indeed the 20~o fmal taxes on passtve income formed part of the gross recetpts. It is also not clear how much tmal tax(.;s IOr each quatter of 1994 \\�as inciuded in the gross receipt subje~t-.;~o.i to finai tax which is necessary for the Court to properly compure for the correct amount of tax refund t:spt:l:ially wht:n lht: daim for n.:fund for iht: fmi <.tuarit:r has alrt:ady prt:sl:ribt:d. Ii ~annot be denied that petitioner was able to present a ceilifi~ation from the B.:mgko Sentral ng Pilipinas that fmal \Vitl1holdi.t1g taxes on treasury bills in the total amount of P463, 777,509.02 \vere paid and rerrtitted to the Bureau of Internal Re"\renue. Ho~le"\'er, the s:tme c:tnnot he gi'\'en much credit The alleged final taxes i..'1. the amount of P89,856,644.25 were derived by pettttoner from different !<i.f'ld!! of pa<;sive income to wit� (Fxh G-9) TAStGS Amount L.,_terbarJ: Calll.oans Receiv'ables l'radmg gam P7-l.816.4-l0.00 Others 6. 345,044.00 fotal ~.695,122.00 ____ n:.oo P89,856,644. 00 fhus, it is not right to conclude that the total amount of P89,85o,64-LOO \\as included as part of the conglomerate amouni of P-l-63, 777,509.02 as iinai iaxes withheld b) the Bangko Sentral ng Pilipinas as the said taxes petiain only to rreasury bills (Exhs. F-1 and F-1-a). fmihemwre, the Court \\as not guided by petitioner on hmv ii wmputt:d iht: allt:gt:d L;OITt:d gross r~;;~,;~;;ipi.s ia.\. for 1994 in iht.: amouni of P78, 122, 70-+. 92. It should be emphasized that in computing for the gross rc\:.cipts tax, different rates of 5�o, 3% and 1% arc applied ;n gross receipts depending on the '''e remair.L_.,_g matllrity~ of the instrument. L.,_ addition_~ find the agreed upon procedures

DE:CISIOJ - C.T.A. CASE 30. 5..;01 Page 9 taken b~ the auditing ftnn SG\' & Co. and petitiom;r to be msuflictent to come up \-vith the desrred result ot ascertammg the con�cctness oJ: pehttoncr�s clamt tor re!und. 1he cet1ification merely limited its e. �amination and vcri!k.ation on the amount of P89,856,64-i-.25 as fmal taxes paid on passive income for 199-i-. li failed w compuie and veri.() ihe a~cura<.:) ofihl: wmpuialion of lhe wrre~l GRT for 1994. Selikd is ihc- cuk in ihis jurisdidion that �i d..ti..m for refund is in the nature of a daim f(Jr ~x~mption, hcnct; should be wnstmed i11 stridis,)imi juris against the taxpayer (Commissioner of Internal Revenue YS. Tok�yo Shipping Co., Ltd., 2-U SCRA "VIIEREFORE, in -vievv of the foregoing, the ii1.stant petition for n.\ ic\\ IS hereb} DF:'~IFD due to insu:ffidency of cviderH..t.. SO ORDERED ~~-~ F:RI �F,S'l 0 D. ACOS I A nrc"iding Tt.dg... I (Dissenting) A.\.1:-\.NCIO Q SAG\ I .\.ssociare Judgt;. CER' IFI<'ATIO.' I hereby certif}' that the above decision \VJ<;! reached :tfter due comu!tatitm '''ith 1hc m~.:mbers of the (oun or Tax Appeais in a.:.:ordan.:e \vith Section 13, .\.riicic \'III nf the ('on 'titutinn. ~Q .. Qt-<i\..._ ER -ESTO D. .-\COSTA Presiding .Judge

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY CITYTRUST BANKING CORPORATION, Petitioner, -versus- C.T.A. CASE NO. 5401 COMMISSIONER OF INTERNAL REVENUE, _y; Promulgated: Respondent. AUG 231999 / X---------------------------------------------------------X DISSENTING OPINION The majority opinion denied the claim for refund of gross receipts taxes due to insufficiency of evidence but upheld this Court' s ruling in the case entitled Asian Bank Corporation vs. Commissioner of Internal Revenue, CTA Case No. 4720 promulgated on January 30, 1996. With due respect to the opinion of the majority, I humbly express my dissent to the aforesaid ruling that the 20% final withholding tax on certain passive income should no longer form part of the taxable base of the bank' s gross receipts for purposes of the 5% gross receipts tax. There is no provision in the Tax Code or any special laws which excludes the 20% final income tax withholding under Section 50(a), as no longer forming part of the gross receipts for purpose of the 5% gross receipts tax. Section 8(c) of Revenue Regulations No. 12-80, dated November 7, 1980, as amended by Section 7(c) of

DISSENTING OPINION - CTA CASE NO. 5401 PAGE2 Revenue Regulations No. 17-84, dated October 12, 1984 have the same provisions, thus: "If the recipient of the above-mentioned items of income are financial institutions, the same shall be included as part of the tax base upon which the gross receipts tax is imposed." Clearly, there is no doubt that the 20% final withholding tax is legally includible as part of the gross receipts for purposes of computing the gross receipts tax. The petitioner cited the case of Asian Bank Corporation vs. Commissioner of Internal Revenue, CTA Case No. 4720, dated January 30, 1996, where this Court has upheld the petitioner's contention that the interest income included as part of such gross receipts should be computed minus the 20% final tax already withheld and deducted by various withholding agents for the reason that the amount did not go to its funds, hence, was not actually received by them. And the Court approved the petitioner's citation of Section 4(e) of Revenue Regulations No. 12-80, dated November 7, 1980, thus: "Gross receipts tax on banks, non-bank financial intermediaries, financing companies, and other non-bank financial intermediaries not performing quasi-banking activities. - The rates of taxes to be imposed on the gross receipts of such financial institutions shall be based on all items of income actually received. Mere accrual shall not be considered, but once payment is received on such accrual or in cases of overpayment then the amount actually received shall be included in the tax base of such financial institutions, as provided hereunder." This Court concluded in said case that from the aforestated provisions it can logically be inferred that the amount representing the final tax, not having been received by the petitioner but instead went to the coffers of the government, should no

DISSENTING OPINION - CTA CASE NO . 5401 PAGE3 longer form part of its gross receipts for purposes of computing the gross receipts tax. Such conclusion in law is legally objectionable for two (2) reasons, to wit: (1) Section 4(e) of Revenue Regulations No. 12-80 is not a computation determinative of the amotmt of gross receipts as basis of the gross receipts tax under Section 119 of the Tax Code. Said revenue regulations merely authorize the determination of the amount of gross receipts on the basis of the method of accounting being used by the taxpayer under Section 37 of the Tax Code. Such accounting methods for tax purposes comprise a set of rules for determining when and how to report income and deductions (Consolidated Mines, Inc. vs. CTA, L- 18843, August 29, 1974). The two principal accounting methods expressly and impliedly recognized by the Tax Code and the Income Tax Regulations are: (a) Cash receipts and disbursement method or cash basis. - Income earned by the taxpayer is not included in gross income until received and expenses are not deducted until paid within the taxable year; and (b) Accrual basis. - Income is included in gross income when earned, whether received or not, and expenses are allowed as deductions when incurred although not yet paid within the year. (2) That the non-inclusion of the 20% final withholding income tax from the gross interest income for purposes of the gross receipts tax operates as an exemption from tax. Being an exemption from tax, the same must be construed strictly not against the government but against the one who asserts the claim of exemption. Tax exemption can only be given effect when the grant is clear and categorical inasmuch as taxation is the rule and exemption is the exception, Section 26, Tax Code. The holding therefore in the Asian Bank Corporation to the effect that the non-inclusion of the 20% final withholding income tax from the gross receipts can logically be inferred from the wordings of said Section 4(e) of Revenue Regulations No. 12-80, is misplaced. Tax statutes are to receive a reasonable construction with a view to carrying out their purpose and intent (51 Am Jur 361). It should not be construed as to permit the taxpayer to easily evade the payment of the tax (Cabon Steel Co. vs. Lewelyn, 251 U.S . 501). Thus, the good faith of the taxpayer is not sufficient justification for exemption from the payment of surcharges imposed by law (Commissioner vs. Royal

DISSENTING OPINION - CTA CASE NO . 5401 PAGE4 Interocean Lines and CTA, L-26506, July 30, 1970). A tax statute should be construed to avoid the possibilities of tax evasion (Lorenzo vs. Posadas, 64 Phils. 353). The High Court's decision in the case of Commissioner of Internal Revenue vs. The Manila Jockey Club, Inc., 108 Phils. 821, June 30, 1960, which was reaffirmed by the said Court in the case of Visayan-Cebu Terminal Co., Inc. vs. Commissioner of Internal Revenue, 13 SCRA 357, February 27, 1965 cannot be considered as precedent cases, hence, inapplicable to the two cases decided by this Honorable Court in the cases of Compania Maritima vs. Acting Commissioner of Internal Revenue, CTA Case No. 1426 dated November 14, 1966 and Asian Bank Corporation vs. Commissioner of Internal Revenue, CTA Case No. 4720 dated January 30, 1996, for the following reasons: In the Manila Jockey Club, Inc. case, the Club was authorized to operate horse races in which betting was made through the sale of tickets to the public. The total amount of bets called "wager fund" were distributed pursuant to Executive Order No. 320 and Republic Act No. 309, as follows: 87% as dividends to holders of winning tickets 12 112 as "commissions" of the Manila Jockey Club, of which 112 % was assigned to the Board on Races and 5% was distributed as prizes for owners of winning horses and authorized bonus for jockeys . According to the above-mentioned distribution of the "wager fund", the then Collector of Internal Revenue assessed the Clu b on the whole amount of its "commission" of 12 112. But since the Club had already paid the amusement tax based on its 7% share of the "commission", the amount assessable pertains only to the 51h%

DISSENTING OPINION - CTA CASE NO . 5401 PAGES for the period from November 1946 to October 1950. On various instances, the Club protested the proposed assessments and was sustained by the opinions of the Secretary of Justice rendered on three different occasions (Opinion No. 345, series of 1941 ; Opinion No. 249, series of 1952 and Opinion No. 340, series of 1955). Notwithstanding the opinions of the Secretary of Justice to the effect that the amount corresponding to the 5 1 2% was held only by the Club in trust for the owners / of winning horses and authorized bonuses of jockeys, the then Collector of Internal Revenue demanded payment of amusement taxes for the period November 1946 to October 1950. Said demand letter was timely appealed to the Court of Appeals wherein a unanimous judgment was obtained reversing the Collector's stand on the matter. In the High Court, the position of the Secretary of Justice was sustained thereby upholding the Court of Tax Appeals ' deci sion. Accordingly, gross receipts of the proprietor of the amusement place should not include any money which, although delivered to the amusement place was "especially earmarked" by law or legal rule and regulations for some persons other than the proprietor. Undeniably, they are money received by the racing club but they are moneys earmarked by law or regulations for winning horse owners and jockeys and never for a minute become the property of the race track. The same is true in the case of the 1 2% which the law directs the club to deliver to the Board on Races. The High / Court therefore agrees with the stand of the Court of Tax Appeals that such funds representing 5 1h % of the 12 1 2% "commissions" or the race trac k do not form part of / the gross receipts, hence not subject to the am usement tax of 20%.

DISSENTING OPINION- CTA CASE NO. 5401 PAGE6 The above-mentioned decision of the High Court was also applied in the case of Visayan Cebu Terminal Co., Inc. vs. Co mmiss ioner of Internal Revenue, 13 SCRA 357, Nos. L-19530 and L-19444, February 27, 1965. The legal issue involved in this case is the interpretation of the management contract entered into by and between the Bureau of Customs and Visayan Cebu Terminal Co., Inc. whereby the latter as contractor was appointed the so le manager of the Arrastre Service at the Port of Cebu City. In the said Management Contract, it was further agreed and understood that in consideration of the rights and privileges granted the Contractor for the management of the Arrastre Service, the Bureau of Customs shall receive twenty eight (28%) percent of the total monthly gross income derived from whatever source in connection with the operations of the Arrastre Service, payable within ten (1 0) days of the succeeding month. The main legal issue involved in this case is whether or not the gross receipts corresponding to the 28% of the total gross income of the Service Contractor delivered to the Bureau of Customs within ten (1 0) day s of the following month should form part of the gross receipts subject to 3% contractor's tax under Section 191 of the Tax Code. The Court of Tax Appeals ruled in favor of the petitioner, holding the view that the said 28% payment by the Arrastre Contractor based on its monthly gross income should not form part of the gross receipts subject to 3% contractors tax and that paragraph 23 of the said Management Contract can legally be construed as a "regulation". As the learned trial court has aptly observed: "x x x the government could not have intended to consider as gross receipts the 28% that went to one of its institutions, the Bureau of Customs, and thereby collect percentage tax on it from petitioner. To hold petitioner liable for the payment of

DISSENTING OPINION - CTA CASE NO. 5401 PAGE7 percentage tax is unquestionably unjust and not contemplated by Section 191 of the Tax Code." All the above-mentioned decisions of the Hi gh Court made specific reference to gross receipts which are especially "earmarked by law or legal rule or regulation" as not forming part of the taxable gross rece ipts fo r purposes of the gross receipts tax under the Tax Code. For this purpose, it is pertinent to define the word "earmark" as a mark put upon a thing to distinguish it from another. Originally and literally, a mark upon the ear, a mode of marking sheep and other animals. Property is said to be earmarked when it can be identified or di stingui shed from other pro perty of the same nature. To set apart from others (Black's Law Dicti onary, 6111 Edition, p. 508). In the case of the Manila Jockey Club, Inc. Executive Ord er No . 320 and Republic Act No. 309 made the specific "earmarking" for distributi on of the total wager fund to different persons other than the proprietor. The same is true in the case of Visayan Cebu Terminal Co., Inc. where the specific earmarking of the 28% of the total monthly gross income to be delivered to the Bureau of Customs by the Contractor was provided in paragraph 23 of the Management Contract. Such specific earmarking of the twenty percent (20%) final income tax as not includible in the gross receipts for purposes of the gross receipts tax was not provided by any law or legal rule or regulations, hence the non-applicability of the above-cited High Cowi decisions to the Asian Bank Corporation case. This legal observati on is also in point in the case of Campania Maritima case where the non- inclusion of the 10% reserve from the total cash collection to avoid claim for refund on freight an d passengers tickets not taken is not provided by any law or legal rule or regul ations.

DISSENTING OPINION- CTA CASE NO. 5401 PAGE 8 In the Asian Bank Corporation case, petitioner bank alleges that subjecting the gross receipts to the 20% final withholding income tax and later to the 5% gross receipts tax is not only oppressi ve and obnoxious but even a confiscatory form of double taxation. Double taxation has been defined "as the taxing of the same item or piece of property twice to the same person, or taxing it as the property of one person and again as the property of another, but this does not include the imposition of different taxes concurrently on the same property or income (e.g. federal and state income taxes), nor the taxation of the same piece of prope11y to different persons when they hold different interests in it or when it represents diffe rent values in their hands, as when both the mortgagor and mortgagee of property arc taxed in respect to their interests in it, or when a tax is laid upon the profits of the corporation and also upon the dividends paid to its stockholders" (Black 's Law Dictionary, 6th Edition, p. 491). This acceptable form of double taxation is reflected in B[R Ruling No. 223 dated November 2, 1989, thus: "The 5% gross receipts tax under Section 120 of the Tax Code is collectible on all finance companies doing business in the Philippines from interests, discounts, and all other items treated as gross income under the Tax Code. Accordingly, yo ur income derived from investing the excess funds in short-term market placements through commercial banks constitutes income hence, subject to the 5% gross receipts tax under said Section. The fact that it has been su bjected to the 20% final withholding income tax under Section 50(a) is immaterial. Besides, the withholding tax is imposed under Title Il of the Tax Code while the finance tax is provided under Title V thereof" ' (BIR Rul ing No. 223, November 2, 1989) For as long as the basis for the claim for refund or tax cred it certificate is based on the non-inclusion of the amount representing the final withholding income tax

DISSENTING OPINION- CTA CASE NO. 5401 PAGE9 under Section 50(a) as part of the gross income subject to gross receipts tax, this dissenting opinion will stand. For purposes of the amusement tax under Section 260 ofthe Tax Code, the term 'gross receipts' embraces ' all the receipts' of the proprietor, lessee, or operator of the amusement place. The words ' all the receipts ' refer to the total amount of cash received which becomes part of the funds of the taxpayer and does not include any money which has been specially earmarked by any law or legal rule or regulation for some other person other than the proprietor, lessee or operator of the amusement place. Receipts means actually received (Philippine Long Distance Telephone Co. vs. Collector of Internal Revenue, G.R. No. L-3222, January 21, 1952) for itself and not for others, for otherwise they would not be receipts (Manila Jockey Club, Inc. vs. Collector of Internal Revenue, CTA Case No. 205, April 15, 1958; Jai Alai Corporation of the Philippines vs. Araneta, CTA Case No. 108, July 31, 1956 [Annotated, NIRC by Commissioner Jose Arafias, 1988 Edition, p. 687). IN VIEW OF THE FOREGOING, I hereby register my dissent to the majority opinion and vote for the denial of the entire claim for refund not because of insufficiency of evidence but for lack of legal bases.