CTA Case No. 4894 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY PHILIPPINE ASSOCIATED SMELTING AND REFINING CORPORATION EMPLOYEES~ RETIREMENT PLAN~ represented by its Tr~ustee, THE INTERNRTIONAL CORPORATE BANK Trust Division~ Pe>t i t i one>t~ 10 C.T.R. CASE NO. 489' COMMISSIONER OF INTERNAL FEB 02 1996 P7-'�DI!H!1 qat ed~� "" REVENUE, =------ Respomjent. ------ -~- . y. - - - - - - - - - - - - - - - - - .- - - ~ DEC: IS I OJ" Pr~esented befor~e Us i s a p e t i t i o n for~ r-evie~�� f i l e d by the International Corporate Bank-Trust and Inve�;;l;!!':ent Service Division as trustee of the Philippine Associated Smelting and Refining Cot'pot"ation Employees' Ret il'�ement Plan against the Commissioner of Internal Revenue for a refund of the amount of P2'3 1, o 17. oa t'epr�esenting the 20~ f:ifh~l tal< �withheld fn:n:: l;h:: and/or yield earned by the Retirement fun0 fro~ deposits and investments in treasury and Central bills for' the per~iod .JamJ.at"'y l, 19'30 until .June ]0, 199<~:. 198 )

DECISION - C.T.A. CASE NO. 4894 - 2- The facts are as follows: On March 5, 1990, the Philippine A.s~ocr..=Jted Smelting and Refining Company established the PASAR Employees' Ret it'ement Plan <PASAR Plan For brevity) to retirement pension and other benefits for it5 a.nd the latter's heirs/beneficiarie3 in case of r-et ir�ement or� sep.:u�at ion fr��om the ser�v ice <El'fh. "n"). The Bur-eau of [nternal Revenue on April l, through its Deputy Commissioner, Eufracio the said PASAR Pla.n qualifie-s. as .:l. n?asunable r�e!;i~-e~"'nt plan within the conte~plation of Sec. 28 of the Tax Code and as such shall entitled t; 0 .'fo.l l. benefits and privileges attached to it. Deputy Commissioner opined that in view of the amendment of Sec. 2l<c>O> in nelation to Sec. 5CI(a) of the T-'?;.X Code by E.O. No. 37 which took effect on Augu~t the said retirement plan is subject to 20~ fin.:;.l. taH on interest and/or yield on deposit substitute insb���umenf;s; and inter-est on its savings and time deposits paid 0 ~- accnJ.ed beginning August l, 1'386. <Exh. C>. Fro� January 1990 up to June 30, 1'392, the Division of the Inter-national Cor�por�ate B<:wl< for' br-evity>, to manage the retire~ent plan pUl"SUant to a tt"IJ.St agr�-eement. It invested the latter's funds in government 199

DECISION - C. T- A. CASE NO. 48'34 - 3- spcurities, in addition to a savings deposit account it maintained. These government securities wer� initially purch~s~d by as a purchasing ag~nt in the primary auction conductPd by t.he Bank of the ~~ilippines. th!?�:;.!:;" securities are to be madret by lt�HERBANI-\ thn::tugt' it.~. �h~I.ISt Division. A final ta>l of 20" !.'las imposed .and H:ithtwld government securities ourchased and on the savings deposit being maintainPd. of the govern~ent S E'CI.It~ i t i E'!:�,. it t'h e treasurel~ of the PhilippinE's tht~ough due t�.o the Bur~'ilU cf lnternal Revenue. Rnd with respect to thF jnterest on the savings account bank itself which maintained the account. The taxes withheld from the income fund for the period January l, 1990 to June 30. 193.2 ii>"'E' a~. follOW!:�: T--b i 11 s !::} 82 108,829.75 1.:;r~, 2L:-(:.. ~�~c; t?:Jj.:), t~c~:~.;~; CB-bills 17,529.70 28,877.07 l � l. 2 7 � ll(_:, Total '+ .:!. Q_, 3 0 ~_;-:;_;i 17,538.61 L37~758.88 135~719.59 29t,Ol7.0B 200

DECISION - C.T.A. CASE NO. 4894 - 4- On December 3, 1991 Interbank's Trust Division, as trustee of various retirement funds filed with respondent for refund for the sum of P5,208,892.10; Pl03,225.33 of which represents the sum withheld from petitioner's earnings up to January 1, 1990. And on August 21, 1992, again filed a claim for refund of additional sum a�ounting to P1,799,748.70; P187,791.75 of which pertains to petitioner's earnings, until June 30, 1992. The said requests for refund are anchored on the ene~ption of retirement funds from income tax under R.A. No. 4917 in relation to Sec. 53(b) of the Tax Code. Due to the Bureau of Internal Revenue's inaction on its requests, herein petitioner filed on December 29, 1992 this petition to toll the running of the two-year prescriptive period prescribed under Sec. 230 of the Tax Code on refunds. The respondent maintains that the taxes withheld were presumed to have been collected in accordance with law and that the burden is on the petitioner to show that they were illegally collected. Respondent argued further that petitioner must show that the taxes being claimed were in fact paid to and received by the Bureau of Internal Revenue. 201

DECISION - C.T.A. CASE NO. 4894 - 5- Petit i one�~ formally offered in evidence the following documents and testimonies as follows: i ) Schedule of investments in government securities �ade by the petitioner for th~ period January 1989 to September 1991 and October 1, 1991 to June 30, 1992, showing th~ face value and maturity value of the securities, the income earned and tax collected t he,~ef�~om; i i ) Letter reply of the Bureau of Internal Revenue. stating that the PASr-IH r�E'tit.. I'"'E'"t pJ,-;n qualifies �as a t~easonable t'E'tit~ement. plan pursuant to Sec. 28(b) <7> <A> of th~ Tax Code: i i i) Confirmation of sale documents issued by Interbank's Treasury department allPgedly sold in favor of the Trust division, showing the date of sale, serial number, maturity dates, face value, yields, prepaid taxes and purchase p,~ ice; iv> Certification from the Bangko Sentral ng Pilipinas (Central Bank of the Philippines) that Interbank purchased from the former's government securities department treasury bi1ls and the corresponding final taxes have been withheld and remitted to the BIR; v> The testimony of Mt~s. Dalisay f'lolas a bank employee of Interbank as to the existence of a Trust agreement between PASAR and Interbank, as well as the existence of the retirement plan; and vi) The testimony of Mr. William Logo, another bank employee of Interbank identifying docunents pertaining to final taxes withheld on invest11ents. re-spondent prFsented no objections to ~.he admission of petitionFr's evidences, :in sofi:u~ existence but objected to th~E> collFct.]ve purpose for which they are being preserited, 202

DECISION - C.T.A. CASE NO. 4894 - G- that they failed to substantiate that it. is the t n.1st fund of the Philippine Associated Smelting and Re-fining Corporation Employees' Retirement Plan that purchased the t reasut~y bills and the taxes accruing therefrom were withheld and properly remitted to the government. The sole issue pt~esented to Us, is whether or not petitioner~ is entitled to the refund of the ta><es withheld by the Central Bank of the Philippines on interest eat~ned from pur~chases of government securities fot~ the period January 1, 1390 until June 30, 1992. It has been a settled jurisprudence that exemption is to be enjoyed by the income of employees' As r~o.&l ed in the leading case of Co~missioner of Internal Revenue vs. Court of Appeals, 207 SCRA 487 it states that: "In so far as employees' tt~ust cn~e concet~ned, the fot~egoing pt~ovision ( i . e . R.A. No. 4317, Sec. 1) should be taken in relation to then Sec. 5& (b) (now Sec. 53b) of the Ta.ll Code, as amended by R. A. No. 1983, which took effect on 22 June 1357. This provision specifically e~empted e�ployees' trusts from inco�e tax and repeated hereunder for emphasis: Sec. SG. l�position of' Tax. <a) f:Jpplication of' Ta:~~ - The taxes imposed by this title upon individuals shall apply to the income of estates or any kind of property held in trust. XXX <b) E.Hcept ion. ThP tax impc�sed by this Title shall not apply to employel?s' tt~ust which 203

DECISION - C.T.R. CRSE NO. 4894 -7 forms part of a pPnsion, stock bonus or profit- sharing plan of an employer for the benefit of some or all of his employees xxM The tax exe~ption privilege of employees' trusts, as distinguished from any other kind of pl~opet~ty held in tl~ust, spl~ings f,~o"' the foregoing provision. It is unambiguous. Manifest therefro~ is that the tax law has singled out e~ployees' trust for tax exemption." This Court would have grant petitioner's request for ref ...md of its taxes withheld based on the above ruling, however, being a which appreciates not only questions of law but also questions of fact, we are here to determine whether petitioner has established the factual elements of its case. Notwithstanding the fact that petitioner was able to prove the due approval of the retirement plan, and that final taxes were withheld by the Central Bank on the interest income of the treasury bills petitioner bought former, We are constrained to put little or no probative value to the other evidences it submitted. Respondent's opposition to the documentary evidences submitted deserves consideration when she same did not establish the fact that the as-:.et s of the fund were actually '-'sed in the purchase of securities by the petitioner, and the final taxes accruing and withheld thereon were in behalf of the said f1.mds. 204

DECISION - C.T.A. CASE NO. 4894 - 8- A thorough scrutiny of the the following: a) The Central Bank's document submitted merely certifies that Interbank did purchase treasury bills from the latter, through its regular auction syste�, and that the taxes accruing therefrom were properly withheld and remitted. <Exh. J & K>; b) That the sale made by Interbank's Treasury Unit to its Trust Investment Services Division~ was made without any qualifications, i.e., there are no indication what soevet~ in the confirmation of sale that the said placement was for the account of a certain specific ret i t~eaent plan, and in this case should have been the PASAR t~etirement plan <Exh. 1 to I-14>; c) An attempt to trace the placement confirmation of sale documents identifying the securities stated thereon to the schedule presented by the Centra] Bank is an exercise in htt i 1 it y, becaJ.tse the schedules pr~esented by Bank merely shows the date of iss,.te, maturity date, face a~~toJ.mt, intet~est eat~ned, tal< withheld, and credit advice made to the BlR CExh. J to J- 10; K-1 to K-10>; And this was further aggravated by the fact that the placements reflected in th~ schechtle of thl? Bank covers the 3, 1'9'90 to Dece-mbet~ 26, 1'990 <Exh. J-1 to J-'9> and the period 205

.... DECISION - C.T.A. CASE NO. 4894 - 9- January 2, 1991 to Dece�ber 2&, 1991 <Exh. K-1 to K-10) while on the other hand confirmation of sales presented to Us by INTERBANK covers �ostly those within the period 1992 to August 19, 1992 <Exh. I-5 to I-14); and d) Exhibits I, 1-1. 1-2, 1-3., and 1-4 whose pel~iod ( 1991) coincide with the schedule presented with the Central Bank has the following discrepancies: PER INTERBANK SCHEDULE PER CB SCHEDULE Issue Date Value Ref. Value Ref. 4- 4-91 P30,064,000.00 EKh. I No Recor-d EKh. K-7 8-23-91 1, 192,000.00 EKh. [-1 No Record 10-22-91 1,177,000.00 EKh. I-2 No Record 10-23-91 2,258,000.00 EKh. I-3 Plo,ooo,ooo.oo 11-25-91 1,223,000.00 EKh. I-4 No Record From the above facts, we can deduce that if sales were made to the TnJ.st Division, it does not follow that such sale was for the particular trust fund involved therein. The sale could be for the account of any individual and/or' cor�pot�at ions aside from t�et irement plans. And this is manifested by the fact that the securities which the TrcJ.st Division acqc.Air�ed from the Treasury Division of Interbank does not coincide nor can be traced fro� the originating transaction, i.e. from the Central Ban~ records where INTERBANK acquired 206 _)

DECISION - C.T.R. CRSE NO. 4894 - 10 - the securities as a purchasing agent authorized to participate in a primary auction. Another point to consider is the averment that said treasury bills were all bought from the Central Bank, when there were instances based on record presented which show gl a�~i ng discrepancies (as pel~ 1 NTERBANK' s scht.>dl..�l e and that of CB's schedule.> And lastly, based on petitioner's own schedult.> of ta~es withheld from the income of PASAR Retir~.>ment Plan, cov~.>ring the pt.>riod January 1, 1990 to June 30, 1992, it stated in i t s petition <CTA r~.>cords p. 2> and memot~andum CCTA records p. 274> that the total final ta~ withheld art.> as follows: for the year 1990, P17,53B.E�1, in 1991 F"'137,758.88 and for the siK-month period ending June 1992, P135,719.59 for a total amount of P291,017.08. However, per eKamination of eKhibits presented to Us, reveals the following si~nificantly different amount to wit: P457,594.90, for the period 1990 to August 23, 1991 CEKh. G>, and P441,397.73 for the period October 1991 to June 3, 1992 CEKh. F> or for a total amount of P898,992.63 e~cluding P86.74 of final ta~es withheld in the savings account for the period 1989 to June 1992 <E~h. H>. Considering the circumstances and di sct~epanci es above we agree with respondent's position, 201'

DECISION - C.T.A. CASE NO. 4894 - 11 - no evidence on record to stress the fact that petitioner is the resources of the trust fund that was utilized in acquiring the govern�ent securities. We will just be relying on the good faith of the petitioner if we are going to believe as gospel truth the contents of the schedules of invest�ents in government securities prepared by its employees. Such a situation is unacceptable. decisions are based on uncontrovertible evidences on record and not in good faith or speculation or unsupported assumption. <BPI v s. Commissioner of Internal Revenue, CTA Case No. 4898, 4900 to 4940, Oct. 11, 1995). Time and again, it has been ruled in a litany of decisions that a refund of taxes partakes the nature of a tax exemption and are to be construed in strictissimi juris against the taxpayer and in favot~ of the taxing authority. <Co��issioner of Internal Revenue vs. Procter and Ga�ble Phils. Manufacturing Corporation, 204 SCRA 377; Associated Sugar Inc. vs. CIR, CTA Case No. 2944, May 6, 1994 citing Insular Lu�ber Co. vs. CTA 104 SCRA 721, and CIR vs. Rio Tuba Nickel Mining Corp. 207 SCRA 549, BPI vs. Co��� of Internal Revenue, supra> WHEREFORE, in view of insufficiency of evidence necessary to support the claims of the petitioner, the 208

DECISION - C. T. A. CASE NO. 4894 - 12 - instant case 1under petition for l"eview is hel"eby DENIED for lack of �erit. SO. ORDERED. ~-atD~ ERNESTD D. ACOSTA Pl"esiding Judge (On Leave) RAMON 0. DE YEYRA Associate Judge CERTIFICATION I hereby certify that the decision was reached after due consultation a�ong the �e�bers of the Court of Tax Appeals in accordance with Section 13, Article VIII of the Constitution. ~Q.~~ ERNESTD D. ACOSTA Pl"esiding Judge Court of Tax Appeals 209