CENTRAL EQUITY RURAL BANK, INC. v. COMMISSIONER ON INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY CENTRAL EQUITY RURAL BANK, INC., Petitioner, -versus- C.T.A. CASE NO. 5907 COlVIlVIISSIONER OF INTERNAL Promulgated: JUL 0 6 2 REVENUE' QOQ 'F x-- - ---- - ------- - -------- - ------ - - - ---------------------- x Respondent DECISION This is a judicial claim for refund of percentage taxes in the total a mount of P38,937.81 alleged to be erroneously paid by the Petitioner for the second and third quarters of 1997. The facts as simplified by the Petitioner and Respondent in their Joint Stipulation of Facts: 1) That on February 24, 1997, Petitioner applied for registration with the Securities and Exchange Conm1ission as a mral banking institution as shown by its A.tticles oflncmvoration and By-Laws; 2) That Petitioner was issued a Certificate of Registration No. A199703625 by the Securities and Exchange Conunission on Febmary 28, 1997; 3) That Petitioner likewise obtained on March 11, 1997 from the Bangko Sentral ng Pilipinas a Certificate of Authority to operate as a mral bank; 4) That Petitioner :filed its quarterly percentage tax retum for the second qum1r of 1997 on July 14, 1997;

DECiSION- C.T.A. CASE NO. 5907 - 2- 5) That Petitioner filed its quarterly percentage return for the third quarter of 1997 on October 9, 1997; 6) That on October 20, 1997, Petitioner through its Accountant Carisa M. Coderes, wrote Commissioner Liwayway Vinzons-Chato, Bureau of Intemal Revenue, Quezon City regarding its cbim for refund or tax credit of the above-mentioned percentage taxes paid; 7) That on January 12, 1999, Petitioner tlu�ough its Vice-President Feliciano Ivliranda III wrote incumbent Commissioner Beethoven Rualo reiterating its request for tax refund or credit; 8) That on l\1ay 19, 1999, Petitioner received a letter dated April 30, 1999 from Asst. Chief, Appellate Division - Bll{ Jose Ric Cabrera informing that the issue has been refened to the Revenue Di.strict Officer, BIR District Office No. 54, Trece Mattires City for factual investigation, report and recommendation; 9) That on May 31, 1999, Petitioner tlu�ough Jvlr. Miranda wrote the RDO - BIR District No. 54, Trece 1\.-1artires City again reiterating its claim for refund or tax credit; and 10) That the Petition in the instant case was filed vvith this Honorable Coutt on July 14, 1999. The i<>sues in this case are likewise stipulated by the patties, to wit: (a) Whether or not Petitioner is exempt from payment of gross receipts tax for the second and third quarters of 1997 pursuant to Section 15 of Republic Act No. 7353; (b) Whether or not Petitioner made erroneous payments of gross receipt<; tax for the second and third quarters of 1997; and , ' (c) Whether or not Petitioner is entitled to a tax refund or credit in the total amount of P38,937.81 representing the gross receipts tax enoneously paid. For clarity, Section 15 of Republic Act No. 7353 is hereunder quoted: SEC. 15. All rural banks created and organized under the provision of this Act shall be exempt fi'om the payment of all taxes, fees and charges of whatever nature and description, except the cotvoratc income tax and local taxes, fees and charges for a period of five (5) years from the date. of commencement of operation.

DECISION- C.T.A. CASE NO. 5907 - 3- All rural banks in operation as of the date of approval of this Act shall be exempt from the payment of all taxes, fees and charges of whatever nature and description, except the corporate income tax and local taxes, fees and charges, for a period of five (5) years from the approval of this Act. Republic Act No. No. 7353 took effect on June 9, 1992 and Petitioner commenced operations only on March 11, 1997 (see Section 7 of Revenue Regulations No. 16-93). Therefore, it appears that Petitioner is exempt from payment of all taxes, fees and charges except the corporate income tax, local taxes, fees and charges for a period of five years from said date of its commencement of operation. Respondent, on the other hand, is of the opinion that the allegation of Petitioner that it is exempt from payment of gross receipts tax pursuant to the aforecited Section 15 of said law is self-serving. He avers that Section 119 of the Tax Code, as amended, subjects a rural bank like herein Petitioner to a tax on gross receipts derived from sources within the Philippines. He asserts further that Petitioner failed to prove that the gross receipts it derived from sources within the Philippines are not covered under the term "gross income" under Section 28 of the Tax Code. We do not agree with the Respondent. Section 15 of R.A. No. 7353 is quite specific. Petitioner being just new in business in 1997 is exempt from the payment of all taxes, fees and charges of vvhatever nature and description, except the corporate income tax and local taxes, fees and charges, for a period of five years from its commencement of operation. If a statute is clear, plain and free from ambiguity, it must be given its literal meaning and applied without attempted interpretation. (Republic vs. Cout1 or Appeals, 229 SCRA 199; Land Bank ofthe Philippines vs. Court or Appeals, 258 SCRA 404).

DECISION- c:r.A. CASE NO. 5907 -4- More importantly, Respondent issued Revenue Regulations No. 16-93 (April 22, 1993) clearly providing that mral banks are exempt from the tax imposed under Section 119 of the NllC, on gross receipts derived from sources within the Philippines. We therefore cite the pettinent provisions of the said revenue regulations, vi:::: Sec. 2. Taxes covered by the Exemption. - A. All mral banks created and organized under the prov�isions of the Act and rural banks already in operation as of the date of approval thereof on April 2, 1992, shall be exempt .from the payment of aU taxes, fees and charges of whatever nature and description, except the corporate income tax and local taxes, fees and charges. (Sec. 15, R. A. 7353) The comorate income taxes which rural banks Jre liable to pay arc the following: (a) 35o corporate income tax as provided for under Section 24(a) of the NlRC; (b) 20�o fmal withholding tax (FWT) on interest income derived from Philippine eunency bank deposits and yield or any other monetary benefit from deposit substitutes, tmst funds and similar anangements, and royalties derived from sources within the Philippines. (Section 24(e)(1), NlRC); (c) Creditable expanded withholding tax (EWT) on sales, exchanges or transfers of real properties (whether classified as ordinary or capital asset) by Rural Banks consunmwted on or after January 1, 1990 (RMC 7-90); Capital gains tax (CGT) on capital gains realized from the sale, exchange or disposition of the shares of stocks in any domestic corporation under Section 24(e)(2), NlRC; and (ii) as statutory seller of acquired real property tlu�ough mmtgage foreclosure sale, whether judicial or extrajudicially under Revenu e Memorandum Order No. 6- 92 dated January 15, 1992, tl1e creditor-rural bank representing the owner-mortgagor of the real property becomes liable to pay the capital gains tax due on such foreclosure sale based on the bid price in the auction sale; and

DECISION- C.T.A. CASE NO. 5907 -5- (e) All other income taxes as provided for and imposed under Title II of the NIRC. B. Exemption from gross receipts tax. - A. ll rural banks arc exempt from the tax (GRT) imposed under Section 119 of the NnlC, on gross receipts derived from sources within the Philippines. XXX Sec. 7. Period of exemption. - All rural banks created and organized under the provisions of the Act shall be exempt from the payment of all taxes, fees and charges of whatever nature and description, except the corporate income tax imposed under Title II of the NnlC and as specified in Section 2(A) of these regulations for a period offive (5) years from the date of commencement of operations; while for mral banks which are already existing and operating as of the date of approval of the Act (April 2, 1992), the tax exemption shall be for a period of five (5) years reckoned from the date of such approval. For pumoses of these regulations, "date of commencement of operations" shall be understood to mean the elate when the rural bank was registered with the Securities and Exchange Commission, or the date when the Cettificate of Authoritv to operate was issued bv the Monetary Board of the Central Bank, whichever comes later. (Underscoring supplied.) Furthennore, the then Deputy Commissioner of Internal Revenue Victor A. Deoferio, Jr. issued BIR Ruling No. 185-93 which granted the request for exemption of 5& bank tax imposed in Section 119 of the T ax Code. With the above discussion, We rule that Petitioner is exempt from the payment of gross receipt,tax pursuant to Section 15 of Republic Act. 7353. Accordingly, the gross receipts tax paid by the Petitioner for the second and third qumters of 1997 were etToneously made. Finally, We resolve the issue of whether or not Petitioner is entitled to the claim sought for.

DECISION- C.T.A. CASE NO. 5907 -6- Respondent argues that the official receipts and certificate submitteu by Petitioner are not conclusive evidence of payment and remittance to the BIR. We do not subscribe to the view of the Respondent. Section 125 of the thenTa"' Code mandates: SEC. 125. Returns and payn2ent ofpercentage ta.:�..:es. - (a) Return of gross sales, receipts or earnings and payment of tax. (1) Persons liable to pay percentage taws. - Every person subject to the percentage taxes imposed under this Title shall file a qumterly retum of the amount of his gross sales, receipts or eamings and pay the tax due thereon within 20 days after the end of each taxable quarter: xxx The aforesaid law does not provide for a particular manner on how to file and pay the taxes due. It mainly requires that a taxpayer must file a quarterly percentage return and pay the tax due thereon within twenty days after the end of each laxabk qua.t1er. The Petitioner filed its second and third percentage qumterly retums as per the quarterly retums submitted to this Court as well as the certificate issued by the Revenue District Officer ofRDO No. 54 ofTrece Mmtires City. Payment of the taxes clue vvere evidenced by the official receipts issued by Land Bank of the Philippines (Exhs. A & B). The argument of the Respondent that even if payments were made, no proof of the remittance thereof to the .government was shown does not hold water. It must be emphasized that under Section 6 of the Tax Code, an accredited bank like the Land Bartl.;, of the Philippines is an authorized agent of the Commissioner of Internal Revenue. Once payment of intemal revenue taxes were made thereto the bank becomes the collection agent of the government. And as an official agent of the government, it is presumed that the law has been obeyed and that official duty has been regularly performed (Section

DECISION- C.T.A. CASE NO. 5907 - 7- 3(ff) & (m), Rule 131, Rules of Court). In short, remittance to the govenm1ent by the Land Bank of the Philippines is presumed once the payment of taxes thereto was proved. The burden of proof is now shifted t the Respondent to show that no payment arHVor remittance was ever made bv the Petitioner. But as records will indubitablv reveaL.� ... .., Respondent did not submit any evidence to refute Petitioner's claim. In fact, he merely submitted the case for decision based on the pleadings (CTA rec., p. 52). WHEREFORE, in view of the foregoing, the instant petition IS hereby GR!.\NTED. Respondent Commissioner of Intemal Revenue is ORDERED to REFUND to the Petitioner the amount of P38,937.81. representing percentage taxes enoneously paid for the second and third quat1ers of 1997. SO ORDERED. o ERNESTO D. ACOSTA Presiding Judge

DECISION- C.T.A. CASE NO. 5907 - 8- CERTIFICATION I hereby certify that the above decision was reached afler due consultation with the members of the Com1 of Tax Appeals in accordance with Section 13, Article VITI of the Constitution. \Q. ERNESTO D. ACOSTA Presiding Judge