CTA Case No. 4886 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS (JlJEZON C I TV SEMIRARA COAL CORPORATION EMPLOYEES' RETIREMENT FUNO represented by Its Trustee, The INTERNATIONAL CORPORATE BANK-TRUSr DIVISION, Petitioner, - versus - C.l.A. CASE NO. 4886 COMMISSIONER OF INTERNAL Prooc~qot3d19sa ~�)~- REVENUE, Hespondent. ----------------" -�.�- X- - - - - - - - - - - - - - - - - - - - /- X DECISION lhls Is a claim for the refund of final withholding taxes In the amount of P898,191.72 alleged to have been erroneously deducted and withheld by the Central Bank of the Phi I lpplnes and remitted to the Bureau of Internal Revenue (BIR) In connection with Petitioner's purchases of government securities and/or Income/yield earned from bank deposits from January 1, 1989 until June 30, 1992. Petitioner Is an employees' trust set up by Its employer, Semlrara Coal Corporation (Semlrara for short), for the exclusive benefit of Its employees to provide t hem r e t I rem en t pens i on , d I sa b I I i t y an ct de at h t1 en t~ f I t s . 1101

DECISION C.T.A. CASE NO. 4886 - 2- The retirement benefit plan, otherwise known as the Hsemlrara Coal Corporation Employees Retirement Plan", establ lshed by Semlrara for Its employees have been approved by the BIR as a reasonable retirement benefit plan within the contemplation of Section 28Cb)(7)(A) of the National Internal Revenue Code (NIRC) (Exh. C, p. 202, CTA l'ec. ) . It Is administered by its trustee, The International Corporate Bank, Inc. (Interbank> - Trust Division, with offices at 111 Paseo de Roxas, Makatl, Metro Man I Ia, pursuant to the Trust Agreement entered Into by Semirara and Interbank on June 16, 1989 <Exh. A, pp. 184-102, CTA r�eo.). [Admitted In the Answer, p. 32, CTA reo.]. P e t I t I o n e r� , thru Its trustee, maintained savings deposit accounts and made Investments In Treasury Bl I Is and CB Bl I Is for the period January 1, 1989 up to June 30. 1992. It earned Interest Income from savings deposits and Income from money market placements and treasury bi I Is for the said period. A final tax of 20% was withheld by the Centr�al Bank on the interest earned from government securities and by Interbank from Interest earned on savings deposits. For the period 1989 to June 1992, a total of P898, 191i72 was withheld, computed as f 0 I I ows I 110~~

DECISION C.T.A. CASE NO. 4886 -3- Jan.-June 1989 1990 1991 - -19-92- -� TOTAL Savings p 94.42 p 573.89 p 88.87 p 7.22 p 764.40 T Bills CB Bills 39,554.25 202,509.73 353,132.50 258,765.39 853,961.87 TOTAL o.oo _ _ _0;;...;';....;0'-0 _,_iL 361.!4 _211o~~.I!. 43,465.45 P39,648.67 P203,083.62 P394,583.11 P260,876.32 P898 1191.72 On December 5, 1991 ' the Interbank, Trust Investment Services Division, as trustee of various retirement funds, fl led a written claim for refund with the t''espondent Involving taxes withheld from Interest earned on government securities and savings deposits made for the account of its various trustor, from the period January 1, 1989 to September 30, 1991, in the total amount of P5,208,892.10 <Exh. D, pp. 204-216, CTA reo.). Out of the total amount claimed for refund, P528,965.46 represents the taxes withheld from Semtrara, computed as follows: <see Schedule attached to Exh. D, p 206, CTA rec. > 1989 1990 1991 -J a-n-.-- D- e-c�. - - J a n . - D- -e-c -. Ja!!.! -s~. TOTAL 0.00 ~�-� ... 94.42 CB/BILLS 0.00 2,764.40 2,764.40 SAVINGS 39,554.2~ 573.89 83.63 751.94 T/BILLS _2__0::.2.:::J....:5_0_9_._ 7 3_ ~~~ 61~: 6'7: 283 138_5 � 14 5251449.12 ~?3_~_08_3, 62 2�8- 61233-.17 528,965.46 On August 21 1 1992, Interbank flied another written claim for' refund of the taxes allegedly Illegally and/or erroneously withheld from the income of the various retirement fund . (Exh. E, pp. 217-230, CTA r-eo.). Thus 1103

lH:i.:ISIOII c. r.t~. Gf\~;t: rw. 4llUt3 - 4- for the period October 1, 1991 to June 30, 1992, an amount equivalent to the sum of P369,226.26, was withheld from Semirara, broken down as �followss (see Schodul,~ attaclu~d to Exh. 1':. p. f:24, CTA rae.) . ., 991 19fl2 fOTAL Oct. -Dec:. Jan.-dune T/BILLS 69,147 ..36 2!JH, 7E35. ao 328,512.75 CB/BILLS 38,59?.34 40,701.05 2,103.71 12.46 SAVINGS 5.24 PetItioner� invokes the provisjons ul Aepubl lo Aot No. 4917 In r-t:Jiation t�J Section f'i~i(b) of the NIHC. It also rei led on the Decision of the Supreme Court En Bane In the case nf Commls!loner or Internal Revenue vs. lhe Hon. Appeals, The t;ourt of rax Appeals, GCL Retirement Plen, r~epresented by its l'rustee-Oirector, G.R. No. 95022.. March 2.3, 1992, where It was held: "It Is evident that tax-exemption Is I I k e wi a e t o be ~Hl J o y ~ d b v t h e i n o c)!n e o 1' t h e pension trust. Otherwise, taxation of those eArnings would result in a diminution of aooumul~ted Income and reduce whatever the trust lH~ner i c i ar 1es worJ I cl rece I vf': out of the trust fund. This would run atnul of the very 1n t e n d me n t o f t t1 ~l l a w � �� BespondfHlt did rtf)t act on said olaims for r-efund. Hence, thIs appea I. 110 i}

U~C l HI ')f'f (;. 1 . 1-\.. 1.:/� �..~~~ :�10. �H:H~6 - 5- D u r I tH�~ �1.: he co u r s e of t h e t r I a. I , pet I t I o n e r o f f e r e d various donumentary evidence for the purpose 01' -, hese 11 ro 1 1� Til e T t' lHl t Agr�eement betWflen Semi rara Coal Cor�p. and I n i e r� b a nl< , d a t ~-l d ,J u n e 1 6 . 1989 \1:-:xh. A}; 2. &tHl i rtH'a Loa I Cor-p. flet i r�ement PI an Hu I es and lioqulations ~f~xh. Bl; 3. l.~~tter� ot tho Blfl, dated i'lar�ctr 13, 1991, a cl ell e s s ~~ d t o F a r f: a s t B a n ~; a n d l r� u s t Companv. statiPg that the Semlrar�a Coe.l Corp, Hetlrement Plan qualities as a reP-sotwble r�etirom�,nt plan undr~r Sec. 2FJ(b)(!)(a) of the NIH!; \E.Xtl. C}; 4. Gle.lm for� r�etund ot Interbank, dat:ed De- r: tH!l b e r ~3 . 1 9 9 �1 . t n b e fl a 1f o f 1t s v u r i o u s t ;� q "" 1: c r s fill! on g wh I c h I n c 1 u de s pet i t 1o n e r for� t.h"" period Januar-y 1, 1909 to s o:o r 1. t> mtJ ..~ r 3 o . 19 9 1 ( E x 11 � D > ; 5. C 1 3. I �11 fO~' refund of Interbank, dated Auqust :?0, 199.2. In b~half of its various trusters, Including petitioner, covering tha pe I' I od October� 1 ' 1991 to J u 11�~ 30, 19q2 ( El<IL F): 6. Conftr�matlon!'.: of Saln ~tlowtng ttH�~ amount of t ~~X W I t h h �~ I d f rom T f' e 9 G u t' y Bi I Is p " r c t1 a s a d { E x h s � H t o H- 2 0 , ' n c l u s I v fl ) ; 7. cert:lfiofltlons issued by the Cantral Bank on F0bruary 21. 1n9o <Fxhs. 1. 1-1, 1-~~>. F e b 1� u -'\ r y 2 6 , I 9 9 0 { E X ll . I -- ;.~ ) , A p r I I 0 , 1991 <Exhs. J, J�-1 to d-�9, !nolus!ve, and E x !l � ,J - I 0 ) , F e b '' ll a r y 2 0 . 1 9 9 ~! ( E X h s . K , t( - �1 tn K-10, Inclusive. and [�xh. t<-11), September� 10. 1992 (E!<Il. 1.), and Septembet� 9, 1992 (Ex h � t- 1 ) ; 1105

Di:GI'SION c.;. I .A. C,GS!: fW. 41Hl6 - R- 8. Monthly Remittance Returns of Income Taxes Withheld by the Central Bank from January 1989 to June 1992 (Exhs. L-1 to L-55, inclusive); 9. Quarterly Returns of lax Withheld on Interest Paid on Time and Savings Deposits (SIR Form 1745) fl led by Interbank for the four (4) quar�ter�s of 1990 <Exhs. M, N, 0 and P), 198'1 <Exhs. R, s, T and U) and for the first two quarters of 1992 <Exhs. W and Xi; 10. A11nua1 Hf!tu�� ns Income Taxes Withheld on Interest Paicl on Deposita and Yield on Ueposlt Sub~tltutes/Trust/ato. CB I H F o r�m No � 1 7 4 5- A > �r (J ,, t h e year s 18 9 o <Exh. <n, and 199"1 <F.xh. V); and 1 1 " B I R Pa yme n t ot' d e r s a n d cB co n r 11~ ma t I o n Receipts of lnt~rbflnk to show payments made corresponding tu the t~xes withheld In l~o. 8 above (Exhs. M-�1, M-2, N-1, N-2, 0�--1, 0-.2., P-1, P�-2, R--1. R..-2, s-�t. S-2, T- 1 ll.nd T-2). Note 1 Payments made for� the f o !1 r' t 11 q 11 A r t �'H' o f I 9 9 I , f I r s t a n d s e c o n d qlla!�ter s of 1992 are a I t�eady machIne V'3ildated as shown in the quar�terly r��eturns. Respon<:ll?.nt, on the other hand, <~hosl'! not to present any evldenoe to controvert the claim for r�efund. Instead, t r�ll'!~pont:len st.!bnt i t ted the oHsP for decIsIon, sans any memorandum, on the basis of the pleadinus and l'ecor�ds of thl'! case. lhe onlv lssu~:-~ to tH! resolved is: Whether' cor� not pet 1t I (Hler i s e n t i t I ~ d t a 1� h e r ~' 1 u n d o f f' 8 8 fl , 1 9 1 � 7 2 , the final wlthholdlny taxes on the 1106

()f:C IS l ON G.f.~. GASE NO. 4006 - 7- lncometlntere~t from Investments In government securities and bank deposits. This onan Is not of first Impression as held In the case of Commissioner of Internal Revenue vs. The Hon. Court of 1\pfH~a Is, The Court of Tax Appeals, GGl. Ret I r�ernerrt Plan, Its lrustee-Director, G.R. 95022, Maret! 23, 1992, pertinent portion of which reads as follow�~= "lo begin v.ith, it Is slynil icant to note that BCI.. Plan was qualified as exempt from Income tax ly~: the CommissIoner� of Interns I Revenue In accordance wltll Rep. Act. No. 4917' e p p r o v �s �J on 1 7 .J u n e 19 f.H � l hIs 1ow speclflcal ly provided: "SECTION 1. I ew t.~...... _.~"t~'?:. g~~!!.!.!f:!!:Y _____!l.2_~y:.J ~~!~J:.~.r.!.~.1.r1.S!, th�~ r'etlrement benefltR received by c.l"f r i r:: in! 2 and !?HIP I oyees of pr I VElte firms, whether Individual or cnrporate, In accor-liance with a r~asonable prlv8te benefit plan ma !uta I ned by th~ emp I oyHr aha I I tte .~.�~.!'.!.'l.P.:L.!.!P~____f!JJ.~-~.!.~- and s h a I I n o t be I inble to Attachment, levy or ~~?>l.tu!'e by or under any leQal or equitable process whatsoever except to pay a debt of the o�fficll!l or employee conr::erned to the PI'IVAte ~nneflt plan or that arlstnq from liability imposed In a (;r�imlnal nr.tton:" l( " x <emphasis ours). In so 'far as employees' trusts ere eone�!!t�ne~J, the 1'or.:�golng pro'Vislon should be t-afnH1. In relation to then Seotion 56(b) <now l..'la[bl >�of the Tax (.;Ode. as am~nded by Rep. 1\nt No . 1 ~H) 2� , !!.~E.!.:_f!. , wh I c ll t o o k e f f e c t o n 2 2 J u n e 1957, This proviglon speclflcal ly exempted 1107

DECISION C.l.A. CASE NO. 4886 - 8- employees' trusts from Income tax and Is repeated hereunder for emphasis, "Sec. 56 Imposition of T8x. <a> Application of tax. The ta.x~t imposnd by this Title upnn Individuals shal I apply to the tnoome o �f e s t: R t e r. or c' f a n y k 1n d of p r ope t' t 11 he I tl 1n t r� us t . XXX XXX "(b) Exception. Ttl!E� tal< Imposed by this Title ahal not applv t o em r I o y! e ' s t r us t V' h I o h forms per-t� oT A pension, stonk bonus or� profit- sharing plan of an employer for tne henf!ftt of !'lome or all o�r his emrloyees X X X" lhe tax-exemption prlvl lege of employees' tr�ust~~, ;:,s dlstlnqutshed from any other- kind of property held in trust, springs from the foreg~.."ltng pr�r,viBion. It I~ unambtquous. Men ires t ther�afrom is that the tax I aw has f":\ingled out <emplnyer~s� tr�IJsts for tAx Axemption. 1\nct righttv so, by vIrtU(~ of the ~~~�-'�-~2..!1. s!~~~::.!::.~~ bet11tv1 th~ or~ntion of ~mploye~;>s' trust..::;, E"tployees' tr�u~tf; �.1r� b~liH~fit plans nor� ma I I y p r� o v I de e eon om i c as s i stan o ..~ t o emp I oyeps upon the oecut�n:�nce of CJ.H ta in cont i flf,j(>'IIO i es, part I cuI ar I y, u Id <.1.ge r e t i r� P. me n t . d e a t h , ~ I c k n e s s , o r� d I ~ e. t.ll I i t ).' . i t pt�ovides necut�ity agaillst tlazat�ds to ~lfliuh memben1 of the PI an mey be exposer.!. It: is; an I n d ~~ ii P n t1 e n t a n d a d d i t i o n a I s o 'H" c e o r pr� '' l ,;1 c t i u n wh a t i s more � ! t i s for� 1� he 111 or k 1'' p group . e s t a tJ I 1 ~:> IHnl f o r t h e i r� ex c I �1 s i v H be n P f i t a n c! �r or� no otllet� p�.n�pose. y n T IH~ t a x a rt v ::t n t a e l n u p . I\ c t . N o . 1 9 8 3 � Seotton f"H}(b), was Gt"Jrt<.;f!iV(H.i 111 utd~lr to encouraue the formation an~ eetahl ishment of such prIvate pI anH "for' Ute bonef l + nf ! Et'.>oi�H n and employees outside of the SociAl Senurlty A iJ t . [ n I I y h t H n i n !,l i s H p o r t i r) ll o 1' t IH~ 1108

DECISION C.T.A. CASE NO. 4866 - 9- explanatory note to H.B. No. 6503, now R.A. 1983, reading: "Considering that under Section 17 of the Soc I a I SecurIty Act, a II contributions collected and payments of sickness, unemployment, retirement, dlsebl I lty and death benefIts made ther�eunder !.9Jl.!!th~~ ~l.!l!_~t ~.!__1_!.!.9 o '!!.~--~.!.-t h e__�~!' s i on t r� u s t are exempt from any tax, assessment, f'ee, or� ohar'ge, It Is Pl'oposed that, a similar system providing for retirement, etc. benefits for employees outside the Soolal Security Act be exempted from 111come taxes." <Congressional Record, House of Rep I' e sent at I v e , Vo I � I V , Pa r t . 2 , No . 5-;, p. 11:369, May 3, 1957t cited In CommIssIoner of I uter-rra I Revenue vs. Visay11n Electrl<.~ Co., et. al., G. H. SCRA No. L-22611; 27 May 1966, 23 7�15); lUnderscor-ing supplied). It is evident that tax-exemption Is I lkewlse to be enjoyed by the income of the pens I on tr'Ust. Other�w I se, tax at Ion of those earnings would result In a diminution of accumulAted Income and reduce whatever the trust beneficiaries would receive out of the trust fund. This would run afoul of the very Intendment of the law. The deletion In Pres. Decree No. 1959 of the provisos regarding tax exemption and preferential tax rates under the old law, therefore, cannot be deemed to extend to employees' trusts. Said Decree, being a general law, cannot t'epeal by Implication a speclflo pr-ovision, Section 56(b) (now 53[b]) In relation to Rep. Act No. 4917 granting exemption fr-om Income tax to employees' trusts. Rep. Act 1983, which excluded employees' trusts In its Section 56(b) was effective on 22 June 195-t wll i I~ Rep. Aot No. 4917 was enacted on 17 June HHH, I ong befor'e the I ssuanoe of Pres. Dec r- e e No . 1 9 59 on 15 0 c t o be I' 19 8 4 . A subsequent statute, genera I In character as to Its tP.rtns and application, Is not to be ll.OS

I DECISION C.T.A. CASE NO. 4886 - 10 - construed as repeal lng a special or specific enactmeht, unless the legislative purpose to do so Is manifested. This Is so even If the provisions of the latter are sufficiently comprehensive to Include what was set forth In the special act CVI I legas vs. Subldo, G.R. No. L-31711, ~~0 September 1971, 41 SCRA 190). Notably, too, all the tax provisions herein treated come under lltle I I of the lax Code on "l11come fax." Section 2"1(d), as amended by nep. Aot No. 1959, refers to the final tax on IndividuAls and falls under Chapter I I; Section ~4Cao) to the final tax on oorp(H'Rt i otlR under Chapter I I 1; Sect I on 53 on withholding of final ta.x to Returns and t>ayment of Tax unrJer� Cl1apter VI: and Seot I on 56< b) to t a x o n E s t at e s a n d Tr� u s t s cove red by uhap t e r VII. Seotlon 56(b). taken In conjunction with Sect I ~1n 56< a), !.!!2.!:!� exp I I o It I y exo I udes employees' trusts from "the tAxes Imposed by this fltle." Since the rlnal tax and the withholding thereof are embraced within the title on "Income Tax" It fol tows that said trust must be deemed exempt thet�eft'om. Otherwise, the exception becomes meaningless. fiii'H'a can be no denying� either that the final withholding tax Is collected fr�om .L!!_~~-~.1!!!!. In respect of which employees' trusts are cleclar tH! exempt (Sec. [1\[bJ), (now 53[bJ, Tax Code). The appl lcatlon of the withholding system io Interest on bank deposits or yield from deposit substitutes Is easentlal ly to maximizE' E~nd expedite the collection of .!._1)_~9-1!!.~ ta~es by re~ulrlng its payments at the source. If an employee' trust I Ike the GCL enjoys a ta~-exernpt status from Income, we see no logic i n w I t h h o I d I n g a c ~H� t a I n per� c e n t a !J e of t h a t Income which It Is not supposed to pay In the flr�st place. Petitioner ai&P rei les on Revenue Memorandum Circular 31-64, dated 30 October 19 8 4 , ~ IHI Bu r e a u of I r t e r n a I Aeve n u e Ru I I ng No . 027-e���OD0-00-005-85, dated 14 ..January 1985, as authorities for the argument that Pres. Decree No. 195H wlthdt�ew the exemption of employees' t1�usts fr<.om the withholding of the final tax on 111(J

DECISION C.T.A. CASE NO. 4886 - 11 - Interest income. Said Circular and Ruling pronounced that the deletion of the exempting and preferential tax treatment provisions by Pres. Decree No. 1959 Is clear manifestation that the single 15% tax rate is lmposable on a I I I n t e r� e s t I nco me r ega r' d I e s s o �f t he t a x status or character of the recipient thereof. But since we herein rule that Pres. Decree No. 1959 did not have the effect of revoking the tax exemption enjoyed by employees' trusts, reliance on those authorities Is now misplaced." We do not Intend to depart from the wisdom of the above-mentioned decision on the legal question of whether or not an employees trust, qual If led by the BIR as a reasonable retirement benefit plan, Is ~xflmpt from taxation. HowBver, with respect to the faotual issue of whether or not petitioner' has pr-oven Its entltlelltent to the amount olalmed Is another' question st I I I to be resolved. In t 11e recent case of Interbank Employees' Retirement Plan, r�epresented by Its Trustee, The International Corporate Bank Trust Ofvlslon vs. Commls~loner of Internal Revenue, CTA Case No. 4881, duly 30, 1996, this Court has ruled that pursuant to Sections 50 and 51 of the NIRC In relation with Section 2 of Revenue Regulations No. 3-85, further amending Section 5 of Revenue Regulations No. 23-84, "t lle r�et ut'n and remittance of final taxes wtthheld on Income derived from bank deposits and yield from deposit substitutes should ��1111

OECISION G.T.A. CASE NO. 4886 - 12 - be fl led within twenty-rive 125) days from the olose of each calendar quarter". ( p. 13' Decision CTA Case No. 4881 l. tiH~ p~;t i t ion in this case was ft led (Jtl 199<?, at I claims for r�efund Tor� thE! year� 1889 u p t: n t h ..~ 1 h i r d q 11 cH' t tH' o f 1 9\:J o h a v e p r� e s c r 1 tJ e d � What remt~!n~:; i_n !w dHierrniiiF.!d Is the r~emalning balntteu of the amouwt c I i"' I med wh i ell have not y�et prescr'ibed. Was pet! t ion~~~- >:ib I E-) to !Ftbs;tant I ate Its cIa i m fc1r 1 td uncl'i' The individuAl trust t~r� s mant~ged by Inter bani< spec if Ica I I v showed t tie II' acoount number�s in the attachmt:!nl t 0 lntHr�banl~'s claims for- refund filed ()II Decembf.H' fi, 1H91 <Exh. D) and August 21, 1992 (E:.xh. E). Thus. i t c a n b n r i n p o i n t t' ti f o r wh o s; <;. E! c� c o tiiH t h e t tt x e s we r� e w 11 tJ he ! d. A CHt'E1fUI t hf.~ evidence present E!d by petIt i ut;e r t u I I )I ~~c' 11'1 i need t.l1 i E Cuu1 t that petitioner 111.1 s est a b I i sited its f' i y !1 t t 0 t h ,,, I ~ f l! II d 0 f P 8 2 5 , 0 8 6 � Et b � b r, o k ~ 11 down a s f o 1 1o \'I' s ~ Per� i oct lt1 I I Is U.3.........131 lis ... �" l'utal �-,..._,.~-�---� 4ttt utr�, 1!:}90 f-'57:.;. U9 1-'16!::1,621.12 83.6;.:1 Jar.. --~;~pt. 19H1 :.?.Ad ',)gtJ. 14 2, 764. 4U .20{:},233.17 ;j8' 591.34 6.24 Oct. --IJec. 1Sl9 I 69, (4 i. 36 f.'2.2 IVU,34!::1.94 2_. 10~~!.1_ �.~i!Ht, -,tun~~ li~l:l2 ~~?.'?.~.L!'E.:.~~ P669.98 " 2...6...0.. ,.,.f..J..7. -6��.�3��-2- f.:~~~~~5~~,~~ Pl80, 951. 12 !:~-~.~-~ ?~~~~--~ ,:': .�:::::;:_-:-:::::.:--.~-..:~r:,:,:~�.:::: 1112

[�F.C I 8 I ON G.l.A. CASE NO. 4886 - 13 - WHEREFORE, In a I I the f o I' ego I n g , respondent Is hereby ORDERED to REFUND In favor of the petitioner the am o u n t o �f F '�l :-� ,., . : l H r-1 . ~) ~5 . t~nr.es ft�om 1 ne~'me on go v 19 r� nn~t� n !: t nve~-t111ent !;'. 1 n t ~~rest!;' on savings rit!POfJi'ls ft'om tile �four�ttl q11srter of 19.,�0 to ,June 30, I 892. SO UJIIJI:Hl:U. COHCliB: CwlSl-~ EHNESro 0. AGOSIA l'l't~:� 1 d t n1J ...tudqt"> c; E A .�. I F I C .A �r I C) N c .s,~(~t ! n r 1 " ,, . ~-- I~ r .,. I I P VI II ~~--~ ~RNESfO 0. AGOSTA r: r "~,� I d J P n � 1'-' r! a"' tourt or Tax Appeal~ -1113