CTA Case No. 4857 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY ABS-CBN Broadcasting Corporation Retirement Fund, ACD, 1c., EmpIoyees' Retirement Fund, A_fJ._c on & Refrigeration Ind. , --1-nc. Retirement Fund, AI legro Microsystems Phils., Inc. Retirement Fund, Avon Products Manufacturing Inc. Retirement Fund, Banque Nationale de Paris, Mani Ia Retirement Fund, Boehringer Mannheim PhiIs., Inc. Retirement Fund, Calumpit Institute, Inc. Retirement Fund, Catholic Educational Association of the PhiIs., Retirement Fund, Co I gate PaImoIive PhiIs., Inc. Retirement Fund, Engineering and Construction Corp. of Asia, Retirement Fund, F.E. ZuelIig Group of Companies Retirement Fund, First Brands Phi Is., Inc. Retirement Fund, lnterphi I Laboratories, Inc. Retirement Fund, Knights of Columbus Fraternal Association of the Phils., Inc. Retirement Fund, MOF Company Retirement Fund, ManiIa HoteI, Inc. Retirement Fund, Mapua Institute of Technology Retirement Fund, Marsman and Company, Inc. Retirement Fund, Metro Kidapawan Water District Retirement Fund, National Steel Corporation Retirement Tund, Oriental Tin Can & Metal Sheet Manufacturing & General Metal Container Corp. of the PhiIs. Multi-Employer Retirement Fund, PCI Automation Center, Inc. - Gratuity Fund, PCI Automation Center, Inc. - Provident Fund, PCIBank - Gratuity Fund, PCIBank - Provident Fund, PCI Leasing and Finance Inc. Retirement Fund, PM I Co I I eges Boho I Retirement Fund, PMI CoIIeges Mani Ia Retirement Fund, Phi I.

DECISION - C.T.A. CASE NO. 4857 -2- Business For So6ial Progress Retirement Fund, PhiI. Commercial Credit Card, Inc. Retirement Fund, Phi I ippine Electric Corp. Retirement Fund, PhiI. Phosphate FertiIizer Corp. Retirement Fund, PhiI. Institute of Certified Public Accountants (PICPA> Retirnt Fund, PhiIippine Pyrite Corpor t on Retirement Fund, PhiIippine Raing Club, Inc. Retirement Fund, Rustan Commercial Corp. Retirement Fund, Superior Gas and Equipment Company, Inc. Retirement Fund, Union Carbide PhiIippines <Far East), Inc. Retirement Fund, Wirerope Corporation of the PhiIs. Retirement Fund, The ZuelIig Group of Companies Retirement Fund, Eastern Telecommunications PhiIs., Inc. Employees' Retirement Plan, Oceanic Wireless Network PhiIs., Inc. Employees' Retirement Plan, all represented by their Trustee, THE PHILIPPINE COMMERCIAL INTERNATIONAL BANK (PCIB), Petitioner�s, - versus - C.T.A. CASE NO. 4857 THE COMMISSIONER OF INTERNAL REVENUE, Respondent. X - - - - - - -- - - - DECISION This is a petition for review filed by the various employees' trusts, herein represented by their trustee, Philippine Commercial International Bank (PCIB), against the respondent, Commissioner of Interna I Revenue, for the refund of P3,685,770.56, representing erroneously withheld twenty

DECISION - C.T.A. CASE NO. 4857 - 3- percent (20%) final tax on interest income earned from investments in treasury bills, bonds, deposits and deposit substitutes. The facts are as foI I ows: �- '� On various dates, - J.._ J anuary , 1989 to from �:t; he period Apr i I , 1992, PCIB, as trustee, invested the funds of the trusts in treasury bills, money market placements and savings deposits. These investments earned interest income from which the tweDtY percent (20%) final withholding tax was imposed pursuant to Presidential Decree No. 1959, effective October 15, 1984. PCIB, as representative of the employees' trusts, filed several claims for refund in behalf of said trusts. The dates of fiIing are enumerated in paragraph VI of the petition for review (pp. 11-14, CTA recor'ds). These were not acted upon by the respondent. Hence, the instant petition for review filed on October 8, 1992. Petitioners contended that the Supreme Court En Bane in the case of Commissioner of Internal Revenue vs. The Hon. Court of Appeals, The Court of Tax Appeals, GCL Ret i r4fient Plan, represented by its Trustee-Director, G.R. No. 95022, March 23, 1992 (207 SCRA 487), has ruled on the exemption of the employees' trusts from the income tax. Wh i I e respondent does not dispute this ruling, she, however, argued:

DECISION - C.T.A. CASE NO. 4857 -4- 1. That when Presidential Decree No. 1959 was promulgated on October 15, 1984, the employees' trusts ceased to be exempt from final withholding tax on interst from bank deposits and/or dposit substitutes. This is .. .) ... because Presidential Decree No1959 has deleted the proviso on exemption and preferential tax treatment under Sec. 21 (d) and Sec. 24(cc) of the 1984 Tax Code; 2. That the petitioners have not shown that the tax sought to be refunded was actually withl1eld and remitted to the respondent; and 3. That petitioners failed to establish that the funds used in the purchase of treasury biIIs were derived from the retirement funds. For the proper adjudication of the case at bar, the following issues have to be resolved by this Court, to wit: I. WHETHER OR NOT THE INTEREST INCOME OF THE EMPLOYEES' TRUST, REPRESENTED HEREIN BY PCIB, IS SUBJECT TO THE TWENTY PERCENT (20%) FINAL WITHHOLDING TAX IMPOSED UNDER PRES. DECREE NO. 1959; I I. WHETHER OR NOT PCIB WAS ABLE TO ESTABLISH/PROVE THAT THE INVESTMENTS MADE WERE FOR THE ACCOUNT OF THE EMPLOYEES' TRUST; and

DEC I S I ON - C.T.A. CASE NO. 4857 -5 - III. WHETHER OR NOT PETITIONERS WERE ABLE TO PROVE THAT THE TAX SUBJECT OF THEIR CLAIMS FOR REFUND WAS ACTUALLY WITHHELD AND REMITTED TO THE RESPONDENT. With respect to the first issue, this has been settled _-�)!::- by the Supreme Court in the case .of Commissioner of Internal Revenue vs. Court of Appeals, The Court of Tax Appeals, GCL Retirement Plan, supra, pertinent portion of which is quoted hereunder: "The deletion in Pres. Decree No. 1959 of the provisos regarding tax exemption and preferential tax rates under the old law, therefore, can not be deemed �to extend to empIoyees' trusts. Said Decree, being a generaI Iaw, cannot repeaI by implication a specific provision, Section 56{b) {now 53[b]) in relation to Rep. Act 4917 granting exemption from income tax to employees' trusts. Rep. Act 1983, which excepted employees' trusts in its Section 56{b) was effective on 22 June 1957 while Rep. � Act No. 4917 was enacted on 17 June 1967, long before the issuance of Pres. Decree No. 1959 on 15 October 1984. A subsequent statute, general in , character as to its terms and appIication, is not to be construed as repeaIing a special or specific enactment, unless the legislative purpose is so manifested. Tl1is is so even if the provisions of the latter are sufficiently comprehensive to include what was set forth-in the special act {Villegas v. Subido, G.R. No. L-31711, 30 September 1971, 41 SCRA 190). XXX XXX XXX There can be no denying either that the final withholding tax is collected from income in respect of which employees' trusts are declared exempt {Sec. 56[b], now 53[bl, Tax Code). The application of the withholdings system to interest on bank deposits or yield from deposit substitutes is essentially to maximize and expedite the

DECISION - C.T.A. CASE NO. 4857 -6 - collection of income taxes by requiring its payment at the source. If an employees' trust Iike the GCL enjoys a tax-exempt status from income, we see no logic in withholding a certain percentage of that income which it is not supposed to pay in the first place. Petitioner aIso reI i"es on Revenue Memorandum Circular 31-84, dated 30�'0ctober 1984, and Bureau . - ... of InternaI Revenue RuIe-No. 027-e-000-00-005-85, dated 14 January 1985, as authorities for the argument that Pres. Decree No. 1959 withdrew the exemption of employees' trusts from the withholding of the final tax on interest income. Said CircuIar and Ru I ing pronounced that the deletion of the exempting and preferential tax treatment provisions by Pres. Decree No, 1959 is a clear manifestation that the single 15% tax rate is imposabIe on aII interest income regardIess of the tax status or character of the recipient thereof. But since we herein rule that Presidential Decree No. 1959 did not have the effect of revoking the tax exemption enjoyed by emp I oyees' trusts, reI iance on these authorities is now misplaced." The second and third issues are interrelated and involves both a question of fact. A joint discussion wiII thus prove to be facile. Petitioners are claiming for refund of the total amount of P3,665,770.56 itemized hereunder: Treas ury bi 1 1 s P3,559,993.52 Money market placement 54,433.84 Savings deposits 71 343.20 TOTAL .!:__. 68___, 77 0.5f?_ PCIB purchased treasury and Central Bank bills in bulk from the Bangko Sentral ng Pilipinas (BSP) during the years 1989, 1990 and 1991. From these purchases the BSP withheld

DECISION - C.T.A. CASE NO. 4857 -7 - the 20% finaI tax (Exhs. D, E, E-1 to E-4, inclusive). AII final taxes withheld at source from discounts on taxable government securities for the years mentioned were remitted to the Treasurer of the PhiIippines for the account of the . --- Bureau of InternaI Revenue (Ex h-:-s � P, F- 1 and F-2). An Audit Report prepared by Punongbayan and Araullo, CPAs (Exh. C) with Annexes from 1-5 (pp. 258-661, CTA rec.) would show that the Trust Services Group of PCIB purchased treasury and Central Bank biIIs fr�om the BSP and other commercial banks for the account of the following employees' trust, where the corresponding 20% final tax have been withheld and remitted to the BIR (see Attachment 1 of Exh. C, pp. 256-257, CTA rec. ). The provisions of the Tax Code pertinent to the case at bar are Sections 51(a) and 230, which provide as follows: Sec. 51. Returns and payment of taxes withheld at source. (a) Quarterly returns and payment of taxes withheld. Taxes deducted and withheld under Section fifty-three (now 50) shalI be covered by a return and paid to the Revenue District Officer, Collection Agent, or duly author-i z ed Treasurer of the city , or rn unicipaIity where the withholding agent has his legal residence or principal place of business or where the withholding agent is a corporation, where the p rinc i paI office is I ocated. T t1 e taxes deducted and withheld by the withholding agent shalI be held as a special fund in trust for the Government until paid to the collecting officers. The Commissioner of Interna I Revenue may, with the approval of the Secretary of Finance, require these withholding agents to pay or deposit the taxes deducted or withheld at more frequent

DECISION - C.T.A. CASE NO. 4857 -8 - intervals when necessary to protect the interest of the Government. The return for final withholding tax shall be filed and the payment made within 25 days from the close of each calendar quarter, while the return for creditable withholding taxes shall be filed and the payment made not later than the . last day of the month following the close of tt"\e quartcl' during which withholding was made. Sec. 230. Recovery of tax erroneously or illegally collected. No suit or proceeding shaII be rna i ntained in any court for the recovery of any national internal revenue tax hereafter aIIeged to have been erroneousIy or iIIegaIIy assessed or collected, or of any penalty claimed to have been coIIected without authority or of any sum aIIeged to have been excessive or in any manner wrongfully collected, untiI a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be rnainta i ned, whether or not such tax, penaIty, or sum has been paid under protest or duress. In any case, no such suit or proceeding shal I be begun after the expiration of two years from the date of payment of the tux or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid. Forfeiture of refund. A refund check or warrant issued in accordance with the pertinent provisi ons of this Code which shall remain unclaimed or uncashed within five (5) years from the date the said warrant or check was maiIed or deIivered sha I I be forfeited in favor of the government and the amount thereof shalI revert to the General Fund. Based on our findings, we have disregarded the amounts withheld and paid prior to October 9, 1990. The petition

DEC I S I ON - C .T.A. CA SE NO . 4857 -9 - w as fi l e d on October 8 , 1 992 and 1992 was a leap ye ar, the t w o-ye ar pre s cription pe riod for the claims for a refund sh oul d therefore be counte d from October 9, 1 99 0 . Thus , all c l aim s for refund of fina l wihholding taxes paid prior t o . ,.._ Oct ober 9 , 1 992 have pre s cribed: F ur the r more , the petitioner s did not s ub mit any e vide n ce t o s ub s t antiate their claims for re fund of taxes withheld on i nte re s t in come from money pla cement s (P5 4 , 4 3 3 . 8 4) and s avings deposits <P7 1,3 4 3.20), neither did the audit re por t pr ovide for s u ch finding. Hen ce, the same are e x c l ude d fr om the C our t's computation. In view thereof, the C our t h as computed the re fund to be awarded in fav or of pe t i tione r s the following amount s: PCIBank Trust Department Summ ary of Differences in Final Withholding T axes on Treasury BiIIs For the Period January 1989 to ApriI 1992 Name of Retirement Fund Per Per Court's Audit F 1 . ABS-CBN oad casting Corp. P 17' 641.95 p 1 7,641 .95 2,432.87 2. ACD, Inc. 2.,432.87 34,878.19 3 . AI le gro Mlcrosystems P hiIs., Inc. 34' 878. 19 38,684.36 30,81 7 .56 4. A v on P rodu cts Mf g ., Inc. /"1,635.91 9,339 .63 5. B anque National de P aris 30,817.56 2,040.76 79,853.90 6 . Boehringer Mannheim PhiIs., Inc. 9,339.63 1 8,882.49 82,970.94 7 . C a lumpit Institute, Inc. 3, 053.17 28,469.00 60,644.71 8. Col g ate-P almolive PhiIs., Inc. 118,479.03 9,375.85 9 . Engineering & Constru ction Corp. of Asia 34,668.89 10. F .E . Zue lIig Group of Companies 01,533.27 11. First Brands PhiIs., Inc. 28,.1}69.00 12. InterphiI Laboratories, Inc. 7!5,4�+1.91 13. Kni ghts of Columbus Fraternal Assn. 2'1 '346. 84

DE C ISION - C.T.A. C ASE NO. 4857 - 10 - 14. Metro Kidapawan Water District 17,238.58 15,205.92 8,756.37 8,756.37 15. M 0 F Company 372,113.12 213,088.87 16. National Steel Corporation 14,015.33 9,375.38 12,455.12 17. Oriental Tin Can 4,154.07 12,455.12 4,154.07 18. PCI Automation Center, Inc. - Gratuity 1,106,243.03 566,981.87 857,376.48 19. PCI Automation Center, Inc. - Provident 7,356.77 20,837.02 7,356.77 20. PCIBank - Gratuity 4,786.90 18,289.81 12,997.27 21. PCIBank - Provident ... .!',, 48,439.18 4,786.90 21,758."14 12,363.26 22. PMI Colleges - Bohol 16,419.05 48,439.18 6,343.28 21,758.74 23. PM Colleges - ManiIa 44,295.32 16,419.05 24. Ph Iippine Business for Social Progress 7, 'j 11.29 6,343.28 44,295.32 25. Ph I. Commercial Credit Card, Inc. 6,362.05 15,271.79 5,339.58 26. Ph Iippine Electric Corporation 27,704.79 6,362.05 15,271.79 27. Ph Iippine Phosphate FertiIizer Corp. __ "l_;_Q 78 . 90 24,939.93 1 378.90 28. Ph Iippine Institute of CPAs 29. Ph Iippine Pyrite Corporation 30. Rustan Commercial Corporation 31. Superior Gas & Equipment Co., Inc. 32. Union Carbide PhiIs. 33. Wirerope Corporation of the PhiIippines 34. The ZuelIig Group of Companies 35. Eastern Telecommunications, Inc. P2,886,559.86 P1,769,788.98 WHEREFORE , prem i s es cons i dered, the petition is P ART I ALLY GR ANTED. R es pondent is hereby ORDERED to REFUND i n fav or of petiti on ers the s pecific amounts above- e n um erat ed or a t otal of P 1 , 7 6 9 , 788.98, repres enting erron eous l y w ithheld 2 0% final tax on the income earned by t he vari ous t rust fun d s from t he purchas e of treas ury and C e nt r a l Ba n k bi lis by t he i r trustee, herein repres ented by P C I B. No pron ouncement as to costs. SO ORDERED. I �, "il" YA e I HAMON 0. DE V ; Associate J /

DECISION - C.T.A. CASE NO. 4857 - 11 - WE CONCUR: Q Q.Q ERNESTO D. ACOSTA CERTIFICATION I hereby certify that this decision was reached after due consultation with the members of the Court of Tax Appeals in accordance with Section 13, Article VIII of the Constitution. Q..c;. Q, (2 ERNESTO D. ACOSTA Pr-esiding Judge Court of Tax Appeals