CTA Case No. 4833 (Decision)

' ; c - -.......!1'0-----~--....-����. -�------�-----���~.- --- ----~-- �------------~-- Republic of the Philippines COURT OF TAX APPEALS Quezon City MANILA ELECTRIC COMPANY and C.T.A. CASE NO. 4833 MANILA ELECTRIC COMPANY Pension Fund, represented by its PROOMCUTLGA0TE2D:19~95t Agent and Assistant Secretary, - - - - - - - - ------~ - Lourdes D. Torres, Petitionet~, COMMISSIONER OF INTERNAL REVENUE, Hesponclent. X- DEC I s I DN This case involves a cl.::dm for t~efund or tax credit in the amount of P12, 7LJ-3, 397. 3~i t~epr~esenting fin;::d. withholding tax on interest income earned by the petitioner Pension Fund fro~ its money market placements. It appears that petitioners Manila Electric Company and Manila Electric Company Pension Fund is an employee's trust set up by employer for the exclusive benefit of its employees, to provide them t~etit~ernent, disability and death benefits. .1254

- -��-� DECISION - C.T.A. Case No.4833- L::: - Accordingly, the Fund is t~ept~esented by its Agent and Assistant Secretary, Lourdes D. Torres with office address at the 8th floot~, Lopez Building, Ortigas Avenue, Pasig, Mett~o Manila. Ft~om July iE?5, 1r:3go to April 27, :1.'392, the amount of P12, 743, 3':37. 45 rept~esent i ng twenty final withholding ta><, was allegedly withheld and t~emitted to the BIR by the petitioners. The said amount consist of intet~est ea1�~ned by the Fund from money mat~ket placements with the Philippine Commet~cial Capital, Inc. <PCCI > and the I nt et~nat ion a 1 Capital Corporation <ICC> which is broken down as follows: PHILIPPINE COMMERCIAL CAPITAL, INC. Interest Inco�e Tax Withheld Date Re�itted F;. 1,224,61'3.11 892, 043. 5'+ 07-25-90 4,460,217.57 225,276.68 10-25-90 887,503.55 01-25-'31 4,437,517.83 302,321.66 04-25-91 1,511,608.21 1,204,061.98 6, o;::~o, 309. 87 1.0-25-91. 62,1':33.55 310, ':367. 7L~ l., 1.16,3::'i2.83 5, 581, 76L~. �~8 P4,934,G77,G2 TOTAL:P 24,678,388.10 1255

'- DECISION -- C.T.A. Case No.4833 - -- - ~ \..') INTERNATIONAL CAPITAL CORPORATION Interest Inco�e Tax Withheld p 35,017.'35 p 7,003.5'3 07-25-'30 2,372.64 10-25-'30 11, 863. 1B 04-25-'3:1. 373, 358. 1~7 07-25-'31 1,866,7'32.33 6,851.18 2, 361. '36 10-25-'31 31~, 255. '30 Ol.-27-92 6,6'37.25 11,80'3.80 2, 35'1. 15 :B, 486. 2lt 6, 541.78 11,755.75 2, 340. C.:l 3~::, 708. 8B 6, 381t. 75 11,701.03 2,329.13 31' '3;::~3. 75 11, E-.45. 63 153, 164.75 2, 16B,0'3~::.61 5,740.78 2,283.40 765,823.73 28,703.'31 L�ll, 522. 22 11' lt 16. '3'3 ~;, 575. 75 2, 271. 61 2' 057' 611. 11 5,40'3.06 27,878.73 2,25'3.67 11,358.03 '+73, 885. 60 i.?..7' 045. f:'3 5' 2lt0. 70 11, 2r::J8. 3.lt 2,247.58 5,070.G7 2, 36'3, LtE7. '3'3 83, 4-16. G7 2f-.'>, 2()3. 52 166, 83:~. 33 11,237.'30 22, 2'+4. 44 1:3'3, 027. 78 417,0B3.33 83Lt, 166. 67 4, 8'38. '33 2, 22i~. 95 111' 2f:2. 22 6'35, 138.8'3 1,703,670.80 ;~, i~10. 40 i.?..'+' Lt'31+. G5 11, 11Lt. 75 11,5'38.4'3 2,1'37.70 8,518,354.03 11,052.01 2,'352,8l.4.50 57,'3'32.44 29'3, 288. 8r::J 10, '388. 4':3 18, )83. 33 2, 158.G3 14,764,072.48 4,356.G5 1 ' 4'36' lt1tlt. 44 90, 41G. 6~i 10,7'33. 14 i.?..1' 783. 26 606,66G.67

DECISION - C.T.A. Case No.4833- -4- Interest Income Tax Withheld Date Remitted p 3()~3. 3~~;~. ~3~~ p '60,666.67 101' 111. 1l 505,555.56 18,083.33 16, 1T7. 78 90, '+16. 65 42,417.88 2'38.35 80,888.8'3 l.j., 500. (10 212,08'3.42 2'+f5. 71 1, 4'31. 71.~ 22,500.00 1' 228. 5~j 55, if 15. (H) 11,083.00 04-27-92 10,521.07 2', 101.~. 21 26'3,636.35 10,658. 7r:3 , 53,'327,27 10,5'30.36 �..:.:... 131.76 10 11.~2. 281.~. 2, 118.07 28,456.82 TOTAL: p 39,043,598.99 p 7,808,719.83 On July '3, 1'3'32, petitioners filed with respondent their claim fat~ t~e fund or tax credit in the amount of P12, 71.~3, 3'37. 45. To this date, respondent failed to act upon such claim, hence this petition for review. The sole issue to be resolved in this case is whether or not petitioner is exempt from withholding tax on income from money placements No. 1'35'3. Petitioner averred that the 20~ final withholding tax on income earned by the petitioners was made in violation of its exemption ft~om taxes put~suant to H.A. 4'317 in relation to then Sec. 56(b) [now 53(b)] of the Tax Code. Mot~ eo vet~, pet i t i one t~ s invoked the t~ u J. in g of t h i s Co tn~t in GCL Retirement Plan vs. Commissioner of Internal Revenue, CTR Case No. 3888, December 15, 1'386. 1257

DEC IS I 01\1 -- C.T.A. Case No.4833- 5- Ar;lditionally, it cited a s basis the t~uling of the High Cout"'t in the case of Commissionet~ of Intet"'nal Revenue vs. The Hon. Com~t of Tax Appeals, et al., G. R. No.. '3502f~, March 23, 1'3'32>, affit"'ming the decision of this Cout"'t in CTA Case No. 3888. On the other hand, respondent raised the following affirmative defenses: 1. That petitionet~s has no ca1.1se of action, it appearing that no decision has yet been rendered by respondent on petitioners claim for refund. '�::-o � The amount sought to be refunded was collected in accordance with law and regulation. 3. It is incumbent upon the pet it ionet"' to show compliance w~th the provisions of Section 230 of the Tax Code. 4. A claim for t"'efund is constt~ued stt"'ictly against claimants since a claim for refund partakes of the nature of an exemption from taxation <citing the case of Collectot~ of Intet"'nal Revenue vs. Ledesma, G. H. No. L-1750'3, Januat"'Y 30, 1'370, 31 SCHA '35). Thus, We find for the petitioners Manila Electric Company and Manila El ectt"'ic Company Pension Fund has I qualified as exempt �ft~om income tax by the Commissionet"' of Internal Revenue in accot"'dance with Republic ~let No. L~'317 approved on 17 June 1'376. The said law is herein, quoted for t"'efet"'ence: Section 1. Any provision of law to the contrary notwithstanding, the t"'etit"'ement benefits received by official and employees of private fit"'ms, whethet"' individual at~ corpot~ate, in accordance with a reasonable private benefits plan 1258

DECISION - C.T.A. Case No.4833 - �- f:, maintained by the employer shall be exempt from all t.:~xes and shall not be liable to att.::\l:::hment, levy or seizure by or under any legal or equitable process whatsoevet�� except to pay a debt of the official or employees concerned to the private benefit plan or that arising from liability imposed in a criminal action." <Under~scor~ing supplied> The particular provision of law which specifically exempted employees trust ft~om income tax is Section 5E,(b) <now 53 [bJ > of the Tax Code, as amended by Republic Act No. 1983 supt~a, which took effect on 22 June 1957 is het"ein quoted to wit: "Sec. 56. Imposition of Tax. - (a) Application of Tax. The taxes imposed by this Title upon individua~s shall apply to the income of estates or of any kind of property held in trust. XXX XXX X><X (b) Exception. The tax imposed by this Title shall not apply to employe's trust which forms part o�f a pension, stock, bonus or pt"ofit-sharing plan of an employet" fot~ the benefit of some or all of his employees xxx." The tax-exemption privilege of employes trusts, as differentiated from any other kind of property held in trust, springs from the foregoing provision. Evidently, the law has declared apos exempt employees trust from the tax imposition. the behind the tax exemption extended to employees trust is because of the purpose of its Employees trust or benefit plans at"e desi~]ned to provide economic assistance to employees upon the occurrence of cet"tain contingencies, namely old age, t~etit~ement, death, sickness or disability. It assures protection against 1259

DECISION -- C.T.A. Case No.4833- -7 certain r~is~< to which member~s of the Plan may be exposed. Likewise, it is an independent and additional source of protection for~ the wot~~<ing gr~oup, and is established for their sole benefit and for no other purpose. <GCL Retit~ement Plan vs. Commissionet� of' Int:et�nal Revenue, CTA Case No. 41.30, Febt�ttat�y 18, 199.3> The deletion in Pt�esidential Decr~ee No. 1959 of the provision dealing with tax exemption and pt�efet�ential tax rated under the old law, therefore cannot apply or extend to employees tt�ust. The said decr~ee being a gener~al law, cannot impliedly r~epeal a specific pt~ovision, Sectio.n 56(b) <now 53[bJ> in relation to Rep. Act No. 4917 gr~anting exemption from income tax to employee's trusts. Republic Act No.4917 was enacted on June 17, 1967, long befor~e the iss�.tance of Presidential Decree No. 1959 on October 15, 1984. A subsequent statute, gener~al in chat~actet� as to i t s ter~ms and application, is not to be construed as repealing a special or specific enactment, unless the legislative pm~pose to do is manifestel). This is so even if the provisions of the latter are sufficiently comprehensive to include what was set forth in the special act. <Villegas vs. Subiclo, G.H. No. L-31711, 30 September 1971, 41 SCHA 190}. Considering that the final tax and the withholding thet~eof ar�e contained under� Title II of Tax Code on "Income Tax", necessarily said trust must be deemed exempt thet�efrom. 1260

- ... DECISION - C.T.A. Case No.4833- - 8 -- This is so, since Section 56(b), ta~<en in conjunction with Section 569) supra, specifically excepts employees trust from "the taxes imposed by this Title". Undeniably, the final withholding tax is collected from income in ~~espect of which employees tt~ust~; c.u~e declat~ed exempt <Sec. 56[bJ now 53[bJ Tax Code). The subsequent application of the' withholding systems to interest on bank deposits or yield from deposit substitutes i s essen t i a 11 y t o max i mi z e and ex p e d it e the co 11 e ct i on of income taxes by requiring its payment at the source. Since IYianila Electric Company and Manila Electr~ic Company Pension Fund, which is an employee's trust, enjoys a tax-exempt status f~~om income, we find it illogical in withholding a certain percentage of that income which is not obliged to pay in the first place. Moreso, the tax advantage in Republic t=lct No. 1983, Section 56(b) was conceived in order to encourage the fo~~mation and establishment of such private Plans fot~ the benefit of laborers and employees outside of the Social Security Act. "~~d d it i on a 11 y, it is evident that tax exemption is likewise to be enjoyed by the income of the pension tt~ust. Otherwise, taxation of those earning would result in a diminution of accumulated income and reduce whatever the trust beneficiat~ies would y�eceive out of the tt~ust fund. 1261

--.,. DECISION - C.T.A. Case No.4833- - g- This would t~un afoul of the very intendment of the law." <Commissionet~ of" Inter-~nal Revenue vs. The Non. Cour-�t of" Tax Rppeals, et.al., G.R. No. 95022, /'ttar-�ch 23, 1992>. In Fact, then Commissionet~ Misael P. Vet�a of the Bureau of I nt et�nal Revenue attisted to the fact that indeed petitionet� met all the t�equit~ements presct�ibed by law and regulations for a qualified plan under�Republic Act No. 4917, thus entitling petitioner to all the benefits provided for in said ac�t. The said letter is herein quoted in full: Republic of the Philippines Department of Finance Bureau of Internal Revenue Manila Meralco Electric Company Lopez .Administration Bldg. Ortigas Avenue t=:�a s i g, R i z a 1 Gentlemen: This refet�s to the Met~alco employees Pension Plan which yclt.t submitted to this Office for determination of qualification under Republic Act No. 4917. ~=~close pet�usal of the Plan disclosed the following: (1} It is a definite and wt�itten progt�am; (2} It is duly funded and trusteed; .1262 J �J )�

DECISION - C.T.A. Case No.4833- - 10 - <3> It rwovides fat~ benefits that are not discriminatory; <4> Benefits and contributions were actuarially determined; <5> It covers all employees of the company; and (6) Finally, i t pt~ovides fat~ the fat~ the non-diversion of the Fund but covet~ed exclusive " benefit of the employees. ' I t appeat~s that the lvJet~alco Ret tt~ement Plan meets substantially the requirements prescribed by the law and regulations for a qualified Plan. Such being the case, the Plan qualifies as a t~easonable plan within the contemplation of Republic Act No. 4'317 and, thet~efot~e, entitled to all the benefits provided for in said Act. It is obset~ved, however, that the Plan provides also for payment of a certain sum to employees who t~esign after~ 15 yeat~s of continuous service. Inasmuch as any amount given to an employee by reason of t~esignation is not a retirement benefit, such amount shall be considered ot~dinat~y income and, thet~efore, subject to income tax. It is of course understood that the Plan shall continue to qualify through all the years that it shall be in opet~ation and that all fot~feitures at~ising undet~ the opet~ation of the Plan shall be applied to reduce employer contribution. Finally, any modification or amendment that may be effected to the Plan'in the future should be cout~sed to this Office for cet~tification that any such amendment or modification shall not effect the qualification of the Plan. Very truly yours, MISAEL P. VERA Commissioner of Internal Revenue 1263

DECISION - C.T.A. Case No.4833- - 11 - Lastly, tax exemption is likewise to be enjoyed by the incom~ of the pension trust. <Commissioner of Internal Revenue vs. Court of Appeals, 207 SCRA 487) WHEREFORE, We find and so hold that petitioner is entitled to a refund of the amount of P12,743,397.45 representing final withholding tax on intet~est income ft~om its money mat~ket placements pm~suant to Sec. 56<b>, now Sec. 54(b) of the Tax Code. SO ORDERED. GRUBA .Judge WE CONCUR: Pt~ siding Judge . �t-: ~J,fll RAMON 0. DE VE Associate Jud CERTl:Fl:CATl:OH ~I het~eby certify that this decision was r~eached after due consultation among the members of the Court of Tax Appeals in accot~dance with Section 13, Article VIII of the Constitution. ~0.~ ERNESTO D. ACOSTA Presiding Judge Court of Tax Appeals 1264