CTA Case No. 3888 (Decision)

ti'.O"'BUl! O!ll Uf.l I"IUUPP'H'~i1� ~OURT OF TAX APPf.:...U.S QURON C.i"~~'Y GCL RETIREMENT PLAN, repr esen ted by its Tru ste e-Dir ector , Petitioner, - versus - C.T.A. CASE NO. 3888 COMMISSIONER OF INTERNAL REVENUE, Respondent. X- - - - - - - - - - - - X DECI S I 0 N This i s a claim for refund o f the amo unt of ell,302.19 representing withholdicg tax on income from money market placement s and purchase of treasury bill s, imposed pursuant to the Presidential Decree No. 1959. The facts are not disputed. It appears that petitioner GCL Retirement Plan, is an emp loyees trust set up by the employer f or the exclusive benefit ?f i ts employees, to provide them retirement pension, disability a nd death ben efi ts . The pl a n as submitted was ap~roved an~ qualif ied as exempt from income tax by respondent pursuant to Republic Act No. 4917. (Plea se see Exh. H & H-1, pp. 88-90, CTA rec.) 310

�. DECISION - CTA CASE NO. 3888 -� 2 - In 1984 petition er ma de the following invest- ments and ear ne d from the same int erest i ncome (ANNEX C-D-2, inclusive and ANNEX E, pp. 15-20 a nd p . 30, re specti vely, CTA rec.) fro m which was with- held the 1 5% final withholding tax impose d pursuant to Presidential Decree No. 1959 which took effect on October 15, 1984, to wit: Income Earned 15% Tax Withheld ) Date Kind of Investment ACIC Market pl acement e236 , 515 . 32 e o,7~)1.06 81,312.66 12/ 5/84 ~~arket placement 234,632.75 9,8 15 . 89 1,472.38 10/22/84 1,1a r k e t p1 ace men t 225 , 886.51 1,594. 38 11/19/84 3!~4 ,448 .GL~- 10 , 629 .2 2 2,597 .00 11/23/84 ~,1arket placement 17,313. 33 2 ,261 .52 12/ 5/84 324,633.81 t~ a r I< e t p 1 a c e me n t 15,077 . L~4 2J.J64.15 COMBANK Treas ur y bills e�-�-�T�--f-'�--3--�0--2�-.-1--9-- Petitioner filed a claim for r efund with respon- dffnt on J anua ry 1 5 , 1985 of the amounts of el,312.66 withheLd ~y An sc or Capital and Inve stment Corporat ion and ~2 , 064.15 by Commerc ia l Bank of Manila.(Exh. 0, pp. 120-122 , CTA rec .) On February 12, 1985, it filed a second cla im for refund of the a mount of 87,925.38 withh~ld by An scor Capita l and Investment Corporation (Exh. P, pp. 12 3-1 24 , CTA rec . ) stating in bo t h letters that it disagreed with the collectio n of t he 15% final withholding tax from the interest i nc ome as it is an 31

DECISION .... CTA CASE NO . 3888 ... 3 - entity fully exempt from income tax as provided under Republic Act No . 49 17 in r e lation to Section 56(b) of the Tax Code. Without waiting for re sp ondent to resolve its claim for refund, pet i tioner filed the in s tant petition for review. The only issue to be. resolved is whether o r not ' petitioner is exempt from withholding tax on income from money placements an d purchase of �treasury bills i mpo sed pursu ant to Presidential Decree No. 1959. Res ponden~ maintains that under the present law, Pres iden tial Decree No. 1959, which took effect on Octobe r 15, 1984L interest income of petitioner derived from money placements and tr ea sury bills a re subject to the 15% final tax . The laws involved in thi s case are hereby quo te d ready reference , to wit : "REPUBLIC ACT NO. 4917 "AN ACT PRO VIDING THAT RETIHEH ENT BENEFITS OF EMPLOYEES OF PRIVATE FIRMS SHALL NOT - BE SUBJEC T TO ATTACHM ENT , LEVY , EXECUTION, OR ANY TAX WHATSOEVER. "Be it enacted by the Senate and House of Representative s of th e Philippin e s in Congress assembled: 312

DECISION - CTA CASE NO. 3888 - 4- SECTION 1. Any provi s ion of l aw to the contr a ry notwithstanding, the retirement benefit s received by officials and employe es of private f i rms, whe�ther individu a l or c orpo � rate, in accordance with a re as on- able private benefit plan maint a ined by the employer shall be exempt from all ta xe s and s hall not be li a ble to attachment, garni s hm e nt, levy or seizur e by or under any legal or equitable process what s oev er e xcept to pay a debt of the uffi c i a l or e mployeh concer~ed to th e pri va t e benefit plan or tha t arising from li ability imposed in a criminal action: Provided, That th e �r e tiring official or empioy ee has bee n i n th e service of the same employer for a t least ten (10) year s and i s not l e s s than fifty years of age� at th e t i me of his retirement: Provid e d, furth e r, Th a t the bene fits g r ant e d un.de r thi s Ac t shall be avail e d of by a ny offi� ci a l or employee only onc e : frov i de d , f.ir�.a.ll.x., Th a t i n c a s e o f s e p a r a t i o n of an official or employee f r om the se r v ic e of the empl o yer du e to de ath, s ickne ss or other ph ysical di s ability or for any cause be yond th e control of the said offi c ial or employee, any amount received by him or by his heirs from the employer as a con se - quence of su c h s ~ paration s h a ll lik e - wi s e be e xempt as her e inabove pr ovid ed. "As used in thi s Act, the term ' r easonable private benefit pl a n ' mean s a pension , gratuity, s toc k bonus or profit sharing pl an main- tained by an e mployer for t he benefit o f some. or all of hi s official s and employees, wherein c ontribution s a r e 313

DECISION ... CTA CASE NO. 3888 - - ,. _) made by s uch employer or officials and employees or both , for the purpo se of distributing to such officials and employees the earn- ings and pr i ncipal of the fund thus accumulated, and wherein it is pro- vided in said plan that at no time shall any part of the corpus or income of the fund be used for, or be divert ed to, any purpose other than for the exclusive bene- fits of the said offici a l s and em ployees. "S EC. 2o This Act s hal l take ef fect upon its approval. 11 Approv e d, June 1 7, 19 6 7 � 11 ( Underscoring supplied.) in relation to Section 5G(b) of the Tax Code which read s as follows: "SEC. 56. l.~-~itj.on of Ta~..!.�� (a) AP.J2.l)- c:_ati~1 of~..! .'"" Th e taxes im- po se d by this Title upon individuals s hall apply to the income of estates or of any kind of property held in trust, including - (l) XXX (2) XXX (3) XXX (4) XXX 11 ( b ) Exception � '"' The tax imposed by t his Title shall not apply to employee's t~ust which form s part of a pen sion, stock bonus or piofit-sharing plan of an em ployer for the benefit of some or all of hi s employees (1) if contributions are made to the tr ust by such employer, or employees, or both for the purpose of di str ibuting to such employees the earnings and prin- cipal of the fund accumulated by th e trust 314

DECISION ... CTA CASE NO. 3888 - 6 ... in accordance with such plan, and (2) if under the trust instrument it is impossible, at any time prior to the satisfaction of all liabilities with respect to� employ-es under the trust, for part of the corpus or in- come to be (within the taxable year or thereafter) used for, or diverted to, purposes other than for the exclusive benefit of his employees: Provided, That any amount actually distributed to any employee or distr ibutee shall be ta xable to him in the year in which so distri but~d to th~ extent that it exceeds the amount contributed by such employee or distributee." XXX XXX XXX and PRE~IDENTIAL DECREE NO. 1959 Octob er 15 , 1984 Amending Certain Sections of the Nationa l Internal Revenue Code, a s amended. WHERE AS, the current economic cri s is amounts to grave emergency which effects the stabi lity of t he nation and requires immediate actio n; WHERE AS, the issuance of this decree is an essential and necessary component of the national economic recovery program formulate d to meet and over come the emer- gency. XXX XXX XXX Sectio n 1 . A new Subsection (y) is inserted in Section 20 of the National Internal Revenue Code to read as follows: 31 5

DECISION - CTA CASE NO. 3888 - 7- "(y) 'Deposit substitute' shall mean an alternative form of obtaini ng funds from the public, other than deposits , through the issuance , indorsement, or acceptM a nce of debt instruments for the borrower's own account, for the purpose of relending or pur ch as ing of rec ei vabl es a nd other obligations, or fin a ncing their own n ee ds or the needs of th eir agent or dealer . These promissory notes, repurchase agreeme nts , certificates of assign- me n t o r �.pa r t i c i pa t i o n a n d s i mi 1 a r instrument with recourse a s may be authorized by the Ce ntral Bank of the Philip pines for banks and non- bank financial in te r media r ies or by the Sec uritie s and Exchange Com- mis s ion of the Philippines for c o mme r c i a 1 , i n du s t r i a 1 , �f i n a nc e compahies and other non - f i na ncial companies. Provided , h owe er , that only instruments issue~or-fnter bank call loans to co ver deficiency in reserves against depo s it liabi- lity including those between or among banks and quasi~banks shall not be considered as deposit substi- tute debt instrument s ." Sect ion 2. Sect ion 2l(d) of this Code as amended, is hereby furth e r amended to read as follov.Js: "(d) On interest from bank de E.o s i ~-.2..r:2.9_...Yl..tl9_9..E_11!!.L..�J: h e r mo!::..~..!:_~.E-~....J~~-e f i_j: f r-~-~ e p o si.t substitute and from trust fund a nd__s imi 1 a r a r r ar1ge me_n t~- In-- l e r e sr-T"r o m"l-i11 i 1 i p p i n e c u r r e n c y bank deposits and yield or any other monetary be nefit from deposit s ub s titute and from t r ust 316

DECISION - CTA CASE NO. 3888 - 8- fund and similar arrangements whether received by citizens of the Philippines or by resident alien individuals, shall be sub- ject to a �15% final tax to be collected and paid as provided in Sections 53 and 54 of this Code." Section 3. Section 24(cc) of this Code, as amended, is hereby further amended to read as follows: "('cc) Rates of tax on jnterest fro m deposit and yield or any other monetary benefit from deposit substitutes and from trust fund and similar arrangements.~ Interest on Philippine currency bank depo- sits and yield or any other monetary benefit from deposit s ubstitutes and from trust fun d and similar arrangements re- ceived by domestic or resident foreign corporation shall be sub - ject to a 15% final tax to be collected and paid as provided in Section 53 and 54 of this Cod e ." Section 4. Section 53(d)(l) of this Code is hereby amended to read as follows: "Sec. 53(d)(l). Withholding of Final Tax.� Every bank or non- bank financial intermediary or commercial, industrial, finance compa~ies, and other non~financial c omp anies aut horized by the Secu- rities and Exchange Commission to issue deposit substitutes shall deduct and withhold from the inte- rest on bank deposits or yield or any other monetary benefit from 31 7

DECISION - CTA CASE NO . 3888 " 9- deposit substitute s a final tax equal to fift een ..12..�� E}lll~~ (15%) of the inter e st on de posits or yield or any other monetary b e nefit f~om deposit substitutes and from trust fund and similar a rrangements." Section 5. A new sub sect ion (g) is hereby added to Sectio n 54 of this Cod e , as amended to r ead as follows: "(g) al l tax es v!ithheld pursuant to the ' provisions of this Code and its implementring regul ations are hereby consi- dered trust fund s and shall .be . maintained in a separate account and not co-mingled with any o t h e r f u n ds o f the wi t r1 h o 1 di ng agent. "any violation of this pro- vision shall be subject to the surc harg es and penalties pr es - cribed in paragraph (b) of this Section. XXX XXX XXX XXX XXX XXX XXX XXX XXX We cannot adhere to the stand of respondent. From the above-quoted provisions of law, it is clear and ex - plicit that empl oyee s trust maintained by an employer and forming part of a retirement pension, st ock bonus or profit-sharing plan for t he exc lusive benefit of its employees are exempt from incom e tax. The interest income 31 8

. . � �- - �-'�-...- -- ... . - - � - - - - ..--~.l.o.Oo"...:..... � ..:~.JJ..............~.-~1 DECISION - CTA CASE NO. 3888 - 10 - t her efore of petitioner from money placement and tr eas ury bills a re not subject to th e 15% final tax , A peru s al of Piesidential De c r ee No . 1959 do not cont ai n any provision, paragraph or sentence that inferentially suggest the repeal of the exemptio n of retirement and/o r pension tru s t und er Section 56(b) of the Tax Code in r ~lation to Repub li c Ac t 4917. The de l eti on by P.D. No . 1959 of the provisos in Sec tio~s 2l(d) and 24(cc) of the Tax Code, referring generally to exemption a nd preferred rates of incom e tax does not imply no r mean the r~peal of the exemptio n express ly granted b y law (Rep ublic Act No . 4917 in re l ati on to Sect ion 56( b))to emp l oyees ' retirement plans a nd t r ust because said pr ovisos are not t h e sources of nor did they grant the exemption from income tax en - joy ed by employees' trust and r et irement plan s l ike pe ti - tion er herein. Pre s id e nt ia l Decree No. 1959 revoked only the exem ptions that f lo wed f r om t h e provisions . a men ded , namely, Sectio ns 2l(d) and 24(cc) of the Ta x Cod e . As to retirem e nt plans, the dele te d provi sos cons- titut e d a s urplusage an d their deletion produced no significa nce in so far as r etirement plans are concerned. 31 8

- DECISION - CTA CASE NO. 3888 - 11 - On the other hand, another amended portion , Section 53(d)(l) is addressed to withholding agents to with- hold from interest and other "yields" the income tax from taxable persons. Mention has been made by respondent in his memo~ iandum of Presidential Decree Nos. 1156 and 1739, issued prior to P.D. 1959 , from where he based his l s tand. The former which was issued on June 3, 1977, amended Section 53 of the Tax Code im~osing withholding tax on interest on bank deposits granting exemption from withholdi~g tax to tax exempt depositors, while the latter which was issued on September 17, 1980 , pro~ vided for final withholding tax on interest on deposit and yield fr om deposit substitute except that it deleted the proviso referring to the inapplicability of the 15% final tax to interest income that is exempt. Respondent believes that si nce the exemption from withholding tax to tax exempt depositors under Presidential Decree No. 1156 was deleted in Presidential Decree No. 1739 (the proviso referring to the inapplicability of the 15% final tax to interest inco me that is exempt) when it provided final withholding tax on interest on deposit 32 0

DECISION - CTA CASE NO. 3888 - 12 - and yield from deposit substitute, the exe mption was taken away from employees retirement plans a nd trust and s o hold, that petitioner being suc h, is taxable under the present law (Presidential Decree No. 1959). / The argument of respondent is without basis . The exemption of employees retirement plan s and trust, like petitioner herein, was granted under Section 56(b) I � of the Tax Code in relation to Republic Act No . 4917 which were ap proved and made effective on June 22, 1957 and June 17, 1967, respectively, long before the above ~ amended Presidential Decrees were-issued . It is a canon of interp r etation and cons t r uc tion that gener al laws ,f.:-hich Presi dential Decree No. 1959 is, do not repeal special laws and that repeals by implication are not favored. More s pecifically, a subsequent statute, general in character as to its terms and app licat i on, is not to be co nstrued as re- pealing a specia l or specific enactment, unles s the legislative purpose to do so i s manife s ted. This is so even if the provi si ons of the l at ter are s uffi- ciently comprehensive to include what was set forth 190. ~ in the special act.(Vill egal vs . Subido: 41 SCR A 321 .~

... ..~ " DECISION - CTA CASE NO. 3888 .. 13 - IN VIEW OF THE FOREGOING~ respondent Commissioner of Internal Revenue is hereby ordered to refund to peti- tioner the sum of 811,302.19, representing the 15 % final tax withheld. No pronouncement as to co s ts. SO ORD ERED. Quezon City, Metro Manil a , Decemb e r 15 , 1986. ~IE CONCUR: -.............. , ROAQUIN J udge 3. 0, ?. ..)