CTA Case No. 5646 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY FAR EAST BANK AND TRUST COMPANY, as Trustee of Various Retirement Funds, Petitioner, -versus- C.T.A. CASE NO. 5646 COMMISSIONER OF INTERNAL REVENUE, }!;' Promulgated: Respondent. AUG Z 5 ZOO x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x DECISION Before Us for consideration is a Petition for Review seeking for a refund in the original amount of P2,114,167.91 pertaining to taxes on interest income allegedly withheld erroneously and paid by the Petitioner to the Respondent for the year 1997 arising from investments in government securities made by Petitioner as trustee of , various retirement funds. In its meorandl.lm however, Petitioner increased its claim for . refund to P2,677,972.90. The antecedent fats of the case iving rise to the controversy at bar are as follow.. :. . : : ; ; . ; ;;-. ..:- '\\ d by v F:f JY 1f - - fitioner is a baning org ized and existing u ffrn . h J A,':hf!ec!Je : ! f ,.I ' 1, ' ,, <' ged f �; , � 1 ' ''\ �l'�� ,. of e &ws of the Philippines. e a in trust and inv ie activtt � .: : , , h d : d : 1 \ �f t � .> ,'t 01 � , 'J ;. ��. tl.:y '' ' f' � \. ,, , ..: � "'' l<... was app inted as trustee by various companies to provide retirement ea , isabil'; separation benefits to members of the companies' retirement plans. These retirement 1249

DECISION- CTA CASE NO. 5646 PAGE2 plans have allegedly met the requirements of a reasonable plan as provided tmder Republic Act 4917 (An Act Providing that Retirement Benefits of Employees of Private Firms shall not be subject to Attachment, Levy, Execution, or any Tax Whatsoever), and were allegedly certified by the Bureau of Internal Revenue as exempt from taxes. Pursuant to the trust agreements, Petitioner, acting as trustee, invested assets of the funds in various interest earning placements, more particularly, in government securities, bank deposits and deposit substitute instruments that earned interest income. Petitioner alleged that 20% final taxes were withheld from the interest income earned by the retirement funds for the said period. Believing that the retirement funds were tax exempt, Petitioner filed with the Bureau of Internal Revenue separate administrative claims for refund of an aggregate sum of P2,116,985.19 allegedly representing 20% final taxes erroneously withheld from passive interest income earned by the retirement funds for the four quarters of 1997 broken down as follows: Qfite Filed Amount of I; Witb the BIR Claim ::- }".4... '' /17/97 p 583,497.89 B 1 lit quarter c znd qyar P/11/97 332,038.07 D 3rd qrter . f1t17/97 842,277.15 .' E 4th qurt... r� > , /3/98 359,172.0@ /. �. ,; :',1 , rf, �' "� .(: Total: p 2.116 985 ii �.:' :.. , Failing to obtain an immediate and affirmative relief from the Respondent B:. Petitioner elevated its case to this Court on June 19, 1998 via Petition for Review. 1250

DECISION- CTA CASE NO. 5646 PAGE 3 On July 9, 1998, Respondent filed his Answer and interposed the following Special and Affirmative Defenses, to wit: 5. The petition states no cause of action as it does not allege the date/s when the tax sought to be refunded was/were actually paid. (Manufacturer's Bank and Trust Co. as Trustee for Gen. Trust Plan vs. CIR, CTA Case No. 1659, November 9, 1965); 6. The best evidence of payments and remittances of alleged taxes withheld are the official receipts or equivalent which are however not visible in the instant case; 7. It is a familiar and well-settled rule that claims for refund of taxes such as the herein petition are construed strictly against claimants, the same being in the nature of exemption from taxes. (Commissioner of Internal Revenue vs. Ledesma, 31 SCRA 95, 1970 and Manila Electric Co. vs. CIR, 67 SCRA 35, 1975). This case presents no novel legal issue for well-settled is the rule that the income tax exemption of qualified employee retirement plans/funds as provided under Section 53(b) of the Tax Code in relation to Republic Act No. 4917 includes exemption from .. payment of the final tax impose1 o� :interest income from bank deposits or yield from H n deposit substitutes. TJms, f.prrectly ed by the Petitioner in its memorandum, ft. :]' I ' . -:: � . ' r .. Co�!!.m' .issioner of Internal Jl.vep4l ys. Te Honorable Court of AppeIs, et. al_, G.F } -,::. r;��; .f . .:�. �_ i :l.- t P. e No. 5022, 23 March 1992, , t e � ourt ruled in this wise: :. :' ��,L�Ie: � . �,:. ! ci collec"teTdhefrreomcainncboerrtJel::'n� n)rig either that the final wU.;.'..-:� .:;.q-.t. g. tax/� �, respect of which employees' , trust5 .� � declar 1'4 �� , exempt (Sec. 56[B],:,;JlOW 53[b] Tax Code). The applicatiOn of t withholding system to interest on bank deposits or yield from depos .. substitutes is essentially to maximize and expedite the collection of income taxes in requiring its payment at the source. If an employees' trust like the GCL enjoys a tax-exempt status from income, we see no logic i � h _ ., a certain percentage of that income which it is not supposed to pay i � � '� place." 1251

DECISION- CTA CASE NO. 5646 PAGE4 The legal issue having been settled in the affirmative, We are now posed to proceed to Petitioner's compliance with the substantiation rule. A cursory review of pertinent occasions in this case reveals that the instant claim for refw1d was filed within the two-year period of prescription pursuant to Section 230 (now Section 229) in relation to Section 51 (now Section 58) of the Tax Code which provides, thus: Section 230. Recovery oftax erroneously or illegally collected. - No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress. In any case, no such suit or proceeding shall be begun after the expiration of two (2) years fnm: the date of payment of the tax or penalty regardless of any supervening. ..Ctise. tpat may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefor, Sp refund or credit any tax, where' th,face of the return upon which payment rf was made, such pa;ymeqf'. , ,,,,\.. ' \ . cle�,r. Y to have been erroneously paid. . t � . � -�. :�.. �_, �� �� -$ { - !1 S(}' j... f f, Section 51. /l.etu '/�;�� . .�. . , t of Taxes Withheld at "(A) Quaterly f?.eu; �krl.fPYfn.ts of !axes T:Vith; Ta)\ : �, qequcted and w1thhel1 under Sectfon 57 by w1thholdmg a ;�J'J . hall . \ !)overed by a return aqd :prod to, eept in cases where the .;J�mtrn+ssion � ' )therwise permits, an <iuttbi rized Treasurer of the city or municipality wher�� . the withholding agent lis his legal residence or principal place of business, o where the withholding agent is a corporation, where the principal office is located. 1252

DECISION- CTA CASE NO. 5646 PAGES "The taxes deducted and withheld by the withholding agent shall be held as a special fund in trust for the government until paid to the collecting officers. "The return for final withholding tax shall be filed and the payment made within twenty-five (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 the quarter during which withholding was made: Provided, That the Commissioner, with the approval of the Secretary of Finance, may require these withholding agents to pay or deposit the taxes deducted or withheld at more frequent intervals when necessary to protect the interest of the govenunent." XXX XXX XXX Thus, reckoned from the 25111 day after the close of each calendar quarter of 1997 covered by the instant petition to June 19, 1998, the date when the petition for review was filed, Petitioner's claim for refund was seasonably filed within the two-year prescriptive period. However, while we concede that the Petitioner complied with the statutory requirement within which to file its claim for refund, this Court, after a thorough scrutiny of Petitioner's documentary evidne, is inclined to grant the claim but in a reduced � ) ,,.f t -.-.�'.J-IA1 amount. Documentary evidence Hf t}lf P i,tioner reveals that it was able to substantiatE' � .c , only ( t. m. :..J.t1.f w . - ) Co., th amount roefvPie1w,92p5f,4th;1;:.T;4.;I�3C.�.'�-�P. t(ij.J/;o::b�:f�:.f:th:�h:�.,i:;;t'o� <t;a&:lSclsahimowfsorthreaftu, nadt ofP2, _l.l4. . J67.91. �' c. u. rsory ' 'i$c:';i./\ }"� . ::. -.:?\ .� : A" firm''fom s .l. rne ij ditin its i!!tPli Jn, SGl. . , .lit: ' }{'- } g rt pursuant t ; ul - . . - recommended the amou t of f .'2,077;972.70 (Exh'. EE-2-a) asPetitr� - 1 .te .nda! �! !' ' I ' ' � ,I � ;I{ � taxes withheld 111 1997 on� interest mcome of retirement funds with available Exemption Certificates (TEC's). However, in the instant petition, Petitioner was 1253

DECISION- CTA CASE NO. 5646 PAGE6 originally seeking a refund of only P2,114,167.91. It was only in its memorandum where it asserts its alleged entitlement to the amount of P2,677,972.70. It must be noted that the total amount claimed by the Petitioner with the Bureau of Internal Revenue is only P2,116,985.19 which was slightly reduced to P2,114,167.91 in the Petition for Review. Well-settled is the rule that a taxpayer cannot claim an amount in the judicial level that is more than what was prayed for in the administrative level (BIR) pursuant to the clear wordings of Section 230 (now Section 229) of the Tax Code which provides in part, thus: "No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; x x x x x x". (Underscoring supplied) Be that as it may, Petitioner was only able to prove and substantiate the actual withholding and remittance to the Bureau of Internal Revenue the amount of P1,925,491.45 representing finai taxes withheld on the interest income of tax-exempt ) .t A � painstaking ' of . Petitioner's documemE .. �� recommended amount of P2,677,972.70 reveals that the retirement fund of Alfa L :.I Raco (Phils.), Inc. with a corresponding claim of P34,207.06 has no tax exemption certificate but merely an application for tax exemption (TEC-22), hence, must be 1254

DECISION- CTA CASE NO. 5646 PAGE 7 deducted from the recommended amount. Concededly, the retirement funds related to the remaining claim of P2,643,765.64 have tax exemption certificates. Furthermore, these tax exemption certificates, including those filed under CTA case Nos. 4848 and 5535 supporting the retirement funds (Exh. EE-4) covered under the claimed amount of P2,643,765.64 show that the funds' respective retirement fw1ds were certified by the BIR as qualified or tax-exempt plans. The said retirement funds, by reason of the qualification or tax-exempt status of the plans for which they were set-up, are thus expressly exempt from income tax. However, it is necessary that the aforesaid tax- exempt retirement funds must be under trust with the Petitioner, otherwise, the same shall be excluded from the claim. Records show that the following tax-exempt retirement funds are not under trust with the herein Petitioner, to wit: Retirement Fund Trust Tax Refund Acct . No. Claim ""' f'J!tP.i: : EQlp. p eS a Commercial Co., lno;:. . Ret. PlanRet. Plan 201-00029 p 129.68 California Mfg. Co., Inc. 201-00150 352.92 rp Hoechst Grouj:> 202-00005 f, Centro Escola 203-00008 6,260.91 UofnCi 'g� &. p. Ret. P lan 203-00025 65.88 iLf.l.slLp '; Tag Fibers, ln4) Em �, 162.04 pp1'atSifiP�v.J.QC: ( Phil. Clearing fjous .R :.:s Plan 203-00111 941.11 �. Telefunken SefTl iCOI) fP �p. Rt� Plan 203-00122 1!),948.5E$ t' � . J�� �- PJD CGSenVtr&aiCP0h.ilipPr8Q� j�Vl1Id eullrtltvf.fr., �: � :;_ :,--:_.'t.341-00026 .��.:.:t\ ;",.."\:�;-)�_,!� ('8'.61270965...� .,0...., �� ., . 341-00051 '..,. :� � :�' '�; - ... �. : '\ Pizon Copperilve MinP, �. - ! 0�. � .. � . .��::. ' 203-00244�� " .. :� t, . ,.;. �. �\. )n fv'led!cal City qnerl HQIIP,!taet. . .{f�\. ..:"' !. . . ;"""-.- 203-0034&� �' ) . ' 201-0001Q:-.- " � - '"t1,.t' 4 2 202-0001 C.oun ne.::. . tJ;.'�'IJ.>..-t ��' ..., .... , � . . :'\;�, _ Pils., Plan Golf &E fvlamla mp. Ret. ' ' 35."'. . Searle G. D. ,304. % G. D. Searle Phils., nc.- Fund 8 202-ooo45 225.a�: Manila Broadcasting Company 203-00083 50.58 Triumph International Phils. Inc. Emp. Ret. Plan 203-00121 95.29 CMG Marketing Services, Inc. Emp. Ret. Plan 203-00347 64.70 Intel Phils. Manufacturing, Inc Ret. Plan 203-00379 4,974.90 GS V & Co. tS aff Provident Fund 341-00050 2,016.31 1255

DECISION- 341-00073 36.23 CTA CASE NO. 5646 341-00093 892.60 PAGE 8 341-00115 171.75 Monsanto Phils., Inc. Provident Fund Total: P 30,009.74 DCCD Engineering Corp. Ret. Plan SGV & Co. Provident- Fund B Prescinding from the above, out of the total claim of P2,643,765.64 pertaining to tax-exempt retirement funds, it was established that only the amount of P2,613,755.90 corresponds to tax-exempt retirement ftmds which are under trust with herein Petitioner. What is now left to be ascertained is whether or not the retirement funds related to ' the claim for refund of P2,613,755.90 actually earned interest income from investments made by Petitioner in their behalf from which 20% final taxes were actually withheld and remitted to the BIR. Several documentary evidence on record such as the Confirmation of Sale, Collection Execution Reports (CER's) and Fixed Income Collection Final Reports (FICFR's) submitted by Petitioner all prove the fact that it made investments on behalf of the tax-exempt retirement funds and that interest income were collected as a result of the '-(".'r. said investments. These documents indicated details such as the type of investment �.:�%_ �- �. made, interest rate (net qf 20 fiflJ. !a), pH�chase date, maturity date, term, trust account l' nur!nY�r�rP. �r�/Jn:ci :: �,� 03 nuber, savings accounf . ot and maturity value of !he investm' ' :� I p Cx,ps. e:-l� ft:-} 1::7'}J;. M} to c� PB-J Jq 2 3 -.:. '� :- . �� A.A-1 to AA-37-a: , B -;'��{f;R: ::; BB-23-a, BB-24- . .,,.-31-a: . ; ..�.�� ? ' I ' ' ... :� $} 6q, ...i I ' ' ' ; ,\ �� �' ' f'< ,�, ) �I � '-. ' j ' ,.., . . C. C-4 to CCSl -a, L1D,.,. P-a, .�. older 2 [CER-Oq l .. '�. .. �)� �tt . '�. ,lt''-::,:.z.:�.- l �. , . ;..,. . [FJCf-001 to FICF-037], iQclusive). �I' . ., l Indeed, as We view it, these CER's, FICFR's and Exhibit VI of the SGV Rtl' � (Exh. EE-7) show that the amount of P2,613,755.90 represents final taxes withheld in 1997 on interest income earned by the concerned tax-exempt retirement funds from 1258

DECISION- CTA CASE NO. 5646 PAGE9 investment in Citibank Promissory Note (Citibank PN), Citibank SP Savings, Citibank T- bills, Floating Rate Treasury Notes (FRTN), Fixed Rate Treasury Notes (FXTN), CPS National Steel (FEBII) and Cash Management Bills/Special T-bills/T-bills broken down as follows: INVESTMENT AMOUNT OF CLAIM CITIBANK PN CTB (CITIBANK) SP SAVINGS p 412,438.47 CITIBANK TBILLS 129,072.19 FRTN 90,844.11 FXTN 11,970.73 CPS NAT'L STEEL- FEBII 43,572.94 TBILLS/CM BILLS/S TBILLS 366.01 1,925,491.45 P2,613,755.90 However, despite these relevant documentary exhibits relative to the above total withholding taxes of P2,613,755.90, Petitioner was able to pro.ve the actual withholding and remittance to the Bureau of Internal Revenue of only the amount of P1,925,491.45 representing final taxes withheld P.U the interest income of tax-exempt retirement funds . . from T-bills/Cash Management (Cl) Bills/Special Bills based on the Certification issued : . '�i� - ,� - -- f:f t f-2-a, inclusive). f.�h-: { J 1 by Bf to Petitioner for 99� r lo ;:.. �'; ,- - ,- :,. In f?l h,:;;, : rJh.,;r J{ reaching our ov: a moved by, amon thing� e .. (f B '\YitWle}�j 1 i abs '.. 1; -.�..� ;nC !-_ t h.:;., Ci-:::;< � - - on withholding � , - � - �� f!.. �. � nce of Certificates of Fjna i �. m :; .... .. !. ; � t f,.'�� � �; f ": ;�"-.. .-�-: :\. \�'-f::-.-:--- .� -�.4::-;_..:�: ,� �� W �,," .. o:.r.. .( ,::, . ) ; ���: , ) Pro11ssory .tf!nl: -.S1lJNGS, ' } \, . ; . Note (PN), CT�, /' Citibank - ; oattn 'if\' , _, Treasury . . (FRTN), (FXTN) _ Notes �,,- , �. � � �� ;T.rea<s,�u� ry 1. 1onal I Fixd Rdte Note and ,.� �' � '' }. l FEBII, evidencing the actual withholding and remittance to the Bureau of Internal 1257

1 DECISION- CTA CASE NO. 5646 PAGEIO Revenue of the amount of P688,264.45. Thus, the claim for refund based on these documents must be outrightly denied. WHEREFORE, in view of all the foregoing, Respondent is hereby ORDERED to REFUND to Petitioner the amount of P1,925,491.45 representing final taxes withheld on interest income of tax-exempt retirement funds from T-bills/Cash Management (CM) bills/Special bills for taxable year 1997. SO ORDERED. WE CONCUR: L-}QQ } ERNESTO D. ACOSTA residing Judge nivJRA .. ler 1 1'( . Associate Ju � / :: . I I .. f,:.. JI!.;,t\lON ; �� . - ' ..:. -�. ,.llyisi� ;: ff l l hereby certify th&t the wa ached after due cor.--; ion 'r':: .�:' mem!Jers of the Court of Tax Appeals' in ac ord ce with Section ( l .rti VIU ,,f � �t ' Constitution. � � � �� ERNESTO D. ACOSTA Presiding Judge 1258