SAMAR-ELECTRIC COOPERATIVE INC. v. COMMISSIONER OF INTERNAL REVENUE

REPU 'B LIC OF THE PHILIPPINES COURT OF TAX APPEALS ' �� QUEZO N CITY FIRST DIVISION 7:*******I *** SAMAR-I ELECTRIC C.T.A. CASE NO. 6697 COOPERATIVE, INC., Members: Petitioner, ACOSTA, Chairperson - versus- BAUTISTA, and CASANOVA, JJ. COMMISSIONER OF INTERN AL Promulgat ed: REVENUE, J~ A~d 1(' n;r�f'9 .tft, f'1 Respondent. X-----------------------------�- -- -------- -------------X AM ENDED DECISION ACOSTA, P.J.: For resolution are respond ent's Motion for Partial Reconsideration (Re: Decision dated 27 May 2008) filed on June 13, 2008, and petitioner's Motion for Reconsideration fi led on June 17, 2008, both seeking the reconsideration of this Court's Decision prom ulgated on May 27, 2008, the disppsitive portion of which states: - "WHEREFORE, the instant Petition for Review is hereby PARTIALLY GRANTED . Accordingly, the 1998 to 1999 deficiency income tax assessm ent issued � against petitioner in the amount of P440,545.71 is hereby CANCELLED and WITHDRAWN . On the other hand, petitioner is hereby ORDERED TO PAY respondent deficiency Withholding Ta x on Compensation fo r taxable years 1997, 1998, and 1999 in the amount of P2,855,701.59, computed as follows :

Af'JIENDED DECISION C.T.A. CASE NO. 6697 Deficiency WT 1997 1998 ... 1999 Total Add: 25% Surcharge p 522,2 53.85 P419,960. 06 P493,0 8 1.60 p 1,435,296 .41 Interest 130,563.46 104,990. 24 123,270.40 3 58 , 82 4.10 488,599.81 308,906.48 264,074.78 1,061,5 8 1.07 Total Deficiency WT P1,141,417.12 P833,857.68 P880,426. 7 8 p 2,855,701.59 In addition, petitioner is hereby ORDERED TO PAY respondent the twenty percent (20%) delinquency interest on the amount of P2,855,701.59 computed from September 30, 2002 until full payment, pursuant to Section 249(C) of the NIRC of 1997. SO ORDERED." The assailed Decision involved two deficiency tax assessments, namely: (1 ) deficiency income tax for taxable years 1998 and 19S}9; and (2) deficiency withholding tax ; for taxable years 1997, 1998, and 1999. The Court partially granted the Petition for Rev(ew by ordering the cancellation and withdrawal of the assessment pertaining to the deficiency income tax for 1997 and 1998; but sustaining the assessment relating to the deficiency withholding tax, by ordering petitioner to pay the deficiency tax in the reduced amount of P2,855,701.59. Inasmuch as both parties rely on different grounds for their Motions for Reconsideration, each Motion will be discussed separately. Respondent seeks to partially reconsider the said Decision on the following grounds: 1 "A. Petitioner, not being a duly registered cooperative, is not entitled to ta x privileges accorded to members in accordance with Republic Act No. 6938, or the Cooperative Code, nor it is entitled to the privileges of Presidential Decree (PD) No. 269 . Rather, it is well covered by Executive Order No. 93 and the Fiscal Incentive Review Board (FIRB) Resolution No. 024-87. B. I Petitioner is liable to the Minimum Corporate Income Tax (MCIT) for taxable years 1998 and �1999. c. Revenue Regulations No. 3-98 provides for a ceiling with regard to de minimis fringe benefits given or furnish ed to managerial or supervisory employees only, but not to the rank and file. No such ceiling is provided for all the other benefits received by employees pursuant to Revenue Regulations No. 2-98." 1 Respondent's Motion for Partial Reconsideration, p. 3.

lif'..1ENDED DECISION C.T.A. CASE NO. 6697 It must be stressed t hat the sacond ground and the reasons and argum ents raised by respondent in his Motion are mere reiterations set forth in his Memorandum which already have been considered, weighc. i, and resolved in the Court's Decision. Accordingly, only the first and third issues shall be discussed . Respondent faults petitioner for not filing any application for tax exemption, pursuant to Revenue Memorandum Circular (RMC) No. 48-91 .2 A cursory reading of the said RMC, however, would reveal that that the filing of the application thereunder is not a prerequisite to avail of the tax exemption wanted under Republic Act (RA) 6938. Section 103 of the RMC .. �' .. is addressed only to "(n)ewly organi zed cooperati ves", and not to cooperatives already existing prior to the enactment of the said law, as irJ the case of petitioner. Therefore, the non-filing of the application for tax exemption under RMC No. 48-91 is of no consequence. Respondent further contends that Revenue Regulations No. (RR) 3-98 provides for a ' ceiling with regard to de minimis benefits given or furnished to managerial or supervisory employees only, but not to the rank and file. According to respondent, no such ceiling is provided for all the other benefits received by the � employees pursuant to Revenue Regu lations No. 2-98. 4 In effect, respondent is saying that this Court should not have applied the definition of de minimis benefits provided under Section 2.33(C) of RR 3-98 to that of the "(f)acilities and privileges of a relatively small value" referred to under Section 2.78.1(A)(3) of RR 2-98, since RR 3-98 "cover(s) only those fringe benefits given or furnished to managerial or supervisory employees and not to the rank and file." The reasoning is specious. 2 Respondent's Motion for Partial Reconsideration, p. 7. 3 SECTION 10. Newly organized cooperatives transacting both with members and non -members shall be issued certificate of ta x exemption on the basis of the CDA certifi cati on of status (whether or not their accumulated reserves and undivided net savings are more than P10M) which shall be submitted to the BIR, together with the Articles of Cooperation and By-Laws. 4 Respondent's Motion for Partial Reconsideration, p. 10. 26

Atv1ENDED DECISION C.T.A. CASE NO. 6697 For easy referen ce, this Court shall compare the p~rti n ent provi sions of RR 2-98 vis - a-vis RR 3-98, thus : ' Section 2.33 ( C), RR 3-98 Section 2.78.1(A)(3), RR 2-98 (3) Facilities and privt!eges of a relative The term "DE MINIMIS" benefits wh ich small value. - Ordinarily, faciliti es a nd are exempt from the fringe benefit tax privileges (such as entertainm ent, sha ll, in genera l, be limited to faci lities medical services, or so-called "courtesy" or privileges furn ished or offered by discounts on purchases), f urnished or an employer to his employees that offered by an employer to his are of rela ti vely small value and are employees generally, are not offered or fu rni shed by the considered as compensation subject to em ployer merely as a means of .withholding if. such fa ci lities or promoting t he health, goodwill, �privi.leges are of relatively small contentment, � or efficiency of his value and are offered or furnish ed em ployees such as the following: xxx by the employer merely as a means of promoting the health, goodwill, contentment1 or efficiency of his employees. Needless to state, the two provisions are glaringly similar. This Court is not barred from espousing the definition of de minimis benefits embodied under RR 3-98 to that of the "(f)acilities and privileges of a relatively small va lue" referred to under RR 2-98. This is so because of the fo llowing reasons: 1. RR 3-98 did not state that the definition therein of de minimis benefits shall be used exclusively for such revenue regu lation; 2. RR 3-98 did not qualify the type of employees covered by such definition or characteri zation. It merely refers to them as "to (the employer's) employees". Thus, where the law does not distinguish, neither do we distinguish 5; ; 3. The provisions in question may be deem ed in pari materia.6 Thus, the rule of statutory construction dictates that they should be construed together; 7 4. There is no substantial distinction between "facilities (and/or) privileges furnished and offered by an employer that are of relatively small value as a means of promoting the health, goodwill, contentment, or efficiency" enjoyed by the manag erial or supervisory employees, and that of the rank and file . To make one wou ld be violative of the equal protection clause of the 1987 Constitution ; 5 Colgate-PalmolivePhils., Inc.vs. Gimenez, eta!., G.R. No. L-14787, January 28,1961. 6 Statutes are said to be in pari materia when they relate to the same person or thing, or to the same class of persons or things, or have the same purpose or object (City of Naga, eta/. vs. Agna, eta!., G.R. No. L-36049, May 31, 1976). (' 7 City ofNaga, eta!. vs. Agna, eta!., supra. C?___.,

AMENDED DECISION C.T.A. CASE NO. 6697 5. It is emphatically the province and duty of th.e. judicial departm ent to say what the law is.8 The fact that R,R 2-98 did not provide a " ceiling" gives this Court much leeway in determining what constitutes "facilities or privileges (which ) are ... (of) relatively small value". The search must always be for a reasonable interpretation. It is best to keep in mind the reminder from Justice Holmes that "there is no canon against using common sense in construing laws as saying what th ey obviously mean ". 9 Where the law does not prohibit, it allows. The Court now procee.ds to resol ve petitioner's Motion. Petitioner seeks the reconsid eration of the same �Decision by enumerating a lengthy assignment of errors10, which are summarized as follows: 1. the formal letter of demand and assessment notice for the 1997 withholding tax deficiency are void; 2. petitioner has no obligation to withhold from its employees whose total compensation income is below PS,OOO per month or P60,000 per year; 3. the right of the Bureau of Internal Revenue (BIR) to assess has prescribed; 4. there is no findings or allegation that false returns were filed by petitioner; and 5. petitioner filed the withholding tax returns in good faith. Except for the second assigned error, the other enumerated grounds and supporting arguments raised by petitioner in his Motion are mere reiterations of the same issues and contentions in its Memorandum which already have been tackled, resolved and disposed in the subject Decision. Thus, only the second ground shall be discussed. Petitioner contends that the Court, in computing its deficiency withholding tax, should not have included its employees whose total compensation income is below P5,000 per month or P60,000 per year considering that it has no such obligation. 11 It cites the first paragraph of Section 2.79(A) of RR 2-~8 as basis, which states: 8 San Miguel Corporation vs. Ave/ino, eta!., G.R. No . L-39699, March 14,.1979 . 9 Republic Flour Mills, Inc. vs. Commisioner of Customs, et a!., G. R. No. L-28463, May 31, 197 1, citing Rosehen vs. War~ 279 US 337, 339 . 10 Petitioner's Motion for Reconsideration, p. 2. 11 Petitioner's Motion for Reconsideration, p. 4 . 4-/ # (~

Ar"lENDED DECISION C.T.A. CASE NO. 6697 "(A) Requirement of Withholding . - Every employer must withhold from compensations paid, an amount computed in accordance with these regulations. Provided, that no withholding of ta x shall be required where the total compensation income of an individual does not exceed the statutory minimum wage or five thousand (PS,OOO) monthly (sixty thousand pesos [P60,000] a year), whichever is higher." Since it is not legally bound to withhold when the total compensation income of th e employee is below PS,OOO per month or P60,000 per year, then the name of employees listed in the breakdown of the Deficiency Withholding Tax on Compensation for the year 1998 as annexed to the subj~ct Decision, should be removed and its deficiency withholding tax should be reduced. There is merit in this contention. Section 2.79(A) of RR 2-98 is substantially a reproduction of Section 79(A) of the I NIRC of 1997, which states: "SEC. 79. Income Ta x Collected at Source. - (A) Requirement of Wit hholdi ng. - Every employer making paym ent of wages shall deduct and withhold upon such wages a tax determined in accordance with the rules and regulations to be prescribed in accordance with the ru les and regulations to be prescribed by the Secretary of Finance, upon recommendation of the Commissioner: Provided; howeve0 That no withholding of a tax shall be requ ired w here the t ot al compe nsation income of an individual does not exceed the statutory minimum w age, or Five thousand pesos (PS, OOO) per month, wh ichever is higher." (Emphasis supplied) Based on the foregoing, every employer making � payment of wages has the responsibility to deduct and withhold from the same a corresponding income tax. However, such duty does not extend to a case when the total compensation income of the concerned employee "does not exceed the statutory minimum wage, or Five thousand pesos (PS,OOO) per month, whichever is higher". For, there is no duty where the law forbids. 12 12 R.B. Industrial Development Co.1 Ltd./et a/. vs. Enage1 eta!., G.R. No. L-27741, July 29, 1968. 29

1\I~ENDED DECISION C.T.A. CASE NO. 6697 The above-cited SecLion 79(A) of the NIRC .of 1997 is very cl ear. IL speaks in a language that is categorical and absolute, le., ;'no withholding of a ta x shall be required where the total compensation income of an individual does not exceed the statutory minimum wage, or Five thou sand pesos (P5,000) per month, whichever is higher". Accordingly, the withhoiding tax deficiency for 1999 and 1998 shall be reduced by P1,557 .8913 and P81,623.18, respecti vely, the latter amount determined as follows: ~ Name of employees14 Total Withholding tax deficiency per Decision Patalinhug, Dionesio compensation.. Pagunsan Arlyn 22.85 Pueblos, Joenel 457 .00 ,\ 3 167.68 Beduya, Roderick Portugaliza, Renata 34,451.21 . 20.53 Zarzata, Leo 3,643.85 Ignacio Bernardo 410.55 . 4,543.03 Monares, Serafin 3,723.36 Baloca, Ildefonso 37,625.65 4,193 .08 Lepata, Melvin 4,805.84 Mondaya, Bernardo 43,620.20 4,179 .04 Cruda, Reynaldo 4,426.62 Semillano, Casiano 38,155.75 3,129.18 Tarrayo, Danilo 5,666.50 Santos, Roberto 41 ,287.23 5,622.91 Salazar Vicente 5,666.50 Mahinay, Arturo 45,372.29 4,126.65 Monsor, Ernesto 3,079.97 Savino, Joselito 41,193 .63 4,483.27 Yangzon, Renata 5,308.12 Burca, Eduardo 42,844.15 5,296 .61 2,479.18 TOTAL 34,194.55 4,038.41 81,623.18 51,110.01 ------ -- -- -- 50,819.40 51,110.01 40,844 .34 33,866.45 43,221.83 48,720.7& . 48,644 .06 29,791.80 40,256 .06 To recapitulate, the C:ourt find s respondent's Motion for Partial Reconsideration untenable and petitioner's Motion for Reconsideration partly meritorious; hence, the amount of deficiency withh61ding tax on compensation ordered to be paid in the assailed Decision 13 The amount of withholding ta x deficiency for rvJr. Roderick Beduya. Rollo, pp. 480 and 476. ftc,.,_ 14 Breakdown of the Deficiency Withholding Tax on Compensation for th'e year 1998 as annexed to the subject Decision Rollo, pp. 473 and 469. 30

AMENDED DECISION C.T.A. CASE NO. 6697 will be reduced from P2, b 55J01.59 t o P2,690,850 .91. Tht;:r est of the Decision, particularly, those pertaining to the cancellation and withdrawal of the deficiency income ta x assessment for 1998 and 1999 will remain unchanged. WHEREFORE, respondent's Motion for Partial Reconsideration is hereby DENIED for lack of merit; while petitioner's Motion for Reconsideration is hereby PARTIALLY GRANTED . Accordingly, the dispositive portion of this Court's Decision promulgated on May 27, 2008 is hereby modified as foll ows: "WHEREFORE, the instant Petition for Review is hereby PARTIALLY GRANTED. Accordingly, the 1998 to 1999 defrciency income tax assessment issued against petitioner in the amount of P440,545;71 is hereby CANCELLED and WITHDRAWN . " On the other hand, petition er is hereby ORDERED TO PAY respondent deficiency Withholding Tax on Compensation for taxable years 1997, 1998, and 1999 in the amount of P2,690,850.91, computed as follows: Deficiency WT 1997 1998 1999 Tota l Add: 25% Surcharge p 522,253.85 P338, 336.88 P491,523.71 p 1,352,114.44 Interest 130,563.46 84,584.22 122,880.93 338, 028.61 Total Deficiency WT 488,599.81 248,867 .61 263,240.44 1,000,707.86 P1,141,41 7.12 P671,78 8 .71 P877,645.08 p 2,690,850.91 In addition, petitioner is hereby ORDERED TO PAY respondent the twenty percent (20% ) delinquency interest on the amount of P2,690,850.91 computed from September 30, 2002 until full paym ent, pursuant to Section 249(C) of the NIRC of 1997. SO ORDERED ." SO ORDERED. ~~"\Q- D~ ERNESTO D. ACOSTA Presiding Justice CAESAR A. CASANOVA Associate Justice 31

A:'lENDED DECISION C.T.A. CASE NO. 6697 CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in the above Amended Decision were reached in consu ltation before the case was assigned to the writer of the opinion of the Court's Division. Q_.__._,c;:- vz._- ~ ERNESTO D. ACOSTA Presiding Justice Chairman, First Division 32