YAMAN LAHI FOUNDATION, INC. - EMILIO AGUINALDO COLLEGE v. COMMISSIONER OF INTERNAL REVENUE

~.� Republic of the Philippines COURT OF TAX APPEALS Quezon City En Bane YAMAN lAHI FOUNDATION, INC. - C.T.A. EB Case No. 497 EMiliO AGUINAlDO COllEGE, (CTA Case No. 7655) Petitioner, Members: ACOSTA, PJ, - versus - CASTANEDA, JR., BAUTISTA, COMMISSIONER OF INTERNAl UY, REVENUE, CASANOVA, PALANCA- ENRIQUEZ, Respondent. FASON-VICTORINO, MINDARO-GRULLA, and COTANGCO - MANALASTAS,~~ Promulgated: ~~8- ~ ~~x x- - - - - - - - - - - - - - - - ____ _________ ___z_ AMENDED DECISION CASANOVA, J.: For resolution is petitioner-Yaman Lahi Foundation, Inc. - Emilio Aguinaldo College's Motion for Reconsideration 1 filed on September 16, 2010, seeking reconsideration of this Court's Decision2 (the "Assailed Decision ") promulgated on August 26, 2010, the dispositive portion of which reads as follows: "WHEREFORE, premises considered and finding no reversible error in the assailed Resolutions dated September 30, 2008, February 25, 2009 and May 29, 2009, of the CTA Second Division, the instant Petition for Review is hereby DISMISSED for lack of merit. SO ORDERED. '~ 1 En Bane Rollo, pp. 384- 39 1 2 Ibid, pp. 36 1-3 76

AMENDED DECISION CTA �E. B. Case No. 497 (7655) Page '2 of 8 Respondent-Commi ssioner of Internal Revenue filed her Comment/Opposition (To Motion for Reconsideration Re: Decision dated 26 August 2010) on October 18, 2010 . Petitioner seeks to reconsider the Decision, on the following grounds: "WITH DUE RESPECT, THE HONORABLE COURT OF TAX AP PEALS EN BANC ERRED IN FINDIN G THAT THE FI LING OF THE PETITION FOR REVIEW IS PREMATU RE IN VIEW OF THE ON- GOING RECE PTION OF RESPONDENT'S EVIDENC E." Petitioner contend s t hat "the fi ling of th e Petition for Review is proper and need not await the disposition of th e CTA Second Division (now Third Division) of the issue on petitioner's deficiency final withholding tax on interest income because what is being assail ed is the ruling of the CTA Second Division (now Third Division) that the alleged final tax on income (which is the payor's/bank's withholding responsibility) is not covered by the Tax Amnesty Law"3. Respondent, on th e other hand, maintains that: i) petitioner's deficiency final tax on interest income for fisca l year ending May 31, 2003, is not covered by the Tax Amnesty Program under R.A. No. 9480; ii) that withholding tax liabilities are excepted from the covera ge of the Tax Amn esty as provided in Section 8(1) of R.A. No. 9480, implementing regu lations and revenue issuances. Hence, the said deficiency final tax assessment, being in the nature of a withholding tax, is not covered by the petitioner's tax amnesty availment; and iii) the arguments raised by petitioner are mere reiterations of its argum ents in its Petition for Review.~ 3 Motion for Reconsiderati on, par. I, En Bane Rollo, p. 385

AMENDED DECISION Cr~ E.B. Case No. 497 (7655) Page '3 of 8 After taking a second hard look at the arguments posited by both parties, We find merit in petitioner's contention. Pertinent to the resolutio n of the insta nt petition are Sections 1, 6 and 8 of R.A. 9480 (The Tax Amn esty Law of 2007), which are hereunder quoted for easy reference: "Section 1. Coverage . Th ere is hereby authorized and gra nted a tax amnesty which shall cover all national internal reven ue taxes for th e taxable year 2005 and prior years, with or without assessments duly issued therefor, that have remained unpaid as of December 31 , 2005; Provid ed, however, That the amnesty hereby authorized and granted shall not cover persons or cases en umera ted under Setion 8 hereof. X XX XXX XXX Section 6 . Im m unities and Privileges. Those who availed themse lves of th e tax am nesty under Section 5 hereof, an d have fu lly compli ed with all its conditions shall be entitled to the fol lowing immunities and privileges : 1. The tax payer shall be immune from the paym ent of taxes, as well as addition the reto, and the appurtenant civil, crimin al or administrative pena lties under th e National In ternal Revenue Code of 1997, as amended, arising from the failure to pay any and al l internal reve nue taxes for taxable yea r 200 5 and prior years. XXX XXX XXX. Section 8 . Exceptions . Th e tax amnesty provided in Section 5 hereof shall not extend to the following persons or ca ses existing as of the effectivity of this Act:~

AME~ DED DECISION Cr~ E.B. Case No. 497 (7655 ) Page' 4 of 8 1. Wi th holding agents with respe ct to their withholding tax liabili ties; 2. Those with pending cases falling under t he jurisdiction of the Presidential Comm ission on Good Government; 3. Those with pending cases involving unexplained or unlawfully acqui red wealth under th e Anti Gra ft and Corrupt Practices Act; 4. Those with pending cases filed in court involvi ng violati on of the Anti -Money Laund ering Law; 5. Those with pending crimina l cases for tax evasion and other criminal offenses under Chapter II of Title X of the National Internal Revenu e Code of 1997, as amend ed, and th e felonies of frauds, illegal exacti ons and tran sactions, and malversation of pu bli c funds and property under Chapter III and IV of Title VII of the Revised Penal Code; and 6. Tax cases subject of final executo ry judgment by t he courts." The question that now arises is wh ether or not petitioner is the withholding agent contemplated under Sec. 8(1) of th e Ta x Amn esty Law of 2007 (R.A. 9480) with regard to the defici ency final tax on interest income being assessed by the respondent. As defined under Section 22( 1<) of the National Internal Revenue Code of 1997, the term 'withholding agent' means any person required to deduct and withhold any tax under th e provisions of Section 57 .~

AMEfll DED DECISION .CTA.. E.B. Case No. 497 (7655) Page' s of B Section 57 prescribes the withholding ta x on interest on bank deposits, deposit substitutes, royalti es, etc. and the person obligated to withhold the same. Section 57 reads as follows: "Section 57. Withholding of Tax at Source. - (A) Withh ol ding of Final Tax on Certain Incomes. - Subject to rules and regulations, the Secretary of Finance may promulgate, upon the recommenda tion of th e Commission er, requiring the filing of income tax return by certain income payees, the tax imposed or prescribed by Sections 24(8)(1), 24(8)(2), 24(C), 24 (D)(l); 25(A)(2), 25(A)(3), 25(B), 25(C), 25(0), 25(E) ; 27(0)(1), 27(0)(2), 27(0)(3), 27(0)(5); 28(A)(4), 28(A)(5), 28(A)(7)(a), 28(A)(7)(b), 28(A)(7)(c), 28(8)(1), 28(6)( 2), 28(6)(3), 28(6)(4), 28(8)(5)(a), 28(8)(5)(b), 28 (8)(5)(c), 33 and 282 of the Code on specified items of income shall be withh eld by payor- corporation and/or person and paid in the same manner and subject to the sam e conditions as provided in Section 58 of this Code." Likewise, Sec. 2.57 of Revenue Regulations No. 2-98 (implementing R.A. 8424 [The Tax Code of 1997] relative to th e Withh olding on Income subject to the Expanded Withholding Tax and Final Withholding Tax, x x x) categorically states that the liability for payment of th e tax rests primarily on the payor as a withholding agent. Section 2.57 of Revenue Regulations No. 2-98 reads thus: " Sec. 2.57. WITHHOLDING OF TAX AT SOURCE. (A) Final Withholding Tax - Under the final withholding tax systen:J the amount of income tax withheld by the withh olding agent is constituted as a full and final payment of th e income tax due from the payee of said incom e. Tile liability for payment of the tax rests primarily on the payor as a withholding agent. Thus, in case of his failure to withhold the tax or in case of under withholding, th e defici ency tax shall be collected from th~

1\ME[')I DED DECISION CTft., E.B. Case No. 497 (7655) Pag e� 6 of 8 payor/withholding agent._xxx xxx xxx. " (Underscorin g supplied) Clearly, therefore, under the aforequoted provisions of the NIRC of 1997 on withholding of final tax on interest income, as well as the revenue regulations implementing the same, petitioner is not the withholding agent obligated to deduct and withhold the final tax on the income of its deposits and, thus, does not fall under the exception enumerated in Section 8 of the Tax Amnesty Law of 2007 (R.A. 9480), more specifically, Section 8( 1) thereof. As aptly argued by the petitioner in its Motion for Reconsideration: "10. App lying th e above-quoted provisions, should the withh old ing agent fails (sic) to withhold the deficiency tax, the deficiency tax shall be collected from the withholding agent an d not from the payee thereof. Having contro l, custody or receipt of the funds, the withholding agents are th e ones who deduct the withholding taxes when the income payments are paid or payabl e; and hence, should be held accountable for any deficiency th ereof. 11. Accordingly, Petitioner can not be held liable for th e final withholding tax, if there is any, because Petitioner is not the payor of any income. Petitioner is not a withhol ding agen t as to the final withholding tax, if any. At most, any deficiency that may result from the payor's (i. e. the bank's) non-withholding of tax should be subj ect to co rpo rate inco me tax, at 20%, considering that the same is income to Petitioner. Such income tax liability is likewise covered by the Tax Amn esty Law. 12. Nonetheless, by holding that Petitioner's case is excluded from the cove rage of Tax Amn esty Law, the CTA Second Division (now Third Division) is in effect categ orizing Petitioner as a withholding agent, and at the sam e time th e payee of t he withholding tax. 13. Th is should not be the case, however, consid ering t hat the law did not envision for the taxpaye~

f)M E~ DED DECISION CTA E.B. Case No. 497 (7655) Page? of B to be, both the payor and the payee with respect to the final tax on interest income. Otherwise, th e purpose of the law in disting uishing th e payor from the payee is rendered nugatory." Thus, not being a withholding agent, the final deficiency tax on interest income for the year 2003 being assessed on peti tioner should, likewise, be included in petitioner's availment of the tax amnesty under R.A. 9480 (The Tax Amnesty Law). WHEREFORE , premises con sidered , petitioner's Motion for Reconsideration is hereby GRANTED. Acco rdingly, our Decision dated August 26, 2010 is hereby RECALLED and SET ASIDE . Th us, th e Petition for Review filed in the above- captioned case is hereby GRANTED, and the assa iled Resolutions dated September 30, 2008, February 25, 2009 and May 29, 2009 issued by the Former Second Division in CTA Case No . 7655 are hereby SET ASIDE, and a new one is hereby entered considering th e Petition for Review dated July 10, 2007, as WITHDRAWN solely in view of petition er's avai lment of the Tax Amnesty Law of 1997. SO ORDERED. ~ WE CONCUR: CAESAR A. CASANOVA Associate Justice 'ti__;--v. Q~ ERNESTO D. ACO STA Presiding Justice

AMENDED DEO SION L'TAE. B. Case No. 497 (7655) � Page 8 of 8 ~~C~ot..,~ ~~EZ Associate Justice J6ANITO C. CASTANEDA, fR. Associate Just ice AEsR~~~"U~tYice ~ N. M~�~--G~ CIELITO N. MINDARO GRULLA Associate Justice AM ~ d .,t<---~d:::--~ COTANGCO-MANALASTAS Associate Justi ce