CTA Case No. 5035 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY JOSE S. MIRANDA, et al., C.T.A. CASE NO. 5035 and other PNB Retirees similarly situated, Promulgated: M.,:,-- Petitioners, _JL_1: 97 - versus - COMMISSIONER OF INTERNAL REVENUE, Respondent. X - --- - DECISION This petition refers to a claim for refund in the total amount of P231,913.49 as taxes withheld on the terminal leave pay and the monetary value of accumulated vacation and sick leaves of the following Philippine National Bank (PNB) retirees during the period 1987 to 1989, namely: Amount Withheld Jose S. Miranda p 29,791.69 926.16 Ernesta L. Abe I I era 19,956.99 Jovita Avancena 13,469.61 Simeon C. Cuison 9,728.34 9,055.03 Restituto P. Dayan 33,543.06 Lazaro M. Dimaculangan 817.02 1,195.02 . .. Domingo B. Ferrer 9,765.09 17,521.61 Abelardo M. Dizon 7,758.41 6,323.25 Virginia B. Flores 1,184.60 17,150.16 Cesar _v. De Guzman 11,432.32 9,120.91 Victorino E. De Gracia 3,121.14 30,053.08 Bienvenido M. Magsino Shirley C. Palad Leonor A. Purugganan Dulca B. Roxas Celestino A. Sogono Florencio Sy-Changco Juan T. De Vera, Jr . Fe T. Yoingco T0 TA L P231,913.49

DECISION C.T.A. CASE NO. 5035 -2- In the case of Florencio E. Santos vs. Commissioner of Internal Revenue, CTA Case No. 4004, promulgated on November 18, 1987, this Court ruled that petitioner, Mr . Santos, is entitled to the refund of the amount of P34,113.84, representing income tax withheld from his terminal leave pay of P235,155.38. On appeal to the Supreme Court by the Commissioner of Internal Revenue, the High Court in its Resolution, dated July 4, 1988, denied the petition for failure of petitioner to sufficiently show that the respondent Court had committed any reversible error in its questioned decision (Commissioner of Internal Revenue vs. Court of Tax Appeals, et a I., G.R No. 81363). In effect, therefore, the Supreme Court concurred with this Court's finding or ruling that the terminal leave pay of Mr. Santos is exempt from income or withholding tax. On account of the above-mentioned Supreme Court their '' the petitioners in this case through resolution, PNB Vice-President, Lina A. Layson, sent the Commissioner of Interna I Revenue a I etter, dated October 29, 1988 (Exhs. "A" and "A-1", Pets.; .P� 165, .CTA rec.), and received by the latter on November 8, 1988, requesting authority: (1) for PNB to refund directly to the retirees the taxes withheld from the money value of their leave credits; and (2) to deduct the total amount to be t-"1.., . � fu

DECISION C.T.A. CASE NO. 5035 -3 - paid to the retirees from future tax payments to be made by PNB to the BIR. In a letter, dated December 5, 1988 <Exhs. "B" to "B-3", inclusive, Pets. ; pp. 166-167, CTA rec. ), Commissioner Bienvenido Tan, Jr. informed Ms. Layson that the above-mentioned resolution of the Supreme Court is only a minute resolution and not a decision on the merits. He advised PNB to await the decision on the merits in the cases of Efren Castaneda (G.R. No. 96016) and Oscar Victoriano, et. al. (G.R. No. 83176), which are then pending in the Supreme Court, and which cases involve similar legal issue. In the last portion of his letter, Commissioner Tan requested PNB to maintain the status quo and to continue deducting and withholding the corresponding income tax on the accumulated vacation and sick leave credits of retiring PNB officials and employees. '' On August 10, 1989, the Supreme Court, in an En Bane Reso Iution. in G R � � No. 83176, ruled that since the terminal leave pay of the former Presiding Justice of the Court of Appeals, Oscar R. Victoriano, is part of his salary, the same is subject to withholding tax. On October 17, 1991, the Supreme Court in its Resolution in the case of Efren Castaneda (G.R. No. 96016) was promulgated, holding that terminal leave pay 7.11 J

DECISION C.T.A. CASE NO. 5035 -4- is not part of the income of a government official or employee but a retirement benefit. Unlike Victoriano whose claim for refund was denied, Efren Castaneda's claim for refund of withholding tax on his terminal leave was granted by the Supreme Court. Consequently, as the Castaneda resolution favored the PNB retirees' claim for refund, their Chairman, Mr. Jose Miranda, sent the BIR a letter, dated February 3, 1992 (Exh. "C", Pets.; p. 168, CTA rec. >, to follow up their refund claim. This was foI Iowed by another Ietter, dated April 20, 1992 (Exh. "D", Pets. p. 170, CTA rec.), reiterating their request for refund. On November 23, 1992, another foI Iow-up Ietter was sent to the BIR relative to the PNB retirees' claim by petitioners' counsel, Atty. Corazon D. Soluren (Exh. "E", Pets. ; pp. 1701-171, CTA rec.). Said letter was received by the BIR on November 26, 1992. the refund claim of '. Notwithstanding said letters, the PNB retirees remained unacted upon by the BIR. Hence, on October 16, 1993, the PNB retirees filed the instant petition with this Court. On November 17, 1993, instead of filing an Answer, respondent, through registered mail, filed a Motion To Dismiss (pp. 33-36, CTA rec.) on the ground that this Court has no jurisdiction on the ground of prescription. 7/1 t I .

DECISION C.T.A. CASE NO. 5035 - 5- According to respondent, although the petition did not indicate as to when the amounts being claimed were withheld, it can be presumed that since the petitioners retired during the years 1987 to 1989, the withholding was done during the same years. As the petition was filed only on October 16, 1993, clearly it was filed more than two years from 1987 to .1989. Petitioners fi I ed a I so through registered rnai I on December 3, 1993, an Opposition To Dismiss (pp o 40-41 1 CTA rec. >, a I I eging that they made a request for refund within the two-year prescriptive period. However, due to Commissioner Tan's statement that petitioners should await for the Supreme Court's decision on the merits in the cases of Castaneda and Victoriano, petitioners did not insist on their request for refund. On March 9, 1994, this Court, acting on respondent's Motion To Dismiss and petitioners' Opposition thereto, � �' the instant petition for being filed beyond the dismissed two-year period prescribed by law without prejudice to the granting of said claim in the administrative level (see pp. 49-60, CTA rec.). On Apri I 7, 1994, petitioners filed a Motion for Reconsideration (pp. 62-69, CTA rec. > wherein they maintained that the two-year prescriptive period for refund may be interrupted in the following instances: 1 . { '-f�..J

DECISION C.T.A. CASE NO. 5035 - 6- (1) When there is a j udicial demand or a suit in Court; (2) estoppel on the part of the Commissioner of Internal Revenue; and ( 3) on moral and equitable grounds that no one may enrich himself at the expense of another. Petitioners alleged that the doctrine of estoppel applies to the Commissioner of Internal Revenue, when the latter wrote them that they should await for the decisions of the Supreme Court in the Castaneda and Victoriano cases before pursuing their refund claim. Hence, if they waited for such decisions and more than two (2) years have already elapsed from the dates of payment of their withholding taxes, the Commissioner of Internal� Revenue should be considered estopped from raising the defense of prescription. Their submission to the decision of the Commissioner to wait for the outcome of the two aforementioned cases should not be taken against them, as such it would be unfair, un j ust and , .. in the Administrative Matter No. 90- inequitable. Thus, 6-015-SC. , October 18, 1990, Re: Request of Atty. Bernardo Zialcita for Reconsideration of the Action of the Financial and Budget Office, the Supreme Court ruled that: "With respect to the need for a written request for refund, we rule that Atty. Zialcita need no Ionger fi I e a forma I request for refund since the August 23, 1990 Resolution, which principally deals with his case, already binds ( ',. r I . ,_,

DECISION C.T.A. CASE NO. 5035 -7- the intervenor-movant Commissioner of Internal Revenue. However, with respect to other retirees allegedly� similarly situated and from whom withholding taxes on terminal leave pay have been deducted, we rule that these retirees should file a written request for refund within two years from the date of promulgation of this resolution. Fiscal considerations do not allow that this matter be left hanging for an indefinite period while retirees make up their minds as to whether or not they are entitled to refunds." Citing the above Supreme Court ruling in the case of Atty. Bernardo Zialcita, petitioners quoted that retirees are most deserving of compassion and should not be given a strained interpretation of the law. Moreover, in the case of In Re: Application for Life Pension Under Rep. Act 910. Ruperta G. Martin, applicant, A.M. 747-RET, July 13, 1990 ( 1 8 7 SCRA 477), the Supreme Court, likewise, ruled that "retirement law aims to assist retiree in his old age, not to punish him for having survived". Respondent argued that even if petitioners were ..advised to await the Supreme Court's decision in t 11 e Castaneda and Victoriano cases, such representation should norbe interpreted to mean that petitioners are given the right or authority to fi I e the present action beyond the two-year period from the date the taxes were erroneously paid. Said two-year period cannot be waived by the Commissioner. I. ,.. . tJ I'--I

DECISION C.T.A. CASE NO. 5035 -8- In a resolution, rendered on June 16, 1994 (pp. 75- 79, CTA rec.), this Court recon sidered its previous resolution of March 9, 1994, by stating that the two-year period under Section 230 is not a hard and fast rule as it clearly appeared in the case of Atty. Zialcita (supra). In that case, the retirees of the Judiciary were given two years from the date of the resolution, and not from the date of payment, within which to file a refund of the withholding taxes that were imposed on their terminal leave pay. On grounds of equity, this Court hereby app Iies the Zia Icita ru I ing to the instant case. Similarly, through the act of the respondent, the instant case was belatedly filed. Having reconsidered its previous resolution on the dismissal of this case, this Court ordered petitioners to file tl1eir answer. On November 4, 1994, through registered mai I, respondent filed her answer which was received by this .' on November 9, 1994. The special and affirmative Court defenses raised were the fo I Iowing: 1� The claim for refund of petitioners has prescribed; 2. The claim filed is not in accordance with Section 230 of the Tax Code, as amended; 3. Commissioner Tan's letter is a mere opinion on a query posed by the Phi Iippine Nationa I Bank, and it cannot be considered as a waiver of the statute of limitations;

DECISION C.T.A. CASE NO. 5035 - 9- 4. The case of Panay Electric Co. vs. Collector of Internal Revenue, 103 Phil 819, is inapplicable to the present case as there was no claim for refund filed by the herein petitioners; 5. Taxpayer/claimant has the burden of proof to establish his right to the refund; and 6. Tax refund is in the form of an exemption which must be strictly construed against the taxpayer. On December 12, 1994, petitioners' counsel started proving their case by presenting Mr. Jose Miranda, as witness, who testified on their written claim for refund filed with the BIR. He also identified the refund letter <Exh. "A", Pets.; p. 165, CTA rec.) and other documents, consisting of the Certifications issued by PNB as to the amounts . withheld and remitted to the BIR, among others, (Exhs. "F " to "F-8 ", Pets.; pp. 176-184, CTA rec.). The succeeding hearings that were scheduled by the Court were repeatedly postponed either on account of conflict in schedule of hearings of petitioners' counsel or due simply to his non-appearance in Court. Thus, on March 16, 1995 when she failed to appear before the Court, respondent's counse I oraIIy moved that the case be dismissed. However, in view of the fact that petitioner 's counsel has already started presenting her evidence, the Court merely declared that she be deemed to have waived the presentation of further evidence. Til is � ;� I ' .. \. t-..

DECISION C.T.A. CASE NO. 5035 - 10 - order in open Court was confirmed in a Resolution, promulgated on March 24, 1995 (see p. 133, CTA rec.). On Apri I 24, 1995, through registered rnai I, petitioners f i I ed a Motion for Reconsideration of the above-mentioned Resolution. This motion which was received by this Court on May 3, 1995, was denied for the reason that it is not verified and not accompanied by an affidavit of merit (see Resolution, May 18, 1995, p. 144, CTA rec.). Undaunted by the Court's denial of their first motion for reconsideration, petitioners filed on July 8, 1995 a Second Motion for Reconsideration (pp. 148-152, CTA rec.). This time they alleged that pursuant to Sections 1, 2 and 3 of Rule 15 of the Rules of Court, all that is required for motions, which include motion for reconsideration, is that they must be in writing and must state the order sought to be obtained and the grounds '' which it is based, and if necessary, sha I I be upon accompanied by supporting affidavits and other papers. In other words, they need not be verified and they may or may not be accompanied by an affidavit of merit. In the interest of substantial justice and considering that a witness for the petitioner has already testified and has been cross-examined by respondent's counsel, and that some documents have already been marked

DECISION C.T.A. CASE NO. 5035 - 11 - and presented on December 12, 1994, this Court in a Resolution, dated August 11, 1995, resoIved to reconsider and set aside its Resolutions of March 24, 1995 and May 18, 1995. Consequently, on September 15, 1995, petitioner's counsel presented another witness in the person of Mr. Pedrito Nuque, Assistant Manager of the Personnel Department of PNB. Just ike the first witness, Mr . Nuque also testified on their alleged letter of refund dated October 29, 1988 (Exh. "A" , supra). On October 3, 1995, petitioners' counse I submitted her Formal Offer of Evidence. Respondent's counsel failed to file her comment thereon and so, this Court resolved to admit alI of the exhibits, testimonial and documentary, sub j ect to its evaluation of their purposes, materia I ity and probative vaIue. ,J On the part of respondent, no evidence whatsoever submitted to the Court. Her counsel merely submitted was her case based on the pleadings and records of the case. As borne by the records, no memorandum was submitted by both parties. The issues at stake are the following: 1. Whethe.r or not the Ietter of 0ctober 29, 1988 can be considered as a valid claim for refund filed with the BIR, and

DECISION C.T.A. CASE NO. 5035 - 12 - 2. Whether or not petitioners are entitled to the refund of their terminal leave pay. Anent the first issue, petitioners claim that PNB's Ietter of October 29, 1988 is their written claim for refund filed with the BIR. On the other hand, respondent argues in her Answer that this letter is a mere query addressed to the BIR asking authority for PNB to refund directly to the retirees the withholding tax imposed on their terminal leave pay. Such letter, according to respondent, is not in accordance with Section 230 of the Tax Code, as amended. dated October 29, 1988 A perusal of said letter, (Exh. "A", supra), would show that it is a request for an authority to refund erroneously withheld taxes from its retirees, thus: October 29, 1988 The Commissioner Revenue Bureau of InternaI Quezon City Attention: Mr. RICARDO ANARNA Chief, Withholding Tax Division S r: This refers to the Supreme Court decision in the case of the Commissioner of internal Revenue vs. Court of Tax Appeals, et al. (GR. No. 81363) which in effect upheld the decision of the Court of Tax Appeals that the �money value of unused leave credits of retirees are not sub j ect to income tax. To assist our retirees in the immediate refund of the taxes withheld from the money

DECISION C.T.A. CASE NO. 5035 - 13 - value of their leave credits, we respectfully request authority ( i) for PNB to refund directly to the retirees said withholding taxes; and ( ii) to deduct the total amount to be paid to the retiree from future tax payments to be made by PNB to the BIR. PNB's handling of the refund wiII not pose any problem since our records of the withholding tax remittances corresponding to the money value of leave credits are stiI I intact. This will also relieve the BIR of the tedious administrative work of effecting the refunds to our retirees. We trust that these requests wi I I merit your kind approval. Very truly yours, ( SGD. ) LINA A. LAYSON Vice President This Ietter was fo I I owed up by three more I etters, dated February 3, 1992, ApriI 20, 1992 and November 23, 1992. In all these letters, petitioners reiterated their request for refund of erroneously withheld taxes. In aII , .. letters including the first, dated October 29, these 1988, petitioners sought for the refund of the taxes withheld from their terminal leave pays and monetary value of their vacation and sick leaves. Thus, we believe that the letter, dated October 29, 1988, is the letter validly claiming for the refund filed for the petitioners. t-'1 ' { ... ' .'

DECISION C.T.A. CASE NO. 5035 - 14 - On the second issue of whether or not petitioners are entitled to the refund sought, the Court, after careful scrutiny of the evidence presented by petitioners, considers the following petitioners to be entitled to the refund, to wit: Jose S. Miranda Amount Withheld Exhibits Jovita Avancefia Simeon C. Cuison p 29, 791.69 "F-4" Domingo B. Ferrer 19, 956. 99 "F" Virginia B. Flores 13, 469.61 "F-6" Cesar V. De Guzman 33, 543.06 "F-7" Shirley C. Palad 1, 195.02 "F-8" Dulca B. Roxas 9, 765. 09 "F-5" Florencio Sy-Changco 6, 323.25 "F-3" 17,150.16 "F-2" T0TA L 9 120.91 "F-1" P140, 315.78 The rest of the petitioners claim not enumerated above cannot be granted for lack of material evidence to prove that they have been withheld. WHEREFORE, in view of the foregoing, the petition '' review is hereby PARTIALLY GRANTED. Respondent is for hereby ordred to REFUND in favor of the following petitioners the following amounts: Amounts To Be Refunded Jose S. Miranda p 29, 791. 69 19, 956.99 Jovita Avancefia 13, 469.61 33, 543.06 Simeon C. Cuison 1, 195.02 Domingo B. Ferrer Virginia B. Flores 7"(.J ' ;

DECISION C.T.A. CASE NO. 5035 - 15 - Shirley C. Palad 6,323.25 Dulca B. Roxas 17,150.16 Florencio Sy-Changco 9 120.91 T 0T A L f140,315.78 representing erroneously withheld and remitted taxes on terminal leaves and monetary value of vacation and sick leaves of the above-mentioned retired PNB employees and officials for the years 1987 and 1988. SO ORDERED. ' f:l/ RAMON 0. DE E A Associate Ju e WE CONCUR: I - ERNESTO D. ACOSTA Presiding Judge , .. CERTIF CATI . ON hereby certify that this decision was reached after due consultation with the members of the Court of Tax Appeals in accordance with Section 13, Article VI I I of the Constitution. &- ERNESTO D. ACOSTA Presiding Judge Court of Tax Appeals