BIR Ruling [DA-093-99]

February 15, 1999 BIR RULING [DA-093-99] CDCP Employees Savings & Loan Association, Inc. PNCC Complex, Edsa Cor. Reliance St. Mandaluyong City Attention: Mr . Felipe C . Alday, Jr . President Gentlemen : This refers to your letter dated July 8, 1996 requesting refund of taxes withheld on income realized from your money market placements in the amount of P78,633.10 on the bases of the following, viz: cdtech 1. That CDCP Employees Savings & Loan Association falls within the purview of a mutual savings bank under then Section 26 (b) of the Tax Code, as amended, (now Section 30(B) of the Tax Code of 1997; thus, exempt from the payment of income tax; and 2 That the Supreme Court upheld the refund of the taxes withheld on income from money market placements of GCL Retirement Plan, stating that, "if all employee's trust like the GCL enjoys a tax-exempt status from income, we see no logic in withholding a certain percentage of that income which it is not supposed to pay in the first place". [CIR vs. The Honorable Court of Tax Appeals, et. al, 207 SCRA 487] It is represented that CDCP Employees Savings and Loan Association, Inc. (CESLA) is a non-stock savings and loan association duly registered with the Securities and Exchange Commission (SEC) having as, its principal purposes, among others, "to encourage industry, frugality and accumulation of savings among the members, make investments in securities of productive enterprises or in securities of the Government or any of its political subdivisions, instrumentalities or Corporations"; and that on April 1, 1985, BIR ruled that CESLA fails within the purview of a mutual savings bank as contemplated under then Section 27(b) of the Tax Code (now Section 30(B) of the Tax of 1997) and as such it is exempt from the payment of income tax in respect to income received by it as such organization, and therefore need not file an income tax return concerning such income. In reply, please be informed that Section 5 of Republic Act No. 8367 entitled "An Act Providing for the Regulation of the Organization and operation of Non-Stock Savings and Loan Associations provides viz: "SEC. 5. Tax Exemption . An association shall be exempt from payment of tax in respect to income, it receives, including interest on its deposits with any bank; Provided, however , That income derived from any of its properties, real or personal, or any activity conducted for profit, regardless of the disposition thereof, is subject to the corresponding internal revenue taxes imposed under the National Internal Revenue Code. "Interest earnings on deposits of members with Associations, as well as the shares of its members from the net income of the Associations shall be exempt from income tax." RA 8367 regulates the organization and operation of non-stock savings and loan associations which are exempt from income pursuant to then Section 26(b) of the Tax Code, as amended (now Sec. 30(B) of the Tax Code of 1997). There being no amendment made on the exemption of non-stock mutual savings bank under RA 8424, the foregoing RA No. 8367 shall continue to supplement the provision of the Tax Code of 1997. In this light, this Office hereby holds that the interest income derived by CESLA from its deposit and deposit substitutes are exempt from the twenty percent (20%) final withholding tax. (BIR Ruling No. 138-97 dated December 29, 1997). This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal & Enforcement Group