BIR Ruling [DA-213-03]

July 8, 2003 BIR RULING [DA-213-03] Atty. Leonor Villalon-Rogers Acting Assistant Commissioner Human Resource Development Service M a d a m : This refers to the letter of then Assistant Commissioner Lucina F. Galera dated July 25, 2002 relative to her letter dated November 26, 2001 requesting for an opinion as to whether or not Mr. Orlando C. Tortona is entitled to the payment of backwages and retirement benefits corresponding to the period from 1976 to 1995, in view of his acquittal from the charge of Malversation of Public Funds thru Falsification of Public Documents in a decision laid down by the Regional Trial Court on October 15, 1991. Based on the documents submitted, it appears that on or about and during the period from February 13, 1973 to December 9, 1974 and for sometime prior or subsequent thereto, Mr. Orlando C. Tortona who was a Collection Agent of the Bureau of Internal Revenue (BIR) assigned in Makati, allegedly conspiring and confederating together with Jose B. Platon, an employee of the Municipality Government of Makati, did then and there willfully, unlawfully and feloniously issue or cause to be issued fifty-eight (58) official receipts to Philippine Racing Club, Inc. in payment of its documentary and science stamps and seven (7) official receipts to La Fuerza, Inc.,in payment of its specific taxes. He allegedly made it appear in the 65 official receipts and the corresponding collection receipts thereof that the two companies paid only a total of P9,143,585.80 when in truth and in fact, the total tax payments made by the Philippine Racing Club, Inc. and the La Fuerza, Inc. amounted to P12,308,202.05, thereby defrauding the Government of the Republic of the Philippines in the amount of P3,164,626.25. With intent to gain, grave abuse of confidence, he allegedly misappropriated and converted the amount of P3,164,626.25 for his own personal use and benefit, to the damage and prejudice of the Government of the Republic of the Philippines. However, the Regional Trial, Court in Criminal Case No. 16555 entitled "People of the Philippines vs. Orlando C. Tortona and Jose B. Platon" acquitted Mr. Tortona and ruled that: "WHEREFORE, premises considered, on the ground of reasonable doubt, the Court acquits both accused Orlando C. Tortona and Jose Platon of malversation (embezzlement) of public funds thru falsification of public or official documents, for failure of the prosecution to prove the guilt of the accused. xxx xxx xxx Both accused having been separated form their respective positions in connection with this case, it is hereby ordered that both accused Orlando C. Tortona and Jose B. Platon, be immediately reinstated to their former positions. SO ORDERED. Pasig, Metro Manila, October 15, 1991." In reply, thereto, please be informed that in the case of Macabuhay vs. Manuel ,101 SCRA 834 dated December 29, 1980, the Supreme Court held that: "...,after having been absolved of the administrative charges, Melecia M. Macabuhay, the petitioner herein is, of right, entitled to the salaries for the period during which she was forced to go on leave without pay, the Government Service Insurance System need not wait for the actual payment of the salaries by the then Minister of Education and Culture before making the necessary adjustment in the retirement benefits of the petitioner. The petitioner's right exists and the failure of the Minister of Education and Culture to timely recognize such right should not itself be the reason for the denial of another right which flows therefrom." In the aforesaid decision, the Supreme Court stated that the petitioner should be paid salaries for the period October 23, 1974 to August 24, 1976 not because she is entitled to leave pay but because she should be considered, for all legal purposes, not to have left her office so that she is entitled to all the rights and privileges that accrue to her by virtue of the office thus held. Moreover, the Honorable Supreme Court made it clear that the petitioner was thereby granted all the retirement benefits she is entitled to under the law at the time of her compulsory retirement on August 25, 1976. Evidently, it considered petitioner as having been continuously employed by the government, uninterruptedly receiving compensation for her services, up to and until August 25, 1976. Based on the foregoing precepts, this Office holds that Mr. Orlando C. Tortona, who was summarily dismissed from Office by then Acting Commissioner Efren Plana and later acquitted by the Regional Trial Court of Branch 28, Pasig, Metro Manila, in Criminal Case No. 16555 entitled "People of the Philippines vs. Orlando C. Tortona and Jose B. Platon," is entitled to backwages corresponding to the period of January 26, 1976 to October 15, 1991. No pronouncement is made on the issue of his retirement benefits due him from the Government Service Insurance System and other agencies, the determination thereof being lodged exclusively with the proper agency of the Government. aIEDAC However, this Office opined in BIR Ruling No. DA121-02 dated July 22, 2002, which was issued to Mr. Orlando C. Tortona himself, that his back wages constitute remuneration for services that are subject to withholding tax on wages prescribed in Section 79 of the Tax Code of 1997, as implemented by Revenue Regulations No. 2-98, as amended, the pertinent portion of which reads as follows: "In reply, please be informed that an employer making payment of wages or compensation shall deduct and withhold from such compensation a tax determined in accordance with the prescribed new withholding tax tables under Revenue Memorandum Circular No. 4-99 (Section 79 of the Tax Code of 1997, as implemented by Section 2.58.6 of Revenue Regulations No 2-98, as amended) . The term "compensation" means all remuneration for services performed by an employee for his employer under an employer-employee relationship, unless specifically exclude by the Tax Code. Accordingly, the aforesaid back wages to be paid to you for the period starting 1975 up to October 15, 1991 constitute remuneration for service that are subject to withholding tax on wages prescribed in Section 70 of the Tax Code of 1997, as implemented by Revenue Regulations No. 2-98, as amended. Such being the case, you shall report such income and pay, as you file the corresponding annual income tax returns thereon, the respective income taxes by allocating or spreading the back wages for the years 1975 up to 1991, crediting in the process the corresponding income tax withheld from said wage payments. (BIR Ruling No. 234-90 dated December 14, 1990: UN345-95 dated August 10, 1995: UN440-95 dated December 13, 1995) " Please be guided accordingly. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group