Request for the Refund of Amount Representing Income Tax Allegedly Erroneously Withheld from Separation Benefits

February 14, 1991 BIR RULING NO. 020-91 28 (b) (7) (B) 000-00 020-91 Gentlemen : This refers to your letter dated July 31, 1990 requesting for the refund of the amount of P293,061.08 representing income tax you allegedly erroneously withheld from separation benefits of Mr. John Andrews. It is represented that Mr. Andrews has been employed as a pilot of the Philippine Air Lines from May 1967 to November 1982; that he is a member of the PAL Pilots Retirement Benefit Plan; that on January 9, 1985, Mr. Andrews was involuntarily separated from the service of the Philippine Air Lines on the ground of insubordination; and that as trustee of the PAL Pilots Retirement Benefit Plan, you paid him his retirement benefits net of withholding tax in the amount of P293,061.08 which you remitted to the BIR. In reply thereto, I have the honor to inform you that under Section 28 (b) (7)(B) of the Tax Code, as amended, any amount received by an official or employee or by his heirs from his employer as a consequence of separation of such official or employee from the service of the employer due to death, sickness or other physical disability or for any cause beyond the control of the said official or employee is exempt from taxes regardless of age or length of service. The phrase "for any cause beyond the control of the said official or employee" connotes involuntariness on the part of the official or employee. The separation from service of the official or employee must not be asked for or initiated by him. In other words, the separation must not be of his own making or choice. However, the separation from the service of Mr. Andrews cannot be considered as an involuntary separation within the contemplation of Section 28(b) (7) (B) of the Tax Code, as amended since his separation is for cause, i.e. "on the ground of insubordination." Such being the case, and since your collection of the withholding tax in the amount of P293,061.08 on the separation benefits of Mrs. Andrews and your remittance to the Bureau of Internal Revenue is correct, your claim for refund on behalf of Mr. Andrews is hereby denied for lack of legal basis. Very truly yours, (SGD.) JOSE U. ONG Commissioner