BIR Ruling No. 185-83

October 25, 1983 BIR RULING NO. 185-83 Gentlemen : This refers to your letter dated January 27, 1983 requesting exemption from the payment of withholding tax on interest income of your bank deposits as well as a refund of the withholding tax deducted from the interest income of your bank deposits as of September 17, 1980, when Presidential Decree No. 1739 took effect. In reply, please be informed that pursuant to the last paragraph of Section 27 of the Tax Code, as amended by Presidential Decree No. 1457, income of whatever kind and character of all the organizations enumerated therein derived from any of their properties, real or personal, or from any of their activities conducted for profit is subject to internal revenue taxes, one of which is income tax, regardless of the disposition made of such income. Consequently, although you are exempt from tax as a civic league or social welfare organization pursuant to Section 27(g) of the Tax Code, the interest income of your savings and time deposits, being income derived from personal property, are subject to income tax (BIR Ruling No. 78-002 dated May 11, 1978). Such being the case, said interest income are subject to the final withholding tax at the rate of 15% in the case of savings deposits and 20% in the case of time deposits, and yield from deposit substitutes, pursuant to Section 24(cc) of the Tax Code as amended by Presidential Decree No. 1739. cdtech Section 53 (d)(2) of the Tax Code, as amended by Batas Pambansa Blg. 135 which reads as follows: "(2) Depositors or placers/investors enjoying tax exemption privileges or preferential tax treatment . In all cases where the depositors or placer/investor is tax exempt or is enjoying preferential income tax treatment under existing laws, the withholding tax imposed in this paragraph shall be refunded or credited as the case may be upon submission to the Commissioner of Internal Revenue of proof that the said depositor or placer/inventor is a tax exempt entity or enjoys a preferential income tax treatment." applies to organizations specifically exempted under existing laws, e.g., the Cultural Center of the Philippines, and not to organizations or associations enumerated under Section 27 of the Tax Code which are subject to tax on income derived from any of their properties. It should be noted that the interest income on bank deposits was subjected to the withholding tax scheme under Presidential Decree No. 1456 which took effect on June 3, 1977. Said Decree also contained the abovequoted provision. Section 27 (c) of the Tax Code contained a proviso that income of whatever kind and character of all the organizations enumerated therein derived from any of their properties, regardless of the disposition made of such income, is subject to income tax. Thereafter, this proviso became the last paragraph of Section 27 of the Tax Code under Presidential Decree No. 1457 effective June 11, 1978, in order that the same could apply to all the organizations enumerated in said Section. The fact that this amendment in Section 27 became effective while the above provisions of Section 53 (d)(2) is already in force is a clear indication that the organizations enumerated therein shall continue to be subject to income tax with respect to the income derived from their properties, which includes interest income on their bank deposits. cdta In view thereof, your request for refund has to be, as it is hereby denied. Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner Bureau of Internal Revenue