Request forTax Exemption of the Separation Benefits of Employees Who Were Separated from the Service for Reason of Physical Disability

July 10, 1992 BIR RULING NO. 202-92 28 (b) (7) (B) 144-92 202-92 Sanitary Wares Manufacturing Corporation 2/F Felisa Bldg., 108 Herrera Street Legaspi Village, Makati, Metro Manila Attention: Atty . Roberto O . Doller Personnel and Legal Manager Gentlemen : This refers to your letter dated May 22, 1992 requesting exemption from income tax and consequently from withholding tax of the separation benefits of the following employees, who were separated from the service of your company for reason of physical disability, pursuant to Section 28 (b) (7) (B) of the Tax Code, as amended, namely: llcd 1. Clodualdo Torres, Jr. 2. Raul de los Santos 3. Roclan Carillo Documents submitted disclosed that these employees were diagnosed by your company doctor, Emmanuel E. Ortega; that Mr. Clodualdo Torres, Jr. has been found to be suffering from High Myopia and Posterior Staphylcma of the right eye and Multiple level Radioculopathy with double crush syndrome; that Mr. Raul B. de los Santos was suffering from Hermiated disc (LS-S1) compressed fracture (S1) and that Mr. Roclan Carillo with Chronic Bicipital Tendinitis-R, that these employees were diagnosed by your company doctor as suffering from serious illness which would affect the performance of their duties or endanger their physical well-being if they remain in the service and said finding is confirmed by the BIR medical officer, pursuant to RMO No. 25-91, dated July 18, 1991; that their separation was in line with Section 2, Article VI of the Company's Retirement Plan, which provides that any member who becomes totally and permanently incapable of discharging his regular duties shall, regardless of length of service, be compulsorily retired and shall be entitled to a disability benefit in an amount equal to the 125% of his salary for every year of continuous service, but in no case less than P6,000.00; and that the disability of any member shall be established upon certification by a licensed physician appointed by the company. In reply, please be informed that pursuant to Section 28 (b) (7) (B) of the Tax Code, as amended, any amount received by an official or employee or by his heirs from the 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 shall not be included in gross income and shall be exempt from taxation under Title II of the Tax Code. In view thereof, this Office is of the opinion as it hereby holds that any and all amounts which these employees will receive from you as a result of their separation from the service due to physical disability are exempt from income tax and consequently from withholding tax prescribed by Section 72, Chapter 10, Title II of the Tax Code, as amended by B. P. Blg. 135 and implemented by Revenue Regulations No. 6-82, as amended. It is, however, understood that this tax exemption does not include your company's payment of salary to the aforenamed employees. LLjur Very truly yours, JOSE U. ONG Commissioner of Internal Revenue