Ms. Cynthia K.H. Tabangcura

May 17, 2010 BIR RULING [SB-(003) 022-10] 32 (B) (6) (b);196-93; 211-92; SB-059-2000 Ms. Cynthia K.H. Tabangcura Isabela II Electric Cooperative, Inc. Government Center, Alibagu Ilagan, Isabela Madam : This refers to your letter dated March 25, 2010 requesting for a ruling that the separation benefits you will receive from Isabela II Electric Cooperative, Inc. (ISELCO II TIN 002-833-960-000) is exempt from withholding tax pursuant to Section 32 (B) (6) (b) of the Tax Code of 1997, as amended. CETDHA Documents submitted show that Cynthia K.H. Tabangcura (TIN 150-901-165-000),40 years of age, is a Branch Teller of ISELCO II. Based on the Medical Certificate issued by Glen Mathew G. Baggao, M.D. of Gov. Faustino N. Dy, Sr. Memorial Hospital in Ilagan, Isabela, you were diagnosed with Hypertensive Cardiovascular Disease and was advised by the aforesaid physician against strenuous activities. ISELCO II deemed you as resigned at the close of May 16, 2010. In reply, please be informed that pursuant to Section 32 (B) (6) (b) of the Tax Code of 1997, 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 the gross income and shall be exempt from taxation under Title II of the Tax Code. 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 the service of the official or employee must not be asked for or initiated by him. The law requires the presence of two (2) conditions in order that the employee benefits may be granted tax exemption, namely: (1) the employee is separated 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; and (2) the employer pays benefits to the official or employee or his heirs as a consequence of such separation. In view thereof, this Office is of the opinion, as it hereby holds, that any and all amounts which you will receive as a result of your separation from the service of your employer including your terminal leave pay (sick leave and vacation leave credits), due to the aforesaid poor health condition is exempt from income tax and consequently from withholding tax prescribed by Section 79, Chapter XIII, Title II of the Tax Code of 1997, as implemented by Revenue Regulations No. 2-98, as amended. It is, however, understood that the payment of your salary is not exempt from income tax and consequently from withholding tax. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered as null and void. cHTCaI Very truly yours, Commissioner of Internal Revenue By: (SGD.) MARISSA O. CABREROS OIC-Assistant Commissioner Legal Service