Lubag v. Jacinto-Henares

SPECIAL FIRST DIVISION [C.T.A. CASE NO. 9306. March 4, 2019.] For: Refund PRINCESS O. LUBAG , petitioner , vs. HONORABLE KIM S. JACINTO-HENARES, in her capacity as COMMISSIONER OF INTERNAL REVENUE , respondent . DECISION MINDARO-GRULLA , J p : This resolves the Petition for Review, 1 filed by petitioner Princess O. Lubag, for refund of her alleged erroneously paid income tax for taxable year 2013 in the amount of One Hundred Thirty-Five Thousand Two Hundred Six Pesos (P135,206.00). cSEDTC Petitioner Princess O. Lubag is an employee of the Asian Development Bank (ADB),an international organization at the time the income tax payments were made. 2 On the other hand, respondent was then the duly appointed Commissioner of the Bureau of Internal Revenue (BIR),who is vested by law with authority to decide, approve and grant claims for refund or tax credit of erroneously or excessively paid taxes. She holds office at the BIR National Office Building, Agham Road, Diliman, Quezon City. Respondent is being sued in her official capacity as the former Commissioner of Internal Revenue (CIR). On April 12, 2013, respondent issued Revenue Memorandum Circular (RMC) No. 31-2013 prescribing the Guidelines on the Taxation of Compensation Income of Philippine Nationals and Alien Individuals Employed by Foreign Governments/Embassies/Diplomatic Missions and International Organizations Situated in the Philippines. 3 The pertinent provisions of which states: " SECTION 2. TAX TREATMENT OF COMPENSATION INCOME. The tax treatment of Philippine nationals and alien individuals on compensation income received by them from foreign governments/embassies and missions and international organizations shall be as follows: xxx xxx xxx (d) Those Employed by Organizations Covered by Separate International Agreements or Specific Provisions of Law 1. Asian Development Bank (ADB) Section 45(b),Article XII of the Agreement between the Asian Development Bank and the Government of the Republic of the Philippines regarding the Headquarters of the Asian Development Bank provides: 'ARTICLE XII xxx xxx xxx Section 45 Officers and staff of the Bank, including for the purposes of this Article experts and consultants performing missions for the Bank ,shall enjoy the following privileges and immunities: xxx xxx xxx (b) Exemption from taxation on or in respect of the salaries and emoluments paid by the Bank subject to the power of the Government to tax its nationals; ' Underscoring Supplied From the above, only officers and staff of the ADB who are not Philippine nationals shall be exempt from Philippine income tax. xxx xxx xxx SECTION 3. FILING OF INCOME TAX RETURNS AND DECLARATION OF COMPENSATION INCOME. Philippine nationals and alien individuals who were not granted tax exemption or immunities under duly recognized international agreements or local laws shall file their annual income tax returns on or before the 15th day of April each year using BIR Form No. 1700 or 1701, as may be applicable, 4 declaring therein the amount of their respective compensation income for the preceding taxable year for services rendered or performed for such foreign government embassy/diplomatic mission, agency or international organization. The annual income tax return shall be filed with the Revenue District Office, Authorized Agent bank, or other proper office which has jurisdiction over the employee's legal residence or principal place of business. It may also be filed with the Revenue District Office or Authorized Agent Bank where the principal office of his/her employer is situated." Pursuant thereto, petitioner filed her income tax return and paid her income tax liabilities for taxable year 2013 on March 21, 2014. 5 Meanwhile, on September 30, 2014, the Regional Trial Court (RTC) Branch 213 of Mandaluyong City promulgated a Decision 6 in the case entitled, Erwin Salaveria and Portia Gonzales vs. Commissioner of Internal Revenue, Civil Case No. MC14-8775, September 30, 2014 , declaring Section 2 (d) (1) of RMC No. 31-2013 as void for being issued without legal basis, in excess of authority and/or without due process of law, and in the absence of legislation and/or regulation to the contrary. Respondent therein appealed the decision to the Court of Appeals, which was docketed as CA-G.R. CV No. 104374, but was eventually dismissed due to technicality in the Resolution 7 dated July 3, 2015. In view of the ruling of the RTC of Mandaluyong City, petitioner filed an administrative claim for refund, via a Letter Re: Claim for Refund for Taxable Year 2013, 8 with BIR Revenue District Office (RDO) No. 41 on March 17, 2016. Claiming inaction, petitioner elevated her claim with the Court of Tax Appeals (CTA),via the instant Petition for Review, 9 on March 21, 2016. On May 30, 2016, respondent filed his Answer, 10 raising the following denials and defenses, viz .: "7. She specifically denies the material allegations contained in paragraph 8 of the Petition for Review. The truth being, Regional Trial Court, Branch 213, Mandaluyong City (RTC Branch 213), has no jurisdiction in taking cognizance of the case filed by the employees of the Asian Development Bank pertaining to the validity of Revenue Memorandum No. 31-2013 (RMC 31-2013). In the case of the Philippine American Life and General Insurance Company v. The Secretary of Finance and the Commissioner of Internal Revenue ,the Supreme Court held that: Evidently, City of Manila can be considered as a departure from Ursal in that in spite of there being no express grant in law, the CTA is deemed granted with powers of certiorari by implication. Moreover, City of Manila diametrically opposes British American Tobacco to the effect that it is now within the power of the CTA, through its power of certiorari ,to rule on the validity of a particular administrative rule or regulation so long as it is within its appellate jurisdiction. Hence, it can now rule not only on the propriety of an assessment or tax treatment of a certain transaction, but also on the validity of the revenue regulation or revenue memorandum circular on which the said assessment is based . Granting without admitting that RTC Branch 213 has jurisdiction over the validity of RMC 31-2013, its decision has yet to become final as it was appealed to the Supreme Court; xxx xxx xxx As discussed in paragraph 7 hereof, RTC Branch 213 has no jurisdiction in taking cognizance of the case filed by the employees of the Asian Development Bank pertaining to the validity of RMC 31-2013; Further, Respondent contends that the Petitioner [sic] being a Filipino citizen [sic] and resident [sic] of the Republic of the Philippines is [sic] subject to the Philippine Income Tax; Sections 23 and 22 (E) of the 1997 National Internal Revenue Code, as amended, specifically states: 'Sec. 23. General Principles of Income Taxation in the Philippines. Except when otherwise provided in this Code: (A) A citizen of the Philippines residing therein is taxable on all income derived from sources within and without the Philippines; x x x' 'Section 22. Definitions. When used in this Title: xxx xxx xxx (E) The term 'nonresident citizen means: (1) A citizen of the Philippines who establishes to the satisfaction of the Commissioner the fact of his physical presence abroad with a definite intention to reside therein. (2) A citizen of the Philippines who leave the Philippines during the taxable year to reside abroad, either as immigrant or for employment on a permanent basis. (3) A citizen of the Philippines who works and derives income from abroad and whose employment thereat requires him to be physically present abroad most of the time during the taxable year. (4) A citizen who has been previously considered as nonresident citizen and who arrives in the Philippines at any time during the taxable year to reside permanently in the Philippine shall likewise be treated as nonresident citizen for the taxable year in which he arrives in the Philippines with respect to his income derived from sources abroad until the date of his arrival in the Philippines. SDAaTC (5) The taxpayer shall submit proof of the Commissioner to show his intention of leaving the Philippines to reside permanently abroad or to return to and reside in the Philippines as the case may be for purposes of this Section.' Taxation of income in the Philippines is based on Citizenship, Residency, and the Source Principle. Under the Citizenship principle ,the basis of the imposition of income tax is the taxpayer's citizenship. All citizens of the Philippines, whether resident or non-resident, are subject to our income tax law. In the case of resident citizens, they are subject to income tax derived from within and without the Philippines, while non-resident citizens are only subject to the income tax on the income derived from within the Philippines. Under the Residence principle ,the basis of the imposition of all income tax in this case is the residence of the taxpayer. All income derived by persons residing in the Philippines, whether citizens or aliens, whether domestic corporations or foreign corporations, shall be subject to income tax on the income derived from sources within the Philippines. Under the Source principle ,the basis of the imposition of income tax is the source of the income. All income derived from sources within the Philippines shall be subject to income tax. Thus, even nonresident citizens or aliens and foreign corporation who derive income from within the country are subject to income tax. This also follows the territoriality principle. Petitioner is a Filipino citizen and is an employee [sic] of the Asian Development Bank, with business address at ADB Avenue, Ortigas Center, Pasig City. There is no doubt that Petitioner [sic] is liable for income tax on the compensation income she [sic] earned, on account of such employment. When the ADB Charter was created in 1965, it was expressly stated in Article 54 on Exemption from Taxation that: 'No tax shall be levied on or in respect of salaries and emoluments paid by the Bank to Directors, alternates, officers or employees of the Bank, except where a member deposits with its instruments of ratification or acceptance a declaration that such member retains for itself and its political subdivisions the right to tax salaries and emoluments paid by the Bank to citizens or nationals of such member.' In signing the ADB Headquarters Agreements in 1956, the Philippine government accorded tax exemption privileges to the ADB and its staff but held on to the State's inherent power to tax, and thus made a clear limitation in so far as its right to tax its nationals. Hence, Section 45(b),Article XII of the ADB Headquarters Agreement provides that: 'Article XII PRIVILEGES AND IMMUNITIES OF GOVERNORS AND OTHER REPRESENTATIVES OF MEMBERS, DIRECTORS, PRESIDENT, VICE-PRESIDENT AND OTHERS Section 45 Officers and staff of the Bank, including for the purposes of this Article experts and consultants performing missions for Bank, shall enjoy the following privileges and immunities: xxx xxx xxx (b) Exemptions from taxation on or in respect of the salaries and emoluments paid by the Bank subject to the power of the Government to tax its nationals; x x x' In the same year, the Philippine Congress issued Resolution No. 06 to the effect that 'the Senate of the Philippines concurs, as it hereby concurs, in the ratification by the President of the Philippines of the aforesaid Agreement Establishing the Asian Development Bank, subject to the reservation that the Philippines declares that it retains for itself and its political subdivisions the right to tax salaries and emoluments paid by the Bank to its citizens or nationals of the Philippines pursuant to Article 56, paragraph 2, of the Agreement' (emphasis supplied) Explicit from the foregoing is that the Philippines, by making a 'reservation,' the Republic of the Philippines simply intimated that in entering upon an Agreement with ADB the only effect is that the income of ADB is exempt from tax by virtue of the Agreement but not the income derived by the Filipinos from ADB. Petitioner may claim that the coverage of Article XII of 'Headquarters Agreement' only concerns the privileges and immunities of the higher officials of the ADB. Such contention is utterly misplaced since the title of the Article itself did not restrict the application of the said article of ADB's higher officials only, to wit: PRIVILEGES AND IMMUNITIES OF GOVERNOR'S AND OTHER REPRESENTATIVES OF MEMBERS, DIRECTORS, PRESIDENT, VICE-PRESIDENT AND OTHERS. Moreover, the above-quoted Section 45 of the said Article referred to Officers and Staff of the bank as well. BIR ITAD Ruling further states that there is no need for an executing law to implement the 'Reservation' because Philippine tax law already provides that Filipinos are liable for tax for income derived from within and without the Philippines. The construction of the word 'Reservation' can only be accorded its plain meaning if, before the Philippines entered into the Agreement with ADB, Filipinos earning income from without the Philippines have no obligation to pay taxes in the Philippines. Since 1939, Filipinos earning income derived from outside the Philippines are liable for tax from such income. This is true when one considers Section 37 in relation to Section 45 of the Internal Revenue Code of 1939, Section 21 in relation to Section 27 of the National Internal Revenue Code of 1997, and Section 24 in relation to Section 51 of the National Internal Revenue Code of 1997. To accord the word 'reservation' with an ordinary meaning will undermine the force of existing tax laws. Thus, a contrary interpretation would mean subverting Philippine sovereignty by virtue of a mere Agreement just for the purpose of exempting some Filipinos from income tax. While international comity is laudable and a Constitutional requirement, the power to tax is an inherent power of the State that cannot be bargained away so easily. Same BIR ITAD Ruling added that the ADB Charter is not a law, but an agreement among Contracting States. That being the case, it is a derogatory interpretation that exempting from tax includes exemption from tax of Filipino citizens without express mention of Filipino exemption. Pacta sunt servanda and international comity dictates that the Philippines should honor its international agreements in good faith. The Philippines has arguably complied with these principles of international law by according the proper concessions and tax breaks to ADB activities. This duty ends where the concern is a domestic matter involving the taxability of the income of its citizens. The ADB Charter was never amended by subsequent Philippine tax laws because Philippine tax laws before and after the creation of ADB imposed taxes on income of Filipinos from within and without the Philippines. acEHCD Petitioner [sic] may contend that subsequent practice, as regards the ADB charter, is non-taxability of the income of its employees, arguing that ADB employees have never been subjected by the taxing authority ever since the Philippines' ratification of the ADB Charter. It insists that an operative act is required to change the norm followed after the ratification of the ADB Charter. It is as if Petitioner [sic] would like this Honorable Court to treat such subsequent practice into a custom which is recognized source law. It is a standard rule that customs which are contrary to law shall not be countenanced. In the case of Malang vs. Moson ,the Supreme Court significantly held that: 'The Court is duty-bound to resolve that the instant case applying such laws and rights as are in existence at the time the pertinent civil acts took place, and is unable to supplant governing law with customs, albeit how widely observed.' RMC 31-2013 is only a clarification of existing policies etched in Philippine law. Thus, this alleged subsequent practice, which is contrary to existing law, cannot in any way displace what the law had provided from the start. RMC 13-2013 [sic] is valid because it is only a mere clarification of existing policies etched in Philippine law. As stated in BIR ITAD Ruling No. 018-14, the 'Reservation' made by the Philippines regarding its right to tax its citizen who earn income as employees of ADB is not a mere reservation but an affirmation of the inherent power of the State to tax its own citizens. Petitioner [sic] anchor her [sic] claim that she [sic] is exempted from income tax on the provisions of Revenue Memorandum Circular [sic] No. 31-2013 which provides: xxx xxx xxx (d) Those Employed by Organizations Covered by Separate International Agreements or Specific Provision of Law 1. Asian Development Bank (ADB) Section 45(b),Article XII of the Agreement between the Asian Development Bank and the Government of the Republic of the Philippines regarding the Headquarters of the Asian Development Bank provides: 'Article XII xxx xxx xxx Section 45 Officers and staff of the Bank, including for the purposes of this Article experts and consultants performing missions for the Bank ,shall enjoy the following privileges and immunities: xxx xxx xxx (b) Exemption from taxation on or in respect of the salaries and emoluments paid by the Bank subject to the power of the Government to tax its nationals ; From the above, only officers and staff of the ADB who are not Philippine nationals shall be exempt from Philippine income tax. The claim of the Petitioner that she is [sic] exempt from the payment of income tax has no legal basis. Under the above-cited revenue issuance, it is clear that the exemption is still subject to the power of the Government to tax its nationals, including the herein Petitioner. Thus, reverting to the earlier discussion, Section 23, in relation to Section 24 of the National Internal Revenue Code of 1997, as amended, are the laws on the matter. As previously submitted, Petitioner, being a Filipino citizen and national is taxable from his income within and outside the Philippines; Petitioner [sic] must prove that she [sic] was able to comply with the following documentary and legal requirements as provided under Section 229 of the 1997 National Internal Revenue Code, as amended, to wit: 1. That the taxpayer should file a written claim for refund or tax credit with the BIR Commissioner within two (2) years from the date of payment of the tax or penalty, non-compliance with which the latter is precluded from exercising his authority thereon; 2. That, if denied or not acted upon within said period, the petition for refund be filed with the CTA within 30 days from the receipt of the denial AND within said two (2) year period from the date of payment of the tax or penalty regardless of any supervening cause, otherwise, the claim for refund shall have prescribed. SDHTEC 3. The claim for refund must be a categorical demand for reimbursement; 4. There must be a proof or payment of the erroneously or illegally collected taxes; and 5. No refund shall be given resulting from availment of incentives granted pursuant to special laws for which no actual payment was made. Petitioner must provide that her [sic] income is not taxable or exempt from income tax; Petitioner must provide the basis for the alleged tax exemptions; Tax exemptions are never presumed and are strictly construed against the taxpayer and liberally in favor of the taxing authority. They can only be given force when the grant is clear and categorical. The surrender of the power to tax, when claimed must be clearly shown by a language that will admit of no reasonable construction consistent with the reservation of the power. If the intention of the legislature is open to doubt, then the intention of the legislature must be resolved in favor of the State. (Smart Communications, Inc. vs. The City of Davao, et al.,G.R. No. 155491) A tax refund is in the nature of a tax exemption which must be construed strictissimi juris against the taxpayer. The taxpayer must present convincing evidence to substantiate a claim for refund. (FEBTC vs. CIR, G.R. No. 149589, September 16, 2006) In the case of CIR vs. Rosemarie Acosta ,G.R. No. 154068 dated August 3, 2007, the Honorable Supreme Court ruled, to wit: 'As tax refunds involve a return of revenue from the government, the claimant must show indubitably the specific provision of law from which her right arises, it cannot be allowed to exist upon a mere vague implication or inference nor can it be extended beyond the ordinary and reasonable intendment of the language actually used by the legislature in granting the refund. To repeat, strict compliance with the conditions imposed for the return of revenue collected is a doctrine consistently applied in this jurisdiction.' xxx xxx xxx." Thereafter, on June 8, 2016, a Notice of Pre-Trial Conference 11 was issued by this Court, setting the case for pre-trial conference on September 1, 2016 at 9:00 a.m. The parties were ordered, among others, to be present and file their respective Pre-Trial Briefs at least three (3) days before the date of pre-trial. Complying thereon, petitioner filed her Pre-Trial Brief for the Petitioner 12 on August 26, 2016. While, respondent, on the other hand, filed, via private licensed courier, his Respondent's Pre-Trial Brief 13 on November 22, 2016. On December 9, 2016, the parties filed their Joint Stipulation of Facts and Issues, 14 which was then approved in the Resolution 15 dated December 21, 2016. A Pre-Trial Order 16 was subsequently issued by this Court on January 10, 2017, which deemed the Pre-Trial terminated and set the initial presentation of evidence for the petitioner was set on March 14, 2017 at 9:00 a.m. During trial, petitioner primarily testified, by way of Judicial Affidavit, 17 as to the material allegations contained in her Petition for Review and, also, to identify the documents attached in her judicial affidavit. Thereafter, considering that petitioner has no other witness to present, this Court deemed her testimony completed and terminated. On August 18, 2017, petitioner filed her Formal Offer of Exhibits, 18 offering the following exhibits as her documentary evidence, viz .: Exhibit No. Description "P-1" Annual Income Tax Return (BIR Form No. 1700) for taxable year 2013 of Princess O. Lubag "P-1-A" Signature of Princess O. Lubag in the Income Tax Return for taxable year 2013 "P-2" Revenue Official Receipt No. 01672647 dated 21 March 2014 "P-3" Certification of Payment issued by the BIR Revenue Accounting Division on 17 February 2016 with O.R. No. 2015-003160-012841 "P-4" Decision of Branch 213, Regional Trial Court, Mandaluyong City dated 30 September 2014 "P-5" Administrative Claim for Refund dated 17 March 2016 "P-6" Application for Tax Refund (BIR Form No. 1914) of Princess O. Lubag "P-6-A" Signature of Princess O. Lubag in the Application for Tax Refund "P-7" Resolution of the Second Division of the Court of Appeals dated 3 July 2015 "P-8" Judicial Affidavit of Princess O. Lubag "P-8-A" Signature of Princess O. Lubag in her Judicial Affidavit In the Resolution 19 dated October 30, 2017, this Court admitted all exhibits formally offered by petitioner, and thereafter deemed her to have rested her case. Thus, the initial presentation of evidence for the respondent was set on January 30, 2018 at 9:00 a.m. AScHCD During his initial presentation of evidence, counsel for respondent, manifested that he has no evidence to present there being no report of investigation forwarded to him by the revenue officer assigned to the case. 20 Therefore, the parties were given a period of thirty (30) days within which to submit their respective memoranda. On March 1, 2018, petitioner filed her Memorandum for Petitioner, 21 while, respondent, on the other hand, failed to file his memorandum as per Records Verification 22 dated March 8, 2018. Accordingly, in the Resolution 23 dated March 19, 2018, this Court deemed the instant case submitted for decision. The sole issue 24 submitted by the parties to be resolved herein is, whether petitioner is entitled to a refund of her income tax payments amounting to One Hundred Thirty-Five Thousand Two Hundred Six Pesos (P135,206.00) for taxable year 2013. This Court shall first discuss its jurisdiction to rule over the instant case prior to resolving the arguments of the parties. Verily, Sections 204 (C) and 229 of the National Internal Revenue Code (NIRC) of 1997, as amended, in relation to Section 3 (a) (2) of the Revised Rules of the CTA (RRCTA), provides the period within which to file both administrative and judicial claims, thus: " SECTION 204 . Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes . The Commissioner may xxx xxx xxx (C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty: Provided, however ,That a return filed showing an overpayment shall be considered as a written claim for credit or refund." " SECTION 229 . Recovery of Tax Erroneously or Illegally Collected . No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected ,or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner ;but such suit or processing may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress. In any case, no such suit proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid." (Underscoring Supplied) " SECTION 3. Cases Within the Jurisdiction of the Court in Divisions. The Court in Divisions shall exercise: (a) Exclusive original or appellate jurisdiction to review by appeal the following: xxx xxx xxx (2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refund of internal revenue taxes fees or other charges , penalties in relation thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code or other applicable law provides a specific period for action: Provided, that in case of disputed assessments, the inaction of the Commissioner of Internal Revenue within the one hundred eighty day-period under Section 228 of the National Internal Revenue Code shall be deemed a denial for purposes of allowing the taxpayer to appeal his case to the court and does not necessarily constitute a formal decision of the Commissioner of Internal Revenue on the tax case; Provided further, should the taxpayer opt to await the final decision of the Commissioner of Internal Revenue on the disputed assessments beyond the one hundred eighty day-period above-mentioned, the taxpayer may appeal such final decision to the Court under Section 3(a), Rule 8 of these Rules; and Provided, still further, that in the case of claims for refund of taxes erroneously or illegally collected, the taxpayer must file a petition for review with the court prior to the expiration of the two-year period under Section 229 of the National Internal Revenue Code ;" More so, Section 3 of RMC No. 31-2013, provides that ADB Philippine nationals, who are not covered by the tax exemption, should file their annual income tax returns on or before the 15th day of April each year, to wit: AcICHD "SECTION 3. Filing of Income Tax Returns and Declaration of Compensation Income . Philippine nationals and alien individuals who were not granted tax exemption or immunities under duly recognized international agreements or local laws shall file their annual income tax returns on or before the 15th day of April each year using BIR Form No. 1700 or 1701, as may be applicable, declaring therein the amount of their respective compensation income for the preceding taxable year for the services rendered or performed for such foreign government embassy/diplomatic mission, agency or international organization. The annual income tax return shall be filed with the Revenue District Office, Authorized Agent bank, or other proper office which has jurisdiction over the employee's legal residence or principal place of business. It may also be filed with the Revenue District Office or Authorized Agent bank where the principal office of his/her employer is situated." (Emphasis Supplied) In the instant case, petitioner filed her annual income tax return (ITR) for taxable year 2013 on March 21, 2014. 25 Then, she filed her administrative claim for refund on March 17, 2016, while the instant petition was filed on March 21, 2016. Counting two (2) years from the date of payment of tax, petitioner has until March 21, 2016 within which to claim for refund. Clearly then, both administrative and judicial claim were filed well within the two-year prescriptive period. That having been settled, this Court shall now proceed to review the applicable treaty and legislative provisions addressing the tax treatment of petitioner's compensation income as an employee of the ADB. Petitioner asserts that as an employee of ADB, she is exempt from the payment of income tax pursuant to Article 56 of THE AGREEMENT ESTABLISHING THE ASIAN DEVELOPMENT BANK 26 ("ADB Charter"),which provides that: "Article 56 EXEMPTION FROM TAXATION 1. The Bank, its assets, property, income and its operations and transactions, shall be exempt from all taxation and from all customs duties. The Bank shall also be exempt from any obligation for the payment, withholding or collection of any tax or duty. 2. No tax shall be levied on or in respect of salaries and emoluments paid by the Bank to Directors, alternates, officers or employees of the Bank ,including experts performing missions for the Bank, except where a member deposits with its instrument of ratification or acceptance a declaration that such member retains for itself and its political subdivisions the right to tax salaries and emoluments paid by the Bank to citizens or nationals of such member. " (Emphases Supplied) Subsequently, on March 16, 1966, Senate Resolution No. 6 was issued where the Philippine Government ratified and confirmed the ADB Charter but categorically included a reservation of the Philippines' right to tax the Filipino employees of the ADB, viz .: "NOW THEREFORE, be it known that I, FERDINAND E. MARCOS, President of the Republic of the Philippines, having seen and considered the Agreement Establishing the Asian Development Bank done on December 4, 1965 at Manila, Philippines, do hereby in pursuance of the aforesaid concurrent of the Senate of the Philippines, ratify and confirm the said Agreement and every article and clause thereof, subject to the reservation that the Philippines declares that it retains for itself and its political subdivision the right to tax salaries and emoluments paid by the Bank to citizens or nationals of the Philippines. " (Emphases supplied) From the foregoing, petitioner primarily argues that the use of the word "reservation" in the above declaration means that the power to tax Filipino nationals working in the ADB is still uncertain, meaning, it may or may not be exercised by the Philippine Government. Considering that the Philippine Congress has not enacted any statute specifically granting the government the authority to exercise its right to tax, which was reserved by the President, it therefore goes without saying that without any express positive act from the Congress, the exemption under the ADB Charter is not controverted and must stand. Furthermore, petitioner also claims that this Court should take judicial notice of the Decision of the RTC Branch 213 of Mandaluyong City which declared Section 2 (d) (1) of RMC No. 31-2013 unconstitutional. Thus, having satisfied all requirements for claiming a tax refund, namely: (1) she has opted to claim the excess payment via refund or tax credit by checking the appropriate box in her ITR; (2) she filed a written claim for refund or tax credit with the BIR, stating her legal and factual bases; (3) the claim was filed within the prescriptive period prescribed by law; (4) she erroneously or illegally paid the taxes, which was evidenced by tax return or declaration and an official receipt or acknowledgment receipt by the receiving government agency or office or its authorized agent banks; (5) a petition for review was filed before this Court within the prescriptive period prescribed by law; and (6) there is no deficiency tax assessment against the taxpayer, petitioner is entitled to the amount claimed for refund. More so, aside from the basic tax, petitioner believes that she is likewise entitled to the payment of interest on the tax sought to be refunded. TAIaHE Unfortunately, this Court finds petitioner's arguments untenable. The issue involved in the present case is not novel. There are already a substantial number of cases 27 decided by this Court on the subject matter at hand. Noticeably, RMC No. 31-2013 made reference to Section 45 of Article XII of the AGREEMENT BETWEEN THE ASIAN DEVELOPMENT BANK AND THE GOVERNMENT OF THE REPUBLIC OF THE PHILIPPINES REGARDING THE HEADQUARTERS OF THE ASIAN DEVELOPMENT BANK 28 ("ADB Headquarters Agreement" for brevity),regarding the right of the Philippine Government to tax Filipino ADB employees. Accordingly, while it is true that the ADB Headquarters Agreement provides tax exemption to the salaries and emoluments of its officers and employees, the Agreement nonetheless, recognizes, the right of the Philippines to tax the salaries and emoluments paid by the ADB to its citizens or nationals. By making such recognition, it is evident that the Philippine Government reserves its right to impose tax on its nationals. Stated differently, if it was really the intention of the Philippine Government to exempt from taxation the salaries or emoluments that its citizens or nationals would derive from the ADB, a full ratification of the ADB Charter could have been made, without retaining its right to tax its citizens or nationals. Relative thereto, the NIRC of 1997, as amended, a subsequent legislation which took effect on January 1, 1998, is the law that enables the enforcement of the reservation clauses found in Senate Resolution No. 6 and Section 45 (b) of the ADB Headquarters Agreement. Sections 23 (A) and 24 (A) (1) (a) of the NIRC of 1997, as amended, leave no room for doubt that resident citizens are subject to tax on income derived from all sources within and without the Philippines, to wit: " SEC. 23 . General Principles of Income Taxation in the Philippines . Except when otherwise provided in this Code: (A) A Citizen of the Philippines residing therein is taxable on all income derived from sources within and without the Philippines ; xxx xxx xxx." (Emphasis Supplied) " SEC. 24. Income Tax Rates . (A) Rates of Income Tax on Individual Citizen and Individual Resident Alien of the Philippines . (1) An income tax is hereby imposed: (a) On the taxable income defined in Section 31 of this Code, other than income subject to tax under Subsections (B), (C) and (D) of this Section, derived for each taxable year from all sources within and without the Philippines by every individual citizen of the Philippines residing therein; " (Emphasis Supplied) Apparently, under the above-cited provisions of the tax code, income of individual resident citizens from all sources within and without the Philippines are subject to tax. Being such, in the absence of a specific grant of tax-exemption, the salaries and emoluments received by Filipino employees of the ADB are generally taxable. As a matter of fact, in the case of IRISH FE N. AGUILAR, MAJELLA R. CANZON, ARLENE B. CHAVEZ, HELEN B. CRUDA, MARIA AMPARO M. DATO, MARIAN L. LAGMAY, VERGEL K. LATAY, PRINCESS O. LUBAG, RUTH C. MANGROBANG, SHEILA MARIE F. MARIANO, AND ARLENE P. PORRAS vs. COMMISSIONER OF INTERNAL REVENUE , 29 where herein petitioner is one of the petitioners therein, this Court had the opportunity to discuss taxability of Philippine nationals employed by ADB, to wit: "It is evident from the foregoing that the tax exemption granted to ADB personnel is not absolute based on the following phrases stated in the afore-quoted Agreements: 'except where a member x x x retains for itself and its political subdivisions the right to tax salaries and emoluments paid by the Bank to citizens or nationals of such member' and 'subject to the power of the Government to tax its nationals.' We find the said phrases to be an express reservation on the part of the Philippine government to tax the salaries and emoluments paid by the ADB to Philippine citizens or nationals. The word 'reservation' is defined as follows: 'The establishment of a limiting condition or qualification; esp.,a nation's formal declaration, upon signing or ratifying a treaty, that its willingness to become a party to the treaty is conditioned on the modification or amendment of one or more provisions of the treaty as applied in its relations with other parties to the treaty.' Had it been the intention of the Philippine Government to exempt from income tax the salaries or emoluments that its citizens or nationals would derive from ADB, then it could have stated it in a language clearly pointing towards that intent, without any declaration as to the retention or reservation of its right to tax the Filipino employees of ADB." (Citations Omitted) As to petitioner's claim that this Court should take judicial notice of the Decision of the RTC and the Resolution of the Court of Appeals, it must be noted however that the RTC decision is not a binding precedent that forms part of the Philippine legal system. cDHAES In the case of COMMISSIONER OF INTERNAL REVENUE vs. SAN ROQUE POWER CORPORATION; TAGANITO MINING CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE; and PHILEX MINING CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE , 30 the Supreme Court explained what constitutes a binding precedent, to wit: "x x x Let it be admonished that decisions of the Supreme Court 'applying or interpreting the laws or the Constitution ...form part of the legal system of the Philippines,' and, as it were, 'laws' by their own right because they interpret what the laws say or mean. Unlike rulings of the lower courts, which bind the parties to specific cases alone, our judgments are universal in their scope and application, and equally mandatory in character. Let it be warned that to defy our decisions is to court contempt." Also worth mentioning, RMCs are issuances that publish pertinent applicable portions, as well as amplifications of laws, rules, regulations and precedents issued by the BIR and other agencies/offices. 31 It bears repeating that RMCs are considered administrative rulings (in the sense of more specific and less general interpretations of tax laws) which are issued from time to time by the CIR. It is widely accepted that the interpretation placed upon a statute by the executive offices, whose duty is to enforce it, is entitled to great respect by the courts. 32 Stated differently, RMCs merely interprets and clarifies an existing statute. In this case, the NIRC of 1997, as amended and the ADB Charter are the existing statutes which the RMC interprets and clarifies. The tax-exempt status was not disturbed, the issuance of RMC No. 31-2013 is merely clarificatory and seeks to correctly implement what should have been implemented in before. In the case entitled SPOUSES MICHAEL GAVIN RICHARD L. DE LOS REYES AND JENNIFER C. CO-DE LOS REYES vs. COMMISSIONER OF INTERNAL REVENUE , 33 this Court upheld the validity and implementation of RMC No. 31-2013 but, however, merely qualified that it would be in keeping with justice and equity if the said RMC be applied prospectively beginning calendar year 2013, thus: "While it can be argued that RMC No. 31-13 is a mere interpretation of existing law and should thus be applied even to the compensation income of petitioners for CY 2012, the Court holds that it should be applied prospectively in the interest of justice and equity. Consequently, the income of resident citizens employed by foreign governments and/or international organizations should only be subjected to income tax beginning CY 2013, the year RMC No. 31-13 took effect. x x x Hence, it would be in keeping with justice and equity for the implementation of RMC No. 31-13 to begin prospectively and to apply to compensation income earned by petitioners beginning CY 2013. In sum, compensation income of resident citizens is subject to the graduated income tax rates unless expressly exempted under treaty. With the Philippines' reservation in the ADB Charter to the effect that it maintains the right to subject to income tax the compensation of resident citizens employed by the ADB, the rule then is that resident citizens employed by foreign governments and/or international organizations, such as ADB, are subject to the graduated income tax rates under Section 24 (A) of the 1997 NIRC. However, considering RMC No. 31-13 was issued in CY 2013, the same should be made to apply prospectively in the interest of justice and equity. Hence, compensation income of resident citizens employed by foreign governments and/or international organizations shall only be subject to income tax beginning CY 2013." In fine, in the similar cases of Leah Empesando, et al. vs. Commissioner of Internal Revenue 34 and Erwin Casaclang vs. Commissioner of Internal Revenue (RDO 041 Mandaluyong City) , 35 this Court likewise held that the income of resident citizens employed by foreign governments and/or international organizations should only be subjected to income tax beginning calendar year 2013, the year RMC No. 31-2013 took effect. In view of the foregoing, considering that the instant case pertains to compensation income earned by petitioner in the calendar year 2013 the year that RMC No. 31-2013 has already taken effect, this Court finds that there is no erroneous payment of taxes made in the instant case. ASEcHI WHEREFORE ,premises considered, the instant Petition for Review is hereby DENIED for lack of merit. SO ORDERED. (SGD.) CIELITO N. MINDARO-GRULLA Associate Justice Erlinda P. Uy, J. ,concurs. Roman G. del Rosario, P.J. ,with Separate Concurring Opinion. Separate Opinions DEL ROSARIO , P.J.,separate concurring opinion : I concur in the result of the ponencia of my esteemed colleague, the Honorable Associate Justice Cielito N. Mindaro-Grulla, in denying the Petition for Review for lack of merit. The present Petition for Review was filed pursuant to Section 229 of the National Internal Revenue Code (NIRC) of 1997, as amended, due to the alleged inaction of the Bureau of Internal Revenue on petitioner's claim for refund of income tax erroneously paid for taxable year 2013. The ponencia denied the Petition for Review as it finds that there is no erroneous payment of taxes made in the present case since it pertains to compensation income earned by petitioner in the calendar year 2013, which is the year that Revenue Memorandum Circular (RMC) No. 31-2013 has already taken effect. The ponencia cited the case of Spouses Reyes vs. Commissioner of Internal Revenue (CIR) , 1 where it was declared by the CTA Third Division that while RMC 31-2013 is a mere interpretation of existing law, the same should be applied prospectively, in keeping with justice and equity. While the ponencia aptly denied the Petition for Review, I do not, however, share the same reason for its denial that is the case pertains to compensation income earned by petitioner in the calendar year 2013, the year that RMC 31-2013 has already taken effect . To my mind, there is no basis to hold that the income received by a resident citizen from the Asian Development Bank (ADB) is subject to income tax beginning the year 2013 only, when RMC 31-2013 took effect, in keeping with justice and equity, as in truth, equity, which has been described as "a justice outside legality," is applied only in the absence of, and never against, statutory law . 2 Taxation of salaries and emoluments paid by ADB to its officers and employees who are resident citizens is not anchored on the application of RMC 31-2013, but based on Section 24 (A) (1) (a) of the NIRC of 1997, as amended. This point was elaborated in the unanimous Decision of the CTA First Division in Garcia vs. CIR , 3 viz .: "Resident citizens who are officers and employees of ADB are subject to income tax on salaries and emoluments they receive from ADB xxx xxx xxx Evidently, the ADB Charter provides a tax exemption provision with respect to the salaries and emoluments paid by ADB to its officers and employees, but the same also contains a proviso wherein a member-country may opt to retain its right to tax the salaries and emoluments paid by ADB to the citizens or nationals of such member-country which declaration must be made in the instrument of ratification or acceptance. Similarly, the ADB Headquarters Agreement recognizes the tax exemption privilege of ADB officers and employees but said Agreement also declares in no uncertain terms that the same is subject to the power of the Government to tax its nationals. ITAaHc Pursuant to Article 56 (2) of the ADB Charter, the Philippine government made a specific declaration, when it ratified and confirmed the ADB Charter, through Senate Resolution No. 6, that it is retaining its right to tax the salaries and emoluments paid by ADB to its citizens and nationals. Said declaration of the Philippine government's right to tax its citizens is categorical in the proviso 'subject to the reservation that the Philippines declares that it retains for itself and its political subdivision the right to tax salaries and emoluments paid by the Bank to citizens or nationals of the Philippines.' xxx xxx xxx In this case, in interpreting the pertinent provision of the ratification document of the ADB Charter, the Court finds that the word 'reservation' must not be read or interpreted in isolation. Instead, the phrase that followed it 'that the Philippines declares that it retains for itself and its political subdivision the right to tax salaries and emoluments paid by the Bank to citizens or nationals of the Philippines' must be considered in order to ascertain its meaning. Furthermore, in interpreting the word 'reservation,' it should be done not in its usual or ordinary sense, but more importantly, by the legal definition it bears and the way in which it was used in Senate Resolution No. 6: The 1969 Vienna Convention on the Law of Treaties defines 'reservation' as: 'Article 2 Use of Terms 1. For the purposes of the present Convention: xxx xxx xxx (d) 'reservation' means a unilateral statement, however phrased or named, made by a State, when signing, ratifying, accepting, approving or acceding to a treaty, whereby it purports to exclude or to modify the legal effect of certain provisions of the treaty in their application to that State;' (Boldfacing supplied). On the other hand, Black's Law Dictionary (8th edition) defines 'reservation' as: 'The establishment of a limiting condition or qualification; esp. a nation's formal declaration, upon signing or ratifying a treaty, that its willingness to become a party to a treaty is conditioned on the modification or amendment of one or more provisions of the treaty as applied in its relations with other parties to the treaty.' As can be gleaned from the above-mentioned definitions, the term 'reservation' refers to the formal declaration made by the State upon signing or ratifying the treaty which states the conditions for its agreement thereto. As afore-stated, the word reservation must be read in the whole context in which it was written in Senate Resolution No. 6. Taken as a whole, the entire provision 'subject to the reservation that the Philippines declares that it retains for itself and its political subdivision the right to tax salaries and emoluments paid by the Bank to citizens or nationals of the Philippines' clearly means that the Philippine government, at the time of the ratification of the ADB Charter, already opted to reserve and retain its right to tax the salaries that will be paid by ADB to its citizens and nationals. The entire provision means that despite the tax exemption granted to ADB officers and employees, the Philippine government chose to maintain and preserve its right to tax its own citizens or nationals. Truth to tell, there is nothing in the ratification document which would suggest, even remotely, that the Philippine government has granted tax exemption to its citizens or nationals with respect to salaries and emoluments paid by ADB. Had it been the intention of the Philippine government to exempt from income tax the salaries or emoluments that its citizens or nationals would derive from ADB, a full ratification of the ADB Charter could have been made, without any declaration as to the retention of its right to tax its citizens or nationals. CHTAIc xxx xxx xxx In the absence of a specific grant of income tax exemption, the Court holds that salaries and emoluments received by officers and employees of ADB who are resident citizens or nationals of the Philippines are subject to income tax pursuant to Section 24(A)(1)(a) of the NIRC of 1997, as amended . Hence, petitioner's income tax payment for salaries and emoluments received from ADB for the taxable year 2012 was not illegally or erroneously collected by the BIR, hence, it cannot be the proper subject of refund under Section 229 of the NIRC of 1997, as amended. Taxation of salaries and emoluments paid by ADB to its officers and employees who are resident citizens is not anchored on the retroactive application of RMC 31-2013 xxx xxx xxx As afore-discussed, resident citizens or nationals of the Philippines who are working with ADB are taxable on their income from all sources, including those income derived from ADB. To emphasize, the taxability of the income they received from ADB is not dependent on the validity or invalidity of RMC 31-2013 as the same is based on existing provisions of the NIRC of 1997, as amended, in relation to the treaty and/or agreement between the Philippine government and ADB . Irrespective of the existence of RMC 31-2013, the obligation of resident citizens or nationals to pay income tax on salaries and emoluments paid to them by ADB commenced on the taxable year that they were employed by ADB. xxx xxx xxx Lastly, petitioner also claims that since the ratification of the ADB Charter in 1966, or for almost fifty (50) years, ADB employees have never been subjected by the BIR to income tax until the issuance of RMC 31-2013 on April 12, 2013. The Court holds that the failure of the BIR to collect income tax from ADB employees who are resident citizens does not per se justify the non-implementation of existing legislations nor result in the absurd construction that pertinent tax laws are deemed repealed. While non-payment of taxes cannot be considered as custom, yet, even if so Article 11 of the Civil Code provides that '[C]ustoms which are contrary to law, public order or public policy shall not be countenanced.' Thus, the alleged long-standing practice of the BIR of not subjecting to income tax the salaries and emoluments derived by resident citizens from their employment with ADB is not sufficient to exempt them from payment of said tax." (Emphases in the original removed; Boldfacing with underscoring supplied for new emphasis) On the basis of the foregoing pronouncement, I submit that petitioner has not made an erroneous payment of income tax in 2013 since her income from ADB was properly subjected to income tax pursuant to Section 24 (A) (1) (a) of the NIRC of 1997, as amended. All told, I CONCUR in the result. Footnotes 1. Docket, pp. 10-26. 2. Paragraph 1, Stipulated Facts, Joint Stipulation of Facts and Issues (JSFI), ibid ,p. 157-162. 3. Par. 3, id . 4. BIR Form No. 1700 for individuals earning purely compensation income and BIR Form No. 1701 for individuals earning both business and compensation income. 5. Par. 4, id . 6. Exhibit "P-4". 7. Exhibit "P-7". 8. Exhibit "P-5". 9. Supra No. 1. 10. Docket, pp. 45-55. 11. Ibid. ,pp. 56-57. 12. Id .,pp. 58-64. 13. Id .,pp. 138-140. 14. Id .,pp. 157-162. 15. Id .,p. 164. 16. Id .,pp. 167-172. 17. Id .,pp. 65-72. 18. Id. ,pp. 325-332. 19. Id. ,pp. 400-401. 20. Minutes of the Hearing, id .,pp. 402-403. 21. Docket, pp. 407-437. 22. Id .,p. 438. 23. Id .,p. 440. 24. Issue, JSFI, id .,p. 158. 25. See Par. 4, Stipulated Facts, JSFI, Docket, p. 158. 26. Executed on December 4, 1965. 27. Licel Calderon, et al. vs. Commissioner of Internal Revenue , CTA Case No. 9090, March 27, 2018; Spouses Michael Gavin Richard L. de Los Reyes and Jennifer C. Co-de Los Reyes vs. Commissioner of Internal Revenue , CTA Case No. 9088, October 19, 2017; Cristeta May Galang, et al. vs. Commissioner of Internal Revenue , CTA Case No. 9081, August 30, 2017; Anthony Ortile Tuason vs. Commissioner of Internal Revenue , CTA Case No. 9041, February 23, 2017; Edzen Jogie B. Garcia vs. Commissioner of Internal Revenue , CTA Case No. 9075, February 9, 2017. 28. Dated December 22, 1966. 29. CTA Case No. 9073, December 1, 2017. 30. G.R. Nos. 187485, 196113, and 197156, February 12, 2013; citing , The Philippine Veterans Affairs Office vs. Brigida V. Segundo ,G.R. No. L-51570, August 15, 1988. 31. https://www.bir.gov.ph/index.php/revenue-issuances/revenue-memorandum-circulars.html. 32. See Philippine Bank of Communications vs. Commissioner of Internal Revenue ,G.R. No. 112024, January 28, 1999. 33. CTA Case No. 9088, October 19, 2017. 34. CTA Case No. 9093, September 17, 2013. 35. CTA Case No. 9091, August 6, 2018. DEL ROSARIO, P.J.,concurring opinion: 1. CTA Case No. 9088, October 19, 2017. 2. Causapin vs. Court of Appeals ,G.R. No. 107432, July 4, 1994. 3. CTA Case No. 9075, February 9, 2017; penned by Presiding Justice Roman G. Del Rosario and concurred by Associate Justices Erlinda P. Uy and Cielito N. Mindaro-Grulla.