Commissioner of Internal Revenue v. Asianbank Corporation

THIRTEENTH DIVISION [CA-G.R. SP CASE NO. 51248. November 22, 1999.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . ASIANBANK CORPORATION , respondent . D E C I S I O N HOFILEA, H .L. , J p : This is a petition for review of the Decision of the Court of Tax Appeals in CTA Case No. 5412, the dispositive portion of which is as follows: WHEREFORE, in view of the foregoing, the instant petition for review is partially GRANTED. Respondent is hereby ORDERED to REFUND in favor of petitioner the reduced amount of P1,345,743.01 as overpaid gross receipts tax for the quarters ending June 30, 1994 up to June 30, 1996. SO ORDERED." The facts are undisputed. The respondent, a domestic banking corporation, applied with the Bureau of Internal Revenue for a refund of alleged overpaid gross receipts tax for the taxable quarters ending June 30, 1994 to June 30, 1996 in the aggregate amount of P2,022,485.78. The day after it filed its claim for refund, in order to toll the running of the two-year prescriptive period, the respondent filed a Petition for Review with the Court of Tax Appeals pursuant to section 30 of the National Internal Revenue Code, as amended. The respondent alleged that the tax base for the gross receipts tax it paid for the period involved included the 20% final withholding tax paid on interest income it earned from investments, interbank call lendings, and deposits. Hence, it overpaid its gross receipts tax in the amount stated above. In deciding the said claim, the Court of Tax Appeals, with Judge Amancio Q. Saga dissenting, reiterated its previous ruling in C.T.A Case No. 4720 entitled Asian Bank Corporation vs. Commissioner of Internal Revenue, that the 20% final withholding tax on the bank's interest income should not form part of taxable gross receipts for purposes of computing the gross receipts tax. However, the tax court ordered the refund of P1,345,749.01 only, because that was the only amount that respondent was able to prove. Not content with the C.T.A.'s decision, the Commissioner of Internal Revenue filed the instant petition for review, on the following grounds: "(1) There is no provision of law which excludes the 20% final income tax withheld under Section 50(a) of the Tax Code in the computation of the 5% gross receipts tax. cdlex (2) The Tax Court erred in applying the ruling in Collector of Internal Revenue vs. Manila Jockey Club (108 Phil. 821) in the resolution of the legal issue of whether or not the 20% final withholding tax on bank's interest income should form part of taxable gross receipts for purposes of computing the gross receipts tax." The respondent replies that there is no legal basis for the petitioner's claim because the 20% final withholding tax was not received by the respondent. That, to Us, is the crux of the matter. Section 119 of the N.I.R.C. provides that "There shall be collected a tax on gross receipts derived from sources within the Philippines by all banks and non-bank financial intermediaries in accordance with the following schedule: (a) On interest, commissions and discounts from lending activities, as well as income from financial leasing, on the basis of remaining maturities of instruments from which such receipts are derived: Short-term Maturity (not in excess of two [2] years) 5% Medium-term Maturity (over [2] years but not exceeding four [4] years 3% Long-term Maturity (i) over four (4) years but not exceeding seven (7) years 1% (ii) over seven (7) years 0% (b) On dividends 0% (c) On royalties, rentals of property, real or personal profits from exchange and all other items treated as gross income under Section 28 of this Code 5%" If the 20% final withholding tax on interest income is part of the gross receipts by the respondent bank, then it should be subject to the 5% gross receipts tax. Otherwise it is not subject to the said tax. The respondent contends that it did not receive the said 20% final income tax withheld because it did not take possession or control of the same, nor accepted custody of nor collected the same. The C.T.A., citing Collector of Internal Revenue vs. Manila Jockey Club, 108 Phil. 821, posits that "gross receipts" means "all receipts of a taxpayer excluding those which have been especially earmarked by law or regulation for the government or some person other than the taxpayer". The tax court also cites Section 4 of Revenue Regulation No. 12-80 which provides that "the rates of taxes to be imposed on the gross receipts of such financial institutions shall be based on all items of income actually received. Mere accrual shall not be considered." cdlex We find merit in the petition. It is true that Revenue Regulation No. 12-80 provides that the gross receipts tax on banks and other financial institutions should be based on all items of income actually received, Actual receipt here is used in opposition to mere accrual. Accrued Income refers to income already earned but not yet received (Rep. v. Lim Tian Teng sons & Co., 16 SCRA 584). But receipt may be actual or constructive. Article 531 of the Civil Code provides that possession is acquired by the material occupation if a thing or the exercise of a right, or by the fact that it is subject to the action of one will, or by the proper acts and legal formalities established for acquiring such right. Moreover, taxation-income may be received by the taxpayer himself or by someone authorized to receive it for him (Art. 532, Civil Code). The 20% final tax withheld from interest income of banks and other similar institutions is not income that they have not received, it is simply withheld from them and paid to the government, for their benefit. Thus the 20% income tax withheld from the interest income is, in fact, money of the taxpayer bank but paid by the payor to the government in satisfaction of the bank's obligation to pay the tax on interest earned. It is the bank's obligation to pay the tax. Hence the withholding of the said tax and its payment to the government is for its benefit. cdlex In the case of Bank of America NT & SA vs. Court of Appeals, 234 SCRA 302, the Supreme Court has pointed out that "In the operation of the withholding tax system, the payee is the taxpayer, the person on whom the tax is imposed, while the payor, a separate entity, acts no more than an agent of the government for the collection of the tax in order to ensure its payment. Obviously, the amount thereby used to settle the tax liability is deemed sourced from the proceeds constitutive of the tax base. Since the payee, not the payor, is the real taxpayer, the rule on constructive remittance (or receipt) can be easily rationalized, if not indeed, made clearly manifest." The case of Collector of Internal Revenue vs. Manila Jockey Club, supra, is inapplicable. In that case, a percentage of the gross receipts to be collected by the Manila Jockey Club was earmarked by law to be turned over to the Board of Races and distributed as prizes among owners of winning horses and authorized bonus for jockeys. The Manila Jockey Club itself derives no benefit at all from earmarked percentage. That is why it cannot be considered as part of its gross receipts. WHEREFORE, the C.T.A.'s judgment herein appealed from is hereby REVERSED, and judgment is hereby rendered DISMISSING the respondent's Petition for Review in C.T.A. Case No. 5412. SO ORDERED. Amin and Sabio, Jr., JJ. , concur.