Commissioner of Internal Revenue v. Court of Tax Appeals

SPECIAL SIXTH DIVISION [CA-G.R. SP No. 20482. September 26, 1990.] THE COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . THE COURT OF TAX APPEALS and EFREN P. CASTAEDA , respondents . D E C I S I O N CAMILON , J p : Private respondent was Revenue Attach in the Philippine Embassy in London, England, until his automatic retirement under the provisions of Section 12(c) of Commonwealth Act 186, as amended. At retirement, private respondent received, among other benefits, the sum of P100,116.45 representing the value of his accrued terminal leave. From this amount, the Commissioner of Internal Revenue withheld a tax of P12,567.13. Private respondent filed a claim of refund but before it can be resolved had his recourse with the Court of Tax Appeals. Respondent Court resolved the claim in a decision dated February 4, 1987 with this dispositive part "In view of the foregoing, petitioner Efren P. Castaeda is entitled to the refund of, and respondent Commissioner of Internal Revenue is hereby ordered to refund the sum of P12,557.13 withhold as income tax due from said petitioner's accumulated unused leaves in the taxable year 1983." The Commissioner of Internal Revenue appealed to the Supreme Court, his appeal docketed as G.R. No. 80320. However, in a resolution dated April 2, 1990, the Supreme Court ruled that final judgments or decrees of the Court of Tax Appeals are within the exclusive appellate jurisdiction of the Court of Appeals, and accordingly, referred the case to this Court for disposition. The case was declared submitted for decision upon the pleadings filed with the Supreme Court. The Solicitor General, in a manifestation dated September 26, 1989, has asked that the en banc resolution of the Supreme Court on August 10, 1989 in G.R. No. 83176. "Commissioner of Internal Revenue vs. O.R. Victoriano and the Court of Tax Appeals" be considered in resolving this case. The ruling in that case is "In view of the fact that the terminal leave pay of respondent former Presiding Justice of the Court of Appeals, Oscar R. Victoriano is part of his salary, the Court resolved to GRANT the petition and thus allow the imposition of the withholding tax thereon." The Victoriano case finds no application to this case. In A.M. No. 90-6-015-SC "Re: Request of Atty. Bernardo P. Zialcita For Reconsideration of the Action of the Financial and Budget Office," the Supreme Court held on August 23, 1990 "In the case of Justice Victoriano, the terminal leave pay he received when he applied for optional retirement had been converted into vacation and sick leave with commutation of salary which forms part of his regular salary subject to income tax . . . " It appears in this case that the cash value of private respondent's terminal leave was paid to him upon retirement, and as argued by him it "is part and parcel of the tax-free privilege and benefit accorded a retiring employee, along-side with the other tax-free privileges . . ." In said A.M. No. 90-6-015-SC, the Supreme Court held " . . . the terminal leave pay that Atty. Zialcita received by virtue of his compulsory retirement can never be considered a part of his salary subject to the payment of income tax but falls under the phrase 'other similar benefits received by retiring employees and workers', within the meaning of Sec. 1 of PD No. 220 and is thus exempt from the payment of income tax. That the money value of his accrued leave credits is not a part of his salary is further buttressed by Sec. 3 of P.D. No. 985, otherwise known as 'The Budgetary Reform Decree on Compensation and Position Classification of 1976' particularly Sec. 3(a) thereof, which makes it clear that the actual service is the period of time for which pay has been received, excluding the period covered by terminal leave ." Applying the ruling to this case, the Court dismisses the appeal cum petition for review and the decision of the Court of Tax Appeals dated February 4, 1987 ordering the refund to private respondent of the sum of P12,557.13 which was deducted from his terminal leave pay as withholding tax is AFFIRMED. No costs. SO ORDERED. Santiago and Ordoez-Benitez, JJ ., concur.