Commissioner of Internal Revenue v. China Banking Corp.

THIRTEENTH DIVISION [CA-G.R. SP No. 50790. October 16, 2000.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . CHINA BANKING CORPORATION , respondent . D E C I S I O N VIDALLON-MAGTOLIS , J p : Assailed in this petition for review is the Decision of the Court of Tax Appeals (CTA) dated September 30, 1998 1 , as well as its Resolution dated January 15, 1999 2 dismissing the petitioner's Motion for Reconsideration thereof. The decretal portion of the aforesaid Decision reads: "WHEREFORE, in view of the foregoing, judgment is hereby rendered ordering the respondent to REFUND or ISSUE a tax credit certificate in the reduced amount of P123,778.73 representing overpaid GRT payments for the second quarter of 1994. The remaining amount claimed by petitioner is DENIED for insufficiency of evidence. "SO ORDERED." It should be noted that the roles of the parties are reversed in the CTA, in that the herein petitioner was the respondent therein, while the herein respondent was then the petitioner. The facts of the case as found by the court are as follows: "This case involves a claim for refund in the amount of P1,140,623.82 representing alleged overpaid gross receipts tax paid for the second quarter of 1994. "Petitioner is a universal banking institution duly organized and existing in accordance with the laws of the Philippines. On July 20, 1994, petitioner paid the aggregate amount of P12,354,933.00 as gross receipts tax for its income derived from interest on loans investments, commissions, service and collection charges, foreign exchange profit and other operating earnings for the second quarter of 1994. "On January 30, 1996, this Court rendered a Decision in CTA Case No. 4720 entitled Asian Bank Corporation vs. Commissioner of Internal Revenue wherein it was held that 20% final withholding tax on a bank's interest income should not form part of its taxable gross receipts. "Thus, on the basis of this decision, the petitioner, on July 19, 1996, filed a written claim for refund or tax credit with the respondent in the amount of P1,140,623.82, representing the 5% gross receipts tax on the 20% final withholding tax. Likewise, on the very same day, petitioner filed the instant petition for review in order to beat the two-year prescriptive period provided for under Section 230 of the Tax Code. "In her Answer, respondent gave her usual defenses such as: the claim for refund is undergoing administrative investigation; that the gross receipts tax were collected and paid pursuant to law and pertinent BIR regulations, etc. It was in her Memorandum that the respondent challenged this Court's decision in the case of Asian Bank vs. Commissioner of Internal Revenue, CTA Case No. 4720 which served as the basis of petitioner's claim for refund. Respondent opines that this Court's ruling in the Asian Bank case which excluded the 20% final withholding tax from the bank's gross receipts, is erroneous because the term 'gross receipts' contemplates all items of income of the petitioner regardless of whether or not the same were allocated for a specific purpose. According to respondent, the term 'gross receipts' means whole, entire receipts as opposed to 'net receipts.' 3 SCaTAc On September 30, 1998, the CTA promulgated the questioned Decision, to which petitioner filed a Motion for Reconsideration dated October 20, 1998. 4 The motion, however, was dismissed for lack of merit. Hence, this petition for review where the sole issue as defined by the petitioner is as follows: WHETHER THE RESPONDENT IS ENTITLED TO THE REFUND OF THE AMOUNT OF PHP 127,778.73 AS ALLEGED OVERPAID GROSS RECEIPTS TAX FOR THE SECOND QUARTER OF 1994. Asserting the dissenting opinion of Judge Amancio Saga of the Tax Court, the petitioner argues that there is no legal basis for excluding the 20% withholding tax from the gross receipts in computing the 5% gross receipts tax. On the other hand, the respondent reiterates that there exists a legal basis for the exclusion of the 20% withholding tax from the gross receipts in computing the 5% gross receipts tax as aptly discussed in the questioned decision. We find for the respondent. The imposition of the 5% gross receipts tax is based on the following provision of the National Internal Revenue Code: "Section 119. Tax on banks and non-bank financial intermediaries. 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 discount 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 two (2) years but not exceeding four (4) years 3% Long-term maturity - (i) over four (4)years but not exceeding seven (7) years 1% (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% Provided, however, That in case the maturity period is shortened thru pretermination, then the maturity period shall be reckoned to end as of the date of pretermination for purposes of classifying the transaction as short-medium or long-term and the correct rate of tax shall be applied accordingly. Nothing in this Code shall preclude the Commissioner from imposing the same tax herein provided on persons performing similar financial activities." The tax imposed on the aforequoted provision of law is based on the gross receipts whether derived from banking or non-banking operations. "Gross receipts" is not the same as "gross earnings". "Receipts" means amount actually received . 5 This was made clear in Revenue Regulations No. 12-80 dated November 7, 1980 governing taxation of certain income derived from banking activities, the pertinent provisions of which read: "Sec. 3. Imposition of Tax . The following taxes on income shall be imposed: "(a) . . . "(c) Gross receipts tax (1) On banks and non-bank financial intermediaries The rates of taxes to be imposed gross receipts derived by banks and non-bank financial intermediaries are as follows: Kinds of Income Rates (A) On interest, commissions and discount from lending activities as well as income from financial leasing, on the basis of remaining maturities of instruments from which such receipts are derived (i) Short maturity in excess of two (2) years 5% (ii) Medium-term maturity over two (2) years but not exceeding seven (7) years 3% (iii) Long term maturity over four (4) years but not exceeding seven years 1% (iv) Exceeding seven (7) years 0% (B) On dividends 0% (C) On royalties, rentals or property, real or personal, profit from exchange and all other items treated as gross income under the Tax Code 5% xxx xxx xxx "Sec. 4. Manner of Computation of Tax Base . For all purposes of Section 3 above tax bases of the following taxes shall be computed in the following manner: "(a) . . . (e) Gross receipts tax on banks, non-bank financial intermediaries, financing companies shall be based on all items of income actually received . Mere accrual shall not be considered, but once payment is received on such accrual or in cases of prepayment, then the amount actually received shall be included in the tax base of such financial institutions, as provided hereunder: . ." As aptly observed by the CTA, considering that the questioned 20% final tax was not actually received by the respondent but went to the coffers of the government, the same should not form part of the taxable base of the respondent's gross receipts for the purpose of computing the 5% gross receipts tax (GRT). WHEREFORE, the decision is appealed from is hereby AFFIRMED in toto . SO ORDERED. Regino and Tria Tirona, JJ., concur. Footnotes 1. Rollo , pp. 28-47. 2. Id ., at pp. 48-49-A. 3. Decision, pp. 1-2; Id . at pp. 28-29. 4. Id ., at pp. 62-69. 5. National Internal Revenue Code Annotated, Hector S. de Leon, 1994 ed., p. 487.