Philippine National Bank v. Commissioner of Internal Revenue

EIGHTH DIVISION [CA-G.R. SP No. 53301. June 18, 2001.] PHILIPPINE NATIONAL BANK , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondents . D E C I S I O N BELLO , E.R., JR. , J p : Before Us is a petition for review of (1) a decision rendered by the Court of Tax Appeals (CTA) dated March 15, 1999 in CTA Case No. 5530, denying petitioner Philippines National Bank's (PNB) claim for refund of taxes erroneously withheld in the amount of P1,182,760.52; and (2) CTA Resolution dated May 27, 1999 denying petitioner's motion for reconsideration of the aforesaid CTA decision. The facts of the case are simple and undisputed. Sometime in 1994, PNB forged an agreement with Philamcare Health Systems, Inc. (Philamcare, for brevity). The said agreement bound the latter to provide health care services to the former's employees and their qualified dependents under PNB's comprehensive health care maintenance program. Corresponding membership fees were paid by PNB from its employees' health care maintenance benefits granted under the PNB Provident Fund and the bank's basic hospitalization benefits for bank personnel. In 1995, PNB subjected the Philamcare membership fees to 5% premium tax, as mandated by Republic Act 1051. It deducted from its payment to Philamcare the total amount of P1,182,760.52 which amount was remitted to the Bureau of Internal Revenue (BIR). Through a letter dated June 15, 1995, Philamcare informed the PNB that the tax withholding it performed has no basis. For one, such deduction was not agreed upon in the Health Care Agreement executed by the two parties. Secondly, the membership fees it collects are not insurance premiums, and thus, should not subjected to the 5% premium tax which Section 121 of the National Internal Revenue Code (NIRC) imposes upon insurance premiums. Acting accordingly PNB refunded the amount of P1,076,266.77 to Philamcare. DTEAHI The PNB proceeded to file a claim for a refund of the P1,182,760.52 with the respondent Commissioner of Internal Revenue (Commissioner, for brevity) on July, 1996. Said amount represents the 5% premium taxes which PNB withheld from the membership fees it previously paid to Philamcare. In June of 1997, PNB elevated its claim for refund to the Court of Tax Appeals (CTA) through a petition for review docketed as CTA Case No. 5530, in compliance with the two (2) year reglementary period provided under then section 230 (now section 229) of the Revenue Code within which a party claimant is required to file a suit in court. This move was resorted to by PNB due to failure of the respondent Commissioner to resolve the said claim for refund within the 2-year reglementary period. The issues raised in the petition for review, as culled by the CTA from the pleading submitted, are the following: "1. Whether or not Philamcare is an insurance company; and if in the negative; 2. Whether or not petitioner is entitled to its claim for refund/issuances of tax credit in the amount of P1,182,760.52." ( Rollo, p . 109 ) On March 15, 1999, the CTA promulgated its decision denying PNB's claim for refund. Its dispositive portion stated: "WHEREFORE, in view of the foregoing, the instant Petition for Review is hereby DENIED due to the insufficiency of evidence, and the absence of Philamcare as a necessary party." ( Rollo, p . 115 ) In reaction to the above decision, the PNB filed a Motion for Reconsideration and Reopening of Trial dated March 31, 1999. Annexed to the motion was a letter from Insurance Commissioner Eduardo T. Malinis, and we quote: "April 12, 1999 Mr. MICHAEL P. PASAGUI, Manager Philippine National Bank PNB Financial Center Roxas Boulevard Manila Sir: Further to our letter of March 29, 1999, please be advised that the Insurance Commission has no regulatory and supervisory control over health maintenance organizations like Philamcare Health Systems, Inc. Pursuant to Executive Or der No. 1 19 the supervision of health maintenance organizations is vested upon the Department of Health. ECaSIT Very truly yours, EDUARDO T. MALINIS Insurance Commissioner" ( Rollo, p . 124 ) The said motion contained the following prayer: "WHEREFORE, Petitioner respectfully prays of the Honorable Court of Tax Appeals that the Decision dated March 15, 1999 be considered and set aside, and the trial of the case be reopened for the introduction in evidence of the opinion of the Insurance Commission concerning the actual status of health maintenance organizations vis-a-vis Section of the Insurance Code, and thereafter, that another Decision be rendered as prayed for in the petition." ( Rollo, p . 122 ) On May 27, 1999, a resolution was issued by the CTA, the dispositive portion of the same reads: "ACCORDINGLY, in view of the foregoing, the instant Motion for Reconsideration and Reopening of Trial is hereby DENIED for lack of merit. SO ORDERED." ( Rollo, p . 131 ) PNB now raises the following issues: "1. WHETHER OR NOT THE HEALTH CARE SERVICES WHICH PHILAMCARE HEALTH SYSTEMS, INC. AGREED TO RENDERED FOR PNB'S EMPLOYEES AND THEIR DEPENDENTS ARE IN SUBSTANCE AN INSURANCE ACTIVITY, HENCE, PHILAMCARE'S FEES ARE INSURANCE PREMIUMS SUBJECT TO THE WITHHOLDING (SIC) 5% PREMIUM TAX. 2. WHETHER OR NOT THE COURT OF TAX APPEALS IS IN A POSITION TO RULE ON PETITIONER'S CLAIM FOR REFUND OF THE WITHHOLDING 5% PREMIUM TAX EVEN IN THE ABSENCE OF PHILAMCARE AS PARTY LITIGANT. 3. WHETHER OR NOT PETITIONER IS ENTITLED TO THE REFUND OF THE WITHHOLDING 5% PREMIUM TAX." ( Rollo, p . 16 ) Of utmost importance to our discussion are the contents of the Health Care Agreement executed between PNB and Philamcare for the same would determine the nature of the contract entered into by Philamcare and PNB, that is, whether or not it should be categorized as an insurance contract. ATCEIc The proviso on benefits which a members may derive from the plan are enumerated under Section 5 of the Health Care Agreement. Pertinent portions are herein quoted, as follows: "xxx xxx xxx This Agreement provides for medical services subject to the exclusions, limitations provided for under Sections 8 and 9 respectively, and to the conditions herein specified. Hospitalization Benefits 1. In a case (sic) a Member suffers an ailment which requires hospitalization, he shall be entitled to the hospitalization benefits listed below: xxx xxx xxx 2. The abovementioned hospitalization benefits shall be available subject to the following conditions, except for emergency illness or injury wherein the Emergency Provisions of this Agreement shall apply: xxx xxx xxx Out-Patient Benefits 1. The Member shall be entitled to the out-patient benefits listed below: a. Annual Physical Examination (APE) xxx xxx xxx b. Out-Patient services xxx xxx xxx c. Preventive Health Care xxx xxx xxx" ( Rollo, pp . 53-56 ) In a nutshell, the Health Care Agreement undertakes to provide the covered parties and their dependents with medical services in the form of hospitalization, laboratory examinations, physical examinations, routine check-ups and consultations. In availing of the aforementioned services, the member shall not be required to shell-out any money. It is only when there is no affiliated hospital within a 50 km. radius from the bank office of the principal member shall mere reimbursement be made for expenses incurred due to hospitalization and other medical services of the member and his dependent. cIECaS This, we believe, is different from the nature of services and benefits which an insurance company promises to give its clients through a contract of insurance. What now is a contract of insurance? A contract of insurance is an "agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event." (Section 2(1), The Insurance Code) The elements of a contract of insurance are the following: (1) The insured possesses an interest of some kind susceptible of pecuniary estimation, known as insurable interest; (2) The insured is subject to a risk of loss through the destruction or impairment of that interest by the happening of designated perils; (3) The insurer assumes that risk of loss; (4) Such assumption is part of a general scheme to distribute actual losses among a large group of persons bearing somewhat similar risks; (5) As consideration for the insurer's promise, the insured makes a ratable contribution, called a premium, to a general insurance fund. ( Agbayani, Comments and Jurisprudence on the Commercial Laws of the Philippines, Vol . 2 (1991), p . 6 , citing Vance, pp . 1-2 ) An examination of the subject Health Care Agreement leads us to conclude that it is not an insurance contract within the contract of our existing Insurance Code. It is of foremost importance that a member may take advantage of the benefits under the Health Care Agreement even in the absence of any loss or damage on his part. At any given time, he may avail of physical examinations, laboratory tests, medical consultations, vaccine administration, as well as family planning counseling, among others. (Rollo, pp. 55-57). TESICD American jurisprudence likewise supports our stance that PNB's contract with Philamcare should not be considered an insurance agreement. The case of California Physician's Service vs. Garrison (29 AmJur 40; 28 Cal 2d 790, 172 P 2d 4, 167 ALR 306) declared that "generally speaking, a corporation whether or not organized for profit, the object of which is to provide the members of a group with medical services and hospitalization, is considered not engaged in the insurance business and hence, not subject to the insurance laws ." (emphasis supplied) Add to this fact that the operation of Health Maintenance Organizations (HMOs) like Philamcare were placed under the supervision of the Department of Health by virtue of Executive Order No. 119, and not under the Insurance Commission. In view of the above considerations, we hold that the P1,182,760.52, representing 5% premium taxes withheld by petitioner PNB from its Philamcare membership fees was erroneously remitted to the Bureau of Internal Revenue for the said fees are not subject to premium taxes. WHEREFORE, the instant Petition is hereby GRANTED. The assailed Decision of the Court of Tax Appeals dated March 15, 1999, and its Resolution dated May 27, 1999, are hereby REVERSED and SET ASIDE. The respondent Commissioner of Internal Revenue is hereby ordered to refund, or in the alternative, to issue a tax credit certificate, to petitioner PNB, in the amount of P1,182,760.52. SO ORDERED. Labitoria and Tirona, JJ . , concur.