Commissioner of Internal Revenue v. Union Bank of the Phils.

FOURTH DIVISION [CA-G.R. SP No. 54286. September 19, 2003.] COMMISSIONER. OF INTERNAL REVENUE , petitioner , vs . UNION BANK OF THE PHILS. , respondent . D E C I S I O N JACINTO , J p : Union Bank of the Philippines is a corporation duly registered with the Securities and Exchange Commission and authorized by the Bangko Sentral ng Pilipinas to engage in general banking operations. As such banking institution, it is subject to percentage tax on its gross receipts under Section 121 in relation to Section 32 of the National Internal Revenue Code (Tax Code). In 1994 and 1995, Union Bank filed Quarterly Percentage Tax Returns and paid gross receipt taxes (GRT), as follows: PhP15,443,611.33 for the 2nd Quarter of 1994; PhP21,431,077.23 for the 3rd Quarter of 1994; PhP19,572,519.51 for 4th Quarter of 1994; PhP19,683,823.89 for the 1st Quarter of 1995; PhP23,191,121.58 for the 2nd Quarter of 1995; PhP24,930,760.12 for the 3rd Quarter of 1995; and PhP21,736,752.12 for the 4th Quarter of 1995. In the computation of these taxes, the twenty percent (20%) final taxes on the passive incomes of Union Bank which were previously withheld at source were treated as part of the gross receipts (pp. 9, 4950 and 5662, rollo ). In a Decision dated January 30, 1996 in the case of "Asian Bank Corporation versus Commissioner of Internal Revenue" (CTA Case No. 4720 or Asian Bank case), the Court of Tax Appeals (CTA) granted the claim for refund of Asian Bank of a portion of its GRT. The CTA held therein that the 20% final withholding tax on certain passive incomes of a bank should not form part of the taxable gross receipt. It cited Revenue Regulation No. 12-80 dated November 7, 1980 which provides that the rates of taxes to be imposed on the gross receipts of financial institutions shall be based only on items of income actually received. It also drew heavily from the ruling in Collector of Internal Revenue vs. Manila Jockey Club (108 Phil. 821 [1960]) and its own decision in Compania Maritima vs. Acting Commissioner of Internal Revenue (CTA No. 1426 dated November 14, 1996) (as cited in the pp. 47 of the April 29, 1999 CTA Decision; pp. 3437, rollo ). Invoking the January 30, 1996 CTA Decision in the Asian Bank case, Union Bank filed with the Commissioner of Internal Revenue (CIR) on July 19, 1996 a claim for refund or tax credit in the amount of PhP4,973,900.38 in GRT for the last three quarters of 1994 and the four quarters of 1995. Without awaiting the decision of the CIR, Union Bank filed a Petition for Review with the CTA (p. 46, rollo ). Union Bank alleged that in its Quarterly Percentage Tax Returns for said periods, it erroneously included as part of the tax base PhP99,478,007.50 representing, in the aggregate, the 20% final taxes withheld at source on its gross receipts of PhP497,390,037.50. This amount of PhP99,478,007.50 was subjected to a 5% gross receipts tax in the amount of PhP4,973,900.38. Citing the CTA ruling in the Asian Bank case, Union Bank maintained that the amount of PhP4,973,900.38 is an overpayment because the PhP99,478,007.50 from which it was derived should not have been treated as part of its gross receipts as it did not actually receive this amount for the same was earmarked as taxes to the government (pp. 4952, rollo ). The CIR opposed the claim for refund/tax credit of Union Bank (pp. 6466, rollo ). The CTA denied the petition even as it held that the same was on all fours with the Asian Bank case. In its Decision dated April 29, 1999, the CTA held that the claim for refund/tax credit had prescribed and that there are discrepancies in the computations on which the claim was based (pp. 3742, rollo ). Associate Judge Amancio Saga differed from the majority opinion on the matter of the applicability of the Asian Bank case. He insisted that the ruling in the Asian Bank case has no basis in law or jurisprudence (pp. 4344, rollo ). Union Bank filed a Motion for Reconsideration of the April 29, 1999 CTA Decision. It argued that its petition was actually filed on July 19, 1996 or on the penultimate day of the two-year prescriptive period of its claim. It also reconciled certain discrepancies in its computations (pp. 68 and 7376, rollo ) In a Resolution dated July 23, 1999, the CTA granted in part Union Bank's Motion for Reconsideration. It held: ACCORDINGLY, the decretal portion of the assailed Decision is hereby MODIFIED, to read as follows: "IN THE LIGHT OF ALL THE FOREGOING, the instant Petition for Review is PARTIALLY GRANTED. Respondent is hereby ORDERED to REFUND or ISSUE a TAX CREDIT CERTIFICATE to herein Petitioner in the amount of P3,630,310.51, representing Petitioner's proven overpaid gross receipts taxes for the period April 1, 1994 to December 31, 1995. No costs." (p. 29, rollo ). The CTA explained: It is clearly represented by Petitioner in the instant motion that its GRT payments under the Treasury Department for the last three (3) quarters of 1994 is only P4,740,696.47 and P16,453,263.61 for the four (4) quarters of 1995. The Court deemed it necessary to deduct from these total the amounts of P1,305,651.02 and P1,736,756.50 representing Petitioner's GRT payments on Total Fees and Commissions, Trading Gain and Miscellaneous Income for both years as these amounts were not claimed by Petitioner in the instant petition. Thus, the GRT payments on passive interest income for the periods in question totalled only P18,151,552.56. . . , the Court was able to arrive at the conclusion that indeed Petitioner is entitled to a partial grant of the relief sought (pp. 2829, rollo ). Associate Judge Amancio Saga maintained his dissent (p. 30, rollo ). Before us now is the herein appeal interposed by the CIR, by way of Petition for Review, from the July 23, 1999 CTA Resolution. In this appeal, we are tasked to resolve whether or not the CTA erred in partially granting the claim for refund of respondent Union Bank on the basis of the ruling in Collector of Internal Revenue v. Manila Jockey Club (supra) and Revenue Regulation No. 12-80, as cited in the CTA ruling in the Asian Bank case (pp. 1316 and 103105, rollo ). We find merit in this petition. Recent developments in jurisprudence have overtaken the issue in this case. To begin with, the CTA has already abandoned its ruling in the Asian Bank case. In Far East Bank and Trust Co. v. CIR (CTA Case No. 5679, November 16, 2001), the CTA held that the final withholding tax forms part of the bank's gross receipts in computing the gross receipts tax and that Revenue Regulations No. 12-80 did not prescribe a contrary mode of computation. The exclusion of the final withholding tax from Gross receipts operates as an exemption not provided in any law or regulation. More importantly, the very same issue was passed upon by the Supreme Court in the consolidated cases of China Banking Corporation versus Court of Appeals, Court of Tax Appeals and Commissioner of Internal Revenue (G. R. No. 146749, June 10, 2003). In the aforesaid cases, China Banking Corporation (CBC) had filed a claim for refund/tax credit of PhP1,140,623.82 in gross receipts tax on sums withheld by the Bangko Sentral ng Pilipinas as final withholding tax on its passive interest income in 1994. Relying on the CTA ruling in the Asian Bank case, CBC argued that the sums withheld do not form part of its gross receipts and should not have been subject to gross receipts tax. The Supreme Court affirmed the denial of the claim for refund/tax credit of CBC. It held that from the time the tax on gross receipts of banks was first imposed on October 1, 1946 under Republic Act No. 39 up to the present, there has been no statutory definition of "gross receipts." Absent such definition, the Bureau of Internal Revenue (BIR) has applied the term in its plain and ordinary meaning. First, in National City Bank vs. Collector of Internal Revenue (BTA Case No. 52 [1952]) where the tax court held that gross receipts mean the whole amount received as interest without deductions for if deductions from gross receipts are allowed, it will mean net receipts. This ruling was cited by the CTA in the Far East Bank and Standard Bank cases where it abandoned its ruling in the Asian Bank case. And second, in several revenue regulations, specifically Revenue Regulations Nos. 12-80 and 17-84, the BIR interpreted the term "gross receipts" to mean without deductions. This interpretation of the BIR has been adopted by the legislature through the subsequent re-enactments of what is now Section 121 of the Tax Code, without changes in the term as construed by the BIR. Such interpretation therefore has met legislative approval by re-enactment. The Supreme Court further held that the policy behind the gross receipts tax is to simplify tax collection and to assure a steady source of state revenue even during periods of economic slowdown. Such policy will be defeated if deductions, exemptions or exclusions will be allowed to complicate tax collection. Hence, the gross receipt tax shall apply to the entire receipts without deductions, exemptions and exclusions, unless the law itself clearly provides otherwise. No such exception has been made under any law, jurisprudence or regulation that would authorize deduction from the gross receipts of sums withheld as final tax. Section 121 of the Tax Code itself even expressly subjects to gross receipts tax the entire interest income of banks without any deduction. The deduction allowed in CIR vs. Manila Jockey Club (supra) cannot extend to banks because, unlike the Manila Jockey Club, they own the interest income which is the source of payment of the final withholding tax. The government becomes the owner of the money constituting the final tax only when the banks pay the final withholding tax to extinguish their obligation to the government. Before that, the banks own the money because they have actually received the same, whether physically or constructively. Finally, Revenue Regulation No. 12-80 does not distinguish between interest income actually received from that which has merely accrued for purposes of determining gross receipts. This regulation merely allows interest income to be subject to gross receipts tax upon actual receipt while deferring the inclusion of accrued interest income from the gross receipts until the actual payment thereof. Besides, Revenue Regulation 12-80 has been superseded by Revenue Regulation No. 17-84 dated October 12, 1984 which requires interest income of banks, whether actually received or merely accrued, to form part of taxable gross receipts. It is this regulation, not Revenue Regulation No. 12-80, which should have been applied in 1996 by the CTA in the Asian Bank case. IcEACH Applying now the foregoing ruling of the Supreme Court (G. R. No. 146749, June 10, 2003 and G. R. No. 147938, June 10, 2003) to the present case, we hold that there is no legal basis to support the July 23, 1999 Resolution of the Court of Tax Appeals allowing the claim for refund/tax credit of respondent. WHEREFORE, the foregoing premises considered, the petition is GRANTED and the assailed resolution of the Court of Tax Appeals is SET ASIDE. SO ORDERED. Asuncion and Bersamin, JJ., concur.