Commissioner of Internal Revenue v. Rizal Commercial Banking Corp.

EIGHTH DIVISION [CA-G.R. SP. No. 57721. August 21, 2001.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . RIZAL COMMERCIAL BANKING CORPORATION , respondent . D E C I S I O N BELLO , E.R. , JR. , J p : Before Us is a petition for review of the decision of the Court of Tax Appeals (CTA) dated January 4, 2000 in CTA Case No. 5409. Said decision ordered the Commissioner of Internal Revenue to refund or issue a Tax Credit Certificate to Rizal Commercial Banking Corporation (RCBC) in the amount of P257,318.94 allegedly representing overpaid gross receipts tax (GRT) payments for the 2nd, 3rd, and 4th quarters of 1994. A Motion for Reconsideration of the said decision was filed by the petitioner, but it was denied by the CTA on February 21, 2000. The facts of the case, as found by the CTA, are as follows: "Petitioner is a domestic corporation duly registered with the Securities and Exchange Commission and authorized by the Bangko Sentral ng Pilipinas to engage in the general banking business. Records show that Petitioner filed its Quarterly Percentage Tax Return for the first, second, third, and fourth quarters of taxable year 1994 on April 20, 1994, July 20, 1994, October 20, 1994 and January 20, 1995 respectively. (Exhibits A, B, C, D). Said Tax Return reflected petitioner's gross receipts in the form of interest, commissions, and discounts from its lending activities, as well as the gross receipts tax payable in the following amounts: GROSS RECEIPTS GRT PAYABLE First Qtr. P657,667,019.61 (Exh. A-1) P30,183,544.26 (Exh. A-2) Second Qtr. 640,402,167.57 (Exh. B-1) 28,462,590.00 (Exh. B-2) Third Qtr. 700,764,725.98 (Exh. C-1) 32,531,976.44 (Exh. C-2) Fourth Qtr. 524,790,714.38 (Exh. D-1) 23,640,820.79 (Exh. D-2) TOTAL P2,523,624,627.54 P114,318,931.49 ============== ============= Petitioner alleges that in the computation of its total gross receipts for each of the quarters of the taxable year 1994, it included the 20% final tax withheld at source on its passive income which amount to P332,930,650.11 (Exh. F). Claiming that it had overpaid its gross receipts tax for 1994 to the extent of the GRT imposed on its final withholding tax on its passive income, petitioner through its counsel, filed on July 19, 1996 with the BIR, an administrative claim for refund (Exh. E) of overpaid GRT for 1994 in the total amount of P3,329,306.50 computed as follows: Gross Receipts Subjected to Final Tax Derived from Passive Investments P332,930,650.11 Final Withholding Tax Rate x 20% 20% Final Tax Withheld at Source P66,586,130.02 GRT Rate x 5% Overpaid GRT P3,329,306.50 ============= On the same day it filed its administrative claim for refund on July 19, 1996, petitioner filed the instant Petition for Review before this Court lest it be barred by the mandatory two (2) year prescriptive period under Section 230 of the Ta x Co de (now Section 229 of the N IRC of 199 7)." ( Rollo, pages 20-21 ) Although the respondent RCBC claimed a total amount of P3,329,306.50, only P257,318.94 was ordered to be refunded to it through the CTA's decision dated January 4, 2000. According to the CTA, only the latter amount was properly substantiated and legally refundable. (Rollo, page 30) The dispositive portion of the said decisions 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 P257,318.94 representing overpaid GRT payments for the 2nd, 3rd and 4th quarters of 1994. SO ORDERED." (Rollo, page 31) On January 14, 2000, a motion for reconsideration of the above decision was filed by herein petitioner but the same was denied by the CTA on February 21, 2000, hence this appeal. Presented to Us for resolution is the sole issue of "whether respondent is entitled to the refund of the amount of P257,318.94 allegedly representing overpaid GRT payments for the 2nd, 3rd and 4th quarters of 1994." (Rollo, page 10) In the assailed decision, the CTA threshed out the controversy as follows: "The issue of whether or not the gross receipts, for purposes of computing the GRT, shall be net or exclusive of 20% final withholding tax is well settled. Thus, in focus once again is the decision of this Court in the case of Asian Bank Corporation vs. CIR, CTA Case No. 4720 dated January 30, 1996 answering in the affirmative the first issue involved in the case at bar. We do not intend to depart from the wisdom of said case which is hereunder quoted, to wit: "We agree with the petitioner that the 20% final withholding tax on its interest income should not form part of its taxable gross receipts. xxx xxx xxx This conclusion is in accord with the interpretation of the Supreme Court in the case entitled Collector of Internal Rev enue vs. Manila Jo ckey Club, 108 Phil. 821, as quoted by this Court in disposing of a similar issue in the case entitled Compania Maritima vs. Acting Commissioner of Internal Revenue, CTA Case No. 1426 dated November 14, 1996, thus: In the second place, the highest tribunal of the land interpreted the term: 'gross receipts' to mean 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. Thus, it was held: '. . . The Government could not have meant to tax as gross receipt of the Manila Jockey Club the % which it directs same Club to turn over to the Board of Races. The latter being a government institution, there would be double taxation, which should be avoided unless the statute admits of no other interpretation. In the same manner, the Government could not have intended to consider as gross receipt the portion of the funds which it directed the Club to give, or know the Club would give, to winning horses and Jockeys admitted 5%. It is true that the law says that out of the total wager funds 12% shall be set aside as the 'commission' of the track owners but the law itself takes official notice, and virtually approves or directs payment of the portion that goes to owners of horses as prized and bonuses of jockeys, which portion is admittedly 5% out of the 12% commission. As it did not at that time contemplate the application of 'gross receipts' revenue principle, the law in making a distribution of the total wager funds, took no trouble of separating one item from the other; and for convenience, grouped three items under one common denomination. 'Needless to say, gross receipts of the proprietor of the amusement place should not include any money which although delivered to the amusement place has been especially earmarked by law or regulation for some person other than the proprietor.' (The Commissioner of Internal Revenue vs. Manila Jockey Club, Inc. G.R. Nos. L-13890 and L-13887, June 30, 1960) It is to be noted that, under Section 260 of the Tax Code, a race-track is subject to an amusement tax of 20% of its gross receipts and the term 'gross receipts' embraces all the receipts of the proprietor, lessee, or operator of the amusement place. Notwithstanding the broad and all-embracing definition of the term 'gross receipts' found in our amusement tax law, our Supreme Court did not adopt a literal interpretation of the said term in the case of the Manila Jockey Club, Inc., supra." (Rollo, pages 24-26; emphasis supplied) We fully agree with the Court of Tax Appeals. The 20% final withholding tax on interest income was not collected for the respondent bank's benefit. It was collected by the respondent merely as an agent of the government. As held by the highest tribunal in the case of Bank of America NT & SA versus Court of Appeals (234 SCRA 302) , "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 (sic) no more than an agent of the government for the collection of the tax in order to ensure its payment," In other words, the respondent bank was merely utilized by the government as a collecting agent in order to guarantee that all interest earned by a bank's client is duly taxed, and that the same is collected and remitted to the government. The same could be deduced from the following provision of the Tax Code which imposes the tax in question: Sec. 24. Rates of tax on domestic corporations . xxx xxx xxx (e) tax on certain incomes derived by domestic corporations. (1) Interest from deposits and yield or any other monetary benefit from deposit substitutes and from trust fund and similar arrangements, and royalties . Interest on the Philippine currency bank deposits and yield or any other monetary benefit from deposit substitutes and from trust fund and similar arrangements received by domestic corporations, and royalties, derived from sources within the Philippines, shall be subject to a 20% tax . . . ." [now (27) (b) (1) of the 1997 National Internal Revenue Code (NIRC)], A perusal of the above provision would show that what is being taxed is the interest earned by the depositor, and not the collecting bank itself. It is, thus, evident, that the bank merely act as an intermediary between the bank client and the government. No profit is gained by the bank by its act of collecting the withholding taxes. In the case of Commissioner of Internal Revenue versus Tours Specialists, Inc., et al., (183 SCRA 402) , it was settled that "gross receipts subject to tax under the Tax Code do not include monies or receipts entrusted to the taxpayer which do not belong to them and do not redound to the taxpayer's benefit; and it is not necessary that there must be a law or regulation which would exempt such monies and receipts within the meaning of gross receipts under the Tax Code." Thus the 20% withholding tax collected by the respondent bank must not be considered a part of the latter's gross receipts. Since the amount of taxes paid by respondent bank included the 20% withholding tax in the computation of the 5% Gross Receipts Tax, We say that, indeed, the respondent bank is entitled to a refund, as computed by the Court of Tax Appeals. While it is true that the taxes are the lifeblood of the government and should be collected without unnecessary hindrance, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. (Marcos II versus Court of Appeals, 273 SCRA 47). Furthermore, no less than the Supreme Court, in the case of Commissioner of Internal Revenue versus Court of Appeals, et al., (G.R. No. 115349, April 18, 1997) citing the case of Commissioner of Internal Revenue versus Wander Philippines, Inc. (24 SCRA 198) held that: "as a matter of principle, this court will not set aside the conclusion reached by . . . the Court of Tax Appeals which is, by the very nature of its function, dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise on the subject unless there has been an abuse or improvident exercise of authority . . ." Seeing no cogent reason to depart from the assailed CTA decision, We resolve to affirm the same. WHEREFORE, the instant petition is hereby DENIED for lack of merit. SO ORDERED. Labitoria and Tirona JJ ., concur.