Commissioner of Internal Revenue v. Rizal Commercial Banking Corp.

FIRST DIVISION [CA-G.R. SP No. 59524. December 27, 2000.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . RIZAL COMMERCIAL BANKING CORPORATION , respondent . D E C I S I O N DACUDAO , J p : Assailed in this petition for review under Rule 43 of the 1997 Rules of Civil Procedure is the Decision 1 dated January 26, 2000 of the Court of Tax Appeals (CTA) in CTA Case No. 5516, entitled "Rizal Commercial Banking Corporation (RCBC) v. Commissioner of Internal Revenue," ordering the Commissioner of Internal Revenue to refund or issue a Tax Credit Certificate to RCBC in the amount of P797,929.70, allegedly representing overpaid gross receipts tax (GRT) for the four quarters of 1995; and the Resolution 2 dated June 13, 2000 denying herein petitioner's motion for reconsideration of the aforesaid decision. The facts, as found by the CTA, 3 are undisputed, thusly "Petitioner (RCBC) is a corporation duly organized and existing under and by virtue of Philippine laws and is engaged in general banking business. "During the year 1995, petitioner, pursuant to Section 119 of the Tax Code imposing a tax on gross receipts derived from sources within the Philippines by all banks and non-financial intermediaries, filed its Quarterly Percentage Tax Returns detailed as follows: "Exhibit Date Filed Period Covered Gross Receipts Tax Paid "A. April 20, 1995 Jan.March 1995 P541,537,248.06 P24,083,728.50 "B. July 20, 1995 Apr.June 1995 850,678,408.12 39,799,657.71 "C. Oct. 20, 1995 JulySept. 1995 789,957,154.13 36,938,561.29 "D. Jan. 22, 1996 Oct.Dec. 1995 755,339,549.73 35,175,811.39 '"TOTAL: P2,937,512,360.04 P135,997,738.89 ============ ========== "Part of Petitioner's gross receipts subjected to the gross receipts tax included interest income or yield derived from passive investments amounting to P353,105,103.33 (Exh. F), inclusive of the 20% final withholding tax. Petitioner, citing this Court's decision in CTA Case No . 4720 entitled 'Asian Bank Corporation vs . Commissioner of Internal Revenue' promulgated last January 30, 1996 , where We ruled that the 20% final withholding tax on interest income should not form part of taxable gross receipts, it filed on April 16, 1997 a claim for refund with the Bureau of Internal Revenue of its overpaid gross receipts tax for the year 1995 in the amount of P3,531,051.03 (Exh. E), computed as follows: "Gross receipts derived from passive investment subjected to the final tax P353,105,103.33 x 20% "20% Final Tax Withheld at Source P70,621,020.66 x 5% "Overpaid 5% Gross Receipt Tax P3,531,051.03 "The following day, that is, on April 17, 1997, the instant Petition for Review was filed in order to toll the running of the two-year prescriptive period. "In his Answer, Respondent (BIR Commissioner) claimed by way of Special and Affirmative Defenses that: "6. Petitioner has no clear right to a refund. "7. In an action for refund of taxes, it is incumbent upon the taxpayer to show that the taxes paid were erroneously or illegally collected. Failure to meet this burden is fatal to the action for refund. In the instant case, petitioner has not shown any evidence that the tax claimed was erroneously or illegally collected. "8. Moreover, as a claim for refund partakes of the nature of an exemption, it cannot be allowed unless granted in the most explicit and categorically language." So it was that the CTA on January 26, 2000 handed down the assailed decision, 4 the decretal portion of which stipulates, to wit "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 P797,929.70 representing overpaid GRT payment for the four quarters of 1995. The remaining amount claimed is DENIED for insufficiency of evidence. "SO ORDERED. "(SGD.) RAMON O. DE VEYRA "Associate Judge" Herein petitioner moved for reconsideration 5 of this judgment, but this motion was by the CTA denied in a Resolution dated June 13, 2000. 6 Hence, the present recourse, with petitioner now submitting the following grounds for review. "1. The Tax Court erred in holding that the 20% final withholding tax on bank's interest income should not form part of the taxable gross receipts in computing the 5% GRT. "2. The Tax Court erred in holding that the inclusion of the 20% final withholding tax on bank's interest income in the taxable gross receipts in computing the 5% GRT, constitutes double taxation in the prohibited sense." 7 The sole issue to be resolved in this case is whether or not the twenty percent (20%) final withholding tax on interest income forms part of the taxable gross receipts subject to the gross receipts tax (GRT). There is no dispute or debate that the assessment for the gross receipts is based on Section 121 (formerly Section 119) of the National Internal Revenue Code (NIRC), which provides thusly "SEC. 12. Tax on Banks and Non-Bank Financial Intermediaries . There shall be collected on 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 discounts 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 "(1) Over four (4) years but not exceeding seven (7) years 1% "(2) Over seven (7) years 0% "(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 32 of this Code 5% "Provided, however, That in case the maturity period referred to in paragraph (a) is shortened thru pre-termination, then the maturity period shall be reckoned to end as of the date of pre-termination 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 banking activities." Banks are thus imposed a tax on gross receipts from interest, commissions and discounts at the rate aforementioned. In Collector of Internal Revenue v. Manila Jockey Club, 8 the Supreme Court construed 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 other person other than the taxpayer. Upon the other hand, Section 27 (D), par. 1 of the New NIRC provides that interest income of domestic corporations is subject to a 20% tax, to wit "(D) Rates of Tax of Certain Passive Incomes . "(1) Interest from Deposits and Yield or any other Monetary Benefit from Deposit Substitutes and from Trust Funds and Similar Arrangements, and Royalties . A final tax at the rate of twenty percent (20%) is hereby imposed upon the amount of interest on currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements received by domestic corporations, royalties, derived from sources within the Philippines . . ." In the case at bench, respondent RCBC, on the basis 9 of the CTA's decision in Asian Bank Corporation v. Commissioner of Internal Revenue, 10 claimed for refund for its alleged overpaid gross receipts for the year 1995, or in the alternative. asked that it be issued a Tax Credit Certificate. The Tax Court, in granting respondent RCBC's claim, and in holding that the 20% final withholding tax should not form part of the taxable gross receipts in computing the 5% GRT, based its ruling on the two cases it decided, to wit: "Asian Bank Corporation v. Commissioner of Internal Revenue," 11 and "Citytrust Investment Philippines." 12 Both cases were elevated to this Court, and the CTA's judgment in the former was reversed by this Court's Thirteenth Division, in CA-G.R. SP No. 51248, promulgated on November 22, 1999, while the latter was affirmed by this Court's Sixth Division, in CA-G.R. SP No. 52707, promulgated on August 17, 1999. However, both cases are still pending review before the Supreme Court. Noteworthy is the ratiocination of this Court's Sixth Division in affirming the CTA's ruling in Commissioner of Internal Revenue v. Citytrust Investment ( supra ), thusly "We agree with the petitioner that 20% of the final withholding tax on its interest income should not form part of its taxable gross receipts. "Revenue-Regulations No. 12-80 dated November 7, 1980 on Taxation of Certain Income Derived from Banking Activities provides that the rates of tax to be imposed on the gross receipts such financial institution shall be based on all items of income actually received . "From the foregoing, it is but logical to infer that the final tax, not having been received by the petitioner but instead went to the coffers of the government, should no longer form part of its gross receipts for the purpose of computing the GRT. xxx xxx xxx "Accordingly, the 20% final tax withheld against the Respondent's passive income was already remitted to the Bureau of Internal Revenue, for the corresponding year that the same was actually withheld, and considered final withholding taxes under Section 50 of the same Code. Indubitably, to include the same to the Respondent's gross receipts for the year 1994 would be to tax twice the passive income derived by the Respondent for the said year, which would constitute double taxation anathema to our taxation laws." However, the same issue was resolved by this Court in another case entitled, "Asian Bank Corporation v. Commissioner of Internal Revenue" ( supra ), whereby the Thirteenth Division departed from this Court's earlier verdict, thusly "It is true that Revenue Regulation No. 12-80 provides that the gross receipts tax on banks and other financial institutions should be based on all items of income actually received. Actual receipt here is used in opposition to mere accrual. Accrued Income refers to income already earned but not yet received. "But receipt may be actual or constructive. Article 531 of the Civil Code provides that possession is acquired by the material occupation of a thing or the exercise of a right, or by the fact that it is subject to the action of one will, or by the proper acts and legal formalities established for acquiring such right. Moreover, taxation-income may be received by the taxpayer himself or by someone authorized to receive it for him. The 20% final tax withheld from interest income of banks and other similar institutions is not income that they have not received; it is simply withheld from them and paid to the government, for their benefit. Thus the 20% income tax withheld from the interest income is, in fact, money of the taxpayer bank but paid by the payor to the government in satisfaction of the bank's obligation to pay the tax on interest earned. It is the bank's obligation to pay the tax. Hence, the withholding of the said tax and its payment to the government is for its benefit. "In the case of Bank of America NT & SA vs. Court of Appeals, 234 SCRA 302, the Supreme Court has pointed out that "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 no more than an agent of the government for the collection of the tax in order to ensure its payment. Obviously, the amount thereby used to settle the tax liability is deemed sourced from the proceeds constitutive of the tax base. Since the payee, not the payor, is the real taxpayer, the rule on constructive remittance (or receipt) can be easily rationalized, if not, indeed, made clearly manifested. "The case of Collector of Internal Revenue vs. Manila Jockey Club, supra , is inapplicable. In that case, a percentage of the gross receipts to be collected by the Manila Jockey Club was earmarked by law to be turned over to the Board of Races and distributed as prizes among owners of winning horses and authorized bonus for jockeys. The Manila Jockey Club itself derives no benefit at all from earmarked percentage. That is why it cannot be considered as part of its gross receipts." Considering the opposing views that this Court has taken upon this issue, we deem it best to stay the judgment of the Court of Tax Appeals pending a more definitive resolution by the Supreme Court on the issue raised in the two cases aforementioned, which is determinative of the case at bench. WHEREFORE, in view of the foregoing, judgment is hereby rendered staying the judgment of the Court of Tax Appeals dated January 26, 2000. SO ORDERED. Montoy and Adefuin-Dela Cruz, JJ . , concur. Footnotes 1. Penned by Associate Judge Ramon O. de Veyra, concurred in by Presiding Judge Ernesto D. Acosta; Associate Judge Amancio Q. Saga, dissenting. 2. Rollo , pp. 35-36. 3. Pp. 1-3 of CTA Decision; Rollo , pp. 21-23. 4. Annex A; Rollo , pp. 21-34. 5. Annex E; Rollo , pp. 57-60. 6. Annex B; Rollo , pp. 35-36. 7. P. 5 of Petition for Review; Rollo , p. 11. 8. 108 Phil. 821. 9. Rollo , p. 40. 10. CTA Case No. 4720, promulgated on January 30, 1996. 11. P. 3 of CTA Decision; Rollo , p. 23. 12. P. 5 of CTA Decision; Rollo , p. 25.