Case Digests for Feb 20.docx

8/12/2019 Case Digests for Feb 20.docx

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respective fields." The Court cannot be compelled to set aside its decisions, unless there is afinding that the questioned decision is not supported by substantial evidence or there is a

showing of abuse or improvident exercise of authority.

d. Tax refunds partake the nature of tax exemptions which are a derogation of the power oftaxation of the State. Consequently, they are construed strictly against a taxpayer and liberally in

favor of the State. Regrettably, the petitioner in the case at bench failed to unequivocally prove

that it is entitled to a refund.


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China Banking v CIR

Facts:

1. CBC is a universal banking corporation organized and existing under Philippine law.2. CBC paid P12,354,933.00 as gross receipts tax in 1994.3. On 2006 CTA in Asian Bank Corporation v. Commissioner of Internal Revenue ruled that the 20% final

withholding tax on a banks passive interest income does not form part of its taxable gross receipts.4. CBC now claims for tax refund or credit of P1,140,623.82 from the P12,354,933.00 gross receipts tax that

CBC paid.

5. Citing Asian Bank, CBC argued that it was not liable for the gross receipts tax on the sums withheld by theBangko Sentral ng Pilipinas as final withholding tax on CBCs passive interest income in 1994.

6. Commissioner claimsa. that CBC paid the gross receipts tax pursuant to Section 119 (now Section 121) of the NIRC.b. that the final withholding tax on a banks interest income forms part of its g ross receipts in

computing the gross receipts tax.

c. the term gross receipts means the entire income or receipt, without any deduction.7. Ruling of CTA

a. CTA ruled in favor of CBC and held that 20% Final withholding tax on interest income does notform part of CBCs taxable gross income based on the Asian Bank ruling.

8. Ruling of CAa. CA affirmed the CTA ruling

Issues:

Whether the 20% final withholding tax on interest income should form part of CBCs gross receipts in

computing the gross receipts tax on banks?

Ruling:

The amount of interest income withheld in payment of the 20% final withholding tax forms part of CBCs

gross receipts in computing the gross receipts tax on banks.a. Definition of Gross Receipts

The Tax Code does not define the term gross receipts for purposes of the grossreceipts tax on banks. Absent a statutory definition, the BIR has applied the term in its

plain and ordinary meaning.

In ordinary terms gross receipts means the entire receipts without any deduction. Deducting any amount from the gross receipts changes the result, and the meaning, to

net receipts. Any deduction from gross receipts is inconsistent with a law that

mandates a tax on gross receipts, unless the law itself makes an exception.

Under Revenue Regulations Nos. 12-80 and 17-84, as well as in several numberedrulings, the BIR has consistently ruled that the term gross receipts does not admit of

any deduction. The interpretation has yet to be changed until the present tax code. The

legislature has adopted the BIRs interpretation, following the principle of legislative

approval by re-enactment.

The tax code does not define for gross receipts except for the amusement tax which isalso a business tax. It defines it as it embraces all receipts of the proprietor, lessee or

operator of the amusement place. The Tax Code further adds that *s+aid gross receipts

also include income from television, radio and motion picture rights, if any. This

definition merely confirms that the term gross receipts embraces the entire receipts


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without any deduction or exclusion, as the term is generally and commonly

understood.

b. Interest income forms part of Gross Receipts In Asian Bank, the Court of Tax Appeals held that the final withholding tax is not part of the

banks taxable gross receipts. In Collector of Internal Revenue v. Manila Jockey Club, which held that gross receipts of the

proprietor 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 tax court adopted the Asian Bank ruling in succeeding cases involving the

same issue.

CTA reversed its ruling in Asia Bank. In Far East Bank & Trust Co. v. Commissioner andStandard Chartered Bank v. Commissioner,it ruled that the final withholding tax forms part

of the banks gross receipts in computing the gross receipts tax. The tax court held that

Section 4(e) of Revenue Regulations No. 12-80 did not prescribe the computation of the

gross receipts but merely authorized the determination of the amount of gross receipts on

the basis of the method of accounting being used by the taxpayer. Section 121 of the Tax Code includes interest as part of gross receipts, it refers to the

entire interest earned and owned by the bank without any deduction. Interest means the

gross amount paid by the borrower to the lender as consideration for the use of the

lenders money. This definition does not allow any deduction. The entire interest paid by

the depository bank, without any deduction, is what forms part of the lending banks gross

receipts.

Manila Jockey Club paid amusement tax on its commission in the total amount of bets calledwager funds from the period November 1946 to October 1950. The Manila Jockey Club does

not apply to the cases at bar because what happened there is earmarking and not

withholding.Earmarking is not the same as withholding. Amounts earmarked do not form

part of gross receipts because these are by law or regulation reserved for some person otherthan the taxpayer, although delivered or received. On the contrary, amounts withheld form

part of gross receipts because these are in constructive possession and not subject to any

reservation

In the instant case, CBC owns the interest incomewhich is the source of payment of thefinal withholding tax. The government subsequently becomes the owner of the money

constituting the final tax when CBC pays the final withholding tax to extinguish its obligation

to the government. This is the consideration for the transfer of ownership of the money

from CBC to the government. Thus, the amount constituting the final tax, being originally

owned by CBC as part of its interest income, should form part of its taxable gross receipts.

CBC also relies on the Tax Courts ruling in Asian Bank that Section 4(e) of RevenueRegulations No. 12-80 authorizes the exclusion of the final tax from the banks taxable grossreceipts. Section 4(e) states that the gross receipts shall be based on all items of income

actually received. The Tax Court erred in interpreting Section 4(e) of Revenue Regulations

No. 12-80. Income may be taxable either at the time of its actual receipt or its accrual,

depending on the accounting method of the taxpayer. Thus, the interest income actually

received by the lending bank, both physically and constructively, is the net interest plus the

amount withheld as final tax.


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CBCs contention that it can deduct the final withholding tax from its interest incomeamounts to a claim of tax exemption. The cardinal rule in taxation is exemptions are highly

disfavored and whoever claims an exemption must justify his right by the clearest grant of

organic or statute law. CBC must point to a specific provision of law granting the tax

exemption. The tax exemption cannot arise by mere implication and any doubt about

whether the exemption exists is strictly construed against the taxpayer and in favor of thetaxing authority. CBC failed to cite any provision of law allowing the final tax as an

exemption,deduction or exclusion


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CIR v Bank of Commerce

Facts:

1. In 1994 and 1995, the respondent Bank of Commerce derived passive income in the form of interests ordiscounts from its investments in government securities and private commercial papers.

2. On several occasions during that period, it paid 5% gross receipts tax on its income.3. Included therein were the respondent banks passive income from the said investments amounting to P85M+, which had already been subjected to a final tax of 20%.4. Meanwhile, CTA held in the Case ASIA BANK CORP. VS CIR, that the 20% final withholding tax on interest

income from banks does not form part of taxable gross receipts for Gross Receipts Tax (GRT) purposes.

The CTA relied on Sec 4(e) of Revenue Regulations.12-80.

5. Relying on the said decision, the respondent bank filed an administrative claim for refund with theCommissioner of Internal Revenue on July 19, 1996. It claimed that it had overpaid its gross receipts tax

for 1994 to 1995 by P853K submitted its own computation

6. Before the Commissioner could resolve the claim, the respondent bank filed a petition for review with theCTA

7. CIR ANSWERED:a. The alleged refundable/creditable gross receipts taxes were collected and paid pursuant to law

and pertinent BIR implementing rules and regulations; hence, the same are not refundable.

b. Petitioner must prove that the income from which the refundable/creditable taxes were paidfrom, were declared and included in its gross income during the taxable year under review;

c. That the alleged excessive payment does automatically warrant the refund/credit. Claims for taxrefund/credit are construed in strictissimi juris against the taxpayer as it partakes the nature of

an exemption from tax and it is incumbent upon the petitioner to prove that it is entitled thereto

under the law. Otherwise refund will not be allowed.

8. CTA summarized the issues:a. WON the final income tax withheld should form part of the gross receipts of the taxpayer for GRTpurposes;

b. WON the respondent bank was entitled to a refund of P853,842.54.9. RESPONDENT BANKs contends:

a. that for purposes of computing the 5% gross receipts tax, the final withholding tax does not formpart of gross receipts

10. CIR contends:a. that the Court defined "gross receipts" as "all receipts of taxpayers excluding those which have

been especially earmarked by law or regulation for the government or some person other than

the taxpayer" in CIR v. Manila Jockey Club, Inc.,7 he claimed that such definition was applicable

only to a proprietor of an amusement place, not a banking institution which is an entirely

different entity altogether. As such, according to the Commissioner, the ruling of the Court in

Manila Jockey Club was inapplicable.

11. CTA HELD:a. ORDERED to REFUND in favor of petitioner Bank of Commerce the amount of P355k+

representing validly proven erroneously withheld taxes from interest income derived from its

investments in government securities for the years 1994 and 1995.

b. relied on the ruling in Manila Jockey Club, and held that the term "gross receipts" excluded thosewhich had been especially earmarked by law or regulation for the government or persons other

than the taxpayer.

12. CIR filed for petition for review with CA alleging that:


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a. There is no provision of lawwhich excludes the 20% final income tax withheld under Section50(a) of the Tax Code in the computation of the 5% gross receipts tax.

b. that the ruling of this Court in Manila Jockey Club, which was affirmed in Visayan Cebu TerminalCo., Inc. v. Commissioner of Internal Revenue,14 is not decisive. He averred that the factual

milieu in the said case is different, involving as it did the "wager fund."

c.

The Commissioner further pointed out that in Manila Jockey Club, the Court ruled that the racetracks commission did not form part of the gross receipts, and as such were not subjected to the

20% amusement tax.

d. the issue in Visayan Cebu Terminalwas whether or not the gross receipts corresponding to 28%of the total gross income of the service contractordelivered to the Bureau of Customs formed

part of the gross receipts was subject to 3% of contractors tax under Section 191 of the Tax

Code. On the other hand, resp Bank was a banking institution and not a contractor.

e. The petitioner insisted that the term "gross receipts" is self-evident; it includes all items ofincome of the respondent bank regardless of whether or not the same were allocated or

earmarked for a specific purpose, to distinguish it from net receipts.

13. CA rendered judgment dismissing the petition.a. CA held that the P17,076,850.90 representing the final withholding tax derived from passive

investments subjected to final tax should not be construed as forming part of the gross receipts

of the respondent bank upon which the 5% gross receipts tax should be imposed.

b. That the final withholding tax was a trust fund for the government; hence, does not form part ofthe respondents gross receipts. The legal ownership of the amount had already been vested in

the government.

c. That subjecting the Final Withholding Tax (FWT) to the 5% of gross receipts tax would result indouble taxation.

Issue:

1. THE COURT OF APPEALS ERRED IN HOLDING THAT THE 20% FINAL WITHHOLDING TAX ON BANKSINTEREST INCOME DOES NOT FORM PART OF THE TAXABLE GROSS RECEIPTS IN COMPUTING THE 5%

GROSS RECEIPTS TAX.

2. IS THERE DOUBLE TAXATION?Ruling:

SC reversed the ruling of the CAthat subjecting the Final Withholding Tax (FWT) to the 5% of gross receipts tax

would result in double taxation.

In CIR v. Solidbank CorporatioN, SC said that the two taxes, subject of this litigation, are differentfrom each other. The basis of their imposition may be the same, but their natures are different.

NO DOUBLE TAXATIONo Double taxation means taxing the same property twice when it should be taxed only once;

that is, "xxx taxing the same person twice by the same jurisdiction for the same thing." It is

obnoxious when the taxpayer is taxed twice, when it should be but once. Otherwise

described as "direct duplicate taxation."

o Elements:i. the two taxes must be imposed on the same subject matter

ii. for the same purposeiii. by the same taxing authority


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iv. within the same jurisdictionv. during the same taxing period;

vi. and they must be of the same kind or character.o First, the taxes herein are imposed on two different subject matters. The subject matter of

the FWT is the passive income generated in the form of interest on deposits and yield on

deposit substitutes, while the subject matter of the GRT is the privilege of engaging in thebusiness of banking.

o A tax based on receipts is a tax on business rather than on the property; hence, it is an exciserather than a property tax. It is not an income tax, unlike the FWT. In fact, we have already

held that one can be taxed for engaging in business and further taxed differently for the

income derived therefrom. Akin to our ruling in Velilla v. Posadas, these two taxes are

entirely distinct and are assessed under different provisions. Second, although both taxes

are national in scope because they are imposed by the same taxing authority the national

government under the Tax Code and operate within the same Philippine jurisdiction for

the same purpose of raising revenues, the taxing periods they affect are different.

o The FWT is deducted and withheld as soon as the income is earned, and is paid after everycalendar quarter in which it is earned. On the other hand, the GRT is neither deducted norwithheld, but is paid only after every taxable quarter in which it is earned.

o Third, these two taxes are of different kinds or characters. The FWT is an income tax subjectto withholding, while the GRT is a percentage tax not subject to withholding. In short, there

is no double taxation, because there is no taxing twice, by the same taxing authority, within

the same jurisdiction, for the same purpose, in different taxing periods, some of the

property in the territory. Subjecting interest income to a 20% FWT and including it in the

computation of the 5% GRT is clearly not double taxation.


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CIR v Shell

Facts:

1. Resp filed for a series of refunds or tax credits representing excises it allegedly paid on sales and deliveriesof gas and fuel oils to various international carriers.

2. Shell contends that since sales of petroleum products to qualified intl carriers are exempt from excise tax,no taxes shall be imposed on the article, to which goods the tax attaches, w/ in the hands of intl carriersor petroleum manuf/producers

3. CIR contends that Shell must shoulder the excise tax it paidperviously on petroleum products w/c it latersold to international carriers because it cannot pass on the tax burden to the said intl carriers w/c have

been granted exemption under Sec. 135 (a) of the NIRC.

Issues:

1. W/N Shell can pass the burden of paying excise taxes it paid as manufacturer or prod ucer to intl carriersand exempt agencies

2. W/N Shell has a right for tax refund on the excise taxes it paid for the petroleum products sold to intlcarriers

Ruling:

1. No. An excise tax is a tax on the manufacturer, not the purchaser. Being engaged in the buss of processingpetroleum products, Shell is the one liable to pay the excise tax. There being no express grant of

exemption from payment of excise tax by petroleum manufacturers selling products to international

carriers, Shell must pay the tax. Sec. 135 (a) of the NIRC must be interpreted to mean intl carriers shall

not be liable to pay excise taxes as added cost in their purchase of petroleum products from local

manufacturers.

2. No. Under PD No. 1359, only foreign international carriers purchasing petroleum products in the countryare exempted from paying excise taxes provided the reciprocity rule is applicable. Sec. 135 of the NIRC

exempts from payment of tax specific buyers and consumers, not articles or goods. Therefore, no tax

credit is due Pilipinas Shell.


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CIR v PAL

Facts:

1. PAL is a domestic corporation organized under the corporate laws of RP and the grantee underPresidential Decree No. 1590 of a franchise to establish, operate, and maintain transport services for the

carriage of passengers, mail, and property by air, in and between any and all points and places throughout

the Philippines, and between the Philippines and other countries.2. From January-Dec 2001, PLDT collected from PAL the 10% OCT on the amount paid by the latter for

overseas telephone calls it had made through the former (200K+)

3. In 2003, PAL claimed refund of OCT from the BIR for 2001, invokinga. PD 1509 w/c ellegedly gives it an option to either pay CIT on annual net taxable income or 2%

franchise tax w/ever is lower and exempts it from paying all other taxes to local govt or national

govt except real prop tax

b. BIR Ruling No. 97-94, saying other than being liable for basic corporate income tax or thefranchise tax, whichever was lower, respondent was clearly exempted from all other taxes,

including OCT, by virtue of the in lieu of all taxes clause in Section 13 of Presidential Decree No.

1590.

4. Respondent argued that in opting for the basic corporate income tax, regardless of whether or not itactually paid any amount as tax, it was already entitled to the exemption from all other taxes granted to it

by Section 13 of Presidential Decree No. 1590.

5. Case filed before CTA which ruled in its favora. PAL had the option to choose between two alternatives: the basic corporate income tax and the

franchise tax, whichever would result in a lower amount of tax, and this would be in lieu of all

other taxes, with the exception only of tax on real property. In the event that respondent

incurred a net loss for the taxable year resulting in zero basic corporate income tax liability,

respondent could not be required to pay the franchise tax before it could avail itself of the

exemption from all other taxes under Section 13 of PD 1590.

6. Like the CTA First Division, the CTA en banc ruled that by providing for net loss carry-over, PresidentialDecree No. 1590 recognized the possibility that respondent would end up with a net loss in thecomputation of its taxable income, which would mean zero liability for basic corporate income tax.

Issue:

1. W/N PD 1590 exempts PAL from paying all other taxes in lieu of paying franchise tax2. W/N the claim was a tax exemption therefore construed against PAL

Ruling:

1. Yes. The language used in Section 13 of Presidential Decree No. 1590, granting respondent tax exemption, is clearlyall-inclusive. The basic corporate income tax or franchise tax paid by respondent shall be in lieu of all other taxes,

duties, royalties, registration, license, and other fees and charges of any kind, nature, or description imposed, levied,

established, assessed or collected by any municipal, city, provincial, or national authority or government agency, nowor in the future x x x, except only real property tax. Even a meticulous examination of Presidential Decree No. 1590

will not reveal any provision therein limiting the tax exemption of respondent to final withholding tax on interest

income or excluding from said exemption the OCT. It is not the fact of tax payment that exempts it, but the exercise

of its option.Compelling respondent to pay a franchise tax when it incurs a net loss and is, thus, not liable for any

basic corporate income tax would be contrary to the evident intent of the law to give respondent options and to

make the latter liable for the least amount of tax.

2. When the claim for refund has clear legal basis and is sufficiently supported by evidence, as in the present case, thenthe Court shall not hesitate to grant the same.


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CIR v PLDT

Facts:

1. For equipment, machineries and spare parts it imported from October 1, 1992 to May 31, 1994, PLDTpaid the BIR the amount of P164,510,953.00, broken down as follows:

a. compensating tax of P126,713,037.00;b. advance sales tax of P12,460,219.00 andc. other internal revenue taxes of P25,337,697.00.d. For similar importations made between March 1994 to May 31, 1994, PLDT paid

P116,041,333.00 value-added tax (VAT).

2. PLDT did not necessarily pay VAT directly to the BIR3. After a ruling was handed down by the BIR to the effect that the PLDT is exempt from paying all taxes on

its franchise and earnings including the VAT because of the 3% franchise tax imposed on it by Section 12

of RA 7082, the PLDT claimed from the BIR a tax credit/refund of the VAT, compensating taxes, advance

sales taxes and other taxes it had been paying.

4. When its claim was not acted upon by the BIR, PLDT went to the CTA.5. The CTA ruled for PLDT, but made deductions (refundable amounts which period to claim had already

prescribed) from the total tax refund prayed for by PLDT.6. The CIR appealed to the CA.7. The CA affirmed the CTAs decision.8. The CIR appealed to the SC, saying that the CA erred in ruling that because of the 3% franchise tax the

PLDT is exempt from paying all taxes, including indirect taxes.

Issue:

WON the 3% franchise tax exempts the PLDT from paying all other taxes, including indirect taxes.

Ruling:

No.

a. Direct taxes are those exacted from the very person who, it is intended or desired, should pay them.They are impositions for which a taxpayer is directly liable on the transaction or business he is

engaged in. Indirect taxes are those that are demanded, in the first instance, from, or are paid by, one

person in the expectation and intention that he can shift the burden to someone else. In other words,

indirect taxes are taxes wherein the liability for the payment of the tax falls on one person but the

burden thereof can be shifted or passed on to another person, such as when the tax is imposed upon

goods before reaching the consumer who ultimately pays for it. When the seller passes on the tax to

his buyer, he, in effect, shifts the tax burden, not the liability to pay it, to the purchaser as part of the

price of goods sold or services rendered.

b. The NIRC classifies VAT as an indirect tax the amount of *which+ may be shifted or passe d on tothe buyer, transferee or lessee of the goods. The 10% VAT on importation of goods is in the nature

of an excise tax levied on the privilege of importing articles. It is imposed on all taxpayers who import

goods. It is not a tax on the franchise of a business enterprise or on its earnings, as stated in Section 2

of RA 7082.

c. Advance sales tax has the attributes of an indirect tax because the tax-paying importer of goods forsale or of raw materials to be processed into merchandise can shift the tax o r lay the economic

burden of the tax on the purchaser by subsequently adding the tax to the selling price of the

imported article or finished product.


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d. Compensating tax also partakes of the nature of an excise tax payable by all persons who importarticles, whether in the course of business or not.

e. The liability for the payment of the indirect taxes lies with the seller of the goods or services, not inthe buyer thereof. Thus, one cannot invoke ones exemption privilege to avoid the passing on or the

shifting of the VAT to him by the manufacturers/suppliers of the goods he purchased. Hence, it is

important to determine if the tax exemption granted to a taxpayer specifically includes the indirecttax which is shifted to him as part of the purchase price, otherwise it is presumed that the tax

exemption embraces only those taxes for which the buyer is directly liable.

f. Since RA 7082 did not specifically include indirect taxes in the exemption granted to PLDT, the lattercannot claim exemption from VAT, advance sales tax and compensating tax.

g. The clause in lieu of all taxes in Section 12 of RA 7082 is immediately followed by the qualifyingclause on this franchise or earnings thereof, suggesting that the exemption is limited to taxes

imposed directly on PLDT since taxes pertaining to PLDTs franchise or earnings are its direct

liability.Accordingly, indirect taxes, not being taxes on PLDTs franchise or earnings, are not included

in the exemption provision.

h. PLDTs allegation that the Bureau of Customs assessed the company for advance sales tax andcompensating tax for importations entered between October 1, 1992 and May 31, 1994 when thevalue-added tax system already replaced, if not totally eliminated, advance sales and compensating

taxes, is with merit.

i. Pursuant to Executive Order No. 273, a multi-stage value-added tax was put into place to replace thetax on original and subsequent sales tax. Therefore, compensating tax and advance sales tax were

no longer collectible internal revenue taxes under the NIRC when the Bureau of Customs made the

assessments in question and collected the corresponding tax.

j. Stated a bit differently, PLDT was no longer under legal obligation to pay compensating tax andadvance sales tax on its importation from 1992 to 1994. A refund of the amounts paid as such taxes

is thus proper.

P87,257,031.00 of compensating tax + P7,416,391.00 advanced sales tax = P94,673,422.00 total

refund.


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Documents

Case Digests for Feb 20.docx