Case Summary (G.R. No. 129644)
Petitioner and Respondent
– CBC claimed refund/credit of P1,140,623.82 for alleged overpayment of gross receipts tax (GRT) on interest income.
– CIR contended that the 20% final withholding tax (FWT) on interest income forms part of bank’s gross receipts for GRT computation.
Key Dates
– July 20, 1994: CBC paid P12,354,933.00 GRT for Q2 1994.
– January 30, 1996: CTA’s Asian Bank decision held that 20% FWT on interest is excluded from taxable gross receipts.
– July 19, 1996: CBC filed refund claim and petition with CTA.
– September 30, 1998 and January 15, 1999: CTA granted partial refund of P123,778.73; denied balance for lack of evidence.
– October 16 and November 15, 2000: CA affirmed CTA decisions.
– January 8 and April 25, 2001: CA resolutions denied motions for reconsideration.
– February 6 and June 25, 2001: CBC and CIR filed separate petitions for review with the Supreme Court.
– April 21, 2003: Oral arguments and consolidation of petitions.
– June 10, 2003: Supreme Court decision promulgated.
Applicable Law
– 1987 National Internal Revenue Code (NIRC), Section 121 (formerly Sec. 119) imposes GRT on banks’ gross receipts including interest, commissions, discounts, dividends, royalties, rentals, foreign-exchange profits, and other income items.
– NIRC Section 27(D)(1) imposes a 20% FWT on interest paid to domestic corporations, including banks.
– Revenue Regulations No. 12-80 and No. 17-84 implement FWT on banking income and govern inclusion of interest in GRT base.
Antecedent Facts
CBC, a universal bank, paid GRT on all operating receipts for Q2 1994. Relying on Asian Bank (CTA 1996), CBC argued that sums withheld by Bangko Sentral ng Pilipinas as 20% FWT on passive interest income should not be included in its gross receipts tax base. CIR maintained that “gross receipts” includes the entire income without deduction, including withheld taxes. The CTA granted a partial refund but denied the bulk of CBC’s claim for insufficient proof. The CA affirmed both CTA decisions, prompting cross-petitions to the Supreme Court.
Issues
- Does the 20% FWT on interest income form part of a bank’s gross receipts for computing the GRT?
- Did CBC present sufficient evidence to support its full refund claim of P1,140,623.82?
Analysis and Ruling
- Definition of “Gross Receipts”:
– Statutory silence on “gross receipts” in NIRC meant adoption of its plain and ordinary meaning—entire receipts without deduction. This interpretation was consistently applied by the Bureau of Internal Revenue (BIR) in regulations and rulings. Legislative re-enactments of GRT provisions (RA 39, PD 1158, RA 8424) without altering this term constitute tacit approval of the BIR’s interpretation. - Ownership and Tax Base:
– A withholding tax arises from income that the taxpayer owns and then transfers to the government to extinguish a tax liability. The full amount of interest income, including the portion withheld as FWT, is originally owned by the bank. Excluding the withheld portion from gross receipts would effectively create an unprovided exemption. - Revenue Regulations 12-80 vs. 17-84:
– Section 4(e) of RR 12-80 (cited in Asian Bank) merely prescribes a cash-basis method—gross receipts include items of income upon actual or constructive receipt. It does not authorize deduction of amounts earmarked for withholding. RR 17-84 (superseding RR 12-80) expressly provides that in
Case Syllabus (G.R. No. 129644)
Antecedent Facts
- China Banking Corporation (CBC) is a universal banking corporation organized under Philippine law.
- On 20 July 1994, CBC paid ₱12,354,933.00 as gross receipts tax (GRT) for its second-quarter 1994 income from interest on loans, commissions, services, collection charges, foreign-exchange profits and other operating earnings.
- On 30 January 1996, the Court of Tax Appeals (CTA) ruled in Asian Bank Corporation v. Commissioner of Internal Revenue that the 20% final withholding tax on a bank’s passive interest income does not form part of its taxable gross receipts.
- On 19 July 1996, CBC filed a formal claim with the Commissioner of Internal Revenue for refund or credit of ₱1,140,623.82 representing GRT on amounts already withheld by the Bangko Sentral ng Pilipinas as final tax on CBC’s passive interest income in 1994.
- To preserve its right under the two-year prescriptive period, CBC simultaneously filed a petition for review with the CTA.
- The Commissioner opposed, arguing that by legislative and regulatory mandate (Sec. 119/121 of the Tax Code; BIR Revenue Regulations No. 12-80 and 17-84) the final withholding tax on interest must be included in the GRT base.
Proceedings in the Court of Tax Appeals
- CTA Case No. 5405 was heard by a three-member bench headed by Presiding Judge Ernesto D. Acosta, with Associate Judge Ramon O. De Vera (majority) and Associate Judge Amancio Q. Saga (dissent).
- The majority applied its Asian Bank ruling and Manila Jockey Club precedent to exclude the final withholding tax from GRT base, reasoning that CBC did not “actually receive” what the government had earmarked by regulation.
- The tax court granted CBC a partial refund of ₱123,778.73 for proven overpayment on medium-term investments and denied the balance (₱1,016,845.09) for insufficiency of evidence.
- Associate Judge Saga dissented, holding that:
• Sec. 4(e), RR No. 12-80 merely authorized cash-basis accounting, not an exemption;
• no law earmarks the final tax for any person other than CBC;
• exclusion would amount to unwarra