Case Summary (G.R. No. L-42215)
Procedural History
After the CTA’s Asia Bank ruling excluding final tax from GRT base, the bank filed an administrative refund claim (July 1996) and, before its resolution, a CTA petition to preserve its two-year right. The CTA granted partial refund (April 1999); the CA affirmed (August 2001). The CIR petitioned the Supreme Court.
Issues
- Does the 20% final withholding tax on bank interest form part of “gross receipts” for computing the 5% GRT?
- Is the bank entitled to refund of P853,842.54?
CTA Ruling
Relying on Manila Jockey Club and Rev. Reg. 12-80 Sec. 4(e), the CTA held that funds withheld as final tax were earmarked for government, not received by the bank, thus excluded from gross receipts. It ordered refund of P355,258.99, the amount properly substantiated and timely claimed.
CA Ruling
Citing NIRC Sections 51 and 58(A), Rev. Reg. 12-80 Sec. 4(e), and Manila Jockey Club, the CA agreed that the 20% withheld tax is a trust fund belonging to government and not part of bank’s gross receipts. It rejected the CIR’s double-taxation argument and upheld the partial refund.
CIR’s Contentions on Review
The CIR maintained that (a) no statute excludes final withholding tax from GRT base; (b) “gross receipts” under Sec. 121 must include all income without deduction; (c) Rev. Reg. 17-84 expressly includes bank interest (gross) in GRT base; (d) Manila Jockey Club is inapplicable to banks.
Definition of Gross Receipts
The Court reaffirmed that “gross receipts” means the whole amount received without deduction. Absent clear statutory exception, the entire interest income—including that withheld as final tax—must be included. Prior reliance on Rev. Reg. 12-80 Sec. 4(e) and Manila Jockey Club was misplaced.
Withholding Tax and Constructive Receipt
The Court explained that withholding implies constructive receipt: when the bank’s depository withholds 20%, the bank has constructively received the full interest and then transferred the withheld portion to government. Thus the withheld amount remains part
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