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The CIR argues that the Bank of Commerce's gross receipts for computing the 5% gross receipts tax should include interest income subject to a final 20% withholding tax. The Bank of Commerce claims this amount should be excluded as it was already taxed at 20% and was held in trust for the government. The Court of Tax Appeals and Court of Appeals ruled in favor of the Bank of Commerce, but the Supreme Court ultimately ruled that the interest income subject to the final 20% withholding tax should be included in the Bank of Commerce's gross receipts for purposes of the 5% gross receipts tax. The Supreme Court also found that there was no double taxation by subjecting the same income to both taxes.
The CIR argues that the Bank of Commerce's gross receipts for computing the 5% gross receipts tax should include interest income subject to a final 20% withholding tax. The Bank of Commerce claims this amount should be excluded as it was already taxed at 20% and was held in trust for the government. The Court of Tax Appeals and Court of Appeals ruled in favor of the Bank of Commerce, but the Supreme Court ultimately ruled that the interest income subject to the final 20% withholding tax should be included in the Bank of Commerce's gross receipts for purposes of the 5% gross receipts tax. The Supreme Court also found that there was no double taxation by subjecting the same income to both taxes.
The CIR argues that the Bank of Commerce's gross receipts for computing the 5% gross receipts tax should include interest income subject to a final 20% withholding tax. The Bank of Commerce claims this amount should be excluded as it was already taxed at 20% and was held in trust for the government. The Court of Tax Appeals and Court of Appeals ruled in favor of the Bank of Commerce, but the Supreme Court ultimately ruled that the interest income subject to the final 20% withholding tax should be included in the Bank of Commerce's gross receipts for purposes of the 5% gross receipts tax. The Supreme Court also found that there was no double taxation by subjecting the same income to both taxes.
Case 4: COMMISSIONER OF INTERNAL REVENUE, petitioner, imposed.
The CA declared that the final withholding
vs. BANK OF COMMERCE, respondent. tax in the amount of P17,768,509.00 was a trust fund for the government; hence, does not form part of the 1. In 1994 and 1995, the respondent Bank of Commerce respondents gross receipts. The legal ownership of derived passive income in the form of interests or discounts the amount had already been vested in the from its investments in government securities and private government. (kumbaga, bakit pa isa-subject sa commercial papers. 5% tax of gross receipts yung final withholding a. On several occasions during the said period, it paid tax, eh hindi naman na-receive yun ng Bank. 5% gross receipts tax on its income, as reflected in kumbaga, sa government na yun) its quarterly percentage tax returns. Included therein were the respondent banks passive income from the Hence, the present action by the petitioner arguing that the said investments amounting to P85,384,254.51, definition of gross receipts, income received may be actual or which had already been subjected to a final tax of constructive. in computing the 5% gross receipts tax, the income 20%. (basta nangyari, sinama niya sa gross need not be actually received. For income to form part of the receipts, which was subjected to the 5% tax, taxable gross receipts, constructive receipt is enough. Hence, the yung passive income niya na na-tax na rin ng CIR maintains that the withholding tax form the respondent Banks 20% sa withholding) income should be included in the gross receipts that are subject to 2. Relying on a 1996 decision of the CTA1 which held that the the 5% tax. 20% final withholding tax on interest income from banks Argument of respondent: that it should not be included in the gross does not form part of taxable gross receipts for Gross receipts because it merely held the amount for the government. It Receipts Tax (GRT) purposes, Bank of Commerce then filed neither benefited nor owned the said withheld money. an administrative claim for refund for alleged overpayment of taxes in the mentioned years of 1994 and 1995. Before it Issue: Should the withholding tax from the passive income of the could be barred from the mandatory two-year prescriptive respondent Bank of Commerce be included in its gross receipts? period for refund claims, Bank of Commerce also filed judicially before the CTA. 3. Answer of CIR: Bank of Commerce was not able to prove Ruling: Yes. that it is entitled for the said refund. 4. The CTA rendered a decision in favor of the respondent Bank 1. by the definition of gross receipts, it shall be of Commerce ordering the CIR to give the refund. The CTA included. relied on the ruling in the case of the Manila Jockey Club, a. The word gross must be used in its plain and and held that the term gross receipts excluded those which ordinary meaning. It is defined as whole, entire, total, had been especially earmarked by law or regulation for the without deduction. A common definition is without government or persons other than the taxpayer. deduction. Gross is also defined as taking in the 5. The CIR elevated the case to the CA. The CA affirmed the whole; having no deduction or abatement; whole, decision of the CTA. total as opposed to a sum consisting of separate or a. It held that the P17,076,850.90 representing the final specified parts. Gross is the antithesis of net. withholding tax derived from passive investments b. subjected to final tax should not be construed as 2. If there is no specific provision excluding or allowing forming part of the gross receipts of the respondent the deduction of final withholding tax from the tax bank upon which the 5% gross receipts tax should be base (gross receipts), then it should be included. a. Indeed, there is a presumption that receipts of a 1 Asia Bank Corporation v. Commissioner of Internal Revenue, CTA person engaging in business are subject to the gross Case No. 472, citing Section 4(e) of Revenue Regulations (Rev. receipts tax. Reg.) No. 1280. b. In this case, there is no law which allows the deduction of 20% final tax from the respondent banks interest income for the computation of the 5% constitutes income earned by the taxpayer, then that gross receipts tax. On the other hand, Section 8(a) amount manifestly forms part of the taxpayers gross (c), Rev. Reg. No. 1784 provides that interest earned receipts. Because the amount withheld belongs to on Philippine bank deposits and yield from deposit the taxpayer, he can transfer its ownership to the substitutes are included as part of the tax base upon government in payment of his tax liability. The which the gross receipts tax is imposed. amount withheld indubitably comes from income of 3. Although it is withheld for the government, the same the taxpayer, and thus forms part of his gross is still income of the bank. The bare fact that the final receipts. withholding tax is a special trust fund belonging to the government and that the respondent bank did not benefit Second issue: is there double taxation? from it while in custody of the borrower does not justify its exclusion from the computation of interest income. Such Ruling: None. There is no double taxation, because there is final withholding tax covers for the respondent banks no taxing twice, by the same taxing authority, within the income and is the amount to be used to pay its tax liability same jurisdiction, for the same purpose, in different taxing to the government. This tax, along with the creditable periods, some of the property in the territory. Subjecting withholding tax, constitutes payment which would interest income to a 20% FWT and including it in the extinguish the respondent banks obligation to the computation of the 5% GRT is clearly not double taxation. government. The bank can only pay the money it owns, or the money it is authorized to pay. First, the taxes herein are imposed on two different subject a. Actual receipt of interest income is not limited to matters. The subject matter of the FWT is the passive income physical receipt. Actual receipt may either be generated in the form of interest on deposits and yield on deposit physical receipt or constructive receipt. When the substitutes, while the subject matter of the GRT is the privilege of depository bank withholds the final tax to pay the tax engaging in the business of banking. liability of the lending bank, there is prior to the withholding a constructive receipt by the lending Second, although both taxes are national in scope because they bank of the amount withheld. From the amount are imposed by the same taxing authority the national government constructively received by the lending bank, the under the Tax Code and operate within the same Philippine depository bank deducts the final withholding tax jurisdiction for the same purpose of raising revenues, the taxing and remits it to the government for the account of periods they affect are different. The FWT is deducted and withheld the lending bank. Thus, the interest income actually as soon as the income is earned, and is paid after every calendar received by the lending bank, both physically and quarter in which it is earned. On the other hand, the GRT is neither constructively, is the net interest plus the amount deducted nor withheld, but is paid only after every taxable quarter withheld as final tax. in which it is earned. b. The concept of a withholding tax on income obviously and necessarily implies that the amount of Third, these two taxes are of different kinds or characters. The the tax withheld comes from the income earned by FWT is an income tax subject to withholding, while the GRT is a the taxpayer. Since the amount of the tax withheld percentage tax not subject to withholding.
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