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CASES ON PERCENTAGE TAX 1. G.R. No. 182045. September 19, 2012

RATIO: No. 1. Section 118(A) of the NIRC states that: Sec. 118. Percentage Tax on International Carriers. – (A) International air carriers doing business in the Philippines shall pay a tax of three percent (3%) of their quarterly gross receipts. Pursuant to this, the Secretary of Finance promulgated Revenue Regulations No. 15-2002, which prescribes that "gross receipts" for the purpose of determining Common Carrier‘s Tax shall be the same as the tax base for calculating Gross Philippine Billings Tax. Section 5 of the same provides for the computation of "Gross Philippine Billings": Sec. 5. Determination of Gross Philippine Billings. – (a) In computing for "Gross Philippine Billings," there shall be included the total amount of gross revenue derived from passage of persons, excess baggage, cargo and/or mail, originating from the Philippines in a continuous and uninterrupted flight, irrespective of the place of sale or issue and the place of payment of the passage documents. The gross revenue for passengers whose tickets are sold in the Philippines shall be the actual amount derived for transportation services, for a first class, business class or economy class passage, as the case may be, on its continuous and uninterrupted flight from any port or point in the Philippines to its final destination in any port or point of a foreign country, as reflected in the remittance area of the tax coupon forming an integral part of the plane ticket. For this purpose, the Gross Philippine Billings shall be determined by computing the monthly average net fare of all the tax coupons of plane tickets issued for the month per point of final destination, per class of passage (i.e., first class, business class, or economy class) and per classification of passenger (i.e., adult, child or infant) and multiplied by the corresponding total number of passengers flown for the month as declared in the flight manifest. For tickets sold outside the Philippines, the gross revenue for passengers for first class, business class or economy class passage, as the case may be, on a continuous and uninterrupted flight from any port of point in the Philippines to final destination in any port or point of a foreign country shall be determined using the locally available net fares applicable to such flight taking into consideration the seasonal fare rate established at the time of the flight, the class of passage (whether first class, business class, economy class or non-revenue), the classification of passenger (whether adult, child or infant), the date of embarkation, and the place of final destination. Correspondingly, the Gross Philippine Billing for tickets sold outside the Philippines shall be determined in the manner as provided in the preceding paragraph. Passage documents revalidated, exchanged and/or endorsed to another on-line international airline shall be included in the taxable base of the carrying airline and shall be subject to Gross Philippine Billings tax if the passenger is lifted/boarded on an aircraft from any port or point in the Philippines towards a foreign destination. The gross revenue on excess baggage which originated from any port or point in the Philippines and destined to any part of a foreign country shall be computed based on

Gulf Air Company, Philippines Branch Vs. Commissioner of Internal Revenue PONENTE: Mendoza, J. FACTS: Petitioner Gulf Air Company Philippine Branch (GF) is a branch of Gulf Air Company, a foreign corporation duly organized in accordance with the laws of the Kingdom of Bahrain. GF made a claim for refund of percentage taxes for the first, second and fourth quarters of 2000. In connection with this, a letter of authority was issued by the BIR authorizing its revenue officers to examine GF‘s books of accounts and other records to verify its claim. After its submission of several documents and an informal conference with BIR representatives, GF received its Preliminary Assessment Notice on November 4, 2003 for deficiency percentage tax amounting to P 32,745,141.93. On the same day, GF also received a letter denying its claim for tax credit or refund of excess percentage tax remittance for the first, second and fourth quarters of 2000, and requesting the immediate settlement of the deficiency tax assessment. GF then received the Formal Letter of Demand, for the payment of the total amount of P 33,864,186.62. In response, it filed a letter to protest the assessment and to reiterate its request for reconsideration on the denial of its claim for refund. On June 30, 2004, the Deputy Commissioner, Officer-in-Charge of the Large Taxpayers Service of the BIR, denied GF‘s written protest for lack of factual and legal basis and requested the immediate payment of the P 33,864,186.62 deficiency percentage tax assessment. With CTA (2nd Division) GF filed a petition for review. CTA (2nd Division) - dismissed the petition, finding that Revenue Regulations No. 6-66 was the applicable rule providing that gross receipts should be computed based on the cost of the single one-way fare as approved by the Civil Aeronautics Board (CAB). In addition, it noted that GF failed to include in its gross receipts the special commissions on passengers and cargo. Finally, it ruled that Revenue Regulations No. 15-2002, allowing the use of the net net rate in determining the gross receipts, could not be given any or a retroactive effect. Thus, the CTA affirmed the decision of the BIR and ordered the payment of P 41,117,734.01 plus 20% delinquency interest. CTA En Banc – affirms. ISSUE: Whether the definition of "gross receipts," for purposes of computing the 3% Percentage Tax under Section 118(A) of the 1997 National Internal Revenue Code (NIRC), should include special commissions on passengers and special commissions on cargo based on the rates approved by the CAB.

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the actual revenue derived as appearing on the official receipt or any similar document for the said transaction. The gross revenue for freight or cargo and mail shall be determined based on the revenue realized from the carriage thereof. The amount realized for freight or cargo shall be based on the amount appearing on the airway bill after deducting therefrom the amount of discounts granted which shall be validated using the monthly cargo sales reports generated by the IATA Cargo Accounts Settlement System (IATA CASS) for airway bills issued through their cargo agents or the monthly reports prepared by the airline themselves or by their general sales agents for direct issues made. The amount realized for mails shall, on the other hand, be determined based on the amount as reflected in the cargo manifest of the carrier. This expressly repealed Revenue Regulations No. 6-66 that stipulates a different manner of calculating the gross receipts: Sec. 5. Gross Receipts, how determined. – The total amount of gross receipts derived from passage of persons, excess baggage, freight or cargo, including, mail cargo, originating from the Philippines in a continuous and uninterrupted flight, irrespective of the place of sale or issue and the place of payment of the ticket, shall be subject to the common carrier‘s percentage tax (Sec. 192, Tax Code). The gross receipts shall be computed on the cost of the single one way fare as approved by the Civil Aeronautics Board on the continuous and uninterrupted flight of passengers, excess baggage, freight or cargo, including mail, as reflected on the plane manifest of the carrier. Tickets revalidated, exchanged and/or indorsed to another international airline are subject to percentage tax if lifted from a passenger boarding a plane in a port or point in the Philippines. In case of a flight that originates from the Philippines but transhipment of passenger takes place elsewhere on another airline, the gross receipts reportable for Philippine tax purposes shall be the portion of the cost of the ticket corresponding to the leg of the flight from port of origin to the point of transhipment. In case of passengers, the taxable base shall be gross receipts less 25% thereof.

Although GF does not dispute that Revenue Regulations No. 6-66 was the applicable rule covering the taxable period involved, it puts in issue the wisdom of the said rule as it pertains to the definition of gross receipts. GF is reminded that rules and regulations interpreting the tax code and promulgated by the Secretary of Finance, who has been granted the authority to do so by Section 244 of the NIRC, "deserve to be given weight and respect by the courts in view of the rulemaking authority given to those who formulate them and their specific expertise in their respective fields." As such, absent any showing that Revenue Regulations No. 6-66 is inconsistent with the provisions of the NIRC, its stipulations shall be upheld and applied accordingly. This is in keeping with our primary duty of interpreting and applying the law. Regardless of our reservations as to the wisdom or the perceived ill-effects of a particular legislative enactment, the court is without authority to modify the same as it is the exclusive province of the law-making body to do so. As aptly stated in Saguiguit v. People, xxx Even with the best of motives, the Court can only interpret and apply the law and cannot, despite doubts about its wisdom, amend or repeal it. Courts of justice have no right to encroach on the prerogatives of lawmakers, as long as it has not been shown that they have acted with grave abuse of discretion. And while the judiciary may interpret laws and evaluate them for constitutional soundness and to strike them down if they are proven to be infirm, this solemn power and duty does not include the discretion to correct by reading into the law what is not written therein.

3. Moreover, the validity of the questioned rules can be sustained by the application of the principle of legislative approval by re-enactment. Under the aforementioned legal concept, "where a statute is susceptible of the meaning placed upon it by a ruling of the government agency charged with its enforcement and the Legislature thereafter reenacts the provisions without substantial change, such action is to some extent confirmatory that the ruling carries out the legislative purpose." 23 Thus, there is tacit approval of a prior executive construction of a statute which was re-enacted with no substantial changes. In this case, Revenue Regulations No. 6-66 was promulgated to enforce the provisions of Title V, Chapter I (Tax on Business) of Commonwealth Act No. 466 (National Internal Revenue Code of 1939), under which Section 192, pertaining to the common carrier‘s tax, can be found: Sec. 192. Percentage tax on carriers and keepers of garages. – Keepers of garages, transportation contractors, persons who transport passenger or freight for hire, and common carriers by land, air, or water, except owners of bancas, and owners of animal-drawn two-wheeled vehicles, shall pay a tax equivalent to two per centum of their monthly gross receipts. This provision has, over the decades, been substantially reproduced with every amendment of the NIRC, up until its recent reincarnation in Section 118 of the NIRC.

2. There is no doubt that prior to the issuance of Revenue Regulations No. 15-2002 which became effective on October 26, 2002, the prevailing rule then for the purpose of computing common carrier‘s tax was Revenue Regulations No. 6-66. While the petitioner‘s interpretation has been vindicated by the new rules which compute gross revenues based on the actual amount received by the airline company as reflected on the plane ticket, this does not change the fact that during the relevant taxable period involved in this case, it was Revenue Regulations No. 6-66 that was in effect. GF itself is adamant that it does not seek the retroactive application of Revenue Regulations No. 15-2002. Even if it were inclined to do so, it cannot insist on the application of the said rules because tax laws, including rules and regulations, operate prospectively unless otherwise legislatively intended by express terms or by necessary implication.

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The legislature is presumed to have full knowledge of the existing revenue regulations interpreting the aforequoted provision of law and, with its subsequent substantial reenactment, there is a presumption that the lawmakers have approved and confirmed the rules in question as carrying out the legislative purpose. Hence, it can be concluded that with the continued duplication of the NIRC provision on common carrier‘s tax, the law-making body was aware of the existence of Revenue Regulations No. 6-66 and impliedly endorsed its interpretation of the NIRC and its definition of gross receipts. China Banking Corporation vs. Court of Appeals G.R. No. 146749 and G.R. No. 147938, June 10, 2003 Facts: CBC is a universal banking corporation organized and existing under Philippine law. CBC paid P12,354,933.00 as gross receipts tax in 1994. On 2006 CTA in Asian Bank Corporation v. Commissioner of Internal Revenue ruled that the 20% final withholding tax on a bank‘s passive interest income does not form part of its taxable gross receipts. 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. Citing Asian Bank, CBC argued that it was not liable for the gross receipts tax on the sums withheld by the Bangko Sentral ng Pilipinas as final withholding tax on CBC‘s passive interest income in 1994. Commissioner claims that CBC paid the gross receipts tax pursuant to Section 119 (now Section 121) of the NIRC. The Commissioner argued that the final withholding tax on a bank‘s interest income forms part of its gross receipts in computing the gross receipts tax. The Commissioner contended that the term ―gross receipts‖ means the entire income or receipt, without any deduction. Ruling of CTA CTA ruled in favor of CBC and held that 20% Final withholding tax on interest income does not form part of CBC‘s taxable gross income based on the Asian Bank ruling.

The amount of interest income withheld in payment of the 20% final withholding tax forms part of CBC‘s gross receipts in computing the gross receipts tax on banks. Ratio: Definition of Gross Receipts The Tax Code does not define the term ―gross receipts‖ for purposes of the gross receipts 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 numbered rulings, 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 BIR‘s 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 is also 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 without any deduction or exclusion, as the term is generally and commonly understood. 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 bank‘s taxable gross receipts.

Ruling of CA

CA affirmed the CTA ruling Issues: 1. Whether the 20% final withholding tax on interest income should form part of CBC‘s gross receipts in computing the gross receipts tax on banks?

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 and Standard Chartered Bank v. Commissioner,it ruled that the final withholding tax forms part of the bank‘s 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.‖

Held:

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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 lender‘s 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 bank‘s gross receipts. CBC‘s reliance of Collector of Internal Revenue v. Manila Jockey Club CBC cites Collector of Internal Revenue v. Manila Jockey Club as authority that the final withholding tax on interest income does not form part of a bank‘s gross receipts because the final tax is ―earmarked by regulation‖ for the government. Manila Jockey Club paid amusement tax on its commission in the total amount of bets called wager funds from the period November 1946 to October 1950. But such payment did not include the 5 ½ % of the funds which went to the Board on Races and to the owners of horses and jockeys. We ruled that the gross receipts of the Manila Jockey Club should not include the 5 ½% because although delivered to the Club, such money has been especially earmarked by law or regulation for other persons. 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 other than 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 income which is the source of payment of the final 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‘s reliance on Asian Bank ruling CBC also relies on the Tax Court‘s ruling in Asian Bank that Section 4(e) of Revenue Regulations No. 12-80 authorizes the exclusion of the final tax from the bank‘s taxable gross receipts. 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. CBC‘s claim amount to a tax exemption

CBC‘s contention that it can deduct the final withholding tax from its interest income amounts 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 the taxing authority. CBC failed to cite any provision of law allowing the final tax as an exemption, deduction or exclusion COMMISSIONER OF INTERNAL REVENUE (CIR), petitioner, vs. Pilipinas Shell Petroleum Corporation, respondent. G.R. No. 188497 April 25, 2012 VILLARAMA, JR., J.:

Because an excise tax is a tax on the manufacturer and not on the purchaser, and there being no express grant under the NIRC of exemption from payment of excise tax to local manufacturers of petroleum products sold to international carriers, and absent any provision in the Code authorizing the refund or crediting of such excise taxes paid, the Court holds that Sec. 135 (a) should be construed as prohibiting the shifting of the burden of the excise tax to the international carriers who buys petroleum products from the local manufacturers. The provision merely allows the international carriers to purchase petroleum products without the excise tax component as an added cost in the price fixed by the manufacturers or distributors/sellers. Consequently, the oil companies which sold such petroleum products to international carriers are not entitled to a refund of excise taxes previously paid on the goods.

Facts: 1. Respondent is engaged in the business of processing, treating and refining petroleum for the purpose of producing marketable products and the subsequent sale thereof. Respondent filed several formal claims with the Large Taxpayers Audit & Investigation Division II of the BIR on the following dates: a. On July 2002 for refund or tax credit in the total amount of P28,064,925.15, representing excise taxes it allegedly paid on sales and deliveries of gas and fuel oils to various international carriers during the period October to December 2001. On October 2002, a similar claim for refund or tax credit was filed by respondent with the BIR covering the period January to March 2002 in the amount of P41,614,827.99. On July 2003, a formal claim for refund or tax credit in the amount of P30,652,890.55 covering deliveries from April to June 2002

b. c.

2. 3.

Since no action was taken by the petitioner on its claims, respondent filed petitions for review before the CTA on September and December of 2003. CTA‘s First Division ruled that respondent is entitled to the refund of excise taxes in the reduced amount of P95,014,283.00. The CTA First Division relied on a previous ruling rendered by the CTA En Banc in the case of ―Pilipinas Shell Petroleum Corporation v. CIR (Nov. 2006)‖ where the CTA also granted respondent‘s claim for refund on the basis of

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excise tax exemption for petroleum products sold to international carriers of foreign registry for their use or consumption outside the Philippines. Petitioner‘s MR denied. 4. 5. On appeal, CTA En Banc upheld the ruling of the First Division. Petitioner‘s MR with CTA likewise denied. Hence, this petition. Respondent claims it is entitled to a tax refund because those petroleum products it sold to international carriers are not subject to excise tax, hence the excise taxes it paid upon withdrawal of those products were erroneously or illegally collected and should not have been paid in the first place. Since the excise tax exemption attached to the petroleum products themselves, the manufacturer or producer is under no duty to pay the excise tax thereon. 5.

the Philippines shall be paid by the manufacturer, producer, owner or person having possession of the same, and such tax shall be paid within fifteen (15) days from date of removal from the place of production. Thus, if an airline company purchased jet fuel from an unregistered supplier who could not present proof of payment of specific tax, the company is liable to pay the specific tax on the date of purchase. Since the excise tax must be paid upon withdrawal from the place of production, respondent cannot anchor its claim for refund on the theory that the excise taxes due thereon should not have been collected or paid in the first place. Sec. 229 of the NIRC allows the recovery of taxes erroneously or illegally collected. An ―erroneous or illegal tax‖ is defined as one levied without statutory authority, or upon property not subject to taxation or by some officer having no authority to levy the tax, or one which is some other similar respect is illegal. Respondent‘s locally manufactured petroleum products are clearly subject to excise tax under Sec. 148. Hence, its claim for tax refund may not be predicated on Sec. 229 of the NIRC allowing a refund of erroneous or excess payment of tax. Respondent‘s claim is premised on what it determined as a tax exemption ―attaching to the goods themselves,‖ which must be based on a statute granting tax exemption, or ―the result of legislative grace.‖ Such a claim is to be construed strictissimi juris against the taxpayer, meaning that the claim cannot be made to rest on vague inference. Where the rule of strict interpretation against the taxpayer is applicable as the claim for refund partakes of the nature of an exemption, the claimant must show that he clearly falls under the exempting statute. The exemption from excise tax payment on petroleum products under Sec. 135 (a) is conferred on international carriers who purchased the same for their use or consumption outside the Philippines. The only condition set by law is for these petroleum products to be stored in a bonded storage tank and may be disposed of only in accordance with the rules and regulations to be prescribed by the Secretary of Finance, upon recommendation of the Commissioner. [JURISPRUDENCE] In addition, the Solicitor General, argues that respondent cannot shift the tax burden to international carriers who are allowed to purchase its petroleum products without having to pay the added cost of the excise tax. In Philippine Acetylene Co., Inc. v. CIR, this Court held that petitioner manufacturer who sold its oxygen and acetylene gases to NPC, a tax-exempt entity, cannot claim exemption from the payment of sales tax simply because its buyer NPC is exempt from taxation. The Court explained that the percentage tax on sales of merchandise imposed by the Tax Code is due from the manufacturer and not from the buyer.

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Issue: whether respondent as manufacturer or producer of petroleum products is exempt from the payment of excise tax on such petroleum products it sold to international carriers? Held: NO. CTA decision REVERSED and SET ASIDE. The claims for tax refund or credit filed by respondent are DENIED for lack of basis. 1. Excise taxes, as the term is used in the NIRC, refer to taxes applicable to certain specified goods or articles manufactured or produced in the Philippines for domestic sales or consumption or for any other disposition and to things imported into the Philippines. These taxes are imposed in addition to the value-added tax (VAT). As to petroleum products, Sec. 148 provides that excise taxes attach to the following refined and manufactured mineral oils and motor fuels as soon as they are in existence. Beginning January 1, 1999, excise taxes levied on locally manufactured petroleum products and indigenous petroleum are required to be paid before their removal from the place of production. However, Sec. 135 provides: ―Petroleum Products Sold to International Carriers and Exempt Entities or Agencies. – Petroleum products sold to the following are exempt from excise tax: (a) International carriers of Philippine or foreign registry on their use or consumption outside the Philippines: Provided, That the petroleum products sold to these international carriers shall be stored in a bonded storage tank and may be disposed of only in accordance with the rules and regulations to be prescribed by the Secretary of Finance, upon recommendation of the Commissioner; x x x 3. Under Chapter II ―Exemption or Conditional Tax-Free Removal of Certain Goods‖ of Title VI, Sections 133, 137, 138, 139 and 140 cover conditional tax-free removal of specified goods or articles, whereas Sections 134 and 135 provide for tax exemptions. While the exemption found in Sec. 134 makes reference to the nature and quality of the goods manufactured (domestic denatured alcohol) without regard to the tax status of the buyer of the said goods, Sec. 135 deals with the tax treatment of a specified article (petroleum products) in relation to its buyer or consumer. Respondent‘s failure to make this important distinction apparently led it to mistakenly assume that the tax exemption under Sec. 135 (a) ―attaches to the goods themselves‖ such that the excise tax should not have been paid in the first place. On July 1996, petitioner Commissioner issued Revenue Regulations 8-96 (―Excise Taxation of Petroleum Products‖) which provides: ―SEC. 4. Time and Manner of Payment of Excise Tax on Petroleum Products, Non-Metallic Minerals and Indigenous Petroleum – I. Petroleum Products x x x x a) On locally manufactured petroleum products: The specific tax on petroleum products locally manufactured or produced in

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9.

10. The language of Sec. 135 indicates that the tax exemption mentioned therein is conferred on specified buyers or consumers of the excisable articles or goods. Unlike Sec. 134 which explicitly exempted the article or goods itself without due regard to the tax status of the buyer or purchaser, Sec. 135 exempts from excise tax petroleum products which were sold to international carriers and other tax-exempt agencies and entities. 11. Considering that the excise taxes attaches to petroleum products ―as soon as they are in existence as such, ‖there can be no outright exemption from the payment of excise tax on petroleum products sold to international carriers. The sole basis then of respondent‘s claim for refund is the express grant of excise tax exemption in favor of international carriers under Sec. 135 (a) for their purchases of locally manufactured petroleum products. Pursuant to our ruling in Philippine Acetylene, a tax exemption being enjoyed by the buyer cannot be the basis of a claim for tax exemption by the manufacturer or seller of the goods for any tax due to it as the manufacturer or seller. The excise tax imposed on petroleum products under Sec. 148 is the direct liability of the manufacturer

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who cannot thus invoke the excise tax exemption granted to its buyers who are international carriers. 12. In Maceda v. Macaraig, Jr., the Court specifically mentioned excise tax as an example of an indirect tax where the tax burden can be shifted to the buyer. However, because of the tax exemptions privileges being enjoyed by NPC under existing laws, the tax burden may not be shifted to it by the oil companies who shall pay for fuel oil taxes on oil they supplied to NPC. 13. On April 1978, then President Ferdinand E. Marcos issued Presidential Decree (P.D.) No. 1359 which amended the 1077 Tax Code provided under 2nd par. of Sec. 134: ―However, petroleum products sold to an international carrier for its use or consumption outside of the Philippines shall not be subject to specific tax, provided, that the country of said carrier exempts from tax petroleum products sold to Philippine carriers.‖ 14. Founded on the principles of international comity and reciprocity, P.D. No. 1359 granted exemption from payment of excise tax but only to foreign international carriers who are allowed to purchase petroleum products free of specific tax provided the country of said carrier also grants tax exemption to Philippine carriers. Both the earlier amendment in the 1977 Tax Code and the present Sec. 135 of the 1997 NIRC did not exempt the oil companies from the payment of excise tax on petroleum products manufactured and sold by them to international carriers. THUS: 15. Because an excise tax is a tax on the manufacturer and not on the purchaser, and there being no express grant under the NIRC of exemption from payment of excise tax to local manufacturers of petroleum products sold to international carriers, and absent any provision in the Code authorizing the refund or crediting of such excise taxes paid, the Court holds that Sec. 135 (a) should be construed as prohibiting the shifting of the burden of the excise tax to the international carriers who buys petroleum products from the local manufacturers. Said provision thus merely allows the international carriers to purchase petroleum products without the excise tax component as an added cost in the price fixed by the manufacturers or distributors/sellers. Consequently, the oil companies which sold such petroleum products to international carriers are not entitled to a refund of excise taxes previously paid on the goods. 16. Time and again, we have held that tax refunds are in the nature of tax exemptions which result to loss of revenue for the government. Upon the person claiming an exemption from tax payments rests the burden of justifying the exemption by words too plain to be mistaken and too categorical to be misinterpreted, it is never presumed nor be allowed solely on the ground of equity. These exemptions, therefore, must not rest on vague, uncertain or indefinite inference, but should be granted only by a clear and unequivocal provision of law on the basis of language too plain to be mistaken. Such exemptions must be strictly construed against the taxpayer, as taxes are the lifeblood of the government. Commissioner vs PAL July 14, 2009 GR 180043 Ponente: Chico-Nazario Doctrine: A tax refund, which is in the nature of a tax exemption, should be construed strictissimi juris against the taxpayer. However, when the claim for refund has clear legal basis and is sufficiently supported by evidence, as in the present case, then the Court shall not hesitate to grant the same.

Notes: OCT is a business tax Facts: On the year 2001 (Jan-Dec) PAL mistakenly paid 10% Overseas Communication Tax (OCT) which was collected by PLDT pursuant to Section 120 of the National Internal Revenue Code (NIRC) of 1997, which reads:

SEC. 120.Tax on Overseas Dispatch, Message or Conversation Originating from the.(A)Persons Liable—There shall be collected upon every overseas dispatch, message or conversation transmitted from the Philippines by telephone, telegraph, telewriter exchange, wireless and other communication equipment service, a tax of ten percent (10%) on the amount paid of [the transaction involving overseas dispatch, message or conversation] such services.The tax imposed in this Section shall be payable by the person paying for the services rendered and shall be paid to the person rendering the services who is required to collect and pay the tax within twenty (20) days after the end of each quarter.

On April 8, 2003, PAL filed with the BIR an administrative claim for refund of the P202,471.18 OCT it alleged to have erroneously paid in 2001.In a letter dated, addressed to petitioner, Ma. Stella L. Diaz (Diaz), the Assistant Vice-President for Financial Planning & Analysis of respondent, explained that the claim for refund of respondent was based on its franchise, Section 13 of Presidential Decree No. 1590, which granted it (1) the option to pay either the basic corporate income tax on its annual net taxable income or the two percent franchise tax on its gross revenues, whichever was lower; and (2) the exemption from all other taxes, duties, royalties, registration, license and other fees and charges imposed by any municipal, city, provincial or national authority or government agency, now or in the future, except only real property tax.Also invoking BIR Ruling No. 9794.dated 13 April 1994, Diaz maintained that, other than being liable for basic corporate income tax or the franchise 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. PAL incurred a net loss for the year 2001, thus it opted to pay the basic corporate income tax which amounted to 0 for the year 2001 because it incurred a net loss. The BIR however, failed to act on the request of the PAL so PAL filed a petition for review with the CTA on June of 2003. The CTA and subsequently on review the CTA enbanc ruled in favor of PAL saying that by virtue of section 13 of its charter, PAL was exempted from paying all other taxes. Issues:

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1. 2.

WON PAL is exempted from paying OCT taxes? YES WON a tax refund, which is in the nature of a tax exemption, should be construedstrictissimi juris against the taxpayer. Yes In the event that respondent incurs a net loss, it shall have zero liability for basic corporate income tax, the lowest possible tax liability. There being no qualification to the exercise of its options under Section 13 of Presidential Decree No. 1590, then respondent is free to choose basic corporate income tax, even if it would have zero liability for the same in light of its net loss position for the taxable year. Additionally, a ruling by this Court 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. Yes, a tax refund is essentially a tax exemption and must be strictly construed, However, when the claim for refund has clear legal basis and is sufficiently supported by evidence, as in the present case, then the Court shall not hesitate to grant the same.

BIR's arguments: 1. PAL is not exempted from paying OCT taxes because it did not pay any tax at all for the year 2001 due to its net loss. Section 13 of PAL's charter states that PAL has the option to either pay the basic corporate tax or 2% of its gross receipts in lieu of all other taxes. Since PAL did not pay any tax at all for 2001, there was nothing paid in lieu of taxes, thus it was not exempt. A tax refund is essentially a tax exemption, thus should be strictly construed.

2.

PAL's Arguments: 1. sec 13 of Pal's charter gives it the option to choose among two tax regimes in lieu of all other taxes. Since PAL incurred a net loss, it chose the basic corporate tax regime thus incurring 0 tax liabilities. That PAL is exempt regardless of the fact that it paid 0 in taxes.

WHEREFORE, the instant Petition for Review is DENIED. The Decision of the Court of Tax Appeals En Banc dated 9 August 2007 in CTA EB No. 221, affirming the Decision dated 14 June 2006 of the CTA First Division in CTA Case No. 6735, which granted the claim of Philippine Airlines, Inc. for a refund of Overseas Communications Tax erroneously collected from it for the period April to December 2001, in the amount of P126,243.80, is AFFIRMED. No costs. G.R. No. 140230, December 15, 2005 COMMISSIONER OF INTERNAL REVENUE versus PHILIPPINE LONG DISTANCE COMPANY Facts: PLDT is a grantee of a franchise under Republic Act (R.A.) No. 7082 to install, operate and maintain a telecommunications system throughout the Philippines. For equipment, machineries and spare parts it imported for its business on different dates from October 1, 1992 to May 31, 1994, PLDT paid the BIR the amount of P164,510,953.00, broken down as follows: (a) compensating tax of P126,713,037.00; advance sales tax of P12,460,219.00 and other internal revenue taxes of P25,337,697.00. For similar importations made between March 1994 to May 31, 1994, PLDT paid P116,041,333.00 value-added tax (VAT). On March 15, 1994, PLDT addressed a letter to the BIR seeking a confirmatory ruling on its tax exemption privilege under Section 12 of R.A. 7082. Sec. 12. xxx and the said percentage shall be in lieu of all taxes on this franchise or earnings thereof: xxx Then the BIR issued Ruling No. UN-140-94 PLDT shall be subject only to the following taxes, to wit: xxx The 3% franchise tax on gross receipts which shall be in lieu of all taxes on its franchise or earnings thereof. xxx The ―in lieu of all taxes‖ provision under Section 12 of RA 7082 clearly exempts PLDT from all taxes including the 10% value-added tax (VAT) prescribed by Section 101 (a) of the same Code on its importations of equipment, machineries and spare parts necessary in the conduct of its business covered by the franchise, except the aforementioned enumerated taxes for which PLDT is expressly made liable. Thus PLDT filed on December 2, 1994 a claim for tax credit/refund of the VAT, compensating taxes, advance sales taxes and other taxes it had been paying ―in

Ratio of the Court: 1. The language used in Section 13 of Presidential Decree No. 1590, granting respondent tax exemption, is clearly all-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, now or in the futurex 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.

In insisting that respondent needs to actually pay a certain amount as basic corporate income tax or franchise tax, before it can enjoy the tax exemption granted to it, petitioner places too much reliance on the use of the word ―pay‖ in the first line of Section 13 of Presidential Decree No. 1590. It must do well for petitioner to remember that a statute‘s clauses and phrases should not be taken as detached and isolated expressions, but the whole and every part thereof must be considered in fixing the meaning of any of its parts. A strict interpretation of the word ―pay‖ in Section 13 of Presidential Decree No. 1590 would effectively render nugatory the other rights categorically conferred upon the respondent by its franchise.

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connection with its importation of various equipment, machineries and spare parts needed for its operations”. With its claim not having been acted upon by the BIR, and obviously to forestall the running of the prescriptive period therefor, PLDT filed with the CTA a petition for review. CTA rendered a decision in favor of PLDT. BIR moved for a reconsideration but to no avail. Hence this petition. Issue: Whether or not PLDT, given the tax component of its franchise, is exempt from paying VAT, compensating taxes, advance sales taxes and internal revenue taxes on its importations. Held: Time and again, the Court has stated that taxation is the rule, exemption is the exception. Accordingly, statutes granting tax exemptions must be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority. To him, therefore, who claims a refund or exemption from tax payments rests the burden of justifying the exemption by words too plain to be mistaken and too categorical to be misinterpreted. As may be noted, the clause “in lieu of all taxes” in Section 12 of RA 7082 is immediately followed by the limiting or qualifying clause ― on this franchise or earnings thereof”, suggesting that the exemption is limited to taxes imposed directly on PLDT since taxes pertaining to PLDT‘s franchise or earnings are its direct liability. Accordingly, indirect taxes, not being taxes on PLDT‘s franchise or earnings, are outside the purview of the ―in lieu‖ provision. If we were to adhere to the appellate court‘s interpretation of the law that the ―in lieu of all taxes” clause encompasses the totality of all taxes collectible under the Revenue Code, then, the immediately following limiting clause ― on this franchise and its earnings” would be nothing more than a pure jargon bereft of effect and meaning whatsoever. Needless to stress, this kind of interpretation cannot be accorded a governing sway following the familiar legal maxim redendo singula singulis meaning, take the words distributively and apply the reference. Under this principle, each word or phrase must be given its proper connection in order to give it proper force and effect, rendering none of them useless or superfluous. G.R. No. 139786 September 27, 2006 CIR v CITYTRUST INVESTMENT PHILS., INC Does the twenty percent (20%) final withholding tax (FWT) on a bank's passive income1 form part of the taxable gross receipts for the purpose of computing the five percent (5%) gross receipts tax (GRT)? This is the central issue in the present two (2) consolidated petitions for review. In G.R. No. 139786, petitioner Commissioner of Internal Revenue (Commissioner) assails the Court of Appeals Decision dated August 17, 1999 in CA-G.R. SP No. 527072 affirming the Court of Tax Appeals (CTA) Decision3 ordering the refund or issuance of tax credit certificate in favor of respondent Citytrust Investment Philippines., Inc. (Citytrust). In G.R. No. 140857, petitioner Asianbank Corporation (Asianbank) challenges the Court of Appeals Decision dated November 22, 1999 in CA-G.R. SP No. 512484 reversing the CTA Decision5 ordering a tax refund in its (Asianbank's) favor. A brief review of the taxation laws provides an adequate backdrop for our subsequent narration of facts. Under Section 27(D), formerly Section 24(e)(1) of the National Internal Revenue Code of 1997 (Tax Code), the earnings of banks from passive income are subject to a 20% FWT,6 thus:

(D) Rates of Tax on 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 corporation and royalties, derived from sources within the Philippines: x x x Apart from the 20% FWT, banks are also subject to the 5% GRT on their gross receipts, which includes their passive income. Section 121 (formerly Section 119) of the Tax Code reads: SEC. 121. Tax on banks and Non-bank financial intermediaries. – There shall be collected a tax on gross receipts derived from sources within the Philippines by all banks and nonbank 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 pretermination, then the maturity period shall be reckoned to end as of the date of pretermination 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. I - G.R. No. 139786 Citytrust, respondent, is a domestic corporation engaged in quasi-banking activities. In 1994, Citytrust reported the amount of P110,788,542.30 as its total gross receipts and paid the amount of P5,539,427.11 corresponding to its 5% GRT. Meanwhile, on January 30, 1996, the CTA, in Asian Bank Corporation v. Commissioner of Internal Revenue7 (ASIAN BANK case), ruled that the basis in computing the 5% GRT is the gross receipts minus the 20% FWT. In other words, the 20% FWT on a bank's passive income does not form part of the taxable gross receipts. On July 19, 1996, Citytrust, inspired by the above-mentioned CTA ruling, filed with the Commissioner a written claim for the tax refund or credit in the amount of P326,007.01. It alleged that its reported total gross receipts included the 20% FWT on its passive income

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amounting to P32,600,701.25. Thus, it sought to be reimbursed of the 5% GRT it paid on the portion of 20% FWT or the amount of P326,007.01. On the same date, Citytrust filed a petition for review with the CTA, which eventually granted its claim.8 On appeal by the Commissioner, the Court of Appeals affirmed the CTA Decision, citing as main bases Commissioner of Internal Revenue v. Tours Specialist Inc.9 and Commissioner of Internal Revenue v. Manila Jockey Club,10 holding that monies or receipts that do not redound to the benefit of the taxpayer are not part of its gross receipts, thus: Patently, as expostulated by our Supreme Court, monies or receipts that do not redound to the benefit of the taxpayer are not part of its gross receipts for the purpose of computing its taxable gross receipts. In Manila Jockey Club, a portion of the wager fund and the ten-peso contribution, although actually received by the Club, was not considered as part of its gross receipts for the purpose of imposing the amusement tax. Similarly, in Tours Specialists, the room or hotel charges actually received by them from the foreign travel agency was, likewise, not included in its gross receipts for the imposition of the 3% contractor's tax. In both cases, the fees, bets or hotel charges, as the case may be, were actually received and held in trust by the taxpayers. On the other hand, the 20% final tax on the Respondent's passive income was already deducted and withheld by various withholding agents. Hence, the actual or the exact amount received by the Respondent, as its passive income in the year 1994, was less the 20% final tax already withheld by various withholding agents. The various withholding agents at source were required under section 50 (a), of the National Internal Revenue Code of 1986, to withhold the 20% final tax on certain passive income x x x. Moreover, under Section 51 (g) of the said Code, all taxes withheld pursuant to the provisions of this Code and its implementing regulations are considered trust funds and shall be maintained in a separate account and not commingled with any other funds of the withholding agent. 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 Respondent for the said year, which would constitute double taxation anathema to our taxation laws. II - G.R. No. 140857

On February 3, 1999, the CTA allowed refund in the reduced amount of P1,345,743.01,11 the amount proven by Asianbank. Unsatisfied, the Commissioner filed with the Court of Appeals a petition for review. On November 22, 1999, the Court of Appeals reversed the CTA Decision and ruled in favor of the Commissioner, thus: 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. (Rep. v. Lim Tian Teng Sons & Co., 16 SCRA 584). 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 (Art. 532, Civil Code). 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. xxx The case of Collector of Internal Revenue vs. Manila Jockey Club 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 on 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. WHEREFORE, the C.T.A's judgment herein appealed from is hereby REVERSED, and judgment is hereby rendered DISMISSING the respondent's Petition for Review in C.T.A Case No. 5412. SO ORDERED. Hence, the present consolidated petitions.

Asianbank, petitioner, is a domestic corporation also engaged in banking business. For the taxable quarters ending June 30, 1994 to June 30, 1996, Asianbank filed and remitted to the Bureau of Internal Revenue (BIR) the 5% GRT on its total gross receipts. On the strength of the January 30, 1996 CTA Decision in the ASIAN BANK case, Asianbank filed with the Commissioner a claim for refund of the overpaid GRT amounting to P2,022,485.78. To toll the running of the two-year prescriptive period for filing of claims, Asianbank also filed a petition for review with the CTA.

The Commissioner's arguments in the two (2) petitions may be synthesized as follows: first, there is no law which excludes the 20% FWT from the taxable gross receipts for the purpose of computing the 5% GRT; second, the imposition of the 20% FWT on the bank's passive income and the 5% GRT on its taxable gross receipts, which include the bank's passive income, does not constitute double taxation; third, the ruling by this Court in Manila Jockey Club,12 cited in the ASIAN BANK case, is not applicable; and

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fourth, in the computation of the 5% GRT, the passive income need not be actually received in order to form part of the taxable gross receipts. In its Resolution13 dated January 17, 2000, this Court adopted as Citytrust's Comment on the instant petition for review its Memorandum submitted to the CTA and its Comment submitted to the Court of Appeals. Citytrust contends therein that: first, Section 4(e) of Revenue Regulations No. 12-80 dated November 7, 1980 provides that the rates of taxes on the gross receipts of financial institutions shall be based only on all items of income actually received; and, second, this Court's ruling in Manila Jockey Club14 is applicable. Asianbank echoes similar arguments. We rule in favor of the Commissioner. The issue of whether the 20% FWT on a bank's interest income forms part of the taxable gross receipts for the purpose of computing the 5% GRT is no longer novel. This has been previously resolved by this Court in a catena of cases, such as China Banking Corporation v. Court of Appeals,15 Commissioner of Internal Revenue v. Solidbank Corporation,16 Commissioner of Internal Revenue v. Bank of Commerce,17 and the latest, Commissioner of Internal Revenue v. Bank of the Philippine Islands.18 The above cases are unanimous in defining "gross receipts" as "the entire receipts without any deduction." We quote the Court's enlightening ratiocination in Bank of the Philippines Islands,19 thus: The Tax Code does not provide a definition of the term "gross receipts". Accordingly, the term is properly understood in its plain and ordinary meaning and must be taken to comprise of the entire receipts without any deduction. We, thus, made the following disquisition in Bank of Commerce: The word "gross" must be used in its plain and ordinary meaning. It is defined as "whole, entire, total, without deduction." A common definition is "without deduction." "Gross" is also defined as "taking in the whole; having no deduction or abatement; whole, total as opposed to a sum consisting of separate or specified parts." Gross is the antithesis of net. Indeed, in China Banking Corporation v. Court of Appeals, the Court defined the term in this wise: As commonly understood, the term "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. As explained by the Supreme Court of Pennsylvania in Commonwealth of Pennsylvania v. Koppers Company, Inc. – Highly refined and technical tax concepts have been developed by the accountant and legal technician primarily because of the impact of federal income tax legislation. However, this is no way should affect or control the normal usage of words in the construction of our statutes; and we see nothing that would require us not to include the proceeds here in question in the gross receipts allocation unless statutorily such inclusion is prohibited. Under the ordinary basic methods of handling accounts, the term gross receipts, in the absence of any statutory definition of the term, must be taken to include the whole total gross receipts without any deductions, x x x. [Citations omitted] (Emphasis supplied)" Likewise, in Laclede Gas Co. v. City of St. Louis, the Supreme Court of Missouri held:

The word "gross" appearing in the term "gross receipts," as used in the ordinance, must have been and was there used as the direct antithesis of the word "net." In its usual and ordinary meaning, "gross receipts" of a business is the whole and entire amount of the receipts without deduction, x x x. On the ordinary, "net receipts" usually are the receipts which remain after deductions are made from the gross amount thereof of the expenses and cost of doing business, including fixed charges and depreciation. Gross receipts become net receipts after certain proper deductions are made from the gross. And in the use of the words "gross receipts," the instant ordinance, or course, precluded plaintiff from first deducting its costs and expenses of doing business, etc., in arriving at the higher base figure upon which it must pay the 5% tax under this ordinance. (Emphasis supplied) xxxxxx Additionally, we held in Solidbank, to wit: [W]e note that US cases have persuasive effect in our jurisdiction because Philippine income tax law is patterned after its US counterpart. [G]ross receipts with respect to any period means the sum of: (a) The total amount received or accrued during such period from the sale, exchange, or other disposition of x x x other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or property held by the taxpayer primarily for sale to customers in the ordinary course of its trade or business, and (b) The gross income, attributable to a trade or business, regularly carried on by the taxpayer, received or accrued during such period x x x. x x x [B]y gross earnings from operations x x x was intended all operations x x x including incidental, subordinate, and subsidiary operations, as well as principal operations. When we speak of the "gross earnings" of a person or corporation, we mean the entire earnings or receipts of such person or corporation from the business or operation to which we refer. From these cases, "gross receipts" refer to the total, as opposed to the net income. These are therefore the total receipts before any deduction for the expenses of management. Webster's New International Dictionary, in fact, defines gross as "whole or entire." In China Banking Corporation,20 this Court further explained that the legislative intent to apply the term in its plain and ordinary meaning may be surmised from a historical perspective of the levy on gross receipts. From the time the GRT on banks was first imposed in 1946 under Republic Act No. 3921 and throughout its successive reenactments,22 the legislature has not established a definition of the term "gross receipts." Under Revenue Regulations No. 12-80 and No. 17-84, as well as several numbered rulings, the BIR has consistently ruled that the term "gross receipts" does not admit of any deduction. This interpretation has remained unchanged throughout the various reenactments of the present Section 121 of the Tax Code. On the presumption that the legislature is familiar with the contemporaneous interpretation of a statute given by the administrative agency tasked to enforce the statute, the reasonable conclusion is that the legislature has adopted the BIR's interpretation. In other words, the subsequent reenactments of the present Section 121, without changes in the term interpreted by the BIR, confirm that its interpretation carries out the legislative purpose. Now, bereft of any laudable statutory basis, Citytrust and Asianbank simply anchor their argument on Section 4(e) of Revenue Regulations No. 12-80 stating that "the rates of taxes to be imposed on the gross receipts of such financial institutions shall be based on

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all items of income actually received." They contend that since the 20% FWT is withheld at source and is paid directly to the government by the entities from which the banks derived the income, the same cannot be considered actually received, hence, must be excluded from the taxable gross receipts. The argument is bereft of merit. First, Section 4(e) merely recognizes that income may be taxable either at the time of its actual receipt or its accrual, depending on the accounting method of the taxpayer. It does not really exclude accrued interest income from the taxable gross receipts but merely postpones its inclusion until actual payment of the interest to the lending bank. Thus, while it is true that Section 4(e) states that "the rates of taxes to be imposed on the gross receipts of such financial institutions shall be based on all items of income actually received," it goes on to distinguish actual receipt from accrual, i.e., that "mere accrual shall not be considered, but once payment is received in such accrual or in case of prepayment, then the amount actually received shall be included in the tax base of such financial institutions." And second, Revenue Regulations No. 12-80, issued on November 7, 1980, had been superseded by Revenue Regulations No. 17-84 issued on October 12, 1984. Section 4(e) of Revenue Regulations No. 12-80 provides that only items of income actually received shall be included in the tax base for computing the GRT. On the other hand, Section 7(c) of Revenue Regulations No. 17-84 includes all interest income in computing the GRT, thus: SECTION 7. Nature and Treatment of Interest on Deposits and Yield on Deposit Substitutes. – (a) The interest earned on Philippine Currency bank deposits and yield from deposit substitutes subjected to the withholding taxes in accordance with these regulations need not be included in the gross income in computing the depositor's/investor's income tax liability in accordance with the provision of Section 29 (b), (c) and (d) of the National Internal Revenue Code, as amended. (b) Only interest paid or accrued on bank deposits, or yield from deposit substitutes declared for purposes of imposing the withholding taxes in accordance with these regulations shall be allowed as interest expense deductible for purposes of computing taxable net income of the payor. (c) If the recipient of the above-mentioned items of income are financial institutions, the same shall be included as part of the tax base upon which the gross receipt tax is imposed. Revenue Regulations No. 17-84 categorically states that if the recipient of the abovementioned items of income are financial institutions, the same shall be included as part of the tax base upon which the gross receipt tax is imposed. There is, therefore, an implied repeal of Section 4(e). There exists a disparity between Section 4(e) which imposes the GRT only on all items of income actually received (as opposed to their mere accrual) and Section 7(c) which includes all interest income (whether actual or accrued) in computing the GRT. As held by this Court in Commissioner of Internal Revenue v. Solidbank Corporation,23 "the exception having been eliminated, the clear intent is that the later R.R. No. 17-84 includes the exception within the scope of the general rule." Clearly, then, the current Revenue Regulations require interest income, whether actually received or merely accrued, to form part of the bank's taxable gross receipts.2

Moreover, this Court, in Bank of Commerce,25 settled the matter by holding that "actual receipt may either be physical receipt or constructive receipt," thus: Actual receipt of interest income is not limited to physical receipt. Actual receipt may either be physical receipt or constructive receipt. When the depositary bank withholds the final tax to pay the tax liability of the lending bank, there is prior to the withholding a constructive receipt by the lending bank of the amount withheld. From the amount constructively received by the lending bank, the depositary bank deducts the final withholding tax and remits it to the government for the account of the lending bank. 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. The concept of a withholding tax on income obviously and necessarily implies that the amount of the tax withheld comes from the income earned by the taxpayer. Since the amount of the tax withheld constitute income earned by the taxpayer, then that amount manifestly forms part of the taxpayer's gross receipts. Because the amount withheld belongs to the taxpayer, he can transfer its ownership to the government in payment of his tax liability. The amount withheld indubitably comes from the income of the taxpayer, and thus forms part of his gross receipts. Corollarily, the Commissioner contends that the imposition of the 20% FWT and 5% GRT does not constitute double taxation. We agree. Double taxation means taxing for the same tax period the same thing or activity twice, when it should be taxed but once, for the same purpose and with the same kind of character of tax.26 This is not the situation in the case at bar. The GRT is a percentage tax under Title V of the Tax Code ([Section 121], Other Percentage Taxes), while the FWT is an income tax under Title II of the Code (Tax on Income). The two concepts are different from each other. In Solidbank Corporation,27 this Court defined that a percentage tax is a national tax measured by a certain percentage of the gross selling price or gross value in money of goods sold, bartered or imported; or of the gross receipts or earnings derived by any person engaged in the sale of services. It is not subject to withholding. An income tax, on the other hand, is a national tax imposed on the net or the gross income realized in a taxable year. It is subject to withholding. Thus, there can be no double taxation here as the Tax Code imposes two different kinds of taxes. Now, both Asianbank and Citytrust rely on Manila Jockey Club28 in support of their positions. We are not convinced. In said case, Manila Jockey Club paid amusement tax on its commission in the total amount of bets called wager funds from the period November 1946 to October 1950. But such payment did not include the 5 ½ % of the funds which went to the Board on Races and to the owners of horses and jockeys. We ruled that the gross receipts of the Manila Jockey Club should not include the 5 ½% because although delivered to the Club, such money has been especially earmarked by law or regulation for other persons. The Manila Jockey Club29 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 other than 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, the withholding agent being merely a conduit in the collection process.30 The distinction was explained in Solidbank, thus:

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"The Manila Jockey Club had to deliver to the Board on Races, horse owners and jockeys amounts that never became the property of the race track (Manila Jockey Club merely held that these amounts were held in trust and did not form part of gross receipts). Unlike these amounts, the interest income that had been withheld for the government became property of the financial institutions upon constructive possession thereof. Possession was indeed acquired, since it was ratified by the financial institutions in whose name the act of possession had been executed. The money indeed belonged to the taxpayers; merely holding it in trust was not enough (A trustee does not own money received in trust.) It is a basic concept in taxation that such money does not constitute taxable income to the trustee [China Banking Corp. v. Court of Appeals, supra, p. 27]). The government subsequently becomes the owner of the money when the financial institutions pay the FWT to extinguish their obligation to the government. As this Court has held before, this is the consideration for the transfer of ownership of the FWT from these institutions to the government (Ibid., p. 26). It is ownership that determines whether interest income forms part of taxable gross receipts (Ibid., p. 27). Being originally owned by these financial institutions as part of their interest income, the FWT should form part of their taxable gross receipts. In fine, let it be stressed that tax exemptions are highly disfavored. It is a governing principle in taxation that tax exemptions are to be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority and should be granted only by clear and unmistakable terms. WHEREFORE, in G.R. No. 139786, we GRANT the petition of the Commissioner of Internal Revenue and REVERSE the Decision of the Court of Appeals dated August 17, 1999 in CAG.R. SP No. 52707. In G.R. No. 140857, we DENY the petition of Asianbank Corporation and AFFIRM in toto the Decision of the Court of Appeals in CA-G.R. SP No. 51248. Costs against petitioner. SO ORDERED. G.R. No. 147375 Cir v BPI June 26, 2006

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 — (i) Over four (4) years but 
 not exceeding seven (7) years. . . . . . . 1% (ii) 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 28 of this Code . . . . . . . . . . . . . . . . . . . . . . . . . 5% Provided, however, That in case the maturity period referred to in paragraph (a) is shortened thru pretermination, then the maturity period shall be reckoned to end as of the date of pretermination 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. As a domestic corporation, the interest earned by respondent Bank of the Philippine Islands (BPI) from deposits and similar arrangements are subjected to a final withholding tax of 20%. Consequently, the interest income it receives on amounts that it lends out are always net of the 20% withheld tax. As a bank, BPI is furthermore liable for a 5% gross receipts tax on all its income. For the four (4) quarters of the year 1996, BPI computed its 5% gross receipts tax payments by including in its tax base the 20% final tax on interest income that had been withheld and remitted directly to the Bureau of Internal Revenue (BIR). On 30 January 1996, the CTA rendered a decision in Asian Bank Corporation v. Commissioner of Internal Revenue,5 holding that the 20% final tax withheld on a bank‘s interest income did not form part of its taxable gross receipts for the purpose of computing gross receipts tax. BPI wrote the BIR a letter dated 15 July 1998 citing the CTA Decision in Asian Bank and requesting a refund of alleged overpayment of taxes representing 5% gross receipts taxes paid on the 20% final tax withheld at source. Inaction by the BIR on this request prompted BPI to file a Petition for Review against the Commissioner of Internal Revenue (Commissioner) with the CTA on 19 January 1999. Conceding its claim for the first three quarters of the year as having been barred by prescription, BPI only claimed alleged overpaid taxes for the final quarter of 1996. Following its own doctrine in Asian Bank, the CTA rendered a Decision,6 holding that the

At issue is the question of whether the 20% final tax on a bank‘s passive income, withheld from the bank at source, still forms part of the bank‘s gross income for the purpose of computing its gross receipts tax liability. Both the Court of Tax Appeals (CTA) and the Court of Appeals answered in the negative. We reverse, in favor of petitioner, following our ruling in China Banking Corporation v. Court of Appeals.1 A brief background of the tax law involved is in order. Domestic corporate taxpayers, including banks, are levied a 20% final withholding tax on bank deposits under Section 24(e)(1)2 in relation to Section 50(a)3 of Presidential Decree No. 1158, otherwise known as the National Internal Revenue Code of 1977 ("Tax Code"). Banks are also liable for a tax on gross receipts derived from sources within the Philippines under Section 1194 of the Tax Code, which provides, thus: Sec. 119. Tax on banks and non-bank financial intermediaries. — There shall be collected a tax on gross receipts derived from sources within the Philippines by all banks and non-

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20% final tax withheld did not form part of the respondent‘s taxable gross receipts and that gross receipts taxes paid thereon are refundable. However, it found that only P13,843,455.62 in withheld final taxes were substantiated by BPI; it awarded a refund of the 5% gross receipts tax paid thereon in the amount of P692,172.78. On appeal, the Court of Appeals promulgated a Decision7 affirming the CTA. It cited this Court‘s decision in Commissioner of Internal Revenue v. Tours Specialists, Inc.,8 in which we held that the "gross receipts subject to tax under the Tax Code do not include monies or receipts entrusted to the taxpayer which do not belong to them and do not redound to the taxpayer‘s benefit" in concluding that "it would be unjust and confiscatory to include the withheld 20% final tax in the tax base for purposes of computing the gross receipts tax since the amount corresponding to said 20% final tax was not received by the taxpayer and the latter derived no benefit therefrom."9 The Court of Appeals also held that Section 4(e) of Revenue Regulations No. 12-80 mandates the deduction of the final tax paid on interest income in computing the tax base for the gross receipts tax. Section 4(e) provides, thus: Gross receipts tax on banks, non-bank financial intermediaries, financing companies, and other non-bank financial intermediaries, not performing quasi-banking activities. – The rates of taxes to be imposed on the gross receipts of such financial institutions shall be based on all items of income actually received. Mere accrual shall not be considered, but once payment is received on such accrual or in case of prepayment, then the amount actually received shall be included in the tax base of such financial institutions, as provided hereunder. (Emphasis supplied.) The present Petition for Review filed by the Commissioner seeks to annul the adverse Decisions of the CTA and the Court of Appeals and raises the sole issue of whether the 20% final tax withheld on a bank‘s passive income should be included in the computation of the gross receipts tax. In assailing the findings of the lower courts, the Commissioner makes the following arguments: (1) the term "gross receipts" must be applied in its ordinary meaning; (2) there is no provision in the Tax Code or any special laws that excludes the 20% final tax in computing the tax base of the 5% gross receipts tax; (3) Revenue Regulations No. 12-80, Section 4(e), is inapplicable in the instant case; and (4) income need not actually be received to form part of the taxable gross receipts. Additionally, petitioner points out that the CTA Asian Bank case cited by petitioner BPI has already been superseded by the CTA decisions in Standard Chartered Bank v. Commissioner of Internal Revenue and Far East Bank and Trust Company v. Commissioner of Internal Revenue, both promulgated on 16 November 2001. The issues raised by the Commissioner have already been ruled upon in his favor by this Court in China Banking Corporation v. Court of Appeals10 and reiterated in Commissioner of Internal Revenue v. Solidbank Corporation11 and more recently in Commissioner of Internal Revenue v. Bank of Commerce.12 Consequently, the petition must be granted. The Tax Code does not provide a definition of the term "gross receipts."13 Accordingly, the term is properly understood in its plain and ordinary meaning14 and must be taken to comprise of the entire receipts without any deduction.15 We, thus, made the following disquisition in Bank of Commerce:16

The word "gross" must be used in its plain and ordinary meaning. It is defined as "whole, entire, total, without deduction." A common definition is "without deduction." "Gross" is also defined as "taking in the whole; having no deduction or abatement; whole, total as opposed to a sum consisting of separate or specified parts." Gross is the antithesis of net. Indeed, in China Banking Corporation v. Court of Appeals, the Court defined the term in this wise: As commonly understood, the term "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. As explained by the Supreme Court of Pennsylvania in Commonwealth of Pennsylvania v. Koppers Company, Inc., — Highly refined and technical tax concepts have been developed by the accountant and legal technician primarily because of the impact of federal income tax legislation. However, this in no way should affect or control the normal usage of words in the construction of our statutes; and we see nothing that would require us not to include the proceeds here in question in the gross receipts allocation unless statutorily such inclusion is prohibited. Under the ordinary basic methods of handling accounts, the term gross receipts, in the absence of any statutory definition of the term, must be taken to include the whole total gross receipts without any deductions, x x x. [Citations omitted] (Emphasis supplied)" Likewise, in Laclede Gas Co. v. City of St. Louis, the Supreme Court of Missouri held: The word "gross" appearing in the term "gross receipts," as used in the ordinance, must have been and was there used as the direct antithesis of the word "net." In its usual and ordinary meaning "gross receipts" of a business is the whole and entire amount of the receipts without deduction, x x x. On the contrary, "net receipts" usually are the receipts which remain after deductions are made from the gross amount thereof of the expenses and cost of doing business, including fixed charges and depreciation. Gross receipts become net receipts after certain proper deductions are made from the gross. And in the use of the words "gross receipts," the instant ordinance, of course, precluded plaintiff from first deducting its costs and expenses of doing business, etc., in arriving at the higher base figure upon which it must pay the 5% tax under this ordinance. (Emphasis supplied) Absent a statutory definition, the term "gross receipts" is understood in its plain and ordinary meaning. Words in a statute are taken in their usual and familiar signification, with due regard to their general and popular use. The Supreme Court of Hawaii held in Bishop Trust Company v. Burns that — x x x It is fundamental that in construing or interpreting a statute, in order to ascertain the intent of the legislature, the language used therein is to be taken in the generally accepted and usual sense. Courts will presume that the words in a statute were used to express their meaning in common usage. This principle is equally applicable to a tax statute. [Citations omitted] (Emphasis supplied) Additionally, we held in Solidbank, to wit:17"[W]e note that US cases have persuasive effect in our jurisdiction, because Philippine income tax law is patterned after its US counterpart.

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"‗[G]ross receipts‘ with respect to any period means the sum of: (a) The total amoun t received or accrued during such period from the sale, exchange, or other disposition of x x x other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or property held by the taxpayer primarily for sale to customers in the ordinary course of its trade or business, and (b) The gross income, attributable to a trade or business, regularly carried on by the taxpayer, received or accrued during such period x x x." "x x x [B]y gross earnings from operations x x x was intended all operations x x x including incidental, subordinate, and subsidiary operations, as well as principal operations." "When we speak of the ‗gross earnings‘ of a person or corporation, we mean the entire earnings or receipts of such person or corporation from the business or operations to which we refer." From these cases, "gross receipts"] refer to the total, as opposed to the net, income. These are therefore the total receipts before any deduction for the expenses of management. Webster‘s New International Dictionary, in fact, defines gross as "whole or entire." The legislative intent to apply the term in its ordinary meaning may also be surmised from a historical perspective of the levy on gross receipts. From the time the gross receipts tax on banks was first imposed in 1946 under R.A. No. 39 and throughout its successive reenactments,18 the legislature has not established a definition of the term "gross receipts." Absent a statutory definition of the term, the BIR had consistently applied it in its ordinary meaning, i.e., without deduction. On the presumption that the legislature is familiar with the contemporaneous interpretation of a statute given by the administrative agency tasked to enforce the statute, subsequent legislative reenactments of the subject levy sans a definition of the term "gross receipts" reflect that the BIR‘s applica tion of the term carries out the legislative purpose.19 Furthermore, Section 119 (a)20 of the Tax Code expressly includes interest income as part of the base income from which the gross receipts tax on banks is computed. This express inclusion of interest income in taxable gross receipts creates a presumption that the entire amount of the interest income, without any deduction, is subject to the gross receipts tax.21 The exclusion of the 20% final tax on passive income from the taxpayer‘s tax base is effectively a tax exemption, the application of which is highly disfavored.22 The rule is that whoever claims an exemption must justify this right by the clearest grant of organic or statute law.23 Like the other banks who have asserted a right tantamount to exception under these circumstances, BPI has failed to present a clear statutory basis for its claim to take away the interest income withheld from the purview of the levy on gross tax receipts. Bereft of a clear statutory basis on which to hinge its claim, BPI‘s view, as adopted by the Court of Appeals, is that Section 4(e) of Revenue Regulations No. 12-80 establishes the exclusion of the 20% final tax withheld from the bank‘s taxable gross receipts. However, we agree with the Commissioner that BPI‘s asserted right under Section 4(e) of Revenue Regulations No. 12-80 presents a misconstruction of the provision. While, indeed,

the provision states that "[t]he rates of taxes to be imposed on the gross receipts of such financial institutions shall be based on all items of income actually received," it goes on to distinguish actual receipt from accrual, i.e., that "[m]ere accrual shall not be considered, but once payment is received on such accrual or in case of prepayment, then the amount actually received shall be included in the tax base of such financial institutions x x x." Section 4(e) recognizes that income could be recognized by the taxpayer either at the time of its actual receipt or its accrual,24 depending on the accounting method used by the taxpayer,25 but establishes the rule that, for purposes of gross receipts tax, interest income is taxable upon actual receipt of the income, as opposed to the time of its accrual. Section 4(e) does not exclude accrued interest income from gross receipts but merely postpones its inclusion until actual payment of the interest to the lending bank, thus mandating that "[m]ere accrual shall not be considered, but once payment is received on such accrual or in case of prepayment, then the amount actually received shall be included in the tax base of such financial institutions x x x."26 Even if Section 4(e) had been properly construed, it still cannot be the basis for deducting the income tax withheld since Section 4(e) has been superseded by Section 7 of Revenue Regulations No. 17-84, which states, thus: SECTION 7. Nature and Treatment of Interest on Deposits and Yield on Deposit Substitutes. — (a) The interest earned on Philippine Currency bank deposits and yield from deposit substitutes subjected to the withholding taxes in accordance with these regulations need not be included in the gross income in computing the depositor's/investor's income tax liability in accordance with the provision of Section 29(b), (c) and (d) of the National Internal Revenue Code, as amended. (b) Only interest paid or accrued on bank deposits, or yield from deposit substitutes declared for purposes of imposing the withholding taxes in accordance with these regulations shall be allowed as interest expense deductible for purposes of computing taxable net income of the payor. (c) If the recipient of the above-mentioned items of income are financial institutions, the same shall be included as part of the tax base upon which the gross receipt tax is imposed. (Emphasis supplied.) The provision categorically provides that if the recipient of interest subjected to withholding taxes is a financial institution, the interest shall be included as part of the tax base upon which the gross receipts tax is imposed. The implied repeal of Section 4(e) is undeniable. Section 4(e) imposes the gross receipts tax only on all items of income actually received, as opposed to their mere accrual, while Section 7 of Revenue Regulations No. 17-84 includes all interest income (whether actual or accrued) in computing the gross receipts tax.27 Section 4(e) of Revenue Regulations No. 12-80 was superseded by the later rule, because Section 4(e) thereof is not restated in Revenue Regulations No. 17-84.28 Clearly, then, the current revenue regulations requires interest income, whether actually received or merely accrued, to form part of the bank’s taxable gross receipts.29

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The Commissioner correctly controverts the conclusion made by the Court of Appeals that it would be "unjust and confiscatory to include the withheld 20% final tax in the tax base for purposes of computing the gross receipts tax since the amount corresponding to said 20% final tax was not received by the taxpayer and the latter derived no benefit therefrom."30 Receipt of income may be actual or constructive. We have held that the withholding process results in the taxpayer‘s constructive receipt of the income withheld, to wit: By analogy, we apply to the receipt of income the rules on actual and constructive possession provided in Articles 531 and 532 of our Civil Code. Under Article 531: "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 our will, or by the proper acts and legal formalities established for acquiring such right." Article 532 states: "Possession may be acquired by the same person who is to enjoy it, by his legal representative, by his agent, or by any person without any power whatever; but in the last case, the possession shall not be considered as acquired until the person in whose name the act of possession was executed has ratified the same, without prejudice to the juridical consequences of negotiorum gestio in a proper case." The last means of acquiring possession under Article 531 refers to juridical acts—the acquisition of possession by sufficient title—to which the law gives the force of acts of possession. Respondent argues that only items of income actually received should be included in its gross receipts. It claims that since the amount had already been withheld at source, it did not have actual receipt thereof. We clarify. Article 531 of the Civil Code clearly provides that the acquisition of the right of possession is through the proper acts and legal formalities established therefor. The withholding process is one such act. There may not be actual receipt of the income withheld; however, as provided for in Article 532, possession by any person without any power whatsoever shall be considered as acquired when ratified by the person in whose name the act of possession is executed. In our withholding tax system, possession is acquired by the payor as the withholding agent of the government, because the taxpayer ratifies the very act of possession for the government. There is thus constructive receipt. The processes of bookkeeping and accounting for interest on deposits and yield on deposit substitutes that are subjected to FWT are indeed—for legal purposes—tantamount to delivery, receipt or remittance.31 (Emphasis supplied.) Thus, BPI constructively received income by virtue of its acquiescence to the extinguishment of its 20% final tax liability when the withholding agents remitted BPI‘s income to the government. Consequently, it received the amounts corresponding to the 20% final tax and benefited therefrom.

The cases cited by BPI, Commissioner of Internal Revenue v. Tours Specialists, Inc.32 and Commissioner of Internal Revenue v. Manila Jockey Club, Inc., 33 in which this Court held that "gross receipts subject to tax under the Tax Code do not include monies or receipts entrusted to the taxpayer which do not belong to them and do not redound to the taxpayer's benefit,"34 only further substantiate the fact that BPI benefited from the withheld amounts. In Tours Specialists and Manila Jockey Club, the taxable entities held the subject monies not as income earned but as mere trustees. As such, they held the money entrusted to them but which neither belonged to them nor redounded to their benefit. On the other hand, BPI cannot be considered as a mere trustee; it is the actual owner of the funds. As owner thereof, it was BPI‘s tax obligation to the government that was extinguished upon the withholding agent‘s remittance of the 20% final tax. We elucidated on BPI‘s ownership of the funds in China Banking, to wit: Manila Jockey Club does not support CBC‘s contention but rather the Commissioner‘s proposition. The Court ruled in Manila Jockey Club that receipts not owned by the Manila Jockey Club but merely held by it in trust did not form part of Manila Jockey Club‘s gross receipts. Conversely, receipts owned by the Manila Jockey Club would form part of its gross receipts. In the instant case, CBC owns the interest income which is the source of payment of the final 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. In Commissioner v. Tours Specialists, Inc., the Court excluded from gross receipts money entrusted by foreign tour operators to Tours Specialists to pay the hotel accommodation of tourists booked in various local hotels. The Court declared that Tours Specialists did not own such entrusted funds and thus the funds were not subject to the 3% contractor‘s tax payable by Tours Specialists. The Court held: x x x [G]ross receipts subject to tax under the Tax Code do not include monies or receipts entrusted to the taxpayer which do not belong to them and do not redound to the taxpayer’s benefit; and it is not necessary that there must be a law or regulation which would exempt such monies and receipts within the meaning of gross receipts under the Tax Code. x x x [T]he room charges entrusted by the foreign travel agencies to the private respondent do not form part of its gross receipts within the definition of the Tax Code. The said receipts never belonged to the private respondent. The private respondent never benefited from their payment to the local hotels. x x x [T]his arrangement was only to accommodate the foreign travel agencies. Unless otherwise provided by law, ownership is essential in determining whether interest income forms part of taxable gross receipts. Ownership is the circumstance that makes interest income part of the taxable gross receipts of the taxpayer. When the taxpayer acquires ownership of money representing interest, the money constitutes income or receipt of the taxpayer.

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In contrast, the trustee or agent does not own the money received in trust and such money does not constitute income or receipt for which the trustee or agent is taxable. This is a fundamental concept in taxation. Thus, funds received by a money remittance agency for transfer and delivery to the beneficiary do not constitute income or gross receipts of the money remittance agency. Similarly, a travel agency that collects ticket fares for an airline does not include the ticket fare in its gross income or receipts. In these cases, the money remittance agency or travel agency does not acquire ownership of the funds received.35 (Emphasis supplied.) BPI argues that to include the 20% final tax withheld in its gross receipts tax base would be to tax twice its passive income and would constitute double taxation. Granted that interest income is being taxed twice, this, however, does not amount to double taxation. There is no double taxation if the law imposes two different taxes on the same income, business or property. 36 In Solidbank, we ruled, thus: Double taxation means taxing the same property twice when it should be taxed only once; that is, "x x x 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," the two taxes must be imposed on the same subject matter, for the same purpose, by the same taxing authority, within the same jurisdiction, during the same taxing period; and they must be of the same kind or character. First, the taxes herein are imposed on two different subject matters. The subject matter of the FWT [Final Withholding Tax] is the passive income generated in the form of interest on deposits and yield on deposit substitutes, while the subject matter of the GRT [Gross Receipts Tax] is the privilege of engaging in the business of banking. A tax based on receipts is a tax on business rather than on the property; hence, it is an excise rather 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. The FWT is deducted and withheld as soon as the income is earned, and is paid after every calendar quarter in which it is earned. On the other hand, the GRT is neither deducted nor withheld, but is paid only after every taxable quarter in which it is earned. Third, these two taxes are of different kinds or characters. The FWT is an income tax subject to 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.37 Clearly, therefore, despite the fact that that interest income is taxed twice, there is no

double taxation present in this case. An interpretation of the tax laws and relevant jurisprudence shows that the tax on interest income of banks withheld at source is included in the computation of their gross receipts tax base. WHEREFORE, the Petition is GRANTED. The assailed Decisions of the Court of Appeals and the Court of Tax Appeals are REVERSED AND SET ASIDE. Petitioner Commissioner of Internal Revenue‘s denial of respondent Bank of Philippine Islands‘ claim for refund is SUSTAINED. No costs. SO ORDERED.

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