534 Phil. 517
SANDOVAL-GUTIERREZ, J.:
(D) Rates of Tax on Certain Passive Incomes -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:
(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
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 non-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 -(1) Over four (4) years but not exceeding
seven (7) years 1%(2) Over seven (7) years 0%
(b) On dividends0%
(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.
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.
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).Hence, the present consolidated petitions.
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.x x x
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.
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)
[W]e note that US cases have persuasive effect in our jurisdiction because Philippine income tax law is patterned after its US counterpart.
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. 39[21] and throughout its successive re-enactments,[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 re-enactments 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 re-enactments of the present Section 121, without changes in the term interpreted by the BIR, confirm that its interpretation carries out the legislative purpose.[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."
SECTION 7. Nature and Treatment of Interest on Deposits and Yield on Deposit Substitutes. -
Revenue Regulations No. 17-84 categorically states that 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. 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.[24](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.
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.Corollarily, the Commissioner contends that the imposition of the 20% FWT and 5% GRT does not constitute double taxation.
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.
"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]).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.
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.
"WHEREFORE, in view of the foregoing, Respondent is hereby ORDERED to REFUND or to ISSUE a tax credit certificate in favor of Petitioner in the amount of P39,629.44 representing overpaid gross receipts tax for the taxable year 1994."[9] G.R. No. 66416, March 21, 1990, 183 SCRA 402.
"Sec. 249. Tax on banks. - There shall be collected a tax of five per centum on the gross receipts derived by all banks doing business in the Philippines from interests, discounts, dividends, commissions, profits from exchange, royalties, rentals of property, real and personal, and all other items treated as gross income under section twenty-nine of this Code."[22] Since 1 October 1946 when R.A. No. 39 first imposed the gross receipts tax on banks under Section 249 of the Tax Code, the legislature has re- enacted several times this section of the Tax Code. On 24 December 1972, Presidential Decree No. 69, which enacted into law the Omnibus Tax Bill of 1972, re-enacted Section 249 of the Tax Code. Then on 11 June 1977, Presidential Decree No. 1158, otherwise known as the National Internal Revenue Code of 1977, re-enacted Section 249 as Section 119 of the Tax Code. Finally, on 11 December 1997, Republic Act No. 8424, otherwise known as the Tax Reform Act of 1987, re-enacted Section 119 as the present Section 121 of the Tax Code. (See China Banking Corporation v. Court of Appeals, supra).