CASE DIGESTS FOR FEB 20 Gulf Air v CIR Facts: 1.

GF is a PH branch of Gulf Air Company organized under Bahrain laws 2. GF availed of the ff and paid over 11M tax a. Voluntary Assessment Program of the BIR under RR 8-2001 i. for its 1999 and 2000 Income Tax ii. Documentary Stamp Tax iii. Percentage Tax for the third quarter of 2000 iv. Refund of percentage taxes for the first, second and fourth quarters of 2000 3. A letter of authority was issued by the BIR authorizing its revenue officers to examine GFs books of accounts and other records to verify its claim. 4. After submission of docs and conferences with the BIR, GF was assessed of deficiency percentage tax amounting to over 32M and the refund of percentage tax was not granted 5. After receiving the formal letter of demand, GF filed a protest for the assessment and reiterated its request for reconsideration on the denial of its claim for refund 6. OIC of Large Taxpayers Service of the BIR denied protest for lack of factula basis 7. GF filed a petition for review with the CTA. 8. CTA 2nd division dismissed the petition, asked GF to pay over 41M a. RR 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) b. GF failed to include in its gross receipts the special commissions on passengers and cargo c. RR 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. 9. CTA en Bacn affirmed 2nd div decision ruling that RR 6-66 is applicable since assessement covers 1st, 2nd, 4th quarter of 2000 and percentage tax returns were filed in Oct 2011 10. GF questions the validity of Revenue Regulations No. 6-66 a. claiming that it is not a correct interpretation of Section 118(A) of the NIRC b. insisting that the gross receipts should be based on the "net net" amount the amount actually received, derived, collected, and realized by the petitioner from passengers, cargo and excess baggage. c. the CAB approved fares are merely notional and not reflective of the actual revenue or receipts derived by it from its business as an international air carrier. d. Revenue Regulations No. 6-66 has been validated by the issuance of Revenue Regulations No. 152002 which expressly superseded the former. Issues: 1. W/ RR No. 6-66 or RR No. 15-2000 is the applicable law Ruling: 1. 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 carriers tax was Revenue Regulations No. 6-66. a. While the petitioners 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. b. because tax laws, including rules and regulations, operate prospectively unless otherwise legislatively intended by express terms or by necessary implication. c. RR 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 rule-making authority given to those who formulate them and their specific expertise in their

d.

respective fields." The Court cannot be compelled to set aside its decisions, unless there is a finding that the questioned decision is not supported by substantial evidence or there is a showing of abuse or improvident exercise of authority. Tax refunds partake the nature of tax exemptions which are a derogation of the power of taxation of the State. Consequently, they are construed strictly against a taxpayer and liberally in favor of the State. Regrettably, the petitioner in the case at bench failed to unequivocally prove that it is entitled to a refund.

China Banking v CIR

Facts: 1. 2. 3. 4. 5. 6. 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 banks 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 CBCs passive interest income in 1994. Commissioner claims a. that CBC paid the gross receipts tax pursuant to Section 119 (now Section 121) of the NIRC. b. that the final withholding tax on a banks interest income forms part of its g ross receipts in computing the gross receipts tax. c. the term gross receipts means the entire income or receipt, without any deduction. Ruling of CTA a. CTA ruled in favor of CBC and held that 20% Final withholding tax on interest income does not form part of CBCs taxable gross income based on the Asian Bank ruling. Ruling of CA a. CA affirmed the CTA ruling

7.

8.

Issues: Whether the 20% final withholding tax on interest income should form part of CBCs gross receipts in computing the gross receipts tax on banks? Ruling: The amount of interest income withheld in payment of the 20% final withholding tax forms part of CBCs gross receipts in computing the gross receipts tax on banks. a. 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 BIRs 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. b. 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 banks taxable gross receipts. 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 banks 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. 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 lenders 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 banks gross receipts. 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. 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 also relies on the Tax Courts ruling in Asian Bank that Section 4(e) of Revenue Regulations No. 12-80 authorizes the exclusion of the final tax from the banks 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.

CBCs 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