Case # 2 Khatriinah B.

Abella

Miguel J. Osorio Pension Foundation, Inc. vs. CA and CIR

GR # 162175 June 28, 2010

Facts:

Petitioner is a non-stock and nonprofit corporation – it was organized for the

purpose of holding title to and administering the employees trust or retirement funds
(Employees Trust Fund) established for the benefit of the employees of Victoria’s Milling
Company Inc. (VMC). Petitioner as trustee claims that the income earned by the employees
Trust Fund is tax exempt under Sec. 53(b) (now Sec. 60 (b) of the NIRC.

Petitioner as trustee of the employees fund invested part of said fund to purchase
a lot in Madrigal Business Park (MBP) located in Muntinlupa. Since petitioner needed funds
to pay the retirement and pension benefits of VMC employees and to reimburse advances
made by VMC, petitioner’s board of trustees authorized the sale of its share in the MBP
lot.

VMC eventually sold the MBP lot to Metrobank and as withholding agent; Metrobank
paid the amount of PHP 6, 125, 625.00 as withholding tax on the sale of the real property.

Petitioner claims that it is a co-owner of the MBP lot as trustee of the Employees
Trust Fund. Further, it contends that the Employees Trust Fund is exempt from income
tax. Since petitioner as trustee purchased 49.59% of the MBP lot using funds of the Trust
Fund, it asserts that their 49.59% share in the income tax paid amounting to PHP 3, 037,
697.40 rounded off to PHP 3, 037, 500 should be refunded. It maintained that the tax
exemption of the Trust Fund rendered the payment of income tax as illegal or erroneous –
which resulted in filing a claim for tax refund.

As action, the BIR stated that under Sec 26 of the Tax Code, petitioner is not
exempt from tax on its income from the sale of real property. The BIR asked petitioner to
submit documents to prove its co-ownership of the MBP lot and its exemption from tax.

Petitioner in reply said that the applicable provision granting its claim for tax
exemption is not Sec. 26 but Sec. 53 (b) of the Tax Code and that its co-ownership of the
MBP lot is evidenced by Board Resolution #s 92-34 and 96-46 and the MOA among
petitioner, VMC and its subsidiaries.

Since the BIR failed to act on petitioner’s claim, it was elevated to CIR - again no
action was taken hence, a petition for tax refund before the CTA was filed.

The CTA ruled that Sec. 53 (b) of the Tax Code talks about exemption from income
tax on the income or earnings of the Employees trust Fund. Also, that the petitioner is not
the pension trust itself but is a separate and distinct entity whose function is to
administer the pension plan for some VMC employees.
 As to the co-ownership of the lot, the CTA ruled that the evidences are self-
serving and cannot themselves prove the co-ownership of the petitioner of the MBP lot.
Further, petitioner failed to present any evidence to prove that the money used to
purchase the MBP lot came from the Employees Trust Fund. Thus, petitioner is estopped
from claiming a tax exemption.

When the claim was filed before the CA, the CA agreed that the pieces of
documentary evidence submitted are largely self-serving and can be contrived easily and
that the documents failed to show that the funds used to purchase the MBP lot came from
the Employees Trust Fund. Hence this petition.

Issue:

Whether or not petitioner is entitled to claim a refund for the income tax paid on
the sale of its co-owned MBP lot in its capacity as trustee of the Employees Trust Fund.

Ruling:

The court ruled that, the tax-exempt character of petitioner’s Employees Trust
Fund is not an issue in this case because the tax-exempt character of the Employees Trust
Fund has long been settled. It is also settled that petitioner exist for the purpose of
holding title to and administering the tax exempt Employees Trust Fund which was
established for the benefit of VMC’s employees. As such, petitioner has the personality to
claim tax refunds due to the Employees Trust Fund.

As to the proof of co-ownership of the MBP lot, the law expressly allows a co-owner
(1st co-owner) of a parcel of land to register his proportionate share in the name of his co-
owner (2nd co-owner) in whose name the entire land is registered. The 2nd co-owner serves
as a legal trustee of the 1st co-owner insofar as the proportionate share of the 1st co-
owner is concerned. The 1st co-owner remains the owner of his proportionate share and not
the 2nd co-owner in whose name the entire land is registered, as provided in Art. 1452 of
the NCC.

The income from the trust fund investments is therefore exempt from the
payment of income tax and consequently from the payment of the creditable withholding
tax on the sale of their real property.

Thus, the Employees Trust Fund owns 49.59% of the MBP lot.

Since petitioner has proven that the income from the sale of the MBP lot came
from an investment by the Employees Trust Fund, petitioner as trustee is entitled to claim
the tax refund of PHP 3, 037, 500.00 – which was erroneously paid in the sale of the MBP
lot.