Republic of
the
Supreme
Court
SECOND DIVISION
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DUMAGUETE
CATHEDRAL |
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G.R. No. 182722 |
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CREDIT
COOPERATIVE |
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[DCCCO],
Represented by |
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Present: |
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Felicidad L.
Ruiz, its General |
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Manager, |
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CARPIO, J., Chairperson, |
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Petitioner, |
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BRION, |
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-versus- |
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ABAD, and |
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PEREZ, JJ. |
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COMMISSIONER OF |
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INTERNAL REVENUE, |
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Promulgated: |
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Respondent. |
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January 22, 2010 |
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D E C I S I O N
The clashing interests of the State and the taxpayers are again pitted
against each other. Two basic principles,
the State’s inherent power of taxation and its declared policy of fostering the
creation and growth of cooperatives come into play. However, the one that embodies the spirit of
the law and the true intent of the legislature prevails.
This Petition
for Review on Certiorari under Section 11 of Republic Act (RA) No. 9282,[1]
in relation to Rule 45 of the Rules of Court, seeks to set aside the December
18, 2007 Decision[2] of
the Court of Tax Appeals (CTA), ordering petitioner to pay deficiency
withholding taxes on interest from savings and time deposits of its members for
taxable years 1999 and 2000, pursuant to Section 24(B)(1) of the National
Internal Revenue Code of 1997 (NIRC), as well as the delinquency interest of
20% per annum under Section 249(C) of the same Code. It also assails the
Factual
Antecedents
Petitioner
Dumaguete Cathedral Credit Cooperative (DCCCO) is a credit cooperative duly
registered with and regulated by the Cooperative Development Authority (CDA).[4] It was established on February 17, 1968[5]
with the following objectives and purposes: (1) to increase the income and
purchasing power of the members; (2) to pool the resources of the members by
encouraging savings and promoting thrift to mobilize capital formation for
development activities; and (3) to extend loans to members for provident and
productive purposes.[6] It has the power (1) to draw, make, accept,
endorse, guarantee, execute, and issue promissory notes, mortgages, bills of
exchange, drafts, warrants, certificates and all kinds of obligations and
instruments in connection with and in furtherance of its business operations;
and (2) to issue bonds, debentures, and other obligations; to contract
indebtedness; and to secure the same with a mortgage or deed of trust, or
pledge or lien on any or all of its real and personal properties.[7]
On November 27,
2001, the Bureau of Internal Revenue (BIR) Operations Group Deputy
Commissioner, Lilian B. Hefti, issued Letters of Authority Nos. 63222 and
63223, authorizing BIR Officers Tomas Rambuyon and Tarcisio Cubillan of Revenue
Region No. 12, Bacolod City, to examine petitioner’s books of accounts and
other accounting records for all internal revenue taxes for the taxable years
1999 and 2000.[8]
Proceedings
before the BIR Regional Office
On
On P87,977.86, excluding penalties
and interest.[11]
In another
letter dated November 8, 2002, petitioner also informed the BIR Assistant
Regional Director, Rogelio B. Zambarrano, that it would pay the withholding
taxes due on the honorarium and per diems of the Board of Directors,
security and janitorial services, commissions and legal & professional fees
for the year 2000 in the amount of P119,889.37, excluding penalties and
interest, and that it would avail of the Voluntary Assessment and Abatement
Program (VAAP) of the BIR under Revenue Regulations No. 17-2002.[12]
On November 29,
2002, petitioner availed of the VAAP and paid the amounts of P105,574.62
and P143,867.24[13]
corresponding to the withholding taxes on the payments for the compensation,
honorarium of the Board of Directors, security and janitorial services, and
legal and professional services, for the years 1999 and 2000, respectively.
On P1,489,065.30 and P1,462,644.90, respectively.[14]
Proceedings
before the Commissioner of Internal Revenue
On
Proceedings
before the CTA First Division
The case was
raffled to the First Division of the CTA which rendered its Decision on
IN VIEW OF ALL THE FOREGOING, the Petition for
Review is hereby PARTIALLY GRANTED. Assessment Notice Nos. 00026-2003 and
00027-2003 are hereby MODIFIED and the assessment for deficiency withholding
taxes on the honorarium and per diems of petitioner’s Board of Directors,
security and janitorial services, commissions and legal and professional fees
are hereby CANCELLED. However, the assessments for deficiency withholding taxes
on interests are hereby AFFIRMED.
Accordingly, petitioner is ORDERED TO PAY the
respondent the respective amounts of P1,280,145.89 and P1,357,881.14
representing deficiency withholding taxes on interests from savings and time
deposits of its members for the taxable years 1999 and 2000. In addition, petitioner is ordered to pay the
20% delinquency interest from
SO ORDERED.[17]
Dissatisfied,
petitioner moved for a partial reconsideration, but it was denied by the First
Division in its Resolution dated
Proceedings
before the CTA En Banc
On
Finding no
reversible error in the Decision dated
The CTA En
Banc held that Section 57 of the NIRC requires the withholding of tax at
source. Pursuant thereto, Revenue Regulations
No. 2-98 was issued enumerating the income payments subject to final
withholding tax, among which is “interest from any peso bank deposit and yield,
or any other monetary benefit from deposit substitutes and from trust funds and
similar arrangements x x x”. According
to the CTA En Banc, petitioner’s business falls under the phrase
“similar arrangements;” as such, it should have withheld the corresponding 20%
final tax on the interest from the deposits of its members.
Issue
Hence, the
present recourse, where petitioner raises the issue of whether or not it is
liable to pay the deficiency withholding taxes on interest from savings and
time deposits of its members for the taxable years 1999 and 2000, as well as
the delinquency interest of 20% per annum.
Petitioner’s Arguments
Petitioner argues
that Section 24(B)(1) of the NIRC which reads in part, to wit:
SECTION 24. Income Tax Rates. —
x x x x
(B) Rate of Tax on Certain Passive Income: —
(1)
Interests, Royalties, Prizes, and Other Winnings. — A final tax at the
rate of twenty percent (20%) is hereby imposed upon the amount of interest from
any currency bank deposit and yield or any other monetary benefit from deposit
substitutes and from trust funds and similar arrangements; x x x
applies only to
banks and not to cooperatives, since the phrase “similar arrangements” is
preceded by terms referring to banking transactions that have deposit
peculiarities. Petitioner thus posits
that the savings and time deposits of members of cooperatives are not included
in the enumeration, and thus not subject to the 20% final tax. To bolster its position, petitioner cites BIR
Ruling No. 551-888[23]
and BIR Ruling [DA-591-2006][24]
where the BIR ruled that interests from deposits maintained by members of
cooperative are not subject to withholding tax under Section 24(B)(1) of the
NIRC. Petitioner further contends that
pursuant to Article XII, Section 15 of the Constitution[25]
and Article 2 of Republic Act No. 6938 (RA 6938) or the Cooperative Code of the
Philippines,[26] cooperatives
enjoy a preferential tax treatment which exempts their members from the
application of Section 24(B)(1) of the NIRC.
Respondent’s Arguments
As a
counter-argument, respondent invokes the legal maxim “Ubi lex non distinguit nec nos distinguere debemos” (where the law
does not distinguish, the courts should not distinguish). Respondent maintains that Section 24(B)(1) of
the NIRC applies to cooperatives as the phrase “similar arrangements” is not
limited to banks, but includes cooperatives that are depositaries of their
members. Regarding the exemption relied
upon by petitioner, respondent adverts to the jurisprudential rule that tax
exemptions are highly disfavored and construed strictissimi juris against the taxpayer and liberally in favor of the
taxing power. In this connection,
respondent likewise points out that the deficiency tax assessments were issued against
petitioner not as a taxpayer but as a withholding agent.
Our Ruling
The petition has
merit.
Petitioner’s invocation of BIR Ruling No.
551-888, reiterated in BIR Ruling [DA-591-2006], is proper.
On
BIR RULING NO. 551-888
24 369-88 551-888
Gentlemen:
This refers to your letter dated
Based on the foregoing representations, you now
request in effect a ruling as to whether or not you are exempt from the
following:
1.
Payment of
sales tax
2.
Filing and
payment of income tax
3.
Withholding
taxes from compensation of
employees and savings account and time deposits of members. (Underscoring ours)
In reply, please be informed that Executive Order
No. 93 which took effect on March 10, 1987 withdrew all tax exemptions and
preferential privileges e.g., income tax and sales tax, granted to cooperatives
under P.D. No. 175 which were previously withdrawn by P.D. No. 1955 effective
October 15, 1984 and restored by P.D. No. 2008 effective January 8, 1986. However, implementation of said Executive Order
insofar as electric, agricultural, irrigation and waterworks cooperatives are
concerned was suspended until
Moreover, under Section 72(a) of the Tax Code, as
amended, every employer making payment of wages shall deduct and withhold upon
such wages a tax at the rates prescribed by Section 21(a) in relation to
section 71, Chapter X, Title II, of the same Code as amended by Batas Pambansa
Blg. 135 and implemented by Revenue Regulations No. 6-82 as amended. Accordingly, as an employer you are required
to withhold the corresponding tax due from the compensation of your employees.
Furthermore, under Section 50(a) of the Tax Code,
as amended, the tax imposed or prescribed by Section 21(c) of the same Code on
specified items of income shall be withheld by payor-corporation and/or person
and paid in the same manner and subject to the same conditions as provided in
Section 51 of the Tax Code, as amended. Such
being the case, and since interest from any Philippine currency bank deposit
and yield or any other monetary benefit from deposit substitutes are paid by
banks, you are not the party required to withhold the corresponding tax on the
aforesaid savings account and time deposits of your members. (Underscoring ours)
Very truly yours,
(SGD.) BIENVENIDO A. TAN, JR.
Commissioner
The CTA First Division, however, disregarded the above quoted
ruling in determining whether petitioner is liable to pay the deficiency
withholding taxes on interest from the deposits of its members. It ratiocinated in this wise:
This Court does not agree. As correctly pointed
out by respondent in his Memorandum, nothing in the above quoted resolution
will give the conclusion that savings account and time deposits of members of a
cooperative are tax-exempt. What is entirely clear is the opinion of the
Commissioner that the proper party to withhold the corresponding taxes on
certain specified items of income is the payor-corporation and/or person. In
the same way, in the case of interests earned from Philippine currency deposits
made in a bank, then it is the bank which is liable to withhold the
corresponding taxes considering that the bank is the payor-corporation. Thus,
the ruling that a cooperative is not the proper party to withhold the
corresponding taxes on the aforementioned accounts is correct. However, this
ruling does not hold true if the savings and time deposits are being maintained
in the cooperative, for in this case, it is the cooperative which becomes the
payor-corporation, a separate entity acting no more than an agent of the
government for the collection of taxes, liable to withhold the corresponding
taxes on the interests earned. [27] (Underscoring
ours)
The
CTA En Banc affirmed the above-quoted
Decision and found petitioner’s invocation of BIR Ruling No. 551-88 misplaced. According to the CTA En Banc, the BIR Ruling was based on the premise that the savings
and time deposits were placed by the members of the cooperative in the bank.[28]
Consequently, it ruled that the BIR Ruling does not apply when the deposits are
maintained in the cooperative such as the instant case.
We disagree.
There
is nothing in the ruling to suggest that it applies only when deposits are maintained
in a bank. Rather, the ruling clearly states,
without any qualification, that since interest from any Philippine currency
bank deposit and yield or any other monetary benefit from deposit substitutes
are paid by banks, cooperatives are not required to withhold the corresponding
tax on the interest from savings and time deposits of their members. This interpretation was reiterated in BIR Ruling
[DA-591-2006] dated October 5, 2006, which was issued by Assistant Commissioner
James H. Roldan upon the request of the cooperatives for a confirmatory ruling
on several issues, among which is the alleged exemption of interest income on
members’ deposit (over and above the share capital holdings) from the 20% final
withholding tax. In the said ruling, the
BIR opined that:
x x x x
3. Exemption of interest income on members’
deposit (over and above the share capital holdings) from the 20% Final Withholding
Tax.
The National Internal Revenue
Code states that 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 the deposit substitutes and from trust funds and
similar arrangement x x x” for individuals under Section 24(B)(1) and for
domestic corporations under Section 27(D)(1).
Considering the members’ deposits with the cooperatives are not
currency bank deposits nor deposit substitutes, Section 24(B)(1) and Section
27(D)(1), therefore, do not apply to members of cooperatives and to deposits of
primaries with federations, respectively.
It bears
stressing that interpretations of administrative agencies in charge of
enforcing a law are entitled to great weight and consideration by the courts,
unless such interpretations are in a sharp conflict with the governing statute
or the Constitution and other laws.[29] In this case, BIR Ruling No. 551-888 and BIR
Ruling [DA-591-2006] are in perfect harmony with the Constitution and the laws
they seek to implement. Accordingly, the interpretation in BIR Ruling No.
551-888 that cooperatives are not required to withhold the corresponding tax on
the interest from savings and time deposits of their members, which was reiterated
in BIR Ruling [DA-591-2006], applies to
the instant case.
Members of cooperatives deserve a preferential
tax treatment pursuant to RA 6938, as amended by RA 9520.
Given that
petitioner is a credit cooperative duly registered with the Cooperative
Development Authority (CDA), Section 24(B)(1) of the NIRC must be read together
with RA 6938, as amended by RA 9520.
Under Article 2
of RA 6938, as amended by RA 9520, it is a declared policy of the State to
foster the creation and growth of cooperatives as a practical vehicle for
promoting self-reliance and harnessing people power towards the attainment of
economic development and social justice. Thus, to encourage the formation of
cooperatives and to create an atmosphere conducive to their growth and
development, the State extends all forms of assistance to them, one of which is
providing cooperatives a preferential tax treatment.
The legislative
intent to give cooperatives a preferential tax treatment is apparent in
Articles 61 and 62 of RA 6938, which
read:
ART.
61. Tax Treatment of Cooperatives.
— Duly registered cooperatives under this Code which do not transact any
business with non-members or the general public shall not be subject to any
government taxes and fees imposed under the Internal Revenue Laws and other tax
laws. Cooperatives not falling under this article shall be governed by the
succeeding section.
ART.
62. Tax and Other Exemptions. — Cooperatives
transacting business with both members and nonmembers shall not be subject to
tax on their transactions to members.
Notwithstanding the provision of any law or regulation to the contrary,
such cooperatives dealing with nonmembers shall enjoy the following tax
exemptions; x x x.
This exemption
extends to members of cooperatives. It
must be emphasized that cooperatives exist for the benefit of their
members. In fact, the primary objective
of every cooperative is to provide goods and services to its members to enable
them to attain increased income, savings, investments, and productivity.[30]
Therefore, limiting the application of the tax exemption to cooperatives would
go against the very purpose of a credit cooperative. Extending the exemption to members of
cooperatives, on the other hand, would be consistent with the intent of the
legislature. Thus, although the tax
exemption only mentions cooperatives, this should be construed to include the members,
pursuant to Article 126 of RA 6938, which provides:
ART.
126. Interpretation
and Construction. – In case of doubt
as to the meaning of any provision of this Code or the regulations issued in
pursuance thereof, the same shall be
resolved liberally in favor of the cooperatives and their members.
We need not
belabor that what is within the spirit is within the law even if it is not
within the letter of the law because the spirit prevails over the letter.[31] Apropos
is the ruling in the case of Alonzo v.
Intermediate Appellate Court,[32]
to wit:
But as has also been aptly observed, we test a law
by its results; and likewise, we may add, by its purposes. It is a cardinal
rule that, in seeking the meaning of the law, the first concern of the judge
should be to discover in its provisions the intent of the lawmaker.
Unquestionably, the law should never be interpreted in such a way as to cause
injustice as this is never within the legislative intent. An indispensable part
of that intent, in fact, for we presume the good motives of the legislature, is
to render justice.
Thus, we interpret and apply the law not
independently of but in consonance with justice. Law and justice are
inseparable, and we must keep them so. To be sure, there are some laws that,
while generally valid, may seem arbitrary when applied in a particular case
because of its peculiar circumstances. In such a situation, we are not bound,
because only of our nature and functions, to apply them just the same, [is]
slavish obedience to their language. What we do instead is find a balance
between the word and the will, that justice may be done even as the law is
obeyed.
As judges, we are not automatons. We do not and
must not unfeelingly apply the law as it is worded, yielding like robots to the
literal command without regard to its cause and consequence. “Courts are apt to
err by sticking too closely to the words of a law,” so we are warned, by
Justice Holmes again, “where these words import a policy that goes beyond
them.” While we admittedly may not legislate, we nevertheless have the power to
interpret the law in such a way as to reflect the will of the legislature.
While we may not read into the law a purpose that is not there, we nevertheless
have the right to read out of it the reason for its enactment. In doing so, we
defer not to “the letter that killeth” but to “the spirit that vivifieth,” to
give effect to the lawmaker’s will.
The spirit, rather than the letter of a statute
determines its construction, hence, a statute must be read according to its
spirit or intent. For what is within the spirit is within the statute
although it is not within the letter thereof, and that which is within the
letter but not within the spirit is not within the statute. Stated differently,
a thing which is within the intent of the lawmaker is as much within the
statute as if within the letter; and a thing which is within the letter of
the statute is not within the statute unless within the intent of the
lawmakers. (Underscoring ours)
It is also
worthy to note that the tax exemption in RA 6938 was retained in RA 9520. The only difference is that Article 61 of RA
9520 (formerly Section 62 of RA 6938) now expressly states that transactions of
members with the cooperatives are not subject to any taxes and fees. Thus:
ART. 61. Tax and Other
Exemptions. Cooperatives transacting business with both members and
non-members shall not be subjected to tax on their transactions with members. In
relation to this, the transactions of members with the cooperative shall not be
subject to any taxes and fees, including but not limited to final taxes on
members’ deposits and documentary tax. Notwithstanding the provisions of
any law or regulation to the contrary, such cooperatives dealing with
nonmembers shall enjoy the following tax exemptions: (Underscoring ours)
x
x x x
This amendment in
Article 61 of RA 9520, specifically providing that members of cooperatives are
not subject to final taxes on their deposits, affirms the interpretation of the
BIR that Section 24(B)(1) of the NIRC does not apply to cooperatives and
confirms that such ruling carries out the legislative intent. Under the principle of legislative approval of
administrative interpretation by reenactment, the reenactment of a statute
substantially unchanged is persuasive indication of the adoption by Congress of
a prior executive construction.[33]
Moreover, no less than our
Constitution guarantees the protection of cooperatives. Section 15, Article XII of the Constitution
considers cooperatives as instruments for social justice and economic
development. At the same time, Section 10 of Article II of the Constitution
declares that it is a policy of the State to promote social justice in all
phases of national development. In relation
thereto, Section 2 of Article XIII of the Constitution states that the
promotion of social justice shall include the commitment to create economic
opportunities based on freedom of initiative and self-reliance. Bearing in mind the foregoing provisions, we find
that an interpretation exempting the members of cooperatives from the
imposition of the final tax under Section 24(B)(1) of the NIRC is more in
keeping with the letter and spirit of our Constitution.
All told, we
hold that petitioner is not liable to pay the assessed deficiency withholding
taxes on interest from the savings and time deposits of its members, as well as
the delinquency interest of 20% per annum.
In closing,
cooperatives, including their members, deserve a preferential tax treatment
because of the vital role they play in the attainment of economic development
and social justice. Thus, although taxes
are the lifeblood of the government, the State’s power to tax must give way to
foster the creation and growth of cooperatives.
To borrow the words of Justice Isagani A. Cruz: “The power of taxation,
while indispensable, is not absolute and may be subordinated to the demands of
social justice.”[34]
WHEREFORE, the Petition is hereby GRANTED. The assailed
SO
ORDERED.
MARIANO C.
Associate Justice
WE
CONCUR:
ANTONIO T. CARPIO
Associate Justice
Chairperson
|
ARTURO D. BRION Associate
Justice |
ROBERTO A. ABAD Associate
Justice |
JOSE P. PEREZ
Associate Justice
ATTESTATION
I
attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the
Court’s Division.
ANTONIO T.
CARPIO
Associate Justice
Chairperson, Second Division
C E R T I F I C A T I O N
Pursuant
to Section 13, Article VIII of the Constitution, and the Division Chairperson’s
attestation, it is hereby certified that the conclusions in the above Decision
had been reached in consultation before the case was assigned to the writer of
the opinion of the Court’s Division.
REYNATO S. PUNO
Chief Justice
[1] An
Act Expanding the Jurisdiction of the Court of Tax Appeals (CTA), Elevating its
Rank to the Level of a Collegiate Court with Special Jurisdiction and Enlarging
its Membership, Amending for the Purpose Certain Sections of Republic Act No.
1125, As Amended, otherwise known as the Law Creating the Court of Tax Appeals,
and for Other Purposes.
[2] Rollo, pp. 45-64; penned by Associate
Justice Olga Palanca-Enriquez and concurred in by Presiding Justice Ernesto D.
Acosta and Associate Justices Juanito C. Castañeda, Jr., Lovell R. Bautista,
Erlinda P. Uy and Caesar A. Casanova.
[3]
[4]
[5]
[6]
[7]
[8]
[9]
[10]
[11]
[12]
[13]
[14]
[15]
[16]
[17]
[18]
[19]
[20]
[21]
[22]
[23]
[24]
[25] SEC. 15. The Congress shall create an agency to promote the viability and growth of cooperatives as instruments for social justice and economic development.
[26] ART. 2. Declaration of Policy.- It is the
declared policy of the State to foster the creation and growth of cooperatives
as a practical vehicle for promoting self-reliance and harnessing people power
towards the attainment of economic development and social justice. The State
shall encourage the private sector to undertake the actual formation and
organization of cooperatives and shall create an atmosphere that is conducive
to the growth and development of these cooperatives.
Toward
this end, the Government and all its branches, subdivisions, instrumentalities
and agencies shall ensure the provision of technical guidance, financial
assistance and other services to enable said cooperatives to develop into
viable and responsive economic enterprises and thereby bring about a strong
cooperative movement that is free from any conditions that might infringe upon
the autonomy or organizational integrity of cooperatives.
Further,
the State recognizes the principle of subsidiarity under which the cooperative
sector will initiate and regulate within its own ranks the promotion and
organization, training and research, audit and support services relative to
cooperatives with government assistance where necessary.
(Now
amended by Republic Act No. 9520 or the Philippine Cooperative Code of 2008.)
[27] Rollo, pp. 62-63.
[28] Id. at 62.
[29] Nestle
Philippines, Inc. v. Court of Appeals, G.R. No. 86738,
[30] Republic act No. 6938, Article 7.
[31] Tañada and Macapagal v. Cuenco, et al., 103 Phil. 1051, 1086 (1957).
[32] 234 Phil. 267, 272-273 (1987).
[33] Commissioner of Internal Revenue v. American Express International, Inc. (Philippine Branch), 500 Phil. 586 (2005).
[34] Dissenting Opinion of Justice Isagani A.
Cruz in Republic of the