Commissioner of Internal Revenue v. Citytrust
REITERATIONFacts
The Antecedents: Two consolidated petitions for review concerning the tax treatment of a bank's passive income. In G.R. No. 139786, Citytrust Investment Philippines, Inc. (Citytrust) sought a refund of the 5% Gross Receipts Tax (GRT) it paid on the 20% Final Withholding Tax (FWT) it claimed was erroneously included in its taxable gross receipts. In G.R. No. 140857, Asianbank Corporation (Asianbank) also sought a refund of overpaid GRT based on the same premise. Procedural History: In G.R. No. 139786, the Court of Tax Appeals (CTA) granted Citytrust's claim for refund, and the Court of Appeals affirmed this decision. In G.R. No. 140857, the CTA allowed Asianbank a reduced refund, but the Court of Appeals reversed the CTA and ruled in favor of the Commissioner of Internal Revenue (CIR). The Petition: The CIR assails the Court of Appeals' decision in G.R. No. 139786, while Asianbank challenges the Court of Appeals' decision in G.R. No. 140857. The central issue is whether the 20% FWT on a bank's passive income forms part of the taxable gross receipts for the purpose of computing the 5% GRT.
Issue(s)
Whether the twenty percent (20%) final withholding tax (FWT) on a bank's passive income forms part of the taxable gross receipts for the purpose of computing the five percent (5%) gross receipts tax (GRT). Whether the imposition of both the 20% FWT and the 5% GRT on the same passive income constitutes double taxation. Whether the ruling in Commissioner of Internal Revenue v. Manila Jockey Club is applicable to the present cases.
Ruling
The Supreme Court ruled in favor of the Commissioner of Internal Revenue. It held that the 20% FWT on a bank's passive income forms part of the taxable gross receipts for the purpose of computing the 5% GRT. The Court found no double taxation and distinguished the present cases from Manila Jockey Club.
Ratio Decidendi
On whether the 20% FWT on a bank's passive income forms part of the taxable gross receipts for the purpose of computing the 5% GRT: The Court reiterated the established definition of "gross receipts" as the "entire receipts without any deduction." It emphasized that the term "gross" is the antithesis of "net" and that any deduction from gross receipts changes the meaning to net receipts. The Court cited numerous previous rulings, including China Banking Corporation v. Court of Appeals, Commissioner of Internal Revenue v. Solidbank Corporation, and Commissioner of Internal Revenue v. Bank of the Philippine Islands, which consistently defined "gross receipts" in its plain and ordinary meaning as the whole, entire, or total amount without deduction. The Court further clarified that "actual receipt" in the context of taxation can include constructive receipt. When a withholding agent deducts the FWT and remits it to the government, it is considered a constructive receipt by the taxpayer, as the money belongs to the taxpayer and is paid for their tax obligation. Therefore, the FWT, being part of the income earned by the bank, forms part of its gross receipts. On whether the imposition of both the 20% FWT and the 5% GRT on the same passive income constitutes double taxation: The Court held that there is no double taxation because the GRT and the FWT are two different kinds of taxes. The GRT is a percentage tax imposed on gross receipts, while the FWT is an income tax imposed on passive income. The Court explained that a percentage tax is measured by a percentage of gross selling price or gross receipts, and is not subject to withholding, whereas an income tax is imposed on net or gross income realized in a taxable year and is subject to withholding. Since these are distinct taxes levied under different titles of the Tax Code, their imposition on the same income does not constitute double taxation. On whether the ruling in Commissioner of Internal Revenue v. Manila Jockey Club is applicable to the present cases: The Court distinguished the Manila Jockey Club case from the present ones. In Manila Jockey Club, certain amounts were earmarked by law for other entities and did not become the property of the taxpayer, thus not forming part of its gross receipts. In contrast, the FWT in the present cases, although withheld, constructively belonged to the banks and was paid to the government for their tax liability. The Court clarified that earmarking is different from withholding; amounts earmarked do not form part of gross receipts because they are reserved for others, while amounts withheld form part of gross receipts because they are in constructive possession and the withholding agent is merely a conduit. The Court emphasized that ownership determines whether income forms part of taxable gross receipts, and since the FWT was originally owned by the financial institutions, it forms part of their taxable gross receipts.
Main Doctrine
The twenty percent (20%) final withholding tax (FWT) on a bank's passive income forms part of the taxable gross receipts for the purpose of computing the five percent (5%) gross receipts tax (GRT).