Intercontinental Broadcasting Corporation v. Amarilla
REITERATIONFacts
The Antecedents: Respondents Noemi B. Amarilla, Corsini R. Lagahit, Anatolio G. Otadoy, and Candido C. Quiñones, Jr. were employed by petitioner Intercontinental Broadcasting Corporation (IBC). The IBC station was sequestered by the government and later managed under an agreement with Roberto Benedicto. Subsequently, Benedicto transferred his rights to the government. The four employees retired and received their retirement benefits under the 1993 Collective Bargaining Agreement (CBA). A P1,500.00 salary increase was given to all employees, current and retired, effective July 1994. However, petitioner refused to give the retirees their differentials, claiming they would be used to offset tax liabilities on their retirement benefits, citing the National Internal Revenue Code (NIRC). Specific amounts were communicated to Amarilla, Otadoy, and Lagahit regarding tax liabilities and salary differentials. Quiñones was informed he should have retired compulsorily earlier and was considered overpaid, with his claim for salary differentials also deemed prescribed. Procedural History: The four retirees filed separate complaints for unfair labor practice and non-payment of backwages before the NLRC. The Labor Arbiter ruled in favor of Amarilla and Lagahit, awarding them P26,423.00 each, finding their retirement benefits exempt from income tax under Section 28(b) of the NIRC, but computed differentials based on prescription. The claims of Otadoy and Quiñones were dismissed for lack of merit. The NLRC affirmed the Labor Arbiter's decision, holding that while the retirement plan was not BIR-approved, IBC's practice of not deducting taxes and its inducement to retirees meant it assumed the tax liabilities. The Court of Appeals (CA) affirmed the NLRC decision, agreeing that IBC could not withhold taxes due to the CBA and its previous practice, and that the salary differentials were part of taxable gross income but IBC was estopped from withholding taxes. The Supreme Court reviews the CA's decision. The Petition: Petitioner IBC assails the CA decision, arguing grave abuse of discretion. It contends that the retirement benefits are taxable as the CBA was not BIR-approved, and it should not be estopped from correcting the mistakes of previous management, especially as a government corporation mandated to preserve assets. It argues that the CA erred in granting retirement differentials and holding its act of withholding backwages as payment for tax liabilities illegal.
Issue(s)
Whether the retirement benefits of the respondents are part of their gross income subject to tax. Whether petitioner IBC is estopped from reneging on its alleged agreement to pay the taxes on the respondents' retirement benefits.
Ruling
The petition is DENIED for lack of merit. The Decision of the Court of Appeals in CA-G.R. SP No. 72414 is AFFIRMED.
Ratio Decidendi
On the issue of whether retirement benefits are part of gross income: The Court agreed with the petitioner that, under the National Internal Revenue Code (NIRC), retirement benefits are part of gross income subject to taxes if the retirement plan is not approved by the Bureau of Internal Revenue (BIR). Section 28(b)(7)(A) of the NIRC and Revenue Regulation No. 12-86 require a reasonable private benefit plan approved by the BIR, at least 10 years of service, age 50 or above at retirement, and availing the privilege only once for benefits to be exempt. The Court found no evidence that the 1993 CBA retirement plan was approved by the BIR, thus rendering the respondents' retirement benefits taxable. Consequently, under Section 80 of the NIRC, the employer is obliged to withhold and remit the correct amount of tax. On the issue of whether petitioner IBC is estopped from reneging on its agreement to pay taxes: The Court agreed with the respondents that petitioner IBC did not withhold taxes on their retirement benefits because it had obliged itself to pay the taxes due thereon. This was done to induce the respondents to agree to avail of the optional retirement scheme. The Court noted that the retirement benefits were paid in staggered installments without tax deductions, and IBC remitted these taxes using its own funds, conforming to an agreement with the retirees. The Court found that IBC's claim of failure to present the CBA to the BIR for approval was an afterthought used as an excuse for refusing to remit salary differentials. The Court held that petitioner is estopped from reneging on its commitment to pay the taxes on respondents' retirement benefits on the pretext that the new management found the policy disadvantageous. The Court emphasized that an agreement to pay taxes on retirement benefits as an incentive is not contrary to law or public morals, and parties are free to enter into such stipulations. To allow IBC to renege on its contract would amount to a breach of contract, and the principle of promissory estoppel applies where a promise is made, relied upon, and refusing to sanction its perpetration would result in injustice.
Main Doctrine
An employer who, by practice or agreement, assumes the payment of taxes on retirement benefits, is estopped from reneging on this commitment, even if the retirement plan was not approved by the BIR, especially when the retirees were induced to avail of optional retirement based on this assurance. However, retirement benefits are generally taxable if the retirement plan is not approved by the BIR.