Ossorio Pension Foundation v. Commissioner
REITERATIONFacts
The Antecedents: Petitioner, Miguel J. Ossorio Pension Foundation, Inc. (MJOPFI), a non-stock, non-profit corporation, was established to administer the Employees' Trust Fund for the benefit of Victorias Milling Company, Inc. (VMC) employees. MJOPFI claims this fund is tax-exempt. In 1992, MJOPFI invested a portion of the fund to purchase a lot in the Madrigal Business Park (MBP lot), alleging a 49.59% co-ownership. VMC also purchased lots in the same park. The MBP lot was registered under VMC's name. In 1997, VMC negotiated the sale of the MBP lot to Metropolitan Bank and Trust Company, Inc. (Metrobank) for P81,675,000.00. Metrobank, as withholding agent, remitted P6,125,625.00 to the Bureau of Internal Revenue (BIR). MJOPFI asserted its co-ownership and claimed a refund of P3,037,500.00, representing its share of the withheld creditable tax. Procedural History: Following the sale and withholding of taxes, MJOPFI filed a claim for tax refund with the BIR on May 5, 1997. The BIR, by letter dated August 14, 1997, informed MJOPFI that it was not exempt under Section 26 of the Tax Code and requested proof of co-ownership and tax exemption. MJOPFI responded on September 2, 1997, citing Section 53(b) of the Tax Code and submitting supporting documents. As the BIR did not act on the claim, MJOPFI elevated it to the Commissioner of Internal Revenue (CIR) on October 26, 1998. The CIR also failed to act, prompting MJOPFI to file a petition for tax refund with the Court of Tax Appeals (CTA). On October 24, 2000, the CTA denied the petition. MJOPFI appealed to the Court of Appeals (CA), which affirmed the CTA's decision on May 20, 2003, and subsequently denied MJOPFI's motion for reconsideration. Aggrieved, MJOPFI filed the present petition. The Petition: MJOPFI filed this Petition for Certiorari under Rule 65 of the Rules of Court, seeking to annul the Court of Appeals' Decision and Resolution. MJOPFI argues that the appellate courts erred in evaluating the evidence, particularly the notarized Memorandum of Agreement and the Portfolio Mix Analysis from Citytrust, as self-serving. MJOPFI contends that these documents, along with board resolutions and minutes, sufficiently establish its co-ownership of the MBP lot as trustee of the Employees' Trust Fund, which is tax-exempt. MJOPFI asserts that Article 1452 of the Civil Code creates a trust by operation of law when legal title is taken in the name of one co-owner for the benefit of all, and that the tax exemption of the Employees' Trust Fund has been previously settled. Therefore, MJOPFI claims entitlement to a refund of the erroneously paid withholding tax.
Issue(s)
Whether petitioner or the Employees’ Trust Fund is estopped from claiming that the Employees’ Trust Fund is the beneficial owner of 49.59% of the MBP lot and that VMC merely held 49.59% of the MBP lot in trust for the Employees’ Trust Fund; and whether, if not estopped, they have sufficiently established that the Employees’ Trust Fund is the beneficial owner of 49.59% of the MBP lot. If petitioner or the Employees’ Trust Fund is not estopped and have sufficiently established beneficial ownership, whether they are entitled to tax exemption for its share in the proceeds from the sale of the MBP lot.
Ruling
The Supreme Court granted the petition, setting aside the decision of the Court of Appeals. The Court directed the Commissioner of Internal Revenue to refund petitioner Miguel J. Ossorio Pension Foundation, Incorporated, as trustee of the Employees’ Trust Fund, the amount of ₱3,037,500.00, representing income tax erroneously paid.
Ratio Decidendi
On the issue of estoppel and sufficiency of proof of beneficial ownership: The Court held that petitioner, as trustee of the Employees' Trust Fund, sufficiently established an agreement with VMC and VFC to jointly purchase the MBP lot and register it solely in VMC's name for their mutual benefit, thereby creating a trust under Article 1452 of the Civil Code. The Court emphasized that Article 1452 of the Civil Code allows a co-owner to register their proportionate share in the name of another co-owner who then serves as a legal trustee. The existence of "common consent" among the co-owners to place the legal title in the name of one for the benefit of all is sufficient to create a trust by operation of law, which the BIR must recognize. The Court found that the notarized Memorandum of Agreement, which explicitly stated the co-ownership percentages and amounts, along with the Portfolio Mix Analysis from Citytrust, served as sufficient proof of this common consent and the ETF's beneficial ownership, despite the title being solely in VMC's name. The Court reiterated that the Torrens system does not preclude a trustor or beneficiary from proving ownership of a property titled in another's name when the rights of innocent purchasers are not involved, especially when the registered owner admits to being a mere trustee. The Court also noted that the BIR failed to present clear and convincing evidence to disprove the notarized Memorandum of Agreement or the Citytrust records, and VMC, the registered owner, did not repudiate petitioner's share. Therefore, petitioner was not estopped from claiming ownership, and the ETF was deemed the beneficial co-owner of 49.59% of the MBP lot. On the issue of tax exemption for the Employees' Trust Fund: The Court affirmed that the income derived from the Employees' Trust Fund is exempt from income tax, a status that has been previously settled in prior cases involving the petitioner and its ETF. The Court cited Section 53(b) (now Section 60(b)) of the Tax Code, which exempts employee trusts forming part of a pension plan from income tax, provided certain conditions are met regarding contributions and the use of corpus or income exclusively for the benefit of employees. The Court found that the petitioner's Articles of Incorporation clearly established its purpose to administer such a tax-exempt pension plan. Previous BIR rulings and CTA decisions, including one directly involving MJOPFI and another involving its investment manager Citytrust, had already confirmed the tax-exempt status of the ETF's income. Therefore, the income from the sale of the MBP lot, which originated from an investment of the ETF, remained tax-exempt. Consequently, the withholding tax paid on this income was erroneously paid, entitling the petitioner, as trustee, to a refund.
Main Doctrine
A trust is created by force of law under Article 1452 of the Civil Code when two or more persons agree to purchase a property and by common consent, the legal title is taken in the name of one of them for the benefit of all. The BIR cannot disregard such legal trust and beneficial ownership, even if the title is registered solely in the name of one person, as long as the rights of innocent third-party purchasers are not involved. Income derived from an Employees' Trust Fund, which is exempt from income tax, remains exempt even when invested and subsequently sold, entitling the trust to a refund of erroneously paid withholding taxes.