Mateo v. Coca-Cola Bottlers Phils.
REITERATIONFacts
The Antecedents: Petitioner Anna Mae B. Mateo was employed by Philippine Beverage Partners, Inc. (PhilBev) and later by respondent Coca-Cola Bottlers Phils., Inc. (Coca-Cola) as Sales Supervisor, eventually promoted to District Team Leader. In February 2012, Coca-Cola informed petitioner of her termination effective March 31, 2012, due to redundancy arising from an enhancement of its Route to Market (RTM) strategy. Petitioner was informed she would receive P676,657.15 as separation benefit. On April 21, 2012, Coca-Cola released P402,571.85, having deducted her outstanding loan balance and P134,064.95 for withholding tax. Coca-Cola explained the tax was withheld because petitioner had previously availed of tax exemption on retirement benefits from PhilBev. Procedural History: Petitioner sought clarification and reimbursement from Coca-Cola, which was denied. She filed a complaint for illegal deductions, underpayment of separation pay, non-payment of salaries, and damages. The Labor Arbiter ruled in favor of petitioner, ordering Coca-Cola to pay the differential amount of P147,471.44, including attorney's fees. The National Labor Relations Commission (NLRC) affirmed the award of separation pay differentials but deleted attorney's fees, holding that separation benefits due to redundancy are tax-exempt under Section 32(B)(6)(b) of the National Internal Revenue Code (NIRC). Coca-Cola filed a petition for certiorari with the Court of Appeals (CA), which reversed the NLRC and dismissed petitioner's complaint. The CA reasoned that the benefit received was retirement pay, not separation pay, and thus subject to tax as petitioner did not meet the conditions for tax exemption (10 years of service and no prior availment of exemption). The Petition: Petitioner filed a Petition for Review under Rule 45 of the Rules of Court, challenging the CA's decision and resolution.
Issue(s)
Whether respondent is liable for illegal deduction when it withheld tax from the amount received by petitioner as a consequence of her involuntary separation from service. Whether the benefit received by petitioner was separation pay or retirement pay. Whether the separation pay received by petitioner due to redundancy is exempt from income tax and withholding tax.
Ruling
The petition is GRANTED. The Decision dated November 25, 2015 and the Resolution dated June 13, 2016 of the Court of Appeals are REVERSED and SET ASIDE. The Decision dated January 30, 2014 of the National Labor Relations Commission is hereby REINSTATED.
Ratio Decidendi
On whether respondent is liable for illegal deduction: The Court found that respondent Coca-Cola Bottlers Phils., Inc. is liable for illegal deduction. The amount received by petitioner was her separation pay, not retirement pay, as she was terminated due to redundancy, a cause beyond her control. As separation pay due to redundancy, it is explicitly exempt from income tax and withholding tax under Section 32(B)(6)(b) of the National Internal Revenue Code (NIRC) of 1997, as amended. Therefore, the withholding of tax from this amount was erroneous and constituted an illegal deduction. On whether the benefit received was separation pay or retirement pay: The Court held that the benefit received by petitioner was separation pay, despite being computed using the retirement benefit formula. It was undisputed that petitioner was separated from service due to redundancy, as provided under Article 283 of the Labor Code. The respondent's Retirement Plan itself stipulated that an involuntarily separated member shall receive an "involuntary separation benefit" computed either by the retirement formula or the termination benefit mandated by law, whichever is higher. The use of the retirement formula was merely to ensure petitioner received the higher amount, as mandated by the Plan and the law, and did not change the nature of the benefit from separation pay to retirement pay. The NLRC correctly reasoned that the termination was due to redundancy, not retirement age, thus the NIRC provisions on retirement benefit exemption were inapplicable. On whether the separation pay received by petitioner due to redundancy is exempt from income tax and withholding tax: The Court affirmed that separation pay received as a consequence of separation from service due to "any cause beyond the control of said official or employee" is exempt from income tax under Section 32(B)(6)(b) of the NIRC. Termination due to redundancy falls under "any cause beyond the control" of the employee. Therefore, the P134,064.95 withheld by respondent as tax was an erroneous deduction from petitioner's separation pay, which should have been exempt from such tax.
Main Doctrine
Separation pay received by an employee due to termination from service by reason of redundancy is exempt from income tax and withholding tax under Section 32(B)(6)(b) of the National Internal Revenue Code, even if computed using a retirement benefit formula that yields a higher amount.