Dumaguete Cathedral Credit Cooperative v. Commissioner of Internal Revenue
NEW DOCTRINEFacts
The Antecedents: Petitioner Dumaguete Cathedral Credit Cooperative (DCCCO), a credit cooperative registered with the CDA since February 17, 1968, aims to increase members' income and purchasing power, promote savings and thrift for capital formation, and extend loans for provident/productive purposes; it possesses powers to issue promissory notes, mortgages, bonds, debentures, contract indebtedness, and secure them with mortgages/pledges. On November 27, 2001, BIR issued Letters of Authority Nos. 63222 and 63223 for examination of DCCCO's books for 1999-2000 internal revenue taxes by officers in Revenue Region No. 12, Bacolod City. Audit revealed deficiencies in withholding taxes on honoraria of Board of Directors, security/janitorial services, legal/professional fees, and interest on members' savings/time deposits. DCCCO received Pre-Assessment Notices on June 26 and October 16, 2002, protested them, and partially conceded liability on non-interest items, paying P105,574.62 (1999) and P143,867.24 (2000) under VAAP (Revenue Regulations No. 17-2002) on November 29, 2002, excluding penalties/interest. BIR Regional Director issued Letters of Demand on April 24, 2003, demanding P1,489,065.30 (1999) and P1,462,644.90 (2000), inclusive of penalties, focusing on interest withholding deficiencies. Procedural History: DCCCO protested assessments to CIR on May 9, 2003; no action within 180 days led to Petition for Review at CTA (C.T.A. Case No. 6827) on December 3, 2003. CTA First Division partially granted petition on February 6, 2007, cancelling assessments on non-interest items but affirming P1,280,145.89 (1999) and P1,357,881.14 (2000) on interest, plus 20% delinquency interest from May 26, 2003 under Sec. 249(C), NIRC; denied reconsideration May 29, 2007. CTA En Banc denied review July 3, 2007 petition on December 18, 2007, affirming via Sec. 57, NIRC and RR 2-98 that cooperatives fall under 'similar arrangements'; denied reconsideration April 11, 2008. DCCCO filed Petition for Review on Certiorari under RA 9282, Sec. 11 and Rule 45. The Petition: DCCCO argues Sec. 24(B)(1), NIRC applies only to banks ('currency bank deposit,' 'deposit substitutes,' 'trust funds'), not cooperatives' member deposits; cites BIR Ruling 551-888 and DA-591-2006 exempting such interest; invokes constitutional (Art. XII, Sec. 15) and RA 6938 (Art. 2) preferential treatment exempting members. CIR counters with 'ubi lex non distinguit,' strictissimi juris on exemptions, and DCCCO's liability as withholding agent, not taxpayer.
Issue(s)
Whether or not petitioner, a duly registered credit cooperative, is liable for deficiency withholding taxes at 20% on interest from savings and time deposits of its members for 1999-2000 under Section 24(B)(1), NIRC, and consequent 20% delinquency interest under Section 249(C), NIRC.
Ruling
The Petition is GRANTED. The December 18, 2007 Decision and April 11, 2008 Resolution of the CTA En Banc are REVERSED and SET ASIDE. Assessments for deficiency withholding taxes on interest from savings and time deposits of petitioner's members for 1999-2000, plus 20% delinquency interest, are CANCELLED.
Ratio Decidendi
On the Issue: Petitioner is not liable for the assessed deficiency withholding taxes on interest from members' savings and time deposits. BIR Ruling No. 551-888 (November 16, 1988) explicitly holds cooperatives are not required to withhold tax on such interest, as Sec. 50(a), Tax Code (predecessor to Sec. 57, NIRC) mandates withholding by payor-corporations like banks on 'interest from any Philippine currency bank deposit... or deposit substitutes'; reiterated in BIR Ruling DA-591-2006 stating members' deposits with cooperatives are neither currency bank deposits nor deposit substitutes, thus Sections 24(B)(1) and 27(D)(1), NIRC inapplicable. CTA erred in misreading Ruling 551-888 as limited to bank-maintained deposits; no such qualification exists, and administrative interpretations by BIR deserve great weight absent conflict with statute/Constitution (Nestle Philippines v. CA). Sec. 24(B)(1), NIRC must harmonize with RA 6938 (as amended by RA 9520), whose policy (Art. 2) fosters cooperatives for self-reliance, economic development, social justice; exemptions under Arts. 61-62 cover transactions with members (no taxes/fees, expressly no final taxes on deposits per RA 9520 Art. 61), resolved liberally for cooperatives/members (Art. 126). Spirit prevails over letter (Tañada v. Cuenco; Alonzo v. IAC: balance word/will for justice, not automatous literalism); RA 9520 reenactment approves BIR view (Commissioner v. American Express). Constitution (Art. XII, Sec. 15; Art. II, Sec. 10; Art. XIII, Sec. 2) subordinates taxation to social justice via cooperatives; thus, no withholding liability, cancelling assessments/deliquency interest.
Main Doctrine
Duly registered cooperatives, such as credit cooperatives under CDA regulation, are not liable to withhold the 20% final tax under Section 24(B)(1), NIRC on interest from savings and time deposits of their members, as these do not qualify as 'currency bank deposits,' 'deposit substitutes,' or 'similar arrangements' which are typically paid by banks. This interpretation aligns with BIR Ruling No. 551-888 (1988) and BIR Ruling DA-591-2006, which are entitled to great weight as administrative interpretations harmonious with the law, stating cooperatives are not the required withholding parties. RA 6938, as amended by RA 9520, declares a State policy to foster cooperatives for economic development and social justice, granting preferential tax treatment where cooperatives transacting only with members are exempt from internal revenue taxes, and those with non-members exempt on member transactions (Art. 61), expressly including no final taxes on members' deposits. Doubts are resolved liberally in favor of cooperatives and members (Art. 126, RA 6938), with spirit prevailing over letter to avoid injustice. Constitutional provisions (Art. XII, Sec. 15; Art. II, Sec. 10; Art. XIII, Sec. 2) reinforce this by promoting cooperatives as instruments of social justice, subordinating taxation to such policy. Reenactment in RA 9520 without change approves prior BIR constructions under legislative approval doctrine.