GR 147375; (June, 2006) (Digest)
G.R. No. 147375 ; June 26, 2006
COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. BANK OF THE PHILIPPINE ISLANDS, Respondent.
FACTS
Respondent Bank of the Philippine Islands (BPI), a domestic corporation, earned interest income from lending activities. A 20% final withholding tax was deducted at source from this interest, meaning BPI received the income net of this tax. For the year 1996, BPI included this withheld 20% tax amount in its tax base when computing and paying its 5% gross receipts tax under Section 119 of the National Internal Revenue Code. Later, citing a Court of Tax Appeals (CTA) decision in Asian Bank Corporation, BPI sought a refund, arguing the withheld tax should not be part of gross receipts. The CTA granted a partial refund, a decision affirmed by the Court of Appeals. The appellate court reasoned that the withheld tax was not actually received by BPI and derived from Commissioner v. Tours Specialists, which held that gross receipts exclude monies held in trust that do not benefit the taxpayer.
ISSUE
Whether the 20% final tax withheld at source from a bank’s interest income forms part of its gross receipts for computing the 5% gross receipts tax.
RULING
Yes. The Supreme Court reversed the lower courts, ruling in favor of the Commissioner. The legal logic hinges on the statutory definition and ordinary meaning of “gross receipts” and the nature of the final withholding tax. Gross receipts tax is imposed on the entire income received without any deduction. The 20% final withholding tax is not a separate amount held in trust; it is an integral part of the interest income earned by the bank, which is merely collected at source for the bank’s income tax liability. The amount withheld is therefore constructively received by the bank as income. The Court, following its precedent in China Banking Corporation v. Court of Appeals, clarified that Tours Specialists was inapplicable as it involved travel taxes collected by an agent for remittance to the government, which were never the agent’s income. In contrast, the interest income from which the tax is withheld is indisputably the bank’s income. Revenue Regulations No. 12-80, stating the tax is based on “all items of income actually received,” does not exclude the withheld amount, as constructive receipt satisfies this requirement. Thus, the gross receipts tax base must include the gross interest income before the withholding.