G.R. No. 139786 & G.R. No. 140857; September 27, 2006
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. CITYTRUST INVESTMENT PHILS., INC., respondent. x———————————————x ASIANBANK CORPORATION, petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, respondent.

FACTS

These consolidated petitions involve the computation of the 5% gross receipts tax (GRT) imposed on banks. Respondent Citytrust Investment Philippines, Inc. (Citytrust) filed a claim for refund, arguing that the 20% final withholding tax (FWT) on its passive income should be excluded from its taxable gross receipts for GRT purposes. It based its claim on a prior Court of Tax Appeals (CTA) ruling in favor of Asianbank Corporation (Asianbank). Conversely, in its separate case, petitioner Asianbank sought a refund on the same legal premise after the Commissioner of Internal Revenue (CIR) assessed it for deficiency GRT, which included the 20% FWT in the tax base.
The CTA ruled in favor of both Citytrust and Asianbank, ordering refunds. On appeal, the Court of Appeals affirmed the CTA decision for Citytrust but reversed it for Asianbank, creating an inconsistency. The core dispute is whether the 20% FWT, which is withheld at source and never actually received by the bank, forms part of the “gross receipts” upon which the 5% GRT is calculated.

ISSUE

Does the twenty percent (20%) final withholding tax on a bank’s passive income form part of the taxable gross receipts for computing the five percent (5%) gross receipts tax?

RULING

No. The 20% final withholding tax does not form part of the taxable gross receipts for GRT computation. The Supreme Court affirmed the decision in favor of Citytrust and reversed the decision against Asianbank, thereby granting both entities their claims.
The legal logic is anchored on the statutory definition and nature of “gross receipts” for tax purposes. Gross receipts subject to the 5% GRT refer to the total amount of money or its equivalent actually or constructively received by the bank. The 20% FWT, however, is withheld at source by the payor and is remitted directly to the government. This amount never becomes part of the bank’s funds or income; it is a tax liability satisfied at the moment of withholding. Consequently, it does not redound to the benefit of the bank. To include it in the GRT base would constitute an impermissible tax on a tax, as the GRT would be levied on an amount representing a tax payment itself. The Court emphasized that taxes should be based on the taxpayer’s actual ability to pay, which is measured by the income or receipts that it actually enjoys and controls. Since the bank never has dominion over the withheld 20%, it cannot be considered a receipt for GRT purposes.