G.R. No. 149636; June 8, 2005
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. BANK OF COMMERCE, respondent.

FACTS

The respondent Bank of Commerce derived passive income from investments in government securities and private commercial papers in 1994 and 1995. This interest income was subjected to a 20% final withholding tax (FWT). The bank also paid a 5% gross receipts tax (GRT) on its total gross receipts, which included the said interest income. Relying on a prior Court of Tax Appeals (CTA) decision in Asia Bank Corporation, which held that the 20% FWT does not form part of taxable gross receipts for GRT purposes, the bank filed an administrative claim for refund for overpaid GRT amounting to ₱853,842.54.
When the Commissioner of Internal Revenue did not act on the claim, the bank filed a petition for review with the CTA to prevent the claim from being barred by the two-year prescriptive period. The CTA partially granted the petition, ordering a refund of ₱355,258.99. The Court of Appeals affirmed this decision. The Commissioner elevated the case to the Supreme Court, arguing that the FWT should be included in the computation of the GRT.

ISSUE

Whether the 20% final withholding tax on interest income forms part of the gross receipts in computing the 5% gross receipts tax on banks.

RULING

The Supreme Court GRANTED the petition and REVERSED the decisions of the lower courts. The Court held that the 20% final withholding tax on interest income is part of the gross receipts for GRT computation. The legal logic is anchored on the statutory definition and nature of “gross receipts” under the Tax Code. Gross receipts encompass all amounts received by the bank, without any deduction, unless the law explicitly provides for an exclusion. The Court found no provision in the National Internal Revenue Code or its implementing regulations that expressly excludes the FWT from the gross receipts base for the GRT.
The Court distinguished its prior ruling in CIR v. Manila Jockey Club, which involved a specific statutory earmarking of a “wager fund” for others, making it not a receipt for the taxpayer. In contrast, the FWT on interest income is not similarly earmarked; it is an amount received by the bank as income, from which the tax is subsequently withheld and remitted to the government. The amount withheld is still considered received by the bank. The imposition of both the FWT and the GRT does not constitute double taxation, as they are different taxes (an income tax versus a percentage tax) with distinct characteristics and purposes, imposed under different taxing periods. Therefore, the bank was not entitled to a refund.