G.R. No. 205261 , April 26, 2021
PHILIPPINE VETERANS BANK, PETITIONER, VS. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

FACTS

Petitioner Philippine Veterans Bank, a commercial banking institution, offered Special Savings Accounts (Special Savings Account, Special Savings Deposit (Government), and Golden V (Private)) from 1994 to 1996. These accounts earned interest, were withdrawable at any time via passbook, involved large deposits, had special interest rates, allowed multiple deposits and withdrawals, had no fixed maturity, were non-negotiable, and could not be pre-terminated. The Commissioner of Internal Revenue (CIR) issued deficiency assessments for Documentary Stamp Tax (DST) on these accounts for 1994 and 1995, and for Gross Receipts Tax (GRT) and DST for 1996, totaling P55,282,658.72. The CIR included final withholding taxes on gross interest income in the bank’s gross receipts for GRT computation. Petitioner protested, arguing the accounts were payable on demand and thus exempt from DST under the law, and that final withholding taxes should be deductible from gross receipts for GRT. The CTA Division and the CTA En Banc affirmed the assessments with modifications. Petitioner elevated the case to the Supreme Court.

ISSUE

1. Whether the Special Savings Accounts of Philippine Veterans Bank are subject to Documentary Stamp Tax.
2. Whether final withholding taxes on the gross interest income of Philippine Veterans Bank are deductible from gross receipts for determining the bank’s Gross Receipts Tax.

RULING

The Supreme Court denied the petition, affirming the CTA En Banc’s decision.
1. On the DST issue: The Court ruled that the Special Savings Accounts are subject to DST. The applicable law is Section 180 of the National Internal Revenue Code (NIRC) of 1977, which imposes DST on “certificates of deposits drawing interest” regardless of their demand feature. The Court clarified that the phrase “not payable on sight or demand” in the section title does not limit the imposition; the text explicitly taxes “certificates of deposits drawing interest” without such qualification. The accounts, being interest-bearing deposit instruments evidenced by passbooks, fall under “certificates of deposits drawing interest” and are thus taxable. The Court cited precedents (Philippine Banking Corp. v. CIR, China Banking Corp. v. CIR) holding that the determinative factor for DST is the account’s nature as an interest-bearing deposit, not its demand feature.
2. On the GRT issue: The Court ruled that final withholding taxes on gross interest income are not deductible from gross receipts for GRT computation. Gross receipts, as defined under Section 121 of the NIRC of 1977, include all receipts without deduction. The final withholding tax is a tax on the depositor’s interest income, withheld by the bank as an agent of the government; it does not form part of the bank’s income and thus cannot be deducted from its gross receipts. The Court cited Commissioner of Internal Revenue v. Manila Jockey Club, which held that amounts received as withholding agents are not part of gross receipts, and China Banking Corp. v. Court of Appeals, which stated that the tax withheld is a fund held in trust for the government, not belonging to the bank.
The assessments for deficiency DST on the Special Savings Accounts and deficiency GRT for 1996 were affirmed. The prayer for suspension of tax collection was denied.