GR 95022; (March, 1992) (Digest)
G.R. No. 95022 March 23, 1992
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. THE HON. COURT OF APPEALS, THE COURT OF TAX APPEALS, GCL RETIREMENT PLAN, represented by its Trustee-Director, respondents.
FACTS
Private respondent GCL Retirement Plan, an employees’ trust qualified as tax-exempt under Republic Act No. 4917, earned interest income from money market placements and treasury bills in 1984. Pursuant to Presidential Decree No. 1959, a 15% final withholding tax was deducted from this interest income, totaling P11,302.19. GCL filed claims for refund with the Commissioner of Internal Revenue, asserting its exempt status under the Tax Code. The claims were denied, prompting GCL to seek relief from the Court of Tax Appeals.
The Court of Tax Appeals ordered the refund, a decision affirmed by the Court of Appeals. The Commissioner now assails these rulings, arguing that PD 1959, which amended the Tax Code to impose a final withholding tax on such interest income, effectively withdrew the previous tax exemption enjoyed by employees’ trusts. The case is considered precedent-setting due to numerous similar pending claims.
ISSUE
Whether the GCL Retirement Plan, as a tax-exempt employees’ trust, is subject to the 15% final withholding tax on interest income from money market placements and treasury bills under Presidential Decree No. 1959.
RULING
No. The Supreme Court upheld the tax exemption of the GCL Retirement Plan. The Court reasoned that PD 1959, which imposed a final tax on interest income, did not expressly revoke the general exemption for employees’ trusts granted under Section 56(b) of the National Internal Revenue Code. A general law, like the tax exemption in Section 56(b), is not deemed repealed by a later special or specific law, such as PD 1959, unless the intent to repeal is clear and manifest. No such intent was evident.
Furthermore, the final withholding tax is an income tax collected at the source. Since Section 56(b) explicitly exempts employees’ trusts from “the taxes imposed by this Title” (Title II on Income Tax), and the final withholding tax falls under this Title, the exemption logically applies. To subject the trust’s income to withholding when it is not liable for the tax itself would be illogical and render the exemption meaningless. The Court thus found that the tax-exempt status of the GCL Retirement Plan remained intact, entitling it to a refund of the taxes withheld.