G.R. No. L-22611 May 27, 1968
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. VISAYAN ELECTRIC COMPANY and THE COURT OF TAX APPEALS, respondents.
FACTS
Visayan Electric Company, a franchise holder, established an “Employees’ Reserve for Pensions” fund in 1949 for the benefit of its present and future employees. Monthly amounts were set aside from the company’s gross operating receipts for this fund. The fund was invested in stocks of San Miguel Brewery, Inc., and dividends were regularly received. These dividends were not declared for tax purposes. The Commissioner of Internal Revenue assessed deficiency income tax on these dividends and a 25% surcharge for alleged late payment of franchise taxes. The Court of Tax Appeals held the company not liable for the deficiency income tax and the surcharge. The Commissioner appealed.
ISSUE
1. Whether Visayan Electric Company is liable for deficiency income tax on dividends from the stock investment of its employees’ reserve pension fund.
2. Whether the company is liable for a 25% surcharge on alleged late payment of franchise tax.
RULING
1. No. The dividends are not subject to income tax as income of the company. The employees’ reserve fund is a valid express trust created by the company for the benefit of its employees. The company holds the fund as a trustee. The dividends are returns of the trust estate and not receipts, revenues, or profits of the grantor company. Furthermore, the fund qualifies as an exempt employees’ trust under Section 56(b) of the Tax Code, as amended by Republic Act 1983, because it forms part of a pension plan where contributions are made for distributing earnings to employees and it is impossible for the corpus or income to be diverted for purposes other than the exclusive benefit of the employees.
2. No. The company is not liable for the 25% surcharge. The franchise tax under its charter (Act 3499) is payable quarterly. The law requires payment “within twenty days after the expiration of each calendar quarter.” The 25% surcharge under Section 259 of the Tax Code applies only if the tax remains unpaid for fifteen days “from and after the date on which they must be paid.” The date on which the tax must be paid is the last day of the twenty-day period. Since the company’s payments, though made after fifteen days from the end of the quarter, were made within the twenty-day period, they were made on time, and no surcharge applies.
