TodayisWednesday,December14,2016

RepublicofthePhilippines
SUPREMECOURT
Manila

FIRSTDIVISION

G.R.No.146749June10,2003

CHINABANKINGCORPORATION,Petitioner,
vs.
COURTOFAPPEALS,COURTOFTAXAPPEALS,andCOMMISSIONEROFINTERNALREVENUE,
Respondents.

xx

G.R.No.147938June10,2003

COMMISSIONEROFINTERNALREVENUE,Petitioner,
vs.
CHINABANKINGCORPORATION,Respondent.

DECISION

CARPIO,J.:

TheCase

BeforetheCourtaretheconsolidatedpetitionsforreview1 assailing the Decisions2 of 16 October 2000 and 15

November2000,andtheResolutionsof25April2001and8January2001oftheCourtofAppealsinCAG.R.SP
No. 50790 and in CAG.R. SP No. 50839, respectively. The Court of Appeals affirmed the Decision3 of 30
September1998andtheResolutionof15January1999oftheCourtofTaxAppealsinCTACaseNo.5405.The
Court of Tax Appeals granted China Banking Corporation ("CBC") a tax refund or credit of P123,278.73 but
deniedduetoinsufficiencyofevidencetheremainderofCBCsclaimforP1,140,623.82.

AntecedentFacts

CBCisauniversalbankingcorporationorganizedandexistingunderPhilippinelaw.On20July1994,CBCpaid
P12,354,933.00 as gross receipts tax on its income from interests on loan investments, commissions, services,
collectioncharges,foreignexchangeprofitsandotheroperatingearningsduringthesecondquarterof1994.

On 30 January 1996, the Court of Tax Appeals in Asian Bank Corporation v. Commissioner of Internal
Revenue4ruledthatthe20%finalwithholdingtaxonabankspassiveinterestincomedoesnotformpartofits
taxablegrossreceipts.5

On19July1996,CBCfiledwiththeCommissionerofInternalRevenue("Commissioner")aformalclaimfortax
refund or credit of P1,140,623.82 from the P12,354,933.00 gross receipts tax that CBC paid for the second
quarter of 1994. To ensure that it filed its claim within the twoyear prescriptive period,6 CBC also filed on the
same day a petition for review with the Court of Tax Appeals. Citing AsianBank, CBC argued that it was not
liableforthegrossreceiptstaxamountingtoP1,140,623.82onthesumswithheldbytheBangkoSentralng
PilipinasasfinalwithholdingtaxonCBCspassiveinterestincome7in1994.

DisputingCBCsclaim,theCommissionerassertedthatCBCpaidthegrossreceiptstaxpursuanttoSection119
(nowSection121)oftheNationalInternalRevenueCode("TaxCode")andpertinentBureauofInternalRevenue
("BIR") regulations. The Commissioner argued that the final withholding tax on a banks interest income forms
partofitsgrossreceiptsincomputingthegrossreceiptstax.8TheCommissionercontendedthattheterm"gross
receipts"meanstheentireincomeorreceipt,withoutanydeduction.

TheRulingoftheCourtofTaxAppeals
The Court of Tax Appeals ruled in favor of CBC and held that the 20% final withholding tax on interest income
doesnotformpartofCBCstaxablegrossreceipts.Thetaxcourtbaseditsdecisionmainlyonitsearlierrulingin
AsianBank9whichthetaxcourtquotedextensively,asfollows:

Thatpetitionerisliableforgrossreceiptstaxisnotdisputed.Thequestionthatisnowleftforourdeterminationis
the basis of the said tax which issue has already been settled in the case cited by petitioner, Asian Bank
Corporationvs.CommissionerofInternalRevenue,supra.Insaidcase,thisCourtheld:

Weagreewiththepetitionerthatthe20%finalwithholdingtaxonitsinterestincomeshouldnotformpartofits
taxablegrossreceipts.

Revenue Regulations No. 1280 dated Nov. 7, 1980 on Taxation of Certain Income Derived from Banking
Activities provides that the rates of tax to be imposed on the gross receipts of such financial institution shall be
basedonallitemsonincomeactuallyreceived,thus:

SEC.4.xxx

(e) Gross receipts tax on banks, nonbank financial intermediaries, financing companies, and other nonbank
financialintermediariesnotperformingquasibankingactivities.Theratesoftaxestobeimposedonthegross
receiptsofsuchfinancialinstitutionsshallbebasedonallitemsofincomeactuallyreceived. Mere accrual shall
not be considered, but once payment is received on such accrual or in cases of prepayment, then the amount
actually received shall be included in the tax base of such financial institutions, as provided hereunder.
(Underscoringsupplied)

Fromtheforegoing,itisbutlogicaltoinferthatthefinaltax,nothavingbeenreceivedbythepetitionerbutinstead
went to the coffers of the government, should no longer form part of its gross receipts for the purpose of
computingtheGRT.ThisconclusionisinaccordwiththeinterpretationoftheSupremeCourtinthecaseentitled
CollectorofInternalRevenuevs.ManilaJockeyClub,108Phil.821,asquotedbythisCourtindisposingofa
similar issue in the case entitled Compania Maritima vs. Acting Commissioner of Internal Revenue, CTA
CaseNo.1426datedNovember14,1966,thus:

Inthesecondplace,thehighesttribunalofthelandinterpretedtheterm"grossreceipts"tomeanallreceiptsofa
taxpayerexcludingthosewhichhavebeenespeciallyearmarkedbylaworregulationforthegovernmentorsome
personotherthanthetaxpayer.Thus,itwasheld:

xxxxx.TheGovernmentcouldnothavemeanttotaxasgrossreceiptsoftheManilaJockeyClubthe1/2%which
itdirectssameClubtoturnovertotheBoardofRaces.ThelatterbeingaGovernmentinstitution,therewouldbe
double taxation, which should be avoided unless the statute admits of no other interpretation. In the same
manner,theGovernmentcouldnothaveintendedtoconsiderasgrossreceiptstheportionofthefundswhichit
directedtheClubtogive,orknowtheClubwouldgive,towinninghorsesandJockeysadmitted5%.Itistrue
that the law says that out of the total wager funds 12 1/2% shall be set aside as the commission of the track
ownersbutthelawitselftakesofficialnotice,andvirtuallyapprovesordirectspaymentoftheportionthatgoesto
owners of horses as prizes and bonuses of jockeys, which portion is admittedly 5% out of the 12 1/2%
commission.Asitdidnotatthattimecontemplatetheapplicationofgrossreceiptsrevenueprinciple,thelawin
making a distribution of the total wager funds, took no trouble of separating one item from the other and for
convenience,groupedthreeitemsunderonecommondenomination.

Needless to say, gross receipts of the proprietor of the amusement place should not include any money which
althoughdeliveredtotheamusementplacehasbeenespeciallyearmarkedbylaworregulationforsomeperson
other than the proprietor." (The Commissioner of Internal Revenue vs. Manila Jockey Club, Inc., G.R. Nos. L
13890&L13887,June30,1960)

Itistobenotedthat,underSection260oftheTaxCode,aracetrackissubjecttoanamusementtaxof20%ofits
grossreceiptsandthetermgrossreceiptsembracesallthereceiptsoftheproprietor,lessee,oroperatorofthe
amusementplace."Notwithstandingthebroadandallembracingdefinitionoftheterm"grossreceipts"foundin
ouramusementtaxlaw,ourSupremeCourtdidnotadoptaliteralinterpretationofthesaidterminthecaseofthe
ManilaJockeyClub,Inc.,xxx.10

Thus,theCourtofTaxAppealsgrantedCBCapartialrefundofP123,778.73sincethetaxcourtfoundthatthe
evidence of CBC was sufficient only to support the payment of the gross receipts tax on its medium term
investments.ThedispositiveportionofthetaxcourtsDecisionof30September1998statesasfollows:

WHEREFORE, in view of the foregoing, judgment is hereby rendered ordering the respondent to REFUND or
ISSUEataxcreditcertificateinthereducedamountofP123,778.73representingtheoverpaidGRTpaymentsfor
thesecondquarterof1994.TheremainingamountclaimedbypetitionerisDENIEDforinsufficiencyofevidence.

SOORDERED.11
However,AssociateJudgeAmancioQ.Sagadissentedtotheexclusionofthefinalwithholdingtaxfromthebanks
taxablegrossreceipts.Heopinedthat:(1)Section4(e)ofRevenueRegulationsNo.1280didnotprescribethe
mannerofcomputingthetaxbaseforthegrossreceiptstaxbutmerelyauthorizedthecashbasisasthemethod
ofaccountinginreportingtheinterestincome(2)theexclusionwaseffectivelyanexemptionfromtax,andthere
isnospecificprovisionoflawclearlygrantingsuchexemption(3)nolaworregulationspecificallyearmarkedthe
finalwithholdingtaxforsomeotherpersonthanCBC,thustheSupremeCourtdecisionscitedinAsianBankare
notapplicableand(4)thereisnodoubletaxationifthelawimposesdifferenttaxesonthesameincome.

BothCBCandtheCommissionerfiledmotionsforreconsiderationfromthetaxcourtsdecision.CBCarguedthat
the tax court should have given proper weight to the testimony of the witnesses that CBC presented on the
computation and payment of its gross receipts tax. CBC pointed out that the Commissioner did not controvert
suchtestimony.Ontheotherhand,theCommissionermaintainedthatthefinalwithholdingtaxformspartofthe
taxablegrossreceipts.However,thetaxcourtdismissedbothmotionsinitsResolutionof15January1999.12

TheCBCandtheCommissionerbothfiledpetitionsforreviewunderRule43oftheRulesofCourt,appealingthe
taxcourtsdecisionandresolutiontotheCourtofAppeals.

TheRulingoftheCourtofAppeals

TheCourtofAppealsdidnotconsolidatethepetitionsforreviewfiledbyCBCandtheCommissioner.Theparties
apparentlyfailedtomovefortheconsolidationofthetwopetitions.The14thDivisionoftheCourtofAppeals,inits
Decision of 15 November 200013 in CAG.R. SP No. 50839, affirmed the tax courts ruling on the ground that
substantialevidencesupportedthefactualfindingsofthetaxcourt.The13thDivisionoftheCourtofAppeals,in
itsDecisionof16October200014inCAG.R.SPNo.50790,alsoaffirmedthetaxcourtsrulingonthegroundthat
the20%finalwithholdingtaxdoesnotformpartofCBCstaxablegrossreceipts.

The14thDivisionoftheappellatecourtdeniedCBCssubsequentmotionforreconsiderationinitsResolutionof8
January 2001.15 Likewise, the 13th Division of the appellate court denied the Commissioners motion for
reconsiderationinitsResolutionof25April2001.16

On6February2001,CBCfiledwiththeCourtapetitionforreviewassailingthedecisionoftheCourtofAppealsin
CAG.R.SPNo.50839,andprayedthattheCourtrenderadecisionawardingCBCsfullclaimfortherefundof
P1,140,623.82. CBC claimed that since it did not actually receive the final withholding tax, the same should not
form part of its taxable gross receipts. CBC also asserted that it had presented sufficient evidence to prove its
overpaymentofthegrossreceiptstax,andthatithadarighttoarefundofthefullP1,140,623.82overpayment.

On25June2001,theCommissionerfiledwiththeCourtapetitionforreviewquestioningthedecisionoftheCourt
ofAppealsinCAG.R.SPNo.50790,andprayedthattheCourtdenyCBCsclaimforrefund.TheCommissioner
pointedoutthattheCourtofAppealshadalreadyreversedtheAsianBankdecisionoftheCourtofTaxAppealsin
CommissionerofInternalRevenuev.AsianBankCorporation,17promulgatedbytheCourtofAppealsearlier
on 22 November 1999. The Commissioner further manifested that the Court of Tax Appeals subsequently
renderedtwodecisionsreversingitsrulinginAsianBank.InFarEastBankandTrustCo.v.Commissionerof
Internal Revenue18 and Standard Chartered Bank v. Commissioner of Internal Revenue,19 the tax court
ruled20thatthe20%finalwithholdingtaxonabanksinterestincomeformspartofitsgrossreceiptsincomputing
thegrossreceiptstax.

Duringtheoralargumentsofthiscaseon21April2003,theCourtorderedtheconsolidation21ofthepetitionfiled
byCBCinG.R.No.146749andthepetitionfiledbytheCommissionerinG.R.No.147938.

TheIssues

Theconsolidatedpetitionsraisethefollowingissues:

1. Whether the 20% final withholding tax on interest income should form part of CBCs gross receipts in
computingthegrossreceiptstaxonbanks

2. Whether CBC has established by sufficient evidence its right to claim the full refund of P1,140,623.82
representingallegedoverpaymentofthegrossreceiptstax.

TheRulingoftheCourt

We rule that the amount of interest income withheld in payment of the 20% final withholding tax forms part of
CBCsgrossreceiptsincomputingthegrossreceiptstaxonbanks.

Section12122oftheTaxCodeprovidesasfollows:
Sec.121.TaxonBanksandNonbankFinancialIntermediaries.Thereshallbecollectedataxongrossreceipts
derivedfromsourceswithinthePhilippinesbyallbanksandnonbankfinancialintermediariesinaccordancewith
thefollowingschedule:

(a)Oninterest,commissionsanddiscountsfromlendingactivitiesaswellasincomefromfinancialleasing,
onthebasisofremainingmaturitiesoninstrumentsfromwhichsuchreceiptsarederived.

Shorttermmaturity

(notinexcessoftwo[2]years)..5%

Mediumtermmaturity

(overtwo[2]yearsbutnot

exceedingfour[4]years).3%

Longtermmaturity

(i)overfour(4)yearsbutnotexceeding

seven(7)years..1%

(ii)overseven(7)years).0%

(b)Ondividends.0%

(c)Onroyalties,rentalsofproperty,realorpersonal,profitsfromexchangeandallotheritemstreatedas
grossincomeunderSection32ofthisCode.....5%

Provided,however,Thatincasethematurityperiodreferredtoinparagraph(a)isshortenedthrupretermination,
thenthematurityperiodshallbereckonedtoendasofthedateofpreterminationforpurposesofclassifyingthe
transactionasshort,mediumorlongtermandthecorrectrateoftaxshallbeappliedaccordingly.

Nothing in this Code shall preclude the Commissioner from imposing the same tax herein provided on persons
performingsimilarbankingactivities.

Thegrossreceiptstaxonbankswasfirstimposedon1October1946byRepublicActNo.39("RANo.39")which
amendedSection24923oftheTaxCodeof1939.Interestincomeofbanks,withoutanydeduction,formedpartof
theirtaxablegrossreceipts.FromOctober1946toJune1977,therewasnowithholdingtaxoninterestincome
frombankdeposits.

On 3 June 1977, Presidential Decree No. 1156 required the withholding at source of a 15% tax on interest on
bankdeposits.Thistaxwasacreditable,notafinalwithholdingtax.Despitethewithholdingofthe15%tax,the
entireinterestincome,withoutanydeduction,formedpartofthebankstaxablegrossreceipts.On17September
1980,PresidentialDecreeNo.1739madethewithholdingtaxoninterestafinaltaxattherateof15%onsavings
account,and20%ontimedeposits.24Still,from1980untiltheCourtofTaxAppealsdecisioninAsianBankon30
January1996,banksincludedtheentireinterestincome,withoutanydeduction,intheirtaxablegrossreceipts.

InAsianBank,theCourtofTaxAppealsheldthatthefinalwithholdingtaxisnotpartofthebankstaxablegross
receipts.ThetaxcourtanchoreditsrulingonSection4(e)ofRevenueRegulationsNo.1280,25whichstatedthat
thegrossreceipts"shallbebasedonallitemsactuallyreceived"bythebank.Thetaxcourtruledthatthebank
doesnotactuallyreceivethefinalwithholdingtax.Asauthority,thetaxcourtcitedCollectorofInternalRevenuev.
Manila Jockey Club,26 which held that "gross receipts of the proprietor should not include any money which
althoughdeliveredtotheamusementplacehasbeenespeciallyearmarkedbylaworregulationforsomeperson
otherthantheproprietor."Ineffect,thetaxcourtconsideredSection4(e)ofRevenueRegulationsNo.1280as
earmarkingbyregulationthefinalwithholdingtaxinfavorofthegovernment.Thisearmarking,accordingtothe
tax court, prevented the final withholding tax from being "actually received" by the bank. The tax court adopted
theAsianBankrulinginsucceedingcasesinvolvingthesameissue.27

Subsequently, the Court of Tax Appeals reversed its ruling in Asian Bank. In Far East Bank & Trust Co. v.
Commissioner28andStandardCharteredBankv.Commissioner,29bothpromulgatedon16November2001,the
taxcourtruledthatthefinalwithholdingtaxformspartofthebanksgrossreceiptsincomputingthegrossreceipts
tax.ThetaxcourtheldthatSection4(e)ofRevenueRegulationsNo.1280didnotprescribethecomputationof
thegrossreceiptsbutmerelyauthorized"thedeterminationoftheamountofgrossreceiptsonthebasisofthe
methodofaccountingbeingusedbythetaxpayer."
ThetaxcourtalsoheldinFarEastBankandStandardCharteredBankthattheexclusionofthefinalwithholding
taxfromgrossreceiptsoperatesasataxexemptionwhichthelawmustexpresslygrant.Nolawprovidesforsuch
exemption.Inaddition,thetaxcourtpointedoutthatSection7(c)ofRevenueRegulationsNo.1784hadalready
supersededSection4(e)ofRevenueRegulationsNo.1280.Section7(c)ofRevenueRegulationsNo.1784,the
existingapplicableregulation,states:

Section7.NatureandTreatmentofInterestonDepositsandYieldonDepositSubstitutes

xxx

(c)Iftherecipientoftheabovementioneditemsofincomearefinancialinstitutions,thesameshallbeincludedas
partofthetaxbaseuponwhichthegrossreceiptstaxisimposed.(Emphasissupplied)

TheitemsofincomereferredtoinSection7(c)areinterestonbankdepositsandyieldfromdepositsubstitutes.

fromdepositsubstitutes.

There are two related legal concepts that come into play in the resolution of the first issue raised in the instant
case. First is the meaning of the term "gross receipts." Second is the determination of the circumstance when
interestincomebecomespartofgrossreceiptsfortaxpurposes.

TheTaxCodedoesnotdefinetheterm"grossreceipts"forpurposesofthegrossreceiptstaxonbanks.Since1
October1946whenRANo.39firstimposedthegrossreceiptstaxonbanksuntilthepresent,therehasbeenno
statutorydefinitionoftheterm"grossreceipts."Absentastatutorydefinition,theBIRhasappliedtheterminits
plainandordinarymeaning.

On12July1952,fouryearsafterRANo.39imposedthegrossreceiptstaxonbanks,thedefunctBoardofTax
Appeals30 had occasion to interpret the term "gross receipts." In National City Bank v. Collector of Internal
Revenue,31thebankcontendedthattheamortizedpremiumcostsinbuyingU.S.Governmentbondsshouldbe
deductedfromtheinterestincomefromthebondsincomputingthebanksgrossreceiptstax.Ontheotherhand,
theCollectorofInternalRevenuearguedthat"grossreceiptsshouldbeinterpretedasthewholeamountreceived
as interests without deductions, otherwise, if deductions are made from gross receipts, it will be considered as
netreceipts."TheBoardofTaxAppealsagreedwiththeCollector,rulingthat

Concedingthatthepremiumsamortizedformpartofthecapitalinvestedbythepetitioner,todeductsamefrom
theaccruedinterestsofthebondswouldresultintherealizationofthenetinterestsandnotthegrossreceiptson
the interests earned by the petitioner in its investments as provided for in Section 249 of the Tax Code. The
denial, therefore, of the respondent in allowing the deduction of the amortized premium in the amount of
P239,678.41fromtheaccruedinterestofthebonds,isinorder.

The National City Bank ruling remained unchallenged from 1952 until January 1996 when the Court of Tax
AppealsrendereditsdecisioninAsianBank.InNovember2001,however,thesametaxcourt,citingNationalCity
Bankamongotherauthorities,reversedAsianBankinthetwincasesofFarEastBankandStandardChartered
Bank.

Ascommonlyunderstood,theterm"grossreceipts"meanstheentirereceiptswithoutanydeduction.Deducting
any amount from the gross receipts changes the result, and the meaning, to net receipts. Any deduction from
gross receipts is inconsistent with a law that mandates a tax on gross receipts, unless the law itself makes an
exception. As explained by the Supreme Court of Pennsylvania in Commonwealth of Pennsylvania v. Koppers
Company,Inc.,32

Highlyrefinedandtechnicaltaxconceptshavebeendevelopedbytheaccountantandlegaltechnicianprimarily
because of the impact of federal income tax legislation. However, this in no way should affect or control the
normalusageofwordsintheconstructionofourstatutesandweseenothingthatwouldrequireusnottoinclude
theproceedshereinquestioninthegrossreceiptsallocationunlessstatutorilysuchinclusionisprohibited.Under
the ordinary basic methods of handling accounts, the term gross receipts, in the absence of any statutory
definition of the term, must be taken to include the whole total gross receipts without any deductions. x x x.
[Citationsomitted](Emphasissupplied)

Likewise,inLacledeGasCo.v.CityofSt.Louis,33theSupremeCourtofMissouriheld:

Thewordgrossappearinginthetermgrossreceipts,asusedintheordinance,musthavebeenandwasthere
usedasthedirectantithesisofthewordnet.Initsusualandordinarymeaninggrossreceiptsofabusinessis
thewholeandentireamountofthereceiptswithoutdeduction.xxxOnthecontrarynetreceiptsusuallyarethe
receipts which remain after deductions are made from the gross amount thereof of the expenses and cost of
doingbusiness,includingfixedchargesanddepreciation.Grossreceiptsbecomenetreceiptsaftercertainproper
deductions are made from the gross. And in the use of the words gross receipts, the instant ordinance, of
course, precluded plaintiff from first deducting its costs and expenses of doing business, etc., in arriving at the
higherbasefigureuponwhichitmustpaythe5%taxunderthisordinance.(Emphasissupplied)

Absentastatutorydefinition,theterm"grossreceipts"isunderstoodinitsplainandordinarymeaning.Wordsina
statutearetakenintheirusualandfamiliarsignification,withdueregardtotheirgeneralandpopularuse.34The
SupremeCourtofHawaiiheldinBishopTrustCompanyv.Burns35that

xxxItisfundamentalthatinconstruingorinterpretingastatute,inordertoascertaintheintentofthelegislature,
thelanguageusedthereinistobetakeninthegenerallyacceptedandusualsense.Courtswillpresumethatthe
wordsinastatutewereusedtoexpresstheirmeaningincommonusage.Thisprincipleisequallyapplicabletoa
taxstatute.[Citationsomitted](Emphasissupplied)

The Tax Code does not also define the term "gross receipts" for purposes of the common carriers tax,36 the
internationalcarrierstax,37thetaxonradioandtelevisionfranchises,38andthetaxonfinancecompanies.39All
these business taxes under Title V of the Tax Code are based on gross receipts. Despite the absence of a
statutory definition, these taxes have been collected in this country for over half a century on the general and
commonunderstandingthattheyarebasedonallreceiptswithoutanydeduction.

Since1October1946whenRANo.39firstimposedthegrossreceiptstaxonbanksunderSection249oftheTax
Code, the legislature has reenacted several times this section of the Tax Code. On 24 December 1972,
PresidentialDecreeNo.69,whichenactedintolawtheOmnibusTaxBillof1972,reenactedSection249ofthe
Tax Code. Then on 11 June 1977, Presidential Decree No. 1158, otherwise known as the National Internal
RevenueCodeof1977,reenactedSection249asSection119oftheTaxCode.Finallyon11December1997,
RepublicActNo.8424,otherwiseknownastheTaxReformActof1997,reenactedSection119asthepresent
Section 121 of the Tax Code. Throughout these reenactments, the legislature has not provided a statutory
definition of the term "gross receipts" for purposes of the gross receipts tax on banks, common carriers,
internationalcarriers,radioandtelevisionoperators,andfinancecompanies.

Under Revenue Regulations Nos. 1280 and 1784, as well as in several numbered rulings,40 the BIR has
consistentlyruledthattheterm"grossreceipts"doesnotadmitofanydeduction.Thisinterpretationhasremained
unchanged throughout the various reenactments of the present Section 121 of the Tax Code. The only
conclusionthatcanbedrawnisthatthelegislaturehasadoptedtheBIRsinterpretation,followingtheprincipleof
legislative approval by reenactment. In Inteprovincial Autobus Co., Inc. v. Collector of Internal Revenue,41 the
Courtdeclared:

Anotherreasonforsustainingthevalidityoftheregulationmaybefoundintheprincipleoflegislativeapprovalby
reenactment. The regulations were approved on September 16, 1924. When the National Internal Revenue
CodewasapprovedonFebruary18,1939,thesameprovisionsonstamptax,billsofladingandreceiptswere
reenacted. There is a presumption that the Legislature reenacted the law on the tax with full knowledge of the
contentsoftheregulationstheninforceregardingbillsofladingandreceipts,andthatitapprovedorconfirmed
thembecausetheycarryoutthelegislativepurpose.

The presumption is that the legislature is familiar with the contemporaneous interpretation of a statute given by
theadministrativeagencytaskedtoenforcethestatute.42ThesubsequentreenactmentsofthepresentSection
121 of the Tax Code, without changes on the term interpreted by the BIR, confirm that the BIRs interpretation
carriesoutthelegislativepurpose.

However, for the amusement tax, which is also a business tax under the same Title V, the Tax Code makes a
specialdefinitionoftheterm"grossreceipts."Theterm"grossreceipts"foramusementtaxpurposes"embraces
all receipts of the proprietor, lessee or operator of the amusement place."43 The Tax Code further adds that "
[s]aidgrossreceiptsalsoincludeincomefromtelevision,radioandmotionpicturerights,ifany."44Thisdefinition
merelyconfirmsthattheterm"grossreceipts"embracestheentirereceiptswithoutanydeductionorexclusion,as
thetermisgenerallyandcommonlyunderstood.

Evenwithoutastatutorydefinition,theterm"grossreceipts"willhavetoexcludeanydeductionofthewithholding
tax.Otherwise,otheritemsofincomeinSection121wouldalsobesubjecttodeductionsdespitetheabsenceofa
specificprovisionoflawexcludinganyportionofsuchitemsofincomefromtaxablegrossreceipts.Section121
refersnotonlytointerestincome,butalsoto"dividends,xxxrentalsofproperty,realorpersonal,profitsfrom
exchangeandallotheritemstreatedasgrossincomeunderSection32ofthisCode."

UnderRevenueRegulationsNo.1378,45rentalincomereceivedbyabankissubjecttoacreditablewithholding
tax.UnderSection121,suchrentalincome,withoutanydeductionofthewithholdingtax,formspartofthebanks
taxable gross receipts. The amount of the creditable withholding tax is indubitably part of the banks rental
income.Thecreditablewithholdingtaxismerelyanadvancepaymentbythebankofitstaxontherentalincome.
Theamountofthewithholdingtaxcomesfromthebanksrentalincomeanditspaymentextinguishesthebanks
tax liability. The amount deducted by the payorlessee and remitted to the government, representing the
creditable withholding tax, is money the bank owns that is used to pay the banks tax liability. The amount
deductedandremittedascreditablewithholdingtaxpatentlycomesfromthebanksrentalincome,andcorrectly
formspartofthebanksgrossreceipts.

Inthesamemanner,theamountofthefinalwithholdingtaxoninterestincomeshouldnotbedeductedfromthe
banks interest income for purposes of the gross receipts tax. The final withholding tax on interest, like the
creditablewithholdingtaxonrentals,comesfromthebanksincomeandismoneythebankownsthatisusedto
paythebankstaxliability.Thefinalwithholdingtaxandthecreditablewithholdingtaxconstitutepaymentbythe
banktoextinguishataxobligationtothegovernment.Thebankcanonlypaywithmoneyitowns,orwithmoneyit
isauthorizedtospend.Ineithercase,suchmoneycomesfromthebanksrevenuesorreceipts,andcertainlynot
fromthegovernmentscoffers.

CBCsargumentwillcreatetaxexemptionswherenoneexist.Iftheamountofthefinalwithholdingtaxisexcluded
from taxable gross receipts, then the amount of the creditable withholding tax should also be excluded from
taxable gross receipts. For that matter, any withholding tax should be excluded from taxable gross receipts
becausesuchwithholdingwouldqualifyas"earmarkingbyregulation."UnderSection57(B)oftheTaxCode,the
Commissioner, with the approval of the Secretary of Finance, may by regulation impose a withholding tax on
other items of income to facilitate the collection of the income tax. Every time the Commissioner expands the
withholdingtax,hewillcreatetaxexemptionswherethelawprovidesfornone.Obviously,theCourtcannotallow
this.

UnderSection27(D)(4)oftheTaxCode,dividendsreceivedbyadomesticcorporationfromanothercorporation
arenotsubjecttothecorporateincometax.Suchintracorporatedividendsaresomeofthepassiveincomesthat
aresubjecttothe20%finaltax,justlikeinterestonbankdeposits.Intracorporatedividends,beingalreadysubject
tothefinaltaxonincome,nolongerformpartofthebanksgrossincomeunderSection32oftheTaxCodefor
purposesofthecorporateincometax.However,Section121expresslystatesthatdividendsshallformpartofthe
banks gross receipts for purposes of the gross receipts tax on banks. This is the same treatment given to the
banksinterestincomethatissubjecttothefinalwithholdingtax.Suchinterestincome,beingalreadysubjectto
thefinaltax,nolongerformspartofthebanksgrossincomeforpurposesofthecorporateincometax.Section
121, however, expressly includes such interest income as part of the banks gross receipts for purposes of the
grossreceiptstax.

Whetheranitemofincomeisexcludedfromgrossincomeorissubjecttothefinalwithholdingtaxhasnobearing
onitsinclusioningrossreceiptsifSection121expresslyincludessuchincomeaspartofgrossreceipts.Asheld
in Commonwealth of Pennsylvania, "[t]he exemption of dividends and interest from taxation, through their
exclusion from net income to be allocated, does not also exclude those items from the gross receipts from
businessactivityofthecorporation."46

Thereisapolicyobjectivewhynodeductions,exemptionsorexclusionsarenormallyallowedinagrossreceipts
tax.Thegrossreceiptstax,asopposedtotheincometax,wasdevisedtomaintainsimplicityintaxcollectionand
toassureasteadysourceofstaterevenueevenduringperiodsofeconomicslowdown.47Suchapolicyfrowns
uponerosionofthetaxbase.Deductions,exemptionsorexclusionscomplicatethetaxsystemandlessenthetax
collection. By its nature, a gross receipts tax applies to the entire receipts without any deduction, exemption or
exclusion,unlessthelawclearlyprovidesotherwise.

CBC cites Collector of Internal Revenue v. Manila Jockey Club48 as authority that the final withholding tax on
interestincomedoesnotformpartofabanksgrossreceiptsbecausethefinaltaxis"earmarkedbyregulation"
for the government. CBCs reliance on the Manila Jockey Club is misplaced. In this case the Court stated that
Republic Act No. 309 and Executive Order No. 320 apportioned the total amount of the bets in horse races as
follows:

871/2%asdividendstoholdersofwinningtickets121/2%ascommissionoftheManilaJockeyClub,ofwhich
1/2% was assigned to the Board of Races and 5% was distributed as prizes for owners of winning horses and
authorizedbonusesforjockeys.49

A subsequent law, Republic Act No. 1933 ("RA No. 1933"), amended the sharing by ordering the distribution of
thebetsasfollows:

Sec. 19. Distribution of receipts. The total wager funds or gross receipts from the sale of parimutuel tickets
shallbeapportionedasfollows:eightysevenandonehalfpercentumshallbedistributedintheformofdividends
amongtheholdersofwin,placeandshowhorses,asthecasemaybe,intheregularracessixandonehalfper
centumshallbesetasideasthecommissionoftheperson,racetrack,racingclub,oranyotherentityconducting
theracesfiveandonehalfpercentumshallbesetasideforthepaymentofstakesorprizesforwin,placeand
showhorsesandauthorizedbonusesforjockeysandonehalfpercentumshallbepaidtoaspecialfundtobe
usedbytheGamesandAmusementsBoardtocoveritsexpensesandsuchotherpurposesauthorizedunderthis
Act.xxx.(Emphasissupplied)

Under the "distribution of receipts" expressly mandated in Section 19 of RA No. 1933, the gross receipts
"apportioned"toManilaJockeyClubreferredonlytoitsown61/2%commission.Thereisnodisputethatthe5
1/2%shareofthehorseownersandjockeys,andthe1/2%shareoftheGamesandAmusementBoard,donot
formpartofManilaJockeyClubsgrossreceipts.RANo.1933tookeffecton22June1957,threeyearsbefore
theCourtdecidedManilaJockeyClubon30June1960.

Evenundertheearlierlaw,ManilaJockeyClubdidnotowntheentire121/2%commission.ManilaJockeyClub
owned,andcouldkeepanduse,only7%ofthetotalbets.ManilaJockeyClubmerelyheldintrustthebalanceof
51/2%forthebenefitoftheBoardofRacesandthewinninghorseownersandjockeys,therealownersofthe5
1/2%share.

TheCourtinManilaJockeyClubquotedwithapprovalthefollowingOpinionoftheSecretaryofJusticemadeprior
toRANo.1933:

ThereisnoquestionthattheManilaJockeyClub,Inc.ownsonly71/2%[sic]ofthetotalbetsregisteredbythe
Totalizer.Thisportionrepresentsitsshareorcommissioninthetotalamountofmoneyithandlesandgoestothe
fundsthereofasitsownpropertywhichitmaylegallydisburseforitsownpurposes.The5%[sic]doesnotbelong
totheclub.Itismerelyheldintrustfordistributionasprizestotheownersofwinninghorses.Itisdestinedforno
otherobjectthanthepaymentofprizesandtheclubcannototherwiseappropriatethisportionwithoutincurring
liabilitytotheownersofwinninghorses.Itcannotbeconsideredasanitemofexpensebecausethesumused
for the payment of prizes is not taken from the funds of the club but from a certain portion of the total bets
especiallyearmarkedforthatpurpose.50(Emphasissupplied)

Consequently, the Court ruled that the 5 1/2% balance of the commission, not being owned by Manila Jockey
Club,didnotformpartofitsgrossreceiptsforpurposesoftheamusementtax.ManilaJockeyClubcorrectlypaid
theamusementtaxbasedonlyonitsown7%commissionunderRANo.309andExecutiveOrderNo.320.

ManilaJockeyClubdoesnotsupportCBCscontentionbutrathertheCommissionersposition.TheCourtruledin
ManilaJockeyClubthatreceiptsnotownedbytheManilaJockeyClubbutmerelyheldbyitintrustdidnotform
part of Manila Jockey Clubs gross receipts. Conversely, receipts owned by the Manila Jockey Club would form
partofitsgrossreceipts.

Intheinstantcase,CBCownstheinterestincomewhichisthesourceofpaymentofthefinalwithholdingtax.The
government subsequently becomes the owner of the money constituting the final tax when CBC pays the final
withholding tax to extinguish its obligation to the government. This is the consideration for the transfer of
ownershipofthemoneyfromCBCtothegovernment.Thus,theamountconstitutingthefinaltax,beingoriginally
ownedbyCBCaspartofitsinterestincome,shouldformpartofitstaxablegrossreceipts.

InCommissionerv.ToursSpecialists,Inc.,51theCourtexcludedfromgrossreceiptsmoneyentrustedbyforeign
touroperatorstoToursSpecialiststopaythehotelaccommodationoftouristsbookedinvariouslocalhotels.The
CourtdeclaredthatToursSpecialistsdidnotownsuchentrustedfundsandthusthefundswerenotsubjecttothe
3%contractorstaxpayablebyToursSpecialists.TheCourtheld:

x x x [G]ross receipts subject to tax under the Tax Code do not include monies or receipts entrusted to the
taxpayerwhichdonotbelongtothemanddonotredoundtothetaxpayersbenefitanditisnotnecessarythat
there must be a law or regulation which would exempt such monies and receipts within the meaning of gross
receiptsundertheTaxCode.

xxx[T]heroomchargesentrustedbytheforeigntravelagenciestotheprivaterespondentdonotformpartofits
grossreceiptswithinthedefinitionoftheTaxCode.Thesaidreceiptsneverbelongedtotheprivaterespondent.
Theprivaterespondentneverbenefitedfromtheirpaymenttothelocalhotels.xxx[T]hisarrangementwasonly
toaccommodatetheforeigntravelagencies.(Emphasissupplied)

Unless otherwise provided by law, ownership is essential in determining whether interest income forms part of
taxable gross receipts. Ownership is the circumstance that makes interest income part of the taxable gross
receipts of the taxpayer. When the taxpayer acquires ownership of money representing interest, the money
constitutesincomeorreceiptofthetaxpayer.

Incontrast,thetrusteeoragentdoesnotownthemoneyreceivedintrustandsuchmoneydoesnotconstitute
incomeorreceiptforwhichthetrusteeoragentistaxable.Thisisafundamentalconceptintaxation.Thus,funds
received by a money remittance agency for transfer and delivery to the beneficiary do not constitute income or
gross receipts of the money remittance agency. Similarly, a travel agency that collects ticket fares for an airline
doesnotincludetheticketfareinitsgrossincomeorreceipts.Inthesecases,themoneyremittanceagencyor
travelagencydoesnotacquireownershipofthefundsreceived.
Moreover,whenSection121oftheTaxCodeincludes"interest"aspartofgrossreceipts,itreferstotheentire
interest earned and owned by the bank without any deduction. "Interest" means the gross amount paid by the
borrowertothelenderasconsiderationfortheuseofthelendersmoney.Section2(h)ofRevenueRegulations
No.1280,nowSection2(i)ofRevenueRegulationsNo.1784,definestheterm"interest"as"theamountwhicha
depository bank (borrower) may pay on savings and time deposit in accordance with rates authorized by the
Central Bank of the Philippines." This definition does not allow any deduction. The entire interest paid by the
depositorybank,withoutanydeduction,iswhatformspartofthelendingbanksgrossreceipts.

To illustrate, assume that the gross amount of the interest income is P100. The lending bank owns this entire
P100 since this is the amount the depository bank pays the lending bank for use of the lenders money. In its
books the depository bank records an interest expense of P100 and claims a deduction for interest expense of
P100.The20%finalwithholdingtax52onthisinterestincomeisP20,whichthelawrequiresthedepositorybank
to withhold and remit directly to the government. The depository bank withholds the final tax in trust for the
governmentwhichthenbecomestheowneroftheP20. The final tax is the legal liability of the lending bank as
recipientoftheinterestincome.ThepaymentoftheP20finaltaxextinguishesthetaxliabilityofthelendingbank.
TheinterestincomethatthedepositorybankturnsoverphysicallytothelendingbankisP80,thenetreceiptafter
deducting the P20 final tax. Still, the interest income that forms part of the lending banks gross receipts for
purposesofthegrossreceiptstaxisP100becausethetotalamountearnedbythelendingbankfromitspassive
investmentisP100,notP80.

Stateddifferently,thelendingbankpaidP20asfinaltaxwhichis20%oftheinterestincomeitreceived.Logically,
thelendingbanksinterestincomeisP100toarriveataP20finalwithholdingtax.Sincewhatthelawincludesin
gross receipts is the interest income, then it is P100 and not P80 which forms part of the lending banks gross
receipts.IfthelendingbanksinterestincomeisonlyP80,thenits20%finalwithholdingtaxshouldonlybeP16.

CBC also relies on the Tax Courts ruling in Asian Bank that Section 4(e) of Revenue Regulations No. 1280
authorizestheexclusionofthefinaltaxfromthebankstaxablegrossreceipts.Section4(e)providesthat:

Sec.4.xxx

(e) Gross receipts tax on banks, nonbank financial intermediaries, financing companies, and other nonbank
financialintermediariesnotperformingquasibankingfunctions.Theratesoftaxestobeimposedonthegross
receiptsofsuchfinancialinstitutionsshallbebasedonallitemsofincomeactuallyreceived.Mereaccrualshall
not be considered, but once payment is received on such accrual or in cases of prepayment, then the amount
actually received shall be included in the tax base of such financial institutions, as provided hereunder: x x x.
(EmphasissuppliedbyTaxCourt)

Section4(e)statesthatthegrossreceipts"shallbebasedonallitemsofincomeactuallyreceived."Thetaxcourt
inAsianBankconcludedthat"itisbutlogicaltoinferthatthefinaltax,nothavingbeenreceivedbypetitionerbut
insteadwenttothecoffersofthegovernment,shouldnolongerformpartofitsgrossreceiptsforthepurposeof
computingtheGRT."

The Tax Court erred glaringly in interpreting Section 4(e) of Revenue Regulations No. 1280. Income may be
taxableeitheratthetimeofitsactualreceiptoritsaccrual,dependingontheaccountingmethodofthetaxpayer.
Section 4(e) merely provides for an exception to the rule, making interest income taxable for gross receipts tax
purposes only upon actual receipt. Interest is accrued, and not actually received, when the interest is due and
demandablebuttheborrowerhasnotactuallypaidandremittedtheinterest,whetherphysicallyorconstructively.
Section4(e)doesnotexcludeaccruedinterestincomefromgrossreceiptsbutmerelypostponesitsinclusionuntil
actualpaymentoftheinteresttothelendingbank.ThisisclearwhenSection4(e)statesthat"[m]ereaccrualshall
not be considered, but once payment is received on such accrual or in case of prepayment, then the amount
actuallyreceivedshallbeincludedinthetaxbaseofsuchfinancialinstitutionsxxx."

Actualreceiptofinterestincomeisnotlimitedtophysicalreceipt.Actualreceiptmayeitherbephysicalreceiptor
constructivereceipt.53Whenthedepositorybankwithholdsthefinaltaxtopaythetaxliabilityofthelendingbank,
there is prior to the withholding a constructive receipt by the lending bank of the amount withheld. From the
amount constructively received by the lending bank, the depository bank deducts the final withholding tax and
remitsittothegovernmentfortheaccountofthelendingbank.Thus,theinterestincomeactuallyreceivedbythe
lendingbank,bothphysicallyandconstructively,isthenetinterestplustheamountwithheldasfinaltax.

Theconceptofawithholdingtaxonincomeobviouslyandnecessarilyimpliesthattheamountofthetaxwithheld
comes from the income earned by the taxpayer.54 Since the amount of the tax withheld constitutes income
earned by the taxpayer, then that amount manifestly forms part of the taxpayers gross receipts. Because the
amountwithheldbelongstothetaxpayer,hecantransferitsownershiptothegovernmentinpaymentofhistax
liability. The amount withheld indubitably comes from income of the taxpayer, and thus forms part of his gross
receipts.
Inaddition,Section8ofRevenueRegulationsNo.1280expresslystatesthatinterestincome,evenifsubjectto
the final withholding tax and excluded from gross income for income tax purposes, should still form part of the
bankstaxablegrossreceipts.Section8ofRevenueRegulationsNo.1280providesthat

Section8.NatureandTreatmentofInterestonDepositsandYieldonDepositSubstitutes

(a)TheinterestearnedonPhilippinecurrency,bankdepositsandyieldfromdepositsubstitutessubjected
tothewithholdingtaxesinaccordancewiththeseregulationsneednotbeincludedinthegrossincomein
computing the depositors/investors income tax liability in accordance with the provision of Section 29(b),
(c)and(d)oftheTaxCode.

(b)xxx

(c) If the recipient of the abovementioned items of income are financial institutions, the same shall be
includedaspartofthetaxbaseuponwhichthegrossreceiptstaxisimposed."(Emphasissupplied)

Thus, interest earned by banks, even if subject to the final tax and excluded from taxable gross income, forms
partofitsgrossreceiptsforgrossreceiptstaxpurposes.Theinterestearnedreferstothegrossinterestwithout
deduction since the regulations do not provide for any deduction. The gross interest, without deduction, is the
amounttheborrowerpays,andtheincomethelenderearns,fortheusebytheborrowerofthelendersmoney.
Theamountofthefinaltaxplainlycomesfromtheinterestearnedandisconsequentlypartofthebankstaxable
grossreceipts.

InPLDTv.CollectorofInternalRevenue,55 the Court ruled that PLDTs gross receipts included the uncollected
feesfromcustomersbecausePLDTalreadyearnedtheuncollectedfees.TheCourtdeclaredthatfeesearned,
evenifnotcollected,formedpartofPLDTsgrossreceiptsforpurposesofthefranchisetax.Construing"gross
receiptsxxxasmeaningthesameasgrossearnings,"theCourtrefusedtoallowdeductionsofuncollectedor
badaccountsfromthegrossreceiptsincomputingthefranchisetax.

Presidential Decree No. 1739 ("PD No. 1739"), which took effect on 17 September 1980, made the withholding
tax on interest from bank deposits a final tax. To implement PD No. 1739, the then Ministry of Finance, upon
recommendationoftheBIR,issuedRevenueRegulationsNo.1280"togovernthemanneroftaxationofcertain
income derived from banking activities as provided for by Presidential Decree No. 1739." Subsequently,
Presidential Decree No. 1959, which took effect on 10 October 1984, amended PD No. 1739. The Ministry of
Finance, upon recommendation of the BIR, issued on 12 October 1984 Revenue Regulations No. 1784 "to
governthemanneroftaxationofinterestincomederivedfromdepositanddepositsubstitutesasprovidedforby
Presidential Decree No. 1959." Thus, as early as 12 October 1984 Revenue Regulations No. 1784 had
supplantedRevenueRegulationsNo.1280.

Among the changes introduced by PD No. 1959 was the reduction of the final withholding tax on time deposits
and yield on deposit substitutes to 15% from the 20% rate in PD No. 1739. Revenue Regulations No. 1784
readoptedverbatimSection2(h)onthedefinitionof"interest,"56aswellasSection8(c)onthecomputationofthe
taxable base of the banks gross receipts,57 found in Revenue Regulations No. 1280. However, Revenue
RegulationsNo.1784didnotreadoptSection4(e)ofRevenueRegulationsNo.1280,whichwastheregulation
citedinAsianBankasbasisforexcludingthefinalwithholdingtaxfromthebankstaxablegrossreceipts.Asearly
as12yearsbeforethetaxcourtdecidedAsianBank,therevenueregulationsalreadyrequiredinterestincome,
whetheractuallyreceivedormerelyaccrued,toformpartofthebankstaxablegrossreceipts.

On the other hand, Section 7 of Revenue Regulations No. 1784, which replaced Section 4 of Revenue
RegulationsNo.1280,providesthat

Section7.NatureandTreatmentofInterestonDepositsandYieldonDepositSubstitutes.

(a)TheinterestearnedonPhilippineCurrencybankdepositsandyieldfromdepositsubstitutessubjected
tothewithholdingtaxesinaccordancewiththeseregulationsneednotbeincludedinthegrossincomein
computing the depositor's/investor's income tax liability in accordance with the provision of Section 29(b),
(c)and(d)oftheNationalInternalRevenueCode,asamended.

(b)Onlyinterestpaidoraccruedonbankdeposits,oryieldfromdepositsubstitutesdeclaredforpurposes
ofimposingthewithholdingtaxesinaccordancewiththeseregulationsshallbeallowedasinterestexpense
deductibleforpurposesofcomputingtaxablenetincomeofthepayor.

(c) If the recipient of the abovementioned items of income are financial institutions, the same shall be
includedaspartofthetaxbaseuponwhichthegrossreceipttaxisimposed.(Emphasissupplied)

Thus, the Tax Court, which decided Asian Bank on 30 January 1996, not only erroneously interpreted Section
4(e)ofRevenueRegulationsNo.1280,italsocitedSection4(e)whenitwasnolongertheapplicablerevenue
regulation. To reiterate, the revenue regulations applicable at the time the tax court decided Asian Bank was
RevenueRegulationsNo.1784,notRevenueRegulationsNo.1280.

The argument that Section 7(c) of Revenue Regulations No. 1784 does not apply to banks but only to finance
companies deserves scant consideration. This argument proceeds from the interpretation58 that the term
"financial institutions" in Section 7(c) is the equivalent of the term "finance companies." Section 7(c) states as
follows:

If the recipient of the abovementioned items of income are financial institutions, the same shall be included as
partoftheirtaxbaseuponwhichthegrossreceiptstaxisimposed."(Emphasissupplied)

However,theimmediatelysucceedingsectionbeliesthisinterpretation.Section8ofRevenueRegulationsNo.17
84states:

Section8.Statementtobeattachedtothecorporatetaxreturnoffinancialinstitutions.Thereshallbeattached
to the final consolidated corporate return of the authorized agent bank or nonfinancial intermediaries for each
taxableyear,astatementsummarizingthepertinentinformationrequiredbytheseregulationswithrespecttothe
computationoftheaggregateinterestpaidonsavings,timedepositsanddepositsubstitutesandtaxeswithheld
therefromandpaidtotheBureau,duringtheyear(B.I.R.FormNo.___).(Emphasissupplied)

Section8expresslyspecifiesbanksandnonbankfinancialintermediariesasthe"financialinstitutions"thatshould
attachtotheircorporatetaxreturnsstatementssummarizingcertainpertinentinformationonthecomputationof
theirinterestincomesubjecttothefinaltax.RevenueRegulationsNo.1784appliesto"banks,nonbankfinancial
intermediaries," "finance companies," "lending investors, investment houses, trust companies and similar
institutions and corporations."59 Obviously, the term "financial institutions" is not the same as the term "finance
companies,"butsignifiesabroadermeaningtoembracebanks.

Ofcourse,theterm"financialinstitutions"alsocoversfinancecompaniessinceSection7(c)usesthistermtorefer
to institutions that are subject to the "gross receipts tax." Section 7(c) states that interest income received by
financialinstitutionsshallformpartoftheir"taxbaseuponwhichthegrossreceiptstaxisbased."UnderSections
121and12260oftheTaxCode,thefinancialinstitutionsthataresubjecttothegrossreceiptstaxarebanks,non
bankfinancialintermediariesandfinancecompanies.Thesefinancialinstitutionsaretaxableonthesameclassof
interest income and at the same tax rates. Evidently, the term "financial institutions" refers to banks, nonbank
financialintermediaries,andfinancecompanies.

CBCs contention that it can deduct the final withholding tax from its interest income amounts to a claim of tax
exemption. The cardinal rule in taxation is exemptions are highly disfavored and whoever claims an exemption
mustjustifyhisrightbytheclearestgrantoforganicorstatutelaw.61CBCmustpointtoaspecificprovisionoflaw
grantingthetaxexemption.62Thetaxexemptioncannotarisebymereimplicationandanydoubtaboutwhether
theexemptionexistsisstrictlyconstruedagainstthetaxpayerandinfavorofthetaxingauthority.63

Section121oftheTaxCodeexpresslysubjectsinterestincometothegrossreceiptstaxonbanks.Suchexpress
inclusionofinterestincomeintaxablegrossreceiptscreatesapresumptionthattheentireamountoftheinterest
income,withoutanydeduction,issubjecttothegrossreceiptstax.AsruledbytheSupremeCourtofNewMexico
inKewaneeIndustries,Inc.v.Reese,64

xxxThereisapresumptionthatreceiptsofapersonengaginginbusinessaresubjecttothegrossreceiptstax.
For Kewanee to prevail, it must clearly overcome this presumption. Additionally, where an exception is claimed,
thestatuteisconstruedstrictlyinfavorofthetaxingauthority.Theexemptionmustbeclearlyandunambiguously
expressed in the statute, and must be clearly established by the taxpayer claiming the right thereto. Thus,
taxationistheruleandtheclaimantmustshowthathisdemandiswithintheletteraswellasthespiritofthelaw.
(Citationsandquotationsomitted)

To overcome this presumption, CBC must point to a specific provision of law allowing the deduction of the final
withholdingtaxfromitstaxablegrossreceipts.CBChasfailedtociteanyprovisionoflawallowingthefinaltaxas
anexemption,deductionorexclusion.Thus,CBCsclaimhasnolegallegtostandon.

InAsianBank,theCourtofTaxAppealsquotedManilaJockeyClubthatthelegislaturecouldnothaveintended
the Board of Races 1/2% share to be subjected to the amusement tax because it would constitute double
taxation. The Court in Manila Jockey Club explained that "double taxation x x x should be avoided unless the
statute admits of no other interpretation." This statement was not the ratio decidendi in Manila Jockey Club.
There,theCourtfoundthattheBoardofRaces1/2%share,andthehorseownersandjockeys5%share,were
notownedbytheManilaJockeyClubandthusdidnotformpartoftheManilaJockeyClubsgrossreceipts.

Nevertheless, the tax court quoted with approval this particular statement in Manila Jockey Club, thus implying
twointerpretations.One,thecourtshouldavoidaninterpretationthatwilltaxtwicethesameinterestincome,first
to the 20% final tax and then to the gross receipts tax. Two, the court should avoid an interpretation that will
imposea"taxonatax,"suchassubjectingthefinaltaxtothegrossreceiptstax.

Thefirstinterpretationraisesthebogeyofaconstitutionalprohibitionondoubletaxation. Therule,however,is
1 w p h i1

wellsettledthatthereisnoconstitutionalprohibitionagainstdoubletaxation.AstheCourtaptlyexplainedinCity
ofBaguiov.DeLeon65

To repeat, the challenged ordinance cannot be considered ultra vires as there is more than ample statutory
authorityfortheenactmentthereof.Nonetheless,itsvalidityonconstitutionalgroundsischallengedbecausethe
allegationthatitimposeddoubletaxation,whichisrepugnanttothedueprocessclause,andthatitviolatedthe
requirementofuniformity.Wedonotviewthematterthus.

As to why double taxation is not violative of due process, Justice Holmes made clear in this language: "The
objectiontothetaxationasdoublemaybelaiddownononeside....The14thAmendment[thedueprocess
clause] no more forbids double taxation than it does doubling the amount of a tax, short of confiscation or
proceedingsunconstitutionalonothergrounds."WiththatdecisionrenderedatatimewhenAmericansovereignty
inthePhilippineswasrecognized,itpossessesmorethanjustapersuasiveeffect.Tosome,itdeliveredthecoup
degracetothebogeyofdoubletaxationasaconstitutionalbartotheexerciseofthetaxingpower.Itwouldseem
thoughthatintheUnitedStates,aswithus,itsghost,asnotedbyaneminentcritic,stillstalksthejuridicalstage.
Ina1947decision,however,wequotedwithapprovalthisexcerptfromaleadingAmericandecision:Where,as
here, Congress has clearly expressed its intention, the statute must be sustained even though double taxation
results.

Besides,thereisnodoubletaxationwhenSection121oftheTaxCodeimposesagrossreceiptstaxoninterest
income that is already subjected to the 20% final withholding tax under Section 27 of the Tax Code. The gross
receiptstaxisabusinesstaxunderTitleVoftheTaxCode,whilethefinalwithholdingtaxisanincometaxunder
Title II of the Code. There is no double taxation if the law imposes two different taxes on the same income,
businessorproperty.

Thesecondinterpretation,ofaprohibitionon"ataxonatax,"isasillusoryastheprohibitionondoubletaxation.
Thegrossreceiptstaxfallsnotonthefinalwithholdingtax,butontheamountoftheinterestincomewithheldas
thefinaltax.Whatisbeingtaxedisstilltheinterestincome.Thelawimposesthegrossreceiptstaxonthatportion
oftheinterestincomethatthedepositorybankwithholdsandremitstothegovernment.Consequently,theentire
amountoftheinterestincomeistaxableandnotonlythenetinterestincome.

Moreover, whenever the legislature excludes a certain tax from gross receipts, the legislature states so clearly
andunequivocally.Thus,forpurposesofthevalueaddedtax,Section10666oftheTaxCodeexpresslyexcludes
thevalueaddedtaxfromthe"grosssellingprice"toavoida"taxonthetax."Toclarifythatonlythevalueadded
tax does not form part of the gross selling price, Section 106 expressly states that the gross selling price shall
includeanyexcisetax,effectivelyresultingina"taxonatax."Ofcourse,the"taxonatax"isinrealityataxonthe
portionoftheincomeorreceiptthatisequivalenttothetax,usuallywithheldandremittedtothegovernment.

There is no constitutional prohibition on subjecting the same income or receipt to an income tax and to some
othertaxlikethegrossreceiptstax.Similarly,thesameincomeorreceiptmaybesubjecttothevalueaddedtax
and the excise tax like the specific tax. If the tax law follows the constitutional rule on uniformity, making all
income,businessorpropertyofthesameclasstaxableatthesamerate,therecanbenovalidobjectiontotaxing
thesameincome,businessorpropertytwice.

In summary, CBC has failed to point to any specific provision of law allowing the deduction, exemption or
exclusion,fromitstaxablegrossreceipts,oftheamountwithheldasfinaltax.Suchamountshouldthereforeform
partofCBCsgrossreceiptsincomputingthegrossreceiptstax.TherebeingnolegalbasisforCBCsclaimfora
taxrefundorcredit,thesecondissueraisedinthispetitionisnowmoot.

WHEREFORE,thePetitionforReviewfiledbyChinaBankingCorporationinG.R.No.146749isDENIEDforlack
ofmerit.ThePetitionforReviewfiledbytheCommissionerofInternalRevenueinG.R.No.147938isGRANTED.
TheassaileddecisionsandresolutionsoftheCourtofTaxAppealsinCTACaseNo.5405andthoseoftheCourt
ofAppealsinCAG.R.SPNo.50839andCAG.R.SPNo.50790areSETASIDE.

SOORDERED.

Davide,Jr.,C.J.,(Chairman),Vitug,YnaresSantiago,andAzcuna,JJ.,concur.

Footnotes

1UnderRule45oftheRulesofCourt.
2InCAG.R.SPNo.50839,pennedbyAssociateJusticeCandidoV.RiveraandconcurredinbyAssociate
JusticesConchitaCarpioMoralesandJosefinaGuevaraSalonga,FourteenthDivision.InCAG.R.SPNo.
50790, penned by Associate Justice Delilah VidallonMagtolis and concurred in by Associate Justices
TeodoroP.ReginoandPerlitaJ.TriaTirona,ThirteenthDivision.

3PennedbyAssociateJudgeRamonO.DeVera,concurredinbyPresidingJudgeErnestoD.Acosta,with
adissentingopinionbyAssociateJudgeAmancioQ.Saga.

4CTADecisioninCTACaseNo.4720,30January1996.

5RolloofG.R.No.146749,p.45RolloofG.R.No.147938,p.32.

6Section230oftheNationalInternalRevenueCodeof1986,asamended,provides:"Sec.230.Recovery
oftaxerroneouslyorillegallycollected.xxx

Inanycase,nosuchsuitorproceedingshallbebegunaftertheexpirationoftwoyearsfromthedate
ofpaymentofthetaxorpenaltyregardlessofanysuperveningcausethatmayariseafterpayment:
Provided,however,thattheCommissionermay,evenwithoutawrittenclaimtherefor,refundorcredit
any tax, where on the face of the return upon which payment was made, such payment appears
clearlytohavebeenerroneouslypaid.xxx"

7UnderSection2(h)(iii)(b)ofRevenueRegulationsNo.1784,theterm"depositsubstitutes"includes"[A]ll
borrowingsofthenationalandlocalgovernmentanditsinstrumentalitiesincludingtheCentralBankofthe
Philippines, evidenced by debt instruments denoted as treasury bonds, bills, notes, certificates of
indebtedness and similar instruments." The Bangko Sentral ng Pilipinas is the withholding agent for the
20%finaltaxoninterestonTreasuryBills.SeeRevenueRegulationsNo.0297dated21January1997.

8RolloofG.R.No.146749,pp.93and99RolloofG.R.No.147938,p.7.

9Supra,note4.

10Supra,note5.

11Supra,note5.

12RolloofG.R.No.146749,p.65.

13Ibid.,p.38.

14RolloofG.R.No.147938,p.18.

15RolloofG.R.No.146749,p.44.

16RolloofG.R.No.147938,p.24.

17Ibid.,p.159CAG.R.SP.No.51248.

18CTACaseNo.5763,16November2001.

19CTACaseNo.5679,16November2001.

20 A unanimous Court of Tax Appeals reiterated this ruling in Solidbank Corporation v. Commissioner of
InternalRevenue(CTACaseNo.6096),decidedon10March2003.Theearliertwocases,FarEastBank
andStandardCharteredBank,werebothdecidedbya21majority.
21PertheCourtsResolutionof21April2003.

22ThiswasSection119oftheTaxCodeatthetimetheCourtofTaxAppealsdecidedCTACaseNo.5405.

23RANo.39amendedSection249oftheTaxCodetoreadasfollows:"Sec.249.Taxonbanks.There
shallbecollectedataxoffivepercentumonthegrossreceiptsderivedbyallbanksdoingbusinessinthe
Philippines from interests, discounts, dividends, commissions, profits from exchange, royalties, rentals of
property,realandpersonal,andallotheritemstreatedasgrossincomeundersectiontwentynineofthis
Code."
24Thefinalwithholdingtaxonbankdepositsisnowimposed,forcorporatetaxpayerslikebanks,inSection
27(D)(1) of the Tax Code, as follows: "(D) Rates of Tax on Certain Passive Income (1) Interest from
Deposits and Yield or any other Monetary Benefit from Deposit Substitutes and from Trust Funds and
Similar Arrangements, and Royalties. A final tax at the rate of twenty percent (20%) is hereby imposed
upontheamountofinterestoncurrencybankdepositandyieldoranyothermonetarybenefitfromdeposit
substitutesandfromtrustfundsandsimilararrangementsreceivedbydomesticcorporations,androyalties,
derivedfromsourceswithinthePhilippines:Provided,however,Thatinterestincomederivedbyadomestic
corporationfromadepositorybankundertheexpandedforeigncurrencydepositsystemshallbesubjectto
afinalincometaxattherateofsevenandonehalfpercent(71/2%)ofsuchinterestincome."
25Issuedon7November1980.

26108Phil.821(1960).

27 Equitable Banking Corporation v. Commissioner, CTA Case No. 5411 (1998) Philam Savings Bank v.
Commissioner,CTACaseNo.5407(1998)BPIFamilySavingsBankv.Commissioner,CTACaseNo.5522
(1998) Solid Bank Corporation v. Commissioner, CTA Case No. 5408 (1999) Citibank NA Philippine
Branchv.Commissioner,CTACaseNo.5434(1999)UnionBankofthePhilippinesv.Commissioner,CTA
CaseNo.5416(1999)HongKongBankCorporationv.Commissioner,CTACaseNo.5410(1999).

28CTACaseNo.5763.

29CTACaseNo.5679.

30 The Board of Tax Appeals was the predecessor of the existing Court of Tax Appeals. In University of
Santo Tomas v. Board of Tax Appeals, 93 Phil. 376 (1953), the Court declared unconstitutional Executive
OrderNo.401Ainsofarasitinterferedwiththe"jurisdictionofthecourtsoffirstinstanceincasesarising
notonlyundertheinternalrevenuelawsbutalsocustomslawandassessmentlaw."However,inIpekdjian
Merchandisingv.CourtofTaxAppeals,G.R.No.L14791,30May1963,theCourtheld:"Wecanthussee,
that Rep. Act No. 1125 had conferred judicial character on the proceedings and decisions of the BTA. It,
therefore,resultsthatthedecisionsoftheBTA,incasesnotsubsequentlybroughtbeforetheCourtofFirst
Instance,inaccordancewiththedecisioninthecaseofU.S.T.vs.BTA(supra),orbeforetheCTA,under
theprovisionsofRep.ActNo.1125,withinthe30dayperiodprescribedinSection11thereof,countedfrom
thecreationororganizationoftheCTA(LimTio,etal.vs.CTA,etal.,G.R.No.L10681,March29,1958
Sta.ClaraLumberCo.vs.CTA,G.R.No.L9833,Dec.21.1957),receivedjudicialconfirmationundersaid
R.A.No.1125andthesameshouldbeconsideredfinalandexecutoryandenforceablebyexecution,just
likeanyotherdecisionofacourtofjustice.Factually,severaldecisionsoftheBTAwereaffirmedonappeal
by this Court and were executed by the CTA (Cu Unjieng Sons v. BTA, L6296, Sept. 29, 1956 Cebu
ArrastreServicev.Coll.ofInt.Rev.,L7444,May30,1956AdvertisingAssociatesv.Coll.ofInt.Rev.,L
6553,Sept.30,1955.)"
31BTACaseNo.52(1952).

32397Pa.523156A.2d328(1959).

33363Mo.842,253S.W.2d832(1953).

34InRETaxesofHarrietJohnson,44Haw.519,356P.2d1028(1960).

3546Haw.375,381P.2d687(1963).

36Section117,TaxCode.

37Section118,ibid.

38Section119,ibid.

39Section122,ibid.

40 BIR Ruling No. 14695 dated 19 September 1995 states in part: "x x x Under Section 119 of the Tax
CodeasimplementedbyRevenueRegulationsNo.1280,theratestobeimposedonthegrossreceiptsof
banksandnonbankfinancialintermediariesshallbebasedonallitemsofincomeactuallyreceived,mere
accrualwillnotbeconsidered.Butoncepaymentisreceivedonsuchaccrualorincasesofprepayment,
thentheamountactuallyreceivedshallbeincludedinthetaxbase."Also,BIRRulingNo.22389dated2
November1989statesinpart:"xxxAccordingly,yourincomederivedfrominvestingtheexcessfundsin
shortterm market placements through commercial banks constitutes income, hence, subject to the 5%
grossreceiptstaxundersaidSectionoftheTaxCode.Thefactthatithasbeensubjectedtothe20%final
withholdingtaxunderSection50(a)oftheTaxCodeisimmaterial.Besides,thewithholdingtaxisimposed
underTitleIIoftheTaxCodewhilethefinancetaxisprovidedunderTitleVthereof."

41 98 Phil. 290 (1956), See Mindanao Bus Co. v. Collector of Internal Revenue, 111 Phil. 137 (1961)
Laxamanav.Baltazar,92Phil.32(1952).SeealsoAlexanderHowden&Co.,Ltd.,etal.v.Comm.ofInt.
Revenue,121Phil.579.
42Laxamanav.Baltazar,92Phil.32(1952).SeealsoABSCBNBroadcastingv.CourtofTaxAppeals,108
SCRA142(1981).
43Section125,TaxCode.

44Ibid.

45ExpandedWithholdingTaxRegulations.

46Supra,note32.

47 Robert J. Desiderio, James La Fata, and Maria Siemel McCulley, New Mexico Taxes: Taking Another
Look,32NewMexicoLawReview,Summer2002.
48108Phil.821(1960).

49Ibid.

50Ibid.

51G.R.No.66416,21March1990,183SCRA402.

52 Under Section 2(h)(iii)(a) of Revenue Regulations No. 1784, "[A]ll interbank borrowings by or among
banks and nonbank financial institutions authorized to engage in quasibanking functions evidenced by
deposit substitute instruments, except interbank call loans to cover deficiency in reserves against deposit
liabilitiesasevidencedbyinterbankloanadviceorrepaymenttransfertickets."
53Article531,CivilCode.

54 Bank of America NT & SA v. Court of Appeals, G.R. No. 103092, 21 July 1994, 234 SCRA 302. The
Courtstatedthat,"Obviously,theamounttherebyusedtosettlethetaxliabilityisdeemedsourcedfromthe
proceedsconstructiveofthetaxbase."
5590Phil.674(1952).

56Section2(h)ofRevenueRegulationsNo.1280provides:"Interestwithrespecttobankdeposits,shall
meantheamountwhichadepositorybankmaypayonsavingsandtimedepositinaccordancewithrates
authorizedbytheCentralBankofthePhilippines."Similarly,Section2(i)ofRevenueRegulationsNo.1784
provides:"Interestwithrespecttobankdeposits,shallmeantheamountwhichadepositorybankmaypay
onsavingsandtimedepositsinaccordancewithratesauthorizedbytheCentralBankofthePhilippines."
57Section8(c)ofRevenueRegulationsNo.1280provides:"Iftherecipientoftheabovementioneditems
ofincomearefinancialinstitutions,thesameshallbeincludedaspartofthetaxbaseuponwhichthegross
receiptstaxisimposed."Similarly,Section7(c)ofRevenueRegulationsNo.1784provides:"Iftherecipient
oftheabovementioneditemsofincomearefinancialinstitutions,thesameshallbeincludedaspartofthe
taxbaseuponwhichthegrossreceiptstaxisimposed."
58Supra,note15,ResolutionofCourtofAppealsdated25April2001inCAG.R.SPNo.50790.

59Section2(h)(ii)ofRevenueRegulationsNo.1784.

60 Section 122 of the Tax Code provides as follows: "Section 122. Tax on Finance Companies. There
shallbecollectedataxoffivepercent(5%)onthegrossreceiptsderivedbyallfinancecompanies,aswell
as by other financial intermediaries not performing quasibanking functions doing business in the
Philippines,frominterest,discountsandallotheritemstreatedasgrossincomeunderthisCode:Provided,
 Thatinterests,commissionsanddiscountsfromlendingactivities,aswellasincomefromfinancialleasing,
shall be taxed on the basis of the remaining maturities of the instruments from which such receipts are
derived,inaccordancewiththefollowingschedule:xxx"

61WonderMechanicalEngineeringCorporationv.CourtofTaxAppeals,G.R.No.L22805andL27858,
30June1975,64SCRA555.

62ManilaElectricCompanyv.Vera,G.R.No.L29987,22October1975,67SCRA351.

63CollectorofInternalRevenuev.ManilaJockeyClub,Inc.,98Phil.670(1956).

64114N.M.784845P.2d1238(1993).

65134Phil.912(1968).

66 Section 10 of the Tax Code states in part: "The term gross selling price means the total amount of
moneyoritsequivalentwhichthepurchaserpaysorisobligatedtopaytothesellerinconsiderationofthe
sale,barterorexchangeofthegoodsorproperties,excludingthevalueaddedtax.Theexcisetax,ifany,
onsuchgoodsorpropertiesshallformpartofthegrosssellingprice."

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