[17] China Banking Corp v CIR o CBC then filed with the Commissioner of Internal Revenue

GR No 146749 | June 10, 2003 | Final Witholding Tax; Gross Receipts Tax | ("Commissioner") a formal claim for tax refund or credit of
Wayne Novera ₱1,140,623.82 from the ₱12,354,933.00 gross receipts tax that CBC
paid for
Petitioner: CHINA BANKING CORP  To ensure that it filed its claim within the two-year prescriptive period, CBC
Respondents: COMMISSIONER OF INTERNAL REVENUE also filed on the same day a petition for review with the Court of Tax
Appeals. Citing Asian Bank
Recit-Ready: China Banking Corporation (CBC) filed a formal claim for a tax refund o CBC argued that it was not liable for the gross receipts tax -
amounting to ₱1,140,623.82 - on the sums withheld by the Bangko
or credit of gross receipts tax that it paid for the second quarter of 1994 arguing that
Sentral ng Pilipinas as final withholding tax on CBC’s passive interest
the 20% final withholding tax on its interest income does not form part of its taxable income in 1994.
gross receipts.  Disputing CBC’s claim, the Commissioner asserted that CBC paid the gross
receipts tax pursuant to Section 119 (now Section 121) of the National Internal
ISSUE: W/N Whether the 20% final withholding tax on interest income should form part Revenue Code ("Tax Code") and pertinent Bureau of Internal Revenue ("BIR")
of CBC's gross receipts in computing the gross receipts tax on banks? YES regulations.
 The Commissioner argued that the final withholding tax on a bank’s interest
income forms part of its gross receipts in computing the gross receipts tax.
HELD/DOCTRINE: SC’s bases are Sec 121 of the Tax Code and Section 8 of Revenue o The Commissioner contended that the term "gross receipts" means
Regulations (Check ratio for the actual law). the entire income or receipt, without any deduction.
 CTA: Ruled in favor of CBC and held that the 20% final withholding tax on
As commonly understood, the term "gross receipts" means the entire receipts without interest income does not form part of CBC’s taxable gross receipts. Their
any deduction. Absent a statutory definition, the term "gross receipts" is understood in basis was Revenue Regulation and it provides that the rates of tax to be
its plain and ordinary meaning. imposed on the gross receipts of such financial institution shall be
based on all items on income actually received.

Section 121 of the Tax Code expressly subjects interest income to the gross
receipts tax on banks. Such express inclusion of interest income in taxable gross ISSUE: W/N Whether the 20% final withholding tax on interest income should
receipts creates a presumption that the entire amount of the interest income, without any form part of CBC's gross receipts in computing the gross receipts tax on banks?
deduction, is subject to the gross receipts tax||| YES

RATIO
To overcome this presumption, CBC must point to a specific provision of law allowing the
deduction of the final withholding tax from its taxable gross receipts. CBC has failed to SC ruled that the amount of interest income withheld in payment of the 20% final
cite any provision of law allowing the final tax as an exemption, deduction or exclusion. withholding tax forms part of CBC's gross receipts in computing the gross receipts tax
Thus, CBC's claim has no legal leg to stand on.||| on banks.
Thus, CBC has failed to point to any specific provision of law allowing the deduction,
exemption or exclusion, from its taxable gross receipts, of the amount withheld as final Section 121 of the Tax Code provides as follows:
tax. Such amount should therefore form part of CBC's gross receipts in computing the
gross receipts tax. Sec. 121. Tax on Banks and Non-bank Financial
Intermediaries. — There shall be collected a tax on gross receipts derived
from sources within the Philippines by all banks and non-bank financial
FACTS: intermediaries in accordance with the following schedule:
 CBC is a universal banking corporation organized and existing under (a) On interest, commissions and discounts from lending
Philippine law activities as well as income from financial leasing, on the basis of remaining
o CBC paid ₱12,354,933.00 as gross receipts tax on its income from maturities on instruments from which such receipts are derived.
interests on loan investments
 On 30 January 1996, the Court of Tax Appeals in Asian Bank Corporation v. As commonly understood, the term "gross receipts" means the entire receipts without
Commissioner of Internal Revenue ruled that the 20% final withholding tax on any deduction. Deducting any amount from the gross receipts changes the result, and
a bank’s passive interest income does not form part of its taxable gross the meaning, to net receipts. Any deduction from gross receipts is inconsistent with a
receipts law that mandates a tax on gross receipts, unless the law itself makes an exception.
In other words, absent a statutory definition, the term "gross receipts" is understood in (c) If the recipient of the above-mentioned items of income are financial
its plain and ordinary meaning. institutions, the same shall be included as part of the tax base
upon which the gross receipts tax is imposed."
Whether an item of income is excluded from gross income or is subject to the final Thus, interest earned by banks, even if subject to the final tax and excluded
withholding tax has no bearing on its inclusion in gross receipts if Section 121 from taxable gross income, forms part of its gross receipts for gross receipts tax
expressly includes such income as part of gross receipts.||| purposes. The interest earned refers to the gross interest without deduction since the
regulations do not provide for any deduction. The gross interest, without deduction, is
In the instant case, CBC owns the interest income which is the source of payment of the amount the borrower pays, and the income the lender earns, for the use by the
the final withholding tax. The government subsequently becomes the owner of the borrower of the lender's money. The amount of the final tax plainly comes from the
money constituting the final tax when CBC pays the final withholding tax to extinguish interest earned and is consequently part of the bank's taxable gross receipts.
its obligation to the government. This is the consideration for the transfer of ownership
of the money from CBC to the government. Thus, the amount constituting the final tax,
being originally owned by CBC as part of its interest income, should form part of its Section 121 of the Tax Code expressly subjects interest income to the gross
taxable gross receipts receipts tax on banks. Such express inclusion of interest income in taxable gross
receipts creates a presumption that the entire amount of the interest income, without
Moreover, when Section 121 of the Tax Code includes "interest" as part of gross
any deduction, is subject to the gross receipts tax|||
receipts, it refers to the entire interest earned and owned by the bank without any
deduction
To overcome this presumption, CBC must point to a specific provision of law allowing
the deduction of the final withholding tax from its taxable gross receipts. CBC has failed
To illustrate, assume that the gross amount of the interest income is P100. The lending to cite any provision of law allowing the final tax as an exemption, deduction or
bank owns this entire P100 since this is the amount the depository bank pays the exclusion. Thus, CBC's claim has no legal leg to stand on.|||
lending bank for use of the lender's money. In its books the depository bank records an
interest expense of P100 and claims a deduction for interest expense of P100. The In summary, CBC has failed to point to any specific provision of law allowing the
20% final withholding tax on this interest income is P20, which the law requires the deduction, exemption or exclusion, from its taxable gross receipts, of the amount
depository bank to withhold and remit directly to the government. The depository bank withheld as final tax. Such amount should therefore form part of CBC's gross receipts
in computing the gross receipts tax|||
withholds the final tax in trust for the government which then becomes the owner of the
P20. The final tax is the legal liability of the lending bank as recipient of the interest
income. The payment of the P20 final tax extinguishes the tax liability of the lending
bank. The interest income that the depository bank turns over physically to the lending
bank is P80, the net receipt after deducting the P20 final tax. Still, the interest income
that forms part of the lending bank's gross receipts for purposes of the gross receipts
tax is P100 because the total amount earned by the lending bank from its passive
investment is P100, not P80.|||

Also, Section 8 of Revenue Regulations No. 12-80 expressly states that

(a) The interest earned on Philippine currency, bank deposits and yield
from deposit substitutes subjected to the withholding taxes in
accordance with these regulations need not be included in the
gross income in computing the depositor's/investor's income tax
liability in accordance with the provision of Section 29(b), (c) and
(d) of the Tax Code.

(b) . . .