Dumaguete Cathedral Credit Cooperative (DCCCo) vs.

CIR
G.R. No. 182722 | 2010-01-22
Facts:
DCCCo is a credit cooperative registered and regulated by Cooperative
Development Authority. In 2001, BIR Deputy Commissioner authorized BIR
officers to inspect the books of DCCCo. In 2002, DCCCo received 2 Preassessment Notices, in two instances, for taxable years 1999 and 2001
covering payments of the honorariums of its Board of Directors, security and
janitorial services, legal and professional fees, and interest n savings and
time deposits of its members.
Subsequently, petitioner availed to the Voluntary Assessment and
Abatement Program of the BIR and paid the amounts corresponding to the
withholding taxes on payment for the compensation, honorarium of the BOD,
security and janitorial services, and legal and professional services for the
years 1999 and 2001 respectively.
However in 2003, DCCCo received an increased assessment which it
protested with the commissioner. After the lapse of 180 days without action
from the commissioner, petitioners filed a petition for review with the CTA.
The 1st division of CTA ruled to cancel the assessment for deficiency
withholding taxes on the honorarium and per diems of petitioners BOD,
security and janitorial services, commissions and legal and professional fees
but retain the assessment for deficiency withholding taxes on interests.
Reconsideration denied, DCCCo filed a petition for review with CTA en banc
who likewise denied the petition.
Issue: Whether or not DCCCo is liable to pay the deficiency withholding
taxes on interest from savings and time deposits of its members for 1999
and 2000
Held:
DCCCo is correct invoking BIR Ruling No. 551-888 and BIR Ruling DA
591-2006 wherein the BIR ruled that cooperatives are not required to
withhold the corresponding tax on the interest from savings and time
deposits of their members.
SC ruled that interpretations of administrative agencies in charge of
enforcing a law are entitled to great weight and consideration by the courts,
unless such interpretations are in a sharp conflict with the governing statute
or the Constitution and other laws.
Members of cooperatives deserve a preferential tax treatment pursuant to
RA 6938 or the Cooperative Code of the Philippines, and as retained in RA
9520.

SC further held that cooperatives, including their members, deserve a

preferential tax treatment because of the vital role they play in the
attainment of economic development and social justice. Thus, although taxes
are the lifeblood of the government, the State's power to tax must give way
to foster the creation and growth of cooperatives. To borrow the words of
Justice Isagani A. Cruz: "The power of taxation, while indispensable, is not
absolute and may be subordinated to the demands of social justice.