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HELD: The 20% FWT forms part of the taxable gross receipts in computing the GRT. The earnings of banks from deposits are
subject to 20% FWT which is withheld at the the source. Thus, not actually and physically received by the banks because it is
directly paid to the government by the entities from which the banks derived their income. In addition, the banks are also subject to
the 5% GRT which is imposed on their gross receipts, including the passive income. Since the 20% is constructively received and
forms part of their gross receipts or earnings, it follow that it is also subject to the 5% GRT. After all, the amount withheld is paid to
the government on their behalf, in satisfaction of their withholding taxes. That they do not actually receive the amount does not alter
the fact that it is remitted for their benefit in satisfaction of their tax obligations.
Stated otherwise, the fact is that if there were no withholding tax systems in place, the 20% passive income would actually be paid to
the banks and then remitted by them to the government in payment of their income tax. The institution of the withholding tax system
does not alter the fact that the 20% constitutes part of their actual earning, except that it is paid directly to the government.
Facts Solidbank filed its Quarterly Percentage Tax Returns reflecting the gross receipts (pertaining to 5% gross receipts tax rate
or GRT) in the amount of P1,474,691.44 with corresponding gross receipts tax payments in the sum of P73,734,584.60
Respondent alleges that the gross receipts included P350,807,875.15 representing the gross receipts from passive income
which was already subjected to the 20% withholding tax. Further, it claims that CTA already ruled in Asia Bank
Corporation vs CIR, that the 20% FWT on a bank’s interest income should not form part of its taxable gross receipts for
purposes of computing the gross receipts tax.
Therefore, it filed with the BIR a letter request for the refund or issuance of a tax credit certificate in the amount of
P3,508,078.75 representing the allegedly overpaid gross receipts tax for the year 1995. It also filed on the same day, a
petition for review with the CTA in order to toll the running of the 2-year prescriptive period to judicially claim the refund.
CTA – ordered petitioner to refund the reduced amount of P1,555,749.65 as overpaid GRT for 1995. It held that the 20%
FWT on a bank’s interest income should not form part of its taxable gross receipts for purposes of computing the gross
receipts.
CA – 20% FWT on bank’s interest income did not form part of the taxable gross receipts in computing the 5% GRT
because the FWT was not actually received by the bank but was directly remitted to the government.
Ratio/Issues
I. WHETHER THE 20% FWT FORMS PART OF THE TAXABLE GROSS RECEIPTS – YES
F. No double taxation
(1) The two taxes involved are different from each other.
(2) Different subject matters. FWT is a passive income while GRT is for the privilege of engaging in the business of banking. A
tax based on receipts is a tax on business rather than on property. Hence, it is an excise tax. Besides, it has already been held
that one can be taxed for engaging in business and further tax for the income derived
(3) Taxing periods are different. The FWT is deducted and withheld as soon as the income is earned and paid after every
calendar quarter. GRT, on the other hand, is neither deducted nor withheld and is paid only after every taxable quarter in
which it is earned.
(4) Different kinds or character. The FWT is an income subject to withholding while the GRT is a percentage tax not subject to
withholding.
Held Petition is GRANTED. The assailed decision and resolution of the CA are hereby REVERSED and SET ASIDE