THIRD DIVISION

COMMISSIONER OF INTERNAL G.R. No. 147375

REVENUE,
Petitioner, Present:
QUISUMBING, J.,
Chairperson,
- versus - CARPIO,
CARPIO MORALES,
TINGA, and
VELASCO, JR., JJ.
BANK OF THE PHILIPPINE
ISLANDS,
Respondent. Promulgated:
June 26, 2006
x---------------------------------------------------------------------------x

DECISION
TINGA, J.:
At issue is the question of whether the 20% final tax on a banks passive income,
withheld from the bank at source, still forms part of the banks gross income for the
purpose of computing its gross receipts tax liability. Both the Court of Tax Appeals
(CTA) and the Court of Appeals answered in the negative. We reverse, in favor of
petitioner, following our ruling in China Banking Corporation v. Court of Appeals.
[1]

A brief background of the tax law involved is in order.

Domestic corporate taxpayers, including banks, are levied a 20% final withholding
tax on bank deposits under Section 24(e)(1) [2] in relation to Section 50(a)[3] of
Presidential Decree No. 1158, otherwise known as the National Internal Revenue
Code of 1977 (Tax Code). Banks are also liable for a tax on gross receipts derived
from sources within thePhilippines under Section 119[4] of the Tax Code, which
provides, thus:

Sec. 119. 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 intermediaries in accordance with the following
schedule:
(a) On interest, commissions and discounts from lending activities as
well as income from financial leasing, on the basis of remaining
maturities of instruments from which such receipts are derived.
Short-term maturity not in excess of two (2) years . . 5%
Medium-term maturity over two (2) years but not
exceeding four (4) years . . . . . . . . . . . . . 3%
Long term maturity
(i) Over
four
(4)
years
but
not
exceeding
seven
(7) years . . . . . . . . . . . . . . . . . . . . . . 1%
(ii) Over
seven
(7)
years . . . . . . . . . . . . . . 0%
(b) On dividends . . . . . . . . . . . . . . . . . . . . . . . 0%
(c) On royalties, rentals of property, real or
personal, profits
from
exchange and all other items
as gross income under Section 28 of this Code . . . . . . . . . . . 5%

treated

Provided, however, That in case the maturity period referred to in

paragraph (a) is shortened thru pretermination, then the maturity period
shall be reckoned to end as of the date ofpretermination for purposes of
classifying the transaction as short, medium or long term and the correct
rate of tax shall be applied accordingly.
Nothing in this Code shall preclude the Commissioner from imposing
the same tax herein provided on persons performing similar banking
activities.

As a domestic corporation, the interest earned by respondent Bank of the

Philippine Islands (BPI) from deposits and similar arrangements are subjected to a
final withholding tax of 20%. Consequently, the interest income it receives on
amounts that it lends out are always net of the 20% withheld tax. As a bank, BPI is
furthermore liable for a 5% gross receipts tax on all its income.
For the four (4) quarters of the year 1996, BPI computed its 5% gross receipts tax
payments by including in its tax base the 20% final tax on interest income that had
been withheld and remitted directly to the Bureau of Internal Revenue (BIR).
On 30 January 1996, the CTA rendered a decision in Asian Bank Corporation v.
Commissioner of Internal Revenue,[5] holding that the 20% final tax withheld on a

banks interest income did not form part of its taxable gross receipts for the purpose
of computing gross receipts tax.
BPI wrote the BIR a letter dated 15 July 1998 citing the CTA Decision in Asian
Bank and requesting a refund of alleged overpayment of taxes representing 5%
gross receipts taxes paid on the 20% final tax withheld at source.
Inaction by the BIR on this request prompted BPI to file a Petition for Review
against the Commissioner of Internal Revenue (Commissioner) with the CTA
on 19 January 1999.Conceding its claim for the first three quarters of the year as
having been barred by prescription, BPI only claimed alleged overpaid taxes for
the final quarter of 1996.
Following its own doctrine in Asian Bank, the CTA rendered a Decision,[6] holding
that the 20% final tax withheld did not form part of the respondents taxable gross
receipts and that gross receipts taxes paid thereon are refundable. However, it
found that only P13,843,455.62 in withheld final taxes were substantiated by BPI;
it awarded a refund of the 5% gross receipts tax paid thereon in the amount
of P692,172.78.
On appeal, the Court of Appeals promulgated a Decision [7] affirming the CTA. It
cited this Courts decision in Commissioner of Internal Revenue v. Tours
Specialists, Inc.,[8] in which we held that the gross receipts subject to tax under the
Tax Code do not include monies or receipts entrusted to the taxpayer which do not
belong to them and do not redound to the taxpayers benefit in concluding that it
would be unjust and confiscatory to include the withheld 20% final tax in the tax
base for purposes of computing the gross receipts tax since the amount
corresponding to said 20% final tax was not received by the taxpayer and the latter
derived no benefit therefrom.[9]
The Court of Appeals also held that Section 4(e) of Revenue Regulations No. 1280 mandates the deduction of the final tax paid on interest income in computing
the tax base for the gross receipts tax. Section 4(e) provides, thus:

Gross receipts tax on banks, non-bank financial intermediaries, financing

companies, and other non-bank financial intermediaries, not performing quasibanking activities. The rates of taxes to be imposed on the gross receipts of
such financial institutions shall be based on all items of income actually
received. Mere accrual shall not be considered, but once payment is received
on such accrual or in case of prepayment, then the amount actually received
shall be included in the tax base of such financial institutions, as provided
hereunder.(Emphasis supplied.)

The present Petition for Review filed by the Commissioner seeks to annul the
adverse Decisions of the CTA and the Court of Appeals and raises the sole issue of
whether the 20% final tax withheld on a banks passive income should be included
in the computation of the gross receipts tax.
In assailing the findings of the lower courts, the Commissioner makes the
following arguments: (1) the term gross receipts must be applied in its ordinary
meaning; (2) there is no provision in the Tax Code or any special laws that
excludes the 20% final tax in computing the tax base of the 5% gross receipts tax;
(3) Revenue Regulations No. 12-80, Section 4(e), is inapplicable in the instant
case; and (4) income need not actually be received to form part of the taxable gross
receipts. Additionally, petitioner points out that the CTAAsian Bank case cited by
petitioner BPI has already been superseded by the CTA decisions in Standard
Chartered Bank v. Commissioner of Internal Revenue and Far East Bank and Trust
Company v. Commissioner of Internal Revenue, both promulgated on 16 November
2001.
The issues raised by the Commissioner have already been ruled upon in his
favor by this Court in China Banking Corporation v. Court of Appeals[10] and
reiterated inCommissioner of Internal Revenue v. Solidbank Corporation[11] and
more recently in Commissioner of Internal Revenue v. Bank of Commerce.
[12]
Consequently, the petition must be granted.
The Tax Code does not provide a definition of the term gross receipts.
[13]
Accordingly, the term is properly understood in its plain and ordinary
meaning[14] and must be taken to comprise of the entire receipts without any
deduction.[15] We, thus, made the following disquisition in Bank of Commerce:[16]

The word gross must be used in its plain and ordinary meaning. It is
defined as whole, entire, total, without deduction. A common definition is
without deduction. Gross is also defined as taking in the whole; having no
deduction or abatement; whole, total as opposed to a sum consisting of separate or
specified parts. Gross is the antithesis of net. Indeed, in China Banking
Corporation v. Court of Appeals, the Court defined the term in this wise:
As commonly understood, the term gross receipts means
the entire receipts without any deduction. 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.,
Highly refined and technical tax concepts have been
developed by the accountant and legal technician
primarily because of the impact of federal income tax
legislation. However, this in no way should affect or
control the normal usage of words in the construction of
our statutes; and we see nothing that would require us
not to include the proceeds here in question in the gross
receipts allocation unless statutorily such inclusion is
prohibited. 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. [Citations omitted] (Emphasis
supplied)
Likewise, in Laclede Gas Co. v. City of St. Louis, the
Supreme Court of Missouri held:
The word gross appearing in the term gross
receipts, as used in the ordinance, must have been and
was there used as the direct antithesis of the word
net. In its usual and ordinary meaning gross receipts of
a business is the whole and entire amount of the
receipts without deduction, x x x. On the contrary, net
receipts usually are the receipts which remain after
deductions are made from the gross amount thereof of
the expenses and cost of doing business, including fixed
charges and depreciation. Gross receipts become net
receipts after certain proper 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 higher base figure upon
which it must pay the 5% tax under this ordinance.
(Emphasis supplied)

Absent a statutory definition, the term gross receipts is

understood in its plain and ordinary meaning. Words in a statute
are taken in their usual and familiar signification, with due regard
to their general and popular use. The Supreme Court of Hawaii
held in Bishop Trust Company v. Burns that
x x x It is fundamental that in construing or
interpreting a statute, in order to ascertain the intent of
the legislature, the language used therein is to be taken
in the generally accepted and usual sense. Courts will
presume that the words in a statute were used to express
their meaning in common usage. This principle is
equally applicable to a tax statute. [Citations omitted]
(Emphasis supplied)

Additionally, we held in Solidbank, to wit:[17]

[W]e note that US cases have persuasive effect in our jurisdiction, because
Philippine income tax law is patterned after its US counterpart.
[G]ross receipts with respect to any period means the sum of: (a) The
total amount received or accrued during such period from the sale,
exchange, or other disposition of x x x other property of a kind which
would properly be included in the inventory of the taxpayer if on hand
at the close of the taxable year, or property held by the taxpayer
primarily for sale to customers in the ordinary course of its
trade or business, and (b) The gross income, attributable to a trade or
business, regularly carried on by the taxpayer, received or accrued
during such period x x x.
x x x [B]y gross earnings from operations x x x was intended all
operations x x x including incidental, subordinate, and subsidiary
operations, as well as principal operations.
When we speak of the gross earnings of a person or corporation,
we mean the entire earnings or receipts of such person or
corporation from the business or operations to which we refer.
From these cases, gross receipts] refer to the total, as
opposed to the net, income. These are therefore the total receipts
before any deduction for the expenses of management.
Websters New International Dictionary, in fact, defines gross as
whole or entire.

The legislative intent to apply the term in its ordinary meaning may also be
surmised from a historical perspective of the levy on gross receipts. From the time
the gross receipts tax on banks was first imposed in 1946 under R.A. No. 39 and
throughout its successive reenactments,[18] the legislature has not established a

definition of the term gross receipts. Absent a statutory definition of the term, the
BIR had consistently applied it in its ordinary meaning, i.e., without deduction. On
the presumption that the legislature is familiar with the contemporaneous
interpretation of a statute given by the administrative agency tasked to enforce the
statute, subsequent legislative reenactments of the subject levy sans a definition of
the term gross receipts reflect that the BIRs application of the term carries out the
legislative purpose.[19]
Furthermore, Section 119 (a)[20] of the Tax Code expressly includes interest
income as part of the base income from which the gross receipts tax on banks is
computed.This express inclusion of interest income in taxable gross receipts
creates a presumption that the entire amount of the interest income, without any
deduction, is subject to the gross receipts tax.[21]
The exclusion of the 20% final tax on passive income from the taxpayers tax
base is effectively a tax exemption, the application of which is highly disfavored.
[22]
The rule is that whoever claims an exemption must justify this right by the
clearest grant of organic or statute law.[23] Like the other banks who have asserted
a right tantamount
to exception under these circumstances, BPI has failed to present a clear statutory
basis for its claim to take away the interest income withheld from the purview of
the levy on gross tax receipts.
Bereft of a clear statutory basis on which to hinge its claim, BPIs view, as
adopted by the Court of Appeals, is that Section 4(e) of Revenue Regulations No.
12-80 establishes the exclusion of the 20% final tax withheld from the banks
taxable gross receipts.
However, we agree with the Commissioner that BPIs asserted right under
Section 4(e) of Revenue Regulations No. 12-80 presents a misconstruction of the
provision.While, indeed, the provision states that [t]he rates of taxes to be imposed
on the gross receipts of such financial institutions shall be based on all items of
income actually received, it goes on to distinguish actual receipt from
accrual, i.e., that [m]ere accrual shall not be considered, but once payment is

received on such accrual or in case of prepayment, then the amount actually

received shall be included in the tax base of such financial institutions x x x.
Section 4(e) recognizes that income could be recognized by the taxpayer either at
the time of its actual receipt or its accrual,[24] depending
on the accounting method used by the taxpayer,[25] but establishes the rule that, for
purposes of gross receipts tax, interest income is taxable upon actual receipt of the
income, as opposed to the time of its accrual. Section 4(e) does not exclude
accrued interest income from gross receipts but merely postpones its inclusion until
actual payment of the interest to the lending bank, thus mandating that [m]ere
accrual shall not be considered, but once payment is received on such accrual or
in case of prepayment, then the amount actually received shall be included in the
tax base of such financial institutions x x x.[26]
Even if Section 4(e) had been properly construed, it still cannot be the basis for
deducting the income tax withheld since Section 4(e) has been superseded by
Section 7 of Revenue Regulations No. 17-84, which states, thus:
SECTION 7. Nature and Treatment of Interest on Deposits and Yield on Deposit
Substitutes.
(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 National
Internal Revenue Code, as amended.
(b) Only interest paid or accrued on bank deposits, or yield from deposit
substitutes declared for purposes of imposing the withholding taxes in
accordance with these regulations shall be allowed as interest expense
deductible for purposes of computing taxable net income of the payor.
(c) If the recipient of the above-mentioned items of income are
financial institutions, the same shall be included as part of the tax
base upon which the gross receipt tax is imposed. (Emphasis supplied.)

The provision categorically provides that if the recipient of interest subjected to

withholding taxes is a financial institution, the interest shall be included as
part of the tax base upon which the gross receipts tax is imposed.

The implied repeal of Section 4(e) is undeniable. Section 4(e) imposes the
gross receipts tax only on all items of income actually received, as opposed to their
mereaccrual, while Section 7 of Revenue Regulations No. 17-84
includes all interest income (whether actual or accrued) in computing the gross
receipts tax.[27] Section 4(e) of Revenue Regulations No. 12-80 was superseded by
the later rule, because Section 4(e) thereof is not restated in Revenue Regulations
No. 17-84.[28] Clearly, then, the current revenue regulations requires interest
income, whether actually received or merely accrued, to form part of the
banks taxable gross receipts.[29]
The Commissioner correctly controverts the conclusion made by the Court of
Appeals that it would be unjust and confiscatory to include the withheld 20% final
tax in the tax base for purposes of computing the gross receipts tax since the
amount corresponding to said 20% final tax was not received by the taxpayer and
the latter derived no benefittherefrom.[30]
Receipt of income may be actual or constructive. We have held that the
withholding process results in the taxpayers constructive receipt of the income
withheld, to wit:
By analogy, we apply to the receipt of income the rules
on actual and constructive possession provided in Articles 531 and 532 of our
Civil Code.
Under Article 531:
Possession is acquired by the material occupation of a thing or the
exercise of a right, or by the fact that it is subject to the action of our
will, or by the proper acts and legal formalities established for
acquiring such right.
Article 532 states:
Possession may be acquired by the same person who is to enjoy it,
by his legal representative, by his agent, or by any person without
any power whatever; but in the last case, the possession shall not be
considered as acquired until the person in whose name the act of
possession was executed has ratified the same, without prejudice to
the juridical consequences of negotiorum gestio in a proper case.
The last means of acquiring possession under Article 531 refers to
juridical actsthe acquisition of possession by sufficient titleto which the
law gives the force of acts of possession. Respondent argues that only

items of income actually received should be included in its gross

receipts. It claims that since the amount had already been withheld at
source, it did not have actual receipt thereof.
We clarify. Article 531 of the Civil Code clearly provides that the
acquisition of the right of possession is through the proper acts and legal
formalities established therefor. The withholding process is one such
act. There may not be actual receipt of the income withheld; however, as
provided for in Article 532, possession by any person without any power
whatsoever shall be considered as acquired when ratified by the person in
whose name the act of possession is executed.
In our withholding tax system, possession is acquired by the payor as
the withholding agent of the government, because the taxpayer ratifies the
very
act
of
possession
for
the
government. There
is
thus constructive receipt. The processes of bookkeeping and accounting for
interest on deposits and yield on deposit substitutes that are subjected to
FWT are indeedfor legal purposestantamount to delivery, receipt or
remittance.[31] (Emphasis supplied.)

Thus, BPI constructively received income by virtue of its acquiescence to the

extinguishment of its 20% final tax liability when the withholding agents
remitted BPIs income to the government. Consequently, it received the amounts
corresponding to the 20% final tax and benefited therefrom.
The cases cited by BPI, Commissioner of Internal Revenue v. Tours Specialists,
Inc.[32] and Commissioner of Internal Revenue v. Manila Jockey Club, Inc., [33] in
which this Court held that gross receipts subject to tax under the Tax Code do not
include monies or receipts entrusted to the taxpayer which do not belong to them
and do not redound to the taxpayer's benefit, [34] only further substantiate the fact
that BPI benefited from the withheld amounts.
In Tours Specialists and Manila Jockey Club, the taxable entities held the
subject monies not as income earned but as mere trustees. As such, they held the
money entrusted to them but which neither belonged to them nor redounded to
their benefit. On the other hand, BPI cannot be considered as a mere trustee; it is
the actual owner of the funds. As owner thereof, it was BPIs tax obligation to the
government that was extinguished upon the withholding agents remittance of the
20% final tax. We elucidated on BPIs ownership of the funds in China Banking, to
wit:

Manila Jockey Club does not support CBCs contention but rather the
Commissioners proposition. The Court ruled in Manila Jockey Club that receipts
not owned by the Manila Jockey Club but merely held by it in trust did not form
part of Manila Jockey Clubs gross receipts. Conversely, receipts owned by the
Manila Jockey Club would form part of its gross receipts.
In the instant case, CBC owns the interest income which is the source
of payment of the final withholding tax. 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 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 taxable
gross receipts.
In Commissioner v. Tours Specialists, Inc., the Court excluded from gross
receipts money entrusted by foreign tour operators to Tours Specialists to pay the
hotel accommodation of tourists booked in various local hotels. The Court
declared that Tours Specialists did not own such entrusted funds and thus the
funds were not subject to the 3% contractors tax payable by Tours Specialists. The
Court held:
x x x [G]ross receipts subject to tax under the Tax Code do not
include monies or receipts entrusted to the taxpayer which do not
belong to them and do not redound to the taxpayers benefit; and it is
not necessary that there must be a law or regulation which would
exempt such monies and receipts within the meaning of gross receipts
under the Tax Code.
x x x [T]he room charges entrusted by the foreign travel agencies to
the private respondent do not form part of its gross receipts within the
definition of the Tax Code. The said receipts never belonged to the
private respondent. The private respondent never benefited from their
payment to the local hotels. x x x [T]his arrangement was only to
accommodate the foreign travel agencies.
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 constitutes income or receipt of the
taxpayer.
In contrast, the trustee or agent does not own the money received in trust
and such money does not constitute income or receipt for which the trustee or
agent is taxable. This is a fundamental concept in taxation. 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 does not include the ticket

fare in its gross income or receipts. In these cases, the money remittance agency
or travel agency does not acquire ownership of the funds received. [35] (Emphasis
supplied.)

BPI argues that to include the 20% final tax withheld in its gross receipts tax base
would be to tax twice its passive income and would constitute double
taxation. Granted that interest income is being taxed twice, this, however, does not
amount to double taxation. There is no double taxation if the law imposes two
different taxes on the same income, business or property. [36] In Solidbank, we ruled,
thus:
Double taxation means taxing the same property twice when it should be
taxed only once; that is, x x x taxing the same person twice by the same
jurisdiction for the same thing. It is obnoxious when the taxpayer is taxed twice,
when it should be but once. Otherwise described as direct duplicate taxation, the
two taxes must be imposed on the same subject matter, for the same purpose, by
the same taxing authority, within the same jurisdiction, during the same taxing
period; and they must be of the same kind or character.
First, the taxes herein are imposed on two different subject matters. The
subject matter of the FWT [Final Withholding Tax] is the passive income
generated in the form of interest on deposits and yield on deposit substitutes,
while the subject matter of the GRT [Gross Receipts Tax] is the privilege of
engaging in the business of banking.
A tax based on receipts is a tax on business rather than on the property;
hence, it is an excise rather than a property tax. It is not an income tax, unlike the
FWT. In fact, we have already held that one can be taxed for engaging in
business and further taxed differently for the income derived therefrom. Akin to
our ruling in Velilla v. Posadas, these two taxes are entirely distinct and are
assessed under different provisions.
Second, although both taxes are national in scope because they are
imposed by the same taxing authoritythe national government under the Tax
Codeand operate within the same Philippine jurisdiction for the same purpose of
raising revenues, the taxing periods they affect are different. The FWT is
deducted and withheld as soon as the income is earned, and is paid after
every calendar quarter in which it is earned. On the other hand, the GRT is
neither deducted nor withheld, but is paid only after every taxable quarter in
which it is earned.
Third, these two taxes are of different kinds or characters. The FWT is an
income tax subject to withholding, while the GRT is a percentage tax not subject
to withholding.
In short, there is no double taxation, because there is no taxing twice, by
the same taxing authority, within the same jurisdiction, for the same purpose, in

different taxing periods, some of the property in the territory. Subjecting interest
income to a 20% FWT and including it in the computation of the 5% GRT is
clearly not double taxation.[37]

Clearly, therefore, despite the fact that that interest income is taxed twice, there is
no double taxation present in this case.
An interpretation of the tax laws and relevant jurisprudence shows that the tax on
interest income of banks withheld at source is included in the computation of their
gross receipts tax base.
WHEREFORE, the Petition is GRANTED. The assailed Decisions of the Court of
Appeals and the Court of Tax Appeals are REVERSED AND SET
ASIDE. Petitioner Commissioner of Internal Revenues denial of respondent Bank
of Philippine Islands claim for refund is SUSTAINED. No costs.
SO ORDERED.
[1]

451 Phil. 772 (2003).

[2]

Sec. 24. Rates of tax on domestic corporations. x x x - (e) Tax on certain incomes derived by
domestic corporations. (1) Interest from deposits and yield or any other monetary benefit from deposit
substitutes and from trust fund and similar arrangements, and royalties. - Interest on Philippine currency bank
deposits and yield or any other monetary benefit from deposit substitutes and from trust fund and similar
arrangements received by domestic corporations, and royalties, derived from sources within the Philippines, shall be
subject to a 20% tax. [Now Section 27(D) of the Tax Reform Act of 1997 (R.A. No. 8242).]
[3]

Sec. 50. Withholding of tax at source. (A) Withholding of final tax on certain incomes. - The tax imposed
or prescribed by Sections x x x 24 (e) (1) x x x of this Code on specified items of income shall be withheld by payorcorporation and/or person and paid in the same manner and subject to the same conditions as provided in Section 51
of the National Internal Revenue Code, as amended. [Now Section 57(A) of R.A. No. 8242.]
[4]

[5]

Now Section 121 of R.A. No. 8242.

CTA Case No. 4720, 30 January 1996.

[6]

Dated 16 June 2000 and penned by Presiding Judge Ernesto D. Acosta, concurred in by Associate Judge
Ramon O. de Vera, with a dissenting opinion from Associate Judge Amancio Q. Saga.
[7]

Dated 28 February 2001 and penned by Associate Justice Edgardo P. Cruz and concurred in by Associate
Justice Ramon Mabutas, Jr., and Associate Justice Roberto A. Barrios.
[8]

[9]

G.R. No. 66416, 21 March 1990, 183 SCRA 402.

CA Decision, rollo, p. 26.

[10]

[11]

Supra note 1.

G.R. No. 148191, 25 November 2003, 416 SCRA 436.

[12]

G.R. No. 149636, 8 June 2005, 459 SCRA 638.

[13]

China Banking Corporation v. Court of Appeals, supra note 1, at 789.

[14]

Id. at 791.

[15]

Id. at 790.

[16]

Commissioner of Internal Revenue v. Bank of Commerce, supra note 12, at 649-650.

[17]

Supra note 11, at 453-454.

[18]

It was reenacted under the Omnibus Tax Bill of 1972 (P.D. No. 69), thereafter under the National Internal
Revenue Code of 1977 (P.D. No. 1158), and, finally, in the current Tax Reform Act of 1997 (R. A. No. 8424).
[19]

China Banking Corporation v. Court of Appeals, supra note 1, at 793; See pp. 792-793.

[20]

Sec. 119. 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 intermediaries in
accordance with the following schedule:
(a) On interest, commissions and discounts from lending activities as well as income from
financial leasing, on the basis of remaining maturities of instruments from which such
receipts are derived.
Short-term maturity not in excess of two (2) years . . . . . . . . . . 5%
Medium-term maturity over two (2) years but not
exceeding four (4) year s . . . . . . . . . . . . . . . . . . . . . . . . . 3%
Long term maturity:
(i) Over four (4) years but not exceeding seven (7) years. . . . . . 1%
(ii) Over seven (7) years . . . . . . . . . . . . . . . . . . 0%
(b) On dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0%
(c) On royalties, rentals of property, real or personal,
profits from exchange and all other items treated
as gross income under Section 28 of this Code . . . . . . . . . . . . 5%
xxxx
[21]

China Banking Corporation v. Court of Appeals, supra note 1, at 808.

[22]

Id. at 807 citing Wonder Mechanical Engineering Corporation v. Court of Tax Appeals, G.R. No. L22805 and L-27858, 30 June 1975, 64 SCRA 555.
[23]

Id.

[24]

The cash basis considers as income as that which is actually or constructively received and as deduction that
which is actually paid. The accrual basis method treats as part of taxable income that which is already earned and as
possible deductions those which, although not paid or disbursed, have already incurred by the taxpayer. (JUSTICE
JOSE C. VITUG AND JUDGE ERNESTO D. ACOSTA, TAX LAW AND JURISPRUDENCE, c. 2000, p. 177.)
[25]

Except where final taxes on certain transactions are imposed, the liability of taxpayers from income tax is
determined on the basis of a fixed period consisting normally of a taxable year, calendar or fiscal, covering a 12month period. The Tax Code does not prescribe any specific accounting method; it allows the taxpayer to adopt any
standard method as long as it can properly reflect his income and his deductions and that it is used by him with
consistency. However, the law recognizes certain principal accounting methods, such as the cash basis and accrual
basis methods. Id.
[26]

China Banking Corporation v. Court of Appeals, supra note 1, at 801-802.

[27]

Commissioner of Internal Revenue v. Solidbank Corporation, supra note 11, at 451.

[28]

Id.

[29]

In fact, the CTA case relied upon by the BIR in filing this petition, Asia Bank, not only erroneously
interpreted Section 4(e) of Revenue Regulations No. 12-80, it also cited Section 4(e) when it was no longer the
applicable revenue regulation. The revenue regulations applicable at the time the tax court decided Asia Bank was
Revenue Regulations No. 17-84, not Revenue Regulations No. 12-80. See China Banking Corporation v. Court of
Appeals, supra note 1, at 806.
[30]

[31]

CA Decision, rollo, p. 26.

Commissioner of Internal Revenue v. Solidbank Corporation, supra note 11, at 446-448.

[32]

Supra note 8.

[33]

108 Phil. 821 (1960).

[34]

Commissioner of Internal Revenue v. Tours Specialists, Inc., supra note 8, at 409-412.

[35]

China Banking Corporation v. Court of Appeals, supra note 1, at 798-801.

[36]

Id. at 798-800.

[37]

Commissioner of Internal Revenue v. Solidbank Corporation, supra note 11, at 462-464.