REPUBLIC OF THE PHILIPPINES SUPREME COURT

G . R . N O . 1 8 2 7 2 2

DUMAGUETE CATHEDRAL CREDIT COOPERATIVE [DCCCO], Represented

by Felicidad L. Ruiz, its General Manager, Petitioner,
VS
COMMISSIONER OF INTERNAL REVENUE, Respondent.
January 22, 2010

FACTS
• Dumaguete Cathedral Credit Cooperative
(DCCCO) is a credit cooperative registered with FACTS
and regulated by the Cooperative Development
Authority (CDA) with the following objectives and
purposes: (1) to increase the income and
purchasing power of the members; (2) to pool the
resources of the members by encouraging savings • On 2002, DCCCO received Pre-
and promoting thrift to mobilize capital formation Assessment Notices for deficiency
for development activities; and (3) to extend loans withholding taxes for taxable years 1999
to members for provident and productive purposes. and 2000. The deficiency withholding
• (BIR) Operations Group Deputy Commissioner, taxes cover the payments of the
issued Letters of Authority authorizing BIR Officers honorarium of the Board of Directors,
to examine petitioner’s books of accounts and security and janitorial services, legal and
other accounting records for all internal revenue
professional fees, and interest on savings
taxes for the taxable years 1999 and 2000.
and time deposits of its members.

FACTS

• DCCCO informed BIR that it would

FACTS
ONLY pay the deficiency withholding
• DCCO's contention:
taxes EXCLUDING penalties and interest Under Sec. 24. Income Tax Rates. — x x x x (B) Rate of Tax
• After payment, DCCCO received from on Certain Passive Income: — (1) Interests, Royalties,
Prizes, and Other Winnings. — A final tax at the rate of
the BIR Transcripts of Assessment and
twenty percent (20%) is hereby imposed upon the amount
Audit Results/Assessment Notices, of interest from any currency bank deposit and yield or
ordering petitioner to pay the deficiency any other monetary benefit from deposit substitutes and
from trust funds and similar arrangements; x x x applies
withholding taxes, INCLUSIVE of
only to banks and not to cooperatives, since the phrase
penalties, for the years 1999 and 2000. "similar arrangements" is preceded by terms referring to

banking transactions that have deposit peculiarities.
Therefore, the savings and time deposits of members of
cooperatives are not included in the enumeration, and thus
not subject to the 20% final tax. Also, pursuant to Article
XII, Section 15 of the Constitution, 25 and Article 2 of

CTA
Republic Act No. 6938 (RA 6938) or the Cooperative Code
of the Philippines, cooperatives enjoy a preferential tax

Rulling
treatment which exempts their members from the
application of Section 24(B)(1) of the NIRC.

CTA En Bank
Rulling
CTA first division. Petitioner is Finding no reversible error in the Decision dated
ORDERED TO PAY the February 6, 2007 and the Resolution dated May 29,
2007 of the CTA First Division, the CTA En Banc
respondent deficiency denied the Petition for Review as well as petitioner's
withholding taxes on interests. Motion for Reconsideration.
The CTA En Banc held that Section 57 of the NIRC
requires the withholding of tax at source. Pursuant
thereto, Revenue Regulations No. 2-98 was issued
enumerating the income payments subject to final
withholding tax, among which is "interest from any
peso bank deposit and yield, or any other monetary
benefit from deposit substitutes and from trust funds
and similar arrangements x x x". According to the CTA
En Banc, petitioner's business falls under the phrase
"similar arrangements;" as such, it should have
withheld the corresponding 20% final tax on the
interest from the deposits of its members.

CASE DIGEST BY: TRIO 2 (ABUSAMA, ARENAS & PONDONG)

 REPUBLIC OF THE PHILIPPINES SUPREME COURT
G . R . N O . 1 8 2 7 2 2

DUMAGUETE CATHEDRAL CREDIT COOPERATIVE [DCCCO], Represented

by Felicidad L. Ruiz, its General Manager, Petitioner,
VS
COMMISSIONER OF INTERNAL REVENUE, Respondent.
January 22, 2010

Issue

Rulling
• Whether or not DCCCO is
liable to pay the deficiency
withholding taxes on
interest from savings and
time deposits of its NO.
members for the taxable
years 1999 and 2000, as
well as the delinquency
interest of 20% per
annum?
OPINION OF THE COURT

There is nothing in the ruling to suggest that it applies only when deposits are maintained in a bank.
Rather, the ruling clearly states, without any qualification, that since interest from any Philippine
currency bank deposit and yield or any other monetary benefit from deposit substitutes are paid by
banks, cooperatives are not required to withhold the corresponding tax on the interest from savings and
time deposits of their members. This interpretation was reiterated in BIR Ruling [DA-591-2006] dated
October 5, 2006, which was issued by Assistant Commissioner James H. Roldan upon the request of the
cooperatives for a confirmatory ruling on several issues, among which is the alleged exemption of
interest income on members' deposit (over and above the share capital holdings) from the 20% final
withholding tax. In the said ruling, the BIR opined that:

3. Exemption of interest income on members' deposit (over and above the share capital holdings) from
the 20% Final Withholding Tax.

Provision
Under Article 2 of RA 6938, as amended
Applying to this
case
by RA 9520, it is a declared policy of the
State to foster the creation and growth of
cooperatives as a practical vehicle for
promoting self-reliance and harnessing a circumstance in which one party refuses to meet
people power towards the attainment of another's clearly legal, just, and demandable claim
economic development and social justice. unjustifiably and in bad faith, forcing the latter to
Thus, to encourage the formation of
seek remedy via the courts. In such a circumstance,
cooperatives and to create an atmosphere
conducive to their growth and
the law permits the plaintiff to recover the money she
development, the State extends all forms paid for legal assistance in suing the defendant
of assistance to them, one of which is expenses she would not have had to pay if the
providing cooperatives a preferential tax defendant had followed the most fundamental
treatment. standards of fair dealing. It does not, however, follow
that the losing party should be forced to pay
attorney's fees simply because the court finds his legal
position to be incorrect and upholds the other party's,
as this would be an intolerable violation of the policy
that no one should be punished for exercising his or
her right to have competing claims settled by a court
of law. Even a manifestly unsustainable defense does
not justify attorney's fees unless it amounts to
flagrant and obvious ill faith.
Holding
WHEREFORE, the Petition is hereby GRANTED. The assailed December 18, 2007 Decision
of the Court of Tax Appeals and the April 11, 2008 Resolution are REVERSED and SET
ASIDE. Accordingly, the assessments for deficiency withholding taxes on interest from
the savings and time deposits of petitioner's members for the taxable years 1999 and
2000 as well as the delinquency interest of 20% per annum are hereby CANCELLED.
SO ORDERED.

CASE DIGEST BY: TRIO 2 (ABUSAMA, ARENAS & PONDONG)