Republic of the Philippines

Supreme Court
Manila


SECOND DIVISION


DUMAGUETE CATHEDRAL G.R. No. 182722
CREDIT COOPERATIVE
[DCCCO], Represe!e" #$
%e&'('")" L. R*'+, '!s Geer)&
M)),er,
Petitioner,

-versus-

COMMISSIONER O%
INTERNAL REVENUE, Promulgated:
Respondent. January 22, 2010
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x


D E C I S I O N


DEL CASTILLO, J.-


The clashing interests of the State and the taxpayers are again pitted against each
other. To !asic principles, the State"s inherent poer of taxation and its declared policy
of fostering the creation and groth of cooperati#es come into play. $oe#er, the one
that em!odies the spirit of the la and the true intent of the legislature pre#ails.

This Petition for %e#ie on Certiorari under Section 11 of %epu!lic &ct '%&(
)o. *2+2,
,1-
in relation to %ule ./ of the %ules of 0ourt, see1s to set aside the 2ecem!er
1+, 2003 2ecision
,2-
of the 0ourt of Tax &ppeals '0T&(, ordering petitioner to pay
deficiency ithholding taxes on interest from sa#ings and time deposits of its mem!ers
for taxa!le years 1*** and 2000, pursuant to Section 2.'4('1( of the )ational 5nternal
%e#enue 0ode of 1**3 ')5%0(, as ell as the delin6uency interest of 207 per annum
under Section 2.*'0( of the same 0ode. 5t also assails the &pril 11,
200+ %esolution
,8-
denying petitioner"s 9otion for %econsideration.

Factual Antecedents

Petitioner 2umaguete 0athedral 0redit 0ooperati#e '2000:( is a credit
cooperati#e duly registered ith and regulated !y the 0ooperati#e 2e#elopment
&uthority '02&(.
,.-
5t as esta!lished on ;e!ruary 13, 1*<+
,/-
ith the folloing
o!=ecti#es and purposes: '1( to increase the income and purchasing poer of the
mem!ers> '2( to pool the resources of the mem!ers !y encouraging sa#ings and
promoting thrift to mo!ili?e capital formation for de#elopment acti#ities> and '8( to
extend loans to mem!ers for pro#ident and producti#e purposes.
,<-
5t has the poer '1( to
dra, ma1e, accept, endorse, guarantee, execute, and issue promissory notes, mortgages,
!ills of exchange, drafts, arrants, certificates and all 1inds of o!ligations and
instruments in connection ith and in furtherance of its !usiness operations> and '2( to
issue !onds, de!entures, and other o!ligations> to contract inde!tedness> and to secure the
same ith a mortgage or deed of trust, or pledge or lien on any or all of its real and
personal properties.
,3-

:n )o#em!er 23, 2001, the 4ureau of 5nternal %e#enue '45%( :perations @roup
2eputy 0ommissioner, Ailian 4. $efti, issued Aetters of &uthority )os. <8222 and
<8228, authori?ing 45% :fficers Tomas %am!uyon and Tarcisio 0u!illan of %e#enue
%egion )o. 12, 4acolod 0ity, to examine petitioner"s !oo1s of accounts and other
accounting records for all internal re#enue taxes for the taxa!le years 1*** and 2000.
,+-

Proceedings before the BIR Regional Office

:n June 2<, 2002, petitioner recei#ed to Pre-&ssessment )otices for deficiency
ithholding taxes for taxa!le years 1*** and 2000 hich ere protested !y petitioner
on July 28, 2002.
,*-
Thereafter, on :cto!er 1<, 2002, petitioner recei#ed to other Pre-
&ssessment )otices for deficiency ithholding taxes also for taxa!le years 1*** and
2000.
,10-
The deficiency ithholding taxes co#er the payments of the honorarium of the
4oard of 2irectors, security and =anitorial ser#ices, legal and professional fees, and
interest on sa#ings and time deposits of its mem!ers.

:n :cto!er 22, 2002, petitioner informed 45% %egional 2irector Sonia A. ;lores
that it ould only pay the deficiency ithholding taxes corresponding to the honorarium
of the 4oard of 2irectors, security and =anitorial ser#ices, legal and professional fees for
the year 1*** in the amount of P+3,*33.+<, excluding penalties and interest.
,11-

5n another letter dated )o#em!er +, 2002, petitioner also informed the 45%
&ssistant %egional 2irector, %ogelio 4. Bam!arrano, that it ould pay the ithholding
taxes due on the honorarium and per diems of the 4oard of 2irectors, security and
=anitorial ser#ices, commissions and legal C professional fees for the year 2000 in the
amount of P11*,++*.83, excluding penalties and interest, and that it ould a#ail of the
Doluntary &ssessment and &!atement Program 'D&&P( of the 45% under %e#enue
%egulations )o. 13-2002.
,12-
:n )o#em!er 2*, 2002, petitioner a#ailed of the D&&P and paid the amounts
of P10/,/3..<2 and P1.8,+<3.2.
,18-
corresponding to the ithholding taxes on the
payments for the compensation, honorarium of the 4oard of 2irectors, security and
=anitorial ser#ices, and legal and professional ser#ices, for the years 1*** and 2000,
respecti#ely.

:n &pril 2., 2008, petitioner recei#ed from the 45% %egional 2irector, Sonia A.
;lores, Aetters of 2emand )os. 00023-2008 and 0002<-2008, ith attached Transcripts
of &ssessment and &udit %esultsE&ssessment )otices, ordering petitioner to pay the
deficiency ithholding taxes, inclusi#e of penalties, for the years 1*** and 2000 in the
amounts of P1,.+*,0</.80 and P1,.<2,<...*0, respecti#ely.
,1.-

Proceedings before the Commissioner of Internal Revenue

:n 9ay *, 2008, petitioner protested the Aetters of 2emand and &ssessment
)otices ith the 0ommissioner of 5nternal %e#enue '05%(.
,1/-
$oe#er, the latter failed
to act on the protest ithin the prescri!ed 1+0-day period. $ence, on 2ecem!er 8, 2008,
petitioner filed a Petition for %e#ie !efore the 0T&, doc1eted as 0.T.&. 0ase )o. <+23.
,1<-

Proceedings before the CTA First Division

The case as raffled to the ;irst 2i#ision of the 0T& hich rendered its 2ecision
on ;e!ruary <, 2003, disposing of the case in this ise:

5) D5FG :; &AA T$F ;:%F@:5)@, the Petition for %e#ie is here!y
P&%T5&AAH @%&)TF2. &ssessment )otice )os. 0002<-2008 and 00023-2008 are
here!y 9:25;5F2 and the assessment for deficiency ithholding taxes on the
honorarium and per diems of petitioner"s 4oard of 2irectors, security and =anitorial
ser#ices, commissions and legal and professional fees are here!y 0&)0FAAF2.
$oe#er, the assessments for deficiency ithholding taxes on interests are here!y
&;;5%9F2.

&ccordingly, petitioner is :%2F%F2 T: P&H the respondent the respecti#e
amounts of P1,2+0,1./.+* and P1,8/3,++1.1. representing deficiency ithholding taxes
on interests from sa#ings and time deposits of its mem!ers for the taxa!le years 1*** and
2000. 5n addition, petitioner is ordered to pay the 207 delin6uency interest from 9ay
2<, 2008 until the amount of deficiency ithholding taxes are fully paid pursuant to
Section 2.* '0( of the Tax 0ode.

S: :%2F%F2.
,13-

2issatisfied, petitioner mo#ed for a partial reconsideration, !ut it as denied !y
the ;irst 2i#ision in its %esolution dated 9ay 2*, 2003.
,1+-

Proceedings before the CTA En Banc

:n July 8, 2003, petitioner filed a Petition for %e#ie ith the 0T& En Banc,
,1*-
interposing the lone issue of hether or not petitioner is lia!le to pay the deficiency
ithholding taxes on interest from sa#ings and time deposits of its mem!ers for taxa!le
years 1*** and 2000, and the conse6uent delin6uency interest of 207 per annum.
,20-

;inding no re#ersi!le error in the 2ecision dated ;e!ruary <, 2003 and the
%esolution dated 9ay 2*, 2003 of the 0T& ;irst 2i#ision, the 0T& En Banc denied the
Petition for %e#ie
,21-
as ell as petitioner"s 9otion for %econsideration.
,22-

The 0T& En Banc held that Section /3 of the )5%0 re6uires the ithholding of
tax at source. Pursuant thereto, %e#enue %egulations )o. 2-*+ as issued enumerating
the income payments su!=ect to final ithholding tax, among hich is Iinterest from any
peso !an1 deposit and yield, or any other monetary !enefit from deposit su!stitutes and
from trust funds and similar arrangements x x xJ. &ccording to the 0T& Fn Banc,
petitioner"s !usiness falls under the phrase Isimilar arrangements>J as such, it should
ha#e ithheld the corresponding 207 final tax on the interest from the deposits of its
mem!ers.

Iss*e

$ence, the present recourse, here petitioner raises the issue of hether or not it is
lia!le to pay the deficiency ithholding taxes on interest from sa#ings and time deposits
of its mem!ers for the taxa!le years 1*** and 2000, as ell as the delin6uency interest of
207 per annum.

Petitioners Arguments

Petitioner argues that Section 2.'4('1( of the )5%0 hich reads in part, to it:

SF0T5:) 2.. Income Tax Rates. K

x x x x

'4( %ate of Tax on 0ertain Passi#e 5ncome: K

'1( 5nterests, %oyalties, Pri?es, and :ther Ginnings. K & final tax at the
rate of tenty percent '207( is here!y imposed upon the amount of interest from any
currency !an1 deposit and yield or any other monetary !enefit from deposit su!stitutes
and from trust funds and similar arrangements> x x x

applies only to !an1s and not to cooperati#es, since the phrase Isimilar arrangementsJ is
preceded !y terms referring to !an1ing transactions that ha#e deposit
peculiarities. Petitioner thus posits that the sa#ings and time deposits of mem!ers of
cooperati#es are not included in the enumeration, and thus not su!=ect to the 207 final
tax. To !olster its position, petitioner cites 45% %uling )o. //1-+++
,28-
and 45% %uling
,2&-/*1-200<-
,2.-
here the 45% ruled that interests from deposits maintained !y
mem!ers of cooperati#e are not su!=ect to ithholding tax under Section 2.'4('1( of the
)5%0. Petitioner further contends that pursuant to &rticle L55, Section 1/ of the
0onstitution
,2/-
and &rticle 2 of %epu!lic &ct )o. <*8+ '%& <*8+( or the 0ooperati#e
0ode of the Philippines,
,2<-
cooperati#es en=oy a preferential tax treatment hich exempts
their mem!ers from the application of Section 2.'4('1( of the )5%0.

Res!ondents Arguments

&s a counter-argument, respondent in#o1es the legal maxim IUbi lex non
distinguit nec nos distinguere debemos 'here the la does not distinguish, the courts
should not distinguish(. %espondent maintains that Section 2.'4('1( of the )5%0 applies
to cooperati#es as the phrase Isimilar arrangementsJ is not limited to !an1s, !ut includes
cooperati#es that are depositaries of their mem!ers. %egarding the exemption relied
upon !y petitioner, respondent ad#erts to the =urisprudential rule that tax exemptions are
highly disfa#ored and construed strictissimi juris against the taxpayer and li!erally in
fa#or of the taxing poer. 5n this connection, respondent li1eise points out that the
deficiency tax assessments ere issued against petitioner not as a taxpayer !ut as a
ithholding agent.

O*r R*&',

The petition has merit.
Petitioners invocation o! BIR Ruling
"o# $$%-&&&, reiterated in BIR Ruling
'()-$*%-+,,-., is proper#

:n )o#em!er 1<, 1*++, the 45% declared in 45% %uling )o. //1-+++ that
cooperati#es are not re6uired to ithhold taxes on interest from sa#ings and time deposits
of their mem!ers. The pertinent 45% %uling reads:

)o#em!er 1<, 1*++
45% %MA5)@ ):. //1-+++
2. 8<*-++ //1-+++

@entlemen:

This refers to your letter dated Septem!er /, 1*++ stating that you are a corporation
esta!lished under P.2. )o. 13/ and duly registered ith the 4ureau of 0ooperati#es
2e#elopment as full fledged cooperati#e of good standing ith 0ertificate of
%egistration )o. ;; /<8-%% dated &ugust +, 1*+/> and that one of your o!=ecti#es is to
pro#ide and strengthen cooperati#e endea#or and extend assistance to mem!ers and non-
mem!ers through credit scheme !oth in cash and in 1ind.

4ased on the foregoing representations, you no re6uest in effect a ruling as to hether
or not you are exempt from the folloing:

1. Payment of sales tax
2. ;iling and payment of income tax
8. Githholding taxes from compensation of employees and sa#ings account and
time deposits of mem!ers. 'Mnderscoring ours(

5n reply, please !e informed that Fxecuti#e :rder )o. *8 hich too1 effect on 9arch 10,
1*+3 ithdre all tax exemptions and preferential pri#ileges e.g., income tax and sales
tax, granted to cooperati#es under P.2. )o. 13/ hich ere pre#iously ithdran !y
P.2. )o. 1*// effecti#e :cto!er 1/, 1*+. and restored !y P.2. )o. 200+ effecti#e
January +, 1*+<. $oe#er, implementation of said Fxecuti#e :rder insofar as electric,
agricultural, irrigation and ateror1s cooperati#es are concerned as suspended
until June 80, 1*+3. '9emorandum :rder )o. </ dated January 21, 1*+3 of the
President( &ccordingly, your tax exemption pri#ilege expired as of June 80, 1*+3. Such
!eing the case, you are no su!=ect to income and sales taxes.

9oreo#er, under Section 32'a( of the Tax 0ode, as amended, e#ery employer ma1ing
payment of ages shall deduct and ithhold upon such ages a tax at the rates
prescri!ed !y Section 21'a( in relation to section 31, 0hapter L, Title 55, of the same
0ode as amended !y 4atas Pam!ansa 4lg. 18/ and implemented !y %e#enue
%egulations )o. <-+2 as amended. &ccordingly, as an employer you are re6uired to
ithhold the corresponding tax due from the compensation of your employees.
;urthermore, under Section /0'a( of the Tax 0ode, as amended, the tax imposed or
prescri!ed !y Section 21'c( of the same 0ode on specified items of income shall !e
ithheld !y payor-corporation andEor person and paid in the same manner and su!=ect to
the same conditions as pro#ided in Section /1 of the Tax 0ode, as amended. Such !eing
the case, and since interest from any Philippine currency !an1 deposit and yield or any
other monetary !enefit from deposit su!stitutes are paid !y !an1s, you are not the party
re6uired to ithhold the corresponding tax on the aforesaid sa#ings account and time
deposits of your mem!ers. 'Mnderscoring ours(

Dery truly yours,
'S@2.( 45F)DF)52: &. T&), J%.
0ommissioner

The 0T& ;irst 2i#ision, hoe#er, disregarded the a!o#e 6uoted ruling in
determining hether petitioner is lia!le to pay the deficiency ithholding taxes on
interest from the deposits of its mem!ers. 5t ratiocinated in this ise:

This 0ourt does not agree. &s correctly pointed out !y respondent in his
9emorandum, nothing in the a!o#e 6uoted resolution ill gi#e the conclusion that
sa#ings account and time deposits of mem!ers of a cooperati#e are tax-exempt. Ghat is
entirely clear is the opinion of the 0ommissioner that the proper party to ithhold the
corresponding taxes on certain specified items of income is the payor-corporation andEor
person. 5n the same ay, in the case of interests earned from Philippine currency deposits
made in a !an1, then it is the !an1 hich is lia!le to ithhold the corresponding taxes
considering that the !an1 is the payor-corporation. Thus, the ruling that a cooperati#e is
not the proper party to ithhold the corresponding taxes on the aforementioned accounts
is correct. $oe#er, this ruling does not hold true if the sa#ings and time deposits are
!eing maintained in the cooperati#e, for in this case, it is the cooperati#e hich !ecomes
the payor-corporation, a separate entity acting no more than an agent of the go#ernment
for the collection of taxes, lia!le to ithhold the corresponding taxes on the interests
earned.
,23-
'Mnderscoring ours(

The 0T& En Banc affirmed the a!o#e-6uoted 2ecision and found petitioner"s
in#ocation of 45% %uling )o. //1-++ misplaced. &ccording to the 0T& En Banc, the
45% %uling as !ased on the premise that the sa#ings and time deposits ere placed !y
the mem!ers of the cooperati#e in the !an1.
,2+-
0onse6uently, it ruled that the 45% %uling
does not apply hen the deposits are maintained in the cooperati#e such as the instant
case.

Ge disagree.
There is nothing in the ruling to suggest that it applies only hen deposits are
maintained in a !an1. %ather, the ruling clearly states, ithout any 6ualification, that
since interest from any Philippine currency !an1 deposit and yield or any other monetary
!enefit from deposit su!stitutes are paid !y !an1s, cooperati#es are not re6uired to
ithhold the corresponding tax on the interest from sa#ings and time deposits of their
mem!ers. This interpretation as reiterated in 45% %uling ,2&-/*1-200<- dated
:cto!er /, 200<, hich as issued !y &ssistant 0ommissioner James $. %oldan upon
the re6uest of the cooperati#es for a confirmatory ruling on se#eral issues, among hich
is the alleged exemption of interest income on mem!ers" deposit 'o#er and a!o#e the
share capital holdings( from the 207 final ithholding tax. 5n the said ruling, the 45%
opined that:

x x x x

8. Fxemption of interest income on mem!ers" deposit 'o#er and a!o#e the share
capital holdings( from the 207 ;inal Githholding Tax.

The )ational 5nternal %e#enue 0ode states that a Ifinal tax at the rate of tenty
percent '207( is here!y imposed upon the amount of interest on currency !an1 deposit
and yield or any other monetary !enefit from the deposit su!stitutes and from trust funds
and similar arrangement x x xJ for indi#iduals under Section 2.'4('1( and for domestic
corporations under Section 23'2('1(. Considering t/e members deposits 0it/ t/e
cooperatives are not currenc1 ban2 deposits nor deposit substitutes, 3ection +45B65%6 and
3ection +75(65%6, t/ere!ore, do not appl1 to members o! cooperatives and to deposits o!
primaries 0it/ !ederations, respectivel1#

5t !ears stressing that interpretations of administrati#e agencies in charge of
enforcing a la are entitled to great eight and consideration !y the courts, unless such
interpretations are in a sharp conflict ith the go#erning statute or the 0onstitution and
other las.
,2*-
5n this case, 45% %uling )o. //1-+++ and 45% %uling ,2&-/*1-200<- are
in perfect harmony ith the 0onstitution and the las they see1 to implement.
&ccordingly, the interpretation in 45% %uling )o. //1-+++ that cooperati#es are not
re6uired to ithhold the corresponding tax on the interest from sa#ings and time deposits
of their mem!ers, hich as reiterated in 45% %uling ,2&-/*1-200<-, applies to the
instant case.

8embers o! cooperatives deserve a
pre!erential tax treatment pursuant to R)
-*9&, as amended b1 R) *$+,#

@i#en that petitioner is a credit cooperati#e duly registered ith the 0ooperati#e
2e#elopment &uthority '02&(, Section 2.'4('1( of the )5%0 must !e read together
ith %& <*8+, as amended !y %& */20.

Mnder &rticle 2 of %& <*8+, as amended !y %& */20, it is a declared policy of the
State to foster the creation and groth of cooperati#es as a practical #ehicle for
promoting self-reliance and harnessing people poer toards the attainment of economic
de#elopment and social =ustice. Thus, to encourage the formation of cooperati#es and to
create an atmosphere conduci#e to their groth and de#elopment, the State extends all
forms of assistance to them, one of hich is pro#iding cooperati#es a preferential tax
treatment.

The legislati#e intent to gi#e cooperati#es a preferential tax treatment is apparent
in &rticles <1 and <2 of %& <*8+, hich read:

&%T. <1. Tax Treatment o! Cooperatives. K 2uly registered cooperati#es
under this 0ode hich do not transact any !usiness ith non-mem!ers or the general
pu!lic shall not !e su!=ect to any go#ernment taxes and fees imposed under the 5nternal
%e#enue Aas and other tax las. 0ooperati#es not falling under this article shall !e
go#erned !y the succeeding section.

&%T. <2. Tax and :t/er Exemptions. K 0ooperati#es transacting !usiness
ith !oth mem!ers and nonmem!ers shall not !e su!=ect to tax on their transactions to
mem!ers. )otithstanding the pro#ision of any la or regulation to the contrary, such
cooperati#es dealing ith nonmem!ers shall en=oy the folloing tax exemptions> x x x.

This exemption extends to mem!ers of cooperati#es. 5t must !e emphasi?ed that
cooperati#es exist for the !enefit of their mem!ers. 5n fact, the primary o!=ecti#e of
e#ery cooperati#e is to pro#ide goods and ser#ices to its mem!ers to ena!le them to attain
increased income, sa#ings, in#estments, and producti#ity.
,80-
Therefore, limiting the
application of the tax exemption to cooperati#es ould go against the #ery purpose of a
credit cooperati#e. Fxtending the exemption to mem!ers of cooperati#es, on the other
hand, ould !e consistent ith the intent of the legislature. Thus, although the tax
exemption only mentions cooperati#es, this should !e construed to include the mem!ers,
pursuant to &rticle 12< of %& <*8+, hich pro#ides:

&%T. 12<. Interpretation and Construction. N 5n case of dou!t as to the
meaning of any pro#ision of this 0ode or the regulations issued in pursuance thereof, the
same shall !e resol#ed li!erally in fa#or of the cooperati#es and their mem!ers.

Ge need not !ela!or that hat is ithin the spirit is ithin the la e#en if it is not
ithin the letter of the la !ecause the spirit pre#ails o#er the letter.
,81-
)propos is the
ruling in the case of )lon;o v# Intermediate )ppellate Court,
,82-
to it:

4ut as has also !een aptly o!ser#ed, e test a la !y its results> and li1eise, e
may add, !y its purposes. 5t is a cardinal rule that, in see1ing the meaning of the la, the
first concern of the =udge should !e to disco#er in its pro#isions the intent of the
lama1er. Mn6uestiona!ly, the la should ne#er !e interpreted in such a ay as to cause
in=ustice as this is ne#er ithin the legislati#e intent. &n indispensa!le part of that intent,
in fact, for e presume the good moti#es of the legislature, is to render =ustice.

Thus, e interpret and apply the la not independently of !ut in consonance
ith =ustice. Aa and =ustice are insepara!le, and e must 1eep them so. To !e sure, there
are some las that, hile generally #alid, may seem ar!itrary hen applied in a
particular case !ecause of its peculiar circumstances. 5n such a situation, e are not
!ound, !ecause only of our nature and functions, to apply them =ust the same, ,is- sla#ish
o!edience to their language. Ghat e do instead is find a !alance !eteen the ord and
the ill, that =ustice may !e done e#en as the la is o!eyed.

&s =udges, e are not automatons. Ge do not and must not unfeelingly apply the
la as it is orded, yielding li1e ro!ots to the literal command ithout regard to its cause
and conse6uence. I0ourts are apt to err !y stic1ing too closely to the ords of a la,J so
e are arned, !y Justice $olmes again, Ihere these ords import a policy that goes
!eyond them.J Ghile e admittedly may not legislate, e ne#ertheless ha#e the poer to
interpret the la in such a ay as to reflect the ill of the legislature. Ghile e may not
read into the la a purpose that is not there, e ne#ertheless ha#e the right to read out of
it the reason for its enactment. 5n doing so, e defer not to Ithe letter that 1illethJ !ut to
Ithe spirit that #i#ifieth,J to gi#e effect to the lama1er"s ill.

The spirit, rather than the letter of a statute determines its
construction, hence, a statute must !e read according to its spirit or
intent. ;or hat is ithin the spirit is ithin the statute although it is not
ithin the letter thereof, and that hich is ithin the letter !ut not ithin
the spirit is not ithin the statute. Stated differently, a thing hich is
ithin the intent of the lama1er is as much ithin the statute as if
ithin the letter> and a thing hich is ithin the letter of the statute is not
ithin the statute unless ithin the intent of the lama1ers.
'Mnderscoring ours(

5t is also orthy to note that the tax exemption in %& <*8+ as retained in %&
*/20. The only difference is that &rticle <1 of %& */20 'formerly Section <2 of %&
<*8+( no expressly states that transactions of mem!ers ith the cooperati#es are not
su!=ect to any taxes and fees. Thus:

&%T. <1. Tax and :t/er Exemptions. 0ooperati#es transacting !usiness ith
!oth mem!ers and non-mem!ers shall not !e su!=ected to tax on their transactions ith
mem!ers. 5n relation to this, the transactions of mem!ers ith the cooperati#e shall not
!e su!=ect to any taxes and fees, including !ut not limited to final taxes on mem!ers"
deposits and documentary tax. )otithstanding the pro#isions of any la or regulation
to the contrary, such cooperati#es dealing ith nonmem!ers shall en=oy the folloing tax
exemptions: 'Mnderscoring ours(

x x x x

This amendment in &rticle <1 of %& */20, specifically pro#iding that mem!ers of
cooperati#es are not su!=ect to final taxes on their deposits, affirms the interpretation of
the 45% that Section 2.'4('1( of the )5%0 does not apply to cooperati#es and confirms
that such ruling carries out the legislati#e intent. Mnder the principle of legislati#e
appro#al of administrati#e interpretation !y reenactment, the reenactment of a statute
su!stantially unchanged is persuasi#e indication of the adoption !y 0ongress of a prior
executi#e construction.
,88-
9oreo#er, no less than our 0onstitution guarantees the protection of
cooperati#es. Section 1/, &rticle L55 of the 0onstitution considers cooperati#es as
instruments for social =ustice and economic de#elopment. &t the same time, Section 10 of
&rticle 55 of the 0onstitution declares that it is a policy of the State to promote social
=ustice in all phases of national de#elopment. 5n relation thereto, Section 2 of &rticle L555
of the 0onstitution states that the promotion of social =ustice shall include the
commitment to create economic opportunities !ased on freedom of initiati#e and self-
reliance. 4earing in mind the foregoing pro#isions, e find that an interpretation
exempting the mem!ers of cooperati#es from the imposition of the final tax under
Section 2.'4('1( of the )5%0 is more in 1eeping ith the letter and spirit of our
0onstitution.

&ll told, e hold that petitioner is not lia!le to pay the assessed deficiency
ithholding taxes on interest from the sa#ings and time deposits of its mem!ers, as ell
as the delin6uency interest of 207 per annum.

5n closing, cooperati#es, including their mem!ers, deser#e a preferential tax
treatment !ecause of the #ital role they play in the attainment of economic de#elopment
and social =ustice. Thus, although taxes are the life!lood of the go#ernment, the State"s
poer to tax must gi#e ay to foster the creation and groth of cooperati#es. To !orro
the ords of Justice 5sagani &. 0ru?: IThe poer of taxation, hile indispensa!le, is not
a!solute and may !e su!ordinated to the demands of social =ustice.J
,8.-

.HERE%ORE, the Petition is here!y GRANTED. The assailed 2ecem!er 1+,
2003 2ecision of the 0ourt of Tax &ppeals and the &pril 11, 200+ %esolution
are REVERSED and SET ASIDE. &ccordingly, the assessments for deficiency
ithholding taxes on interest from the sa#ings and time deposits of petitioner"s mem!ers
for the taxa!le years 1*** and 2000 as ell as the delin6uency interest of 207 per
annum are here!y CANCELLED.

SO ORDERED.