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CIR v.

CA
GR No. 95022, 23 March 1992

Facts:

- Respondent, GCL Retirement Plan (GCL) is an employees' trust maintained by the


employer, GCL Inc., to provide retirement, pension, disability and death benefits to its
employees. The Plan as submitted was approved and qualified as exempt from income
tax by Petitioner Commissioner of Internal Revenue in accordance with Rep. Act No.
4917.
- In 1984, Respondent GCL made investments and earned therefrom interest income from
which was withheld the fifteen per centum (15%) final witholding tax imposed by Pres.
Decree No. 1959.
- GCL filed with CIR a claim for refund in the amounts withheld by Anscor Capital and
Investment Corp., and Commercial Bank of Manila. It filed a second claim for refund
withheld by Anscor, stating in both letters that it disagreed with the collection of the 15%
final withholding tax from the interest income as it is an entity fully exempt from income
tax as provided under RA 4917 in relation to Section 56 (b) of the Tax Code.
- The refund was denied so GCL elevated the matter to CTA which ruled in favor of GCL,
holding that employees' trusts are exempt from the 15% final withholding tax on interest
income and ordering a refund of the tax withheld. CA upheld CTA
- CIRs claim
o It appears that under RA 1983, amending Sec. 56 (b) of the National Internal
Revenue Code (Tax Code, for brevity), employees' trusts were exempt from
income tax. PD 1156, on the other hand, provided, for the first time, for the
withholding from the interest on bank deposits at the source of a tax of fifteen per
cent (15%) of said interest. However, it also allowed a specific exemption in its
Section 53, for depositors enjoying tax exemption privileges or preferential tax
treatment.
o This exemption and preferential tax treatment were carried over in PD 1739,
which law also subjected interest from bank deposits and yield from deposit
substitutes to a final tax of twenty per cent (20%).
o Subsequently, however, PD 1959 was issued, amending the aforestated
provisions. The exemption from withholding tax on interest on bank deposits
previously extended by Pres. Decree No. 1739 if the recipient (individual or
corporation) of the interest income is exempt from income taxation, and the
imposition of the preferential tax rates if the recipient of the income is enjoying
preferential income tax treatment, were both abolished by PD 1959. Thus, when
PD 1959 was promulgated, employees' trusts ceased to be exempt and
thereafter became subject to the final withholding tax.
Issues:

WON the GCL Plan is exempt from the final withholding tax on interest income from money
placements and purchase of treasury bills as required by Pres. Decree No. 1959. YES

Ruling w/ Doctrine:

To begin with, it is significant to note that the GCL Plan was qualified as exempt from income tax
by the Commissioner of Internal Revenue in accordance with RA 4917. In so far as employees'
trusts are concerned, the foregoing provision should be taken in relation to then Section 56(b)
(now 53[b]) of the Tax Code, as amended by Rep. Act No. 1983. This provision specifically
exempted employee's trusts from income tax.

The tax-exemption privilege of employees' trusts, as distinguished from any other kind of
property held in trust, springs from the foregoing provision. It is unambiguous. Manifest
therefrom is that the tax law has singled out employees' trusts for tax exemption.

And rightly so, by virtue of the raison de'etre behind the creation of employees' trusts.
Employees' trusts or benefit plans normally provide economic assistance to employees upon the
occurrence of certain contingencies, particularly, old age retirement, death, sickness, or
disability. It provides security against certain hazards to which members of the Plan may be
exposed. It is an independent and additional source of protection for the working group. What is
more, it is established for their exclusive benefit and for no other purpose.

The tax advantage in RA 1983, Section 56(b), was conceived in order to encourage the
formation and establishment of such private Plans for the benefit of laborers and employees
outside of the Social Security Act. It is evident that tax-exemption is likewise to be enjoyed by
the income of the pension trust. Otherwise, taxation of those earnings would result in a
diminution accumulated income and reduce whatever the trust beneficiaries would receive out of
the trust fund. This would run afoul of the very intendment of the law.

The deletion in PD 1959 of the provisos regarding tax exemption and preferential tax rates under
the old law, therefore, cannot be deemed to extent to employees' trusts. Said Decree, being a
general law, can not repeal by implication a specific provision. A subsequent statute,
general in character as to its terms and application, is not to be construed as repealing a special
or specific enactment, unless the legislative purpose to do so is manifested. This is so even if
the provisions of the latter are sufficiently comprehensive to include what was set forth in the
special act.