EN BANC

[G.R. No. 95022. March 23, 1992.]

COMMISSIONER OF INTERNAL REVENUE , petitioner, vs. THE HON.

COURT OF APPEALS, THE COURT OF TAX APPEALS, GCL
RETIREMENT PLAN, represented by its Trustee-Director ,
respondents.

M.L. Gadioma Law Office for private respondent.

SYLLABUS

1. TAXATION; INCOME TAX; GOVERNING LAWS EXEMPTING EMPLOYEES'

TRUST THEREFROM. — It appears that under Rep. Act No. 1983, which took effect on
22 June 1957, amending Sec. 56(b) of the National Internal Revenue Code (Tax Code,
for brevity), employees' trusts were exempt from income tax. It is signi cant to note
that the GCL Plan was quali ed as exempt from income tax by the Commissioner of
Internal Revenue in accordance with Rep. Act No. 4917 approved on 17 June 1967. 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, supra, which took effect on 22 June 1957. This provision speci cally exempted
employees' trust from income tax.
2. ID.; ID.; ID.; REASONS THEREFOR. — And rightly so, by virtue of the raison
d'etre behind the creation of employees' trusts. Employees' trusts or bene t 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.
3. ID.; ID.; ID.; PURPOSE THEREFOR. — The tax advantage in Rep. Act No.
1983, Section 56(b), was conceived in order to encourage the formation and
establishment of such private Plans for the bene t of laborers and employees outside
of the Social Security Act. Enlightening is a portion of the explanatory note to H.B. No.
6503, now R.A. 1983.
4. ID.; ID.; ID.; R.A. NO. 1983, SEC. 56(b) IN RELATION TO R.A. NO. 4917; NOT
REPEALED BY P.D. NO. 1959. — The deletion in Pres. Decree No. 1959 of the provisos
regarding tax exemption and preferential tax rates under the old law, therefore, can not
be deemed to extend to employees' trusts. Said Decree, being a general law, can not
repeal by implication a speci c provision, Section 56(b) (now 53 [b]) in relation to Rep.
Act No. 4917 granting exemption from income tax to employees' trusts. Rep. Act 1983,
which excepted employees' trusts in its Section 56(b) was effective on 22 June 1957
while Rep. Act No. 4917 was enacted on 17 June 1967, long before the issuance of
Pres. Decree No. 1959 on 15 October 1984. A subsequent statute, general in character
as to its terms and application, is not to be construed as repealing a special or speci c
enactment, unless the legislative purpose to do so is manifested. This is so even if the
provisions of the latter are su ciently comprehensive to include what was set forth in
the special act (Villegas v. Subido, G.R. No. L-31711, 30 September 1971, 41 SCRA
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 190).
5. ID.; ID.; EMPLOYEE'S TRUST; EXEMPTED FROM WITHHOLDING TAX ON
INTEREST EARNED ON BANK DEPOSITS. — Notably, too, all the tax provisions herein
treated of come under Title II of the Tax Code on "Income Tax." Section 21(d), as
amended by Rep. Act No. 1959, refers to the nal tax on individuals and falls under
Chapter II; Section 24(cc) to the nal tax on corporations under Chapter III; Section 53
on withholding of nal tax to Returns and Payment of Tax under Chapter VI; and Section
56(b) to tax on Estates and Trusts covered by Chapter VII. Section 56(b), taken in
conjunction with Section 56(a), supra, explicitly excepts employees' trusts from "the
taxes imposed by this Title." Since the nal tax and the withholding thereof are
embraced within the title on "Income Tax," it follows that said trust must be deemed
exempt therefrom. Otherwise, the exception becomes meaningless. There can be no
denying either that the nal withholding tax is collected from income in respect of
which employees' trusts are declared exempt (Sec. 56[b], now 53[b], Tax Code). The
application of the withholdings system to interest on bank deposits or yield from
deposit substitutes is essentially to maximize and expedite the collection of income
taxes by requiring its payment at the source. If an employees' trust like the GCL enjoys
a tax-exempt status from income, we see no logic in withholding a certain percentage
of that income which it is not supposed to pay in the first place.

DECISION

MELENCIO-HERRERA , J : p

This case is said to be precedent setting. While the amount involved is

insigni cant, the Solicitor General avers that there are about 85 claims of the same
nature pending in the Court of Appeals and Bureau of Internal Revenue totalling
approximately P120M. LLphil

Petitioner, the Commissioner of Internal Revenue, seeks a reversal of the

Decision of respondent Court of Appeals, dated August 27, 1990, in CA-G.R. SP No.
20426, entitled "Commissioner of Internal Revenue vs. GCL Retirement Plan,
represented by its Trustee-Director and the Court of Tax Appeals," which a rmed the
Decision of the latter Court, dated 15 December 1986, in Case no. 3888, ordering a
refund, in the sum of P11,302.19, to the GCL Retirement Plan representing the
withholding tax on income from money market placements and purchase of treasury
bills, imposed pursuant to Presidential Decree No. 1959. LLjur

There is no dispute with respect to the facts. Private Respondent, GCL

Retirement Plan (GCL, for brevity) is an employees' trust maintained by the employer,
GCL Inc., to provide retirement, pension, disability and death bene ts to its employees.
The Plan as submitted was approved and quali ed as exempt from income tax by
Petitioner Commissioner of Internal Revenue in accordance with Rep. Act No. 4917. 1
In 1984, Respondent GCL made investments and earned therefrom interest
income from which was withheld the fteen per centum (15%) nal withholding tax
imposed by Pres. Decree No. 1959, 2 which took effect on 15 October 1984, to wit:
Date Kind of Investment Principal Income Earned 15% Tax

ACIC
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 12/05/84 Market Placement P 236,515.32 P 8,751.96 P 1,312.66
10/22/84 — 234,632.75 9,815.89 1,472.38
11/19/84 — 225,886.51 10,629.22 1,594.38
1/23/84 — 344,448.64 17,313.33 2,597.00
12/05/84 — 324,633.81 15,077.44 2,261.52
COMBANK Treasury Bills 2,064.15
————
P11,302.19

On 15 January 1985, Respondent GCL led with Petitioner a claim for refund in
the amounts of P1,312.66 withheld by Anscor Capital and Investment Corp., and
P2,064.15 by Commercial Bank of Manila. On 12 February 1985, it led a second claim
for refund of the amount of P7,925.00 withheld by Anscor, stating in both letters that it
disagreed with the collection of the 15% nal withholding tax from the interest income
as it is an entity fully exempt from income tax as provided under Rep. Act No 4917 in
relation to Section 56 (b) 3 of the Tax Code.
The refund requested having been denied, Respondent GCL elevated the matter
to respondent Court of Tax Appeals (CTA). The latter ruled in favor of GCL, holding that
employees' trusts are exempt from the 15% nal withholding tax on interest income
and ordering a refund of the tax withheld. Upon appeal, originally to this Court, but
referred to respondent Court of Appeals, the latter upheld the CTA Decision. Before us
now, Petitioner assails that disposition. prcd

It appears that under Rep. Act No. 1983, which took effect on 22 June 1957,
amending Sec. 56(b) of the National Internal Revenue Code (Tax Code, for brevity),
employees' trusts were exempt from income tax. That law provided:
"SEC. 56. Imposition of tax. — (a) Application of tax. — The taxes
imposed by this Title upon individuals shall apply to the income of estates or of
any kind of property held in trust, including —
xxx xxx xxx
(b) Exception. — The tax imposed by this Title shall not apply to
employees' trust which forms part of a pension, stock bonus or pro t-sharing
plan of an employer for the bene ts of some or all of his employees (1) if
contributions are made to the trust by such employer, or employees, or both, for
the purpose of distributing to such employees the earnings and principal of the
fund accumulated by the trust in accordance with such plan. . . ."
On 3 June 1977, Pres. Decree No. 1156 provided, for the rst time, for the
withholding from the interest on bank deposits at the source of a tax of fteen per cent
(15%) of said interest. However, it also allowed a speci c exemption in its Section 53,
as follows:
"SEC. 53. Withholding of tax at source. —
xxx xxx xxx
"(c) Withholding tax on interest on bank deposits. — (1) Rate of
withholding tax. — Every bank or banking institution shall deduct and withhold
from the interest on bank deposits (except interest paid or credited to non-
resident alien individuals and foreign corporations), a tax equal to fteen per
cent of the said interest: Provided, however, That no withholding of tax shall be
made if the aggregate amount of the interest on all deposit accounts
maintained by a interest on all deposit accounts maintained by a depositor
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 alone or together with another in any one bank at any time during the taxable
period does not exceed three hundred fty pesos a year or eighty-seven pesos
and fty centavos per quarter. For this purpose, interest on a deposit account
maintained by two persons shall be deemed to be equally owned by them.
"(2) Treatment of bank deposit interest . — The interest income shall
be included in the gross income in computing the depositor's income tax liability
in according with existing law.
"(3) Depositors enjoying tax exemption privileges or preferential tax
treatment. — In all cases where the depositor is tax-exempt or is enjoying
preferential income tax treatment under existing laws, the withholding tax
imposed in this paragraph shall be refunded or credited as the case may be
upon submission to the Commissioner of Internal Revenue of proof that the
said depositor is a tax-exempt entity or enjoys a preferential income tax
treatment.

xxx xxx xxx"

This exemption and preferential tax treatment were carried over in Pres. Decree
No. 1739, effective on 17 September 1980, which law also subjected interest from
bank deposits and yield from deposit substitutes to a nal tax of twenty per cent
(20%). The pertinent provisions read:
"SEC. 2. Section 21 of the same Code is hereby amended by adding a
new paragraph to read as follows:

SEC 21. Rates of tax on citizens or residents. —

xxx xxx xxx
Interest from Philippines Currency bank deposits and yield from
deposit substitutes whether received by citizens of the Philippines or by
resident alien individuals, shall be subject to the nal tax as follows: (a)
15% of the interest on savings deposits, and (b) 20% of the interest on time
deposits and yield from deposit substitutes, which shall be collected and
paid as provided in Sections 53 and 54 of this Code. Provided, That no tax
shall be imposed if the aggregate amount of the interest on all Philippine
Currency deposit accounts mentioned by a depositor alone or together with
another in any one bank at any time during the taxable period does not
exceed Eight Hundred Pesos (P800.00) a year or Two Hundred Pesos
(P200.00) per quarter, Provided, further, That if the recipient of such
interest is exempt from income taxation, no tax shall be imposed and that,
if the recipient is enjoying preferential income tax treatment, then the
preferential tax rates so provided shall be imposed (Emphasis supplied.)
"SEC. 3. Section 24 of the same Code is hereby amended by adding a
new subsection (cc) between subsections (c) and (d) to read as follows:

(cc) Rates of tax on interest from deposits and yield from deposit
substitutes. — Interest on Philippine Currency bank deposits and yield from
deposit substitutes received by domestic or resident foreign corporations
shall be subject to a nal tax on the total amount thereof as follows: (a)
15% of the interest on savings deposits; and (b) 20% of the interest on time
deposits and yield from deposit substitutes which shall be collected and
paid as provided in Section 53 and 54 of this Code. Provided, That if the
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 recipient of such interest is exempt from income taxation, no tax shall be
imposed and that, if the recipient is enjoying preferential income tax
treatment, then the preferential tax rates so provided shall be imposed"
(Emphasis supplied).
"SEC. 9. Section 53(e) of the same Code is hereby amended to read
as follows:
SEC. 53(e) Withholding of nal tax on interest on bank deposits
and yield from deposit substitutes. —
(1) Withholding of nal tax . — Every bank or non-bank nancial
intermediary shall deduct and withhold from the interest on bank deposits
or yield from deposit substitutes a nal tax equal to fteen (15%) per cent
of the interest on savings deposits and twenty (20%) per cent of the
interest on time deposits or yield from deposit substitutes: Provided,
however, That on withholding tax shall be made if the aggregate amount
of the interest on all deposits accounts maintained by a depositor alone or
together with another in any one bank at any time during the taxable period
does not exceed Eight Hundred Pesos a year or Two Hundred Peso per
quarter. For this purpose, interest on a deposit account maintained by two
persons shall be deemed to be equally owned by them.

(2) Depositors or placers/investors enjoying tax exemption

privileges or preferential tax treatment. — In all cases where the depositor
or placer/investor is tax-exempt or is enjoying preferential income tax
treatment under existing laws, the withholding tax imposed in this
paragraph shall be refunded or credited as the case may be upon
submission to the Commissioner of Internal Revenue of proof that the said
depositor, or placer/investor is a tax exempt entity or enjoys a preferential
income tax treatment."

Subsequently, however, on 15 October 1984, Pres. Decree No. 1959 was issued,
amending the aforestated provisions to read:
"SEC. 2. Section 21(d) of this Code, as amended, is hereby further
amended to read as follows:
(d) On interest from bank deposits and yield or any other
monetary bene t from deposit substitutes and from trust fund and similar
arrangements. — Interest from Philippine Currency Bank deposits and yield
or any other monetary bene t from deposit substitutes and from trust fund
and similar arrangements whether received by citizens of the Philippines or
by resident alien individuals, shall be subject to a 15% nal tax to be
collected and paid as provided in Section 53 and 54 of this Code.
"SEC. 3. Section 24(cc) of this Code, as amended, is hereby further
amended to read as follows:

(cc) Rates of tax on interest from deposits and yield or any

other monetary bene t from deposit substitutes and from trust fund and
similar arrangements. — Interest on Philippine Currency Bank deposits and
yield or any other monetary bene t from deposit substitutes and from trust
fund and similar arrangements received by domestic or resident foreign
corporations shall be subject to a 15% nal tax to be collected and paid as
provided in Section 53 and 54 of this Code.
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 "SEC. 4. Section 53(d)(1) of this code is hereby amended to read as
follows:
Sec. 53(d)(1). Withholding of Final Tax . — Every bank or non-
bank nancial intermediary or commercial, industrial, nance companies,
and other non- nancial companies authorized by the Securities and
Exchange Commission to issue deposit Substitutes shall deduct and
withhold from the interest on bank deposits or yield or any other monetary
bene t from deposit substitutes a nal tax equal to fteen per centum
(15%) of the interest on deposits or yield or any other monetary bene t
from deposit substitutes and from trust fund and similar arrangements."

It is to be noted that 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 Pres. Decree No. 1959. Petitioner thus submits
that the deletion of the exempting and preferential tax treatment provisions under the
old law is a clear manifestation that the single 15% (now 20%) rate is impossible on all
interest incomes from deposits, deposit substitutes, trust funds and similar
arrangements, regardless of the tax status or character of the recipients thereof. In
short, petitioner's position is that from 15 October 1984 when Pres. Decree No. 1959
was promulgated, employees' trusts ceased to be exempt and thereafter became
subject to the final withholding tax. LLjur

Upon the other hand, GCL contends that the tax exempt status of employees'
trusts applies to all kinds of taxes, including the nal withholding tax on interest
income. That exemption, according to GCL, is derived from Section 56(b) and not from
Section 21(d) or 24(cc) of the Tax Code, as argued by Petitioner.
The sole issue for determination is whether or not the GCL Plan is exempt from
the nal withholding tax on interest income from money placements and purchase of
treasury bills required by Pres. Decree No. 1959.
We uphold the exemption.
To begin with, it is signi cant to note that the GCL Plan was quali ed as exempt
from income tax by the Commissioner of Internal Revenue in accordance with Rep. Act
No. 4917 approved on 17 June 1967. This law specifically provided:
SECTION 1. Any provision of law to the contrary notwithstanding,
the retirement bene ts received by o cial and employees of private rms,
whether individual or corporate, in accordance with a reasonable private bene t
plan maintained by the employer shall be exempt from all taxes and shall not be
liable to attachment, levy or seizure by or under any legal or equitable process
whatsoever except to pay a debt of the o cial or employee concerned to the
private bene t plan or that arising from liability imposed in a criminal action;" . .
. (emphasis supplied).
In so far as employees' trusts are concerned, the foregoing provision should be
taken in relation to Section 56(b) (now 53[b]) of the Tax Code, as amended by Rep. Act
No. 1983, supra, which took effect on 22 June 1957. This provision speci cally
exempted employees' trusts from income tax and is repeated hereunder for emphasis:
"Sec. 56. Imposition of Tax. — (a) Application of tax. — The taxes
imposed by this Title upon individuals shall apply to the income of estates or of
any kind of property held in trust.
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 xxx xxx xxx
"(b) Exception. — The tax imposed by this Title shall not apply to
employee's trust which forms part of a pension, stock bonus or pro t-sharing
plan of an employer for the benefit of some or all of his employees . . ."
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 d'etre behind the creation of employees'
trusts. Employees' trusts or bene t 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 Rep. Act No. 1983, Section 56(b), was conceived in order to
encourage the formation and establishment of such private Plans for the bene t of
laborers and employees outside of the Social Security Act. Enlightening is a portion of
the explanatory note to H.B. No. 6503, now R.A. 1983, reading:
"Considering that under Section 17 of the Social Security Act, all
contributions collected and payments of sickness, unemployment, retirement,
disability and death bene ts made thereunder together with the income of the
pension trust are exempt from any tax, assessment, fee, or charge, it is proposed
that a similar system providing for retirement, etc. bene ts for employees
outside the Social Security Act be exempted from income taxes." (Congressional
Record, House of Representatives, Vol. IV, Part. 2, No. 57, p. 1859, May 3, 1957;
cited in Commissioner of Internal Revenue v. Visayan Electric Co., et al., G.R. No.
L-22611, 27 May 1966, 23 SCRA 715); emphasis supplied.
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 of
accumulated income and reduce whatever the trust bene ciaries would receive out of
the trust fund. This would run afoul of the very intendment of the law.
The deletion in Pres. Decree No. 1959 of the provisos regarding tax exemption
and preferential tax rates under the old law, therefore, can not be deemed to extend to
employees' trusts. Said Decree, being a general law, can not repeal by implication a
speci c provision, Section 56(b) (now 53 [b] in relation to Rep. Act No. 4917 granting
exemption from income tax to employees' trusts. Rep. Act 1983, which excepted
employees' trust in its Section 56(b) was effective on 22 June 1957 while Rep. Act No.
4917 was effective on 22 June 1967, long before the issuance of Pres. Decree No.
1959 on 15 October 1984. A subsequent statute, general in character as to its terms
and application, is not to be construed as repealing a special or speci c enactment,
unless the legislative purpose to do so is manifested. This is so even if the provisions
of the latter are su ciently comprehensive to include what was set forth in the special
act (Villegas v. Subido, G.R. No. L-31711, 30 September 1971, 41 SCRA 190).
Notably, too, all the tax provisions herein treated of come under Title II of the Tax
Code on "Income Tax." Section 21(d), as amended by Rep. Act No. 1959, refers to the
nal tax on individuals and falls under Chapter II; Section 24(cc) to the nal tax on
corporations under Chapter III; Section 53 on withholding of nal tax to Returns and
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 Payment of Tax under Chapter VI; and Section 56(b) to tax on Estates and Trusts
covered by Chapter VII. Section 56(b), taken in conjunction with Section 56(a). supra,
explicitly excepts employees' trusts from "the taxes imposed by this Title." Since the
nal tax and the withholding thereof are embraced within the title on "Income Tax." it
follows that said trust must be deemed exempt therefrom. Otherwise, the exception
becomes meaningless.
There can be no denying either that the nal withholding tax is collected from
income in respect of which employees' trusts are declared exempt (Sec. 56[b], now
53[b], Tax Code). The application of the withholdings system to interest on bank
deposits or yield from deposit substitute is essentially to maximize and expedite the
collection of income taxes by requiring its payment at the source. If an employees' trust
like the GCL enjoys a tax-exempt status from income, we see no logic in withholding a
certain percentage of that income which it is not supposed to pay in the first place.
Petitioner also relies on Revenue Memorandum Circular 31-84, dated 30 October
1984, and Bureau of Internal Revenue Ruling No. 027-e-000-00-005-85, dated 14
January 1985, as authorities for the argument that Pres. Decree No. 1959 withdrew the
exemption of employees' trusts from withholding of the nal tax on interest income.
Said Circular and Ruling pronounced that the deletion of the exempting and preferential
tax treatment provisions by Pres. Decree No. 1959 is a clear manifestation that the
single 15% tax rate is impossible on all interest income regardless of the tax status or
character of the recipient thereof. But since we herein rule that Pres. Decree No. 1959
did not have the effect of revoking the tax exemption enjoyed by employees' trusts,
reliance on those authorities is now misplaced.
WHEREFORE, the Writ of Certiorari prayed for is DENIED. The judgment of
respondent Court of Appeals, a rming that of the Court of Tax Appeals is UPHELD. No
costs.
SO ORDERED.
Narvasa, C .J ., Gutierrez, Jr., Cruz, Paras, Feliciano, Padilla, Bidin, Griño-Aquino,
Medialdea, Regalado, Davide, Jr., Romero and Nocon, JJ ., concur.

Footnotes
1. "An Act Providing that Retirement Bene ts of Employees of Private Firms shall not be
subject to Attachment, Levy, Execution, or any Tax whatsoever," promulgated June 17,
1967.
2. Entitled "Amending Certain Sections of the National Internal Revenue Code, as
amended."
3. Now Section 53 (b).

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