Petitioner vs. vs. Respondents Leovigildo Monasterial: Second Division

SECOND DIVISION
[G.R. No. 96016. October 17, 1991.]
COMMISSIONER OF INTERNAL REVENUE , petitioner, vs. THE COURT

OF APPEALS and EFREN P. CASTAÑEDA , respondents.
Leovigildo Monasterial for private respondent.
SYLLABUS
TAXATION; WITHHOLDING TAX; TERMINAL LEAVE PAY; NOT SUBJECT

THEREOF. — The Court has already ruled that the terminal leave pay received by a
government o cial or employee is not subject to withholding (income) tax. In the
recent case of Jesus N. Borromeo vs. The Hon. Civil Service Commission, et al., G.R. No.
96032, 31 July 1991, the Court explained the rationale behind the employee's
entitlement to an exemption from withholding (income) tax on his terminal leave pay as
follows: . . . commutation of leave credits, more commonly known as terminal leave, is
applied for by an o cer or employee who retires, resigns or is separated from the
service through no fault of his own. (Manual on Leave Administration Course for
Effectiveness published by the Civil Service Commission, pages 16-17). In the exercise
of sound personnel policy, the Government encourages unused leaves to be
accumulated. The Government recognizes that for most public servants, retirement pay
is always less than generous if not meager and scrimpy. A modest nest egg which the
senior citizen may look forward to is thus avoided. Terminal leave payments are given
not only at the same time but also for the same policy considerations governing
retirement benefits."
RESOLUTION
PADILLA , J : p
The issue to be resolved in this petition for review on certiorari is whether or not
terminal leave pay received by a government o cial or employee on the occasion of his
compulsory retirement from the government service is subject to withholding (income)
tax.
We resolve the issue in the negative.
Private respondent Efren P. Castañeda retired from the government service as
Revenue Attache in the Philippine Embassy in London, England, on 10 December 1982
under the provisions of Section 12 (c) of Commonwealth Act 186, as amended. Upon
retirement, he received, among other bene ts, terminal leave pay from which petitioner
Commissioner of Internal Revenue withheld P12,557.13 allegedly representing income
tax thereon.
Castañeda led a formal written claim with petitioner for a refund of the
P12,557.13, contending that the cash equivalent of his terminal leave is exempt from
income tax. To comply with the two-year prescriptive period within which claims for
CD Technologies Asia, Inc. 2019 cdasiaonline.com
refund may be led, Castañeda led on 16 July 1984 with the Court of Tax Appeals a
Petition for Review, seeking the refund of income tax withheld from his terminal leave
pay.
The Court of Tax Appeals found for private respondent Castañeda and ordered
the Commissioner of Internal Revenue to refund Castañeda the sum of P12,557.13
withheld as income tax. (Annex "C", petition). Cdpr
Petitioner appealed the above-mentioned Court of Tax Appeals decision to this

Court, which was docketed as G.R. No. 80320. In turn, we referred the case to the Court
of Appeals for resolution. The case was docketed in the Court of Appeals as CA-G.R. SP
No. 20482.
On 26 September 1990, the Court of Appeals dismissed the petition for review
and a rmed the decision of the Court of Tax Appeals. Hence, the present recourse by
the Commissioner of Internal Revenue.
The Solicitor General, acting on behalf of the Commissioner of Internal Revenue,
contends that the terminal leave pay is income derived from employer-employee
relationship, citing in support of his stand Section 28 of the National Internal Revenue
Code; that as part of the compensation for services rendered, terminal leave pay is
actually part of gross income of the recipient. Thus —
" . . . . It (terminal leave pay) cannot be viewed as salary for purposes
which would reduce it. . . . there can thus be no 'commutation of salary' when a
government retiree applies for terminal leave -because he is not receiving it as
salary. What he applies for is a 'commutation of leave credits.' It is an
accumulation of credits intended for old age or separation from service. . . . ."
The Court has already ruled that the terminal leave pay received by a government
o cial or employee is not subject to withholding (income) tax. In the recent case of
Jesus N. Borromeo vs. The Hon. Civil Service Commission, et al., G.R. No. 96032, 31
July 1991, the Court explained the rationale behind the employee's entitlement to an
exemption from withholding (income) tax on his terminal leave pay as follows:
" . . . commutation of leave credits, more commonly known as terminal
leave, is applied for by an o cer or employee who retires, resigns or is
separated from the service through no fault of his own. (Manual on Leave
Administration Course for Effectiveness published by the Civil Service
Commission, pages 16-17). In the exercise of sound personnel policy, the
Government encourages unused leaves to be accumulated. The Government
recognizes that for most public servants, retirement pay is always less than
generous if not meager and scrimpy. A modest nest egg which the senior citizen
may look forward to is thus avoided. Terminal leave payments are given not
only at the same time but also for the same policy considerations governing
retirement benefits."
In ne, not being part of the gross salary or income of a government o cial or
employee but a retirement benefit, terminal leave pay is not subject to income tax. cdphil
ACCORDINGLY, the petition for review is hereby DENIED.

SO ORDERED.
Paras and Regalado, JJ., concur.
Melencio-Herrera, J., is on leave.
CD Technologies Asia, Inc. 2019 cdasiaonline.com

Petitioner vs. vs. Respondents Leovigildo Monasterial: Second Division

Uploaded by

Copyright:

Available Formats

Petitioner vs. vs. Respondents Leovigildo Monasterial: Second Division

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Petitioner vs. vs. Respondents Leovigildo Monasterial: Second Division

Uploaded by

Copyright:

Available Formats

SECOND DIVISION

[G.R. No. 96016. October 17, 1991.]

COMMISSIONER OF INTERNAL REVENUE , petitioner, vs. THE COURT

Leovigildo Monasterial for private respondent.

TAXATION; WITHHOLDING TAX; TERMINAL LEAVE PAY; NOT SUBJECT

Petitioner appealed the above-mentioned Court of Tax Appeals decision to this

ACCORDINGLY, the petition for review is hereby DENIED.

CD Technologies Asia, Inc. 2019 cdasiaonline.com

You might also like