TAXATION 2 1

Percentage Tax – Applicable Law; Nature of the Tax

CIR v. CITYTRUST INVESTMENT PHILS., INC

September 27, 2006 | J. Sandoval-Gutierrez

G.R. No. 139786            

Petitioner(s): COMMISSIONER OF INTERNAL REVENUE
Respondent(s): CITYTRUST INVESTMENT PHILS., INC.

G.R. No. 140857

Petitioner(s): ASIANBANK CORPORATION
Respondent(s): COMMISSIONER OF INTERNAL REVENUE

Doctrine: A percentage tax is a national tax measured by a certain percentage of the gross selling price
or gross value in money of goods sold, bartered or imported; or of the gross receipts or earnings derived
by any person engaged in the sale of services. It is not subject to withholding.

CASE SUMMARY
Trigger Word(s):
FACTS: Citytrust and Asianbank argues that they should be refunded for paying 5% GRT on the 20%
final withholding tax imposed on their passive income. The banks argue that 5% GRT should only be
applied to income actually received by them and since the final withholding tax of 20% was not actually
received by them (because they were withheld), the 5% GRT should not be imposed over the same.
Essentially, the banks contend that the 20% FWT did not form part of their "gross receipts" thus they
should not be liable for GRT over the same, and also, if GRT would be imposed on it, there will be double
taxation.

HELD: Double taxation means taxing for the same tax period the same thing or activity twice, when it
should be taxed but once, for the same purpose and with the same kind of character of tax. IN THIS
CASE, there is no double taxation. The GRT is a percentage tax under Title V of the Tax Code
([Section 121], Other Percentage Taxes), while the FWT is an income tax under Title II of the Code (Tax
on Income). The two concepts are different from each other. A percentage tax is a national tax measured
by a certain percentage of the gross selling price or gross value in money of goods sold, bartered or
imported; or of the gross receipts or earnings derived by any person engaged in the sale of services. It is
not subject to withholding.
An income tax, on the other hand, is a national tax imposed on the net or the gross income realized in a
taxable year. It is subject to withholding.

The Court also ruled that 5% GRT may be imposed on the 20% FWT because the same formed part of
the gross receipts of the banks. "Gross receipts" has been consistently defined in jurisprudence as "the
entire receipts without any deduction."

FACTS
G.R. No. 139786
● Citytrust is a domestic corporation engaged in quasi-banking activities.
○ In 1994, Citytrust reported the amount of P110,788,542.30 as its total gross receipts and
paid the amount of P5,539,427.11 corresponding to its 5% GRT.
● Meanwhile, on January 30, 1996, the CTA, in Asian Bank Corporation v. CIR (Asian Bank case),
ruled that the basis in computing the 5% GRT is the gross receipts minus the 20% FWT. In other
words, the 20% FWT on a bank's passive income does not form part of the taxable gross
receipts.
● Thus, Citytrust filed with the CIR a written claim for tax refund or credit of P326,007.01.
○ It alleged that its reported total gross receipts included the 20% FWT on its passive
income amounting to P32,600,701.25. Thus, it sought to be reimbursed of the 5% GRT it
paid on the portion of 20% FWT or the amount of P326,007.01.
● Citytrust also filed a petition for review with the CTA which eventualy granted its claims.

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Percentage Tax – Applicable Law; Nature of the Tax

● The CIR appealed to the CA but the latter affirmed the CTA Decision, citing CIR v. Tours
Specialist Inc. and CIR v. Manila Jockey Club, holding that monies or receipts that do not
redound to the benefit of the taxpayer are not part of its gross receipts.
○ Citytrust's passive income was already deducted and withheld by withholding agents.
Hence, the actual or the exact amount received by the Respondent, as its passive
income in the year 1994, was less the 20% final tax already withheld by various
withholding agents.
○ To include the 20% final tax withheld to the Respondent's gross receipts for the year
1994 would be to tax twice the passive income derived by Respondent for the said year,
which would constitute double taxation anathema to our taxation laws.

G.R. No. 140857

● Asianbank, petitioner, is a domestic corporation also engaged in banking business.
○ For the taxable quarters ending June 30, 1994 to June 30, 1996, Asianbank filed and
remitted to the Bureau of Internal Revenue (BIR) the 5% GRT on its total gross receipts.
● Pursuant to the Asian Bank case, Asianbank also filed with the CIR a claim for refund of the
overpaid GRT (P2,022,485.78). Asianbank also filed a petition for review before the CTA.
● The CTA allowed the refund in the reduced amount of P 1,345,743.01 (the amount proven by
Asianbank).
● CIR filed a petition for review with the CA which reversed the CTA Decision.
○ The 20% final tax withheld from interest income of banks and other similar institutions is
not income that they have not received; it is simply withheld from them and paid to the
government, for their benefit. Thus, the 20% income tax withheld from the interest income
is, in fact, money of the taxpayer bank but paid by the payor to the government in
satisfaction of the bank's obligation to pay the tax on interest earned.
● Thus, Asianbank filed this petition.

ISSUES + HELD
ISSUE #1: W/N imposition of the 20% and 5% GRT constitute double taxation – NO
 Double taxation means taxing for the same tax period the same thing or activity twice, when it
should be taxed but once, for the same purpose and with the same kind of character of tax.
 IN THIS CASE, there is no double taxation.
o The GRT is a percentage tax under Title V of the Tax Code ([Section 121], Other
Percentage Taxes), while the FWT is an income tax under Title II of the Code (Tax on
Income). The two concepts are different from each other.
 A percentage tax is a national tax measured by a certain percentage of the gross
selling price or gross value in money of goods sold, bartered or imported; or of
the gross receipts or earnings derived by any person engaged in the sale of
services. It is not subject to withholding.
 An income tax, on the other hand, is a national tax imposed on the net or the
gross income realized in a taxable year. It is subject to withholding.

ISSUE #2: W/N the 20% FWT on a bank's interest income forms part of the taxable gross receipts
for the purpose of computing the 5% GRT – YES
● China Banking Corporation v. CA, CIR v. Solidbank Corporation, CIR v. Bank of Commerce, and
CIR v. BPI are unanimous in defining "gross receipts" as "the entire receipts without any
deduction"
○ The Tax Code does not provide a definition of the term "gross receipts". Accordingly, the
term is properly understood in its plain and ordinary meaning and must be taken to
comprise of the entire receipts without any deduction.
○ The legislative intent to apply the term in its plain and ordinary meaning is evidenced by
the fact that BIR has consistently ruled that "'gross receipts' does not admit any
deduction", and despite that, Sec. 121 of the Tax Code (provision imposing the 5% GRT)
was re-enacted without the legislature providing a different meaning to "gross receipts" 
it may be concluded that the legislature has adopted the BIR's interpretation.

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Percentage Tax – Applicable Law; Nature of the Tax

● Citytrust and Asianbank simply anchor their argument on Section 4(e) of RR No. 12-80 stating
that "the rates of taxes to be imposed on the gross receipts of such financial institutions shall be
based on all items of income  actually received." They contend that since the 20% FWT is
withheld at source and is paid directly to the government by the entities from which the banks
derived the income, the same cannot be considered actually received, hence, must be excluded
from the taxable gross receipts.
○ SC: The argument is bereft of merit. Sec. 4(e) merely recognizes that income may be
taxable either at the time of its actual receipt or its accrual, depending on the accounting
method of the taxpayer.
■ It does not really exclude accrued interest income from the taxable gross receipts
but merely postpones its inclusion until actual payment of the interest to the
lending bank.
○ Second, RR No. 12-80 had been superseded by RR No. 17-84. Sec. 7(c) of the latter
now includes all interest income in computing the GRT (no more distinction between
income actually received and accrued)
■ Revenue Regulations No. 17-84 categorically states that if the recipient of the
above-mentioned items of income are financial institutions, the same shall
be included as part of the tax base upon which the gross receipt tax is
imposed. There is, therefore, an implied repeal of Section 4(e).
○ Further, the amount withheld was interest income actually received by the banks. In Bank
of Commerce, it was stated that:
■ Actual receipt of interest income is not limited to physical receipt. Actual receipt
may either be physical receipt or constructive receipt. When the depositary bank
withholds the final tax to pay the tax liability of the lending bank, there is prior to
the withholding a constructive receipt by the lending bank of the amount withheld.

ISSUE #3: W/N the cases of Manila Jockey Club may be applied to support the contentions of
Asian Bank and Citytrust – NO
 In Manila Jockey Club, amusement tax was not imposed on the 5 ½ % of the funds which went to
the Board on Races and to the owners of horses and jockeys. The Court ruled that the gross
receipts did not include the 5 ½ % because the same was, although received by Manila Jockey
Club, was earmarked by law or regulation for other persons.
o In this case, there is no earmarking, but instead, there is withholding which is different.
Amounts earmarked do not form part of gross receipts because these are by law or
regulation reserved for some person other than the taxpayer, although delivered or
received. On the contrary, amounts withheld form part of gross receipts because these
are in constructive possession and not subject to any reservation, the withholding agent
being merely a conduit in the collection process.

RULING: The 20% FWT on the passive income of banks is part of their gross receipts, thus, subject to
5% GRT. There is no double taxation in such case.

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