REPUBLIC OF THE PHILIPPINES

COURT OF TAX APPEALS

Quezon City

ENBANC

COMMISSIONER OF CTA EB NO. 24oo

INTERNAL REVENUE, (CTA Case No. 9566)
Petitioner,

Present:

DEL ROSARIO, £L,

CASTANEDA, JR.,
UY,
-versus- RINGPIS-LIBAN,
MANAHAN,
BACORRO-VILLENA,
MODESTO-SAN PEDRO,
REYES-FAJARDO, and,
CUI-DAVID,]].

MA. JETHRA B. PASCUAL,

Respondent.
PMAYud~t2~:22
X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - • - - - - - - - - - -

DECISION

BACORRO-VILLENA, L.:

Before the Court En Bane is a Petition for Revie~ pursuant to

Section 3(b)', Rule 8 of the Revised Rules of the Court of Tax Appeay

Filed on 04 Jan uary 202 1, Rollo, pp. 1-14.

SEC 3. Who may appeal; period to file petition. - ...

(b) A party adversely affected by a decision or resolution of a Division of the Court on a motion
for reconsideration or new trial may appeal to the Court by filing before it a petition for review
within fifteen days from receipt of a copy of the questioned decision or resolution. Upon proper
motion and the payment of the full amount of the docket and other lawful fees and deposit for
costs before the expiration of the reglementary period herein fi xed, the Court may grant an
additional period not exceeding fifteen days from the exp iration of the origi nal period within
which to file the petition for review.
CTA EB NO. 2400 (CTA Case No. 9566)
CIR v. Ma. Jethra B. Pascual
DECISION
Page 2 of 19
X------------------------------------- X

(RRCTA), filed by petitioner Commissioner of Internal Revenue

(petitioner/CIR). It seeks the reversal of the Court's Third Division's
Decision dated 30 June 20203 (assailed Decision) and Resolution
dated 28 October 20204 (assailed Resolution), respectively, in CTA
Case No. 9566 entitled Ma. ]ethra B. Pascual v. Commissioner of
Internal Revenue.

PARTIES OF THE CASE

Petitioner is the duly appointed CIR vested with authority

among others, to issue refunds of erroneously collected or paid
internal revenue taxes.

Respondent Ma. Jethra Pascual (respondent/Pascual) is a

Filipino citizen, of legal age and resident of 1 Hillside Drive, Blue Ridge
A, Quezon City.

FACTS OF THE CASE

Respondent was an employee of Deutsche Bank (DB) from 1995

until 17 September 2014 when her employment was officially
terminated due to redundancy. At the time of her employment's
termination, she was 46 years old then occupying the position of a
Managing Director of ICG Sales Philippines. As a result, respondent
was given a severance package comprising of the following benefits
listed in a Confirmation of Redundancy5 (Notice of Termination)
that DB had issued:

a. Separation pay at the rate of one and a half (1.5) months per year
of service in accordance with the Bank's current policy;
I
b. Pro-rated 13th Month pay and 14th Month pay; and/

Penned by Associate Justice Ma. Belen M. Ringpis-Liban with Associate Justice Erlinda P. Uy
and Associate Justice Maria Rowena Modesto-San Pedro, concurring. Division Docket, Volume
IV, pp. 1507-1524.
4
ld., pp. 1558-1563.
Exhibit "P-1", id., Volume III, pp. 1154-1155.
CTA EB NO. 2400 (CTA Case No. 9566)
CIR v. Ma. Jethra B. Pascual
DECISION
Page 3 of 19
X------------------------------------- X

c. Other accrued salaries and benefits, which may include

Retirement Plan benefits, subject to the applicable vesting period
and calculated as per the Bank's retirement plan rules.

As part of said package, DB gave respondent her separation pay

and "retirement pay" among others. A Certification6 that DB issued
shows the total taxable renumerations received by respondent for the
year 2014, in accordance with respondent's Certificate of
Compensation/Tax Withheld, as follows:

Gross (Php) Taxable (Php) Remarks

Meal Allowance 33·327.27 33.327.27 Item 54-A
Medical Allowance 4.174-05 4.174·05 Item 54-A
Retirement Pay 24,818,749-82 24,818,749-82 Item 54-A
Restricted Equity 7.343.953·93 7·343.953·93 Item 54-A
Award
Total 32,200,205.07 Item 54-A

Due to respondent's age at the time of her employment's

termination, DB viewed respondent's "retirement pay" as subject to an
income tax pursuant to Section 32(B)(6)(a) of the National Internal
Revenue Code (NIRC) of 1997, as amended, which provides:

SEC. 32. Gross Income. - ...

(B) Exclusions from Gross Income. -The following items shall not be
included in gross income and shall be exempt from taxation under
this Title:

(6) Retirement Benefits, Pensions, Gratuities, etc.-

(a) Retirement benefits received under Republic Act No.

7641 and those received by officials and employees of
private firms, whether individual or corporate, in
accordance with a reasonable private benefit plan
maintained by the employer: Provided, That the retiring ,
official or employee has been in the service of the same;

6
Exhibit "P-25'', id., p. 1281.
CTA EB NO. 2400 (CTA Case No. 9566)
CIR v. Ma. Jethra B. Pascual
DECISION
Page 4 of 19
X------------------------------------- X

employer for at least ten (10) years and is not less than
fifty (so) years of age at the time of his retirement:
Provided, further, That the benefits granted under this
subparagraph shall be availed of by an official or
employee only once. For purposes of this Subsection, the
term 'reasonable private benefit plan' means a pension,
gratuity, stock bonus or profit-sharing plan maintained
by an employer for the benefit of some or all of his
officials or employees, wherein contributions are made
by such employer for the officials or employees, or both,
for the purpose of distributing to such officials and
employees the earnings and principal of the fund thus
accumulated, and wherein its (sic) is provided in said
plan that at no time shall any part of the corpus or
income of the fund be used for, or be diverted to, any
purpose other than for the exclusive benefit of the said
officials and employees.

Aside from her compensation income from DB, respondent also

received income from her laundry business and lease of real property
to TSGS Mineral Investments, Inc. (TSGS). Respondent did not receive
any income from her laundry business in 2014 but had received income
from TSGS amounting to P315,789.48 (from which TSGS withheld taxes
in the sum ofP15,789·48)?

For her mixed income, respondent filed her income tax return 8
(ITR) to report the income which she had received in 2014 from DB
and TSGS on 11 April 2015. After adjustments, respondent's ITR
reflected a refundable income tax on the taxes withheld by DB in the
amount ofP7,897,158.oo.

On 09 July 2015, respondent filed an Application for Issuances of

Tax Credits/Refunds9 (BIR Form No. 1914) and sent a letter10 of the
same date (Claim for Refund) to the Bureau of Internal Revenue (BIR)
requesting a refund of the taxes erroneously withheld and remitted by
DBi
Exhibit "P-4 ", id., p. 1160 (not admitted for respondent but part of the records of this case
pursuant to the Third Division's Resolution dated 17 June 20 19).
Exhibit "P-5", id., pp. 1162-1171.
9
Exhibit "P-6", id., p. 1172.
10
Exhibit "P-7", id., p. 1173.
CTA EB NO. 2400 (CTA Case No. 9566)
CIR v. Ma. Jethra B. Pascual
DECISION
Page 5 of 19
X------------------------------------- X

Due to the BIR's inaction on respondent's claim despite her

submission of supporting documents that the former requested,
respondent filed a Petition for Review• with the Court in Division on
07 April 2017. The same was raffled to the Third Division.

PROCEEDINGS BEFORE THE THIRD DIVISION

On 02 May 2017, the Court issued Summons12 on petitioner.

However, the Office of the Solicitor General (OSG) filed a
"Manifestation and Motion"'\ stating that the case will be handled
instead by the BIR. In a Resolution dated 24 May 201714, the Third
Division granted the motion.

On 19 May 2017, petitioner filed a "Motion for Extension of Time

to File Answer"' 5 requesting an additional period of thirty (3o) days or
until 18 June 2017 within which to file an Answer. The Third Division
granted the same in a Resolution dated 31 May 2017!6 However, despite
the extension granted, petitioner failed to file the same. Subsequently,
respondent filed a "Motion to Declare [Petitioner] in Default and Allow
Presentation of Evidence Ex-Parte"7 (Motion to Declare) on 07
August 2017. Petitioner was then ordered to file a Comment on the said
motion in a Resolution dated 16 August 2017. 18

On 18 August 2017, petitioner instead filed a "Motion to Admit

Answer"'9 with attached Answer (Motion to Admit Answer) which
respondent opposed in her "Opposition (to the [Petitioner's] Motion to
Admit Answer)" 20 filed on 15 September 2017.

On 02 October 2017, the Third Division issued a Resolution 21

which denied petitioner's Motion to Admit Answer and granted
respondent's Motion to Declare. The Third Division thus declare;;

"
12
ld., Volume I, pp. 12-31.
ld., p. 366.
13
Dated 15 May 2017, id., pp. 367-369.
14
!d., pp. 378-379.
15
!d., pp. 375-376.
16
!d., p. 381.
17
!d., pp. 383-386.
18
!d., p. 388.
19
!d., pp. 389-395.
20
Id., pp. 399-405.
21
Id., pp. 407-412.
CTA EB NO. 2400 (CTA Case No. 9566)
CIR v. Ma. Jethra B. Pascual
DECISION
Page 6 of 19
X------------------------------------- X

petitioner in default pursuant to Section J 22 , Rule 9 of the Rules of

Court, as amended.

Later or on 19 October 2017, petitioner filed a "Motion for

Reconsideration on the Resolution declaring the [Petitioner] in
Default" 23 (MR) with respondent's Opposition 24 filed on 29 November
25
2017. On 12 December 2017, the Third Division denied the MR.

On 25 January 2018, respondent filed an "Omnibus Motion A. To

Set Commissioner's Hearing and B. To Order [Petitioner] to Elevate
the Bureau of Internal Revenue Records of this Case" 26 which the Third
Division granted in a Resolution dated o6 February 2018. 27

During respondent's ex-parte presentation of evidence,

respondent personally testified and further presented Atty. Roxanne B.
Tadique (Atty. Tadique), Atty. Hyacinth B. Aldueso (Atty. Aldueso),
and Mr. Jonathan De Guzman (De Guzman) as her witnesses. All
witnesses testified by way of their respective judicial affidavits.

On the witness stand, respondent testified to the material

allegations in her Petition for Review. 28 She attested to the fact of her
dismissal from DB on account of redundancy; her receipt of separation
benefits including "retirement pay"; her subsequent filing of her ITR
and application for tax refund with the documents required by the BIR;
and, the BIR's inaction on her claim/

22
Sec. 3. Default; declaration of - If the defending party fails to answer within the time allowed
therefor, the court shall, upon motion of the claiming party with notice to the defending party, and
proof of such failure, declare the defending PartY in default. Thereupon, the court shall proceed to
render judgment granting the claimant such relief as his pleading may warrant, unless the court in
its discretion requires the claimant to submit evidence. Such reception of evidence may be
delegated to the clerk of court.
(a) Effect of order of default. - A party in default shall be entitled to notice of subsequent
proceedings but not to take part in the trial.
23
Division Docket, Volume I, pp. 413-419.
24
!d., pp. 423-431.
2S
See Resolution dated 12 December 2017, id., pp. 433-436.
26
ld., pp. 437-440.
27
ld., pp. 442-443.
28
Judicial Affidavit and Supplemental Judicial Affidavit of Ma. Jethra B. Pascual, Exhibits "P-3"
and "P-39", id., pp. 444-464 and Volume III, pp. 1069-1081, respectively.
CTA EB NO. 2400 (CTA Case No. 9566)
CIR v. Ma. Jethra B. Pascual
DECISION
Page 7 of 19
X------------------------------------- X

As for Atty. Tadique 29 and Atty. Aldueso 30, they both

corroborated respondent's testimony being the assigned lawyers of
respondent's counsel, C&G Law, who assisted respondent in processing
her administrative claim for refund. They confirmed respondent's
compliance with the BIR's documentary requirements since they were
the ones who communicated with DB and procured such documents
in her behalf.

Lastly, De Guzman3', who was Deutsche Knowledge Services Pte.,

Ltd.'s Vice President for Rewards, authenticated some of respondent's
documentary exhibits.

On 17 August 2018, respondent filed her Formal Offer of

Evidence32 (FOE). In a Resolution dated 29 October 201833 , the Third
Division denied all of respondent's exhibits except for Exhibits "P-1",
"P-12 ", "P-15 ", "P -16", "P -17", "P -18", "P-24", "P -33 " and "P -3 6" 34 a1ong
with their respective sub-markings.,

29
Judicial Affidavit and Supplemental Judicial Affidavit of Atty. Roxanne B. Tadique, Exhibits "P-
32" and "P-35'', id., Volume II, pp. 598-615 and pp. 950-955, respectively.
30
Judicial Affidavit of Hyacinth B. Aldueso, Exhibit "P-30", id., pp. 802-814.
31
Judicial Affidavit of Jonathan De Guzman, Exhibit "P-36", id., pp. 959-973.
32
!d., Volume III, pp. 1117-1153.
33
!d., pp. 1396-1397.
)4

Exhibit Description
"P-1" Letter dated June 16,2014 with the subject "RE: CONFIRMATION OF
REDUNDANCY" (Confirmation of Redundancy).
"P-1-A" Signature of Jose Antonio Sta. Ana.
"P-1-B" Signature of John Barnes.
"P-12" Letter dated February 24, 2016 addressed to Gatmaytan Yap Patacsil
Gutierrez & Protacio (C&G Law) with attachments (February 24, 2016
Letter).
"P-12-C" Signature of Nerissa Berba.
"P-12-D" Signature of Geraldine Guerrero.
"P-15-B" Signature of Nerissa Berba.
"P-15-C" Signature of Geraldine Guerrero.
"P-16" Letter dated June 16, 2016 addressed to Deutsche Bank (June 16, 2016
Letter).
"P-17" Letter dated July 5, 2016 addressed to [Respondent] (July 5, 2016
Letter).
"P-17-B" Signature of Jose Antonio Sta. Ana.
"P-18" Letter dated July 22, 2016 addressed to [Respondent] (July 22, 2016
Letter).
"P-18-M" Signature of Jose Antonio Sta. Ana.
"P-24" Employment Certificate of Ma. Jethra B. Pascual (Employment
Certificate).
"P-24-A" Signature of Jose Antonio Sta. Ana.
"P-24-B" Signature of Geraldine Guerrero.
"P-33" Letter dated June 28, 2017 addressed to C&G Law (June 28, 2017
Letter).
CTA EB NO. 2400 (CTA Case No. 9566)
CIR v. Ma. Jethra B. Pascual
DECISION
Page 8 of 19
X------------------------------------- X

Respondent filed her Motion for Partial Reconsideration35 (MPR)

of the foregoing resolution on 21 November 2018. After due
consideration, the Third Division, in a Resolution dated u March
36
2019 , ultimately resolved to admit all of respondent's exhibits except
Exhibits "P-4", "P-4-A", and "P-u-B" for respondent's failure to present
originals thereof for comparison.

On 25 March 2019, respondent filed a "Proffer of Excluded

Evidence" 37 (Proffer of Excluded Evidence). On 17 June 2019 38, the
Third Division noted respondent's Proffer of Excluded Evidence and
deemed the case submitted for decision.

On 30 June 2020, the Third Division promulgated the assailed

Decision39 which dispositive portion reads, thusly:

WHEREFORE, in view of the foregoing, the instant Petition

for Review is GRANTED. Accordingly, Respondent is ORDERED TO
REFUND the amount of SEVEN MILLION EIGHT HUNDRED
NINETY-SEVEN THOUSAND ONE HUNDRED FIFTY-EIGHT
PESOS (P7,897,I58.oo), representing erroneous/overpayment of
withholding tax on Petitioner's retirement pay forTY 2014.

SO ORDERED.

Aggrieved, petitioner filed his "Motion for Reconsideration

(Decision dated 30 June 2020)"40 on 20 August 2020. However, th~~'

"P-33-A" Certified computational breakdown of BIR Form No. 2316 (Certified

Computational Breakdown).
"P-33-8" Signature of Jonathan De Guzman.
"P-33-C" Signature of Fionna-Marie Casillan.
"P-33-D" Signature of June Anne Castor.
"P-33-E" Signature of Genevieve Albano.
"P-33-F" Signature of Jonathan de Guzman.
"P-36" Judicial Affidavit of Jonathan De Guzman dated April 27, 2018 (De
Guzman Judicial Affidavit).
"P-36-A" Signature of Jonathan De Guzman. I

35
Division Docket, Volume III, pp. 1398-1431.
36
ld., pp. 1483-1489.
37
!d., pp. 1490-1492.
38
See Resolution, id., Volume IV, pp. I 500- I 50 I.
39
Supra at note 3.
40
Division Docket, Volume IV, pp. 1525-1535.
CTA EB NO. 2400 (CTA Case No. 9566)
CIR v. Ma. Jethra B. Pascual
DECISION
Page 9 of 19
X------------------------------------- X

Third Division denied the said motion in a Resolution dated 28

October 202o. 4' Hence, the present petition42 before the Court En
Bane.

PROCEEDINGS BEFORE THE COURT EN BANC

ln a Resolution dated 04 March 202143 , the Court En Bane

ordered respondent to file her comment to petitioner's Petition for
Review.

On 10 March 2021, respondent filed her "Comment (on the

Petition for Review dated January 4, 2021)". 44 In a Resolution dated 19
May 202145 , the Court En Bane submitted petitioner's present Petition
for Review for decision.

ISSUES

In herein petition, petitioner forwards the following arguments

in his bid to reverse the Third Division's actions, to wit:

I.
REDUNDANCY IN THIS CASE IS NOT CLEARLY ESTABLISHED;
AND,

II.
EVEN ASSUMING ARGUENDO THAT THERE IS REDUNDANCY,
THE HONORABLE COURT [THIRD DIVISION] ERRED IN
RULING THAT THERE IS ERRONEOUS/OVERPAYMENT OF
WITHHOLDING TAX ON [RESPONDENT] MA. JETHRA B.
PASCUAL'S RETIREMENT PAY AND THEREBY ORDERING
[PETITIONER] COMMISSIONER OF INTERNAL REVENUE TO
REFUND THE AMOUNT OF f>7,897,158.oo.7

41
Supra at note 4.
42
Supra at note 1.
43
Rollo, pp. 46-4 7.
44
ld., pp. 48-65.
45
ld., pp. 72-73.
46
!d., p. 5.
CTA EB NO. 2400 (CTA Case No. 9566)
CIR v. Ma. Jethra B. Pascual
DECISION
Page10of19
X------------------------------------- X

ARGUMENTS

In support of the above, petitioner argues that respondent failed

to establish the fact of redundancy due to her non-compliance with
the documentary requirements of Revenue Memorandum Order
(RMO) No. 66-2016. 47 He claims that the submission of the
requirements listed under said RMO was necessary for a successful
claim for refund. He further maintains that, at any rate, respondent is
not entitled for a refund of the claimed taxes withheld due to the
reason that respondent admitted to receiving her "retirement pay".
Petitioner argues further that the said pay was received under DB's AG
Manila Branch Employees' Retirement Plan48 (Retirement Plan).

Respondent, on the other hand, echoes the Third Division's

findings. She also points out tllat the issues raised by petitioner are a
mere rehash of those already settled by the Third Division.

RULING OF THE COURT EN BANC

After a careful review of the records and the parties' arguments,

the Court finds the petition to be without merit. The reasons are
essayed below, in seriatim.

REDUNDANCY WAS CLEARLY

ESTABLISHED.

Item II(s) ofRMO No. 26-2011, as amended by RMO No. 66-2016,

requires that in order for separation benefits due to redundancy to
remain tax-exempt, the beneficiary must prove tlle fact of redundancy
by submitting the following reportorial requirements/

47
Amending Pertinent Provisions of Revenue Memorandum Order (RMO) No. 26-20 I I, Prescribing
the Guidelines in the Tax Treatment of Separation Benefits Received by Officials and Employees
on Account of Their Separation from Employment Due to Death, Sickness or Other Physical
Disability and the Issuance of Certificate of Tax Exemption from Income Tax and from the
Withholding Tax.
48
Exhibit "P-28", Division Docket, Volume Ill, pp. 1288-13107.
CTA EB NO. 2400 (CTA Case No. 9566)
CIR v. Ma. Jethra B. Pascual
DECISION
Page11 of19
X------------------------------------- X

s) Redundancy

a} Written notice to the employee and the appropriate Regional

Office of the Department of Labor and Employment (DOLE)
at least thirty (30) days before the effectivity of termination,
specifying the ground for termination.

b) Board Resolution, in case of a juridical entity, or sworn

affidavit to be executed by the owner, in case of a sole
proprietor, stating the following:

1. That there has been superfluous positions or services of

employees;

n. That the positions or services are in excess of what is

reasonably demanded by the actual requirements of the
enterprise to operate in an economical and efficient
manner;

iii. That the redundant positions have been abolished in good

faith; and

iv. That the selection of employees to be terminated has been

made in accordance with a fair and reasonable criteria.

c) Adequate proof of redundancy such as but not limited to the

new staffing pattern, feasibility studies/proposal, on the
viability of the newly created positions, job description and
the approval by the management of the restructuring.

Petitioner's insistence on the applicability of the above

requirements to the case at bar is misplaced.

First, a perusal of the foregoing provision reveals that the

obligation to submit such documentary requirements are imposed on
the employer which, in this case, is DB. Second, DB cannot be expected
to submit such requirements as it was the one who considered a part
of respondent's separation benefits as taxable "retirement pay".
Therefore, to require submission of such requirements would be
unreasonable and unfounded given that the same would negate DB's
own presumption of said benefit's taxability. Third, RMO No. 66-2016
does not have any retroactive effect. Section 246 of the NIRC of 1997,
as amended, provides:;
CTA EB NO. 2400 (CTA Case No. 9566)
CIR v. Ma. Jethra B. Pascual
DECISION
Page 12 of 19
X------------------------------------- X

Sec. 2.46. Non-Retroactivity of Rulings. - Any revocation,

modification or reversal of any of the rules and regulations
promulgated in accordance with the preceding Sections or any of the
rulings or circulars promulgated by the Commissioner shall not be
given retroactive application if the revocation, modification or
reversal will be prejudicial to the taxpayers ...

It is noted that RMO No. 66-2016 came into effect only on o6

December 2016. Records of the case will show that respondent's
employment was officially terminated on 17 September 2014. She filed
her ITR for TY 2014 on n April 2015 and, later, her administrative claim
for refund on 09 July 2015.

RESPONDENT IS ENTITLED TO
THE REFUND OF THE TAXES
CLAIMED.

In debunking respondent's claim, petitioner quotes the following

statements during her direct testimony as proof of her admission of
receipt of her "retirement pay":

Q: As a consequence of the termination of your employment from

Deutsche Bank because of redundancy, what did you receive, if
any?

A: I was given my last pay which includes, among other, my

separation pay and retirement pay. 49

For one, it must be noted that respondent did not testify as an

expert in labor law for the Court to expect legal accuracy in her
statements. Furthermore, DB's Certification50 of her separation
benefits would show that DB did refer to the disputed portion of her
benefits as "retirement pay" albeit mistakenly as will be explained
below/

49
Supra at note 28.
50
Supra at note 6.
CTA EB NO. 2400 (CTA Case No. 9566)
CIR v. Ma. Jethra B. Pascual
DECISION
Page 13 of 19
X------------------------------------- X

To the Court's mind, petitioner focuses too heavily on the

benefit's designation as "retirement pay" that he ignores the ultimate
reason why such benefit was awarded to respondent in the first place.
It is undisputed that respondent lost her employment due to
redundancy in accordance with Article 283 of the Labor Code which
states:

Art. 283. Closure of establishment and reduction of personnel.

The employer may also terminate the employment of any employee
due to the installation of labor-saving devices, redundancy,
retrenchment to prevent losses or the closing or cessation of
operation of the establishment or undertaking unless the closing is
for the purpose of circumventing the provisions of this Title, by
serving a written notice on the workers and the Ministry of Labor
and Employment at least one (1) month before the intended date
thereof. In case of termination due to the installation of labor-
saving devices or redundancy, the worker affected thereby shall
be entitled to a separation pay equivalent to at least his one (1)
month pay or to at least one (1) month pay for every year of
service, whichever is higher. In case of retrenchment to prevent
losses and in cases of closures or cessation of operations of
establishment or undertaking not due to serious business losses or
financial reverses, the separation pay shall be equivalent to one (1)
month pay or at least one-half (1/2) month pay for every year of
service, whichever is higher. A fraction of at least six (6) months shall
be considered one (1) whole year. 5'

Save for a company's closure due to severe business losses,

employees dismissed pursuant to the above causes are entitled to a
separation pay. The taxability of separation benefits is governed by
Section 32(B)(6)(b) of the NIRC of1997, as amended, which reads:

SEC. 32. Gross Income. -

(B) Exclusions from Gross Income. -The following items shall not be
included in gross income and shall be exempt from taxation under
~.~is title;

5I
Emphasis supplied.
CTA EB NO. 2400 (CTA Case No. 9566)
CIR v. Ma. Jethra B. Pascual
DECISION
Page 14 of 19
x-------------------------------------x

(6) Retirement Benefits, Pensions, Gratuities, etc.-

(b) Any amount received by an official or employee or by his

heirs from the employer as a consequence of separation of such
official or employee from the service of the employer because
of death, sickness or other physical disability or for any cause
beyond the control of the said official or employee. 52

A perusal of DB's retirement plan 53 shows that its employees are

entitled to involuntary separation benefits under specific
circumstances, to wit:

ARTICLE VII:

RETIREMENT BENEFITS

Section 2 - Early Retirement

Upon early retirement, a Member will receive a lump sum benefit

equal to a percentage of 150% of his Final Monthly Salary multiplied
by his years of Credited Service calculated as of his Early Retirement
Date ...

Section 4- Involuntary Separation Benefit

A Member terminated involuntarily for reasons beyond his control

(except for just cause), including but not limited to retrenchment,
redundancy, shall be entitled to receive whichever is greater of:
(a) the applicable minimum benefit prescribed by law on involuntary
separation or (b) the benefit accruing to a Member computed in
accordance with Article VII Sections 1, 2, or 3 of this Plan, such
that the employee shall not be entitled to the benefits of this Plan
and separation pay under Art. 283 of the Labor Code.

Such benefit shall be in full satisfaction of all termination benefits

51
which the Employee may be entitled to under the Labor Code, this
~~an, or any policy or practice of the Company.

52
Emphasis supplied.
53
Supra at note 48.
54
Emphasis supplied.
CTA EB NO. 2400 (CTA Case No. 9566)
CIR v. Ma. Jethra B. Pascual
DECISION
Page 15 of 19
X--------------------- ----------------X

As quoted above, an employee dismissed by reason of

redundancy is entitled to a benefit computed in accordance with
Article VII, Sections 155 , 2, or 356 of the Retirement Plan. Since
respondent's employment was terminated when she was 46 years old,
her benefits were computed in accordance with Section 2 57 thereof.
Clearly, the benefit that accrued in respondent's favor under the
retirement plan was a consequence of her separation from DB; only
that the amount of her separation pay, in this case, was computed
consistent with the values used for computing a retirement pay. A
similar situation was tackled in the case of Mateo v. Coca-Cola Bottlers
Phils., Inc. 58 (Mateo) wherein the Supreme Court ruled, thusly:

As petitioner was dismissed due to redundancy, she is entitled

to receive, under the law, a separation pay equivalent to at least one
month pay for every year of her service.

It is likewise undisputed that petitioner was a member of

respondent's Retirement Plan (Plan) duly approved by the BIR. The
Plan expressly provides that a member who was involuntary
separated from service for any cause beyond the member's control
shall receive "in lieu of any other retirement benefits, a separation
benefit computed in accordance with the retirement formula" or the
termination benefit mandated by law, whichever is higher. Pertinent
are Sections 1 and 3, Article V of the Plan which provide:

ARTICLEV
PAYMENT OF BENEFITS

Section 1. Retirement Benefit. A Member who retires on

the retirement dates as defined in Article IV of this Plan
shall be entitled to and shall be paid a retirement benefit
equivalent to wo% of Final Pay for every year of Credited
Service, plus commutation of his unused Sick Leave Credits,
if any.

Section 3· Involuntary Separation Benefit. Any Member

who is involuntarily separated from service by the Company
for any cause beyond his control shall be entitled to receive
in lieu of any other retirement benefits, a separation benefit ,
computed in accordance with the retirement benef/

55
Section I - Nonnal and Late Retirement Benefits.
56
Section 3 -Voluntary Separation Benefit.
57
Supraatp. 14.
58
G.R. No. 226064, 17 February 2020; Citations omitted, emphasis and underscoring in the original
text and supplied.
CTA EB NO. 2400 (CTA Case No. 9566)
CIR v. Ma. Jethra B. Pascual
DECISION
Page16of19
x-------------------------------------x

formula described in Section 1 of this Article or the

applicable termination benefit under extstmg laws,
whichever is greater, irrespective of his length of service
with the Company.

The Plan also expressly provides that a member's company

liabilities shall be deducted from the benefit to be received and that
the member shall not be entitled to any benefit other than that
payable thereunder:

Section 6. Obligations. Upon separation or a Member

from the Company, any amount of benefit which he or his
Beneficiary is entitled to receive under this Plan shall first
be used to pay off all liabilities of the Member to the
Company and to the Plan.

Section 7· No Other Benefits. No benefits other than what

is provided in accordance with the foregoing Sections I to 5
of this Article V shall be payable under this Plan.

The Plan dearly indicates that an employee who was

involuntarily separated from service, although not having
reached the compulsory or optional retirement age nor having
met the tenurial requirement, like herein petitioner, is
entitled to receive an "involuntary separation benefit" to be
computed using the retirement benefit formula, or the
separation pay under the law, whichever is higher. Plainly,
petitioner has the right to demand to be paid the separation benefit
as computed under the Plan or separation pay in accordance with
Article 283 of the Labor Code, and shall be entitled to receive the
higher amount.

Here, it is dear that petitioner received her separation

pay computed under the formula used for determining
retirement pay. The fact that petitioner's separation pay was
computed in accordance with the formula for computing
retirement pay does not thereby convert the character of the
benefit received into a retirement benefit. The retirement
formula was used because it was, in fact, more advantageous for the
petitioner. Thus, there should be no confusion as regards the
character of the benefit which petitioner received considering that
Section 3 of the Plan unequivocally characterizes the benefit to be
received due to involuntary separation from service as a separation
benefit.

We hold that even assuming, arguendo, that

complainant's separation pay was computed in reference to
respondent's retirement plan, it does not change the f a y
CTA EB NO. 2400 (CTA Case No. 9566)
CIR v. Ma. Jethra B. Pascual
DECISION
Page 17 of 19
x-------------------------------------x

that complainant was separated on account of redundancy

and not because she reached either the optional or
compulsory retirement age. Thus, it is wrong to apply the
provisions of the [NlRC] anent exemption of retirement
benefits from income tax.

Neither was there any showing that petitioner voluntarily

opted to retire so as to treat the amount she received as her
retirement pay. Not being a retirement pay, it was likewise plain
error on the part of the CA to have applied the four conditions under
Section 32(B)(6)(a) of the NIRC for tax exemption of retirement
benefits ... 59

With the foregoing decision, it becomes evident that DB

committed the same mistake of considering the benefit given to
respondent (under the Retirement Plan) as "retirement pay" and thus
subjecting it to a withholding tax. Applying the ruling in Mateo,
respondent's benefit under the Retirement Plan despite its erroneous
designation as "retirement pay" is not taxable since she received the
same as a consequence of redundancy and not due to her retirement.

All told, the Court finds no cogent reason to reverse or modify

the assailed Decision and Resolution reached by the Court's Third
Division.

WHEREFORE, with the foregoing premises, the instant Petition

for Review filed by petitioner Commissioner of Internal Revenue on 04
January 2021 is hereby DENIED for lack of merit. Accordingly, the
Decision dated 30 June 2020 and Resolution dated 28 October 2020,
respectively, of the Court's Third Division in CTA Case No. 9566
entitled Ma. ]ethra B. Pascual v. Commissioner of Internal Revenue, are
hereby AFFIRMED.

SO ORDERED.
't--

-VILLENA

59
Emphasis supplied.
 CTA EB NO. 2400 (CTA Case No. 9566)
CIR v. Ma. Jethra B. Pascual
DECISION
Page 18 of 19
X-----------------------------·------- X

WE CONCUR:

Presiding Justice

~-c-c. Q..i-'o.-So&:. 9..

Jt'JANITO C. CASTANEDA, fR. ERL~.UY
Associate Justice Associate Justice

(/b.A, M- ./--- ~· 7. A':-

.........,.!.~­
MA. BELEN M. RINGPIS-LIBAN CATHERINE T. MANAHAN
Associate Justice Associate Justice

~~~~·~
MARIAN rVY fl. REYEV-fAJ1RDO
Associate Justice

~
LANEE S. CUI-DAVID
Associate Justice
CTA EB NO. 2400 (CTA Case No. 9566)
CIR v. Ma. Jethra B. Pascual
DECISION
Page19of19
X------------------------------------- X

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, it is

hereby certified that the conclusions in the above Decision were
reached in consultation before the case was assigned to the writer of
the opinion of the Court.

Presiding Justice