FIRST DIVISION

[G.R. No. 226064. February 17, 2020.]

ANNA MAE B. MATEO , petitioner, vs. COCA-COLA BOTTLERS

PHILS., INC., respondent.

DECISION

J.C. REYES, JR., J : p

Through this Petition for Review 1 under Rule 45 of the Rules of Court,
petitioner challenges the Court of Appeals (CA) Decision dated November 25,
2015 and Resolution dated June 13, 2016. The assailed CA Decision and
Resolution reversed the rulings of the National Labor Relations Commission
(NLRC) and the Labor Arbiter by dismissing petitioner's complaint for illegal
deductions, underpayment of separation pay, non-payment of salaries, and
claims for damages.
Facts
Petitioner was previously employed by Philippine Beverage Partners,
Inc., (PhilBev) as Sales Supervisor. In 2007, PhilBev ceased operations, and,
as a result, petitioner was separated from service. Petitioner received the
corresponding separation benefits from PhilBev. 2 Thereafter, petitioner was
hired by respondent, also as Sales Supervisor, and was eventually promoted
as District Team Leader.
In February 2012, petitioner was informed by respondent that it is
enhancing its Route to Market (RTM) strategy to improve sales force
effectiveness, and, that due to such RTM strategy which requires different
sales force competencies and capabilities, her position was considered
redundant. 3 She was also informed that her employment will be terminated
effective March 31, 2012. 4 Further, she was to receive an amount
tentatively computed at P676,657.15, as a consequence of her separation
from service. 5
On April 21, 2012, respondent released to petitioner two checks for the
total amount of P402,571.85. Upon verification, petitioner discovered that
her outstanding loan balance and the amount of P134,064.95, representing
withholding tax, were deducted from the originally computed amount. 6
Petitioner sought clarification as regards said deductions and was
informed that the retirement benefit she received is no longer tax-exempt
because she previously availed of such tax exemption upon her separation
from service with PhilBev. 7
Petitioner wrote a letter to the Bureau of Internal Revenue (BIR) as
regards the propriety of the tax withheld. The Regional Director briefly
quoted Section 32 (B) (6) (b) of the National Internal Revenue Code (NIRC) of
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 1997, as amended, and referred the query to the Revenue District Officer for
their appropriate action. 8 Petitioner also referred to a BIR Ruling concerning
respondent's former employee who was similarly terminated due to
redundancy, to the effect that separation benefits received as a result of
redundancy are exempt from income tax, and consequently, from
withholding tax. 9
Despite these, petitioner's claim for reimbursement of the deducted
amount representing tax withheld was denied by respondent. This prompted
petitioner to lodge her complaint before the Labor Arbiter.
The Labor Arbiter ruled in petitioner's favor and held that respondent
erroneously deducted withholding tax from petitioner's separation pay.
Respondent was ordered to complete petitioner's separation pay plus
attorney's fees in the aggregate amount of P147,471.44. The Labor Arbiter
disposed in his Decision dated July 25, 2013:
WHEREFORE, premises considered, We render judgment finding
respondent Coca-Cola Bottlers, Philippines, Incorporated liable for
underpayment of separation pay to complainant, as well as attorney's
fee, in the aggregate amount of Php147,471.44, and direct said
respondent to deposit the foregoing sum with the Cashier of this
Branch within ten (10) days from receipt of this Decision.
All other claims are dismissed for lack of merit.
SO ORDERED. 10

Dissatisfied, respondent appealed to the NLRC. In its Decision dated

January 30, 2014, the NLRC affirmed the award of separation pay
differentials but deleted the award of attorney's fees. Similar to the Labor
Arbiter, the NLRC reasoned that petitioner was given separation benefits as
a result of her termination from employment due to redundancy. Such
separation benefits, according to the labor tribunals, are exempt from
taxation pursuant to Section 32 (B) (6) (b) of the NIRC. 11 In disposal, the
NLRC ruled:
WHEREFORE, premises considered, respondent's appeal is
partly GRANTED. The Labor Arbiter's Decision is AFFIRMED WITH
MODIFICATION in that the award for attorney's fees is DELETED.
Respondent is DIRECTED to pay the complainant the sum of
PhP134,064.95, representing the amount of tax withheld by
respondent out of her severance pay.
SO ORDERED. 12

Claiming that the NLRC gravely abused its discretion in so ruling,

respondent filed a certiorari petition before the CA.
In its presently assailed Decision, the CA reversed the rulings of the
labor tribunals and dismissed petitioner's complaint. The CA reasoned that
under respondent's Retirement Plan, an involuntarily separated employee,
such as petitioner, is entitled to either the amount prescribed in the
retirement plan or to the termination benefit as provided by law, whichever
is higher. Since the retirement plan is higher than the separation pay as
mandated by law, petitioner is entitled to receive only the former.
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 The CA also held that tax exemption of retirement benefits under the
NIRC requires, among others, that the taxpayer had been in the service of
the same employer for at least 10 years and had not previously availed of
such benefit. 13 Since petitioner had been in respondent's employ for less
than five years and that she already availed of the tax exemption benefit
upon her separation from PhilBev, the retirement benefits she received from
respondent are not tax-exempt. 14 The CA held that since respondent
correctly withheld tax from the retirement benefit received by petitioner, the
former is not liable for illegal deduction.
Petitioner's motion for reconsideration met similar denial from the CA.
Hence, this petition.
Issue
The pivotal issue is whether respondent is liable for illegal deduction
when it withheld tax from the amount received by petitioner as a
consequence of her involuntary separation from service.
Ruling of the Court
Petitioner's main contention is that the amount she received from
respondent was her separation pay, and was not her retirement pay, which
she received as a consequence of the termination of her employment due to
redundancy. Because it was a separation pay, it should not have been
subjected to income tax. We find this contention meritorious.
There is no dispute that petitioner was separated from service due to
redundancy pursuant to Article 283 of the Labor Code:
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. (Emphasis supplied)
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
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 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:
ARTICLE V
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 100%
of Final Pay for every year of Credited Service, plus commutation of
his unused Sick Leave Credits, if any.
xxx xxx xxx
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 benefit formula described in Section 1
of this Article or the applicable termination benefit under existing
laws, whichever is greater, irrespective of his length of service with
the Company. 15
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:
xxx xxx xxx
Section 6. Obligations. — Upon separation of 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 1 to 5 of
this Article V shall be payable under this Plan.
xxx xxx xxx 16
The Plan clearly 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 clear 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
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 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.
As such, it was erroneous on the part of the CA to have treated the
benefit received by petitioner as a retirement pay. As aptly held by the
NLRC:
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 fact 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 [NIRC] anent exemption of retirement benefits from
income tax. 17
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. Since the amount received by
petitioner was separation pay, such is exempt from income tax under
Section 32 (B) (6) (b) of the NIRC which provides:
Section 32. Gross Income. — x x x
(B) Exclusion from Gross Income. — The following items
shall not be included in the gross income and shall be exempt from
taxation under this Title:
xxx xxx xxx
(6) Retirement Benefits, Pensions, Gratuities, etc. —
xxx xxx xxx
(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 said official or employee. x x x (Emphasis
supplied)
WHEREFORE, the petition is GRANTED. The Decision dated
November 25, 2015 and the Resolution dated June 13, 2016 of the Court of
Appeals are REVERSED and SET ASIDE. The Decision dated January 30,
2014 of the National Labor Relations Commission is hereby REINSTATED.
SO ORDERED.
Peralta, C.J., Caguioa, Lazaro-Javier and Lopez, JJ., concur.

Footnotes

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 1. Rollo , pp. 34-59.

2. Id. at 35.
3. Id. at 37.
4. Id.

5. Id. at 39.
6. Id.

7. Id.
8. Id. at 88-89.
9. Id. at 40.
10. Id. at 66.

11. Id. at 41.

12. Id. at 67.
13. Id. at 73.
14. Id.

15. Id. at 176-177.

16. Id. at 177.
17. Id. at 67.

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