apply the term in its ordinary meaning may also be surmised from a

G.R. No. 147375. June 26, 2006. *

historical perspective of the levy on gross receipts. From the time the gross
COMMISSIONER OF INTERNAL REVENUE, receipts tax on banks was first imposed in 1946 under R.A. No. 39 and
petitioner, vs. BANK OF THE PHILIPPINE ISLANDS, throughout its successive reenactments, the legislature has not established
respondent. a definition of the term “gross receipts.” Absent a statutory definition of
the term, the BIR had consistently applied it in its ordinary meaning, i.e.,
Taxation; National Internal Revenue Code of 1977 (Tax without deduction. On the presumption that the legislature is familiar with
Code); Domestic Corporations; Banks and Banking; As a domestic the contemporaneous interpretation of a statute given by the administrative
corporation, the interest earned by a bank from deposits and similar agency tasked to enforce the statute, subsequent legislative reenactments of
arrangements are subjected to final withholding tax of 20%—the interest the subject levy sans a definition of the term “gross receipts” reflect that
income it receives on the amounts that it lends are always net of the 20% the BIR’s application of the term carries out the legislative purpose.
withheld tax.—Domestic corporate taxpayers, including banks, are levied a Same; Same; Same; The express inclusion of the interest income
20% final withholding tax on bank deposits under Section 24(e)(1) in in taxable gross receipts creates a presumption that the entire amount of
relation to Section 50(a) of Presidential Decree No. 1158, otherwise known the interest income, without any deduction, is subject to gross receipts tax.
as the National Internal Revenue Code of 1977 (“Tax Code”). Banks are —Section 119 (a) of the Tax Code expressly includes interest income as
also liable for a tax on gross receipts derived from sources within the part of the base income from which the gross receipts tax on banks is
Philippines under Section 119 of the Tax Code. * * * As a domestic computed. This express inclusion of interest income in taxable gross
corporation, the interest earned by respondent Bank of the Philippine receipts creates a presumption that the entire amount of the interest
Islands (BPI) from deposits and similar arrangements are subjected to a income, without any deduction, is subject to the gross receipts tax.
final withholding tax of 20%. Consequently, the interest income it receives Same; Same; Same; The exclusion of the 20% final tax on passive
on amounts that it lends out are always net of the 20% withheld tax. As a income from the taxpayer’s tax base is effectively a tax exemption, the
bank, BPI is furthermore liable for a 5% gross receipts tax on all its application of which is highly disfavored.—The exclusion of the 20% final
income. tax on passive income from the taxpayer’s tax base is effectively a tax
Same; Same; Words and Phrases;  Gross Receipts;  Since the Tax exemption, the application of which is highly disfavored. The rule is that
Code does not provide for a definition of the term “gross receipts,” the whoever claims an exemption must justify this right by the clearest grant
term is to be properly understood in its plain and ordinary meaning and of organic or statute law. Like the other banks who have asserted a right
must be taken to comprise its entire receipts without any deduction.—The tantamount to exception under these circumstances, BPI has failed to
Tax Code does not provide a definition of the term “gross receipts.” present a clear statutory basis for its claim to take away the interest income
Accordingly, the term is properly understood in its plain and ordinary withheld from the purview of the levy on gross tax receipts.
meaning and must be taken to comprise of the entire receipts without any Same; Same; Section 4(e) does not exclude accrued interest
deduction. We, thus, made the following disquisition in Bank of income from gross receipts but merely postpones its inclusion until the
Commerce, 459 SCRA 638 (2005): The word “gross” must be used in its actual payment of the interest to the lending bank.—We agree with the
plain and ordinary meaning. It is defined as “whole, entire, total, without Commissioner that BPI’s asserted right under Section 4(e) of Revenue
deduction.” A common definition is “without deduction.” “Gross” is also Regulations No. 12-80 presents a misconstruction of the provision. While,
defined as “taking in the whole; having no deduction or abatement; whole, indeed, the provision states that “[t]he rates of
total as opposed to a sum consisting of separate or specified parts.” Gross 554
is the antithesis of net. Indeed, in China Banking Corporation v. Court of
Appeals, 401 55 SUPREME COURT REPORTS
_______________
4 ANNOTATED
*
 THIRD DIVISION
Commissioner of Internal Revenue vs. Bank
552
of the Philippine Islands
taxes to be imposed on the gross receipts of such financial
55 SUPREME COURT REPORTS institutions shall be based on all items of income actually received,” it
2 ANNOTATED goes on to distinguish actual receipt from accrual, i.e., that “[m]ere
accrual shall not be considered, but once payment is received on such
Commissioner of Internal Revenue vs. Bank accrual or in case of prepayment, then the amount actually received
of the Philippine Islands shall be included in the tax base of such financial institutions x x x.”
Section 4(e) recognizes that income could be recognized by the taxpayer
SCRA 634 (2003), the Court defined the term in this wise: As
either at the time of its actual receipt or its accrual, depending on the
commonly understood, the term “gross receipts” means the entire receipts
accounting method used by the taxpayer, but establishes the rule that, for
without any deduction. Deducting any amount from the gross receipts
purposes of gross receipts tax, interest income is taxable upon actual
changes the result, and the meaning, to net receipts. Any deduction from
receipt of the income, as opposed to the time of its accrual. Section 4(e)
gross receipts is inconsistent with a law that mandates a tax on gross
does not exclude accrued interest income from gross receipts but merely
receipts, unless the law itself makes an exception.
postpones its inclusion until actual payment of the interest to the lending
Same; Same; United States cases have persuasive effect in our
bank, thus mandating that “[m]ere accrual shall not be considered, but
jurisdiction, because the Philippine income tax law is patterned after its
once payment is received on such accrual or in case of prepayment, then
United States counterpart.—We held in Solidbank, 416 SCRA 436 (2003),
the amount actually received shall be included in the tax base of such
to wit: [W]e note that US cases have persuasive effect in our jurisdiction,
financial institutions x x x.”
because Philippine income tax law is patterned after its US counterpart. “
Same; Same; Section 4(e) of Revenue Regulations No. 12-80 was
‘[G]ross receipts’ with respect to any period means the sum of: (a) The
superseded by Section 7 of Revenue Regulations No. 17-84.—The implied
total amount received or accrued during such period from the sale,
repeal of Section 4(e) is undeniable. Section 4(e) imposes the gross
exchange, or other disposition of x x x other property of a kind which
receipts tax only on all items of income actually received, as opposed to
would properly be included in the inventory of the taxpayer if on hand at
their mere accrual, while Section 7 of Revenue Regulations No. 17-84
the close of the taxable year, or property held by the taxpayer primarily for
includes all interest income (whether actual or accrued) in computing the
sale to customers in the ordinary course of its trade or business, and (b)
gross receipts tax. Section 4(e) of Revenue Regulations No. 12-80 was
The gross income, attributable to a trade or business, regularly carried on
superseded by the later rule, because Section 4(e) thereof is not restated in
by the taxpayer, received or accrued during such period x x x.” “x x x [B]y
Revenue Regulations No. 17-84. Clearly, then, the current revenue
gross earnings from operations x x x was intended all operations x x x
regulations requires interest income, whether actually received or
including incidental, subordinate, and subsidiary operations, as well as
merely accrued, to form part of the bank’s taxable gross receipts.
principal operations.” “When we speak of the ‘gross earnings’ of a person
Same; Same; Withholding process results in the taxpayer’s
or corporation, we mean the entire earnings or receipts of such person or
constructive receipt of the income withheld.—The Commissioner correctly
corporation from the business or operations to which we refer.” From these
controverts the conclusion made by the Court of Appeals that it would be
cases, “gross receipts” refer to the total, as opposed to the net, income.
“unjust and confiscatory to include the withheld 20% final tax in the tax
These are therefore the total receipts before any deduction for the expenses
base for purposes of computing the gross receipts tax since the amount
of management. Webster’s New International Dictionary, in fact,
corresponding to said 20% final tax was not received by the taxpayer and
defines gross as “whole or entire.”
the latter derived no benefit therefrom.” Receipt of income may be actual
Same; Same; Statutory Construction;  Administrative Law;  The
or constructive. We have held
legislative intent to apply the term “gross receipts” in its ordinary 555
meaning may also be surmised from a historical perspective of a levy on
gross receipts; On the presumption that the legislature is familiar with the
contemporaneous interpretation of a statute given by the administrative VOL. 492, JUNE 26, 2006 555
agency tasked to enforce the statute, subsequent legislative reenactments Commissioner of Internal Revenue vs. Bank
of the subject levy sans a definition of the term “gross receipts” reflect the
Bureau of Internal Revenue’s application of the term carries out the of the Philippine Islands
legislative purpose.—The legislative intent to that the withholding process results in the taxpayer’s constructive
553 receipt of the income withheld.
Same; Legal Research;  The Court of Tax Appeals (CTA) case
VOL. 492, JUNE 26, 2006 553 relied upon by the BIR in filing this petition, Asian Bank Corporation v.
Commissioner of Internal Revenue, CTA Case No. 4720, 30 January 1996,
Commissioner of Internal Revenue vs. Bank not only erroneously interpreted Section 49(e) of Revenue Regulations No.
of the Philippine Islands 12-80, it also cited Section 4(e) when it was no longer the applicable
revenue regulations.—The CTA case relied upon by the BIR in filing this
petition, Asia Bank, not only erroneously interpreted Section 4(e) of (“Tax Code”). Banks are also liable for a tax on gross receipts
Revenue Regulations No. 12-80, it also cited Section 4(e) when it was no derived from sources within the Philippines under Section 119  of 4

longer the applicable revenue regulation. The revenue regulations the Tax Code, which provides, thus:
applicable at the time the tax court decided Asia Bank was Revenue _______________
Regulations No. 17-84, not Revenue Regulations No. 12-80.
Same; Gross Receipts; Withholding Tax; Banks and Banking; As 1
 451 Phil. 772; 403 SCRA 634 (2003).
the actual owner of the funds, it is the bank’s obligation to the government 2
 Sec. 24. Rates of tax on domestic corporations.—x x x (e) Tax on certain
that is extinguished upon the withholding agent’s remittance of 20% final incomes derived by domestic corporations.—(1) Interest from deposits and yield
tax—thus, the amount constituting the final tax should form part of the or any other monetary benefit from deposit substitutes and from trust fund and
gross receipts.—The cases cited by BPI, Commissioner of Internal similar arrangements, and royalties.—Interest on Philippine currency bank
Revenue v. Tours Specialists, Inc., 183 SCRA 402 (1990), deposits and yield or any other monetary benefit from deposit substitutes and from
and Commissioner of Internal Revenue v. Manila Jockey Club, Inc., 108 trust fund and similar arrangements received by domestic corporations, and royalties,
derived from sources within the Philippines, shall be subject to a 20% tax. [Now
Phil. 821 (1960), in which this Court held that “gross receipts subject to
Section 27(D) of the Tax Reform Act of 1997 (R.A. No. 8242).]
tax under the Tax Code do not include monies or receipts entrusted to the 3
 Sec. 50. Withholding of tax at source.—(A) Withholding of final tax on certain
taxpayer which do not belong to them and do not redound to the taxpayer’s incomes.—The tax imposed or prescribed by Sections x x x 24 (e) (1) x x x of this
benefit,” only further substantiate the fact that BPI benefited from the Code on specified items of income shall be withheld by payor-corporation and/or
withheld amounts. In Tours Specialists and Manila Jockey Club, the person and paid in the same manner and subject to the same conditions as provided in
taxable entities held the subject monies not as income earned but as mere Section 51 of the National Internal Revenue Code, as amended. [Now Section 57(A)
trustees. As such, they held the money entrusted to them but which neither of R.A. No. 8242.]
 Now Section 121 of R.A. No. 8242.
belonged to them nor redounded to their benefit. On the other hand, BPI
4

cannot be considered as a mere trustee; it is the actual owner of the funds. 558
As owner thereof, it was BPI’s tax obligation to the government that was
extinguished upon the withholding agent’s remittance of the 20% final tax. 558 SUPREME COURT REPORTS ANNOTATED
We elucidated on BPI’s ownership of the funds in China Banking, to
wit: Manila Jockey Club does not support CBC’s contention but rather the
Commissioner of Internal Revenue vs. Bank
Commissioner’s proposition. The Court ruled in Manila Jockey Club that of the Philippine Islands
receipts not owned by the Manila Jockey Club but merely held by it in Sec. 119. Tax on banks and non-bank financial intermediaries.—There
trust did not form part of Manila Jockey Club’s gross receipts. shall be collected a tax on gross receipts derived from sources within the
556
Philippines by all banks and non-bank financial intermediaries in
accordance with the following schedule:
55 SUPREME COURT REPORTS
6 ANNOTATED (a) On interest, commissions and discounts from lending
Commissioner of Internal Revenue vs. Bank activities as well as income from financial leasing, on the
of the Philippine Islands basis of remaining maturities of instruments from which
Conversely, receipts owned by the Manila Jockey Club would form such receipts are derived.
part of its gross receipts. In the instant case, CBC owns the interest
income which is the source of payment of the final withholding tax.   Short-term maturity—not in excess of two (2) 5%
The government subsequently becomes the owner of the money years ....................................................................
constituting the final tax when CBC pays the final withholding tax to
extinguish its obligation to the government. This is the consideration   Medium-term maturity—over two (2) years but not 3%
for the transfer of ownership of the money from CBC to the
exceeding four (4) years ..........................
government. Thus, the amount constituting the final tax, being
originally owned by CBC as part of its interest income, should form part   Long term maturity—
of its taxable gross receipts.
Same; Same; Double Taxation; Words and Phrases; There is no   (i) Over four (4) years but not exceeding seven 1%
double taxation if the law imposes two different taxes on the same income, (7) years .............................................
business or property—double taxation means taxing the same property
twice when it should be taxed only once, that is, taxing the same person   (ii) Over seven (7) years ................................... 0%
twice by the same jurisdiction for the same thing.—BPI argues that to (b On 0%
include the 20% final tax withheld in its gross receipts tax base would be
to tax twice its passive income and would constitute double taxation. ) dividends .................................................................
Granted that interest income is being taxed twice, this, however, does not (c) On royalties, rentals of property, real or personal, 5%
amount to double taxation. There is no double taxation if the law imposes
two different taxes on the same income, business or property. In Solidbank, profits from exchange and all other items treated as
we ruled, thus: Double taxation means taxing the same property twice
when it should be taxed only once; that is, “x x x taxing the same person
gross income under Section 28 of this
twice by the same jurisdiction for the same thing.” It is obnoxious when Code ..............................................................
the taxpayer is taxed twice, when it should be but once. Otherwise Provided, however, That in case the maturity period referred to in
described as “direct duplicate taxation,” the two taxes must be imposed on paragraph (a) is shortened thru pretermination, then the maturity period
the same subject matter, for the same purpose, by the same taxing shall be reckoned to end as of the date of pretermination for purposes of
authority, within the same jurisdiction, during the same taxing period; and classifying the transaction as short, medium or long term and the correct
they must be of the same kind or character. rate of tax shall be applied accordingly.
Nothing in this Code shall preclude the Commissioner from imposing
PETITION for review on certiorari of a decision of the Court of the same tax herein provided on persons performing similar banking
Appeals. activities.
The facts are stated in the opinion of the Court.
     Wilmer B. Dekit for petitioner. As a domestic corporation, the interest earned by respondent Bank
     Padilla Law Office for respondent. of the Philippine Islands (BPI) from deposits and similar
557 arrangements are subjected to a final withholding tax of 20%.
VOL. 492, JUNE 26, 2006 557 Consequently, the interest income it receives on amounts that it
lends out are always net of the 20% withheld tax. As a bank, BPI
Commissioner of Internal Revenue vs. Bank is furthermore liable for a 5% gross receipts tax on all its income.
559
of the Philippine Islands
VOL. 492, JUNE 26, 2006 559
TINGA, J.: Commissioner of Internal Revenue vs. Bank
of the Philippine Islands
At issue is the question of whether the 20% final tax on a bank’s
For the four (4) quarters of the year 1996, BPI computed its 5%
passive income, withheld from the bank at source, still forms part
gross receipts tax payments by including in its tax base the 20%
of the bank’s gross income for the purpose of computing its gross
final tax on interest income that had been withheld and remitted
receipts tax liability. Both the Court of Tax Appeals (CTA) and
directly to the Bureau of Internal Revenue (BIR).
the Court of Appeals answered in the negative. We reverse, in
On 30 January 1996, the CTA rendered a decision in Asian
favor of petitioner, following our ruling in China Banking
Bank Corporation v. Commissioner of Internal Revenue,  holding
Corporation v. Court of Appeals.
5

that the 20% final tax withheld on a bank’s interest income did not
1

A brief background of the tax law involved is in order.

form part of its taxable gross receipts for the purpose of computing
Domestic corporate taxpayers, including banks, are levied a
gross receipts tax.
20% final withholding tax on bank deposits under Section 24(e)
BPI wrote the BIR a letter dated 15 July 1998 citing the CTA
(1)  in relation to Section 50(a)  of Presidential Decree No. 1158,
Decision in Asian Bank and requesting a refund of alleged
2 3

otherwise known as the National Internal Revenue Code of 1977

overpayment of taxes representing 5% gross receipts taxes paid on in Commissioner of Internal Revenue v. Bank of
the 20% final tax withheld at source. Commerce.  Consequently, the petition must be granted.
12

Inaction by the BIR on this request prompted BPI to file a The Tax Code does not provide a definition of the term “gross
Petition for Review against the Commissioner of Internal Revenue receipts.”  Accordingly, the term is properly understood in its plain
13

(Commissioner) with the CTA on 19 January 1999. Conceding its and ordinary meaning  and must be taken to comprise of the entire
14

claim for the first three quarters of the year as having been barred receipts without any deduction.  We, thus, made the following
15

by prescription, BPI only claimed alleged overpaid taxes for the disquisition in Bank of Commerce: 16

final quarter of 1996. _______________

Following its own doctrine in Asian Bank, the CTA rendered a
Decision,  holding that the 20% final tax withheld did not form
6
 Supra note 1.
10

 G.R. No. 148191, 25 November 2003, 416 SCRA 436.

part of the respondent’s taxable gross receipts and that gross
11

 G.R. No. 149636, 8 June 2005, 459 SCRA 638.

12

receipts taxes paid thereon are refundable. However, it found that  China Banking Corporation v. Court of Appeals, supra note 1, at 789; p. 648.
13

only P13,843,455.62 in withheld final taxes were substantiated by  Id., at p. 791.

14

 Id., at p. 790.
BPI; it awarded a refund of the 5% gross receipts tax paid thereon
15

 Commissioner of Internal Revenue v. Bank of Commerce, supra note 12, at

16

in the amount of P692,172.78. 649-650.

_______________
562
 CTA Case No. 4720, 30 January 1996.
562 SUPREME COURT REPORTS ANNOTATED
5

 Dated 16 June 2000 and penned by Presiding Judge Ernesto D. Acosta,

6

concurred in by Associate Judge Ramon O. de Vera, with a dissenting opinion from Commissioner of Internal Revenue vs. Bank
Associate Judge Amancio Q. Saga.
of the Philippine Islands
560 The word “gross” must be used in its plain and ordinary meaning. It is
560 SUPREME COURT REPORTS ANNOTATED defined as “whole, entire, total, without deduction.” A common definition
is “without deduction.” “Gross” is also defined as “taking in the whole;
Commissioner of Internal Revenue vs. Bank having no deduction or abatement; whole, total as opposed to a sum
of the Philippine Islands consisting of separate or specified parts.” Gross is the antithesis of net.
Indeed, in China Banking Corporation v. Court of Appeals, the Court
On appeal, the Court of Appeals promulgated a defined the term in this wise:
Decision  affirming the CTA. It cited this Court’s decision
7
As commonly understood, the term “gross receipts” means the entire receipts without
in Commissioner of Internal Revenue v. Tours Specialists, Inc.,  in 8 any deduction. Deducting any amount from the gross receipts changes the result, and
which we held that the “gross receipts subject to tax under the Tax the meaning, to net receipts. Any deduction from gross receipts is inconsistent with a
law that mandates a tax on gross receipts, unless the law itself makes an exception.
Code do not include monies or receipts entrusted to the taxpayer As explained by the Supreme Court of Pennsylvania in Commonwealth of
which do not belong to them and do not redound to the taxpayer’s Pennsylvania v. Koppers Company, Inc.,—
benefit” in concluding that “it would be unjust and confiscatory to
Highly refined and technical tax concepts have been developed by the accountant and legal
include the withheld 20% final tax in the tax base for purposes of technician primarily because of the impact of federal income tax legislation. However, this in no
computing the gross receipts tax since the amount corresponding way should affect or control the normal usage of words in the construction of our statutes; and we
see nothing that would require us not to include the proceeds here in question in the gross receipts
to said 20% final tax was not received by the taxpayer and the allocation unless statutorily such inclusion is prohibited. Under the ordinary basic methods of
latter derived no benefit therefrom.” 9 handling accounts, the term gross receipts, in the absence of any statutory definition of the term,
must be taken to include the whole total gross receipts without any deductions, x x x. [Citations
The Court of Appeals also held that Section 4(e) of Revenue omitted] (Emphasis supplied)”
Regulations No. 12-80 mandates the deduction of the final tax
paid on interest income in computing the tax base for the gross Likewise, in Laclede Gas Co. v. City of St. Louis, the Supreme Court
receipts tax. Section 4(e) provides, thus: of Missouri held:
The word “gross” appearing in the term “gross receipts,” as used in the ordinance, must have been
Gross receipts tax on banks, non-bank financial intermediaries, financing and was there used as the direct antithesis of the word “net.”  In its usual and ordinary meaning
companies, and other non-bank financial intermediaries, not performing “gross receipts” of a business is the whole and entire amount of the receipts without deduction, x x
x. On the contrary, “net receipts” usually are the receipts which remain after deductions are made
quasi-banking activities.—The rates of taxes to be imposed on the gross from the gross amount thereof of the expenses and cost of doing business, including fixed charges
receipts of such financial institutions shall be based on all items of and depreciation. Gross receipts become net receipts after
income actually received. Mere accrual shall not be considered, but
once payment is received on such accrual or in case of prepayment, 563
then the amount actually received shall be included in the tax base of VOL. 492, JUNE 26, 2006 563
such financial institutions, as provided hereunder. (Emphasis supplied.)
Commissioner of Internal Revenue vs. Bank
The present Petition for Review filed by the Commissioner seeks
to annul the adverse Decisions of the CTA and the Court of of the Philippine Islands
certain proper deductions are made from the gross. And in the use of the words “gross receipts,” the
Appeals and raises the sole issue of whether the 20% instant ordinance, of course, precluded plaintiff from first deducting its costs and expenses of doing
_______________ business, etc., in arriving at the higher base figure upon which it must pay the 5% tax under this
ordinance. (Emphasis supplied)

 Dated 28 February 2001 and penned by Associate Justice Edgardo P. Cruz and
7
Absent a statutory definition, the term “gross receipts” is understood in its plain and
concurred in by Associate Justice Ramon Mabu-tas, Jr., and Associate Justice ordinary meaning. Words in a statute are taken in their usual and familiar
Roberto A. Barrios. signification, with due regard to their general and popular use. The Supreme Court of
 G.R. No. 66416, 21 March 1990, 183 SCRA 402.
8
Hawaii held in Bishop Trust Company v. Burns that—
 CA Decision, Rollo, p. 26.
9

x x x It is fundamental that in construing or interpreting a statute, in order to ascertain the intent of

561 the legislature, the language used therein is to be taken in the generally accepted and usual sense.
Courts will presume that the words in a statute were used to express their meaning in common
VOL. 492, JUNE 26, 2006 561 usage. This principle is equally applicable to a tax statute. [Citations omitted] (Emphasis supplied)

Commissioner of Internal Revenue vs. Bank Additionally, we held in Solidbank, to wit: 17

of the Philippine Islands [W]e note that US cases have persuasive effect in our jurisdiction, because
Philippine income tax law is patterned after its US counterpart.
final tax withheld on a bank’s passive income should be included “ ‘[G]ross receipts’ with respect to any period means the sum of: (a) The total amount
in the computation of the gross receipts tax. received or accrued during such period from the sale, exchange, or other disposition
In assailing the findings of the lower courts, the of x x x other property of a kind which would properly be included in the inventory of
the taxpayer if on hand at the close of the taxable year, or property held by the
Commissioner makes the following arguments: (1) the term “gross taxpayer primarily for sale to customers in the ordinary course of its trade or business,
receipts” must be applied in its ordinary meaning; (2) there is no and (b) The gross income, attributable to a trade or business, regularly carried on by
provision in the Tax Code or any special laws that excludes the the taxpayer, received or accrued during such period x x x.”
20% final tax in computing the tax base of the 5% gross receipts
tax; (3) Revenue Regulations No. 12-80, Section 4(e), is _______________
inapplicable in the instant case; and (4) income need not actually
be received to form part of the taxable gross receipts. Additionally,
petitioner points out that the CTA Asian Bank case cited by  Supra note 11, at pp. 453-454.
17

petitioner BPI has already been superseded by the CTA decisions 564
in Standard Chartered Bank v. Commissioner of Internal
Revenue and Far East Bank and Trust Company v. Commissioner 564 SUPREME COURT REPORTS ANNOTATED
of Internal Revenue, both promulgated on 16 November 2001. Commissioner of Internal Revenue vs. Bank
The issues raised by the Commissioner have already been
of the Philippine Islands
ruled upon in his favor by this Court in China Banking “x x x [B]y gross earnings from operations x x x was intended all operations x x x
Corporation v. Court of Appeals  and reiterated in Commissioner
10
including incidental, subordinate, and subsidiary operations, as well as principal
of Internal Revenue v. Solidbank Corporation  and more recently
11 operations.”
 “When we speak of the ‘gross earnings’ of a person or corporation, we mean the
entire earnings or receipts of such person or corporation from the business or 566 SUPREME COURT REPORTS ANNOTATED
operations to which we refer.”
From these cases, “gross receipts”  refer to the total, as opposed to the net,
]
Commissioner of Internal Revenue vs. Bank
income. These are therefore the total receipts before any deduction for the expenses of the Philippine Islands
of management. Webster’s New International Dictionary, in fact, defines gross as
“whole or entire.” clearest grant of organic or statute law.  Like the other banks who
23

have asserted a right tantamount to exception under these

The legislative intent to apply the term in its ordinary meaning circumstances, BPI has failed to present a clear statutory basis for
may also be surmised from a historical perspective of the levy on its claim to take away the interest income withheld from the
gross receipts. From the time the gross receipts tax on banks was purview of the levy on gross tax receipts.
first imposed in 1946 under R.A. No. 39 and throughout its Bereft of a clear statutory basis on which to hinge its claim,
successive reenactments,  the legislature has not established a
18
BPI’s view, as adopted by the Court of Appeals, is that Section
definition of the term “gross receipts.” Absent a statutory 4(e) of Revenue Regulations No. 12-80 establishes the exclusion
definition of the term, the BIR had consistently applied it in its of the 20% final tax withheld from the bank’s taxable gross
ordinary meaning, i.e., without deduction. On the presumption that receipts.
the legislature is familiar with the contemporaneous interpretation However, we agree with the Commissioner that BPI’s asserted
of a statute given by the administrative agency tasked to enforce right under Section 4(e) of Revenue Regulations No. 12-80
the statute, subsequent legislative reenactments of the subject levy presents a misconstruction of the provision. While, indeed, the
sans a definition of the term “gross receipts” reflect that the BIR’s provision states that “[t]he rates of taxes to be imposed on the
application of the term carries out the legislative purpose. 19
gross receipts of such financial institutions shall be based on all
_______________ items of income actually received,” it goes on to distinguish
actual receipt from accrual, i.e., that “[m]ere accrual shall not be
 It was reenacted under the Omnibus Tax Bill of 1972 (P.D. No. 69), thereafter
considered, but once payment is received on such accrual or in
18

under the National Internal Revenue Code of 1977 (P.D. No. 1158), and, finally, in
the current Tax Reform Act of 1997 (R.A. No. 8424). case of prepayment, then the amount actually received shall be
 China Banking Corporation v. Court of Appeals, supra note 1, at 793; p.
19
included in the tax base of such financial institutions x x x.”
650; See pp. 792-793; pp. 649-650. Section 4(e) recognizes that income could be recognized by
565
the taxpayer either at the time of its actual receipt or its ac-
crual,  depending on the accounting method used by the
24

VOL. 492, JUNE 26, 2006 565 taxpayer,  but establishes the rule that, for purposes of gross
25

Commissioner of Internal Revenue vs. Bank _______________

of the Philippine Islands  Id.

23

Furthermore, Section 119 (a)  of the Tax Code expressly includes
20  The “cash basis” considers as income as that which is actually or
24

interest income as part of the base income from which the gross constructively received and as deduction that which is actually paid. The “accrual
basis” method treats as part of taxable income that which is already earned and as
receipts tax on banks is computed. This express inclusion of possible deductions those which, although not paid or disbursed, have already
interest income in taxable gross receipts creates a presumption that incurred by the taxpayer. (JUSTICE JOSE C. VITUG AND JUDGE ERNESTO D.
the entire amount of the interest income, without any deduction, is ACOSTA, TAX LAW AND JURISPRUDENCE, c. 2000, p. 177.)
 Except where final taxes on certain transactions are imposed, the liability of
subject to the gross receipts tax.
25

21

taxpayers from income tax is determined on the basis of a fixed period consisting
The exclusion of the 20% final tax on passive income from normally of a taxable year,
the taxpayer’s tax base is effectively a tax exemption, the
application of which is highly disfavored.  The rule is that whoever
22
567
claims an exemption must justify this right by the VOL. 492, JUNE 26, 2006 567
_______________
Commissioner of Internal Revenue vs. Bank
 Sec. 119. Tax on banks and non-bank financial intermediaries.—There shall
20
of the Philippine Islands
be collected a tax on gross receipts derived from sources within the Philippines by all
banks and non-bank financial intermediaries in accordance with the following receipts tax, interest income is taxable upon actual receipt of the
schedule: income, as opposed to the time of its accrual. Section 4(e) does not
exclude accrued interest income from gross receipts but merely
(a) On interest, commissions and discounts from lending   postpones its inclusion until actual payment of the interest to the
lending bank, thus mandating that “[m]ere accrual shall not be
activities as well as income from financial leasing, considered, but once payment is received on such accrual or in
on the basis of remaining maturities of instruments case of prepayment, then the amount actually received shall be
from which such receipts are derived. included in the tax base of such financial institutions x x x.” 26

Even if Section 4(e) had been properly construed, it still

  Short-term maturity—not in excess of two 5% cannot be the basis for deducting the income tax withheld since
(2)years ................................................................... Section 4(e) has been superseded by Section 7 of Revenue
Regulations No. 17-84, which states, thus:
  Medium-term maturity—over two (2) years but not 3% SECTION 7. Nature and Treatment of Interest on Deposits and Yield on
exceeding four (4) years ............................... Deposit Substitutes.—
  Long term maturity:  
1. (a)The interest earned on Philippine Currency bank  deposits
       (i) Over four (4) years but not exceeding seven 1% and yield from deposit substitutes subjected to
(7) years ...................................... the withholding taxes in accordance with these regulations
need not be included in the gross income in computing the
       (ii) Over seven (7) years ................................... 0% depositor’s/investor’s income tax liability in accordance
with the provision of Section 29(b), (c) and (d) of the
(b) On 0% National Internal Revenue Code, as amended.
dividends ................................................................ 2. (b)Only interest paid or accrued on bank deposits, or yield from
deposit substitutes declared for purposes of imposing the
(c) On royalties, rentals of property, real or personal, 5% withholding taxes in accordance with these regulations shall
profits from exchange and all other items treated as be allowed as interest expense deductible for purposes of
computing taxable net income of the payor.
gross income under Section 28 of this
Code ............................................................................ _______________

.. calendar or fiscal, covering a 12-month period. The Tax Code does not prescribe any specific
x     accounting method; it allows the taxpayer to adopt any standard method as long as it can properly
reflect his income and his deductions and that it is used by him with consistency. However, the law
x recognizes certain principal accounting methods, such as the cash basis and accrual basis
methods. Id.
 China Banking Corporation v. Court of Appeals, supra note 1, at 801-802; pp. 657-658.
x
26

x 568
 China Banking Corporation v. Court of Appeals, supra note 1, at 808; p. 663.
21

568 SUPREME COURT REPORTS ANNOTATED

 Id., at p. 807; p. 662, citing Wonder Mechanical Engineering Corporation v.
22

Court of Tax Appeals, G.R. Nos. L-22805 and L-27858, 30 June 1975, 64 SCRA 555. Commissioner of Internal Revenue vs. Bank
566 of the Philippine Islands
 (c) If the recipient of the above-mentioned items of income are government. Consequently, it received the amounts corresponding
financial institutions, the same shall be included as part of the tax base to the 20% final tax and benefited therefrom. The cases cited by
upon which the gross receipt tax is imposed. (Emphasis supplied.) BPI, Commissioner of Internal Revenue v. Tours Specialists,
Inc.  and Commissioner of Internal Revenue v. Manila Jockey
The provision categorically provides that if the recipient of
32

Club, Inc.,  in which this Court held that “gross receipts subject to
interest subjected to withholding taxes is a financial
33

tax under the Tax Code do not include monies or receipts

institution, the interest shall be included as part of the tax base
entrusted to the taxpayer which do not belong to them and do not
upon which the gross receipts tax is imposed.
redound to the taxpayer’s benefit,”  only further substantiate the
The implied repeal of Section 4(e) is undeniable. Section 4(e)
34

fact that BPI benefited from the withheld amounts.

imposes the gross receipts tax only on all items of
In Tours Specialists and Manila Jockey Club, the taxable
income actually received, as opposed to their mere accrual, while
entities held the subject monies not as income earned but as mere
Section 7 of Revenue Regulations No. 17-84 includes all interest
trustees. As such, they held the money entrusted to them but which
income (whether actual or accrued) in computing the gross
neither belonged to them nor redounded to their benefit. On the
receipts tax.  Section 4(e) of Revenue Regulations No. 12-80 was
27

other hand, BPI cannot be considered as a mere trustee; it is the

superseded by the later rule, because Section 4(e) thereof is not
actual owner of the funds. As owner
restated in Revenue Regulations No. 17-84.  Clearly, then, the 28

_______________
current revenue regulations requires interest income, whether
actually received or merely accrued, to form part of the bank’s  Commissioner of Internal Revenue v. Solidbank Corporation, supra note 11, at
31

taxable gross receipts. 29

446-448.
The Commissioner correctly controverts the conclusion made  Supra note 8.
32

 108 Phil. 821 (1960).

by the Court of Appeals that it would be “unjust and confiscatory
33

 Commissioner of Internal Revenue v. Tours Specialists, Inc., supra note 8, at

34

to include the withheld 20% final tax in the tax base for purposes 409-412.
of computing the gross receipts tax since the amount
corresponding to said 20% final tax was not re- 571
_______________ VOL. 492, JUNE 26, 2006 571
27
 Commissioner of Internal Revenue v. Solidbank Corporation, supra note 11, at Commissioner of Internal Revenue vs. Bank
451.
 Id.
28
of the Philippine Islands
 In fact, the CTA case relied upon by the BIR in filing this petition, Asia Bank,
29
thereof, it was BPI’s tax obligation to the government that was
not only erroneously interpreted Section 4(e) of Revenue Regulations No. 12-80, it extinguished upon the withholding agent’s remittance of the 20%
also cited Section 4(e) when it was no longer the applicable revenue regulation. The
revenue regulations applicable at the time the tax court decided Asia Bank was
final tax. We elucidated on BPI’s ownership of the funds in China
Revenue Regulations No. 17-84, not Revenue Regulations No. 12-80. See China Banking, to wit:
Banking Corporation v. Court of Appeals, supra note 1, at 806; p. 661. Manila Jockey Club does not support CBC’s contention but rather the
Commissioner’s proposition. The Court ruled in Manila Jockey Club that
569 receipts not owned by the Manila Jockey Club but merely held by it in
VOL. 492, JUNE 26, 2006 569 trust did not form part of Manila Jockey Club’s gross receipts. Conversely,
receipts owned by the Manila Jockey Club would form part of its gross
Commissioner of Internal Revenue vs. Bank receipts.
In the instant case, CBC owns the interest income which is the
of the Philippine Islands source of payment of the final withholding tax. The government
ceived by the taxpayer and the latter derived no benefit subsequently becomes the owner of the money constituting the final
therefrom.” 30
tax when CBC pays the final withholding tax to extinguish its
Receipt of income may be actual or constructive. We have obligation to the government. This is the consideration for the transfer
held that the withholding process results in the taxpayer’s of ownership of the money from CBC to the government. Thus, the
constructive receipt of the income withheld, to wit: amount constituting the final tax, being originally owned by CBC
By analogy, we apply to the receipt of income the rules as  part of its interest income, should form part of its taxable gross
on actual and constructive possession provided in Articles 531 and 532 of receipts.
our Civil Code. In Commissioner v. Tours Specialists, Inc., the Court excluded from
Under Article 531: gross receipts money entrusted by foreign tour operators to Tours
“Possession is acquired by the material occupation of a thing or the exercise of a Specialists to pay the hotel accommodation of tourists booked in various
right, or by the fact that it is subject to the action of our will, or by the proper acts and local hotels. The Court declared that Tours Specialists did not own such
legal formalities established for acquiring such right.” entrusted funds and thus the funds were not subject to the 3% contractor’s
tax payable by Tours Specialists. The Court held:
Article 532 states: x x x [G]ross receipts subject to tax under the Tax Code do not include monies or
“Possession may be acquired by the same person who is to enjoy it, by his legal receipts entrusted to the taxpayer which do not belong to them and do not redound to
representative, by his agent, or by any person without any power whatever; but in the the taxpayer’s benefit; and it is not necessary that there must be a law or regulation
last case, the possession shall not be considered as acquired until the person in whose which would exempt such monies and receipts within the meaning of gross receipts
name the act of possession was executed has ratified the same, without prejudice to under the Tax Code.
the juridical consequences of negotiorum gestio in a proper case.” x x x [T]he room charges entrusted by the foreign travel agencies to the private
The last means of acquiring possession under Article 531 refers to juridical acts respondent do not form part of its gross receipts within the definition of the Tax
—the acquisition of possession by sufficient title—to which the law gives the force of Code. The said receipts never belonged to the private respondent. The private
acts of possession. Respondent argues that only items of income actually received respondent never benefited from their payment to the local hotels. x x x [T]his
should be included in its gross receipts. It claims that since the amount had already arrangement was only to accommodate the foreign travel agencies.
been withheld at source, it did not have actual receipt thereof.
We clarify. Article 531 of the Civil Code clearly provides that the acquisition of 572
the right of possession is through the proper acts and legal formalities established
therefor. The withholding process is one such act. There may not be actual receipt of 572 SUPREME COURT REPORTS ANNOTATED
the income withheld; however, as provided for in Article 532, possession by any
person without any power whatso- Commissioner of Internal Revenue vs. Bank
_______________ of the Philippine Islands
Unless otherwise provided by law, ownership is essential in
30
 CA Decision, Rollo, p. 26. determining whether interest income forms part of taxable gross
receipts. Ownership is the circumstance that makes interest income
570 part of the taxable gross receipts of the taxpayer. When the taxpayer
acquires ownership of money representing interest, the money
570 SUPREME COURT REPORTS ANNOTATED
constitutes income or receipt of the taxpayer.
Commissioner of Internal Revenue vs. Bank In contrast, the trustee or agent does not own the money received in
trust and such money does not constitute income or receipt for which the
of the Philippine Islands trustee or agent is taxable. This is a fundamental concept in taxation. Thus,
ever shall be considered as acquired when ratified by the person in funds received by a money remittance agency for transfer and delivery to
whose name the act of possession is executed. In our withholding tax the beneficiary do not constitute income or gross receipts of the money
system, possession is acquired by the payor as the withholding agent of remittance agency. Similarly, a travel agency that collects ticket fares for
the government, because the taxpayer ratifies the very act of an airline does not include the ticket fare in its gross income or receipts. In
possession for the government. There is thus constructive receipt. The these cases, the money remittance agency or travel agency does not acquire
processes of bookkeeping and accounting for interest on deposits and ownership of the funds received.  (Emphasis supplied.)
35

yield on deposit substitutes that are subjected to FWT are indeed—for

legal purposes—tantamount to delivery, receipt or BPI argues that to include the 20% final tax withheld in its gross
remittance.  (Emphasis supplied.)
31

receipts tax base would be to tax twice its passive income and
would constitute double taxation. Granted that interest income is
Thus, BPI constructively received income by virtue of its
being taxed twice, this, however, does not amount to double
acquiescence to the extinguishment of its 20% final tax liability
taxation. There is no double taxation if the law imposes two
when the withholding agents remitted BPI’s income to the
different taxes on the same income, business or ——o0o——
property.   In Solidbank, we ruled, thus:
36

Double taxation means taxing the same property twice when it should be

taxed only once; that is, “x x x taxing the same person twice by the same
jurisdiction for the same thing.” It is obnoxious when the taxpayer is taxed
twice, when it should be but once. Otherwise described as “direct duplicate
taxation,” the two taxes must be imposed on the same subject matter, for
the same purpose, by the same taxing authority, within the same
jurisdiction, during the same taxing period; and they must be of the same
kind or character.

_______________

 China Banking Corporation v. Court of Appeals, supra note 1, at 798-801; pp.

35

654-656.
 Id., at pp. 798-800; p. 664.
36

573
VOL. 492, JUNE 26, 2006 573
Commissioner of Internal Revenue vs. Bank
of the Philippine Islands
First, the taxes herein are imposed on two different subject matters. The
subject matter of the FWT [Final Withholding Tax] is the passive income
generated in the form of interest on deposits and yield on deposit
substitutes, while the subject matter of the GRT [Gross Receipts Tax] is
the privilege of engaging in the business of banking.
A tax based on receipts is a tax on business rather than on the
property; hence, it is an excise rather than a property tax. It is not an
income tax, unlike the FWT. In fact, we have already held that one can be
taxed for engaging in business and further taxed differently for the income
derived therefrom. Akin to our ruling in Velilla v. Posadas, these two taxes
are entirely distinct and are assessed under different provisions.
Second, although both taxes are national in scope because they are
imposed by the same taxing authority—the national government under the
Tax Code—and operate within the same Philippine jurisdiction for the
same purpose of raising revenues, the taxing periods they affect are
different. The FWT is deducted and withheld as soon as the income is
earned, and is paid after every calendar quarter in which it is earned. On
the other hand, the GRT is neither deducted nor withheld, but is paid only
after every taxable quarter in which it is earned.
Third, these two taxes are of different kinds or characters. The FWT is
an income tax subject to withholding, while the GRT is a percentage tax
not subject to withholding.
In short, there is no double taxation, because there is no taxing twice,
by the same taxing authority, within the same jurisdiction, for the same
purpose, in different taxing periods, some of the property in the territory.
Subjecting interest income to a 20% FWT and including it in the
computation of the 5% GRT is clearly not double taxation. 37

Clearly, therefore, despite the fact that that interest income is taxed
twice, there is no double taxation present in this case.
_______________

 Commissioner of Internal Revenue v. Solidbank Corporation, supra note 11, at

37

462-464.

574
574 SUPREME COURT REPORTS ANNOTATED
Commissioner of Internal Revenue vs. Bank
of the Philippine Islands
An interpretation of the tax laws and relevant jurisprudence shows
that the tax on interest income of banks withheld at source is
included in the computation of their gross receipts tax base.
WHEREFORE, the Petition is GRANTED. The assailed
Decisions of the Court of Appeals and the Court of Tax Appeals
are REVERSED AND SET ASIDE. Petitioner Commissioner of
Internal Revenue’s denial of respondent Bank of Philippine
Islands’ claim for refund is SUSTAINED. No costs.
SO ORDERED.
     Quisumbing (Chairperson), Carpio, Carpio-Morales an
d Velasco, Jr., JJ., concur.

Petition granted, assailed decisions of the Court of Appeals

and Court of Tax Appeals reversed and set aside.
Notes.—Double taxation means taxing the same property
twice when it should be taxed only once, i.e., “taxing the same
person twice by the same jurisdiction for the same thing.” An
insurance pool is a taxable entity distinct from the individual
corporate entities of the ceding companies. (AFISCO Insurance
Corporation vs. Court of Appeals, 302 SCRA 1 [1999])
Due process of law under the Constitution does not require
judicial proceedings in tax cases—it is of utmost importance that
the modes adopted to enforce the collection of taxes levied should
be summary and interfered with as little as possible. (Philippine
Bank of Communications vs. Commissioner of Internal
Revenue, 302 SCRA 241 [1999])