(Article published in the No. 25, 2002 issue of TODAY, Business Section)It was Jacinto D. Jimenez, "Jack" to everyone who knows him and "Walking SCRA (Supreme Court Reports Annotated)" to those who know him as a lawyer and law professor, who first explained to me, while we still young and full of hope at the then Ateneo Law School campus in Padre Faura Street, why law is the oldest profession. Like everything else with Jack, he delivered his tale with a passion heard and seen only from the subliminated chaste.
Jack says that a doctor, an engineer and a lawyer were in a bar arguing amongst themselves on whose was oldest profession. The doctor claimed that medicine was the oldest because God, when he made Eve, performed surgery to take extract a rib from Adam. The engineer countered that, even before God made Adam and Eve, he had to construct the universe, which should make engineering older than medicine. But the lawyer floored them both with: "Before God made Adam and Eve, and even before the universe was put in place, there was chaos, and that, my friends, is law".
The joke was amusing
then and no more, but, now, after 33 years as a lawyer, with over 20 years trying to teach
law and a stint in 2001 as a bar examiner in Taxation, I know better. Jack who never
claimed to have witnessed the start of creation was not talking of things past, he was
instead our unsung oracle of Delphi, speaking then of what we are seeing now, a legal
system of criss-crossing statutes compounded by conflicting decisions from divisions of
the same appellate courts befudling the implementors and confounding to no end the rest of
I leave it to Jack to give you, if and when you catch him in a good mood, a litany of conflicts that mar our legal landscape; I am content in focusing today on my limited field of familiarity, on two conflicting decisions of from different divisions of the Court of Appeals. The first which was issued on November 22, 1999 and penned by Justice Hector L. Hofileņa, decided the case of Commissioner of Internal Revenue v. AsianBank Corporation, C.A. G.R. Sp. 51248. The second was the decision, written by Justice Eloy Bello, in the case of Commissioner of Internal Revenue v. RCBC, CA-G.R. Sp. 57721, promulgated August 21, 2001. Depending on which decision will eventually become the law, the government stands to either collect or refund big bucks.
The two cases revolved on the same question: whether the 20-percent final tax withheld from the income that the banks earn from their passive investments, such as interest from treasury bills, is to form part of the base of their gross receipts tax (GRT).
At the Court of Tax Appeals, the question has been answered uniformly in the affirmative. Relying on the pronouncement of the Supreme Court in Collector of Internal Revenue v. Manila Jockey Club, 108 Phil 821, which ruled that "gross receipts of the proprietor of the amusement place should not include any money which although delivered to the amusement place has been especially earmarked by law or regulation for some other person than the proprietor", the Court of Tax Appeals, in several cases that have come before it, argued that since the 20-percent final tax, which is deducted by the payors from the interest earned by the banks, never even reaches the bank but is instead paid by the borrowers to the government, then it ought not be part of "gross receipts". Regardless of whether that application of the ruling in Manila Jockey Club is right or wrong, and I venture to think it is erroneous, what can be said of the Court of Tax Appeals, at least on this issue, is that it has been consistent. At the Court of Appeals, consistency went berserk.
When the issue was raised before the thirteenth division of the Court of Appeals in AsianBank, Justice Hofileņa specifically addressed the question of whether the Manila Jockey Club ruling on the amounts earmarked as prizes among owners of winning horses and authorized bonus for jockeys can be applied to the 20-percent final tax on the interest and other passive income received by banks.
Categorically he stated, and quite correctly I believe, that Manila Jockey Club is not applicable because the law specifically required a percentage of the gross receipts collected by the Manila Jockey Club was to be turned over to the Board of Racers and distributed, as aforesaid, to the owners of winning horses and jockeys. Clearly, no benefit was derived by the Club from the sums thus segregated, hence, it was logical to exclude them from "gross receipts." The final withholding tax of 20 percent, on the other, was the tax on the income of the recipient bank. Its payment to the government was payment for the banks benefit. The situation is as if, 100percent of the income was received by the bank, and, simultaneously, 20 percent of that 100 percent was retrieved from the bank and was paid to the government for its account.
Almost two years after AsianBank came RCBC, but this time before the eighth division of the Court of Appeals. In the beginning, the court appeared to be about to frontally grapple with the issue. It quoted liberal portions of the appealed decision of Court of Tax Appeals and stated laconically "We fully agree with the Court of Tax Appeals". It is bad enough that, as a result, we now have two decisions of the same court, the Court of Appeals, diametrically opposed.
But bad turned to worse, when the eighth divsion tried to explain the basis of its position, and, in the process exposed, its serious misunderstanding of the situation before it. RCBC, like Asian Bank, involved the 20-percent final tax withheld from the interest income paid to the bank. The court, however, thought that it was about the 20-percent final tax withheld by the bank on the interest that it paid to its depositors. Because of that, the court ruled, that "the 20-percent withholding tax collected by the respondent bank must not be considered part of the latters gross receipts (Underline supplied)." Thus, we have a decision, the RCBC, which not only seemed to be completely unaware of AsianBank, but also one which obviously proceeded from a most serious misapprehension of the tax that was involved in the case.
I suppose both AsianBank and RCBC, by now, have been appealed to the Supreme Court by the respective losing parties. And all we should want to do now is simply to wait for the Court to restore some order in this world. After all, the Supreme Court itself has had to straighten up in Commissioner of Internal Revenue v. Procter & Gamble (204 SCRA 377) its own mess that arose years ago when on the same day, two of its divisions, issued conflicting decisions, namely Commissioner of Internal Revenue v. Procter and Gamble (160 SCRA 560), and Commissioner of Internal Revenue v. Wander Philippines (160 SCRA 573) on the same issue of tax sparing.
Wait we could, of course, for the decision of the highest court, but not Internal Revenue Commissioner Guillermo L. Parayno, Jr. Last November 14, he issued Revenue Memorandum Circular 51-2002. On its face, it is simply an internal communication addressed to the people in his beleaguered bureau. Beneath its surface, however, is a strong undertow making banks, nervous as they already are from the adamant refusal of their non-performing loans problems to go away, more nervous still. Commissioner Parayno, obviously unwilling to be tied up in the legalities that are spawned by two conflicting decisions from two divisions of the Court of Appeals in AsianBank and RCBC, has cut the Gordian knot. His revenue memorandum, without his expressly saying so, clearly indicates that he considers AsianBank as the binding decision, not RCBC. Soon his charioteers will be heading towards banks vaults. Many banks, some of them supposedly paragons of good corporate citizenship and conservative banking, would most likely soon be receiving assessments for deficiency GRT. Just for the years 2000 and 2001, I reckon nearly half a billion pesos stand to be assessed with the zealous enforcement of Revenue Memorandum Circular 51-2002.
All these aggravation could possibly have been avoided, to the benefit of us all, if there were some system in the appellate courts of informing all their divisions about the decisions rendered by their peers, or some system of funneling cases to specialized divisions, in the same way that special courts have been designated at the RTC level. Or perhaps some other solution. I do not know. What I do know, however, is that we need, at this time more than ever, stability in the economy and in politics, in law and in life. And we are not getting that from our courts.