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TAX - MIGUEL J. OSSORIO PENSION FOUNDATION, INCORPORATED v.

CA & CIR

MIGUEL J. OSSORIO PENSION FOUNDATION, INCORPORATED v. 49.59% of the MBP lot and that VMC merely held 49.59% of the MBP lot in
CA & CIR trust for the Employees’ Trust Fund? [Not estopped.]

EMERGENCY DIGEST (FROM THE INTERNET) 2. If petitioner or the Employees’ Trust Fund is not estopped, whether they
Miguel J. Osorio Pension Foundation, Inc. vs. CA and CIR (2010) have sufficiently established that the Employees’ Trust Fund is the beneficial
owner of 49.59% of the MBP lot, and thus entitled to tax exemption for its
Facts: Petitioner, a non-stock and non-profit corporation, was organized for share in the proceeds from the sale of the MBP lot. [Yes]
the purpose of holding title to and administering the employees’ trust or
retirement funds (Employees’ Trust Fund) established for the benefit of the Ratio: 1. Article 1452 of the Civil Code provides:
employees of Victorias Milling Company, Inc. (VMC).
 Petitioner, as trustee, claims that the income earned by the Art. 1452. If two or more persons agree to
Employees’ Trust Fund is tax exempt under Section 53(b) of the purchase a property and by common consent the legal
National Internal Revenue Code (Tax Code). title is taken in the name of one of them for the benefit of
- Petitioner bought the MBP lot through VMC. Petitioner claims that its share all, a trust is created by force of law in favor of the
in the MBP lot is 49.59%. Petitioner’s investment manager, the Citytrust others in proportion to the interest of each. (Emphasis
Banking Corporation (Citytrust), in submitting its Portfolio Mix Analysis, supplied)
regularly reported the Employees’ Trust Fund’s share in the MBP lot.
- On 26 March 1997, VMC eventually sold the MBP lot to Metrobank. For Article 1452 to apply, all that a co-owner needs to show is that
 Petitioner claims that it is a co-owner of the MBP lot as trustee of there is “common consent” among the purchasing co-owners to put the legal
the Employees’ Trust Fund, based on the notarized Memorandum of title to the purchased property in the name of one co-owner for the benefit
Agreement. Petitioner maintains that its ownership of the MBP lot is of all. Once this “common consent” is shown, “a trust is created by
supported by the excerpts of the minutes and the resolutions of force of law.” The BIR has no option but to recognize such legal trust as
petitioner’s Board Meetings. well as the beneficial ownership of the real owners because the trust is
 Petitioner further contends that there is no dispute that the created by force of law. The fact that the title is registered solely in the
Employees’ Trust Fund is exempt from income tax. Since petitioner, name of one person is not conclusive that he alone owns the property.
as trustee, purchased 49.59% of the MBP lot using funds of the
Employees’ Trust Fund, petitioner asserts that the Employees’ Trust Thus, this case turns on whether petitioner can sufficiently establish
Fund's 49.59% share in the income tax paid (or P3,037,697.40 that petitioner, as trustee of the Employees’ Trust Fund, has a common
rounded off to P3,037,500) should be refunded. agreement with VMC and VFC that petitioner, VMC and VFC shall jointly
- The CTA denied petitioner's claim for refund of withheld creditable tax of purchase the MBP lot and put the title to the MBP lot in the name of VMC for
P3,037,500 arising from the sale of real property of which petitioner claims the benefit petitioner, VMC and VFC.
to be a co-owner as trustee of the employees' trust or retirement funds.
- CA agreed with the CTA that pieces of documentary evidence submitted by We rule that petitioner, as trustee of the Employees’ Trust
petitioner are largely self-serving and can be contrived easily. The CA ruled Fund, has more than sufficiently established that it has an
that these documents failed to show that the funds used to purchase the agreement with VMC and VFC to purchase jointly the MBP lot and
MBP lot came from the Employees’ Trust Fund. to register the MBP lot solely in the name of VMC for the benefit of
petitioner, VMC and VFC.
Issues: 1. Whether petitioner or the Employees’ Trust Fund is estopped
from claiming that the Employees’ Trust Fund is the beneficial owner of
TAX - MIGUEL J. OSSORIO PENSION FOUNDATION, INCORPORATED v. CA & CIR

The CTA ruled that the documents presented by petitioner cannot respect to employees under the trust, for any part
prove its co-ownership over the MBP lot especially that the TCT, Deed of of the corpus or income to be (within the taxable
Absolute Sale and the Remittance Return disclosed that VMC is the sole year or thereafter) used for, or diverted to,
owner and taxpayer. However, the appellate courts failed to consider the purposes other than for the exclusive benefit of his
genuineness and due execution of the notarized Memorandum of Agreement employees: Provided, That any amount actually
acknowledging petitioner’s ownership of the MBP lot. The BIR failed to distributed to any employee or distributee shall be
present any clear and convincing evidence to prove that the notarized taxable to him in the year in which so distributed
Memorandum of Agreement is fictitious or has no legal effect. Likewise, to the extent that it exceeds the amount
VMC, the registered owner, did not repudiate petitioner’s share in the MBP contributed by such employee or distributee.
lot. Further, Citytrust, a reputable banking institution, has prepared a
Portfolio Mix Analysis for the years 1994 to 1997 showing that petitioner Petitioner’s Articles of Incorporation state that its purpose is to hold
invested P5,504,748.25 in the MBP lot. Absent any proof that the Citytrust legal title to, control, invest and administer in the manner provided, pursuant
bank records have been tampered or falsified, and the BIR has presented to applicable rules and conditions as established, and in the interest and for
none, the Portfolio Mix Analysis should be given probative value. the benefit of its beneficiaries and/or participants,the private pension
plan as established for certain employees of Victorias Milling
2. Income from Employees’ Trust Fund is Exempt from Income Tax Company, Inc., and other pension plans of Victorias Milling
Company affiliates and/or subsidiaries; and The SC has long been
Tax exemption cannot arise by implication and any doubt whether the settled the tax-exemption privilege of income derived from employee's
exemption exists is strictly construed against the taxpayer. Further, the trusts.
findings of the CTA, which were affirmed by the CA, should be given respect
and weight in the absence of abuse or improvident exercise of authority. The tax-exempt character of the Employees' Trust Fund has
long been settled. It is also settled that petitioner exists for the
Section 53(b) and now Section 60(b) of the Tax Code provides: purpose of holding title to, and administering, the tax-exempt
Employees’ Trust Fund established for the benefit of VMC’s
SEC. 60. Imposition of Tax. - employees. As such, petitioner has the personality to claim tax
refunds due the Employees' Trust Fund.
(A) Application of Tax. - x x x
In Citytrust Banking Corporation as Trustee and Investment Manager
(B) Exception. - The tax imposed by this Title of Various Retirement Funds v. Commissioner of Internal Revenue, the CTA
shall not apply to employee’s trust which forms granted Citytrust’s claim for refund on withholding taxes paid on the
part of a pension, stock bonus or profit-sharing investments made by Citytrust in behalf of the trust funds it manages,
plan of an employer for the benefit of some or all of including petitioner.
his employees (1) if contributions are made to the
trust by such employer, or employees, or both for Similarly, in BIR Ruling [UN-450-95], Citytrust wrote the BIR to
the purpose of distributing to such employees the request for a ruling exempting it from the payment of withholding tax on the
earnings and principal of the fund accumulated by sale of the land by various BIR-approved trustees and tax-exempt private
the trust in accordance with such plan, and (2) if employees' retirement benefit trust funds represented by Citytrust. The BIR
under the trust instrument it is impossible, at any ruled that the private employees benefit trust funds, which included
time prior to the satisfaction of all liabilities with petitioner, have met the requirements of the law and the regulations and
TAX - MIGUEL J. OSSORIO PENSION FOUNDATION, INCORPORATED v. CA & CIR

therefore qualify as reasonable retirement benefit plans within the


contemplation of Republic Act No. 4917 (now Sec. 28(b)(7)(A), Tax Code).
The income from the trust fund investments is therefore exempt from the
payment of income tax and consequently from the payment of the creditable
withholding tax on the sale of their real property.

Thus, the documents issued and certified by Citytrust showing that


money from the Employees’ Trust Fund was invested in the MBP lot cannot
simply be brushed aside by the BIR as self-serving, in the light of previous
cases holding that Citytrust was indeed handling the money of the
Employees’ Trust Fund. These documents, together with the notarized
Memorandum of Agreement, clearly establish that petitioner, on behalf of
the Employees’ Trust Fund, indeed invested in the purchase of the MBP lot.
Thus, the Employees' Trust Fund owns 49.59% of the MBP lot.

Since petitioner has proven that the income from the sale of the MBP
lot came from an investment by the Employees' Trust Fund, petitioner, as
trustee of the Employees’ Trust Fund, is entitled to claim the tax refund
of P3,037,500 which was erroneously paid in the sale of the MBP lot.
TAX - MIGUEL J. OSSORIO PENSION FOUNDATION, INCORPORATED v. CA & CIR

COMPLETE DIGESTS - However, MJO Pension Fund is indebted to VMC representing


pension benefit advances paid to retirees amounting
The Case to P21,425,141.54, thereby leaving a balance of P14,822,358.46 in
- The Miguel J. Ossorio Pension Foundation, Incorporated (petitioner favor of MJOPFI. Check for said amount of P14,822,358.46 will
or MJOPFI) filed this Petition for Certiorari to reverse the CA therefore be issued to MJOPFI as its share in the proceeds of the
Decision as well as the Resolution denying the MR. sale of Lot 1.
- In the assailed decision, the CA affirmed the Court of Tax Appeals’ - Since MJOPFI, as trustee, purchased 49.59% of the MBP lot using
(CTA) Decision where the CTA denied petitioner’s claim for refund funds of the Employees’ Trust Fund, MJOPFI asserts that the
of withheld creditable tax of P3,037,500 arising from the sale of Employees’ Trust Fund’s 49.59% share in the income tax paid
real property of which petitioner claims to be a co-owner as trustee (or P3,037,697.40 rounded off toP3,037,500) should be refunded.
of the employees’ trust or retirement funds. - MJOPFI maintains that the tax exemption of the Employees’ Trust
Fund rendered the payment ofP3,037,500 as illegal or erroneous.
The Facts - On 5 May 1997, petitioner filed a claim for tax refund.
- MJOPFI, a non-stock and non-profit corporation, was organized for - the BIR, through its Revenue District Officer, wrote MJOPFI stating
the purpose of holding title to and administering the employees’ that under Section 26 of the Tax Code, MJOPFI is not exempt from
trust or retirement funds (Employees’ Trust Fund) established for tax on its income from the sale of real property. The BIR asked
the benefit of the employees of Victorias Milling Company, Inc. MJOPFI to submit documents to prove its co-ownership of the MBP
(VMC). lot and its exemption from tax.[16]
- MJOPFI as trustee, claims that the income earned by the - MJOPFI replied that the applicable provision granting its claim for
Employees’ Trust Fund is tax exempt under Section 53(b) tax exemption is not Section 26 but Section 53(b) of the Tax Code.
of the National Internal Revenue Code (Tax Code). MJOPFI claims that its co-ownership of the MBP lot is evidenced by
- MJOPFI decided to invest part of the Employees’ Trust Fund to Board Resolution Nos. 92-34 and 96-46 and the memoranda of
purchase a lot in the Madrigal Business Park (MBP lot) in Alabang, agreement among petitioner, VMC and its subsidiaries.
Muntinlupa. MJOPFI alleges that its investment in the MBP lot came - MJOPFI elevated its claim to the Commissioner of Internal Revenue
about upon the invitation of VMC, which also purchased two lots. (CIR) on 26 October 1998. The CIR did not act on petitioner’s claim
- MJOPFI claims that since it needed funds to pay the retirement and for refund.
pension benefits of VMC employees and to reimburse advances - Hence, MJOPFI filed a petition for tax refund before the CTA. On 24
made by VMC, petitioner’s Board of Trustees authorized the sale of October 2000, the CTA rendered a decision denying the petition.
its share in the MBP lot. - MJOPFI filed its Petition for Review before the Court of Appeals. On
- VMC negotiated the sale of the MBP lot with (Metrobank) 20 May 2003, the CA rendered a decision denying the appeal. The
for P81,675,000, CA also denied petitioner’s Motion for Reconsideration.
- Metrobank, as withholding agent, paid the Bureau of Internal - Aggrieved by the appellate court’s Decision, petitioner elevated the
Revenue (BIR) P6,125,625 as withholding tax on the sale of real case before this Court.
property.
- Since Lot 1 has been sold for P81,675,000.00 (gross of 7.5% The Issues
withholding tax and 3% broker’s commission, MJOPFI’s share in the 1. Whether MJOPFI or the Employees’ Trust Fund is estopped from
proceeds of the sale is P40,500,000.00 (gross of 7.5% withholding claiming that the Employees’ Trust Fund is the beneficial owner of 49.59%
tax and 3% broker’s commission. of the MBP lot and that VMC merely held 49.59% of the MBP lot in trust for
the Employees’ Trust Fund.
TAX - MIGUEL J. OSSORIO PENSION FOUNDATION, INCORPORATED v. CA & CIR

2. If petitioner or the Employees’ Trust Fund is not estopped, whether - However, the appellate courts failed to consider the genuineness
they have sufficiently established that the Employees’ Trust Fund is the and due execution of the notarized Memorandum of Agreement
beneficial owner of 49.59% of the MBP lot, and thus entitled to tax acknowledging petitioner’s ownership of the MBP lot
exemption for its share in the proceeds from the sale of the MBP lot. - Thus, there is a “common consent” or agreement among petitioner,
VMC and VFC to co-own the MBP lot in the proportion specified in
HELD: PETITION GRANTED the notarized Memorandum of Agreement.
RATIO: The Ruling of the Court; - No particular words are required for the creation of a trust, it being
- This case turns on whether petitioner can sufficiently establish that sufficient that a trust is clearly intended
MJOPFI, as trustee of the Employees’ Trust Fund, has a common - The fact that the TCT, Deed of Absolute Sale and the Remittance
agreement with VMC and VFC that MJOPFI, VMC and VFC shall Return were in VMC’s name does not forestall the possibility that
jointly purchase the MBP lot and put the title to the MBP lot in the the property is owned by another entity because Article 1452 of
name of VMC for the benefit petitioner, VMC and VFC. the Civil Code expressly authorizes a person to purchase a
- COURT -We rule that petitioner, as trustee of the property with his own money and to take conveyance in
Employees’ Trust Fund, has more than sufficiently the name of another.
established that it has an agreement with VMC and VFC to - MJOPFI has sufficiently proven that it had a “common consent” or
purchase jointly the MBP lot and to register the MBP lot agreement with VMC and VFC to jointly purchase the MBP lot. The
solely in the name of VMC for the benefit of petitioner, VMC absence of petitioner’s name in the TCT does not prevent petitioner
and VFC. from claiming before the BIR that the Employees’ Trust Fund is the
beneficial owner of 49.59% of the MBP lot and that VMC merely
Factual findings of the CTA will be reviewed when judgment is holds 49.59% of the MBP lot in trust, through petitioner, for the
based on a misapprehension of facts. benefit of the Employees’ Trust Fund.
- Generally, the factual findings of the CTA, a special court exercising
expertise on the subject of tax, are regarded as final, binding and Income from Employees’ Trust Fund is Exempt from Income Tax
conclusive upon this Court, especially if these are substantially - MJOPFI claims that the Employees’ Trust Fund is exempt from the
similar to the findings of the CA which is normally the final arbiter payment of income tax. Petitioner further claims that as trustee, it
of questions of fact. acts for the Employees’ Trust Fund, and can file the claim for
- However, there are recognized exceptions to this rule, such as refund. As trustee, petitioner considers itself as the entity that is
when the judgment is based on a misapprehension of facts. entitled to file a claim for refund of taxes erroneously paid in the
- The issues of whether petitioner or the Employees’ Trust Fund is sale of the MBP lot.
estopped from claiming 49.59% ownership in the MBP lot, whether - The Office of the Solicitor General argues that the cardinal rule in
the documents presented by petitioner are self-serving, and taxation is that tax exemptions are highly disfavored and whoever
whether petitioner has proven its exemption from tax, are all claims a tax exemption must justify his right by the clearest grant
questions of fact which could only be resolved after reviewing, of law. Tax exemption cannot arise by implication and any doubt
examining and evaluating the probative value of the evidence whether the exemption exists is strictly construed against the
presented. taxpayer.
- The CTA ruled that the documents presented by petitioner cannot - Further, the findings of the CTA, which were affirmed by the CA,
prove its co-ownership over the MBP lot especially that the TCT, should be given respect and weight in the absence of abuse or
Deed of Absolute Sale and the Remittance Return disclosed that improvident exercise of authority.
VMC is the sole owner and taxpayer. - Section 53(b) and now Section 60(b) of the Tax Code provides:
TAX - MIGUEL J. OSSORIO PENSION FOUNDATION, INCORPORATED v. CA & CIR

- The pension plan was thereafter submitted to the Bureau of


SEC. 60. Imposition of Tax. - Internal Revenue for registration and for a ruling as to whether its
(A) Application of Tax. – x x x income or earnings are exempt from income tax pursuant to Rep.
(B) Exception. – The tax imposed by this Title shall not apply to employee’s Act 4917, in relation to Sec. 56(b), now Sec. 54(b), of the Tax
trust which forms part of a pension, stock bonus or profit-sharing plan of an Code.
employer for the benefit of some or all of his employees (1) if contributions - It asserted that the pension plan in question was previously
are made to the trust by such employer, or employees, or both for the submitted to the Bureau of Internal Revenue for a ruling as to
purpose of distributing to such employees the earnings and principal of the whether the income or earnings of the retirement funds of said
fund accumulated by the trust in accordance with such plan, and (2) if under plan are exempt from income tax and in a letter dated January
the trust instrument it is impossible, at any time prior to the satisfaction of 18,1984, the Bureau ruled that the earnings of the trust
all liabilities with respect to employees under the trust, for any part of the funds of the pension plan are exempt from income tax
corpus or income to be (within the taxable year or thereafter) used for, or under Sec. 56(b) of the Tax Code.
diverted to, purposes other than for the exclusive benefit of his - The tax-exempt character of petitioner’s Employees’ Trust
employees: Provided, That any amount actually distributed to any employee Fund is not at issue in this case. The tax-exempt character
or distributee shall be taxable to him in the year in which so distributed to of the Employees’ Trust Fund has long been settled. It is
the extent that it exceeds the amount contributed by such employee or also settled that petitioner exists for the purpose of holding
distributee. title to, and administering, the tax-exempt Employees’
Trust Fund established for the benefit of VMC’s employees.
- MJOPFI’s Articles of Incorporation state the purpose for which the As such, petitioner has the personality to claim tax refunds
corporation was formed: Primary Purpose: To hold legal title to, due the Employees’ Trust Fund.
control, invest and administer in the manner provided, pursuant to
applicable rules and conditions as established, and in the interest - In resolving the second issue, we note that the same is not a case
and for the benefit of its beneficiaries and/or participants, the of first impression. Indeed, the MJOPFI is correct in its adherence
private pension plan as established for certain employees to the clear ruling laid by the Supreme Court way back in 1992 in
of Victorias Milling Company, Inc., and other pension plans the case of Commissioner of Internal Revenue vs. The Honorable
of Victorias Milling Company affiliates and/or Court of Appeals, The Court of Tax Appeals and GCL Retirement
subsidiaries, the pension funds and assets, as well as accruals, Plan, 207 SCRA 487 at page 496, supra, wherein it was succinctly
additions and increments thereto, and such amounts as may be set held:
aside or accumulated for the benefit of the participants of said
pension plans; and in furtherance of the foregoing and as may be x x x There can be no denying either that the final withholding tax is
incidental thereto. collected from income in respect of which employees’ trusts are declared
- Thus, MJOPFI is a corporation that was formed to exempt (Sec. 56(b), now 53(b), Tax Code). The application of the
administer the Employees’ Trust Fund. Petitioner withholdings system to interest on bank deposits or yield from deposit
invested P5,504,748.25 of the funds of the Employees’ substitutes is essentially to maximize and expedite the collection of income
Trust Fund to purchase the MBP lot. When the MBP lot was taxes by requiring its payment at the source. If an employees’ trust like the
sold, the gross income of the Employees’ Trust Fund from GCL enjoys a tax-exempt status from income, we see no logic in withholding
the sale of the MBP lot wasP40,500,000. The 7.5% a certain percentage of that income which it is not supposed to pay in the
withholding tax of P3,037,500 and broker’s commission first place.
were deducted from the proceeds.
TAX - MIGUEL J. OSSORIO PENSION FOUNDATION, INCORPORATED v. CA & CIR

- Similarly, the income of the trust funds involved herein is exempt


from the payment of final withholding taxes.
- This CTA decision became final and executory when the CIR failed
to file a Petition for Review within the extension granted by the CA.
- The BIR ruled that the private employees benefit trust
funds, which included petitioner, have met the requirements of
the law and the regulations and therefore qualify as reasonable
retirement benefit plans within the contemplation of Republic Act
No. 4917 (now Sec. 28(b)(7)(A), Tax Code).
- The income from the trust fund investments is therefore exempt
from the payment of income tax and consequently from the
payment of the creditable withholding tax on the sale of their real
property.
- Thus, the documents issued and certified by Citytrust showing that
money from the Employees’ Trust Fund was invested in the MBP lot
cannot simply be brushed aside by the BIR as self-serving, in the
light of previous cases holding that Citytrust was indeed handling
the money of the Employees’ Trust Fund. These documents,
together with the notarized Memorandum of Agreement, clearly
establish that petitioner, on behalf of the Employees’ Trust Fund,
indeed invested in the purchase of the MBP lot. Thus, the
Employees’ Trust Fund owns 49.59% of the MBP lot.
- Since MJOPFI has proven that the income from the sale of
the MBP lot came from an investment by the Employees’
Trust Fund, petitioner, as trustee of the Employees’ Trust
Fund, is entitled to claim the tax refund of P3,037,500
which was erroneously paid in the sale of the MBP lot.
- WHEREFORE, we GRANT the petition and SET ASIDE the
Decision of 30 May 2003 of the Court of Appeals in CA-G.R. SP No.
61829.
- Respondent Commissioner of Internal Revenue is directed to refund
petitioner Miguel J. Ossorio Pension Foundation, Incorporated, as
trustee of the Employees’ Trust Fund, the amount of P3,037,500,
representing income tax erroneously paid.

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