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CA AND CASTANEDAfine, not being part of the gross salary or income of a government official or employee but a retirement benefit, terminal leave pay is not subject to income tax. FACTS: Private respondent Efren P. Castaneda retired from the government servi e in !"#$. %pon retirement& he re eived& among other 'enefits& termina( (eave pa) from *hi h petitioner Commissioner of Interna( Reven+e *ithhe(d P!$&,,-.!. a((eged() representing in ome ta/ thereon. Castaneda fi(ed a forma( *ritten (aim *ith petitioner for a ref+nd of the P!$&,,-.!.& ontending that the ash e0+iva(ent of his termina( (eave is e/empt from in ome ta/. To omp() *ith the t*o-)ear pres riptive period *ithin *hi h (aims for ref+nd ma) 'e fi(ed& Castaneda fi(ed on !1 2+() !"#3 *ith the Co+rt of Ta/ Appea(s a Petition for Revie*& see4ing the ref+nd of in ome ta/ *ithhe(d from his termina( (eave pa). The Co+rt of Ta/ Appea(s de ided in favor of Castaneda and ordered the CIR to ref+nd Castaneda the s+m of P!$&,,-.!. *ithhe(d as in ome ta/. Petitioner appea(ed the a'ove-mentioned Co+rt of Ta/ Appea(s de ision to this Co+rt. In t+rn& *e referred the ase to the Co+rt of Appea(s for reso(+tion. 5n $1 Septem'er !""6& the Co+rt of Appea(s dismissed the petition for revie* and affirmed the de ision of the Co+rt of Ta/ Appea(s. 7en e& the present re o+rse ') the Commissioner of Interna( Reven+e. The So(i itor 8enera(& a ting on 'eha(f of the Commissioner of Interna( Reven+e& ontends that the termina( (eave pa) is in ome derived from emp(o)er-emp(o)ee re(ationship& iting in s+pport of his stand Se tion $# of the NIRC. ISS%E: 9hether or not termina( (eave pa) re eived ') a government offi ia( or emp(o)ee on the o asion of his omp+(sor) retirement from the government servi e is s+':e t to *ithho(ding ;in ome< ta/. 7E=D: The Co+rt has a(read) r+(ed that the termina( (eave pa) re eived ') a government offi ia( or emp(o)ee is N5T s+':e t to *ithho(ding ;in ome< ta/. In the re ent ase of 2es+s N. >orromeo vs. The 7on. Civi( Servi e Commission& et a(.& 8.R. No. "16.$& .! 2+() !""!& the Co+rt e/p(ained the rationa(e 'ehind the emp(o)ee?s entit(ement to an e/emption from *ithho(ding ;in ome< ta/ on his termina( (eave pa) as fo((o*s: . . . omm+tation of (eave redits& more ommon() 4no*n as termina( (eave& is app(ied for ') an offi er or emp(o)ee *ho RETIRES& RESI8NS or is SEPARATED from the servi e thro+gh no fa+(t of his o*n. ;@an+a( on =eave Administration Co+rse for Effe tiveness p+'(ished ') the Civi( Servi e Commission& pages !1-!-<. In the e/er ise of so+nd personne( po(i )& the 8overnment en o+rages +n+sed (eaves to 'e a +m+(ated. The 8overnment re ogniAes that for most p+'(i servants& retirement pa) is a(*a)s (ess than genero+s if not meager and s rimp). A modest nest egg *hi h the senior itiAen ma) (oo4 for*ard to is th+s avoided. Termina( (eave pa)ments are given not on() at the same time '+t a(so for the same po(i ) onsiderations governing retirement 'enefits. In fine& not 'eing part of the gross sa(ar) or in ome of a government offi ia( or emp(o)ee '+t a retirement 'enefit& termina( (eave pa) is not s+':e t to in ome ta/.