Dumaguete Cathedral Credit Coop vs.

CIR
GR No. 182722; Jan. 22, 2010
Facts:
Petitioner Dumaguete Cooperative (DCCCO) is a credit cooperative duly
registered with the Cooperative Development Authority (CDA). Sometime in 2001,
the BIR issued an authority to examine petitioners books of accounts for taxable
years 1999 and 2000. Later on during 2002, petitioner received pre-assessment
notices for deficiency withholding taxes covering payments for honorarium of its
Board, security and janitorial services, legal and professional fees, and interest on
savings and time deposits of its members. Two letters were issued by the petitioner
informing the BIR its intent to pay the withholding taxes on honorarium and per
diems of the Board, security and janitorial services, commission and professional
fees and would avail of the Voluntary Assessment and Abatement Program (VAAP).
Petitioner subsequently paid the said amounts corresponding to the said deficiency
withholding taxes for both years 1999 and 2000.
Sometime in 2003 however, petitioner received another Assessment notices
ordering them to pay withholding taxes inclusive of penalties. Petitioner protested
the Letters of Demand and Assessment Notices with the CIR which the latter failed
to act upon the prescribed 180 day period, thus petitioner appealed with the CTA.
The CTA first division ruled in favor of the validity of the assessment. Petitioner filed
a petition for review on the ground whether or not they are liable for payment of the
deficiency withholding taxes on interest from savings and time deposits of its
members for taxable years 1999 and 2000. The CTA En Banc denied the petition for
review because pursuant to Revenue Regulations No. 2-98 enumerated the income
payments subject to final withholding tax, among which is "interest from any peso
bank deposit and yield, or any other monetary benefit from deposit substitutes and
from trust funds and similar arrangements . . .". According to the CTA En Banc,
petitioner's business falls under the phrase "similar arrangements.
Issue: Whether or Not petitioner is liable for payment for deficiency withholding
taxes on interest from savings and time deposits of its members.
Held: No, petitioner is not liable for payment for such deficiency withholding taxes.
Pursuant to BIR Ruling No. 551-888 since interest from any Philippine currency bank
deposit and yield or any other monetary benefit from deposit substitutes are paid
by banks, cooperatives are not required to withhold the corresponding tax on the
interest from savings and time deposits of their members. The interpretation was
reiterated in BIR Ruling DA-591-2006 which stated that, Considering the members'
deposits with the cooperatives are not currency bank deposits nor deposit
substitutes, Section 24(B)(1) and Section 27(D)(1), therefore, do not apply to
members of cooperatives and to deposits of primaries with federations,
respectively. Both rulings apply to the instant case.

Moreover, pursuant to RA 6938, as amended by RA 9520, it is a declared policy of

the state to foster the creation and growth of cooperatives and in lieu with that to
encourage its formation, the state extends all forms of assistance, one of which is
through a preferential tax treatment. Articles 61 and 62 of RA 6398 provides the
legislative intent to give cooperatives a preferential tax treatment. Moreover, under
the said law its does not limit the exemption to the cooperative only but also
towards its members because to limit the application of the tax exemption to
cooperatives would go against the very purpose of a credit cooperative which is for
the benefit of its members. Moreover, the subsequent amendment under RA 9520
particularly Sec. 61 now expressly provides that transactions of members with the
cooperatives are not subject to taxes. This amendment in Article 61 of RA 9520,
affirms the interpretation of the BIR that Section 24 (B) (1) of the NIRC does not
apply to cooperatives and confirms that such ruling carries out the legislative intent.
Under the principle of legislative approval of administrative interpretation by
reenactment, the reenactment of a statute substantially unchanged is persuasive
indication of the adoption by Congress of a prior executive construction.