DCCCO v.

COMMISSIONER OF INTERNAL REVENUE

G.R. No. 182722
January 22, 2010

FACTS:
Petitioner Dumaguete Cathedral Credit Cooperative (DCCCO) was established on February 17,
1968. On November 2, 2001, BIR Operations Group Dep. Comm. Lilian Hefti issued Letters of
Authority Nos. 63222 and 63223, which authorized an inspection of petitioner’s books and
accounting records for internal revenue taxes for the years 1999 and 2000. On June 26, 2002, and
October 16, 2002, petitioner received four Pre-Assessment Notices for deficiency withholding
taxes for 1999 and 2000. The said taxes covered the honorarium of the Board of Directors,
security and janitorial services, legal and professional fees, and interest on savings and time
deposits of its members. Petitioner informed BIR Regional Dir. Sonia Flores and Assistant
Regional Dir. Rogelio Zambarrano that it would pay the withholding taxes for the first three
categories., On April 24, 2003, petitioner received Letters of Demand Nos. 00027-2003 and
00026-2003.

On May 9, 2003, petitioner protested the Letters of Demand and Assessment Notices with the
Commissioner of Internal Revenue (CIR). After the latter failed to act, petitioner filed a Petition
for Review before the CTA on December 3, 2003. The CTA partially granted the petition,
ordering petitioner to pay deficiency withholding taxes on interest from savings and time
deposits of its members. Petitioner then filed another Petition for Review with the CTA En Banc,
which the latter denied.

ISSUE:
Whether petitioner is liable to pay the deficiency withholding taxes on interest from savings and
time deposits of its members for the years 1999 and 2000.

HELD:
NO.
In BIR Ruling No. 551-888, the BIR stated that, unlike banks, cooperatives are not required to
withhold taxes on interest from savings and time deposits of their members. The BIR reiterated
this in BIR Ruling [DA-591-2006], where it said that Sec. 24(B)(1) and Sec. 27(D)(1) of the
National Internal Revenue Code of 1997 (NIRC) do not apply to members of cooperatives.

Furthermore, under Art. 2 of R.A. 6938, as amended by R.A. 9520, the State provides
cooperatives preferential tax treatment. The Court held that the legislative intent behind Articles
61 and 62 of R.A. 6938 meant that preferential tax treatment, which expressly applied to
cooperatives, was extended to members of cooperatives as well. Thus, petitioners’ interpretation
of Sec. 24(B)(1) of the NIRC as not applying to cooperatives is affirmed.

RESULT:
Petition is granted.