CHINA BANKING CORPORATION vs.

COURT OF APPEALS

G.R. No. 146749; June 10, 2003

FACTS:

PET paid P12,354,933.00 as gross receipts tax on its income from interests on loan investments, commissions, services,
collection charges, foreign exchange profits and other operating earnings during the second quarter of 1994.

 Citing Asian Bank Corp. v, CIR, PET argued that it was not liable for the gross receipts tax - amounting
to P1,140,623.82 - on the sums withheld by the Bangko Sentral ng Pilipinas as final withholding tax on its passive
interest income in 1994.

Disputing PET’s claim, CIR asserted that PET paid the gross receipts tax pursuant to Section 119 (now Section 121),
NIRC and other pertinent BIR regulations. Further, it argued that the final withholding tax on a bank’s interest income
forms part of its gross receipts in computing the gross receipts tax. Contending that the term "gross receipts" means the
entire income or receipt, without any deduction.

CA and CTA ruled in favor of PET, ordering a partial refund of P123,778.73 and holding that the 20% final withholding tax
on interest income does not form part of PET’s taxable gross receipts.

 Revenue Regulations No. 12-80 provides that the rates of tax to be imposed on the gross receipts of banking and
financial institution shall be based on all items on income actually received. Hence, subject tax, not having been
received by PET but instead went to the coffers of the government, should no longer form part of its gross
receipts for the purpose of computing the gross receipt tax.

ISSUE:

a. WON the 20% final withholding tax on interest income should form part of CBC’s gross receipts in computing the gross
receipts tax on banks - YES.

The concept of a withholding tax necessarily implies that the tax withheld comes from the income earned by the taxpayer.
Since the amount of the tax withheld constitutes income earned by the taxpayer, then that amount manifestly forms part of
the taxpayer’s gross receipts.

Absent a statutory definition, the term "gross receipts" is understood in its plain and ordinary meaning. Words in a statute
are taken in their usual and familiar signification, with due regard to their general and popular use.

NIRC does not define the term "gross receipts" for purposes of tax on finance companies. Despite the absence of a
statutory definition, these taxes have been collected in this country for over half a century on the general and common
understanding that they are based on all receipts without any deduction.

BIR has consistently ruled that the term "gross receipts" does not admit of any deduction, which remained unchanged
despite various legislative re-enactments of the provision on gross receipt tax on banks under Sec. 249 of the Tax Code
(RA 39 in 1946; PD 69 in 1972; PD 1158 and RA 8424 in 1977).

 The only conclusion is that the legislature has adopted the BIR’s interpretation, following the principle of
legislative approval by re-enactment. Under this principle, it is presumed that the Legislature reenacted the law on
the tax with full knowledge of the contents of the regulations then in force, and that it approved or confirmed them
because they carry out the legislative purpose.
 The presumption is that the legislature is familiar with the contemporaneous interpretation of a statute given by
the administrative agency tasked to enforce the statute.

ITC, subsequent re-enactments of the present Section 121 of the Tax Code, without changes on the term interpreted by
the BIR, confirm that the BIR’s interpretation carries out the legislative purpose.