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DUMAGUETE CATHEDRAL CREDIT COOPERATIVE (DCCO) VS.

COMMISSIONER OF INTERNAL REVENUE (CIR)


SHORT STORY: DCCO is a credit cooperative. In 2001, BIR examined their books for years 1999-2000
and required them to pay withholding taxes for honorarium of their Board of Directors, security and janitorial
services, legal and professional fees, and interest on time savings and deposits of their members. DCCO
protested the payment of taxes on time savings and deposits at the BIR Regional Office, elevating it to the
Commissioner of Internal Revenue, then the Court of Tax Appeals, and finally the Supreme Court. The SC
held that DCCO is not liable to pay the taxes given that banks pay interest on such, and that cooperatives
are given preferential tax treatment. Cooperatives are also protected by the 1987 Constitution.
FACTS
1. TIMELINE
a. 27 Nov 2001 BIR Ops Group commissioner Lilian Hefti issued Letters of
Authority (LoA)
i. LoA authorized BIR Officers Tomas Rabuyon and Tarcisio Cubillan to
examine DCCOs books and accounting records for taxable years 19992000
b. Proceedings before BIR Regional Office
i. 26 June 2002 DCCO received notices for deficiency withholding taxes
[for Board of Directors honorarium, security and janitorial services, legal
and professional fees, and interest on savings and time deposits)
ii. 23 July 2002 DCCO protested notices
iii. 16 Oct 2002 DCCO received 2 more notices
iv. 22 Oct 2002 DCCO informed BIR Regional Director (RD) Sonia Flores it
would only pay tax on everything EXCEPT interest and time savings;
would avail of Voluntary Assessment and Abatement Program (VAAP)
v. 29 Nov 2002 DCCO availed of VAAP, paid P 105,574.62 (1999) and P
143,867.24 (2000)
vi. 24 April 2003 DCCO received Letters of Demand from BIR RD Flores to
pay P 1,489,065.30 (1999) and P 1,462,644.90 (2000).
c. Proceedings before CIR
i. 9 May 2003 protested Letters of Demand
ii. CIR failed to act on protest within 180 days
iii. 3 Dec 2003 DCCO filed petition for review before the Court of Tax
Appeals
d. Proceedings before CTA 1st Division
i. 6 Feb 2007 Petition partially granted, assessment for honorarium, legal
and professional, security and janitorial services cancelled. Assessment
for withholding taxes on interests affirmed.
e. Proceedings before CTA en banc
i. CTA denied petition for review, and DCCOs Motion for Reconsideration
ii. Held Section 57 of National Internal Revenue Code, requiring withholding
of tax at source
iii. DCCOs business falls under similar arrangements DCCO should have
withheld 20% final tax on interest from members deposits
ISSUE + RATIO:

WON DCCO IS LIABLE TO PAY DEFICIENCY WITHHOLDING TAXES FOR YEARS 1999-2000 AND
DELINQUENCY INTEREST OF 20% PER ANNUM NO
1. DCCOs invocation of BIR Ruling 551-888 is proper
a. 16 Nov 1988 BIR declared that cooperatives are not required to withhold taxes
on interest from savings and time deposits
b. Interest from any PH currency bank deposit and yield or any other monetary
benefit from deposit substitutes paid by banks
c. Note: interpretations of administrative agencies enforcing/implementing laws
given great weight by courts
2. Members of cooperatives deserve preferential tax treatment as per RA 6938 as
amended by RA 9520
a. Declared policy of State to foster creation and growth of cooperatives as a
practical vehicle for promoting self-reliance for economic development and
social justice
b. Legislative intent to give preferential tax treatment apparent in Articles 61 and
62 of RA 6938
i. Art 61 shall not be subject to any govt taxes and fees imposed under
the Internal Revenue Code and other tax laws. Cooperatives not falling
under this article shall be governed by succeeding section.
ii. Art 62 shall not be subject to tax on their transactions to members.
Notwithstanding provision of any law or regulation to the contrary, such
cooperatives dealing with nonmembers shall enjoy the following tax
exemptions
c. Limiting tax exemption to cooperatives against the very purpose of
cooperatives. Extending exemption to cooperative members consistent with
legislatures intent
i. Art 126 in case of doubt, should be resolved in favor of cooperatives and
members
d. Alonzo v. Intermediate Appellate Court
i. Spirit of a statute determines its construction statute must be read
according to its intent
ii. A thing which is within the intent of the lawmaker is as much within the
statute as if within the letter
e. S 15, Art XII of 1987 Constitution guarantees protection of cooperatives
i. S 10, Art II policy of State to promote social justice in national
development
ii. S 2, Art XIII promotion of social justice includes commitment to create
economic opportunities based on freedom of initiative and self-reliance
HELD:
Petition GRANTED. CTA 2007 Decision and 2008 Resolution SET ASIDE and REVERSED.
DCCO is not liable to pay assessed deficiency withholding taxes on interests from savings and time
deposits of its members, and delinquency interest of 20% per annum.
Dumaguete Cathedral Credit Cooperative (established 17 Feb 1968)
a. Objectives and purposes
i. Increase income and purchasing power of members
ii. Pool resources by encouraging savings and capital formation
iii. Extend loans to members
b. Powers
i. Draw, make, accept, endorse, guarantee, execute, issue promissory

notes, mortgages, bills of exchange, drafts, warrants, certificates, and all


kinds of obligations
ii. Issue bonds, debentures, other obligations