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Intercontinental Broadcasting Corporation (IBC) vs. Amarilla, G.R. No.

162775, October
27, 2006
Facts: Intercontinental Broadcasting Corporation (IBC) employed the following persons at
its Cebu station: Candido C. Quiones, Jr., Corsini R. Lagahit, as Studio Technician, Anatolio G.
Otadoy, as Collector, and Noemi Amarilla, as Traffic Clerk. On March 1, 1986, the government
sequestered the station, including its properties, funds and other assets, and took over its
management and operations from its owner, Roberto Benedicto. On November 3, 1990, the
Presidential Commission on Good Government (PCGG) and Benedicto executed a Compromise
Agreement, where Benedicto transferred and assigned all his rights, shares and interests in IBC
station to the government.
The four (4) employees retired from the company and received, on staggered basis, their
retirement benefits under the 1993 Collective Bargaining Agreement (CBA) between IBC and
the bargaining unit of its employees. In the meantime, a P1,500.00 salary increase was given to
all employees of the company, current and retired, effective July 1994. However, when the four
retirees demanded theirs, IBC refused and instead informed them via a letter that their
differentials would be used to offset the tax due on their retirement benefits in accordance with
the National Internal Revenue Code (NIRC).
The four retirees filed separate complaints which averred that the retirement benefits are exempt
from income tax under Article 32 of the NIRC.
For its part, IBC averred that under Section 21 of the NIRC, the retirement benefits
received by employees from their employers constitute taxable income. While retirement
benefits are exempt from taxes under Section 28(b) of said Code, the law requires that such
benefits received should be in accord with a reasonable retirement plan duly registered with the
Bureau of Internal Revenue (BIR). Since its retirement plan in the 1993 CBA was not approved
by the BIR, complainants were liable for income tax on their retirement benefits.
In reply, complainants averred that the claims for the retirement salary differentials of
Quiones and Otadoy had not prescribed because the said CBA was implemented only in 1997.
They pointed out that they filed their claims with IBC on April 3, 1999. They maintained that
they availed of the optional retirement because of IBCs inducement that there would be no tax
deductions. IBC countered that under Sections 72 and 73 of the NIRC, it is obliged to deduct and
withhold taxes determined in accordance with the rules and regulations to be prepared by the
Secretary of Finance.
The NLRC held that the benefits of the retirement plan under the CBAs between IBC and
its union members were subject to tax as the scheme was not approved by the BIR. However, it
had also been the practice of IBC to give retiring employees their retirement pay without tax
deductions and there was no justifiable reason for the respondent to deviate from such practice.
Issues: 1. Whether the retirement benefits of respondents are part of their gross income.
2. Whether IBC is estopped from reneging on its agreement with respondent to pay for
the taxes on said retirement benefits.

Ruling: 1. Yes. Under the NIRC, the retirement benefits of respondents are part of their gross
income subject to taxes. Thus, for the retirement benefits to be exempt from the withholding tax,
the taxpayer is burdened to prove the concurrence of the following elements: (1) a reasonable
private benefit plan is maintained by the employer; (2) the retiring official or employee has been
in the service of the same employer for at least 10 years; (3) the retiring official or employee is
not less than 50 years of age at the time of his retirement; and (4) the benefit had been availed of
only once. Respondents were qualified to retire optionally from their employment with
IBC. However, there is no evidence on record that the 1993 CBA had been approved or was
ever presented to the BIR; hence, the retirement benefits of respondents are taxable.
Under Section 80 of the NIRC, IBC, as employer, was obliged to withhold the taxes on
said benefits and remit the same to the BIR. However, the Court agrees with respondents
contention that IBC did not withhold the taxes due on their retirement benefits because it had
obliged itself to pay the taxes due thereon. This was done to induce respondents to agree to avail
of the optional retirement scheme.
2. Yes. IBC is estopped from doing so. It must be stressed that the parties are free to enter into
any contract stipulation provided it is not illegal or contrary to public morals. When such
agreement freely and voluntarily entered into turns out to be advantageous to a party, the courts
cannot rescue the other party without violating the constitutional right to contract. Courts are
not authorized to extricate the parties from the consequences of their acts.
An agreement to pay the taxes on the retirement benefits as an incentive to prospective
retirees and for them to avail of the optional retirement scheme is not contrary to law or to public
morals. IBC had agreed to shoulder such taxes to entice them to voluntarily retire early, on its
belief that this would prove advantageous to it. Respondents agreed and relied on the
commitment of IBC. For IBC to renege on its contract with respondents simply because its new
management had found the same disadvantageous would amount to a breach of contract.
The well-entrenched rule is that estoppel may arise from a making of a promise if it was
intended that the promise should be relied upon and, in fact, was relied upon, and if a refusal to
sanction the perpetration of fraud would result to injustice. The mere omission by the promisor to
do whatever he promises to do is sufficient forbearance to give rise to a promissory estoppel.


Respondent corporation General Foods (Phils), which is engaged in the manufacture of Tang,
Calumet and Kool-Aid, filed its income tax return for the fiscal year ending February 1985
and claimed as deduction, among other business expenses, P9,461,246 for media advertising for
The Commissioner disallowed 50% of the deduction claimed and assessed deficiency income
taxes of P2,635,141.42 against General Foods, prompting the latter to file an MR which was
General Foods later on filed a petition for review at CA, which reversed and set aside an earlier
decision by CTA dismissing the companys appeal.
W/N the subject media advertising expense for Tang was ordinary and necessary expense fully
deductible under the NIRC
No. Tax exemptions must be construed in stricissimi juris against the taxpayer and liberally in
favor of the taxing authority, and he who claims an exemption must be able to justify his claim
by the clearest grant of organic or statute law. Deductions for income taxes partake of the nature
of tax exemptions; hence, if tax exemptions are strictly construed, then deductions must also be
strictly construed.
To be deductible from gross income, the subject advertising expense must comply with the
following requisites: (a) the expense must be ordinary and necessary; (b) it must have been paid
or incurred during the taxable year; (c) it must have been paid or incurred in carrying on the trade
or business of the taxpayer; and (d) it must be supported by receipts, records or other pertinent
While the subject advertising expense was paid or incurred within the corresponding taxable year
and was incurred in carrying on a trade or business, hence necessary, the parties views conflict
as to whether or not it was ordinary. To be deductible, an advertising expense should not only be
necessary but also ordinary.
The Commissioner maintains that the subject advertising expense was not ordinary on the
ground that it failed the two conditions set by U.S. jurisprudence: first, reasonableness of the
amount incurred and second, the amount incurred must not be a capital outlay to create
goodwill for the product and/or private respondents business. Otherwise, the expense must be
considered a capital expenditure to be spread out over a reasonable time.

There is yet to be a clear-cut criteria or fixed test for determining the reasonableness of an
advertising expense. There being no hard and fast rule on the matter, the right to a deduction
depends on a number of factors such as but not limited to: the type and size of business in which
the taxpayer is engaged; the volume and amount of its net earnings; the nature of the expenditure
itself; the intention of the taxpayer and the general economic conditions. It is the interplay of
these, among other factors and properly weighed, that will yield a proper evaluation.
The Court finds the subject expense for the advertisement of a single product to be inordinately
large. Therefore, even if it is necessary, it cannot be considered an ordinary expense deductible
under then Section 29 (a) (1) (A) of the NIRC.
Advertising is generally of two kinds: (1) advertising to stimulate the current sale of
merchandise or use of services and (2) advertising designed to stimulate the future sale of
merchandise or use of services. The second type involves expenditures incurred, in whole or in
part, to create or maintain some form of goodwill for the taxpayers trade or business or for the
industry or profession of which the taxpayer is a member. If the expenditures are for the
advertising of the first kind, then, except as to the question of the reasonableness of amount,
there is no doubt such expenditures are deductible as business expenses. If, however, the
expenditures are for advertising of the second kind, then normally they should be spread out over
a reasonable period of time.
The companys media advertising expense for the promotion of a single product is doubtlessly
unreasonable considering it comprises almost one-half of the companys entire claim for
marketing expenses for that year under review.

MANILA BANKING CORP VS. CIR- Minimum Corporate Income Tax (MCIT)
1961- Manila Banking Corp was incorporated. It engaged in the banking industry til
May 1987- Monetary Board of Bangko Sentral ng Pilipinas (BSP) issued Resolution #
505 {pursuant to the Central Bank Act (RA 265)} prohibiting Manila Bank from engaging in
business by reason of insolvency. So, Manila Bank ceased operations and its assets and liabilities
were placed under charge of a gov.- appointed receiver.
1998- Comprehensive Tax Reform Act (RA8424) imposed a minimum corporate
income tax on domestic and resident foreign corporations.
o Implementing law: Revenue Regulation # 9-98 stating that the law allows a 4year
period from the time the corporations were registered with the BIR during which the minimum
corporate income tax should not be imposed.
June 23, 1999- BSP authorized Manila Bank to operate as a thrift bank.
o NOTE: June 15, 1999 Revenue Regulation #4-95 (pursuant to Thrift Bank Act of
1995) provides that the date of commencement of operations shall be understood to mean the
date when the thrift bank was registered with SEC or when Certificate of Authority to Operate
was issued by the Monetary Board, whichever comes LATER.
Dec 1999- Manila Bank wrote to BIR requesting a ruling on whether it is entitled to the
4 year grace period under RR 9-98.
April 2000- Manila bank filed with BIR annual income tax return for taxable year 1999
and paid 33M.
Feb 2001- BIR issued BIR Ruling 7-2001 stating that Manila Bank is entitled to the
4year grace period. Since it reopened in 1999, the min. corporate income tax may be imposed not
earlier than 2002. It stressed that although it had been registered with the BIR before 1994, but it
ceased operations 1987-1999 due to involuntary closure.
o Manila Bank, then, filed with BIR for the refund. Due to the inaction of BIR on the
claim, it filed with CTA for a petition for review, which was denied and found that Manila
Banks payment of 33M is correct, since its operations were merely interrupted during 19871999. CA affirmed CTA.
Issue: Whether or not Manila Bank is entitled to a refund of its minimum corporate
income tax paid to BIR for 1999.
Held: Yes.
CIRs contensions are without merit. He contended that based on RR# 9-98, Manila
Bank should pay the min. corporate income tax beg. 1998 as it did not close its operations in

1987 but merely suspended it. Even if placed under suspended receivership, its corporate
existence was never affected. Thus falling under the category of a existing corporation
recommencing its banking business operations
** Sec. 27 E of the Tax Code provides the Minimum Corporate Income Tax (mcit) on
Domestic Corporations.
o (1) Imposition of Tax- MCIT of 2% of gross income as of the end of the taxable year,
as defined here in, is hereby imposed on a corporation taxable under this title, beginning on the
4th taxable year immediately following the year in which such corp commenced its business
operations, when the mcit is greater than the tax computed under Subsec. A of this section for the
taxable year.
o (2) Any excess in the mcit over the normal income tax shall be carried forward and
credited against the normal income tax for the 3 succeeding taxable years.
Let it be stressed that RR 9-98 imposed the mcit on corps, the date when business
operations commence is the year in which the domestic corporation registered with the BIR. But
under RR 4-95, the date of commencement of operations of thrift banks, is the date of issuance
of certificate by Monetary Board or registration with SEC, whichever comes later. Clearly then,
RR 4-95 applies to Manila banks, being a thrift bank. 4-year period= counted from June 1999.
Rogelio Reyes vs. NLRC and Universal Robina
Petitioner was employed as a salesman at private respondents Grocery Division in Davao
City on August 12, 1977. He was eventually appointed as unit manager of Sales DepartmentSouth Mindanao District, a position he held until his retirement on November 30, 1997.
Thereafter, he received a letter regarding the computation of his separation pay.
Insisting that his retirement benefits and 13th month pay must be based on the average
monthly salary of P42,766.19, which consists of P10,919.22 basic salary and P31,846.97 average
monthly commission, petitioner refused to accept the check issued by private respondent in the
amount of P200,322.21. Instead, he filed a complaint before the arbitration branch of the NLRC
for, inter alia, 13th month pay.
The Labor Arbiter held that the sales commission is part of the basic salary of a unit
On appeal, the NLRC modified the decision of the Labor Arbiter by excluding the
overriding commission in the computation of the 13th month pay. Bothe parties MR but was
denied. Only petitioner filed a petition for certiorari before the Court of Appeals but was
dismissed for lack of merit. MR denied hence this petition before the SC (R45)

Whether the commission is included in the computation of the 13th month pay as it forms
part of the basic salary.
Insofar as what constitutes basic salary, the foregoing discussions equally apply to the
computation of petitioners 13th month pay. As held in San Miguel Corporation v. Inciong:
Under Presidential Decree 851 and its implementing rules, the basic salary of an
employee is used as the basis in the determination of his 13th-month pay. Any compensations or
remunerations which are deemed not part of the basic pay is excluded as basis in the computation
of the mandatory bonus.
Under the Rules and Regulations Implementing Presidential Decree 851, the following
compensations are deemed not part of the basic salary:
Cost-of-living allowances granted pursuant to Presidential Decree 525 and Letter
of Instruction No. 174;

Profit sharing payments;

All allowances and monetary benefits which are not considered or integrated as
part of the regular basic salary of the employee at the time of the promulgation of the Decree on
December 16, 1975. (Emphasis supplied)
Aside from the fact that as unit manager petitioner did not enter into actual sale
transactions, but merely supervised the salesmen under his control, the disputed commissions
were not regularly received by him. Only when the salesmen were able to collect from the sale
transactions can petitioner receive the commissions. Conversely, if no collections were made by
the salesmen, then petitioner would receive no commissions at all. In fine, the commissions
which petitioner received were not part of his salary structure but were profit-sharing payments
and had no clear, direct or necessary relation to the amount of work he actually performed. The
collection made by the salesmen from the sale transactions was the profit of private respondent
from which petitioner had a share in the form of a commission.

Development Bank of the Philippines (DBP) seeks to set aside COA Decision which
disallowed in audit the dividends distributed under the Special Loan Program (SLP) to the
members of the DBP Gratuity Plan.
The DBP is a government financial institution with an original charter, Executive Order
No. 81, as amended by Republic Act No. 8523 (DBP Charter).
In 1983, the Bank established a Special Loan Program availed thru the facilities of the
DBP Provident Fund and funded by placements from the Gratuity Plan Fund. This Special Loan
Program was adopted as part of the benefit program of the Bank to provide financial assistance
to qualified members to enhance and protect the value of their gratuity benefits because
Philippine retirement laws and the Gratuity Plan do not allow partial payment of retirement
benefits. The program was suspended in 1986 but was revived in 1991 thru DBP Board
Resolution No. 066 dated January 5, 1991.
Under the Special Loan Program, a prospective retiree is allowed the option to utilize in
the form of a loan a portion of his outstanding equity in the gratuity fund and to invest it in a
profitable investment or undertaking. The earnings of the investment shall then be applied to pay
for the interest due on the gratuity loan which was initially set at 9% per annum subject to the
minimum investment rate resulting from the updated actuarial study. The excess or balance of
the interest earnings shall then be distributed to the investor-members.
Pursuant to the investment scheme, DBP-TSD paid to the investor-members a total of
P11,626,414.25 representing the net earnings of the investments for the years 1991 and 1992.
The payments were disallowed by the Auditor under Audit Observation Memorandum No. 93-2
dated March 1, 1993, on the ground that the distribution of income of the Gratuity Plan Fund
(GPF) to future retirees of DBP is irregular and constituted the use of public funds for private
purposes which is specifically proscribed under Section 4 of P.D. 1445.
Chairman Antonio of DBP also asked COA to lift the disallowance of the P11,626,414.25
distributed as dividends under the SLP on the ground that the latter was simply a normal loan
Whether or not the distribution of dividends under the SLP is valid.
NO. The beneficiaries or cestui que trust of the Fund are the DBP officials and employees
who will retire. Retirement benefits can only be demanded and enjoyed when the employee
shall have met the last requisite, that is, actual retirement under the Gratuity Plan. In this case,
dividends were distributed to employees even before retirement.

As Chairman Zalamea himself noted, neither the Gratuity Plan nor our laws on retirement
allow the partial payment of retirement benefits ahead of actual retirement. It appears that DBP
sought to circumvent these restrictions through the SLP, which released a portion of an
employees retirement benefits to him in the form of a loan.
Severance of employment is a condition sine qua non for the release of retirement
benefits. Retirement benefits are not meant to recompense employees who are still in the employ
of the government. That is the function of salaries and other emoluments. Retirement benefits
are in the nature of a reward granted by the State to a government employee who has given the
best years of his life to the service of his country.