NAME: CATIPAY, JEFRAI D.

SECTION: BSBA-2C

SUBJECT AND SCHEDULE: BA 122 (5:30-7:00) DATE: APRIL 22,2022

CASE STUDY # 2

Efren P. Castaneda

I. BACKGROUND AND RATIONALE 15

➢ Private respondent Efren P. Castaneda retired from the government service as Revenue
Attaché in the Philippine Embassy in London, England, on December 10, 1982. He got
terminal leave pay, among other perks, when he retired. The petitioner Commissioner of
Internal Revenue deducted P12,557.13 as alleged income tax. Castaneda submitted a
formal written claim to petitioner for a refund of P12,557.13. Claiming that the monetary
equivalent of his terminal leave is tax-free. Castaneda filed a Petition for Review with the
Court of Tax Appeals on July 16, 1984, to comply with the two-year prescriptive period
for filing refund claims. He was seeking a return of income tax taken from his terminal
leave salary. The Court of Tax Appeals ruled in favor of private respondent Castaneda,
ordering the Commissioner of Internal Revenue to pay him the P12,557.13 in income tax
withheld. The Court of Appeals denied the petition for review and upheld the Court of Tax
Appeals' ruling. As a result, the Commissioner of Internal Revenue has acted. The Solicitor
General, speaking on behalf of the Commissioner of Internal Revenue, claims that terminal
leave pay is income derived from the employer-employee relationship, citing as support
Section 28 of the National Internal Revenue Code. It was states that terminal leave pay is
part of the recipient's gross income because it is part of the compensation for services
rendered.
II. PROBLEM INDENTIFICATION

➢ The terminal leave pays received by a government official or employee on the event of his
mandatory retirement from the government service liable to income tax. Castaneda filed a
formal written claim for a reimbursement of P12,557.13 with petitioner. The monetary
equivalent of his terminal leave is claimed to be tax-free. To comply with the two-year
prescriptive limitation for filing refund claims, Castaneda filed a Petition for Review with
the Court of Tax Appeals on July 16, 1984. He wanted the income tax he paid on his
terminal leave salary refunded.

III. ALTERNATIVES SOLUTIONS TO THE ABOVE PROBLEM

➢ Commutation of leave credits, often known as terminal leave. It is available to officers and
employees who retire, resign, or are separated from the service due to no fault of their own.
The Court of Tax Appeals found in Castaneda's favor directing the Commissioner of
Internal Revenue to refund him the P12,557.13 in income tax withheld. The petition for
review was dismissed by the Court of Appeals. In which upheld the decision of the Court
of Tax Appeals. As a result, the Internal Revenue Commissioner has acted. On behalf of
the Commissioner of Internal Revenue. The Solicitor General asserts that terminal leave
pay is income obtained from the employer-employee relationship. By using Section 28 of
the National Internal Revenue Code as support. Because it is part of the compensation for
services done. The terminal leave pay is included in the recipient's gross income.
IV. CONCLUSION

➢ Terminal leave pay is not subject to income tax because it is not part of a government
official's or employee's gross salary or income, but rather a retirement benefit. The
government encourages the accumulation of unused leaves as part of its excellent personnel
strategy. The government understands that retirement pay for most public employees is
always less than generous. If not low and stingy. A modest savings account, which a senior
individual would look forward to, should be avoided. Terminal leave payments are made
not just at the same time as retirement benefits, but also for the same policy reasons. An
officer or employee who retires, resigns, or is separated from the service due to no fault of
his own. It can apply for commutation of leave credits, more generally known as terminal
leave.

V. RECOMMENDATION

➢ The question presented in this petition for review is whether a government official's or
employee's terminal leave compensation is liable to withholding income tax. This is when
he is forced to retire from government employment. The government understands that
retirement pay for most public employees is always less than generous, if not downright
low. As a result, a modest retirement fund for the senior individual is omitted. Payments
for terminal leave are made not just at the same time as retirement benefits, but also for the
same policy reasons.