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Dumaguete Cathedral Credit Cooperative vs.

Commissioner
of Internal Revenue
[G.R. No. 182722, January 22, 2010]

Doctrines:
Cooperatives are not required to withhold taxes on interest from
savings and time deposits of their members.

To encourage the formation of cooperatives and to create an


atmosphere conducive to their growth and development, the State
extends all forms of assistance to them, one of which is providing
cooperatives a preferential tax treatment.

Although the tax exemption only mentions cooperatives, this


should be construed to include the members. It must be emphasized
that cooperatives exist for the benefit of their members. In fact, the
primary objective of every cooperative is to provide goods and services
to its members to enable them to attain increased income, savings,
investments, and productivity. Therefore, limiting the application of
the tax exemption to cooperatives would go against the very purpose
of a credit cooperative. Extending the exemption to members of
cooperatives, on the other hand, would be consistent with the intent
of the legislature.

Facts:
Petitioner Dumaguete Cathedral Credit Cooperative (DCCCO) is a
credit cooperative duly registered with and regulated by the
Cooperative Development Authority (CDA). On November 27, 2001,
the Bureau of Internal Revenue (BIR) Operations Group Deputy
Commissioner, Lilian B. Hefti, issued Letters of Authority Nos. 63222
and 63223, authorizing BIR officers to examine petitioners books of
accounts and other accounting records for all internal revenue taxes
for the taxable years 1999 and 2000.

On October 16, 2002, petitioner received two other Pre-Assessment


Notices for deficiency withholding taxes also for taxable years 1999
and 2000.[10] The deficiency withholding taxes cover the payments of
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.

On October 22, 2002, petitioner informed BIR Regional Director Sonia


L. Flores that it would only pay the deficiency withholding taxes
corresponding to the honorarium of the Board of Directors, security
and janitorial services, legal and professional fees for the year 1999 in
the amount of P87,977.86, excluding penalties and interest.

On November 29, 2002, petitioner availed of the VAAP and paid the
amounts of P105,574.62 and P143,867.24. corresponding to the
withholding taxes on the payments for the compensation, honorarium
of the Board of Directors, security and janitorial services, and legal
and professional services, for the years 1999 and 2000, respectively.

On April 24, 2003, petitioner received from the BIR Regional Director
Flores, Letters of Demand ordering petitioner to pay the deficiency
withholding taxes, inclusive of penalties, for the years 1999 and 2000
in the amounts of P1,489,065.30 and P1,462,644.90, respectively.

Issue: Whether or not it is liable to pay the deficiency withholding


taxes on interest from savings and time deposits of its members for
the taxable years 1999 and 2000, as well as the delinquency interest
of 20% per annum.

Held: Petitioners invocation of BIR Ruling No. 551-888, reiterated


in BIR Ruling [DA-591-2006], is proper. On November 16, 1988, the
BIR declared in BIR Ruling No. 551-888 that cooperatives are not
required to withhold taxes on interest from savings and time deposits
of their members.

According to the CTA En Banc, the BIR Ruling was based on the
premise that the savings and time deposits were placed by the
members of the cooperative in the bank. Consequently, it ruled that
the BIR Ruling does not apply when the deposits are maintained in
the cooperative such as the instant case.

There is nothing in the ruling to suggest that it applies only when


deposits are maintained in a bank. Rather, the ruling clearly states,
without any qualification, that since interest from any Philippine
currency bank deposit and yield or any other monetary benefit from
deposit substitutes are paid by banks, cooperatives are not required to
withhold the corresponding tax on the interest from savings and time
deposits of their members.

In BIR Ruling [DA-591-2006] dated October 5, 2006 the BIR opined that:

xxxx

3. Exemption of interest income on members deposit (over and above the


share capital holdings) from the 20% Final Withholding Tax.

The National Internal Revenue Code states that a final tax at the rate
of twenty percent (20%) is hereby imposed upon the amount of interest on
currency bank deposit and yield or any other monetary benefit from the
deposit substitutes and from trust funds and similar arrangement x x x for
individuals under Section 24(B)(1) and for domestic corporations under
Section 27(D)(1). Considering the members deposits with the cooperatives
are not currency bank deposits nor deposit substitutes, Section 24(B)(1) and
Section 27(D)(1), therefore, do not apply to members of cooperatives and to
deposits of primaries with federations, respectively.
In this case, BIR Ruling No. 551-888 and BIR Ruling [DA-591-
2006] are in perfect harmony with the Constitution and the laws they
seek to implement. Accordingly, the interpretation in BIR Ruling No.
551-888 that cooperatives are not required to withhold the
corresponding tax on the interest from savings and time deposits of
their members, which was reiterated in BIR Ruling [DA-591-2006],
applies to the instant case.

Members of cooperatives deserve a preferential tax treatment


pursuant to RA 6938, as amended by RA 9520.
Given that petitioner is a credit cooperative duly registered with
the Cooperative Development Authority (CDA), Section 24(B)(1) of the
NIRC must be read together with RA 6938, as amended by RA 9520.
Under Article 2 of RA 6938, as amended by RA 9520, Thus, to
encourage the formation of cooperatives and to create an atmosphere
conducive to their growth and development, the State extends all
forms of assistance to them, one of which is providing cooperatives a
preferential tax treatment.

The legislative intent to give cooperatives a preferential tax treatment


is apparent in Articles 61 and 62 of RA 6938, which read:

ART. 61. Tax Treatment of Cooperatives. Duly registered cooperatives under


this Code which do not transact any business with non-members or the
general public shall not be subject to any government taxes and fees
imposed under the Internal Revenue Laws and other tax laws. Cooperatives
not falling under this article shall be governed by the succeeding section.

ART. 62. Tax and Other Exemptions. Cooperatives transacting business


with both members and nonmembers shall not be subject to tax on their
transactions to members. Notwithstanding the provision of any law or
regulation to the contrary, such cooperatives dealing with nonmembers
shall enjoy the following tax exemptions; x x x.

This exemption extends to members of cooperatives. It must be


emphasized that cooperatives exist for the benefit of their members. In fact,
the primary objective of every cooperative is to provide goods and services
to its members to enable them to attain increased income, savings,
investments and productivity. Therefore, limiting the application of the tax
exemption to cooperatives would go against the very purpose of a credit
cooperative. Extending the exemption to members of cooperatives, on the
other hand, would be consistent with the intent of the legislature. Thus,
although the tax exemption only mentions cooperatives, this should be
construed to include the members, pursuant to Article 126 of RA 6938,
which provides:
ART. 126. Interpretation and Construction. In case of doubt as to the
meaning of any provision of this Code or the regulations issued in
pursuance thereof, the same shall be resolved liberally in favor of the
cooperatives and their members.

All told, we hold that petitioner is not liable to pay the assessed
deficiency withholding taxes on interest from the savings and time deposits
of its members, as well as the delinquency interest of 20% per annum.

In closing, cooperatives, including their members, deserve a preferential tax


treatment because of the vital role they play in the attainment of economic
development and social justice. Thus, although taxes are the lifeblood of
the government, the States power to tax must give way to foster the
creation and growth of cooperatives. To borrow the words of Justice Isagani
A. Cruz: The power of taxation, while indispensable, is not absolute and
may be subordinated to the demands of social justice.

Bienvenido Buada et. al., vs. Cement Center, Inc.


[G.R. No. 180374, January 22, 2010]

Doctrines:
In all contractual, property or other relations, when one of the
parties is at a disadvantage on account of his moral dependence,
ignorance, indigence, mental weakness, tender age or other handicap,
the courts must be vigilant for his protection.

Voluntary surrender, as a mode of extinguishment of tenancy


relations, does not require any court authorization considering that it
involves the tenant's own volition. The voluntary surrender of the
landholding by an agricultural lessee should be due to circumstances
more advantageous to him and his family.

Facts:
Petitioners were tenant-farmers cultivating three parcels of
agricultural land owned by respondent Cement Center, Inc.

On March 13, 1998, respondent filed a Complaint for


Confirmation of Voluntary Surrender and Damages against petitioners
with the Department of Agrarian Reform Adjudication Board,
Pangasinan. It claimed that on June 28, 1995, petitioners entered into
a Compromise Agreement with respondent whereby the former, for
and in consideration of the sum of P3,000.00 each, voluntarily
surrendered their respective landholdings. However, despite
respondents repeated demands, petitioners refused to vacate subject
landholdings.

In their Answer, petitioners alleged that their consent to the


Compromise Agreement was obtained through fraud, deceit, and
misrepresentation. They claimed that sometime in 1995, respondent
induced them to sign a Compromise Agreement by representing that
the subject landholdings are no longer viable for agricultural
purposes. Petitioners alleged that respondent assured them that they
would only apply for the conversion of the land and that they would
have to surrender the land only upon the approval of said application
and that thereafter, they will be paid a disturbance compensation of
P3,000.00 each. Petitioners also claimed that respondent promised to
hire them to work on the project that was planned for the converted
land. But, should the application for conversion be denied, petitioners
will continue to be tenants and could later become beneficiaries under
the Comprehensive Agrarian Reform Law.

Issue: Whether or not the Compromise Agreement constitute the


voluntary surrender contemplated by law.

Held: Voluntary surrender, as a mode of extinguishment of tenancy


relations, does not require any court authorization considering that it
involves the tenant's own volition. To protect the tenant's right to
security of tenure, voluntary surrender, as contemplated by law, must
be convincingly and sufficiently proved by competent evidence. The
tenant's intention to surrender the landholding cannot be presumed,
much less determined by mere implication. Otherwise, the right of a
tenant farmer to security of tenure becomes an illusory one. Moreover,
RA 3844 provides that the voluntary surrender of the landholding by
an agricultural lessee should be due to circumstances more
advantageous to him and his family.

Respondent asserts that petitioners voluntarily surrendered


their landholdings. Petitioners, however, deny this claim and instead
maintain that they did not execute the Compromise Agreement with a
view to absolutely sell and surrender their tenancy rights in exchange
for P3,000.00 for each of them. They assert that such agreement was
subject to suspensive conditions, i.e., the approval of respondents
application for conversion of the land to non-agricultural and their
subsequent absorption as laborers in the business that respondent
will put up on said land, or, if the application will not be approved,
petitioners will continue to be tenants of the land and could later on
qualify as beneficiaries of the CARP. Petitioners assert that they were
not aware that these conditions were not incorporated in the
Compromise Agreement because they were not literate in the English
language used. Neither were they represented by counsel nor were the
contents of the agreement explained to them. Petitioners thus claim
that the Compromise Agreement should be interpreted in accordance
with the real intention of the parties pursuant to Articles 1370 and
1371 of the Civil Code. Petitioners likewise claim that as they were
illiterate in the English language, they could not have given their valid
consent to the Compromise Agreement.

A perusal of the subject Compromise Agreement reveals that


the parties considered the amount of P3,000.00 together with the
income from a single cropping as comprising the disturbance
compensation package, viz:

“The aforeindicated income derived from the properties and the


financial assistance of P3,000.00 shall be considered as the
disturbance compensation package in favor of the SECOND PARTY by
reason or as a result of their vacating the premises in accordance with
Administrative Order No. 1, Series of 1990 of the Department of
Agrarian Reform.”

Moreover, it was not shown why petitioners as tenant-farmers


would voluntarily give up their sole source of livelihood. There was
likewise no showing that the money was indeed advantageous to
petitioners families as to allow them to pursue other sources of
livelihood.

Thus, the Court finds the evidence on record and respondent's


arguments insufficient to overcome the rights of petitioners as
provided in the Constitution and agrarian statutes. The alleged
voluntary surrender of petitioners of their tenancy rights for the sum
of P3,000.00 each could not constitute as voluntary surrender within
the contemplation of law.

Julius Cacao y Prieto vs. People of the Philippines


[G.R. No. 180870, 610 SCRA 636, January 22, 2010]

Doctrines:

Essential in a drug-related case is that the identity of the


dangerous drug be established beyond reasonable doubt Since the
dangerous drug constitutes the corpus delicti of the offense and the
fact of its existence is vital to a judgment of conviction, it behooves
upon the prosecution to establish and prove with certainty that the
dangerous drug presented in court as evidence against the accused is
the same item recovered from his possession.

The failure to establish the chain of custody is fatal to the


prosecution’s case. There can be no crime of illegal possession of a
prohibited drug when nagging doubts persist on whether the item
confiscated was the same specimen examined and established to be
the prohibited drug.

Presumption of regularity in the performance of official duty


cannot by itself override the constitutional right of the accused to be
presumed innocent unless overcome by strong, clear and compelling
evidence.

Facts:
On October 14, 2004, at around 7:45 in the evening, Police
Officer 3 (PO3) Celso Pang-ag of the Intelligence and Operation Section
of the Laoag City Police Station received a telephone call from an
informant about a drug session being held inside Room 5 of the
Starlight Hotel located at Barangay 5, Ablan Avenue, Laoag City.

Acting on the information, PO3 Pang-ag, together with PO2


Jonel Mangapit, went immediately to the Starlight Hotel to determine
the veracity of the report. Upon arrival at the target area, PO3 Pang-ag
and PO2 Mangapit approached the lady clerk manning the
information counter of Starlight Hotel and inquired about the alleged
drug session at Room 5 of the hotel.

The lady clerk informed PO3 Pang-ag and PO2 Mangapit that
the roomboy of the hotel was about to deliver a softdrink to Room 5
and they could follow him if they [so wish]. Thus, PO3 Pang-ag and
PO2 Mangapit followed the roomboy to Room 5. Upon arrival, the
roomboy knocked at the door and a woman, later identified as Mylene,
opened the door wide enough to enable the police officers to look
inside.

PO3 Pang-ag and PO2 Mangapit saw petitioner seated on top of


the bed sniffing shabu while Joseph Canlas was on the floor assisting
petitioner sniffing shabu. At this juncture, PO3 Pang-ag and PO2
Mangapit arrested petitioner and Joseph and confiscated from them
the drug paraphernalia, glass tooter, scissors, lighters and plastic
sachets.

PO2 Mangapit frisked petitioner and recovered from him one


plastic sachet containing shabu.

After informing petitioner and Joseph of their constitutional


rights, PO3 Pang-ag and PO2 Mangapit brought them to the Laoag
City Police Station and turned them over to the police officer on duty
while the confiscated items were turned over to SPO3 Loreto Ancheta.

The Philippine National Police (PNP) laboratory conducted an


examination on the specimen recovered from appellant and his
companion which tested positive for shabu.
On October 15, 2004, two separate informations were filed
against Joseph Canlas y Naguit and Cacao indicting them for violation
of Section 11, Article II of RA 9165 before the RTC of Laoag City.

Both RTC and CA convicted petitioner.

Issue: Whether or not the lower courts gravely erred in ruling that the
guilt of the accused was proven beyond reasonable doubt.

Held: As a general rule, factual findings and conclusions of the trial


court and the CA are entitled to great weight and respect and will not
be disturbed on appeal. However, if there is any indication that the
trial court overlooked certain facts or circumstances which would
substantially affect the disposition of the case, the Supreme Court will
not hesitate to review the same. In this case, the Court finds it
imperative to review the factual findings of the trial court because of
certain inconsistencies in the testimonies of the prosecution witnesses
on material points.

A. The testimonies of the prosecutions principal witnesses are


inconsistent as to who delivered the prohibited drug to the
evidence custodian.

In this case, PO3 Celso Pang-ag (Pang-ag) and PO2 Jonel


Mangapit (Mangapit) both testified that it was the latter who brought
the item confiscated from petitioner to the evidence custodian, SPO3
Loreto Ancheta (Ancheta). However, the foregoing assertions are totally
at odds with the testimony of Ancheta, the evidence custodian. The
latter denied that it was Mangapit who delivered the item allegedly
recovered from Cacao. Instead, he repeatedly and categorically
declared that it was SP03 Balolong (Balolong) from whom he received
the plastic sachet of shabu.

Contrary to the findings of the appellate court, The Court is of


the considered view that this contradiction is not so inconsequential
or minor but a discrepancy touching on substantial and significant
matter which could well affect the credibility of the witnesses.

B. The prosecution failed to satisfactorily establish that the item


presented in court was the same item confiscated from Cacao.

The patent inconsistency between the testimonies of Mangapit


and Pang-ag, on one hand, and the testimony of Ancheta on the other
hand, necessarily leads us to doubt that the plastic sachet of shabu
identified in court is the same item that was allegedly seized and
confiscated from petitioner. If the version of Mangapit is to be
believed, then the most lamentable aspect pertains to his failure to
identify the seized item with certainty. For sure Mangapit, who is the
most competent person to make the proper identification being the
officer who confiscated the item from Cacao, never actually identified
the same.

The only other person who could have identified the subject
drug is Pang-ag. However, the Court cannot lend credence to his
supposed identification, the same not being also positive, certain and
unequivocal. Besides, there is no showing that this witness actually
saw the shabu at the time it was allegedly seized from petitioner. In
fact, Pang-ag is even incompetent to make the identification since
from all indications, he has never been in possession of it.

Moreover, considering the testimony of Ancheta, it was


Balolong who forwarded the seized item. It must be noted that
Balolong was never presented to testify in this case. Thus, there is no
evidence to prove that what was turned over to the evidence custodian
by Balolong and later presented in court was the same substance
recovered from petitioner. The failure to establish the chain of custody
is fatal to the prosecution’s case.

Philippine National Bank vs. DKS International Inc. and Michael


Dy
[G.R. No. 179161, 610 SCRA 603, January 22, 2010]

Facts: Considering that the sub-lessee which was ordered by the


court to surrender possession of the disputed property in a case for
forcible entry no longer possessed the same, having already
surrendered possession thereof to the lessor and not to the prevailing
party which is the lessee, the Regional Trial Court (RTC) recalled the
Writ of Execution with Break Open it earlier issued.

Issue: Was the recall proper?

Held: Yes. Before said writ could be implemented, inescapable


material facts and circumstances were brought to the attention of the
RTC. The respondents had already surrendered possession of the
subject premises to the government. Clearly, the portion of the Decision
ordering respondents to vacate the subject property and peacefully
surrender possession thereof to petitioner has become impossible to
implement. For how can respondents surrender possession of the
premises when they were no longer in possession? And, as correctly
observed by the RTC, it would be a misstep if the government which is
admittedly the owner of the subject property and which was not a
party to the ejectment case, would be ordered to vacate the same in
order that possession thereof may be delivered to petitioner. We thus
hold that under these circumstances, the recall of the writ of
execution with break open order was warranted.