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MIGUEL J. OSSORIO PENSION FOUNDATION v. CA

FACTS:

The Miguel J. Ossorio Pension Foundation, Incorporated (MJOPFI) filed a petition for certiorari to reverse the Court of Appeals' decision affirming the denial of its claim for refund of withheld creditable tax. As trustee of the employees' trust fund, petitioner argued that the income earned by the Employees' Trust Fund is tax-exempt under the National Internal Revenue Code. Petitioner claimed to have invested part of the Trust Fund to purchase a lot in the Madrigal Business Park, with its share being sold to Metropolitan Bank and Trust Company, Inc. (Metrobank) for P81,675,000. The Bureau of Internal Revenue (BIR) denied petitioner's claim for refund, and the Court of Tax Appeals upheld the denial.

The main issue presented in the case was whether the petitioner or the Employees' Trust Fund is estopped from claiming ownership of the MBP lot and whether they have sufficiently established their ownership to be entitled to tax exemption. The Court of Appeals affirmed the ruling of the Court of Tax Appeals, stating that the petitioner failed to prove its co-ownership of the MBP lot and that the documents presented were largely self-serving and did not show that the funds used to purchase the lot came from the Employees' Trust Fund.

The petitioner relied on evidence such as memoranda of agreement, a Citytrust report reflecting investment in the MBP lot, and excerpts of minutes and resolutions from the Board of Trustees of petitioner and VMC, to support its claim of co-ownership. Petitioner argued that the registration of the land solely in the name of VMC does not make VMC the absolute owner of the property or deprive the petitioner of its rights as a co-owner, citing Article 1452 of the Civil Code.

Overall, the dispute centered on whether the petitioner had substantiated its claim of co-ownership of the MBP lot and whether such ownership would entitle them to tax exemption.

ISSUES:

  1. Whether petitioner has proven its co-ownership of the MBP lot

  2. Whether the documents presented by petitioner are admissible as evidence

  3. Whether petitioner is estopped from claiming ownership of the MBP lot under the Torrens system

  4. Whether a resulting trust is created by operation of law due to the notarized Memorandum of Agreement and certified true copies of Portfolio Mix Analysis establishing that the petitioner invested funds to purchase the property.

  5. Whether the petitioner, as the trustee, can file a claim for refund of taxes erroneously paid from the sale of the property.

  6. Whether the Employees' Trust Fund is exempt from income tax.

  7. Whether the income derived from the Employees' Trust Fund is exempt from income tax.

  8. Whether the petitioner is entitled to a refund of the withholding taxes paid on the interest income from direct loans made by the Employees' Trust Fund.

  9. Whether the income of the employees' trust fund is exempt from income tax.

  10. Whether the petitioner, as trustee of the employees' trust fund, is entitled to claim a tax refund.

RULING:

  1. The Court ruled that the genuineness and due execution of the notarized Memorandum of Agreement acknowledging petitioner's ownership of the MBP lot is admissible as evidence. The BIR failed to present clear and convincing evidence to prove that the agreement is fictitious or has no legal effect. Additionally, Citytrust, a reputable banking institution, prepared a Portfolio Mix Analysis showing that petitioner invested in the MBP lot. Absent any proof of tampering or falsification, the Portfolio Mix Analysis should be given probative value. Therefore, petitioner has proven its co-ownership of the MBP lot.

  2. The Court held that documents acknowledged before notaries public are public documents and admissible in evidence without the need for preliminary proof of authenticity and due execution. They enjoy the presumption of regularity. The BIR failed to present evidence contradicting the notarized Memorandum of Agreement. Thus, the documents presented by petitioner are admissible as evidence.

  3. The Court held that under the Torrens system, a trustor-beneficiary is not estopped from proving its ownership of a property titled in the name of the trustee, as long as the rights of innocent third-party purchasers or lien-holders are not involved. The registration of a land under the Torrens system does not create or vest title, and a TCT is merely evidence of ownership. Therefore, petitioner is not estopped from claiming ownership of the MBP lot.

  4. Yes, a resulting trust is created by operation of law due to the evidence presented establishing that the petitioner invested funds to purchase the property. The property is held on resulting trust in favor of the one furnishing the consideration for the transfer unless a different intention or understanding appears.

  5. Yes, the petitioner, as the trustee, can file a claim for refund of taxes erroneously paid from the sale of the property. The absence of the petitioner's name in the Transfer Certificate of Title does not prevent the petitioner from claiming that the Employees' Trust Fund is the beneficial owner of a percentage of the property.

  6. Yes, the Employees' Trust Fund is exempt from income tax. The Tax Code provides an exception to the imposition of tax on an employee's trust which forms part of a pension, stock bonus, or profit-sharing plan for the exclusive benefit of the employees.

  7. Yes, the income derived from the Employees' Trust Fund is exempt from income tax. The Court held that tax-exemption privilege is to be enjoyed by the income of the pension trust. Taxation of those earnings would result in a reduction of the accumulated income and reduce whatever the trust beneficiaries would receive out of the trust fund. This would be contrary to the intent of the law.

  8. Yes, the petitioner is entitled to a refund of the withholding taxes paid on the interest income from direct loans made by the Employees' Trust Fund. The Court recognized the petitioner's entitlement to tax exemption for such interest income.

  9. The income of the employees' trust fund is exempt from income tax pursuant to Republic Act 4917 in relation to Section 56(b) of the Tax Code.

  10. The petitioner, as trustee of the employees' trust fund, is entitled to claim a tax refund for the amount of income tax erroneously paid.

PRINCIPLES:

  • Documents acknowledged before notaries public are admissible in evidence without preliminary proof of authenticity and due execution.

  • A TCT is merely evidence of ownership and its issuance does not foreclose the possibility of co-ownership or trust arrangements.

  • A trustor-beneficiary is not estopped from proving ownership of a property titled in the name of the trustee, as long as the rights of innocent third-party purchasers or lien-holders are not involved.

  • An implied trust arises where a person purchases land with his own money and takes conveyance thereof in the name of another. The trust, in such cases, is based on the facts and circumstances and arises by implication or operation of law.

  • The registration of a property in the name of another person does not necessarily negate the possibility of the property being owned by another entity, as Article 1452 of the Civil Code authorizes a person to purchase a property with his own money and take conveyance in the name of another.

  • Tax exemptions are highly disfavored and must be justified by the clearest grant of law. However, a strict construction against the taxpayer applies, and any doubt as to the existence of an exemption is resolved against the taxpayer.

  • Income derived from employees' trusts is exempt from income tax to ensure that the beneficiaries receive the full benefits out of the trust fund.

  • The income or earnings of retirement funds of a pension plan may be exempt from income tax if they are used exclusively for the benefit of the plan beneficiaries and not diverted to other purposes.

  • The tax-exempt character of the employees' trust fund is settled.

  • A trustee of an employees' trust fund has the personality to claim tax refunds due the trust fund.

  • The income of employees' trust funds is exempt from the payment of final withholding taxes.

  • The income from the trust fund investments is exempt from the payment of income tax.

  • Documents showing investments made by the employees' trust fund, certified by the trustee, are not deemed self-serving, as the trustee is duly authorized to handle the money of the trust fund.