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Catipay - Case Study #2

1) Private respondent Efren Castaneda retired from government service and received terminal leave pay, from which P12,557.13 was deducted as income tax. 2) Castaneda filed a claim seeking a refund, arguing terminal leave pay is tax-free. The Court of Tax Appeals and Court of Appeals ruled in his favor. 3) The question is whether terminal leave pay received upon mandatory retirement is liable to income tax or a tax-free retirement benefit.

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33 views

Catipay - Case Study #2

1) Private respondent Efren Castaneda retired from government service and received terminal leave pay, from which P12,557.13 was deducted as income tax. 2) Castaneda filed a claim seeking a refund, arguing terminal leave pay is tax-free. The Court of Tax Appeals and Court of Appeals ruled in his favor. 3) The question is whether terminal leave pay received upon mandatory retirement is liable to income tax or a tax-free retirement benefit.

Uploaded by

Riza Dizon
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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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.

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