Tag: Republic Act 6938

Cooperative Fee Exemptions: Supreme Court Clarifies Scope in Foreclosure Cases

TL;DR

The Supreme Court ruled that cooperatives are not automatically exempt from paying legal fees for extrajudicial foreclosure proceedings under Act 3135. The exemption granted to cooperatives under Republic Act No. 6938 (RA 6938) applies only to actions brought under the Cooperative Code itself or actions initiated by the Cooperative Development Authority. This decision clarifies that cooperatives must pay legal fees for foreclosure petitions, as these actions fall outside the scope of the exemption. The ruling also reinforces the Supreme Court’s exclusive power to promulgate rules on pleading, practice, and procedure, safeguarding the Court’s institutional independence.

Mortgaged Dreams: When Cooperative Fee Exemptions Meet Foreclosure Realities

The case of Baguio Market Vendors Multi-Purpose Cooperative (BAMARVEMPCO) v. Hon. Iluminada Cabato-Cortes revolves around the question of whether a cooperative is exempt from paying legal fees when it initiates extrajudicial foreclosure proceedings. BAMARVEMPCO, a credit cooperative, sought to foreclose a mortgage under Act 3135, as amended, and claimed exemption from legal fees based on Article 62(6) of Republic Act No. 6938 (RA 6938), the Cooperative Code of the Philippines. This provision exempts cooperatives from paying certain court and sheriff’s fees. However, the Executive Judge of the Regional Trial Court of Baguio City denied the request, leading to the Supreme Court case.

The core legal issue is whether the fee exemption under RA 6938 extends to extrajudicial foreclosure petitions. Article 62(6) of RA 6938 states that cooperatives are exempt “from the payment of all court and sheriff’s fees payable to the Philippine Government for and in connection with all actions brought under this Code, or where such action is brought by the Cooperative Development Authority before the court, to enforce the payment of obligations contracted in favor of the cooperative.” A plain reading of this provision suggests a limited scope of exemption.

The Supreme Court clarified that the exemption applies only to two specific types of actions. First, actions brought directly under RA 6938 itself. Second, actions brought by the Cooperative Development Authority (CDA) to enforce obligations in favor of cooperatives. This means that the exemption does not automatically extend to all legal proceedings involving cooperatives. The Court emphasized that BAMARVEMPCO’s foreclosure petition was filed under Act 3135, not RA 6938, thereby placing it outside the scope of the exemption.

Furthermore, the Court addressed the broader issue of legislative versus judicial rule-making powers. Historically, both the 1935 and 1973 Constitutions allowed Congress to “repeal, alter or supplement” rules promulgated by the Supreme Court. However, the 1987 Constitution removed this congressional power, solidifying the Supreme Court’s exclusive authority to create rules of pleading, practice, and procedure.

The Supreme Court reiterated its stance on the separation of powers, emphasizing its exclusive domain over judicial rules. This position was strongly supported by the Court’s earlier ruling in Re: Petition for Recognition of the Exemption of the Government Service Insurance System from Payment of Legal Fees, which affirmed that legislative exemptions from court fees cannot override the Court’s rule-making authority. In that case, the Court stated that because “the payment of legal fees is a vital component of the rules promulgated by this Court concerning pleading, practice and procedure, it cannot be validly annulled, changed or modified by Congress.”

The Court’s decision has significant implications for cooperatives engaging in foreclosure proceedings. Cooperatives must now budget for and pay the required legal fees for extrajudicial foreclosures, as the exemption under RA 6938 does not apply. This ruling ensures that the Judiciary Development Fund, which is funded by these fees, remains intact and available for its intended purposes. The ruling reinforces the independence of the judiciary.

FAQs

What was the central question in this case?	Whether a cooperative is exempt from paying legal fees for extrajudicial foreclosure proceedings under Article 62(6) of RA 6938.
What did the Supreme Court decide?	The Court ruled that the fee exemption does not apply to extrajudicial foreclosure petitions filed under Act 3135.
What is the scope of the fee exemption under RA 6938?	The exemption is limited to actions brought under the Cooperative Code itself or actions by the Cooperative Development Authority.
Why doesn’t the exemption apply to foreclosure petitions?	Foreclosure petitions are filed under Act 3135, not RA 6938, placing them outside the scope of the exemption.
What is the significance of the 1987 Constitution in this case?	The 1987 Constitution solidified the Supreme Court’s exclusive authority to create rules of pleading, practice, and procedure.
What is the Judiciary Development Fund?	It is a special fund, created under Presidential Decree No. 1949, that is funded by legal fees and used to support the judiciary.
What power does the Supreme Court have regarding rules of procedure?	The Court has the exclusive power to promulgate rules concerning pleading, practice, and procedure in all courts, safeguarding its institutional independence.

This case provides important clarity on the scope of cooperative fee exemptions and reinforces the Supreme Court’s authority over judicial rules. Cooperatives should be aware of their obligations to pay legal fees in foreclosure proceedings. Moreover, understanding the separation of powers between the legislative and judicial branches is crucial for interpreting legal provisions correctly.

For inquiries regarding the application of this ruling to specific circumstances, please contact Atty. Gabriel Ablola through gaboogle.com or via email at connect@gaboogle.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: BAGUIO MARKET VENDORS MULTI-PURPOSE COOPERATIVE (BAMARVEMPCO) vs. HON. ILUMINADA CABATO-CORTES, G.R. No. 165922, February 26, 2010

February 26, 2010

Cooperative Tax Exemption: Interest on Member Deposits Held Not Subject to Withholding Tax

TL;DR

The Supreme Court ruled that Dumaguete Cathedral Credit Cooperative (DCCCO) is not liable to pay deficiency withholding taxes on interest earned from the savings and time deposits of its members. This decision is rooted in the principle that cooperatives and their members are entitled to preferential tax treatment under Republic Act No. 6938 (Cooperative Code of the Philippines), as amended by Republic Act No. 9520. This ruling reinforces the declared policy of the State to foster the growth of cooperatives as vital instruments for economic development and social justice.

This means that cooperatives are not required to withhold taxes on the interest from savings and time deposits of their members, promoting financial self-reliance and supporting the cooperative movement. The decision aligns with the Constitution’s mandate to protect cooperatives and promote social justice, balancing the State’s power to tax with the need to support cooperative endeavors.

Balancing the Scales: State Taxation vs. Cooperative Growth

In the case of Dumaguete Cathedral Credit Cooperative (DCCCO) v. Commissioner of Internal Revenue, the Supreme Court grappled with the interplay between the State’s inherent power to tax and its policy of encouraging the growth of cooperatives. The central legal question was whether DCCCO, a credit cooperative, was liable to pay deficiency withholding taxes on the interest earned from the savings and time deposits of its members for the taxable years 1999 and 2000.

The Bureau of Internal Revenue (BIR) assessed DCCCO for deficiency withholding taxes, arguing that the interest payments fell under the category of “similar arrangements” subject to a 20% final tax under Section 24(B)(1) of the National Internal Revenue Code (NIRC). DCCCO, on the other hand, contended that this provision applied only to banks and not to cooperatives, citing BIR rulings and the preferential tax treatment afforded to cooperatives under the Constitution and the Cooperative Code.

The Court of Tax Appeals (CTA) initially ruled in favor of the BIR, ordering DCCCO to pay the deficiency withholding taxes and delinquency interest. The CTA reasoned that DCCCO’s business fell under the phrase “similar arrangements” and that as a payor-corporation, it was responsible for withholding the corresponding taxes. The CTA En Banc affirmed this decision, prompting DCCCO to elevate the matter to the Supreme Court.

The Supreme Court reversed the CTA’s decision, holding that DCCCO was not liable for the assessed deficiency withholding taxes. The Court emphasized the importance of interpreting Section 24(B)(1) of the NIRC in conjunction with Republic Act No. 6938, as amended by RA 9520, which promotes the growth of cooperatives and provides them with preferential tax treatment. The Court also gave weight to BIR Ruling No. 551-888 and BIR Ruling [DA-591-2006], which stated that cooperatives are not required to withhold taxes on interest from savings and time deposits of their members.

Building on this principle, the Court noted that cooperatives exist for the benefit of their members, and extending the tax exemption to members is consistent with the legislative intent of fostering self-reliance and economic development. The Court cited Article 126 of RA 6938, which mandates that any doubt as to the meaning of any provision of the Cooperative Code should be resolved liberally in favor of the cooperatives and their members. This approach underscores the importance of adhering to the spirit of the law, even if it is not explicitly stated in the letter of the law.

Moreover, the Court recognized that the tax exemption in RA 6938 was retained in RA 9520, which now expressly states that transactions of members with cooperatives are not subject to any taxes and fees, including final taxes on members’ deposits. This amendment reinforced the interpretation that Section 24(B)(1) of the NIRC does not apply to cooperatives. In reaching its decision, the Supreme Court emphasized the vital role that cooperatives play in the attainment of economic development and social justice, as enshrined in the Constitution. The court balances the State’s power to tax with the need to support cooperative endeavors.

The Court highlighted that cooperatives, including their members, deserve preferential tax treatment due to their crucial role in fostering economic development and social justice. While taxes are essential for government operations, the power to tax must sometimes yield to policies that promote the growth of cooperatives, aligning with the constitutional mandate to protect and support these organizations.

FAQs

What was the key issue in this case?	The key issue was whether a credit cooperative is liable to pay withholding taxes on interest earned from the savings and time deposits of its members.
What did the Court rule?	The Supreme Court ruled that the cooperative was not liable to pay the deficiency withholding taxes, citing the preferential tax treatment afforded to cooperatives.
What is the basis for the preferential tax treatment of cooperatives?	The preferential tax treatment is based on Republic Act No. 6938 (Cooperative Code of the Philippines), as amended by RA 9520, and the Constitution’s mandate to promote cooperatives.
Why are cooperatives given preferential tax treatment?	Cooperatives are given preferential tax treatment because they are considered instruments for social justice and economic development, fostering self-reliance and harnessing people power.
What is the significance of BIR Ruling No. 551-888 and BIR Ruling [DA-591-2006]?	These rulings stated that cooperatives are not required to withhold taxes on interest from savings and time deposits of their members, which the Supreme Court considered in its decision.
Does this ruling apply to all types of cooperatives?	Yes, the ruling generally applies to all duly registered cooperatives, especially credit cooperatives that provide benefits to their members.
How does this ruling affect members of cooperatives?	Members of cooperatives benefit from this ruling as they are not subject to final taxes on their deposits within the cooperative, promoting increased savings and investments.

In conclusion, the Supreme Court’s decision in DCCCO v. CIR reinforces the importance of supporting cooperatives through preferential tax treatment, aligning with the State’s policy to foster their growth and contribution to economic development. The ruling confirms that cooperatives are not required to withhold taxes on interest from member deposits, bolstering their financial viability and promoting social justice.

For inquiries regarding the application of this ruling to specific circumstances, please contact Atty. Gabriel Ablola through gaboogle.com or via email at connect@gaboogle.com.

January 22, 2010