April 12, 1983

BIR RULING NO. 057-83

Gentlemen:

This refers to your letter dated February 1, 1983 requesting a ruling as to

whether the back wages, allowances and benefits such as cost of living and the
13th-month pay for the period covering August 10, 1980 to January 15, 1983 which
were awarded to your employees, namely: Wilfredo Atienza, Juan Anceno,
Bartolome Dao, Isidro Didilo, Ong Seng Chiao, Rodolfo Pea, Cesar Ramirez, Jose
Ranay, Anacleto del Rosario, Ruben Tan, Araceli del Pilar and Rodolfo Villarica who
were found to have been dismissed without just cause and ordered reinstated pursuant
to the decision of the Labor Arbiter in re: Case No. AB-10-8322-80 dated May 14,
1981 and upheld by the Supreme Court (G.R. No. 59556) on December 6, 1982, are
subject to income and withholding taxes.

In reply thereto, please be informed that under Section 38 of the Tax Code, if
the taxpayer is an individual, the income shall be computed on the basis of the
calendar year. All items of income shall be included in gross income or gross
compensation income, as the case may be, for the taxable year in which received by
the taxpayer except those expressly excluded and already subjected to the final
income tax, and exemption as well as deductions taken accordingly pursuant to
Sections 21, 28 and 29 in relation to Section 39 all of the Tax Code, as amended.
Salaries, commissions, tips, directors fees, and other forms of compensation are
income in the year received, and not in the year earned. (par. 717, p. 231, US Master
Tax Guide (1969)) Thus, a taxpayer whose income is from salary or the like is
required to file his income tax return on the cash basis.

However, considering that such back wages, allowances and benefits constitute
remunerations for services that would have been performed by the said employees for
your company prior to the year (1983) when actually received, or during the period of
their dismissal from the service which no less than the Supreme Court has affirmed to
be illegal, it is felt that a liberal construction of the statute is called for in this
particular case if only to protect employees who, in fact, had been deprived of the
payment of their wages and other forms of remunerations, from the payment of a tax

Copyright 1994-2006 CD Technologies Asia, Inc. Taxation 2005 1

heavier than what should have been imposed if their employer had promptly met its
obligation. aisadc

In the case of "Commissioner of Internal Revenue v. Joseph G.R. Robillard &

Margaret H. Robillard" (C.A., 308 F. 2d 518, 519) it was held that income reviewed
by a taxpayer in 1957 as "back pay" or additional pay for services rendered to his
employer for the period from July 1, 1955 through December 1, 1956 which,
indubitably, would have been prior to 1957 except for the intervention of an event
similar in nature to a dispute as to the liability of the employer to pay the
remuneration in question, is entitled to a special treatment and was properly allocable
to taxable years 1955 and 1956.

Accordingly, having been denied payment of their wages when they were due
because of circumstances not of their own making and, therefore, beyond their
control, the aforenamed employees come within the scope of the inequity for which
this ruling is precisely designed to remedy.

In view of the foregoing considerations, this Office is of the opinion as it

hereby holds that each of the said employees should report as income and pay their
respective income taxes thereon by allocating or spreading their bank wages,
allowances and benefits through the years 1980, 1981 and 1982. cda

Very truly yours,

(SGD.) RUBEN B. ANCHETA

Acting Commissioner
Bureau of Internal Revenue

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