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THE MANILA
BANKING CORPORATION, Petitioner, - versus - COMMISSIONER OF
INTERNAL REVENUE, Respondent. |
G.R. No. 168118 Present: puno, J.,
Chairperson, Sandoval-Gutierrez, AZCUNA, and GARCIA, JJ. Promulgated: August 28, 2006 |
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SANDOVAL-GUTIERREZ, J.:
Before
us is a Petition for Review on Certiorari[1]
assailing the Decision[2]
of the Court of Appeals dated May 11, 2005 in CA-G.R. SP No. 77177, entitled “The Manila Banking Corporation,
petitioner, versus
Commissioner of Internal Revenue, respondent.”
The Manila Banking Corporation,
petitioner, was incorporated in 1961 and since then had engaged in the
commercial banking industry until 1987.
On May 22, 1987, the Monetary Board of the Bangko Sentral ng
Pilipinas (BSP) issued Resolution No. 505, pursuant to Section 29 of
Republic Act (R.A.) No. 265 (the Central Bank Act),[3] prohibiting petitioner from engaging in
business by reason of insolvency. Thus,
petitioner ceased operations that year and its assets and liabilities were
placed under the charge of a government-appointed receiver.
Meanwhile,
R.A. No. 8424,[4]
otherwise known as the Comprehensive Tax Reform Act of 1997, became effective
on
On P33,816,164.00
for taxable year 1999.
Prior
to the filing of its income tax return, or on
On
In reply,
we hereby confirm that the law and regulations allow new corporations as well
as existing corporations a leeway or adjustment period of four years counted
from the year of commencement of business operations (reckoned at the time of
registration by the corporation with the BIR) during which the MCIT (minimum corporate income tax) does not apply. If new corporations, as well as existing
corporations such as those registered with the BIR in 1994 or earlier, are
granted a 4-year grace period, we see no reason why TMBC, a corporation that
has ceased business activities due to involuntary closure for more than a
decade and is now only starting again to place its business back in order, may
not be given the same opportunity. It
should be stressed that although TMBC had been registered with the BIR before
1994, yet it did not have any business from 1987 to June 1999 due to its involuntary
closure. This Office is therefore of an
opinion, that for purposes of justice, equity and consistent with the intent of
the law, TMBC's reopening last July 1999 is akin to the commencement of
business operations of a new corporation, in consideration of which the law
allows a 4-year period during which MCIT is not to be applied. Hence, MCIT may be imposed upon TMBC not
earlier than 2002, i.e., the fourth taxable year beginning 1999 which is the
year when TMBC reopened.
Likewise,
we find merit in your position that for having just come out of receivership
proceedings, which not only resulted in substantial losses but actually brought
about a complete cessation of all businesses, TMBC may be qualified to ask for
suspension of the MCIT. The law provides
that the Secretary of Finance, upon the recommendation of the Commissioner, may
suspend the imposition of the MCIT on any corporation which suffers losses on
account of prolonged labor dispute, or because of force majeure, or
because of legitimate business reverses. [NIRC, Sec. 27(E)(3)] Revenue Regulations 9-98 defines the term
“legitimate business reverses” to include substantial losses sustained due to
fire, robbery, theft or embezzlement, or for other economic reasons as
determined by the Secretary of Finance.
Cessation of business activities as a result of being placed under
involuntary receivership may be one such economic reason. But to be a basis for the recognition of the
suspension of MCIT, such a situation should be properly defined and included in
the regulations, which this Office intends to do. Pending such inclusion, the same cannot yet
be invoked. Nevertheless, it is the
position of this Office that the counting of the fourth taxable year, insofar
as TMBC is concerned, begins in the year 1999 when TMBC reopened such that it
will be only subject to MCIT beginning the year 2002.
Pursuant to the above Ruling,
petitioner filed with the BIR a claim for refund of the sum of P33,816,164.00 erroneously paid as minimum corporate income tax for
taxable year 1999.
Due
to the inaction of the BIR on its claim, petitioner filed with the Court of Tax
Appeals (CTA) a petition for review.
On P33,816,164.00 corresponding to its
minimum corporate income tax for taxable
year 1999 is in order. The CTA held that
petitioner is not entitled to the four (4)-year grace period because it is not
a new corporation. It has continued to
be the same corporation, registered with the Securities and Exchange Commission
(SEC) and the BIR, despite being placed under receivership, thus:
Moreover, it must
be emphasized that when herein petitioner was placed under receivership, there
was merely an interruption of its business operations. However, its corporate existence was never
affected. The general rule is that the
appointment of the receiver does not terminate the charter or work a dissolution
of the corporation, even though the receivership is a permanent one. In other words, the corporation continues to
exist as a legal entity, clothed with its franchises (65 Am. Jur. 2d, pp.
973-974). Petitioner, for all intents
and purposes, remained to be the same corporation, registered with the SEC and
with the BIR. While it may continue to
perform its corporate functions, all its properties and assets were under the
control and custody of a receiver, and its dealings with the public is somehow
limited, if not momentarily suspended.
x x x
On
Thus,
this petition for review on certiorari.
The
main issue for our resolution is whether petitioner is entitled to a refund of
its minimum corporate income tax paid to the BIR for taxable year 1999.
Petitioner
contends that the Court of Tax Appeals erred in holding that it is not entitled
to the four (4)-year grace period provided by law suspending the payment of its
minimum corporate income tax since it is not a newly created corporation,
having been registered as early as 1961.
For
his part, the Commissioner of Internal Revenue (CIR), respondent, maintains
that pursuant to R.A. No. 8424, petitioner should pay its minimum corporate
income tax beginning
Section
27(E) of the Tax Code provides:
Sec. 27. Rates of Income Tax on Domestic
Corporations. – x x x
(E)
Minimum Corporate Income Tax on Domestic Corporations. -
(1)
Imposition of Tax. - A minimum corporate income tax of two percent (2%) of the
gross income as of the end of the taxable year, as defined herein, is hereby
imposed on a corporation taxable under this Title, beginning on the fourth
taxable year immediately following the year in which such corporation commenced
its business operations, when the minimum corporate income tax is greater than
the tax computed under Subsection (A) of this Section for the taxable year.
(2)
Carry Forward of Excess Minimum Tax. - Any excess of the minimum corporate
income tax over the normal income tax as computed under Subsection (A) of this
Section shall be carried forward and credited against the normal income tax for
the three (3) immediately succeeding taxable years.
x x x
Upon the other hand,
Revenue Regulation No. 9-98 specifies the period when a corporation becomes
subject to the minimum corporate income tax, thus:
(5) Specific Rules for Determining the Period When
a Corporation Becomes Subject to the MCIT (minimum corporate income tax) -
For
purposes of the MCIT, the taxable year in which business operations commenced
shall be the year in which the domestic corporation registered with the Bureau
of Internal Revenue (BIR).
Firms
which were registered with BIR in 1994 and earlier years shall be covered by
the MCIT beginning
x x x
The
intent of Congress relative to the minimum corporate income tax is to grant a four
(4)-year suspension of tax payment to newly formed corporations. Corporations still starting their business operations
have to stabilize their venture in order to obtain a stronghold in the
industry. It does not come as a surprise
then when many companies reported losses in their initial years of operations. The following are excerpts from the Senate
deliberations:
Senator
Romulo: x x x Let me go now to the minimum corporate income tax, which is on
page 45 of the Journal, which is to minimize tax evasion on those corporations
which have been declaring losses year in and year out. Here, the tax rate is three-fourths, three
quarter of a percent or .75% applied to corporations that do not report any
taxable income on the fourth year of their business operation. Therefore, those that do not report income on
the first, second and third year are not included here.
Senator
Enrile: We assume that this is the period of stabilization of new company that
is starting in business.
Senator Romulo: That is
right.
Thus, in order to allow new
corporations to grow and develop at the initial stages of their operations, the
lawmaking body saw the need to provide a grace period of four years from their
registration before they pay their minimum corporate income tax.
Significantly,
on
On
Sec. 6. Period of exemption. – All thrift
banks created and organized under the provisions of the Act shall be exempt
from the payment of all taxes, fees, and charges of whatever nature and
description, except the corporate income tax imposed under Title II of
the NIRC and as specified in Section 2(A) of these regulations, for a period of
five (5) years from the date of commencement of operations; while for thrift
banks which are already existing and operating as of the date of effectivity of
the Act (March 18, 1995), the tax exemption shall be for a period of
five (5) years reckoned from the date of such effectivity.
For purposes of
these regulations, “date of commencement of operations” shall be understood to
mean the date when the thrift bank was registered with the Securities and
Exchange Commission or the date when the Certificate of Authority to Operate
was issued by the Monetary Board of the Bangko Sentral ng Pilipinas, whichever
comes later.
x x x
As mentioned earlier, petitioner
bank was registered with the BIR in 1961.
However, in 1987, it was found insolvent by the Monetary Board of the
BSP and was placed under receivership.
After twelve (12) years, or on
It is clear from the above-quoted
provision of Revenue Regulations No. 4-95 that the date of commencement of
operations of a thrift bank is the date it was registered with the SEC or
the date when the Certificate of Authority to Operate was issued to it by the
Monetary Board of the BSP, whichever comes later.
Let
it be stressed that Revenue Regulations No. 9-98, implementing R.A. No. 8424
imposing the minimum corporate income tax on corporations, provides that for
purposes of this tax, the date when business operations commence is the year in
which the domestic corporation registered with the BIR. However, under Revenue Regulations No. 4-95,
the date of commencement of operations of thrift banks, such as herein petitioner,
is the date the particular thrift bank was registered with the SEC or the date
when the Certificate of Authority to Operate was issued to it by the Monetary
Board of the BSP, whichever comes later.
Clearly then, Revenue Regulations No. 4-95, not
Revenue Regulations No. 9-98, applies to petitioner, being a thrift bank. It is, therefore, entitled to a grace period of
four (4) years counted from
WHEREFORE, we GRANT the petition. The assailed Decision of the Court of Appeals
in CA-G.R. SP No. 77177 is hereby REVERSED. Respondent Commissioner of Internal Revenue
is directed to refund to petitioner bank the sum of P33,816,164.00 prematurely paid as
minimum corporate income tax.
SO ORDERED.
ANGELINA
SANDOVAL-GUTIERREZ
Associate
Justice
WE CONCUR:
REYNATO S.
PUNO
Associate Justice Chairperson |
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RENATO C. CORONA Associate Justice |
ADOLFO S. AZCUNA Associate Justice |
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CANCIO C. GARCIA Associate Justice |
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I attest that the conclusions in the
above Decision were reached in consultation before the case was assigned to the
writer of the opinion of the Court's Division.
REYNATO S.
PUNO
Associate Justice
Chairperson,
Second Division
CERTIFICATION
ARTEMIO V.
PANGANIBAN
Chief Justice
[1] Under
Rule 45 of the 1997 Revised Rules of Civil Procedure, as amended.
[2] Penned
by Associate Justice Eugenio S. Labitoria (retired) and concurred in by
Associate Justice Eliezer R. de los
[3] Sec. 29. Proceedings upon insolvency. -
Whenever, upon examination by the head of the appropriate supervising or
examining department or his examiners or agents into the condition of any bank
or non-bank financial intermediary performing quasi-banking functions, it shall
be disclosed that the condition of the same is one of insolvency, or that its
continuance in business would involve probable loss to its depositors or
creditors, it shall be the duty of the department head concerned forthwith, in
writing, to inform the Monetary Board of the facts, and the Board may, upon
finding the statements of the department head to be true, forbid the
institution to do business in the Philippines and shall designate an official
of the Central Bank or a person of recognized competence in banking or finance,
as receiver to immediately take charge of its assets and liabilities, as
expeditiously as possible collect and gather all the assets and administer the
same for the benefit of its creditors, exercising all the powers necessary for
these purposes including, but not limited to, bringing suits and foreclosing
mortgages in the name of the bank or non-bank financial intermediary performing
quasi-banking functions.
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x x
[4] An Act Amending the National Internal Revenue Code, as amended.
[5] Rollo, pp. 79-81.