Republic
of the
SUPREME COURT
SECOND DIVISION
|
M.E.
HOLDING CORPORATION, Petitioner, -
versus - THE
HON. COURT OF APPEALS, COURT OF TAX APPEALS, and THE COMMISSIONER OF INTERNAL
REVENUE, Respondents. |
|
G.R.
No. 160193 Present: QUISUMBING,
J.,* CARPIO,
Acting Chairperson, CARPIO
MORALES, AZCUNA,** TINGA,
and VELASCO,
JR., JJ. Promulgated: |
x-----------------------------------------------------------------------------------------x
VELASCO,
JR., J.:
This case involves Republic Act No. (RA)
7432, otherwise known as An Act to
Maximize the Contribution of Senior Citizens to
On
Section 2. DEFINITIONS.
– For purposes of these regulations:
x x x x
i. Tax Credit – refers to the amount
representing the 20% discount granted to a qualified senior citizen by all
establishments relative to their utilization of transportation services, hotels
and similar lodging establishments, restaurants, drugstores, recreation
centers, theaters, cinema houses, concert halls, circuses, carnivals and other
similar places of culture, leisure and amusement, which discount shall be
deducted by the said establishments from their gross income for income tax
purposes and from their gross sales for value-added tax or other percentage
tax purposes. (Emphasis supplied.)
The deductions M.E. claimed amounted to
PhP
603,424. However, it filed the return under protest, arguing that the discount
to senior citizens should be treated as tax credit under Sec. 4(a) of RA 7432,
and not as mere deductions from M.E.’s gross income as provided under RR 2-94.
Sec.
4(a) of RA 7432 states:
SECTION
4. Privileges for the Senior Citizens.––The
senior citizens shall be entitled to the following:
a)
the grant of twenty percent (20%) discount from
all establishments relative to the utilization of transportation services,
hotels and similar lodging establishments, restaurants and recreation centers
and purchase of medicines anywhere in the country: Provided, That private establishments may
claim the cost as tax credit;
(Emphasis supplied.)
Subsequently,
on
Due to
the inaction of the BIR, and to toll the running of the two-year prescriptive
period in filing a claim for refund, M.E. filed an appeal before the Court of
Tax Appeals (CTA), reiterating its position that the sales discount should be
treated as tax credit, and that RR 2-94, particularly Section 2(i), was without
effect for being inconsistent with RA 7432.
On
WHEREFORE, in
view of the foregoing, petitioner’s claim for refund is hereby partially
GRANTED. Respondent is hereby ORDERED to
REFUND in favor of petitioner the amount of P122,195.74, representing overpaid
income tax [for] the year 1995.
SO ORDERED.
The CTA
ruled that the 20% sales discount granted to qualified senior citizens should
be treated as tax credit and not as item deduction from the gross income or
sales, pointing out that Sec. 4(a) of RA 7432 was unequivocal on this point. The
CTA held that Sec. 2(i) of RR 2-94 contravenes the clear proviso of RA 7432
prescribing that the 20% sales discount should be claimed as tax credit. Further, it ruled that RA 7432 is a law that
necessarily prevails over an administrative issuance such as RR 2-94.
Unfortunately,
what appears to be the victory of M.E. before the CTA was watered down by the
tax court’s declaration that, while the independent auditor M.E. hired found
the amount PhP 603,923.46 as having been granted as sales discount to qualified
senior citizens, M.E. failed to properly support the claimed discount with
corresponding cash slips. Thus, the CTA
reduced M.E.’s claim for PhP 603,923.46 sales discount to PhP 362,574.57 after
the CTA disallowed PhP 241,348.89 unsupported claims, and consequently lowered
the refundable amount to PhP 122,195.74.
On
On
Aggrieved,
M.E. went to the CA on a petition for review docketed as CA-G.R. SP No.
60134. On
Even as
it laid the entire blame on M.E. for its failure to present its additional
evidence, the CA pointed out that forgotten evidence is not newly discovered evidence
which can be presented to the appellate tax court, even after it had already
rendered its decision. Likewise, the CA interpreted, as did the CTA, the term
“cost” to mean only the direct acquisition cost, adding that to interpret the
word “cost” to include “all administrative and incremental costs to sales to
senior citizens” would open the floodgates for drugstores to pad the costs of the
sales with such broad, undefined, and varied administrative and incremental
costs such that the government would ultimately bear the escalated costs of the
sales. And citing Commissioner of Internal Revenue v. Tokyo Shipping Co.,
Ltd., the CA held that claims for refund, being in the nature of a claim
for exemption, should be construed in strictissimi juris against the taxpayer.[6]
The CA
denied petitioner’s Motion for Reconsideration on
Hence, the instant petition for
review, anchored essentially on the same issues raised before the CA, as
follows:
I.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS GRAVELY
ERRED AND HAS DEVIATED FROM APPLICABLE LAWS AND JURISPRUDENCE IN NOT
APPRECIATING OTHER COMPETENT EVIDENCE PROVING THE AMOUNT OF DISCOUNTS GRANTED
TO SENIOR CITIZENS AND MERELY RELYING SOLELY ON THE CASH SLIPS.
II.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS GRAVELY
ERRED AND HAS COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR IN
EXCESS OF JURISDICTION IN AFFIRMING THE COURT OF TAX APPEALS’ DENIAL OF
PETITIONER’S MOTION TO ORDER AND SUBMIT AS DOCUMENTARY [EVIDENCE] THE CASH
SLIPS WHICH THE INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT INADVERTENTLY DID NOT
TURN OVER TO THE PETITIONER’S COUNSEL.
III.
WHETHER OR NOT THE TERM “COST” UNDER PARAGRAPH (A)
SECTION 4 OF REPUBLIC ACT 7432 IS EQUIVALENT ONLY TO ACQUISITION COST.[8]
Our Ruling
The petition is partly meritorious.
The 20% sales discount to senior citizens may be claimed by an
establishment owner as tax credit. RA 7432, the applicable law, is unequivocal
on this. The implementing RR 2-94 that considers such discount as mere
deductions to the taxpayer’s gross income or gross sales clearly clashes with the
clear language of RA 7432, the law sought to be implemented. We need not delve on the nullity of the
implementing rule all over again as we have already put this issue at rest in a
string of cases.[9]
Now, we will discuss the remaining issues in seriatim.
On the first issue, M.E. faults the CA for merely relying on
the cash slips as basis for determining the total 20% sales discount given to
senior citizens. To M.E., there are other competent pieces of evidence available
to prove the same point, such as the Special Record Book required by the Bureau
of Food and Drugs[10]
and the Special Record Book required under RR 2-94. According to M.E., these special record books
containing, as it were, the same information embodied in the cash slips were
submitted to the CTA during M.E.’s formal offer of evidence. Moreover, M.E. avers
that the CA ought to have considered the special record books since their authenticity
and the veracity of their contents were corroborated by the store supervisor, Amelita
Gonzales, and Rene Amby Reyes, its independent auditor.
M.E. fails to persuade. The determination of the exact amount
M.E. claims as the 20% sales discount it granted to the senior citizens calls
for an evaluation of factual matters. The
unyielding rule is that the findings of fact of the trial court, particularly
when affirmed by the CA, are binding upon this Court,[11] save when the lower courts had overlooked,
misunderstood, or misinterpreted certain facts or circumstances of weight,
which, if properly considered, would affect the result of the case and warrant
a reversal of the decision. The instant case does not fall under the exception;
hence, we do not find any justification to review all over again the evidence
presented before the CTA, and the factual conclusions deduced therefrom.
Lest it be overlooked, the Rules of Court is of suppletory application
in quasi-judicial proceedings. Be this as it may, the CTA was correct in
disallowing and not considering the belatedly-submitted cash slips to be part
of the 20% sales discount for M.E.’s taxable year 1995. This is as it should be
in the light of Sec. 34 of Rule 132 prescribing that no
evidence shall be considered unless formally offered with a statement of the
purpose why it is being offered. In
addition, the rule is that the best evidence under the circumstance must be
adduced to prove the allegations in a complaint, petition, or protest. Only when the best evidence cannot be
submitted may secondary evidence be considered. But, in the instant case, the disallowed
cash slips, the best evidence at that time, were not part of M.E.’s offer of evidence.
While it may be true that the authenticated special record books yield the same
data found in the cash slips, they cannot plausibly be considered by the courts
a quo and made to corroborate pieces
of evidence that have, in the first place, been disallowed. Recall also that M.E. offered the disallowed
cash slips as evidence only after the CTA had rendered its assailed decision. Thus, we cannot accept the excuse of inadvertence
of the independent auditor as excusable negligence. As aptly put by the CA, the
belatedly-submitted cash slips do not constitute newly-found evidence that may
be submitted as basis for a new trial or reconsideration of the decision.
We reiterate at this juncture that claims for tax refund/credit,
as in the instant case, are in the nature of claims for exemption.
Accordingly, the law relied upon is not only construed in strictissimi juris
against the taxpayer, but also the proofs presented entitling a taxpayer to an
exemption are strictissimi scrutinized.
On the second issue, M.E. strongly asserts that the CA
gravely abused its discretion in denying M.E. the opportunity to submit the disallowed
cash slips despite the independent auditor’s admission, via an Affidavit,[12]
of guilt for inadvertence. M.E.’s counsel explains that he relied on the
independent auditor’s representation that all the cash slips were turned over. Besides,
M.E. asserts that the independent auditor, being an officer of the court, having
been commissioned by the CTA, is presumed to have done his duty in a regular
manner, and, therefore, his negligence should not be taken against M.E.
We do not agree with M.E. Grave abuse of discretion connotes
capricious, whimsical, arbitrary, or despotic exercise of jurisdiction. The CA
surely cannot be guilty of gravely abusing its discretion when it refused to
consider, in lieu of the unsubmitted additional cash slips, the special record
books which are only secondary evidence. The cash slips were the best evidence.
Also, the CA noted that the belatedly-offered cash slips were presented only
after the CTA had rendered its decision.
All these factors argue against the notion that the CA had, in
sustaining the CTA, whimsically and capriciously exercised its discretion.
On the third and last issue, M.E. contends that it is
entitled, as a matter of law, to claim as tax credit the full amount of the
sales discount granted to senior citizens.
M.E.’s contention is correct. In Bicolandia Drug
Corporation (formerly Elmas Drug Corporation) v. Commissioner of Internal
Revenue, we interpreted the
term “cost” found in Sec. 4(a) of RA 7432 as referring to the amount of the 20%
discount extended by a private establishment to senior citizens in their
purchase of medicines.[13] There we categorically said that it is the
Government that should fully shoulder the cost of the sales discount granted to
senior citizens. Thus, we reversed and
set aside the CA’s Decision in CA-G.R. SP No. 49946, which construed the same
word “cost” to mean the theoretical acquisition cost of the medicines purchased
by qualified senior citizens. Accordingly,
M.E. is entitled to a tax credit equivalent to the actual 20% sales discount it
granted to qualified senior citizens.
With
the disallowance of PhP 241,348.89 for being unsupported, and the net amount of
PhP 362,574.57 for the actual 20% sales discount granted to qualified senior
citizens properly allowed by the CTA and fully appreciated as tax credit, the amount
due as tax credit in favor of M.E. is PhP 151,201.71, computed as follows:
Net Sales PhP
94,724,284.00
Add: 20% Discount to Senior Citizens
(Per
Petitioner’s Summary) 603,923.46
Gross Sales PhP 95,328,207.46
Less: Cost of
Sales
Merchandise
Inventory, beg. PhP 9,519,210.00
Add Purchases 87,288,988.00
Total Goods available for
Less: Merchandise Inventory,
End PhP 9,469.349.00 PhP 87,338,849.00
Gross Income PhP 7,989,358.46
Less: Operating Expenses 17,006,032.00
Net Operating Income /(Loss) (PhP 9,016,673.54)
Add: Miscellaneous Income 43,489,663.00
Net Income PhP 34,472,989.46
Less: Interest Income Subject to Final Tax 22,242,227.00
Net Taxable Income PhP 12,230,762.46
Tax Due (PhP 12,230,762.46 x 35%) PhP 4,280,766.86
Less: 1) Tax Credit
(20% Discount with supporting
documents) PhP
362,574.57
2)
Income Tax Payment for the Year 4,069,394.00
Total PhP
4,431,968.57
AMOUNT OF TAX CREDIT PhP
151,201.71
Parenthetically, we note that M.E. originally prayed for a
tax refund for its tax overpayment for CY 1995. The CTA and the CA granted the desired
refund, albeit at a lower amount due to their interpretation, erroneous as it
turned out to be, of the term “cost.”
However, we cannot agree with the courts a quo on what M.E. is
entitled to. RA 7432 expressly provides that the sales discount may be claimed
as tax credit, not as tax refund.
It ought to be noted, however,
that on February 26, 2004, RA 9257, or The
Expanded Senior Citizens Act of 2003, amending RA 7432, was signed into law,
ushering in, upon its effectivity on March 21, 2004, a new tax treatment for
sales discount purchases of qualified senior citizens of medicines. Sec. 4(a) of RA 9257 provides:
SEC.
4. Privileges for the Senior Citizens. – The senior citizens shall be
entitled to the following:
(a) the
grant of twenty percent (20%) discount from all establishments relative to the
utilization of services in hotels and similar lodging establishments,
restaurants and recreation centers, and purchase of medicines in all
establishments for the exclusive use or enjoyment of senior citizens, x x x;
x x x x
The establishment may claim the discounts granted
under (a), (f), (g) and (h) as tax deduction based on the net
cost of the goods sold or services rendered: Provided, That the cost of
the discount shall be allowed as deduction from gross income for the same
taxable year that the discount is granted. Provided, further, That the
total amount of the claimed tax deduction net of value added tax if applicable,
shall be included in their gross sales receipts for tax purposes and shall be
subject to proper documentation and to the provisions of the National Internal
Revenue Code, as amended. (Emphasis supplied.)
Conformably, starting taxable year 2004, the 20% sales discount granted by
establishments to qualified senior citizens is to be treated as tax deduction,
no longer as tax credit.[14]
IN VIEW OF THE FOREGOING, this
petition is PARTLY GRANTED. The CA’s Decision dated
WHEREFORE, in view of the foregoing, petitioner M.E.’s
claim for refund is hereby PARTIALLY GRANTED in the form of a tax credit. Respondent Commissioner of Internal Revenue
is ORDERED to issue a tax credit certificate in favor of M.E. in the amount of PhP 151,201.71.
No
pronouncement as to costs.
SO
ORDERED.
PRESBITERO
J. VELASCO, JR.
Associate Justice
WE CONCUR:
(On Official Leave)
LEONARDO A. QUISUMBING
Associate Justice
Chairperson
ANTONIO T. CARPIO ADOLFO
S. AZCUNA
Associate Justice Associate Justice
Acting Chairperson
CONCHITA CARPIO MORALES DANTE O. TINGA
Associate Justice
Associate
Justice
A T T E S T A T I O N
I attest that the conclusions in the
above Decision had been reached in consultation before the case was assigned to
the writer of the opinion of the Court’s Division.
ANTONIO T. CARPIO
Associate
Justice
Acting Chairperson
C E R T I F
I C A T I O N
Pursuant to Section 13, Article VIII of the
Constitution, and the Division Acting Chairperson’s Attestation, I certify that
the conclusions in the above Decision had been reached in consultation before
the case was assigned to the writer of the opinion of the Court’s Division.
REYNATO S. PUNO
Chief Justice
[1] Rollo, pp. 137-139.
[2]
[3]
[4]
CA-G.R. SP No. 49946,
[5] Rollo, pp. 165-173. Penned by Presiding Justice Cancio C. Garcia (Chairperson, a retired member of this Court) and concurred in by Associate Justices Eliezer R. Delos Santos and Mariano C. Del Castillo.
[6] 314 Phil. 220, 228 (1995).
[7] Rollo, p. 187.
[8]
[9] Commissioner
of Internal Revenue v. Bicolandia Drug Corporation, G.R. No. 148083, July
21, 2006, 496 SCRA 176; Commissioner of Internal Revenue v. Central Luzon
Drug Corporation, G.R. No. 148512, June 26, 2006, 492 SCRA 575; Commissioner
of Internal Revenue v. Central Luzon Drug Corporation, G.R. No. 159647,
[10] Under BFAD Memo Circular No. 4, Series of 1994.
[11] Xentrex
Automotive, Inc. v. Court of Appeals, G.R. No. 121559, June 18, 1998, 291
SCRA 66, 71; citations omitted.
[13]
G.R. No. 142299,
[14] Carlos Superdrug Corp. v. Department of Social Welfare and Development (DSWD), G.R. No. 166494, June 29, 2007, 526 SCRA 130.