THIRD
DIVISION
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COMMISSIONER OF INTERNAL
REVENUE, Petitioner, - versus - PHILIPPINE AIRLINES, INC.,
Respondent. |
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G.R. No. 180043 Present: YNARES-SANTIAGO,
J., Chairperson, CARPIO,* CHICO-NAZARIO, VELASCO, JR., and PERALTA, JJ. Promulgated: July 14, 2009 |
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In this Petition for Review on Certiorari,
under Rule 45 of the Revised Rules of Court, petitioner Commissioner of Internal Revenue assails
the Decision[1] of the
Court of Tax Appeals (CTA) En Banc
dated 9 August 2007 in CTA EB No. 221, affirming the Decision[2]
dated 14 June 2006 of the CTA First Division in CTA Case No. 6735, which
granted the claim of respondent Philippine Airlines, Inc. (PAL) for the refund
of its Overseas Communications Tax (OCT) for the period April to December
2001.
Petitioner, as the Commissioner of
the Bureau of Internal Revenue (BIR), is responsible for the assessment and
collection of all national internal revenue taxes, fees, and charges, including
the 10% Overseas Communications Tax (OCT), imposed by Section 120 of the
National Internal Revenue Code (NIRC) of 1997, which reads:
SEC. 120. Tax on
Overseas Dispatch, Message or Conversation Originating from the
(A) Persons Liable—There shall be collected upon every overseas dispatch, message or conversation transmitted from the Philippines by telephone, telegraph, telewriter exchange, wireless and other communication equipment service, a tax of ten percent (10%) on the amount paid of [the transaction involving overseas dispatch, message or conversation] such services. The tax imposed in this Section shall be payable by the person paying for the services rendered and shall be paid to the person rendering the services who is required to collect and pay the tax within twenty (20) days after the end of each quarter.
On the other hand, respondent is a
domestic corporation organized under the corporate laws of the Republic of the
Philippines; declared the national flag carrier of the country; and the grantee
under Presidential Decree No. 1590[3] of
a franchise to establish, operate, and maintain transport services
for the carriage of passengers, mail, and property by air, in and between any
and all points and places throughout the Philippines, and between the
Philippines and other countries.[4]
For the period January to December 2001,
the Philippine Long Distance Telephone Company (PLDT) collected from respondent
the 10% OCT on the amount paid by the latter for overseas telephone calls it
had made through the former. In all,
PLDT collected from respondent the amount of P202,471.18 as OCT for 2001,
summarized as follows[5]:
|
PERIOD |
AMOUNT |
|
January to March 2001 |
|
|
April to June 2001 |
50,271.43 |
|
July to September 2001 |
43,313.96 |
|
October to December 2001 |
33,553.53 |
|
Total |
|
On P202,471.18 OCT it alleged to
have erroneously paid in 2001. In a
letter[6]
dated
Petitioner failed to act on the
request for refund of respondent, which prompted respondent to file on P127,138.92,
representing OCT, which PLDT erroneously collected from respondent for the
second, third and fourth quarters of 2001.[8] The claim of respondent for the refund of the
OCT for the first quarter of 2001, amounting to P75,323.26, had already prescribed after the passing of
more than two years since said amount was paid.
Respondent alleged in its Petition
that per its computation, reflected in its annual income tax return, it
incurred a net loss in 2001 resulting in zero basic corporate income tax
liability, which was necessarily lower than the franchise tax due on its gross
revenues. Respondent argued that in
opting for the basic corporate income tax, regardless of whether or not it
actually paid any amount as tax, it was already entitled to the exemption from
all other taxes granted to it by Section 13 of Presidential Decree No. 1590. [9]
After a hearing on the merits, the
CTA First Division rendered a Decision[10]
dated
WHEREFORE, the Petition for Review is hereby GRANTED. Respondent is ORDERED to refund to the petitioner the
substantiated amount of P126,243.80 representing the erroneously
collected 10% Overseas Communications Tax for the period April to December
2001.
The CTA First Division reasoned that under
Section 13 of Presidential Decree No. 1590, respondent had the option to choose
between two alternatives: the basic corporate income tax and the franchise tax,
whichever would result in a lower amount of tax, and this would be in lieu of all
other taxes, with the exception only of tax on real property. In the event that respondent incurred a net
loss for the taxable year resulting in zero basic corporate income tax liability,
respondent could not be required to pay the franchise tax before it could avail
itself of the exemption from all other taxes under Section 13 of Presidential
Decree No. 1590. The possibility that
respondent would incur a net loss for a given taxable period and, thus, have zero
liability for basic corporate income tax, was already anticipated by Section 13
of Presidential Decree No. 1590, the very same section granting respondent tax
exemption, since it authorized respondent to carry over its excess net loss as
a deduction for the next five taxable years.
However, the CTA First Division held
that out of the total amount of P127,138.92 respondent sought to refund,
only the amount of P126,243.80 was supported by either original or
photocopied PLDT billing statements, original office receipts, and original
copies of check vouchers of respondent. Respondent
was also able to prove, through testimonial evidence, that the OCT collected by
PLDT from it was included in the quarterly percentage tax returns of PLDT for
the second, third, and fourth quarters of 2001, which were submitted to and received
by an authorized agent bank of the BIR.[11]
Not satisfied with the foregoing Decision
dated
Petitioner filed an appeal with the
CTA en banc, docketed as CTA EB No.
221. The latter promulgated its Decision[13]
on P126,243.80.
The CTA En Banc denied petitioner’s Motion for Reconsideration in a
Resolution dated
Hence, the present Petition for
Review where the petitioner raises the following issues:
I
THE COURT OF TAX APPEALS EN BANC ERRED IN HOLDING THAT THE PHRASE “IN LIEU OF ALL OTHER TAXES” IN SECTIONS 13 AND 14 OF PRESIDENTIAL DECREE NO. 1590 DOES NOT CONTEMPLATE THE FULFILLMENT OF A CONDITION BEFORE THE EXEMPTION FROM ALL OTHER TAXES MAY BE APPLIED; AND
II
TAX REFUNDS ARE IN THE NATURE OF TAX EXEMPTIONS. AS SUCH, THEY SHOULD BE CONSTRUED STRICTISSIMI JURIS AGAINST THE PERSON OR ENTITY CLAIMING THE EXEMPTION.[16]
The present Petition is without
merit.
Petitioner argues that the PAL case
is not applicable to the case at bar, since the former involves final withholding
tax on interest income, while the latter concerns another type of tax, the OCT.[17]
Petitioner’s argument is untenable.
Pertinent portions of Section 13 of
Presidential Decree No. 1590 are quoted hereunder:
Section 13. In consideration of the franchise and rights hereby granted, the grantee shall pay to the Philippine Government during the life of this franchise, whichever of subsections (a) and (b) hereunder will result in a lower tax:
(a)
The basic
corporate income tax based on the grantee’s annual net taxable income computed
in accordance with the provisions of the National Internal Revenue Code; or
(b)
A franchise tax
of two per cent (2%) of the gross revenues, derived by the grantee from all
sources, without distinction as to transport or non-transport operations;
provided, that with respect to international air-transport service, only the
gross passenger, mail and freight revenues from its outgoing flights shall be
subject to this tax.
The tax paid by grantee under either of the above alternatives shall be in lieu of all other taxes, duties, royalties, registration, license, and other fees and charges of any kind, nature, or description imposed, levied, established, assessed or collected by any municipal, city, provincial, or national authority or government agency, now or in the future x x x
x x x x
The grantee, shall, however, pay the tax on its real property in conformity with existing law.
The language used in Section 13 of
Presidential Decree No. 1590, granting respondent tax exemption, is clearly all-inclusive. The basic corporate income tax or franchise
tax paid by respondent shall be “in lieu
of all other taxes, duties, royalties, registration, license, and other fees
and charges of any kind, nature, or description imposed, levied, established,
assessed or collected by any municipal, city, provincial, or national authority
or government agency, now or in the future x x x,” except only real
property tax. Even a meticulous
examination of Presidential Decree No. 1590 will not reveal any provision
therein limiting the tax exemption of respondent to final withholding tax on
interest income or excluding from said exemption the OCT.
Moreover, although the PAL case may
involve a different type of tax, certain pronouncements made by the Court
therein are still significant in the instant case.
In
the PAL case, petitioner likewise opposed the claim for refund of respondent
based on the argument that the latter was not exempted from final withholding
tax on interest income, because said tax should be deemed part of the basic
corporate income tax, which respondent had opted to pay. This Court was unconvinced by petitioner’s
argument, ratiocinating that “basic corporate income tax,” under Section 13(a)
of Presidential Decree No. 1590, relates to the general rate of 35% (reduced to
32% by the year 2000) imposed on taxable income by Section 27(A) of the
NIRC. Although the definition of “gross
income” is broad enough to include all passive incomes, the passive incomes already
subjected to different rates of final tax to be withheld at source shall no
longer be included in the computation of gross income, which shall be used in
the determination of taxable income. The
interest income of respondent is already subject to final withholding tax of 20%,
and no longer to the basic corporate income tax of 35%. Having established that final tax on interest
income is not part of the basic corporate income tax, then the former is
considered as among “all other taxes” from which respondent is exempted under
Section 13 of Presidential Decree No. 1590.
It is true that the discussion in the
PAL case on “gross income” is immaterial to the case at bar. OCT is not even an income tax. It is a business tax, which the government
imposes on the gross annual sales of operators of communication equipment
sending overseas dispatches, messages or conversations from the
Petitioner further avers that
respondent cannot avail itself of the benefit of the “in lieu of all other
taxes” proviso in Section 13 of
Presidential Decree No. 1590 when it made no actual payment of either the basic
corporate income tax or the franchise tax.
Petitioner made the same averment in
the PAL case, which the Court rejected for the following reasons:
A careful reading of Section 13 rebuts the argument of the CIR that the “in lieu of all other taxes” proviso is a mere incentive that applies only when PAL actually pays something. It is clear that PD 1590 intended to give respondent the option to avail itself of Subsection (a) or (b) as consideration for its franchise. Either option excludes the payment of other taxes and dues imposed or collected by the national or the local government. PAL has the option to choose the alternative that results in lower taxes. It is not the fact of tax payment that exempts it, but the exercise of its option.
Under Subsection (a), the basis for the tax rate is respondent’s annual net taxable income, which (as earlier discussed) is computed by subtracting allowable deductions and exemptions from gross income. By basing the tax rate on the annual net taxable income, PD 1590 necessarily recognized the situation in which taxable income may result in a negative amount and thus translate into a zero tax liability.
x x x x
The fallacy of the CIR’s argument is evident from the fact that the payment of a measly sum of one peso would suffice to exempt PAL from other taxes, whereas a zero liability arising from its losses would not. There is no substantial distinction between a zero tax and a one-peso tax liability.[18] (Emphases ours.)
In insisting that respondent needs to
actually pay a certain amount as basic corporate income tax or franchise tax,
before it can enjoy the tax exemption granted to it, petitioner places too much
reliance on the use of the word “pay” in the first line of Section 13 of
Presidential Decree No. 1590.
It must do well for petitioner to
remember that a statute’s clauses and phrases should not be taken as detached
and isolated expressions, but the whole and every part thereof must be
considered in fixing the meaning of any of its parts.[19] A strict interpretation of the word “pay” in Section
13 of Presidential Decree No. 1590 would effectively render nugatory the other
rights categorically conferred upon the respondent by its franchise.
Section 13 of Presidential Decree No.
1590 clearly gives respondent the option to “pay” either basic corporate income
tax on its net taxable income or franchise tax on its gross revenues, whichever
would result in lower tax. The rationale
for giving respondent such an option is explained in the PAL case, to wit:
Notably, PAL was owned and operated by the government at the time the franchise was last amended. It can reasonably be contemplated that PD 1590 sought to assist the finances of the government corporation in the form of lower taxes. When the respondent operates at a loss (as in the instant case), no taxes are due; in this [sic] instances, it has a lower tax liability than that provided by Subsection (b).[20]
In the event that respondent incurs a
net loss, it shall have zero liability for basic corporate income tax, the
lowest possible tax liability. There
being no qualification to the exercise of its options under Section 13 of
Presidential Decree No. 1590, then respondent is free to choose basic corporate
income tax, even if it would have zero liability for the same in light of its
net loss position for the taxable year.
Additionally, a ruling by this Court compelling respondent to pay a
franchise tax when it incurs a net loss and is, thus, not liable for any basic
corporate income tax would be contrary to the evident intent of the law to give
respondent options and to make the latter liable for the least amount of tax.
Moreover, then President Ferdinand E.
Marcos, the author of Presidential Decree No. 1590, was mindful of the
possibility that respondent would incur a net loss for a taxable year, resulting
in zero tax liability for basic corporate income tax, when he included in the
franchise of respondent the following provisions:
For the purposes of computing the basic corporate income tax as provided herein, the grantee is authorized:
x x x x
(2) To carry over as a deduction from taxable income any net loss incurred in any year up to five years following the year of such loss.
In allowing respondent to carry over its
net loss for five consecutive years following the year said loss was incurred, Presidential
Decree No. 1590 takes into account the possibility that respondent shall be in
a net loss position for six years straight, during which it shall have zero
basic corporate income tax liability. The
Court also notes that net loss carry-over may only be used in the computation
of basic corporate income tax. Hence, if
respondent is required to pay a franchise tax every time it has zero basic
corporate income tax liability due to net loss, then it shall never have the
opportunity to avail itself of the benefit of net loss carry-over.
Finally, petitioner contends that according
to well-established doctrine, a tax refund, which is in the nature of a tax
exemption, should be construed strictissimi
juris against the taxpayer.[21] However, when the claim for refund has clear
legal basis and is sufficiently supported by evidence, as in the present case,
then the Court shall not hesitate to grant the same.
In its previous discussion, the Court
has already established that by merely exercising its option to pay for basic
corporate income tax – even if it had zero liability for the same due to its
net loss position in 2001 – respondent was already exempted from all other
taxes, including the OCT. Therefore,
respondent is entitled to recover the amount of OCT erroneously collected from
it in 2001. Also, the CTA, both in
Division and en banc, found that
respondent submitted ample evidence to prove its payment of OCT to PLDT during
the second, third, and fourth quarters of 2001, in the total amount of P126,243.80,
which, in turn, was paid by PLDT to the BIR.
Said finding by the CTA, being factual in nature, is already
conclusively binding upon this Court. Under
our tax system, the CTA acts as a highly specialized body specifically created
for the purpose of reviewing tax cases. Accordingly, its findings of fact
are generally regarded as final, binding, and conclusive on this Court, and will
not ordinarily be reviewed or disturbed on appeal when supported by substantial
evidence, in the absence of gross error or abuse on its part.[22]
WHEREFORE, the
instant Petition for Review is DENIED. The Decision of the Court of Tax Appeals En Banc dated 9 August 2007 in CTA EB
No. 221, affirming the Decision dated 14 June 2006 of the CTA First Division in
CTA Case No. 6735, which granted the claim of Philippine Airlines, Inc. for a refund
of Overseas Communications Tax erroneously collected from it for the period
April to December 2001, in the amount of P126,243.80, is AFFIRMED. No costs.
SO
ORDERED.
|
|
MINITA V. CHICO-NAZARIOAssociate Justice |
WE
CONCUR:
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson
ANTONIO T. CARPIO
Associate Justice |
PRESBITERO
J. VELASCO, JR. Associate Justice |
|
|
|
DIOSDADO M. PERALTAAssociate Justice |
|
ATTESTATION
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.
CONSUELO YNARES-SANTIAGO
Associate
Justice
Chairperson, Third Division
CERTIFICATION
Pursuant
to Section 13, Article VIII of the Constitution, and the Division Chairperson’s
attestation, it is hereby certified 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
Chief Justice
* Associate
Justice Antonio T. Carpio was designated to sit as additional member, replacing
Associate Justice Antonio Eduardo B. Nachura per raffle dated
[1] Penned by Associate Justice Erlinda P. Uy with Presiding Justice Ernesto D. Acosta and Associate Justices Juanito Castañeda, Jr., Lovell R. Bautista, Caesar A. Casanova and Olga Palanca-Enriquez, concurring; rollo, pp. 39-50.
[2] Penned by Associate Justice Caesar A. Casanova; records, pp. 201-210.
[3] An Act Granting a New Franchise to
Philippine Airlines, Inc. to Establish, Operate, and Maintain Air-Transport
Services in the Philippines and Other Countries.
[4] Section
1 of Presidential Decree No. 1590.
[5] Records, p. 202.
[6]
[7]
[8] In BIR Ruling No. 97-94, then CIR Liwayway Vinzons-Chato ruled that the “in lieu of all taxes” clause in Section 13 of Presidential Decree No. 1590 exempted PAL from all taxes, including documentary stamp tax. In accordance with Section 173 of the NIRC, the Philippine National Bank, the Landbank and other banks in whose favor the promissory notes and other documents are executed by PAL, shall be liable for the payment of the documentary stamp tax. (Records, p. 26.)
[9] Records. p. 205.
[10]
[11]
[12] Rollo, p. 53.
[13]
[14] G.R. No. 160528,
[15]
[16] Rollo, pp. 28-29.
[17]
[18]
[19] Sanciangco
v. Roño, G.R. No. L-68709,
[20] Supra note 14 at 101.
[21] Far
East Bank & Trust Company v.
Commissioner of Internal Revenue, G.R. No. 149589,
[22] Benguet Corporation v. Commissioner of
Internal Revenue, G.R. No. 141212,