Republic of the
SUPREME COURT
THIRD DIVISION
|
SOUTH AFRICAN AIRWAYS, Petitioner, -
versus - COMMISSIONER OF INTERNAL REVENUE, Respondent. |
|
G.R. No. 180356 Present: VELASCO, JR., LEONARDO-DE
CASTRO,* PERALTA, and MENDOZA, JJ. Promulgated: February
16, 2010 |
x-----------------------------------------------------------------------------------------x
D E C I
S I O N
VELASCO,
JR., J.:
The
Case
This Petition for Review on Certiorari
under Rule 45 seeks the reversal of the July 19, 2007 Decision[1] and
October 30, 2007 Resolution[2] of
the Court of Tax Appeals (CTA) En Banc
in CTA E.B. Case No. 210, entitled South
African Airways v. Commissioner of Internal Revenue. The assailed decision affirmed
the Decision dated May 10, 2006[3] and
Resolution dated August 11, 2006[4]
rendered by the CTA First Division.
The Facts
Petitioner
South African Airways is a foreign corporation organized and existing under and
by virtue of the laws of the
For
the taxable year 2000, petitioner filed separate quarterly and annual income
tax returns for its off-line flights, summarized as follows:
|
|
Period |
Date Filed |
|
2.5% Gross Phil. Billings |
|
For Passenger |
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter |
|
PhP |
222,531.25 424,046.95 422,466.00 453,182.91 |
|
Sub-total |
|
|
PhP |
1,522,227.11 |
|
For Cargo |
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter |
|
PhP |
81,531.00 50,169.65 36,383.74 37,454.88 |
|
Sub-total |
|
|
PhP |
205,539.27 |
|
TOTAL |
|
|
|
1,727,766.38 |
Thereafter,
on
On
May 10, 2006, the CTA First Division issued a Decision denying the petition for
lack of merit. The CTA ruled that petitioner is a resident foreign corporation
engaged in trade or business in the
Petitioner’s
Motion for Reconsideration of the above decision was denied by the CTA First
Division in a Resolution dated August 11, 2006.
Thus,
petitioner filed a Petition for Review before the CTA En Banc, reiterating its claim for a refund of its tax payment on
its GPB. This was denied by the CTA in its assailed decision. A subsequent
Motion for Reconsideration by petitioner was also denied in the assailed
resolution of the CTA En Banc.
Hence,
petitioner went to us.
The Issues
Whether or not petitioner, as an off-line
international carrier selling passage documents through an independent sales
agent in the Philippines, is engaged in trade or business in the Philippines
subject to the 32% income tax imposed by Section 28 (A)(1) of the 1997 NIRC.
Whether or not the income derived by
petitioner from the sale of passage documents covering petitioner’s off-line
flights is Philippine-source income subject to Philippine income tax.
Whether or not petitioner is entitled to a
refund or a tax credit of erroneously paid tax on Gross Philippine Billings for
the taxable year 2000 in the amount of P1,727,766.38.[5]
The Court’s Ruling
This petition must be denied.
Petitioner Is Subject to Income Tax
at the Rate of 32% of Its Taxable Income
Preliminarily, we emphasize that
petitioner is claiming that it is exempted from being taxed for its sale of
passage documents in the
In Commissioner of Internal Revenue v. Acesite (Philippines) Hotel
Corporation,[6] we held,
“Since an action for a tax refund partakes of the nature of an exemption, which
cannot be allowed unless granted in the most explicit and categorical language,
it is strictly construed against the claimant who must discharge such burden
convincingly.”
Petitioner has failed to overcome
such burden.
In essence, petitioner calls upon
this Court to determine the legal implication of the amendment to Sec.
28(A)(3)(a) of the 1997 NIRC defining
GPB. It is petitioner’s contention that, with the new definition of GPB, it is
no longer liable under Sec. 28(A)(3)(a). Further, petitioner argues that
because the 2 1/2% tax on GPB is inapplicable to it, it is thereby excluded
from the imposition of any income tax.
Sec. 28(b)(2) of the 1939 NIRC
provided:
(2) Resident Corporations. – A corporation organized, authorized, or existing under the laws of a foreign country, engaged in trade or business within the Philippines, shall be taxable as provided in subsection (a) of this section upon the total net income received in the preceding taxable year from all sources within the Philippines: Provided, however, that international carriers shall pay a tax of two and one-half percent on their gross Philippine billings.
This provision was later amended by Sec.
24(B)(2) of the 1977 NIRC, which defined GPB as follows:
“Gross Philippine billings” include gross revenue realized from uplifts anywhere in the world by any international carrier doing business in the Philippines of passage documents sold therein, whether for passenger, excess baggage or mail, provided the cargo or mail originates from the Philippines.
In the 1986 and 1993 NIRCs, the
definition of GPB was further changed to read:
“Gross Philippine
Billings” means gross revenue realized from uplifts of passengers anywhere in
the world and excess baggage, cargo and mail originating from the
Essentially, prior to the 1997 NIRC,
GPB referred to revenues from uplifts anywhere in the world, provided that the
passage documents were sold in the
“Gross Philippine Billings” refers to the amount of gross revenue derived from carriage of persons, excess baggage, cargo and mail originating from the Philippines in a continuous and uninterrupted flight, irrespective of the place of sale or issue and the place of payment of the ticket or passage document.
Now, it is the place of sale that is
irrelevant; as long as the uplifts of passengers and cargo occur to or from the
As correctly pointed out by
petitioner, inasmuch as it does not maintain flights to or from the
Such position is untenable.
In Commissioner of Internal Revenue v. British Overseas Airways
Corporation (British Overseas Airways),[7] which was decided under similar factual
circumstances, this Court ruled that off-line air carriers having general sales
agents in the Philippines are engaged in or doing business in the Philippines
and that their income from sales of passage documents here is income from
within the Philippines. Thus, in that case, we held the off-line air carrier
liable for the 32% tax on its taxable income.
Petitioner argues, however, that
because British Overseas Airways was
decided under the 1939 NIRC, it does not apply to the instant case, which must be
decided under the 1997 NIRC. Petitioner alleges that the 1939 NIRC taxes
resident foreign corporations, such as itself, on all income from sources
within the
Its argument has no merit.
First, the difference cited by
petitioner between the 1939 and 1997 NIRCs with regard to the taxation of off-line
air carriers is more apparent than real.
We point out that Sec. 28(A)(3)(a) of
the 1997 NIRC does not, in any categorical term, exempt all international air
carriers from the coverage of Sec. 28(A)(1) of the 1997 NIRC. Certainly, had
legislature’s intentions been to completely exclude all international air
carriers from the application of the general rule under Sec. 28(A)(1), it would
have used the appropriate language to do so; but the legislature did not. Thus,
the logical interpretation of such provisions is that, if Sec. 28(A)(3)(a) is
applicable to a taxpayer, then the general rule under Sec. 28(A)(1) would not
apply. If, however, Sec. 28(A)(3)(a) does not apply, a resident foreign
corporation, whether an international air carrier or not, would be liable for
the tax under Sec. 28(A)(1).
Clearly, no difference exists between
British Overseas Airways and the
instant case, wherein petitioner claims that the former case does not apply.
Thus, British Overseas Airways
applies to the instant case. The findings therein that an off-line air carrier
is doing business in the
Petitioner further reiterates its argument
that the intention of Congress in amending the definition of GPB is to exempt
off-line air carriers from income tax by citing the pronouncements made by
Senator Juan Ponce Enrile during the deliberations on the provisions of the
1997 NIRC. Such pronouncements, however, are not controlling on this Court. We
said in Espino v. Cleofe:[8]
A cardinal rule in the interpretation of statutes is that the meaning and intention of the law-making body must be sought, first of all, in the words of the statute itself, read and considered in their natural, ordinary, commonly-accepted and most obvious significations, according to good and approved usage and without resorting to forced or subtle construction. Courts, therefore, as a rule, cannot presume that the law-making body does not know the meaning of words and rules of grammar. Consequently, the grammatical reading of a statute must be presumed to yield its correct sense. x x x It is also a well-settled doctrine in this jurisdiction that statements made by individual members of Congress in the consideration of a bill do not necessarily reflect the sense of that body and are, consequently, not controlling in the interpretation of law. (Emphasis supplied.)
Moreover, an examination of the
subject provisions of the law would show that petitioner’s interpretation of those
provisions is erroneous.
Sec. 28(A)(1) and (A)(3)(a) provides:
SEC. 28. Rates of Income Tax on Foreign Corporations. -
(A) Tax on Resident Foreign Corporations. -
(1) In General. - Except as otherwise provided in this Code, a corporation organized, authorized, or existing under the laws of any foreign country, engaged in trade or business within the Philippines, shall be subject to an income tax equivalent to thirty-five percent (35%) of the taxable income derived in the preceding taxable year from all sources within the Philippines: provided, That effective January 1, 1998, the rate of income tax shall be thirty-four percent (34%); effective January 1, 1999, the rate shall be thirty-three percent (33%), and effective January 1, 2000 and thereafter, the rate shall be thirty-two percent (32%).
x x x x
(3) International Carrier. - An international carrier doing business in the Philippines shall pay a tax of two and one-half percent (2 1/2%) on its ‘Gross Philippine Billings’ as defined hereunder:
(a) International Air Carrier. – ‘Gross Philippine Billings’ refers to the amount of gross revenue derived from carriage of persons, excess baggage, cargo and mail originating from the Philippines in a continuous and uninterrupted flight, irrespective of the place of sale or issue and the place of payment of the ticket or passage document: Provided, That tickets revalidated, exchanged and/or indorsed to another international airline form part of the Gross Philippine Billings if the passenger boards a plane in a port or point in the Philippines: Provided, further, That for a flight which originates from the Philippines, but transshipment of passenger takes place at any port outside the Philippines on another airline, only the aliquot portion of the cost of the ticket corresponding to the leg flown from the Philippines to the point of transshipment shall form part of Gross Philippine Billings.
Sec. 28(A)(1) of the 1997 NIRC is a
general rule that resident foreign corporations are liable for 32% tax on all
income from sources within the
An exception is defined as “that
which would otherwise be included in the provision from which it is excepted.
It is a clause which exempts something from the operation of a statue by
express words.”[9] Further,
“an exception need not be introduced by the words ‘except’ or ‘unless.’ An
exception will be construed as such if it removes something from the operation
of a provision of law.”[10]
In the instant case, the general rule
is that resident foreign corporations shall be liable for a 32% income tax on
their income from within the Philippines, except for resident foreign
corporations that are international carriers that derive income “from carriage
of persons, excess baggage, cargo and mail originating from the Philippines”
which shall be taxed at 2 1/2% of their Gross Philippine Billings. Petitioner,
being an international carrier with no flights originating from the
To reiterate, the correct
interpretation of the above provisions is that, if an international air carrier
maintains flights to and from the Philippines, it shall be taxed at the rate of
2 1/2% of its Gross Philippine Billings, while international air carriers that
do not have flights to and from the Philippines but nonetheless earn income
from other activities in the country will be taxed at the rate of 32% of such
income.
As to the denial of petitioner’s
claim for refund, the CTA denied the claim on the basis that petitioner is liable
for income tax under Sec. 28(A)(1) of the 1997 NIRC. Thus, petitioner raises
the issue of whether the existence of such liability would preclude their claim
for a refund of tax paid on the basis of Sec. 28(A)(3)(a). In answer to petitioner’s
motion for reconsideration, the CTA First Division ruled in its Resolution
dated August 11, 2006, thus:
On the fourth argument, petitioner avers that
a deficiency tax assessment does not, in any way, disqualify a taxpayer from
claiming a tax refund since a refund claim can proceed independently of a tax
assessment and that the assessment cannot be offset by its claim for refund.
Petitioner’s argument is erroneous.
Petitioner premises its argument on the existence of an assessment. In the
assailed Decision, this Court did not, in any way, assess petitioner of any
deficiency corporate income tax. The power to make assessments against
taxpayers is lodged with the respondent. For an assessment to be made,
respondent must observe the formalities provided in Revenue Regulations No.
12-99. This Court merely pointed out that petitioner is liable for the regular
corporate income tax by virtue of Section 28(A)(3) of the Tax Code. Thus, there
is no assessment to speak of.[12]
Precisely, petitioner questions the
offsetting of its payment of the tax under Sec. 28(A)(3)(a) with their
liability under Sec. 28(A)(1), considering that there has not yet been any
assessment of their obligation under the latter provision. Petitioner argues
that such offsetting is in the nature of legal compensation, which cannot be
applied under the circumstances present in this case.
Article 1279 of the Civil Code
contains the elements of legal compensation, to wit:
Art. 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor.
And we ruled in Philex Mining Corporation v. Commissioner of Internal Revenue,[13] thus:
In several instances prior to the instant
case, we have already made the pronouncement that taxes cannot be subject to
compensation for the simple reason that the government and the taxpayer are not
creditors and debtors of each other. There is a material distinction between a
tax and debt. Debts are due to the Government in its corporate capacity, while
taxes are due to the Government in its sovereign capacity. We find no cogent
reason to deviate from the aforementioned distinction.
Prescinding from this premise, in Francia v. Intermediate Appellate Court,
we categorically held that taxes cannot be subject to set-off or compensation,
thus:
We have consistently ruled that there can be
no off-setting of taxes against the claims that the taxpayer may have against
the government. A person cannot refuse to pay a tax on the ground that the
government owes him an amount equal to or greater than the tax being collected.
The collection of a tax cannot await the results of a lawsuit against the
government.
The ruling in Francia has been applied to the subsequent case of Caltex Philippines, Inc. v. Commission on
Audit, which reiterated that:
. . . a taxpayer may not offset taxes due
from the claims that he may have against the government. Taxes cannot be the
subject of compensation because the government and taxpayer are not mutually
creditors and debtors of each other and a claim for taxes is not such a debt,
demand, contract or judgment as is allowed to be set-off.
Verily, petitioner’s argument is
correct that the offsetting of its tax refund with its alleged tax deficiency
is unavailing under Art. 1279 of the Civil Code.
Commissioner of Internal Revenue v. Court of Tax Appeals,[14] however,
granted the offsetting of a tax refund with a tax deficiency in this wise:
Further,
it is also worth noting that the Court of Tax Appeals erred in denying
petitioner’s supplemental motion for reconsideration alleging bringing to said
court’s attention the existence of the deficiency income and business tax
assessment against Citytrust. The fact of such deficiency assessment is
intimately related to and inextricably intertwined with the right of respondent
bank to claim for a tax refund for the same year. To award such refund despite
the existence of that deficiency assessment is an absurdity and a polarity in
conceptual effects. Herein private respondent cannot be entitled to refund and
at the same time be liable for a tax deficiency assessment for the same year.
The grant of a refund is founded on the assumption that the
tax return is valid, that is, the facts stated therein are true and correct.
The deficiency assessment, although not yet final, created a doubt as to and
constitutes a challenge against the truth and accuracy of the facts stated in
said return which, by itself and without unquestionable evidence, cannot be the
basis for the grant of the refund.
Section
82, Chapter IX of the National Internal Revenue Code of 1977, which was the
applicable law when the claim of Citytrust was filed, provides that “(w)hen an
assessment is made in case of any list, statement, or return, which in the
opinion of the Commissioner of Internal Revenue was false or fraudulent or
contained any understatement or undervaluation, no tax collected under such
assessment shall be recovered by any suits unless it is proved that the said
list, statement, or return was not false nor fraudulent and did not contain any
understatement or undervaluation; but this provision shall not apply to
statements or returns made or to be made in good faith regarding annual
depreciation of oil or gas wells and mines.”
Moreover,
to grant the refund without determination of the proper assessment and the tax
due would inevitably result in multiplicity of proceedings or suits. If the
deficiency assessment should subsequently be upheld, the Government will be
forced to institute anew a proceeding for the recovery of erroneously refunded
taxes which recourse must be filed within the prescriptive period of ten years
after discovery of the falsity, fraud or omission in the false or fraudulent
return involved. This would necessarily require and entail additional
efforts and expenses on the part of the Government, impose a burden on and a drain
of government funds, and impede or delay the collection of much-needed revenue
for governmental operations.
Thus,
to avoid multiplicity of suits and unnecessary difficulties or expenses, it is
both logically necessary and legally appropriate that the issue of the
deficiency tax assessment against Citytrust be resolved jointly with its claim
for tax refund, to determine once and for all in a single proceeding the true
and correct amount of tax due or refundable.
In
fact, as the Court of Tax Appeals itself has heretofore conceded, it
would be only just and fair that the taxpayer and the Government alike be given
equal opportunities to avail of remedies under the law to defeat each other’s
claim and to determine all matters of dispute between them in one single case.
It is important to note that in determining whether or not petitioner is
entitled to the refund of the amount paid, it would [be] necessary to determine
how much the Government is entitled to collect as taxes. This would necessarily
include the determination of the correct liability of the taxpayer and,
certainly, a determination of this case would constitute res judicata on both
parties as to all the matters subject thereof or necessarily involved therein.
(Emphasis supplied.)
Sec. 82, Chapter IX of the 1977 Tax
Code is now Sec. 72, Chapter XI of the 1997 NIRC. The above pronouncements are,
therefore, still applicable today.
Here, petitioner’s similar tax refund
claim assumes that the tax return that it filed was correct. Given, however,
the finding of the CTA that petitioner, although not liable under Sec.
28(A)(3)(a) of the 1997 NIRC, is liable under Sec. 28(A)(1), the correctness of
the return filed by petitioner is now put in doubt. As such, we cannot grant
the prayer for a refund.
Be that as it may, this Court is
unable to affirm the assailed decision and resolution of the CTA En Banc on the outright denial of
petitioner’s claim for a refund. Even though petitioner is not entitled to a
refund due to the question on the propriety of petitioner’s tax return subject
of the instant controversy, it would not be proper to deny such claim without
making a determination of petitioner’s liability under Sec. 28(A)(1).
It must be remembered that the tax
under Sec. 28(A)(3)(a) is based on GPB, while Sec. 28(A)(1) is based on taxable
income, that is, gross income less deductions and exemptions, if any. It cannot
be assumed that petitioner’s liabilities under the two provisions would be the
same. There is a need to make a determination of petitioner’s liability under
Sec. 28(A)(1) to establish whether a tax refund is forthcoming or that a tax
deficiency exists. The assailed decision fails to mention having computed for
the tax due under Sec. 28(A)(1) and the records are bereft of any evidence
sufficient to establish petitioner’s taxable income. There is a necessity to
receive evidence to establish such amount vis-à-vis the claim for refund. It is
only after such amount is established that a tax refund or deficiency may be
correctly pronounced.
WHEREFORE, the
assailed July 19, 2007 Decision and October 30, 2007 Resolution of the CTA En Banc in CTA E.B. Case No. 210 are SET ASIDE. The instant case is REMANDED to the CTA En Banc for further proceedings and
appropriate action, more particularly, the reception of evidence for both
parties and the corresponding disposition of CTA E.B. Case No. 210 not otherwise
inconsistent with our judgment in this Decision.
SO ORDERED.
PRESBITERO
J. VELASCO, JR.
Associate Justice
WE CONCUR:
RENATO C. CORONA
Associate Justice
Chairperson
TERESITA J. LEONARDO-DE CASTRO DIOSDADO M. PERALTA
Associate Justice
Associate Justice
JOSE CATRAL
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.
RENATO C. CORONA
Associate Justice
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 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. 68-79. Penned by Associate Justice Erlinda P. Uy and concurred in by Presiding Justice Ernesto D. Acosta and Associate Justices Lovell R. Bautista and Olga Palanca-Enriquez.
[2]
[3]
[4]
[5]
[6]
G.R. No. 147295,
[7] No. L-65773-74, April 30, 1987, 149 SCRA 395.
[8] No.
L-33410,
[9] R. Agpalo, Statutory Construction 241 (4th ed., 1998).
[10]
[11]
[13] G.R. No. 125704, August 28, 1998, 294 SCRA 687, 695-696.
[14] G.R. No. 106611, July 21, 1994, 234 SCRA 348, 356-358.