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[G.R. No. 167688.� July 27, 2005]
CIR vs. ANNO DOMINI DRUG, INC.
THIRD DIVISION
Sirs/Mesdames:
Quoted hereunder, for your information, is a resolution of this Court dated JUL 27 2005 .
G.R. No. 167688 (COMMISSIONER OF INTERNAL REVENUE vs. ANNO DOMINI DRUG, INC.)
Assailed in this petition for review on certiorari is the
Decision
[1]
cralaw
of the Court of Tax Appeals (CTA) En Banc, dated March 31, 2005 in CTA EB No. 3, affirming the Decision
[2]
cralaw
dated December 15, 2003 of a Division in CTA Case No. 6437. The CTA ordered the
Commissioner of Internal Revenue (CIR), petitioner, to refund or issue a Tax Credit
Certificate in favor of Anno Domini Drug, Inc. (ADDI), herein respondent, in
the amount of P138,182.11 as overpaid income taxes for the years 1999
and 2000.
Respondent ADDI is a domestic corporation, doing business in Laoag
City as a franchisee of "Mercury Drug." For the period from January 1, 1999 to December 31, 2000, respondent granted twenty percent (20%) discount to
purchases of medicines by senior citizens in the sum of P1,376,984.15,
as mandated by Republic Act No. 7432
[3]
cralaw
and its implementing Rules and Regulations. Respondent claimed that petitioner
CIR seriously erred in treating the said amount as sales discount from its
gross income or gross sales, following Revenue Regulations No. 2-94, instead of
treating it as a tax credit under Section 4 of R.A. No. 7432.
On April 17, 2000, respondent filed under protest its annual
income tax return for 1999, declaring therein that it paid P22,562.69 as
income tax for that year.
On April 17, 2001, respondent again filed, under protest, its
annual income tax return, stating therein that it paid P37,004.67 as
income tax for 2000.
On March 1, 2002, respondent filed with the Bureau of Internal
Revenue (BIR) a claim for tax refund/credit in the amount of P924,291.62.
Respondent alleged that this amount represented the cost of the twenty percent
(20%) discount it granted to qualified senior citizens on their purchases of
medicines from January 1, 1999 to December 31, 2000 and overpaid income taxes
for the said years; and that Section 2(1) of Revenue Regulations No. 2-94 is an
erroneous interpretation of the tax credit provisions of R.A. No. 7432.
When no action from petitioner on its claim was forthcoming, respondent filed with a Division of the CTA a petition for review, docketed as CTA Case No. 6437.
In its answer, petitioner CIR averred, among others, that while R.A. No. 7432 allows the discounts granted to senior citizens to be claimed as a tax credit, nonetheless, the law is silent as to the mechanics of how such tax credit is to be availed of. Hence, Revenue Regulations No. 2-94, defining the terms tax credit and providing for the manner of claiming the same, was issued as a curative measure. Under the said Regulations, the tax credit is to be deducted by the establishment from its gross income, not from its income tax liability. Petitioner CIR maintained that respondent's claim for tax credit is not properly documented.
On December 15, 2003, the CTA Division issued its Decision, the dispositive portion of which reads:
"WHEREFORE, petitioner's claim for refund is PARTIALLY
GRANTED. Respondent is hereby ORDERED to REFUND or ISSUE A
TAX CREDIT CERTIFICATE in favor of the petitioner in the amount of P138,182.11
representing overpaid income tax for the years 1999 and 2000.
SO ORDERED."
The CTA Division held that Section 4 of R.A. No. 7432 mandates that the 20% granted to qualified senior citizens may be claimed as a "tax credit" or "an amount subtracted from an individual or entity's tax liability to arrived at the total tax liability." Revenue Regulations No. 2-94, in interpreting tax credit as an amount deductible from the establishments gross sales, gave it a new meaning which is sharply in conflict with the provisions of R.A. No. 7432. Revenue Regulations No. 2-94, being subordinate to R.A. No. 7432, it follows that the clear and unequivocal language of the said statue must prevail.
On appeal, the CTA En Banc dismissed the same for lack of merit.
Hence, the instant petition for review on certiorari. The basic issue for our resolution is:
"WHETHER THE COURT OF TAX APPEALS ERRED IN HOLDING THAT RESPONDENT MAY CLAIM THE 20% DISCOUNT AS A TAX CREDIT, NOT AS A DEDUCTION FROM GORSS INCOME OR GROSS SALES."
Petitioner contends that to allow respondent to claim the 20% discount as a tax credit, to be deducted from its total tax liability, would be to grant it greater benefits than the actual discounts it gave the elderly. In effect, the government would be reimbursing respondent amounts which are way beyond what it gave to senior citizens. Upon the other hand, if the discount is deducted from gross income or gross sales, as mandated by Revenue Regulations No. 2-94, the tax benefit is only up to the extent of the rate of tax prescribed.
On this point, the CTA held:
"Neither can we go along with petitioner's argument that to allow respondent to claim the 20% discount as tax credit instead of a mere deduction from gross income/gross sales would be to grant a benefit not intended by law. The main objective of R.A. No. 7432 is to provide assistance and special privileges to senior citizens. In the implementation thereof, the State essentially requires drug stores, like herein respondent, to give 20% of the value of the medicines sold in the form of a discount in prices. This is tantamount to taking of private property for public use under the power of eminent domain. While the State's power of expropriation is authorized by the Constitution, it should not be exercised without payment of just compensation (Article III, Section 9 of the Constitution). As aptly held in Manosca vs. Court of Appeals, 255 SCRA 412, the only direct constitutional qualification for the exercise of such power is that 'private property shall not be taken for public use without just compensation.' The tax credit scheme provided under the subject law is designed to compensate private establishments the full and fair equivalent of the property taken from them, hence, it would be highly inappropriate to consider the same as 'benefit not intended by law.'"
R.A. No. 7432 and Revenue Regulations No. 2-94 are hereby quoted as our guide posts in resolving the issue before us, thus:
"Republic Act No. 7432
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 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.
Revenue Regulations No. 2-94
Section 2.��� DEFINITIONS. For purposes of these regulations:
x x x������������� x x x
i. Tax credit. - refers to the amount representing the 20% discount granted to a qualified senior citizens 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. (Underscoring supplied)
In Commissioner of Internal Revenue vs. Central Luzon Drug Corporation, [4] cralaw penned by Mr. Justice Artemio V. Panganiban, we held:
"What RA 7432 grants the senior citizens is a mere discount privilege, not a sales discount or any of the above discounts in particular. Prompt payment is not the reason for (although a necessary consequence of) such grant. To be sure, the privilege enjoyed by senior citizens must be equivalent to the tax credit benefit enjoyed by the private establishment granting the discount. Yet, under the Revenue Regulations promulgated by our tax authorities; this benefit has been erroneously likened and confined to a sales discount.
To a senior citizen, the monetary effect of the privilege may be the same as that resulting from a sales discount. To repeat from our earlier discourse, this benefit cannot and should not be treated as a tax discount.
To stress, the effect of a sales discount on the income statement and income tax return of an establishment covered by RA 7432 is different from that resulting from the availament or use of its tax credit benefit. While the former is a deduction before, the latter is a deduction after, the income tax is computed. As mentioned earlier, a discount is not necessarily a sales discount, and a tax credit, as a simple discount privilege should not be automatically treated like a sales discount, Ubi lex non distinguit, nec nos distinguere debemus. Where the law does not distinguish, we ought not to distinguish.
Section 2.i and 4 Revenue Regulations No. (RR) 2-94 define tax credit as the 20 percent discount deductible from gross income for income tax purposes or from gross sales for VAT or other percentage tax purposes. In effect, the tax credit benefit under RA 7432 is related to a sales discount. This contrived definition is improper, considering that the latter has to be deducted from gross sales in order to compute the gross income in the income statement and cannot be deducted again, even for purposes of computing the income tax.
When the law says that the cost of the discount may be claimed as a tax credit, it means that the amount - when claimed - shall be treated as a reduction from any tax liability, plain and simple. The option to avail of the tax credit benefit depends upon the existence of a tax liability, but to limit the benefit to a sales discount - which is not even identical to the discount privilege that is granted by law - does not define it all and serves no useful purpose. The definition must, therefore, be stricken down."
In fine, it is clear that, as mandated by R.A. No. 7432, respondent's claim is a 20% tax credit, to be deducted from its total tax liability. It is not a sales discount, to be deducted from its gross income or gross sales, as alleged by CIR in its petition. The CTA, therefore, did not err its conclusion of law.
WHEREFORE, for being insufficient in substance, the instant petition is hereby DENIED.
SO ORDERED.
Very truly yours,
(Sgd.) LUCITA ABJELINA-SORIANO
Clerk of Court
Endnotes:
[1] cralaw Rollo at 36-48. Penned by Associate Justice Caesar Cassanova and concurred in by Presiding Justice Ernesto D. Acosta and Associate Justices Juanito Castaneda, Lovell R. Bautista, Erlinda P. Uy, and Olga Palanca-Enriquez.
[2] cralaw Rollo at 49-64.
[3] cralaw "An Act to maximize Contribution of Senior Citizens to Nation Building, Grant Benefits and Special Privileges, and for Other Purposes." Section 4(9) grants to senior citizens the privilege of obtaining a 20% discount on their purchases of medicine from any private establishment in the country.
[4] cralaw G.R. No. 159647, April 15, 2005.
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