Heng Tong Textiles Co., Inc. v. CIR G.R. No.

L-61632 1 of 6

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-61632 August 16, 1983
WESTERN MINOLCO CORPORATION, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS, respondents.
Raul Correa and Cenon Sorreta for petitioner.
The Solicitor General for respondents.

GUTIERREZ JR., J.:

This is a petition for review on certiorari of a Court of Tax Appeal's decision denying the petitioner's claim for the
refund of P1,317,801.03, representing Money market transaction taxes which the petitioner paid from June 3, 1977
to August 5, 1977, and the resolution denying its motion for reconsideration.
Petitioner is a domestic corporation engaged in mining, particularly copper concentrates for export mined from
mineral lands in Atok and Kibungan, Benguet.
In October 1972, upon application for tax exemption filed with the Bureau of Mines, the petitioner was granted
Certificate of Qualification for Tax Exemption No. 34.
On December 24, 1976, the petitioner was also granted by the Securities and Exchange Commission, under
Certificate of Renewal No. R-1056, authority to borrow money and issue commercial papers. Pursuant to this
authority, the petitioner borrowed funds from several financial institutions from June, 1977 to October 1977 and
paid the corresponding 35% transaction tax due thereon in the amount of P1,317,801.03, The tax was paid pursuant
to Section 210 (b) of the National Internal Revenue Code of 1977.
On February 16, 1978, the petitioner applied for the refund of the P1,317,801.03 alleging that it was not liable to
pay the 35% transaction tax under its Certificate of Qualification for Tax Exemption No. 34 issued by the Secretary
of Agriculture and Natural Resources, and pursuant to Section 79-A of Commonwealth Act No. 137, otherwise
known as The Mining Act and Presidential Decree No. 463, the Mineral Resources Development Decree of 1974,
as implemented by Consolidated Mines Administrative Order of the Secretary of Natural Resources dated May 17,
1974.
On February 19, 1979, the respondent Commissioner of internal Revenue denied the petitioner's claim for refund.
On May 29, 1979, the petitioner filed a petition for review with the respondent Court of Tax Appeals. On August
28, 1979, the Commissioner of Internal Revenue filed his answer alleging inter alia that:
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(a) The 35% transaction tax is actually a tax on the interest earnings of the lender who is actually the
taxpayer on whose income, the tax is imposed;
(b) Petitioner did not pay the 35", transaction tax in its own behalf, as this liability has been fully
shifted to and paid for the account of the lender:
(c) Petitioner merely acted as withholding agent in paying
(d) the 35% transaction tax based on the gross interest income of the
(e) lender;
(d) Petitioner's exemption from taxes granted under Sections 52 and 53 of Presidential Decree No.
463 relates to importations of machineries, tools and equipment to be used in the mining operations
Heng Tong Textiles Co., Inc. v. CIR G.R. No. L-61632 2 of 6

and taxes on mining claims, improvement thereon and mineral products, whereas the 35%
transaction tax is levied on transactions pertaining to commercial papers issued in the primary
money market as principal instruments; in other words, Sections 52 and 53 of P.D. 463 do not apply
to this case of petitioner.
After due hearing but before the respondent court could render its decision, the petitioner filed a pleading entitled
"Request for Judicial Notice and Request for Admission" alleging that the subject tax was paid in the nature of a
business tax, that petitioner's claim for refund is based on its exemption from business taxes, and that its exemption
is protected by existing tax exemptions granted it under the mining law.
On January 29, 1982, the respondent court denied the petitioner's "Request for Judicial Notice and Request for
Admission. "
On May 21, 1982, the respondent court rendered its decision dismissing the petition for review for lack of merit.
The petitioner raised the following assignments of errors:
Assignment of error No. 1
THAT THE TAX COURT ERRONEOUSLY CONCLUDED BY SUPPORTING RESPONDENT
COMMISSIONER'S CONTENTION THAT THE 35% TRANSACTION TAX ON COMMERCIAL
PAPER (INVOLVED IN THIS CASE) IS AN INCOME TAX IMPOSED UPON THE INTEREST
EARNINGS OF THE MONEY LENDER WHO (ACCORDING TO THE TAX COURT) IS
ACTUALLY THE TAX PAYER ON WHOSE INCOME THE 35r7(, TAX IS IMPOSED.
Assignment of Error No. 2
THAT THE TAX COURT ERRED IN THAT ITS CONCLUSIONS CONTRAVENE THE
MANDATES IN SAID P.D. No. 1154 (particularly SEC. 2 OF WHICH) AMENDING SECTION
291b) OF THE 1977 REVENUE CODE BY EXCLUDING FROM GROSS INCOME' THE
'INTEREST EARNED ON COMMERCIAL PAPER ISSUED IN THE PRIMARY MARKET
(WHICH) SHALL NOT BE INCLUDED IN THE DETERMINATION OF GROSS INCOME OF
THE LENDER FOR PURPOSES OF INCOME TAXATION
Assignment of Error No. 3
THAT THE TAX COURT ERRED IN CONFUSING TWO DISTINCT AND SEPARATE
ASPECTS OF THE TAXATION AND THE PERSONS OF THE TAX PAYER AS IF THEY ARE
ONE AND THE SAME PERSON, WHEN THE LAW TREATS THEM AS TOTALLY DISTINCT
AND SEPARATE PERSONS AND ASPECTS THEREOF.-NAMELY: (A) THE INCIDENCE OF
THE TAX AND THE PERSON LEGALLY LIABLE FOR THE TAX; AND THE (B) 'ACTUAL
PAYOR' OR 'RESULTING PAYOR' OF THE 35, of TRANSACTION TAX.
Assignment of Error No. 4
THAT THE TAX COURT ERRED IN RULING THAT THE 35% TRANSACTION TAX IS AN
INCOME TAX FROM WHICH MINOLCO IS NOT EXEMPT AND NOT A BUSINESS TAX.
Assignment of Error No. 5
THAT THE TAX COURT ERRED IN CONFUSING THE 'INCIDENT OF THE TAX AND THE
ACTUAL PAYOR' OR 'RESULTING PAYOR' OF THE 35% TRANSACTION TAX; THAT
CONFUSION OF THE TWO SEPARATE PERSONS HAS RESULTED INTO THE ERRONEOUS
CONCLUSION THAT THE 35% TRANSACTION TAX IS AN INCOME TAX IMPOSED UPON
THE INTEREST EARNED BY THE MONEY LENDER INVOLVED IN THE ISSUANCE OF
THE COMMERCIAL PAPER UPON WHICH INTEREST INCOME IS PAID OR COLLECTED:
THAT THIS ERROR HAS RESULTED IN RESPONDENT COMMISSIONER'S AND SHE TAX
COURT'S) VIEW THAT PETITIONER MINOLCO IS A WITHHOLDING AGENT IN RESPECT
OF THE INCOME TAX DUE TO BE WITHHELD ON INTEREST INCOME OF MONEY
LENDER.
Heng Tong Textiles Co., Inc. v. CIR G.R. No. L-61632 3 of 6

Assignment of Error No.6

THAT THE TAX COURT ERRED IN FAILING TO RECOGNIZE THAT PETITIONER
MINOLCO IS A QUALIFIED MINING LESSEE AND DEVELOPER UNDER THE MINING
LAW (C.A. No. t37, As Amended), AND UNDER THE MINERAL RESOURCES
DEVELOPMENT DECREE OF 1974 (P.D. No. 463, As Amended); THAT AS SUCH
PETITIONER IS EXEMPTED FROM ALL TAXES (EXEMPT INCOME TAX) PURSUANT TO
THE LAW AND THE IMPLEMENTING REGULATIONS THEREOF (CONSOLIDATED MINES
ADMINISTRATIVE ORDER, DATED AND EFFECTIVE MAY 17,1975); FURTHER, THAT THE
TAX COURT HAS ERRONEOUSLY RULED TO IMPOSE THE INCOME TAX UPON
MINOLCO WHICH IS BASED ON SECTION 24 OF THE REVENUE CODE AND MAY NOT
BE THE SUBJECT OF THE LITIGATION AS PART OF PETITIONER'S APPEAL BEFORE THE
TAX COURT.
Assignment of Error No. 7
THAT RESPONDENT I HAVE FAILED TO CONSIDER THE 'WHEREAS CLAUSES OF THE
ENABLING ACT IMPOSING THE 35% TRANSACTION TAX LAW (P.D. No. 1154) IN THE
APPLICATION OF THE LAW, TOGETHER WITH THE IMPLEMENTING REGULATIONS
THEREOF AS WELL AS THE 'WHEREAS CLAUSES OF THE REPEALING LAW (P.D. No.
1739) WHICH RECOGNIZES PETITIONER'S RIGHT OF RELIEF AGAINST THE
TRANSACTION TAX (SEE PEOPLE VS. PURISIMA, I,-42050-66; NOV. 20,1978; 86 SCRA
542).
The errors raised by the petitioner are grounded on one main issue, whether or not the petitioner is exempt from the
35% transaction tax.
We find the alleged errors without merit.
The petitioner claims exemption from the 35% transaction tax on the basis of the following statutory provisions:
(1) Sec. 1 of Republic Act No. 3823, amending Commonwealth Act No. 137, otherwise known as
the Mining Act" which reads:
Sec. 1. There is hereby inserted after Section seventy-nine, Chapter VI of the Mining
Act, a new section which shall read as follows:
Sec. 79-A. However, new mines, and old mines which resume operation, when
certified to as such by the Secretary of Agriculture and Natural Resources upon the
recommendation of the Director of Mines, shall be granted five years complete tax
exemptions, except income tax, from the time of its actual bona fide orders for
equipment for commercial production.
If any of the tax-exempt articles acquired under this provision are sold, transferred or
otherwise disposed of within a period of five years from such tax-exempt acquisition,
all taxes and duties which would have been due at the time of such acquisition shall
become due and payable, together with all interests and surcharges, and which
amount shall constitute a lien on these properties.
(2) Sec. I of Presidential Decree No. 237, amending the Tax Code, which reads:
Section 1. The last paragraph of Section One hundred ninety of Commonwealth Act
Numbered Four hundred sixty-six, otherwise known as the 'National Internal Revenue
Code' is further amended to read as follows:
Sec. 190. Compensating Tax.
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The provisions of existing laws to the contrary notwithstanding exemption from this tax shall be
limited to the following:
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xxx xxx xxx

4. Machineries, equipment, tools for production, plants to convert
mineral ores into saleable form, spare parts, supplies, materials,
accessories, explosives, chemicals, and transportation and
communication facilities imported by and for the use of new mines and
old mines which resume operations, when certified, to as such by the
Secretary of Agriculture and Natural Resources upon the
recommendation of the Director of Mines, for a period ending five (5)
years frorn the first date of actual commercial production of saleable
mineral products: Provided That such articles are not locally available
in reasonable quantity quality and price and are necessary or incidental
in the proper operation of the mine:
xxx xxx xxx
(3) Sec. 1 of P. D. No. 238, further amending the Tax Code, which reads:
Section 1. Section One hundred five of Republic Act Numbered Nineteen hundred
and thirty-seven, otherwise known as the 'Tariff and Customs Code of the
Philippines,' is further amended by inserting two new paragraphs '(u) and '(v)' therein
after paragraph '(t)' thereof which shall read as follows:
Sec. 105. Conditionally-Free Importations
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... Machineries, equipment, tools for production, plants to convert mineral ores into saleable form,
spare parts, supplies, materials, accessories, explosives, chemicals, and transportation and
communication facilities imported by and for the use of new mines and old mines which resume
operations, when certified to as such by the Secretary of Agriculture and Natural Resources upon the
recommendation of the Director of Mines, for a period ending five (5) years from the first date of
actual commercial production of saleable mineral product; Provided That such articles are not
locally available in reasonable quantity, quality and price and are necessary or incidental in the
proper operation of the mine.
(4) Secs. 52 and 53 of Presidential Decree No. 463, amending Section 79-A, Commonwealth Act No. 137, which
read:
Sec. 52. Power to Levy Taxes on Mines. Mining Operations and Mineral Products.
Any law to the contrary notwithstanding, no province, city, municipality, barrio or
municipal district shall levy and collect taxes, fees, rentals, royalties or charges of any
kind whatsoever on mines, mining claims, mineral products, or on any operation,
process or activity connected therewith.
Sec. 53. Tax Exemptions. Machineries equipment, tools for production, plants to
convert mineral ores into saleable form, spare parts, supplies, materials, accessories,
explosives, chemicals and transportation and communication facilities imported by
and for the use of new mines and old mines which resume operation, when certified
as such by the Secretary upon recommendation of the Director, are exempt from the
payment of customs duties and all taxes except income tax for a period starting from
exploration and ending five (5) years from the first date of actual commercial
.production of saleable mineral products: Provided, That such articles are not locally
available in reasonable quantity, quality and price and are necessary or incidental in
the proper operation of the mine.
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All mining claims, improvements thereon and mineral products derived therefrom
shall likewise be exempt from the payment of all taxes, except income tax, for the
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same period provided for in the first paragraph of this section.

xxx xxx xxx
The statutory provisions on tax exemptions clearly exclude the 35% transaction tax.
Section 1 of Presidential Decree No. 237 on Compensating Tax, Section I of P.D. No. 238 on Conditionally Free
Importations, and Section 53 of P.D. No. 463 all refer to tax exemptions for importations of machineries, tools for
production, plants to convert mineral ores into saleable form, spare parts, supplies, materials, accessories,
explosives, chemicals and transportation and communication facilities, to be used in mining operations. Section 53
of P.D. No. 463 likewise refers to tax exemptions for mining claims and improvements thereon, and mineral
products, except income tax. The petitioner's Certificate of Qualification for Tax Exemption No. 34 exempts "...
from payment of all taxes except income tax, payable by him in the conduct of his business and in the importation
of machineries, spare parts and or equipment listed in the stamped "Annex I " which are considered to be
indispensable in the operation and will be used by said operator lessee exclusively in the mineral land mentioned
above.
Clearly, the transaction tax of P1,317,801.03 paid by the petitioner was not actually imposed upon it in the conduct
of its mining business or in the importation of machinery, spare parts and or equipment listed in the stamped
"ANNEX I" of its certificate of qualification for tax exemption and which are indespensable in the operation and
used exclusively on petitioner's mineral land.
Petitioner submits that inasmuch as taxes in general constitute allowable deductions from gross income in the
determination of taxable net income, the 35% transaction tax is a business tax and not an income tax because the
Revenue Code itself classifies it as "Business Tax" under Title V, and that P. D. No. 1154 expressly states that the
transaction tax shall be allowed as a deductible item for purposes of determining the borrower's taxable income.
The petitioner's contentions deserve scant consideration, The 35%, transaction tax is imposed on interest income
from commercial papers issued in the primary money market. Being a tax on interest, it is a tax on income.
As correctly ruled by the respondent Court of Tax Appeals:
Accordingly, we need not and do not think it necessary to discuss further the nature of the
transaction tax more than to say that the incipient scheme in the issuance of Letter of Instructions
No. 340 on November 24, 1975 (O.G. Dec. 15, 1975), i.e., to achieve operational simplicity and
effective administration in capturing the interest-income 'windfall' from money market operations as
a new source of revenue has lost none of its animating principle in parturition of amendatory
Presidential decree No. 1154, now Section 210(b) of the Tax Code. The tax thus imposed is actually
a tax on interest earrings of the lenders or placers who are actually the taxpayer,, in whose income is
imposed. Thus, "the borrower withholds the tax of 35% from the interest he would have to pay the
lender so that he (borrower) can pay the 35% of the interest to the Government." (President Marcos,
Times Journal, June 17, 1977 cited in Respondent's Memorandum p. 6) ... Suffice it to state that the
broad concensus of fiscal and monetary authorities is that "even if nominally, the borrower is made
to pay the tax, actually the tax is on the interest earning of the immediate and an prior
lenders/placers of the money ... (Rollo, pp. 36-37)
The 35% transaction tax is an income tax on interest earnings to the lenders or placers The latter are actually the
taxpayers. Therefore, the tax cannot be a tax imposed upon petitioner. In other words, the petitioner who borrowed
funds from several financial institutions by issuing commercial papers merely withheld the 35% transaction tax
before paying to the financial institutions the interests earned by them and later remitted the same to the respondent
Commissioner of Internal Revenue. The tax could have been collected by a different procedure but the statute
chose this method. Whatever collecting procedure is adopted does not change the nature of the tax.
Furthermore, whether or not certain taxes are on income is not necessarily determined by their deductibility or non-
deductibility from gross income. As correctly observed by the Solicitor General, income in the form of dividends,
capital gains on real property pursuant to Batas Pambansa Blg, 37, shares of stock pursuant to Presidential Decree
1739, and interests on savings in bank accounts, for instance, are incomes, yet they are not includible in the gross
income when income taxes are paid because these are subject to final withholding taxes.
Heng Tong Textiles Co., Inc. v. CIR G.R. No. L-61632 6 of 6

The petitioner also submits that the 35% transaction tax is a business tax because it is imposed under Title V,
entitled -,Taxes on Business" and classified specially under Chapter II, entitled "Tax on Business."
The location of the 35%, tax in the Tax Code does not necessarily determine its nature, Again, we agree with the
Solicitor General that the legislative body must have realized later that. the subject tax was inappropriately
included among the taxes on business because Section 210 of the Tax Code has been repealed by Presidential
Decree No. 1739, which now imposes a tax of 20% on interests from deposits and yields from deposit substitutes
such as commercial papers issued in the primary market as principal instrument and provides for them in Section
24(cc) under Chapter III, Tax on Corporations, Title II-Income. Tax.
Petitioner Western Minolco Corporation has failed to justify its claimed exemption from the 35,7c, transaction tax.
The decision of the Commissioner of Internal Revenue denying the petitioner's claim for refund is affirmed. It
bears repeating that the law looks with disfavor on tax exemptions and he who would seek to be thus privileged
must justify it by words too plain to be mistaken and too categorical to be misinterpreted.
(Commissioner of Internal Revenue U. P. J Kiener Company Ltd, International Construction Corporation et al., L,-
24754, July 18, 1975, 65 SCRA 142).
WHEREFORE, the instant petition is DENIED for lack of merit. The decision of the respondent Court of Tax
Appeals is AFFIRMED: In toto.
SO ORDERED.
Makasiar, Concepcion Jr., Guerrero, Melencio-Herrera, Escolin, Vasquez and Relova JJ., concur.
Teehankee, J, concurs in the result.
Aquino and Plana, JJ., took no part.
De Castro, Fernando (CJ.) and Abad Santos, J., is on leave.