240 Supreme Court Reports Annotated
240 Supreme Court Reports Annotated
COMMISSIONER OF INTERNAL REVENUE, 1520 is not unusual. A public utility is granted special tax treatment
petitioner, vs. philippine airlines, inc., respondent. (including tax exceptions/exemptions) under its franchise, as an
inducement for the acceptance of the franchise and the rendition of public
Taxation; The Court already settled that the “basic corporate service by the said public utility. In this case, in addition to being a public
income tax,” under Section 13(a) of Presidential Decree No. 1590, relates utility providing air-transport service, PAL is also the official flag carrier
to the general rate of 35% (reduced to 32% by the year 2000) as stipulated of the country.
in Section 27(a) of the National Internal Revenue Code (NIRC) of 1997.— Same; Republic Act No. 9337, which took effect on 1 July 2005,
Section 13(a) of Presidential Decree No. 1590 refers to “basic corporate cannot be applied retroactively and any amendment introduced by said
income tax.” In Commissioner of Internal Revenue v. Philippine Airlines, statute affecting the taxation of Philippine Airlines, Inc. (PAL), is
Inc. (504 SCRA 90 [2006]), the Court already settled that the “basic immaterial in the present case.—The CIR seems to lose sight of the fact
corporate income tax,” under Section 13(a) of Presidential Decree No. that the Petition at bar involves the liability of PAL for MCIT for the fiscal
1590, relates to the general rate of 35% (reduced to 32% by the year 2000) year ending 31 March 2001. Republic Act No. 9337, which took effect
as stipulated in Section 27(A) of the NIRC of 1997. on 1 July 2005, cannot be applied retroactively and any amendment
Same; Income Taxation; Taxable income is defined under Section introduced by said statute affecting the taxation of PAL is immaterial in
31 of the National Internal Revenue Code (NIRC) of 1997 as the pertinent the present case.
items of gross income specified in the said Code, less the deductions Same; Even though Republic Act No. 8424 amended the National
and/or personal and additional exemptions, if any, authorized for such Internal Revenue Code (NIRC) by introducing the Minimum Corporate
types of income by the same Code or other special laws.—Taxable income Income Tax (MCIT), in what is now Section 27(E) of the said Code, this
is defined under Section 31 of the NIRC of 1997 as the pertinent items of amendment is actually irrelevant and should not affect the taxation of
gross income specified in the said Code, less the deductions and/or Philippine Airlines, Inc. (PAL), since the MCIT is clearly distinct from the
personal and additional exemptions, if any, authorized for such types basic corporate income tax referred to in Section 13(a) of Presidential
of income by the same Code or other special laws. The gross income, Decree No. 1590, and from which Philippine Airlines, Inc. (PAL) is
referred to in Section 31, is described in Section 32 of the NIRC of 1997 as consequently exempt under the “in lieu of all other taxes” clause of its
income from whatever source, including compensation for services; the charter.—The alternative argument of the CIR—that the imposition of the
conduct of trade or business or the exercise of profession; dealings in MCIT is pursuant to the amendment of the NIRC, and not of Presidential
property; interests; rents; royalties; dividends; annuities; prizes and Decree No. 1590—is just as specious. As has already been settled by this
winnings; pensions; and a partner’s distributive share in the net income of Court, the basic corporate income tax under Section 13(a) of Presidential
a general professional partnership. Decree No. 1590 relates to the general tax rate under Section 27(A) of the
Same; Same; Gross income of a domestic corporation engaged in NIRC of 1997, which is 32% by the year 2000, imposed on taxable
the sale of service means gross receipts, less sales returns, allowances, income. Thus, only provisions of the NIRC of 1997 necessary for the
discounts and cost of services.—According to the last paragraph of Section computation of the basic corporate income tax apply to PAL. And
240
27(E)(4) of the NIRC of 1997, gross income of a
_______________
240 SUPREME COURT REPORTS
* THIRD DIVISION.
ANNOTATED
238
Commissioner of Internal Revenue vs. Philippine
238 SUPREME COURT REPORTS Airlines, Inc.
even though Republic Act No. 8424 amended the NIRC by
ANNOTATED introducing the MCIT, in what is now Section 27(E) of the said Code, this
Commissioner of Internal Revenue vs. Philippine amendment is actually irrelevant and should not affect the taxation of PAL,
since the MCIT is clearly distinct from the basic corporate income tax
Airlines, Inc. referred to in Section 13(a) of Presidential Decree No. 1590, and from
domestic corporation engaged in the sale of service means gross which PAL is consequently exempt under the “in lieu of all other taxes”
receipts, less sales returns, allowances, discounts and cost of clause of its charter.
services. “Cost of services” refers to all direct costs and Administrative Law; It should be understandable that when an
expenses necessarily incurred to provide the services required by the administrative rule is merely interpretative in nature, its applicability
customers and clients including (a) salaries and employee benefits of needs nothing further than its bare issuance for it gives no real
personnel, consultants, and specialists directly rendering the service; and consequence more than what the law itself has already prescribed.—
(b) cost of facilities directly utilized in providing the service, such as Despite the claims of the CIR that RMC No. 66-2003 is just a clarificatory
depreciation or rental of equipment used and cost of supplies. Noticeably, and internal issuance, the Court observes that RMC No. 66-2003 does
inclusions in and exclusions/deductions from gross income for MCIT more than just clarify a previous regulation and goes beyond mere internal
purposes are limited to those directly arising from the conduct of the administration. It effectively increases the tax burden of PAL and other
taxpayer’s business. It is, thus, more limited than the gross income used in taxpayers who are similarly situated, making them liable for a tax for
the computation of basic corporate income tax. which they were not liable before. Therefore, RMC No. 66-2003 cannot be
Same; Same; It held that income tax on the passive income of a given effect without previous notice or publication to those who will be
domestic corporation, under Section 27(D) of the National Internal affected thereby. In Commissioner of Internal Revenue v. Court of
Revenue Code (NIRC) of 1997, is different from the basic corporate Appeals (261 SCRA 236, 247 [1996]), the Court ratiocinated that: It
income tax on the taxable income of a domestic corporation, imposed by should be understandable that when an administrative rule is merely
Section 27(A), also of the NIRC of 1997.—The Court again interpretative in nature, its applicability needs nothing further than its bare
cites Commissioner of Internal Revenue v. Philippine Airlines, Inc. (504 issuance for it gives no real consequence more than what the law itself has
SCRA 90 [2006]), wherein it held that income tax on the passive income already prescribed. When, upon the other hand, the administrative rule
of a domestic corporation, under Section 27(D) of the NIRC of 1997, is goes beyond merely providing for the means that can facilitate or
different from the basic corporate income tax on the taxable income of a render least cumbersome the implementation of the law but
domestic corporation, imposed by Section 27(A), also of the NIRC of substantially adds to or increases the burden of those governed, it
1997. Section 13 of Presidential Decree No. 1590 gives PAL the option to behooves the agency to accord at least to those directly affected a
pay basic corporate income tax or franchise tax, whichever is lower; and chance to be heard, and thereafter to be duly informed, before that
the tax so paid shall be in lieu of all other taxes, except real property tax. new issuance is given the force and effect of law.
The income tax on the passive income of PAL falls within the category of Taxation; Tax Exemptions; Petitioner Commissioner of Internal
“all other taxes” from which PAL is exempted, and which, if already Revenue erred in applying the principles of tax exemption without first
collected, should be refunded to PAL. applying the well-settled doctrine of strict interpretation in the imposition
Same; Same; Not being covered by Section 13(a) of Presidential of taxes.—As to the assertions of the CIR that exemption from tax is not
Decree No. 1590, which makes Philippine Airlines, Inc. (PAL) liable only presumed, and the one claiming it must be able to show that it indubitably
for basic corporate income tax, then Minimum Corporate Income Tax exists, the Court recalls its pronouncements in Commissioner of
(MCIT) is included in “all other taxes” from which PAL is exempted.— Internal Revenue v. Court of Appeals (271 SCRA
The Court herein treats MCIT in much the same way. Although both are 241
income taxes, the MCIT is different from the basic corporate income tax,
not just in the rates, but also in the bases for their computation. Not being VOL. 5923, JULY 7, 2009 241
covered by Section 13(a) of Presidential Decree No. 1590, which makes
PAL liable only for basic corporate Commissioner of Internal Revenue vs. Philippine
239
Airlines, Inc.
605, 613-614 [1997]): We disagree. Petitioner Commissioner of
VOL. 5923, JULY 7, 2009 239 Internal Revenue erred in applying the principles of tax exemption without
Commissioner of Internal Revenue vs. Philippine first applying the well-settled doctrine of strict interpretation in the
imposition of taxes. It is obviously both illogical and impractical to
Airlines, Inc. determine who are exempted without first determining who are
income tax, then MCIT is included in “all other taxes” from which covered by the aforesaid provision. The Commissioner should have
PAL is exempted. determined first if private respondent was covered by Section 205,
Same; Public Utilities; A public utility is granted special tax applying the rule of strict interpretation of laws imposing taxes and other
treatment (including tax exceptions/exemptions) under its franchise, as an burdens on the populace, before asking Ateneo to prove its exemption
inducement for the acceptance of the franchise and the rendition of public therefrom. The Court takes this occasion to reiterate the hornbook doctrine
in the interpretation of tax laws that “(a) statute will not be construed as Tax Verification Notice No. 00201448, authorizing Revenue
imposing a tax unless it does so clearly, expressly, and unambiguously. Officer Jacinto Cueto, Jr. (Cueto) to verify the supporting
x x x (A) tax cannot be imposed without clear and express words for that documents and pertinent records relative to the claim of PAL for
purpose. Accordingly, the general rule of requiring adherence to the
refund of its unapplied creditable withholding tax for FY 2000-
letter in construing statutes applies with peculiar strictness to tax laws
and the provisions of a taxing act are not to be extended by 20001. In a letter dated 19 August 2003, LTAID 1 Chief Armit S.
implication.” Parenthetically, in answering the question of who is Linsangan invited PAL to an informal confer-
subject to tax statutes, it is basic that “in case of doubt, such statutes _______________
are to be construed most strongly against the government and in favor
of the subjects or citizens because burdens are not to be imposed nor 4 AN ACT GRANTING A NEW FRANCHISE TO PHILIPPINE AIRLINES, INC. TO
presumed to be imposed beyond what statutes expressly and clearly ESTABLISH, OPERATE, AND MAINTAIN AIR-TRANSPORT SERVICES IN THE PHILIPPINES
AND OTHER COUNTRIES.
import.”
5 Section 1 of PRESIDENTIAL DECREE NO. 1590.
Same; Same; The exemption of Philippine Airlines, Inc. (PAL), 6 According to the Annual Income Tax Return of PAL for the fiscal year in
from “all other taxes” was not just a presumption, but a previously question, its allowable deductions exactly equalled its total gross income of
established, accepted, and respected fact, even for the Bureau of Internal P39,470,862,232.00, thus, leaving zero taxable income.
Revenue (BIR).—For two decades following the grant of its franchise by 7 Withheld at source, meaning, it was previously deducted and withheld by
Presidential Decree No. 1590 in 1978, PAL was only being held liable for various withholding agents from the income payments made to PAL.
the basic corporate income tax or franchise tax, whichever was lower; and
its payment of either tax was in lieu of all other taxes, except real property 244
tax, in accordance with the plain language of Section 13 of the charter of 244 SUPREME COURT REPORTS ANNOTATED
PAL. Therefore, the exemption of PAL from “all other taxes” was not just
a presumption, but a previously established, accepted, and respected fact, Commissioner of Internal Revenue vs. Philippine Airlines,
even for the BIR. Inc.
PETITION for review on certiorari of the decision and resolution ence at the BIR National Office in Diliman, Quezon City, on 27
of the Court of Tax Appeals.242 August 2003, at 10:00 a.m., to discuss the results of the
investigation conducted by Revenue Officer Cueto, supervised by
Revenue Officer Madelyn T. Sacluti.
242 SUPREME COURT REPORTS ANNOTATED
BIR officers and PAL representatives attended the scheduled
Commissioner of Internal Revenue vs. Philippine Airlines, informal conference, during which the former relayed to the latter
Inc. that the BIR was denying the claim for refund of PAL and,
instead, was assessing PAL for deficiency MCIT for FY 2000-
The facts are stated in the opinion of the Court.
2001. The PAL representatives argued that PAL was not liable for
The Solicitor General for petitioner.
MCIT under its franchise. The BIR officers then informed the
Eduardo R. Ceniza and Oscar C. Ventanilla, Jr. for
PAL representatives that the matter would be referred to the BIR
respondent.
Legal Service for opinion.
CHICO-NAZARIO, J.: The LTAID 1 issued, on 3 September 2003, PAN No. INC
Before this Court is a Petition for Review on Certiorari, under FY-3-31-01-000094, which was received by PAL on 23 October
Rule 45 of the Revised Rules of Court, seeking the reversal and 2003. LTAID 1 assessed PAL for P262,474,732.54, representing
setting aside of the Decision dated 9 August 2007 and
1 deficiency MCIT for FY 2000-2001, plus interest and compromise
Resolution dated 11 October 2007 of the Court of Tax Appeals
2 penalty, computed as follows:
(CTA) en banc in CTA E.B. No. 246. The CTA en banc affirmed Sales/Revenues from Operation P 38,798,721,685.00
the Decision dated 31 July 2006 of the CTA Second Division in
3
C.T.A. Case No. 7010, ordering the cancellation and withdrawal Less: Cost of Services 30,316,679,013.00
of Preliminary Assessment Notice (PAN) No. INC FY-3-31-01- Gross Income from Operation 8,482,042,672.00
000094 dated 3 September 2003 and Formal Letter of Demand Add: Non-operating income 465,111,368.00
dated 12 January 2004, issued by the Bureau of Internal Revenue
(BIR) against respondent Philippine Airlines, Inc. (PAL), for the Total Gross Income for MCIT purposes 9,947,154,040.00 8
_______________
1 Penned by Associate Justice Erlinda P. Uy with Presiding Justice Ernesto D.
Acosta and Associate Justices Juanito C. Castañeda, Jr., Lovell R. Bautista, Caesar A. 8 Should be P8,947,154,040.00.
Casanova, and Olga Palanca-Enriquez, concurring; Rollo, pp. 43-56. 9 Rollo, p. 105.
2 Id., at pp. 67-68.
3 Penned by Associate Justice Juanito C. Castañeda with Associate Justices 245
Erlinda P. Uy and Olga Palanca-Enriquez, concurring, id., at pp. 70-90.
VOL. 5923, JULY 7, 2009 245
243
Commissioner of Internal Revenue vs. Philippine Airlines,
VOL. 5923, JULY 7, 2009 243
Inc.
Commissioner of Internal Revenue vs. Philippine Airlines, PAL protested PAN No. INC FY-3-31-01-000094 through a
Inc. letter dated 4 November 2003 to the BIR LTS.
Presidential Decree No. 1590 of a franchise to establish, operate,
4 On 12 January 2004, the LTAID 1 sent PAL a Formal Letter
and maintain transport services for the carriage of passengers, of Demand for deficiency MCIT for FY 2000-2001 in the amount
mail, and property by air, in and between any and all points and of P271,421,886.58, based on the following calculation:
places throughout the Philippines, and between the Philippines and Sales/Revenues from P 38,798,721,685.0
other countries. 5
For its fiscal year ending 31 March 2001 (FY 2000-2001), Operation
PAL allegedly incurred zero taxable income, which left it with
6
Less: Cost of Services
unapplied creditable withholding tax in the amount of 7
Direct Costs - P
P2,334,377.95. PAL did not pay any MCIT for the period.
In a letter dated 12 July 2002, addressed to petitioner 30,749,761,017.00
Commissioner of Internal Revenue (CIR), PAL requested for the Less: Non-deductible
refund of its unapplied creditable withholding tax for FY 2000-
interest expense 433,082,004.00 30,316,679,013.0
2001. PAL attached to its letter the following: (1) Schedule of
Creditable Tax Withheld at Source for FY 2000-2001; (2) Gross Income from Operation P 8,482,042,672.0
Certificates of Creditable Taxes Withheld; and (3) Audited Add: Non-operating Income 465,111,368.0
Financial Statements.
Acting on the aforementioned letter of PAL, the Large Total Gross Income for MCIT purposes P 9,947,154,040.0
Taxpayers Audit and Investigation Division 1 (LTAID 1) of the MCIT tax due P 178,943,080.8
BIR Large Taxpayers Service (LTS), issued on 16 August 2002,
Interest – 20% per annum – 92,453,805.7
7/16/01 to 02/15/04 Presidential Decree No. 1590, the franchise of PAL, contains
provisions specifically governing the taxation of said corporation,
Compromise Penalty 25,000.00
to wit:
Total MCIT due and demandable P 271,421,886.58 “Section 13. In consideration of the franchise and rights hereby
granted, the grantee shall pay to the Philippine Government during the life
PAL received the foregoing Formal Letter of Demand on 12
of this franchise whichever of subsections (a) and (b) hereunder will
February 2004, prompting it to file with the BIR LTS a formal result in a lower tax:
written protest dated 13 February 2004. (a) The basic corporate income tax based on the grantee’s annual
The BIR LTS rendered on 7 May 2004 its Final Decision on net taxable income computed in accordance with the provisions of the
Disputed Assessment, which was received by PAL on 26 May National Internal Revenue Code; or
2004. Invoking Revenue Memorandum Circular (RMC) No. 66- (b) A franchise tax of two per cent (2%) of the gross revenues
2003, the BIR LTS denied with finality the protest of PAL and derived by the grantee from all sources, without distinction as
_______________
reiterated the request that PAL immediately pay its deficiency
MCIT for FY 2000-2001, inclusive of penalties incident to 13 Id., at pp. 17-18.
delinquency.
_______________ 248
Franchise tax, on the other hand, shall be two per cent (2%) of the “basic corporate income tax,” under Section 13(a) of
the gross revenues derived by PAL from all sources, whether Presidential Decree No. 1590, relates to the general rate of 35%
transport or nontransport operations. However, with respect to (reduced to 32% by the year 2000) as stipulated in Section 27(A)
international air-transport service, the franchise tax shall only be of the NIRC of 1997.
imposed on the gross passenger, mail, and freight revenues of PAL Section 13(a) of Presidential Decree No. 1590 requires that
from its outgoing flights. the basic corporate income tax be computed in accordance with
_______________
the NIRC. This means that PAL shall compute its basic corporate
income tax using the rate and basis prescribed by the NIRC of
14 As a general rule, there shall be allowed as a depreciation deduction a
reasonable allowance for the exhaustion, wear and tear (including reasonable 1997 for the said tax. There is nothing in Section
allowance for obsolescence) of property used in the trade or business. (Section 34[F] _______________
[1] of the NIRC of 1997)
15 In general, losses shall be deducted from gross income in the same taxable 17 G.R. No. 160528, 9 October 2006, 504 SCRA 90, 100.
year said losses were incurred. The recognized exception under Section 39(D) of the
NIRC of 1997, allowing net capital loss carryover, may only be availed of by a 253
taxpayer “other than a corporation.”
VOL. 5923, JULY 7, 2009 253
251
Commissioner of Internal Revenue vs. Philippine Airlines,
VOL. 5923, JULY 7, 2009 251
Inc.
Commissioner of Internal Revenue vs. Philippine Airlines, 13(a) of Presidential Decree No. 1590 to support the contention of
Inc. the CIR that PAL is subject to the entire Title II of the NIRC of
In its income tax return for FY 2000-2001, filed with the BIR, 1997, entitled “Tax on Income.”
PAL reported no net taxable income for the period, resulting in Second, Section 13(a) of Presidential Decree No. 1590 further
zero basic corporate income tax, which would necessarily be lower provides that the basic corporate income tax of PAL shall be based
than any franchise tax due from PAL for the same period. on its annual net taxable income. This is consistent with Section
The CIR, though, assessed PAL for MCIT for FY 2000-2001. 27(A) of the NIRC of 1997, which provides that the rate of basic
It is the position of the CIR that the MCIT is income tax for which corporate income tax, which is 32% beginning 1 January 2000,
PAL is liable. The CIR reasons that Section 13(a) of Presidential shall be imposed on the taxable income of the domestic
Decree No. 1590 provides that the corporate income tax of PAL corporation.
shall be computed in accordance with the NIRC. And, since the Taxable income is defined under Section 31 of the NIRC of
NIRC of 1997 imposes MCIT, and PAL has not applied for relief 1997 as the pertinent items of gross income specified in the said
from the said tax, then PAL is subject to the same. Code, less the deductions and/or personal and additional
The Court is not persuaded. The arguments of the CIR are exemptions, if any, authorized for such types of income by the
contrary to the plain meaning and obvious intent of Presidential same Code or other special laws. The gross income, referred to
Decree No. 1590, the franchise of PAL. in Section 31, is described in Section 32 of the NIRC of 1997 as
Income tax on domestic corporations is covered by Section 27 income from whatever source, including compensation for
of the NIRC of 1997, pertinent provisions of which are
16 services; the conduct of trade or business or the exercise of
reproduced below for easy reference: profession; dealings in property; interests; rents; royalties;
“SEC. 27. Rates of Income Tax on Domestic Corporations.— dividends; annuities; prizes and winnings; pensions; and a
(A) In General—Except as otherwise provided in this Code, an partner’s distributive share in the net income of a general
income tax of thirty-five percent (35%) is hereby imposed upon professional partnership.
the taxable income derived during each taxable year from all sources Pursuant to the NIRC of 1997, the taxable income of a
within and without the Philippines by every corporation, as defined in domestic corporation may be arrived at by subtracting from gross
Section 22(B) of this Code and taxable under this Title as a corporation,
income deductions authorized, not just by the NIRC of 1997, but 18
income, which is the basis for the MCIT under Section 27(E). The public utility providing air-transport service, PAL is also the
two terms have their respective technical meanings, and cannot be official flag carrier of the country.
used interchangeably. The same reasons prevent this Court from The imposition of MCIT on PAL, as the CIR insists, would
declaring that the basic corporate income tax, for which PAL is result in a situation that contravenes the objective of Section 13 of
liable under Section 13(a) of Presidential Decree No. 1590, also Presidential Decree No. 1590. In effect, PAL would not just have
covers MCIT under Section 27(E) of the NIRC of 1997, since the two, but three tax alternatives, namely, the basic
basis for the first is the annual net taxable income, while the basis _______________
for the second is gross income.
_______________ 22 See Carcar Electric and Ice Plant Co., Inc. v. Collector of Internal Revenue,
100 Phil. 50, 54 (1956).
“Substitution Theory”
category of “all other taxes” from which PAL is exempted, and of the CIR Untenable
which, if already collected, should be refunded to PAL. A careful reading of Section 13 rebuts the argument of the CIR
The Court herein treats MCIT in much the same way. that the “in lieu of all other taxes” proviso is a mere incentive that
Although both are income taxes, the MCIT is different from the applies only when PAL actually pays something. It is clear that PD 1590
basic corporate income tax, not just in the rates, but also in the intended to give respondent the option to avail itself of Subsection (a) or
bases for their computation. Not being covered by Section 13(a) of (b) as consideration for its franchise. Either option excludes the payment of
Presidential Decree No. 1590, which makes PAL liable only for other taxes and dues imposed or collected by the national or the local
basic corporate income tax, then MCIT is included in “all other 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
taxes” from which PAL is exempted. exercise of its option.
That, under general circumstances, the MCIT is paid in place Under Subsection (a), the basis for the tax rate is respondent’s annual
of the basic corporate income tax, when the former is 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
20 Supra note 17at pp. 98, 100. recognized the situation in which taxable income may result in a negative
21 Passive income includes interest from deposits and yield or any other amount and thus translate into a zero tax liability.
monetary benefit from deposit substitutes and from trust funds and similar _______________
arrangements and royalties [Section 27(D)(1) of the Tax Code of 1997]; capital gains
from the sale of shares of stock not traded in the stock exchange [Section 27(D)(2)];
23 Supra note 17 at pp. 100-101.
income derived under the Expanded Foreign Currency Deposit System [Section
27(D)(3)]; intercorporate dividends [Section 27(D)(4)]; and capital gains realized
258
from sale, exchange or disposition of lands and/or buildings [Section 27(D)(5)].
Notably, PAL was owned and operated by the government at the time Neither can it be said that the NIRC of 1997 repealed or
the franchise was last amended. It can reasonably be contemplated that PD amended Presidential Decree No. 1590.
1590 sought to assist the finances of the government corporation in the While Section 16 of Presidential Decree No. 1590 provides
form of lower taxes. When respondent operates at a loss (as in the instant
case), no taxes are due; in this instances, it has a lower tax liability than
that the franchise is granted to PAL with the understanding that it
that provided by Subsection (b). shall be subject to amendment, alteration, or repeal by competent
The fallacy of the CIR’s argument is evident from the fact that authority when the public interest so requires, Section 24 of the
the payment of a measly sum of one peso would suffice to exempt PAL same Decree also states that the franchise or any portion thereof
from other taxes, whereas a zero liability arising from its losses would may only be modified, amended, or repealed expressly by
not. There is no substantial distinction between a zero tax and a one- a special law or decree that shall specifically modify, amend, or
peso tax liability.” (Emphasis ours.) repeal said franchise or any portion thereof. No such special law or
decree exists herein.
Based on the same ratiocination, the Court finds the
The CIR cannot rely on Section 7(B) of Republic Act No.
Substitution Theory unacceptable in the present Petition.
8424, which amended the NIRC in 1997 and reads as follows:
The CIR alludes as well to Republic Act No. 9337, for reasons “Section 7. Repealing Clauses.—
similar to those behind the Substitution Theory. Section 22 of x x x x
Republic Act No. 9337, more popularly known as the Expanded (B) The provisions of the National Internal Revenue Code, as
Value Added Tax (E-VAT) Law, abolished the franchise tax amended, and all other laws, including charters of government-owned
imposed by the charters of particularly identified public utilities, or controlled corporations, decrees, orders, or regulations or parts
including Presidential Decree No. 1590 of PAL. PAL may no thereof, that are inconsistent with this Act are hereby repealed or amended
longer exercise its options or alternatives under Section 13 of accordingly.”
Presidential Decree No. 1590, and is now liable for both corporate
The CIR reasons that PAL was a government-owned and
income tax and the 12% VAT on its sale of services. The CIR
controlled corporation when Presidential Decree No. 1590, its
alleges that Republic Act No. 9337 reveals the intention of the
franchise or charter, was issued in 1978. Since PAL was still
Legislature to make PAL share the tax burden of other domestic
operating under the very same charter when Republic Act No.
corporations.
8424 took effect in 1998, then the latter can repeal or amend the
The CIR seems to lose sight of the fact that the Petition at bar
former by virtue of Section 7(B).
involves the liability of PAL for MCIT for the fiscal year
The Court disagrees.
ending 31 March 2001. Republic Act No. 9337, which took effect _______________
on 1 July 2005, cannot be applied retroactively and any 24
amendment introduced by said statute affecting the taxation of 25 Commissioner of Internal Revenue v. Central Luzon Drug Corporation, G.R.
PAL is immaterial in the present case. No. 159647, 15 April 2005, 456 SCRA 414, 449.
_______________
261
24 Article 4 of the Civil Code provides that “Laws shall have no retroactive VOL. 5923, JULY 7, 2009 261
effect, unless the contrary is provided.”
Commissioner of Internal Revenue vs. Philippine Airlines,
259
Inc.
VOL. 5923, JULY 7, 2009 259 A brief recount of the history of PAL is in order. PAL was
Commissioner of Internal Revenue vs. Philippine Airlines, established as a private corporation under the general law of the
Inc. Republic of the Philippines in February 1941. In November 1977,
the government, through the Government Service Insurance
And sixth, Presidential Decree No. 1590 explicitly allows
System (GSIS), acquired the majority shares in PAL. PAL was
PAL, in computing its basic corporate income tax, to carry over as
privatized in January 1992 when the local consortium PR
deduction any net loss incurred in any year, up to five years
Holdings acquired a 67% stake therein. 26
before that new issuance is given the force and effect of law. standing that this Court will not set aside lightly the conclusions
A reading of RMC 37-93, particularly considering the circumstances
reached by the CTA which, by the very nature of its functions, is
under which it has been issued, convinces us that the circular cannot be
dedicated exclusively to the resolution of tax problems and has, Petition denied, judgment and resolution affirmed.
accordingly, developed an expertise on the subject, unless there
has been an abuse or improvident exercise of authority. In the 31 Note.—Rulings, circulars, rules and regulations promulgated
Petition at bar, the CTA en banc and in division both adjudged by the Commissioner of Internal Revenue have no retroactive
that PAL is not liable for MCIT under Presidential Decree No. application if to apply them would prejudice the taxpayer.
1590, and this Court has no sufficient basis to reverse them. (Commissioner of Internal Revenue vs. Philippine Health Care
As to the assertions of the CIR that exemption from tax is not Providers, Inc., 522 SCRA 131 [2007])
presumed, and the one claiming it must be able to show that it ——o0o——
indubitably exists, the Court recalls its pronounce-
_______________
267
VOL. 5923, JULY 7, 2009 267
Commissioner of Internal Revenue vs. Philippine Airlines,
Inc.
ments in Commissioner of Internal Revenue v. Court of Appeals: 32
268
268 SUPREME COURT REPORTS ANNOTATED
Commissioner of Internal Revenue vs. Philippine Airlines,
Inc.
The MCIT was a new tax introduced by Republic Act No.
8424. Under the doctrine of strict interpretation, the burden is
upon the CIR to primarily prove that the new MCIT provisions of
the NIRC of 1997, clearly, expressly, and unambiguously extend
and apply to PAL, despite the latter’s existing tax exemption. To
do this, the CIR must convince the Court that the MCIT is a basic
corporate income tax, and is not covered by the “in lieu of all
33
other taxes” clause of Presidential Decree No. 1590. Since the CIR
failed in this regard, the Court is left with no choice but to
consider the MCIT as one of “all other taxes,” from which PAL is
exempt under the explicit provisions of its charter.
Not being liable for MCIT in FY 2000-2001, it necessarily
follows that PAL need not apply for relief from said tax as the CIR
maintains.
WHEREFORE, premises considered, the instant Petition for
Review is hereby DENIED, and the Decision dated 9 August 2007
and Resolution dated 11 October 2007 of the Court of Tax
Appeals en banc in CTA E.B. No. 246 is hereby AFFIRMED. No
costs.
SO ORDERED.
Ynares-Santiago (Chairperson), Velasco, Jr.,
Nachura and Peralta, JJ., concur.