BIR Ruling [DA-220-99]

April 12, 1999 BIR RULING [DA-220-99] National Development Company NDC Building, 116 Tordesillas St., Salcedo St., Salcedo Village Makati City Attention: Undersecretary D . B . Fonacier General Manager Gentlemen : This refers to your letter dated April 8, 1999 concerning your request for information whether Section 9 of Presidential Decree 1648, otherwise known as the Charter of the National Development Company, has been affected by Executive Order No. 93 which, in general, repealed all tax exemption privileges. It appears that Section 9 of the NDC Charter empowers the President of the Philippines upon recommendation of the Secretary of Finance, to issue tax-exempt and guaranteed bonds and securities, as follows: "SEC. 9. Issuance of Tax Exempt Bonds . The Company, upon the recommendation of the Minister of Finance and with the approval of the President is hereby authorized to issue bonds, other securities, which are tax-exempt and guaranteed by the government, to finance its operation ." It also appears that Section 1(e)(ii) of EO 93, series of 1986, repealed all tax exemptions arising under any general or special law, as follows. "SEC. 1. The provisions of any general or special law to the contrary notwithstanding, all tax and duty incentives granted to government and private entities are hereby withdrawn, except : xxx xxx xxx (e) those conferred under the four basic codes, namely: (i) the Tariff and Customs Code, as amended; (ii) the National Internal Revenue Code, as amended; (iii) the Local Tax Code, as amended; (iv) the Real Property Tax Code, as amended." It further appears that pursuant to Section 9 of PD 1648, the President of the Philippines promulgated Executive Order 83, series of 1998, authorizing the NDC to float NDC Agri-Agra ERAP Bonds for the development of the agriculture and agrarian sectors and in the implementation of identified development priority projects of the NDC and of the Department of Agriculture and Agrarian Reform, such as but not limited to, rice production, establishment of food chains, livestock and agri-processing support services and facilities, and similar undertakings; and that under Section 6 of EO 83, interest income on the Agri-Agra ERAP Bonds shall be exempt from the payment of taxes. In reply, please be informed that Section 1 of EO 93, series of 1986, did not repeal Section 9 of PD 1648. EO 93 only pertained to the tax exemption privileges heretofore being enjoyed by taxpayers at the time the same took effect. On the contrary, Section 9 of PD 1648, otherwise known as the Charter of the NDC, pertains to the quasi-legislative power of the President of the Philippines, upon the recommendation of the Secretary of Finance, to authorize the NDC to float tax-free bonds. There is no provision in EO 93 which, in any way, repealed this quasi-legislative function of the President of the Philippines. Moreover, it may be stated that, despite the promulgation of EO 93, the provision of Section 28(b)(4) of the old National Internal Revenue Code retained the exemption from income tax on government securities, as follows: "SEC. 28. Gross Income . . . . xxx xxx xxx (b) Exclusion from Gross Income The following items shall not be included in gross income and shall be exempt from taxation under this Title : xxx xxx xxx (4) Interest in Government Securities Interest upon the obligation of the Government of the Republic of the Philippines or any political subdivision thereof, but in the case of such obligations issued after the approval of this Code, only to the extent provided in the Act authorizing the issue thereof ." The foregoing provisions of the old NIRC only indicate that there was no intent in EO 93 to repeal the exemption from income tax of interest income from government bonds and securities. The canon of statutory construction is against implied repeal, hence Section 9 of the NDC charter may not be considered amended or revoked by implication. LLpr " The judicial precedents are conclusive to the effect that no implied repeal of a special provision of the character of the one now under consideration will result from the enactment of broader provision of a general nature . In other words, a general statute without negative words does not repeal a previous statute which is particular, even though the provisions of one be different from the other . (Rymer vs . Luzerne County, 12 L . R . A . , 192 ; Petri vs . F . E . Creelman Lumber Co . , 199 U . S . , 487 ; 50 L . ed . , 281 . ) " (LICHAUCO & COMPANY, INC., petitioner, vs. SILVERIO APOSTOL, as Director of Agriculture, and RAFAEL CORPUS, as Secretary of Agriculture and Natural Resources, respondents. G.R. No. 19628, December 4, 1922) With respect to your request for opinion whether or not interest expenses incurred in connection with the purchase of the said bonds may be allowed as deduction from gross income, please be informed that Section 34(B)(1) NIRC, as amended, and renumbered by R.A 8424, provides in part: " In general . The amount of interest paid or incurred within a taxable year on indebtedness in connection with the taxpayer's profession, trade or business, shall be allowed as deduction from gross income; . . ." Accordingly, such interest expenses shall be allowable deduction from the taxpayer's gross income except only where such interest expenses are embraced by the exceptions provided under paragraphs (a), (b), and (c) of Section 34(B)(2) of the NIRC, i.e., where the taxpayer is an individual on a cash basis accounting in reporting income and expenses; where the debtor and the creditor are related parties; or where the indebtedness is incurred to finance petroleum exploration, respectively. LLjur Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue