BIR Ruling [DA-359-04]

June 25, 2004 BIR RULING [DA-359-04] Section 35 BIR Ruling No. 113-95 Mr. Emelino T. Maestro, CPA Chairman, Auditor Ng Bayan Group, Inc. Rm. 341 Isabel Bldg. Espaa, Manila S i r : This refers to your letter to Secretary Corazon Juliano-Soliman of the Department of Social Welfare and Development (DSWD) dated March 18, 2004, which was referred to this Office by way of 1st indorsement dated March 31, 2004 bearing on your request for clarification on your claim for additional exemption. It is represented that you have three (3) minors and four (4) senior citizens who are not gainfully employed and are all living with you and dependent on you for support. In reply, please be informed that Section 35(A) and (B) of the Tax Code of 1997 provides, to wit: "(A) In General. For purposes of determining the tax provided in Section 24(A) of this Title, there shall be allowed a basic personal exemption as follows: For single individual or married individual judicially decreed as legally separated with no qualified dependents P20,000.00 For head of a family P25,000.00 For each married individual P32,000.00 xxx xxx xxx (B) Additional Exemption for Dependents. There shall be allowed an additional exemption of Eight thousand pesos (P8,000.00) for each dependent not exceeding four (4). xxx xxx xxx For purposes of this Subsection, a ' dependent ' means a legitimate, illegitimate or legally adopted child chiefly dependent upon and living with the taxpayer if such dependent is not more than twenty-one (21) years of age, unmarried and not gainfully employed or if such dependent, regardless of age, is incapable of self-support because of mental or physical defect." Following the definition of a "dependent," if the three (3) minors you are claiming as your dependents are your legitimate, illegitimate or legally adopted children, you may claim additional exemption for them provided (1) they are chiefly dependent upon and living with you; and (2) you have not waived your right to claim additional exemption for them as deduction from your income in favor of your wife. Otherwise, you cannot claim additional exemption for the three (3) minors. In respect of your claim for additional exemption for the four (4) senior citizens, this Office, in BIR Ruling No. 113-95 dated July 24, 1995, held, in effect, that a married individual taxpayer cannot claim additional exemption for a dependent senior citizen under the income tax provisions of the Tax Code of 1997. This Office relied on Section 7 of Revenue Regulations No. 2-94, implementing R.A. 7432, the pertinent portion of which is as follows: "A qualified senior citizen living with and taken cared of by a benefactor whether related to him or not, shall be treated as a dependent and his benefactor shall be entitled to the basic personal exemption of P12,000 as head of the family, as defined in Section 2(e) of these regulations: "xxx xxx xxx "Caring for a dependent senior citizen shall not, however, entitle the benefactor to claim the additional exemption allowable to a married individual or head of family with qualified dependent children under Sec. 29(l)(2) of the NIRC, as amended." However, the Court of Tax Appeals (CTA) in the case of Agripino C. Baybay, Sr. vs. The Honorable Commissioner of Internal Revenue (CTA Case No. 5280) decided as follows: ". . . The controversy that is set upon Us is one that should be resolved in the light of the relevant provisions found in the 1987 Constitution which served as the backbone in the enactment of Republic Act No. 7432 better known as the 'Senior Citizen's Law'. . . Article XV, Section 4. . . . Article II, Section 10. . . . Article XIII, Section 11. The State shall adopt an integrated and comprehensive approach to health development which shall endeavor to make essential goods, health and other social services available to all the people of affordable cost. There shall be priority for the needs of the underprivileged sick, elderly, disabled women, and children. The State shall endeavor to provide free medical care to paupers. (Emphasis ours) Pursuant to the above-quoted constitutional provisions, the lawmakers then laid down the policies of the law found in Section 1 of Republic Act No. 7432 under the title 'Declaration of Policies and Objectives', the relevant portions are quoted as follows. a) . . . b) to encourage their families and the communities they live with to reaffirm the valued Filipino tradition of caring for the senior citizens." xxx xxx xxx . . . one of the policies of this law (R.A. 7432) is to reaffirm the valued Filipino tradition of caring for the senior citizens. The word "encourage" is synonymous with the term "to motivate" and one of the primary tools often used by lawmakers to motivate people is to grant them tax exemptions and this is evident when this law broadened the term "head of the family" to include those who are not related to the senior citizen as his/her dependent, thus entitling such benefactor to tax exemptions. . . Republic Act No. 7432 was enacted to provide a mechanism whereby people are encouraged to carry out the moral obligation of taking care of our senior citizens by granting among others tax exempt privileges for those people who will take them into their custody and care. By providing tax exempt benefits, these benefactors are assured that their efforts will be well compensated and recognized by the state. This was primarily done to motivate a large part of the community, whether related or not, to take care of its senior citizens. In weighing the views espoused by both parties, this Court took this policy of encouragement into important consideration. The basic principles, for the construction of statutes tells us that a statute must be read in such a way as to give effect to the purpose projected in the statute ( Lopez, Jr., v. Court of Appeals , 215 SCRA 512). Viewed in this light, the Court cannot subscribe to respondent's theory that restricts the term 'dependent' found in R.A. 7432 to qualify the taxpayer to personal exemptions alone as provided in Section 29(1)(1) of the Tax Code and not to additional exemptions found in Section 29(1)(2)(a) of the same code. Section 5 of Republic Act 7432 is clear when it provides, thus: Section 5. a) The senior citizen shall be treated as dependent provided for in the National Internal Revenue Code and as such, individual taxpayers caring for them, be they relatives or not shall be accorded the privileges granted by the code insofar as having dependents are concerned. The law provides that senior citizens shall be treated as dependents as provided in the NIRC and there are two instances when the term 'dependent' is used in this code to qualify individual taxpayers to exemptions and these are in Section 29(1)(1) and Section 29(1)(2)(a) both referring to personal exemptions and additional exemptions. The wordings of Section 5 of R.A. 7432 mentions the term 'dependent' without making any distinction as to whether it refers to personal exemption or additional exemption. It is well-known maxim in statutory construction that where the law does not distinguish, we should not distinguish ( Robles v. Zambales Chromite Mining Company , 104 Phil. 688). The respondent's reliance on Section 7 of Revenue Regulations No. 2-94 implementing R.A. 7432 which limits the exemptions granted to benefactors of senior citizens to the personal exemption of P12,000.00 only and not to the additional exemption of P5,000.00, cannot be given weight as this is not in harmony with the purpose of the law. In the case entitled Commissioner of Internal Revenue v. Court of Appeals , 240 SCRA 368, the Supreme Court delineated the proper relationship of an administrative regulation with the law which it seeks to implement, when it declared, thus, 'The authority of the Minister of Finance (now Secretary of Finance), in conjunction with the Commissioner of Internal Revenue, to promulgate all needful rules and regulations for the effective enforcement of internal revenue laws cannot be controverted. Neither can it be disputed that such rules and regulations, as well as administrative opinions and rulings, ordinarily should deserve weight and respect by the courts. Much more fundamental than either of the above, however, is that all such issuances must not override, but must remain consistent and in harmony with the law they seek to apply and implement. Administrative rules and regulations are intended to carry out, neither to supplant nor to modify the law.' In case of conflict between a statute and an administrative order, the former must prevail ( Kilusang Mayo Uno Labor Center v. Honorable Jesus B. Garcia, Jr. , 239 SCRA 386) . . . a revenue regulation, the issuance of which is authorized by statute has the force and effect of law but this legal maxim admits of exceptions and one is that when such regulations are clearly shown to be in sharp conflict with the governing statute or the Constitution and other laws ( Nestle Philippines, Inc. v. Court of Appeals and Securities and Exchange Commission , 203 SCRA 504. It is also true that tax exemptions are not favored and that they are construed strictly against the taxpayer, however, we find the provisions of R.A. 7432 to be clear and unambiguous so as to leave no room for construction. It is a cardinal principle of statutory construction that where the words and phrases of a statute are not obscure or ambiguous, its meaning and the intention of the legislature must be determined from the language employed, and where there is no ambiguity in the words, there is no room for construction ( Provincial Board of Cebu v. Presiding Judge of Cebu Court of First Instance , Branch IV, 171 SCRA 1). Moreover, compared with the National Internal Revenue Code, R.A. 7432 is a special law and a later law which should prevail in case of conflict. WHEREFORE, in view of the foregoing premises, the petition for review is GRANTED. Respondent is hereby ORDERED to CANCEL the assessments issued against petitioner for the taxable years 1992 and 1993 disallowing the additional exemption of P5,000.00 claimed for his dependent mother who is considered a senior citizen under Republic Act No. 7432. The above decision was appealed by the BIR to the Court of Appeals who dismissed it due to a technicality. The case therefore never reached the Supreme Court, hence, the CTA decision did not have the force and effect of a law under the "doctrine of stare decisis," ordained in Article 8 of the Civil Code which provides that the decisions of the Supreme Court applying or interpreting the law shall form part of the legal system of the Philippines. The rule follows the settled legal maxim "legis interpretado legis vim obtinet" that the interpretation placed upon the written law by a competent court has the force of law. Thus, in accordance with the above doctrine, the decision of the CTA must be applied pro hac vice only. In other words, only Agripino C. Baybay, Sr. and no other person can invoke that decision for his own benefit. Accordingly, if you are married, your claim for additional exemption for the four (4) senior citizens living with you is denied. aCIHAD On the other hand, if you are a head of family who is the benefactor of a qualified senior citizen/s, you are entitled to the basic personal exemption of P25,000.00 as head of a family, however, you are not entitled to claim the additional exemption allowable to a married individual or head of a family with qualified dependent children under Section 35(B) of the Tax Code of 1997. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered as null and void. Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group