BIR Ruling [DA-403-00]

November 27, 2000 BIR RULING [DA-403-00] Sec. 2 (I) RR 2-94 Mr. Wilfredo F. Asilo City Councilor Office of the Sangguniang Panlunsod Lucena City S i r : This refers to your letter dated December 1, 1999, furnishing this Office a copy of Resolution No. 99-252 entitled "A RESOLUTION REQUESTING THE COMMISSIONER OF THE BUREAU OF INTERNAL REVENUE THROUGH THE LEGAL DIVISION TO FURNISH THE OFFICE OF THE SENIOR CITIZENS ASSOCIATION OF LUCENA THE LEGAL INTERPRETATION OF THE WORD "TAX CREDIT" AS STATED IN SEC. 4 (A) OF R. A. 7432, "THAT PRIVATE ESTABLISHMENTS MAY CLAIM THE COST AS TAX CREDIT", which was approved by the Sangguniang Panlunsod of Lucena City on June 28, 1999. In connection therewith, please be informed that term "tax credit" is defined in Section 2(i) of Revenue Regulations No. 2-94 to mean ". . . the amount representing the 20% discount granted to a qualified senior citizen by all establishments relative to their utilization of transportation services, hotels and similar lodging establishments, restaurants, drug stores, recreation centers, theatres, cinema houses, concert halls, circuses, carnivals and other similar places of culture, leisure and amusement, which discounts shall be deducted by the said establishments from their gross income for income tax purposes from their gross sales for value-added tax or other percentage tax purposes." DISaEA However, in the cases of Sto. Rosario Drug Corporation vs. Commissioner of Internal Revenue , CTA Case No. 5367, February 16, 1998; Del Rosario Drug Corporation vs. Commissioner of Internal Revenue , CTA Case No. 5357, April 6, 1998; M. E. Holdings Corporation vs. Commissioner of Internal Revenue , CTA Case No. 5314, August 17, 1998; and Trinity Franchising and Management Corporation vs. Commissioner of Internal Revenue , CTA Case No. 5313, August 18, 1998, the Court of Tax Appeals held: "A cursory review of the wordings of Section 4 of Republic Act No. 7432 would reveal that the law literally intended the cost of the 20% discount to be claimed as tax credit by private establishments. We could not see any plausible reason for the respondent to interpret the phrase in a different way. The discount being available for tax credit as stated in the law cannot be made incoherent to mean that such discount be utilized instead as a deduction from gross income and from gross sales as what is provided in RR No. 2-94. "xxx xxx xxx "RR 2-94 which engraved a new meaning to the phrase 'tax credit' as referring to the 20% discount which is deductible from gross sales is patently incongruous and a deviation from the plain intendment of the law. It is even repugnant to the common dictionary acceptation of said phrase. "Black's Law Dictionary, 6th edition, defines tax credit in this wise: 'An amount subtracted from an individual's or entity's tax liability to arrive at the total tax liability. A tax credit reduces the taxpayer's liability dollar for dollar, compared to a deduction which reduces taxable income upon which the tax liability is calculated. A credit differs from deduction to the extent that the former is subtracted from the tax while the latter is subtracted from income before the tax is computed . (Emphasis supplied) "Under RR 2-94, respondent has interpreted tax credit as synonymous to tax deduction in glaring contradiction to the above definition, undoubtedly there is a clear distinction, nay, difference between the two terms. aSAHCE xxx xxx xxx" Notwithstanding the foregoing pronouncement of the Court of Tax Appeals, we still adhere to the definition of the term "tax credit" under Revenue Regulation No. 2-94 until the issue is resolved with finality by the Supreme Court. Very truly yours, DAKILA B. FONACIER Commissioner of Internal Revenue By: (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal and Inspection Group