M.E. Holding Corp. v. Commissioner of Internal Revenue

SPECIAL FIRST DIVISION [CA-G.R. SP No. 60134. July 1, 2003.] M.E. HOLDING CORPORATION , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N GARCIA , J p : In this appeal by way of a petition for review under Rule 43 of the 1997 Rules of Civil Procedure, petitioner M.E. Holding Corporation seeks the annulment and setting aside of the following issuances of the Court of Tax Appeals in CTA Case No. 5604, entitled "M.E. Holding Corporation vs. Commissioner of Internal Revenue" , to wit: 1. Decision dated April 25, 2000 which denied petitioner's claim for tax refund or tax credit in the amount of P392,226.00 for the taxable year 1995 but granted it only to the extent of P122,195.74; and 2. Resolution dated July 11, 2000, denying petitioner's motion for reconsideration. The background facts are simple and not at all controverted: Petitioner M.E. Holding Corporation is a retailer of medicines and other pharmaceutical products. As such, it is duly licensed by the Bureau of Foods and Drugs and other government agencies to operate drugstores. In 1995, with local permit duly granted, petitioner opened and started to operate two (2) drugstores in the City of Baguio, both under the business name and style "Mercury Drug" . On various dates from January to December, 1995, petitioner granted a twenty percent (20%) sales discount on purchases of medicines by qualified senior citizens, conformably with the provisions of Republic Act No. 7432, better known as the Senior Citizens' Law. Petitioner treated the discount as a mere deduction from its gross income pursuant to BIR Revenue Regulations No. 2-94 promulgated by the respondent Commissioner of Internal Revenue to implement the provisions of Rep. Act No. 7432. And, for the period from January to December, 1995, petitioner computed said 20% sales discount as amounting to P603,424.60. On April 15, 1996, petitioner filed its annual corporate income tax return for the year 1995 and claimed, among others, as a deduction from its gross income the aforesaid amount of P603,424.60 representing the 20% sales discount it granted to senior citizens for their purchases of medicines from its two (2) drugstore outlets. The return was filed by the petitioner under protest, contending all along that said sales discount was being claimed as a mere deduction from its gross income because of BIR Regulations No. 2-94, instead of as a " tax credit/refund ", as provided for in Rep. Act No. 7432. Nonetheless, petitioner paid for the year 1995 a total income tax in the amount of P4,069,394.00. On April 3, 1996, consistent with its posture that the 20% sales discount it granted to senior citizens should be treated as "tax credit/refund" in accordance with Rep. Act No. 7432, petitioner filed with the respondent Commissioner of Internal Revenue a claim for tax refund or tax credit on its overpaid income tax payment for 1995. Including the subject 20% sales discount, petitioner claimed for a tax refund in the total amount of P392,226.00 computed by it, as follows: SALES, Net P94,724,284.00 Add: Cost of 20% Discount to Senior Citizens 603,424.00 SALES, Gross P95,327,708.00 COST OF SALES 87,338,849.00 GROSS PROFIT P7,988,859.00 Miscellaneous Income 43,489,663.00 TOTAL INCOME P51,478,522.00 Operating Expenses 17,006,032.00 NET INCOME BEFORE INCOME TAX P34,472,490.00 ========== INCOME TAX (35%) P4,280,592.00 Less: TAX CREDIT (Cost of 20% Discount to Senior Citizens 603,424.00 INCOME TAX PAYABLE P3,677,168.00 INCOME TAX ACTUALLY PAID 4,069,494.00 TAX REFUNDABLE/ OVERPAID INCOME TAX (P392,226.00) ========== In view of the Commissioner's inaction on its claim, and in order to toll the 2-year prescriptive period sets under Section 30 of the Tax Code for the filing of a judicial demand for tax refund, petitioner went to the Court of Tax Appeals on a petition for review, whereat its recourse was docketed as CTA Case No. 5604 . In the herein assailed decision dated April 25, 2000, the Tax Court, even as it sustains petitioner's thesis that the 20% sales discount should be treated as a tax credit in accordance with Section 4 of Rep. Act No. 7432, nonetheless disagreed with the petitioner's figure of P603,424.60 , and found that based on the very evidence adduced by the petitioner itself, the total amount proven is only P333,568.60, which thereby entities petitioner to a tax refund in the lesser amount of only P122,195.74 arrived at, as follows: Net Sales P94,724,284.00 Add: 20% Discount to Senior Citizens (Per Petitioner's Summary) 603,923.46 Gross Sales 95,328,207.46 Less: Cost of Sales 87,338,849.00 Gross Income P7,989,358.46 Less: Operating Expenses 17,006,032.00 Net Operating Loss 9,016,673.54 Add: Miscellaneous Income 43,489,663.00 Net Income P34,472,989.46 Less: Interest Income Subject to Final Tax 22,242,227.00 Net Taxable Income P12,230,762.46 =========== Tax Due (P12,230,762.46 x 35%) P4,280,766.86 Less: 1) Tax Credit Cost of 20% Discounts with Supporting Documents 333,568.60 2) Income Tax Payment for the Year 4,069,394.00 TOTAL P4,402,962.60 Amount Refundable P122,195.74 =========== (Annex "A", Petition, Rollo, p. 36) Accordingly, in its aforesaid decision, the Tax Court ordered the respondent Commissioner to refund to petitioner the amount of only P122,195.74 as overpaid income tax for the year 1995, thus: "WHEREFORE, in view of the foregoing, petitioner's claim for refund is hereby partially GRANTED. Respondent is hereby ORDERED to REFUND in favor of petitioner the amount of P122,195.74, representing overpaid income tax [for] the year 1995. SO ORDERED." Dissatisfied, petitioner filed a Motion for Reconsideration, thereunder imploring the Tax Court to allow it to submit and offer additional evidence consisting of cash slips which it allegedly omitted to present during the proceedings due to inadvertence. In the same motion, petitioner additionally argued that in computing the tax credit for sales discounts to senior citizens, " the actual discounts granted . . . should be the basis and not the acquisition cost " of the medicines purchased. In its equally challenged Resolution of July 11, 2000 , the Tax Court denied petitioner's motion "for lack of merit" . Hence, petitioner's present recourse, laying at Our doorsteps the following issues for Our resolution: "a. Whether or not the Court of Tax Appeals erred in denying the Motion of Petitioner to offer and submit as documentary evidence the inadvertently omitted cash slips. b. Whether or not the term `cost' under paragraph (a) Section 4 of Republic act 7432 is equivalent to direct cost. c. Whether or not the Court of Tax Appeals erred in relying only on the cash slips in determining the total amount of sales discount granted to senior citizens." We DENY. Petitioner initially faults the Tax Court for not allowing it to adduce additional evidence to substantiate its allegation that the total amount representing the 20% sales discount it granted to senior citizens in 1995 is P603,424.60. If there is anyone to be faulted, it is petitioner no less. As aptly pointed out by the Tax Court in its Resolution of July 11, 2000 , which denied petitioner's motion for reconsideration, and to which We are in full accord: ". . . Now counsel for the Petitioner begs the indulgence of the Court to allow him to present additional evidence consisting of duplicate copies of the cash slips which were not turned over to them by the independent CPA when the latter finished his audit Petitioner further avers that it was only after he received the assailed decision on May 9, 2000, that he found out that the documents supporting the auditor's findings were incomplete and that the said cash slips were left at Petitioner's main office . . . We are not convinced by Petitioner's ratiocinations. We believe that if only due diligence was observed, these cash slips which were left at Petitioner's main office could have been produced and offered in evidence. Counsel for Petitioner should have reviewed his evidence very well before submitting the case for decision because the excuse of inadvertence of the independent auditor to turn over the cash slips, especially after a decision has already been made, all the more emphasizes his own negligence in handling the case." For sure, even under the law of procedure, forgotten evidence are never newly-discovered. Petitioner next argues that it is error for the Tax Court to have computed the tax credit due it on the basis of the direct or acquisition cost of the medicine purchased by senior citizens instead of the " actual discount " given. To petitioner's mind, the word "cost" found in Section 4[a] of Republic Act No. 7432 should include "all administrative and incremental costs to sales to senior citizens" . We are not persuaded. To start with, the issue is no longer novel insofar as this Court is concerned. For, in the earlier case of " Commissioner of Internal Revenue vs. Elmas Drug Corporation", CA-G.R. SP No. 49946 , decided October 19, 1999, this Court, through the ponencia of Associate Justice Jose L. Sabio, Jr., applying the provision of Section 4[a] of Republic Act No. 7432, which pertinently reads: HSCATc "SECTION 4. Privileges for the Senior Citizens . The senior citizens shall be entitled to the following: a) the grant of twenty percent (20%) discount from all establishments relative to . . . purchase of medicines anywhere in the country: Provided that private establishments may claim the cost as tax credit;" ruled, as follows: "Perusal of the provisions of the law provides for the term 'cost' without any distinction and therefore, shall be interpreted as such. . . . If a statute is clear, plain and free from ambiguity, it must be given its literal meaning and applied without attempted Interpretation." We have thus made it clear in Elmas that: ". . . the cost of the 20% discount represents the actual amount spent by drug corporations in complying with the mandate of R.A. 7432. Working on this premise, It could not have been the intention of the lawmakers to grant these corporations the full amount of the 20% discount as this would be extending to them more than what they actually sacrificed when they give the 20% discount to senior citizens." Moreover, on a broader plane, to include in the 20% sales discount " all administrative and incremental costs to sales to senior citizens ", as urged by the petitioner, is to dilute and ultimately render meaningless the statutory privilege granted to senior citizens under Rep. Act No. 7432. The reason therefor is not hard to discern: the "cost" of sales under petitioner's theory could be hijacked by such broad, undefined and variable factors as "administrative and incremental costs" to a point where the privilege is lost and the government ultimately made to bear in terms of refundable taxes on account of the escalated cost of sales. For sure, it is even possible under petitioner's submission that in the guise of complying with the provisions of the Senior Citizens' Act, petitioner and those similarly situated may pad with " administrative and incremental costs " their actual acquisition cost from their suppliers of the particular medical products purchased by senior citizens to a level where the claims for tax refund could be used as a subterfuge to justify a bloated decrease in their tax liability. In short, far from "sacrificing" a part of their income for the benefit of senior citizens, drugstore owners would, in effect, be the true recipients of the privilege and the 20% sales discount granted under the law rendered a mere misnomer. Worse, the discount could even be a scheme for fraudulent claims for tax refund in an unwarranted amount. In this connection, it bears recalling herein the ruling in Commissioner of Internal Revenue vs. Tokyo Shipping Co., Ltd., 244 SCRA 332, that " [A] claim for refund is in the nature of a claim for exemption and should be construed in strictissimi juris against the taxpayer ." With the views expressed above, We find no need to address separately the third issue raised by the petitioner. WHEREFORE, the instant petition is hereby DISMISSED and the challenged issuances of the Court of Tax Appeals AFFIRMED. SO ORDERED. De Los Santos * and Del Castillo, JJ . , concur. Footnotes * In lieu of Justice Eloy R. Bello, Jr., on leave.