Commissioner of Internal Revenue v. Agencia Exquisite of Bohol, Inc.

SPECIAL FORMER FIRST DIVISION [CA-G.R. SP No. 64117. February 6, 2003.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . AGENCIA EXQUISITE OF BOHOL, INC. , respondent . D E C I S I O N CRUZ , J p : On September 15, 1999, Assessment Notice No. 84-PT-13-94-99-9-081 was issued by the Commissioner of Internal Revenue (or "petitioner"), through Revenue Regional Director Crispino B. Vallejo, Jr., against Agencia Exquisite of Bohol, Inc. (or "respondent") demanding payment of deficiency percentage tax in the sum of P66,373.49 for the year 1994, inclusive of interest and surcharge. The assessment was made pursuant to Revenue Memorandum Order (or "RMO") No. 15-91 and Revenue Memorandum Circular (or "'RMC") No. 43-91 dated March 11, 1991 and May 27, 1991, respectively, issued by then Commissioner of Internal Revenue Jose U. Ong. RMO No. 15-91, as clarified by RMC No. 43-91, subjects pawnshops to a 5% lending investor's tax upon authority of Sec. 116 of the then Tax Code which, as of 1994, provided that "(l)ending investors shall pay a tax equivalent to five (5%) percent of their gross income." On October 15, 1999, respondent filed an administrative protest with the Office of the Revenue Regional Director, contending that neither the Tax Code nor the VAT Law expressly imposes the 5% lending investor's tax on pawnshops; that the business operations of pawnshops are widely different from that of lending investors; and that RMO No. 15-91 and RMC No. 43-91 are new and additional taxes on pawnshops which only Congress may enact. Its protest having been denied per letter-resolution dated November 12, 1999, respondent filed a petition for review with the Court of Tax Appeals (or "CTA") on December 24, 1999, reiterating the stand contained in its protest. Answering the petition, petitioner maintained that under the Tax Code, he is empowered "to make rulings or opinions in connection with the implementation of the provisions of internal revenue laws"; that RMO No. 15-91 and RMC No. 43-91 are rulings which expressly revoked previous administrative rulings interpreting the provisions of the Tax Code; that said RMO and RMC are not new and additional tax measures but new rulings or opinions; and that the legal definition of "lending investor" is broad enough to cover pawnshop operators. On March 14, 2001, the CTA rendered a decision, the dispositive portion of which reads: "WHEREFORE, in view of all the foregoing the instant Petition for Review is hereby GRANTED. Revenue Memorandum Order No. 15-91 and Revenue Memorandum Circular No. 43-91, in so far as they classify pawnshops as lending investors subject to lending investor's tax is hereby declared NULL AND VOID. ACCORDINGLY, Assessment Notice No. 84-PT-13-94-99-9-081, is hereby CANCELLED AND SET ASIDE. SO ORDERED." Hence, this petition for review, faulting the CTA "in holding that pawnshops are not subject to the lending investor's tax under then Section 116 of the Tax Code." Maintaining that respondent is liable for the deficiency percentage tax for the year 1994 per Assessment Notice No. 84-PT-13-94-99-9-081, petitioner asserts that in this Court's decision dated March 23, 2001 in CA-G.R. SP No. 59282 entitled "Commissioner of Internal Revenue vs. Agencia Exquisite of Bohol, Incorporated" , it was held that the definition of the term "pawnshop" is broad enough to encompass lending investors; that the previous administrative rulings that pawnshops are not subject to 5% lending investor's tax and that a pawn ticket is not subject to documentary stamp tax, as well as the assailed administrative issuances (RMO No. 15-91 and RMC No. 43-91) which revoked said rulings, are rules implementing the provisions of the Tax Code; and that said RMO and RMC are not new and additional tax measures but new rulings or opinions. On the other hand, respondent maintains that RMO No. 15-91 and RMC No. 43-91 were issued by petitioner with grave abuse of discretion as he went beyond his authority to execute the Tax Code; that the legislature did not consider pawnshops as lending investors; and that the law does not subject pawnshops to the 5% lending investor's tax and, consequently, said RMO and RMC impose new and additional taxes on pawnshops. Respondent also contends that the tax laws treat pawnshops and lending investors as different and distinct taxable entities as expressed in the then Sec. 192 of the Tax Code; and that the business of pawnshops is different from that of a lending investor. The petition is bereft of merit. It is fundamental that administrative issuances must not override, but must remain consistent and in harmony with, the law they seek to apply and implement ( Commissioner of Internal Revenue vs. Court of Appeals, 240 SCRA 368). And it is "the hornbook doctrine in the interpretation of tax laws that '(a) statute will not be construed as imposing a tax unless it does so clearly, expressly, and unambiguously, . . . (A) tax cannot be imposed without clear and express words for that purpose'." ( Commissioner of Internal Revenue vs. Court of Appeals , 271 SCRA 605) RMO No. 15-91 reads, as follows: "A restudy of P.D. 114 shows that the principal activity of pawnshops is lending money at interest and incidentally accepting a 'pawn' of personal property delivered by the pawner to the pawnee as security for the loan. (Sec. 3, ibid. ) Clearly, this makes pawnshop business akin to lending investor's business activity which is broad enough to encompass the business of lending money at interest by any person whether natural or juridical. Such being the case, pawnshops shall be subject to the 5% lending investor's tax based on their gross income pursuant to Section 116 of Tax Code, as amended. On the other hand, RMC No. 43-91 provides: "1. RMO 15-91 dated March 11, 1991: "This Circular subjects to the 5% lending investor's tax the gross income of pawnshops pursuant to Section 116 of the Tax Code, and it thus revokes BIR Ruling Nos. 6-90, and VAT Ruling Nos. 22-90 and 67-90. In order to have a uniform cut-off date, avoid unfairness on the part of taxpayers if they are required to pay the tax on past transactions, and so as to give meaning to the express provisions of Section 246 of the Tax Code, pawnshop owners or operators shall become liable to the lending investor's tax on their gross income beginning January 1, 1991. Since the deadline for the filing of percentage tax return (BIR Form No. 2529A-0) and the payment of the tax on lending investors covering the first calendar quarter of 1991 has already lapsed, taxpayers are given up to June 30, 1991 within which to pay the said tax without penalty. If the tax is paid after June 30, 1991, the corresponding penalties shall be assessed and computed from April 21, 1991. Since pawnshops are considered as lending investors effective January 1, 1991, they also become subject to documentary stamp taxes prescribed in Title VII of the Tax Code. BIR Ruling No. 325-88 dated July 13, 1988 is hereby revoked." Lending investors are defined as persons "who make a practice of lending money for themselves or others at interest" (sec. 157(u], Tax Code), while a pawnshop is "a person or entity engaged in the business of lending money on personal property delivered as security for loans and shall be synonymous, and may be used interchangeably, with pawnbroker or pawnbrokerage" (Sec. 3, Pres. Decree No. 114 [Pawnshop Regulation Act]). Lending investors operate with greater flexibility and freedom than pawnshops. Lending investors lend money secured by either real or personal property or with no security at all, while pawnshops lend money upon security of personal property. Moreover, there is no limitation on interest rates which lending investors may charge; whereas, pawnshops may not charge "any higher rate or greater sum or value for any loan or forbearance than the rate allowed by the Usury Law for such transactions." ( Sec. 10, Pres. Decree No. 114 ) Furthermore, Sec. 161(3) of the Tax Code names those subject to fixed taxes, among which are "(dd) Lending Investors" and "(ff) Pawnshops". The fixed taxes on lending investors range from P250.00 to P1,000.00, depending on the situs of its business. On the other hand, pawnshops are imposed a fixed tax of P1,000.00. aDcETC The Tax Code imposes percentage tax on lending investors, but not on pawnshops. The Bureau of Internal Revenue may not, in the guise of exercising its authority to make rulings or opinions in connection with the implementation of the Tax Code and to revoke, modify or reverse the same (Secs. 245 and 246, Tax Code), impose percentage tax on pawnshops, via RMO No. 15-91, which is a new and additional tax measure only Congress may enact. Thus, in Commissioner of Internal Revenue vs. Hon. Andres B. Reyes, Jr., et al. ( CA-G.R. SP No. 28824, December 23, 1993 ), this Court held: ". . . Revenue Circulars Nos. 15-91 and 43-91 are not implementing rules but are new and additional measures which only Congress is empowered to impose. Section 245 of the Tax Code has limited or confined petitioner's power to issuing rules and regulations to implement or carry into effect the provision of the Code in the enforcement of taxes provided therein, and petitioner cannot impose additional taxes not provided therein. Under the Constitution, the power to tax is solely vested in Congress. In issuing subject Revenue Circulars imposing new taxes against pawnshop, petitioner arrogated unto himself legislative powers, with grave abuse of discretion and in excess of jurisdiction." The aforequoted ruling was reiterated in Commissioner of Internal Revenue vs. Michel J. Lhuillier Pawnshop, Inc. ( CA-G.R. SP No. 62463, November 20, 2001 ). Nevertheless, petitioner invites Our attention to the abovementioned decision in CA-G.R. SP No. 59282 ( Commissioner of Internal Revenue vs. Agenda Exquisite of Bohol, Incorporated ). Petitioner asserts that this Court ruled in said case that "pawnshops are subject to the 5% investor's tax imposed under then Section 116 of the Tax Code." A close examination of the Agencia Exquisite decision, however, shows that it was anchored on the failure of the subject pawnshop to "point to any specific provision in P.D. 114, from which it draws its breath of life, that explicitly exempts it from the coverage of RMO No. 15-91 and RMC No. 43-91". However, respondent is not seeking exemption from the 5% percentage tax imposed on lending investors. Rather, it insists that pawnshops are not subject to the provisions of the Tax Code on said percentage tax. And it has been held that only after such coverage is shown does the rule of construction that tax exemptions are to be strictly construed come into play ( Commissioner of Internal Revenue vs. Court of Appeals, 271 SCRA 6605 ). In other words, Agencia Exquisite does not support the proposition that pawnshops are embraced in the term "lending investors". Parenthetically, in 1994, the House of Representatives sought to amend Sec. 116 of the Tax Code thru House Bill No. 11197 ("An Act Restructuring the Value-Added Tax [VAT] System to Widen its Tax Base and Enhance Its Administration") by way of including "owners of pawnshops," among those sum to percentage tax. However, the Bicameral Conference Committee version, which eventually became the law, did not incorporate such provision. Certainly, there would have been no need for the proposed amendment if the percentage tax treated in Sec. 116 of the Tax Code were applicable to pawnshops. Since the Tax Code does not contain a provision imposing lending investor's tax on pawnshops, RMO No. 15-91, as clarified by RMC No. 43-91, is not implementing internal revenue laws but is, in fact, a new and additional tax measure on pawnshops, which only Congress may enact. The CTA, therefore, correctly ruled that pawnshops and lending investors are two distinct tax subjects which are treated differently under the Tax Code and that pawnshops are not subject to the 5% lending investor's tax prodded under Sec. 116 of the Tax Code. WHEREFORE, the petition is DISMISSED while the appealed decision is AFFIRMED. SEDIaH SO ORDERED. Alio-Hormachuelos and * Pine, JJ . , concur. Footnotes * Vice J. Ma. Alicia Austria-Martinez, who was appointed to the Supreme Court.