Philippine Airlines, Inc. v. Court of Tax Appeals

SIXTH DIVISION [CA-G.R. SP No. 67970. September 30, 2003.] PHILIPPINE AIRLINES, INC. , petitioner , vs . HONORABLE COURT OF TAX APPEALS and THE COMMISSIONER OF INTERNAL REVENUE , respondents . D E C I S I O N VIDALLON-MAGTOLIS , J p : This petition for review filed under Rule 43 of the 1997 Rules of Civil Procedure seeks to reverse and set aside the decision 1 dated June 13, 2001 of the Court of Tax Appeals (CTA) in CTA No. 5824, which denied the petitioner's claim for refund of the 20% final tax on interest income on its bank deposits collected by the respondent Commissioner of Internal Revenue, and the CTA resolution dated November 13, 2001 which denied the petitioner's motion for reconsideration. 2 FACTUAL ANTECEDENTS Petitioner Philippine Airlines, Inc. (PAL) is a domestic corporation organized in accordance with the laws of the Republic of the Philippines, while the respondent Commissioner of Internal Revenue (CIR) is in-charge of the assessment and collection of the 20% final tax on interest on Philippine currency bank deposits and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements, imposed on domestic corporation under Sec. 24 (e) (1) [now Sec. 27 (D) (1)] of the National Internal Revenue Code (NIRC). On November 5, 1997, 3 petitioner's AVP-Revenue Operations and Tax Services Officer, Atty. Edgardo P. Curbita, filed with the Office of the then Commissioner of Internal Revenue, Mdm. Liwayway Vinzons-Chato, a written request for refund of the amount of P2,241,527.22 which represents the total amount of 20% final withholding tax withheld from the petitioner by various withholding agent banks, and which amount includes the 20% final withholding tax withheld by the United Coconut Planters Bank (UCPB) and Rizal Commercial Banking Corporation (RCBC) for the period starting March 1995 through February 1997. On December 4, 1997, 4 the petitioner's AVP-Revenue Operations and Tax Services Officer again filed with respondent CIR another written request for refund of the amount of P1,048,047.23, representing the total amount of 20% final withholding tax withheld by various depository banks of the petitioner which amount includes the 20% withholding tax withheld by the Philippine National Bank (PNB), Equitable Banking Corporation (EBC), and the Jade Progressive Savings & Mortgage Bank (JPSMB) for the period starting March 1995 through November 1997. DTIaCS The amounts, subject of this petition, and which represent the 20% final withholding tax allegedly erroneously withheld and remitted to the BIR by the aforesaid banks may be summarized as follows: Bank Period Source Amount Covered UCPB Jan. 9, 1997- Interest income P60,328.38 Feb. 21, 1997 on prime savings deposit Interest income on government securities and/ or commercial papers 78,658.52 P131,986.65 5 RCBC Jan. 6, 1997- Interest income Feb. 28, 1997 on FBTB and Treasury Bills placements 47,763.55 6 PNB Feb. 19, 1997- Interest income Nov. 14, 1997 on PNBIG savings account 514,120.22 7 EBC Jan. 3, 1997- Interest income Feb. 28, 1997 on Treasury Bills placement 33,357.25 8 JPSMB Jan. 1, 1997- Interest income Feb. 28, 1997 on deposits 3,962.78 9 Respondent CIR failed to act on the petitioner's request for refund; thus, a petition was filed before the CTA on April 23, 1999. On June 13, 2001, the CTA rendered the assailed decision. The petitioner's motion for reconsideration was also denied; hence, this petition. ASSIGNMENT OF ERROR The sole issue in this case is whether or not the CTA committed grave and reversible error in its interpretation of the provisions of Sec. 13, Presidential Decree No. 1590. PETITIONER'S ARGUMENTS The petitioner argues that Sec. 13, P.D. 1590 clearly grants the petitioner the option to pay either the basic corporate income tax computed in accordance with the provisions of the NIRC, or the 2% franchise tax of the gross revenues derived by the grantee from all sources, whichever will result in a lower tax. According to the petitioner, the CTA erred in imposing a non-existent condition of paying the 2% franchise tax when the petitioner "is at a net loss position" so that it can be entitled to the benefit of the "in lieu of all other taxes" incentive under its franchise. Allegedly, such condition deprives the petitioner of its right to choose the basic corporate income tax as its mode of payment for the taxable year involved as computed in accordance with the provisions of the NIRC, and as authorized by Sec. 13 of P.D. 1590, after depreciating its assets at twice the normal rate of depreciation, and carrying over as deduction from the taxable income its net loss incurred in the last five years. The petitioner availed of this right and privilege which resulted in a zero tax liability. Such exercise of its lawful privilege cannot be taken against the petitioner. Moreover, the petitioner is not obliged to pay the 2% franchise tax because it is definitely higher than the zero tax liability using the basic corporate income tax. Likewise, it has no obligation to pay the 2% franchise tax despite its net loss position since the law imposes no such obligation upon the petitioner. Section 13 does not state that if the petitioner does not pay any basic corporate income tax for the year because it suffered a net loss, the petitioner must pay the 2% franchise tax before it can avail of the tax exemption from all other taxes mentioned therein. The petitioner is only obliged to pay whichever of the two taxes, when computed as provided therein, would result in a lower tax liability. And such lower tax, which in the instant case, is zero tax liability, it shall be in lieu of all other taxes. cITaCS Furthermore, P.D. 1590 anticipates the possibility that the petitioner, in pursuing its franchised activities, will suffer a net loss. In anticipation of the eventuality, the law authorizes the petitioner to carry over the net loss as a deduction for the next five (5) taxable years. Due to the substantial amount of net operating loss carryover deduction (NOLCO) that the petitioner had accumulated over the past years because of its continued operating losses, whatever operating profits it earns in the succeeding years including those involved in this petition have been completely wiped out by said NOLCO deductions, resulting in zero corporate income tax liability for the petitioner. If the intention of the law was to compel the petitioner to pay the 2% franchise tax in case of a net loss position, it would not have authorized the petitioner to carry over the net loss as a deduction for the next five (5) taxable years. In addition, the basic corporate income tax on net annual taxable income is different from and does not include the 20% final withholding tax which is based on the interest income of the taxpayer's bank deposit. Payment of the final withholding tax on interest income from bank deposits is not part payment of the basic corporate tax liability mentioned under par. (a) of Sec. 13 of petitioner's franchise. Even if it pays a basic corporate income tax, the petitioner contends that it can still ask for the refund of the final withholding tax, especially if the interest income from which the said withholding tax was collected was included in the computation of the petitioner's taxable net income for the same year, on the basis of which, the basic corporate income tax was paid. RESPONDENT'S ARGUMENTS The respondent reiterates that the petitioner is not entitled to the "in lieu of all taxes" provision under Sec. 13 of P.D. 1590 which makes it not entitled also to the refund being claimed. It alleges that when Section 13 states "shall pay" the petitioner must either pay the basic corporate income tax or the franchise tax whichever will result to a lower tax. The payment of the tax in either way is therefore imperative upon the petitioner before it can avail itself of the "in lieu of all other taxes" incentive. Thus, if the petitioner, in computing its corporate income tax based on the provisions of the Tax Code a "zero tax" results, then it is as if no corporate income tax payment was made. The respondent contends that when the law said "shall pay" it means that there must be a tax payment made, be it one centavo or more, and said tax payment shall be considered in lieu of all other taxes. "Zero tax" implies no tax payment made; hence, it cannot be considered to have substituted the other taxes supposed to be due from the petitioner. The petitioner herein not having paid a single centavo as corporate income tax, it has to pay the 2% franchise tax in order to be exempted from the payment of other taxes. The payment of the 2% franchise tax is not an obligation imposed upon the petitioner but rather an option if it wishes to avail of the exemption from the payment of other taxes. Thus, if it chose not to pay the 2% franchise tax, then it cannot avail of the exemption from the payment of the other taxes. THE COURT'S RULING Section 13 of Presidential Decree No. 1590 (An Act Granting a New Franchise to Philippine Airlines, Inc. to Establish, Operate, and Maintain Air-Transport Services in the Philippines and Between the Philippines and Other Countries) provides: "SEC. 13. In consideration of the franchise and rights hereby granted, the grantee shall pay to the Philippine Government during the life of this franchise whichever of subsections (a) and (b) hereunder will result in a lower tax: "a) The basic corporate income tax based on the grantee's annual net taxable income computed in accordance with the provisions of the National Internal Revenue Code; or "(b) A franchise tax of two per cent (2%) of the gross revenues derived by the grantees from all sources, without distinction as to transport or non-transport operations; provided, that with respect to international air-transport service, only the gross passengers, mail, and freight revenues from its outgoing flights shall be subject to this tax. "The tax paid by the grantee under either of the above alternatives shall be in lieu of all other taxes, duties, royalties, registration, license, and other fees and charges of any kind, nature, or description, imposed, levied, established, assessed, or collected by any municipal, city, provincial, or national authority or government agency, now or in the future, including but not limited to the following: "(1) All taxes, duties, charges, royalties, or fees due on local purchases by the grantee of aviation gas, fuel, and oil, whether refined or in crude form, and whether such taxes, duties, charges, royalties, or fees are directly due from or imposable upon the purchaser or the seller, producer, manufacturer, or importer of said petroleum products but are billed or passed on to the grantee either as part of the price or cost thereof or by mutual agreement or other arrangement; provided, that all such purchases by, sales or deliveries of aviation gas, fuel, and oil to the grantee shall be for exclusive use in its transport and nontransport operations and other activities incidental thereto; "(2) All taxes, including compensating taxes, duties, charges, royalties, or fees due on all importations by the grantee of aircraft, engines, equipment, machinery, spare parts, accessories, commissary and catering supplies, aviation gas, fuel, and oil, whether refined or in crude form and other articles, supplies, or materials; provided, that such articles or supplies or materials are imported for the use of the grantee in its transport and nontransport operations and other activities incidental thereto and are not locally available in reasonable quantity, quality, or price; EaHcDS "(3) All taxes on lease rentals, interest, fees, and other charges payable to lessors, whether foreign or domestic, of aircraft, engines, equipment, machinery, spare parts, and other property rented, leased, or chartered by the grantee where the payment of such taxes is assumed by the grantee; "(4) All taxes on interest, fees, and other charges on foreign loans obtained and other obligations incurred by the grantee where the payment of such taxes is assumed by the grantee; "(5) All taxes, fees, and other charges on the registration, licensing, acquisition, and transfer of aircraft, equipment, motor vehicles, and all other personal and real property of the grantee; and "(6) The corporate development tax under Presidential Decree No. 1158-A. "The grantee, shall, however, pay the tax on its real property in conformity with existing law. "For purposes of computing the basic corporate income tax as provided herein, the grantee is authorized "a. To depreciate its assets to the extent of not more than twice as fast the normal rate of depreciation; and "b. To carry over as a deduction from taxable income any net loss incurred in any year up to five years following the year of such loss." The elementary rule in statutory construction is that if a statute is clear, plain, and free from ambiguity, it must be given its literal meaning and applied without attempted interpretation. Verba legis non est recedendum . From the words of a statute there should be no departure. 10 Sec. 13, P.D. No. 1590 defining and limiting the extent of the tax liability of the petitioner under its franchise is couched in a clear, plain and unambiguous manner. The petitioner shall pay its tax liability using either of the following alternatives: (a) the basic corporate income tax computed in accordance with the provisions of the NIRC; or (b) 2% franchise tax of the gross revenues derived by the grantee (petitioner) from all sources. The petitioner shall choose whichever of the two alternatives will result in a lower tax liability. The tax payment made under either of the above alternatives shall be "in lieu of all other taxes, duties . . . " Obviously, the petitioner chose the first alternative, i.e. , the basic corporate income tax, in the payment of its tax liability, in the computation of which, the petitioner was authorized under the last paragraph of section 13 of the same law, to depreciate its assets to the extent of not more than twice as fast the normal rate of depreciation, and to carry over as a deduction from taxable income any net loss incurred in any year up to live years following the year of such loss. The evidence shows, however, that after the computation, the petitioner appears to have no corporate income tax liability, which reasonably explains why the petitioner need not pay any corporate tax as there was nothing at all to pay because there was in fact no tax due to the government during the taxable year involved, after computations in accordance with the NIRC. Since no tax payment was made, is petitioner required, as contended by the respondent, to pay the 2% franchise tax in order to be exempted from the payment of other taxes such as the 20% final withholding tax on interest income being claimed herein by the petitioner? We believe the law does not say so. The provision of section 13 is explicit and unequivocal. The petitioner-grantee must choose between the two aforementioned alternatives in the payment of its tax liability to the government and its choice must be that which will result in a lower tax liability. Obviously, zero tax liability is lower than the 2% franchise tax; hence, the petitioner chose a better alternative in availing of the basic corporate income tax as basis for its tax liability to the government. HSAcaE Moreover, the law does not say that to avail of the exemption from payment of all other taxes, there must be, after the computation, a tax due coupled with an "actual" payment thereof. The law simply states that the petitioner-grantee must choose between the two alternatives and such choice must be that whichever will result in a lower tax liability. Any tax paid under either of the two alternatives shall exempt the petitioner-grantee from the payment of the other taxes as the said tax payment is considered by law "in lieu of all other taxes." In this case, as earlier stated, the petitioner availed of the right and privilege granted to it by law by opting to choose the basic corporate income tax as basis for its tax liability, which however, after considering the factors allowed by law, resulted in a zero tax liability. Such zero tax liability as a result of the exercise of its lawful privilege should not be taken against the petitioner nor deprive it of availment of the exemption granted by the law. EAcIST We are not unaware that statutes granting tax exemptions are to be strictly construed against the taxpayer and liberally in favor of the taxing power. However, such doctrine is not absolute. Where the provision of the law is clear and unambiguous, so that there is no occasion for the court's interpretations of the legislative intent, the law must be taken as it is, devoid of judicial addition or subtraction. For where the law provides no qualification for the granting of tax exemption, the court is not at liberty to supply one. 11 In light of the foregoing, we find cogent reason to reverse and set aside the findings of the tax court. WHEREFORE, the petition is GRANTED, and respondent Commissioner of Internal Revenue is hereby directed to refund to the petitioner the amount of P731,190.45 representing the 20% final withholding tax collected and deducted by depository banks on the petitioner's interest income or, in the alternative, to allow the petitioner a tax credit for the same amount. SO ORDERED. Sabio, Jr . and Abdulwahid , JJ . , concur. Footnotes 1. Rollo , p. 24. 2. Id . at p. 32. 3. Id . at pp. 5556. 4. Id . at pp.7475. 5. Id . at pp. 5152. 6. Id . at pp. 5354. 7. Id . at pp. 6567. 8. Id . at p. 69. 9. Id . at p. 45 vis--vis , Annexes "J" & "K", Id . at pp. 7273. 10. Del Mar vs. Philippine Amusement and Gaming Corp ., 358 SCRA 768, 781. 11. Ruben Agpalo, Statutory Construction , 1995 ed., at pp. 99100.