Malayan Reinsurance Corp. v. Commissioner of Internal Revenue

SPECIAL FORMER THIRD DIVISION [CA-G.R. SP NO. 74339. April 24, 2008.] MALAYAN REINSURANCE CORPORATION (FORMERLY EASTERN GENERAL REINSURANCE CORPORATION , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N SUNDIAM , J p : This Petition for Review filed under Rule 43 of the revised Rules of Civil Procedure seeks the reversal and setting-aside of the Decision, dated July 24, 2002, rendered by the Court of Tax Appeals (CTA), denying petitioner Malayan Reinsurance Corporation's (MRC) claims for tax refund and/or tax credit in the amount of Php236,875.00. The dispositive portion of the assailed CTA Decision reads: " WHEREFORE , in light of the foregoing, the instant petition for review is hereby DENIED for lack of merit. SO ORDERED " [Rollo, p 37]. Likewise assailed is the Resolution, dated November 19, 2002, denying petitioner's Motion for Reconsideration of the above CTA Decision, the dispositive portion of which reads: " WHEREFORE , in view of the foregoing, the motion for reconsideration filed by petitioner is hereby DENIED for lack of merit. SO ORDERED ." [Rollo, p. 39]. The factual antecedents are as follows: Petitioner MRC formerly known as Eastern General Reinsurance Corporation is a corporation organized and existing under and by virtue of the laws of the Philippines while respondent Commissioner of Internal Revenue (CIR) is the duly appointed Commissioner of the Bureau of Internal Revenue. aSCHIT In 1996, petitioner MRC purchased from China Banking Corporation long-term Fixed Rate Treasury Notes (FXTNs) issued by the Bureau of Treasury with the following details [see Rollo, p. 23] : FXTNs Exh. Value Issue Maturity Face Tenor Yield Series Date Date Date Value No. FXTN 7-2 E-1 3/13/96 2/29/96 2/28/03 P5,000,000.00 7 years 15.375% FXTN 10-1 E-2 9/26/96 9/26/96 9/26/06 5,000,000.00 10 years 16.000% During the year 1999, the Bureau of Treasury paid petitioner MRC interest income on the aforesaid FXTNs in the gross amount of Php1,184,375.00, which was subjected by the Bureau of Treasury to a 20% final withholding tax in the total amount of Php236,875.00, broken down as follows: FXTNs Exh. Interest Interest 20% Final Net Amount Series No. Payment Income Withholding Received Date Tax FXTN 7-2 H-3, H-4 8/28/99 P384,375.00 P76,875.00 P307,500.00 FXTN 10-1 H-5, H-6 3/26/99 400,000.00 80,000.00 320,000.00 FXTN 10-1 H-7, H-8 9/26/99 400,000.00 80,000.00 320,000.00 TOTAL P1,184,375.00 P236,875.00 P47,500.00 ============ ========== ========= It appears that on October 25, 1999, the BIR issued BIR Ruling No. 166-99, providing that the interest income, yield, or gain derived from bonds, debentures or certificates of indebtedness as deposit substitutes, which are ordinarily subjected to 20% final tax under Section 27 (D) (1) of the 1997 Tax Code should be excluded from the gross income, if the bonds, debentures or the other certificate of indebtedness have maturities of more than five (5) years [see Rollo, pp. 60-65]. On March 19, 2001, petitioner MRC filed before the Revenue District Office No. 34 of the BIR, an administrative claim for tax refund or tax credit in the amount of Two Hundred Thirty Six Thousand Eight hundred Seventy-Five Pesos (Php236,875.00) corresponding to the final tax withheld by the Bureau of Treasury on the interest income gained by petitioner on the FXTNs for the year 1999 [see Rollo, pp. 24-98]. Without waiting for an answer from respondent CIR and also not to be barred by the two-year prescriptive period within which to file a claim for refund, petitioner MRC filed a Petition [Rollo, pp. 40-43] before the CTA praying that judgment will be rendered granting its claims for tax refund or tax credit. On May 9, 2001, respondent CIR filed his Answer stating, among others, that the allegations contained in the Petition were erroneous conclusions and mere opinions and that the Petition stated no cause of action [Rollo, pp. 46-47] . Trial on the merits ensued. On September 10, 2001, witness Ruben Rubio, the independent certified public accountant duly appointed by the CTA to examine, evaluate and report on the evidence of petitioner MRC, testified on his Report [see Rollo, p. 139] . ISAcHD On November 10, 2001, witnesses Simon Aguilon and Zenaida Roxas, both of the Bureau of Treasury testified that petitioner MRC purchased FXTNs with maturities in excess of five (5) years issued by the Bureau of Treasury on behalf of the National Government through the secondary market, or Government Securities Eligible Dealers (GSEDs). On February 19, 2001, respondent CIR manifested that he is no longer presenting any evidence to controvert petitioner MRC's evidence. On July 24, 2002, the CTA rendered a Decision [Rollo, pp. 22-37] denying the petition for lack of merit. On August 19, 2002, a Motion for Reconsideration was filed by petitioner MRC but the same was denied by the CTA in its Resolution, dated November 19, 2002 [Rollo, pp. 38-39]. Hence, the instant petition with petitioner MRC raising a lone issue, to wit: " WHETHER OR NOT THE COURT OF TAX APPEALS ERRED IN RULING THAT THE TERM 'GAIN' AS USED IN SECTION 32 (B)(7)(g) OF THE TAX CODE DOES NOT INCLUDE INTEREST " [Rollo, p. 142] . We find the petition unmeritorious. Petitioner MRC contends that in enacting Republic Act No. 8424, otherwise known as the "Comprehensive Tax Reform Act", Congress saw it fit to provide for a new exclusion to gross income subject to income tax and this new exclusion is contained in Section 32 (B) (7) (g) of the 1997 Tax Code, to wit: 'Section 32. Gross Income. xxx xxx xxx (B) Exclusions from gross Income . The following item shall not be included in gross income and shall be exempt from taxation under this Title: xxx xxx xxx '(7) Miscellaneous Items. xxx xxx xxx '(g) Gains from the Sale of Bonds, Debentures or other Certificate of Indebtedness. Gains realized from the sale or exchange or retirement of bonds, debenture or other certificate of indebtedness with a maturity of more than five (5) years" (Underscoring Ours); IDSaTE petitioner MRC further contends that the term "gain" means an increase or addition to what one has of that which is of profit, advantage or benefit; the obtaining or amassing of profit or valuable possession; acquisition; accumulation. According to petitioner, "gain" is so broad a concept that it encompasses all types of income, including interest income and should be understood and interpreted in its generic sense or its usual and commonly understood meaning and not in a restrictive sense. We are not persuaded. On this technical issue of the proper interpretation of the term "gain" as contained in Section 32 (B) (7) (g) of the 1997 Tax Code, this Court is guided by the well-entrenched doctrine that the CTA, dedicated exclusively to the study and consideration of tax problems has necessarily developed an expertise in the subject of taxation which this Court has recognized time and again. For this reason, the findings of fact by the CTA are generally conclusive on this Court absent grave abuse of discretion or palpable error (Commissioner of Internal Revenue vs. Phil. American Accident Insurance Co., 453 SCRA 668; 690) As correctly pointed out by the CTA in its assailed Decision, whereas the term "gain" includes "interest" as a general rule, this rule cannot be applied to Section 32 (B) (7) (g) of the 1997 Tax Code which particularly or specifically refers to " Gains from the Sale of Bonds, Debentures or Other Certificate of Indebtedness" as distinguished from the term "gains" in its general sense which is synonymous to income. In this regard, the pertinent portions of the CTA Decision are herein reproduced as follow: "It is a well-settled rule of statutory construction that tax exemptions are strictly construed against the taxpayer. Consequently, where Section 32 (B)(7)(g) of the 1997 Tax Code, which grants tax exemption, is susceptible of a restrictive interpretation, such interpretation must be adopted . We take the view that "gains" as the term is used in Section 32 (B)(7)(g) of the 1997 Tax Code cannot include interest since it clearly refers to gains from the sale of bonds, debentures and other certificates of indebtedness. ADCETI Initially, it must be pointed out that whereas the term "gains" includes "interest" as a general rule, this rule cannot be applied to Section 32 (B) (7) (g) of the 1997 Tax Code which particularly refers to " Gains from the Sale of Bonds, debentures or other Certificate of indebtedness " in is title and "Gains realized from the sale or exchange or retirement of bonds, debentures and other certificate of indebtedness with a maturity of more than five (5) years" in its body. Stated otherwise, Section 32 (B) (7) (g) of the 1997 Tax Code specifically refers to gains from the sale of bonds, debentures and other certificates of indebtedness as contradistinguished from the term "gains" in its general sense, which is synonymous to income . In this regard, Section 32 (A) of the 1997 Tax Code defines "gross income" as follows: 'Section 32. Gross Income. (A) General Definition . Except when otherwise provided in this Title, gross income means all income derived from whatever source, including (but not limited to) the followings items: (1) Compensation for services in whatever form paid, including, but not limited to fees, salaries, wages, commissions and similar items; (2) Gross income derived from the conduct of trade or business or the exercise of profession; (3) Gains derived from dealings in property ; (4) Interest ; (5) Rents; (6) Royalties; (7) Dividends; (8) Annuities; (9) Prizes and winnings; (10) Pensions; and (11) Partner's distributive share from the net income of the general professional partnership' HADTEC From the aforequoted Section 32 (A) of the 1997 Tax Code, it is clear that there is a distinction between "gains derived from dealings in property" and "interests", which are separately classified as items of gross income. " Gains realized from the sale or exchange or retirement of bonds, debentures and other certificates of indebtedness" would fall under the category " gains derived from dealings in property " . On the other hand, "interests" would include interest from bonds, debentures and other certificate of indebtedness . Gains realized from the sale or exchange or retirement of bonds, debentures and other certificate of indebtedness and interest from bonds, debentures and other certificate of indebtedness fall under separate and distinct income categories. xxx xxx xxx From the above discussion, only the gain from the sale (as distinguished from interest) of bonds, debentures and other certificate of indebtedness with maturity of more than five (5) years shall be excluded from income tax. Corollary, since the present appeal involves claim for refund of 20% final withholding tax on interest income earned from long term investments if FXTNs the same has no basis in law " [Emphasis supplied, Rollo, pp. 26-37]. aEcSIH Petitioner MRC heavily relies on BIR Ruling No. 166-99 which answered a query from Aegon Life Insurance (Phil.) Inc.; to the effect that the interest income or yields or gain from the sale of bonds, debentures and certificate of indebtedness with maturities of more than five (5) years is excluded from gross income and is thus exempt from the 20% withholding tax ordinarily imposed under Section 27 (D) (1) of the 1997 Tax Code (see Rollo, p. 61). We are not persuaded. In issuing BIR Ruling No. 166-99, respondent CIR was exercising his quasi-judicial or administrative adjudicating power. While a BIR Ruling has a persuasive character, however, it is the courts that finally determine what the law means. In fact there was a categorical pronouncement in the CTA Resolution, dated November 19, 2002, that BIR Ruling No. 166-99 has been issued on a wrong construction of the law, to wit: "The reliance of petitioner on BIR Ruling No. 16-99 [should be 166-99] with respect to the contemporaneous construction placed by respondent on Section 32 (B)(7)(g) of the 1997 Tax Code is of no consequence. The said ruling is neither controlling or binding upon this court. The duty and power to interpret the law is primarily a judicial function (Koppel (Phil.), Inc. vs. Yatco, 77 Phil. 496 [1946]). This court found that BIR Ruling No. 166-99 is contrary to the intent of the law therefore, having been issued on a wrong construction of the law, it cannot give rise to a vested right that can be invoked by a taxpayer (Hilado vs. Collector of Internal Revenue and the Court of Tax Appeals, 100 Phil. 288 [1956])" [Emphasis Ours] . Moreover, BIR Rulings are issued by the BIR to answer various tax queries from specific entities. BIR Ruling 166-99 is a clarification sought by Aegon Life Insurance (Phils.) Inc. Such being the case, the said BIR ruling although initially persuasive cannot be absolutely binding upon the courts. In fact, in the last paragraph of BIR Ruling No. 166-99, it specifically stated that. "This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation it shall be disclosed that the facts are different, then this ruling shall be considered null and void " [Emphasis Ours, Rollo, p. 66]. At the risk of sounding repetitious, the CTA is correct in interpreting that "gains" derived from dealings in properties i.e., gains realized from the sale, exchange or retirement of bonds, debentures and other certificate of indebtedness with maturities of more than five (5) years and "interest" which includes interest income from bonds, debentures and other certificate of indebtedness with maturities of more than five (5) years, fall under separate and distinct income categories. HTScEI It is a settled rule of statutory construction that the express mention of one person, thing or act exclude all the others. This rule is expressed in the familiar maxim "expressio unios est exclusio alterius". Therefore, where a statute by its terms is expressly limited to certain matters, it may not, by interpretation or construction, be extended to others. Since, Section 32 (B) (7) (g) expressly exempts from the imposition of 20% final tax of gains derived specifically from the sale of bonds, debentures and other certificate of indebtedness, it therefore excludes the interest income derived from the bonds, debentures and other certificate of indebtedness which is subject to a 20% final withholding tax under Section 27 (D) (1) of the 1997 Tax Code. Time and again, the Court has stated that taxation is the rule, exemption is the exception. Accordingly, statutes granting tax exemptions must be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority. To him, therefore, who claims a refund or exemption from tax payments rests the burden of justifying the exemption by words too plain to be mistaken and too categorical to be misinterpreted (Commissioner of Internal Revenue vs. PLDT Co., 478 SCRA 61). Hence, for failure of petitioner MRC to comply with its burden of proving that the interest income it realized from the FXTNs are expressly exempted from the imposition of the 20% final withholding tax under Section 32 (B) (7) (g) of the 1997 Tax Code, then the CTA Decision ruling against petitioner MRC's claims for tax refund or tax credit must be upheld. WHEREFORE, premises considered, the petition is hereby DENIED. The assailed Decision and Resolution of the CTA are AFFIRMED. SO ORDERED. Salazar-Fernando and Villon, * JJ., concur. Footnotes * Vice Justice Buzon, retired, in turn who previously replaced Justice Verzola, deceased. TaSEHD