Malayan Zurich Insurance Co., Inc. v. Commissioner of Internal Revenue

SEVENTH DIVISION [CA-G.R. SP No. 77070. March 28, 2005.] MALAYAN ZURICH INSURANCE CO., INC. , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N ALIO-HORMACHUELOS , J p : Petition for Review under Rule 43 of the Rules of Civil Procedure assailing the Decision 1 dated September 30, 2002 of the Court of Tax Appeals (CTA) in C.T.A. Case No. 6251 which denied petitioner's claim for tax refund or issuance of a tax credit certificate, the decretal portion of which reads: "From the above discussion, only the gain from sale (as distinguished from interest) of bonds, debentures or other certificates of indebtedness with maturity of more than five years shall be exempt from income tax. Since the present appeal involves a claim for refund of 20% final withholding tax on interest income earned from long-term investment in FXTNs, the same has no basis in law. After finding that the interest income derived from FXTNs is not exempt from the 20% final tax, we find it unnecessary to dwell on the rest of the issues raised. cHATSI WHEREFORE, in the light of all the foregoing, the instant Petition for Review is hereby DENIED for lack of merit. SO ORDERED." 2 Likewise assailed is the CTA Resolution 3 denying petitioner's motion for reconsideration. The undisputed facts: From 1996 to 1998, petitioner Malayan Zurich Insurance Company, Inc. purchased Fixed Rates Treasury Notes (FXTNs) issued by the Bureau of Treasury with the following details: ISIN No. SERIES VALUE DATE ISSUE DATE MATURITY DATE TENOR FACE AMOUNT PIBD0703E044 7-4 July 22, 1996 May 30, 1996 May 30, 2003 7 P4,850,000.00 PIBD0703G051 7-5 July 25, 1996 July 25, 1996 July 25, 2003 7 P3,500,000.00 PIBD10061010 10-1 September 26, 1996 September 26, 1996 September 26, 2006 10 P5,000,000.00 PIBD1007K042 10-4 February 17, 1996 November 27, 1997 November 27, 2007 10 P10,000,000.00 PIBD1008KT29 10-7 February 15, 1999 November 26, 1998 November 26, 2008 10 P3,500,000.00 TOTAL P26,8500,000.00 The Bureau of Treasury paid interest for the said treasury notes to petitioner and withheld twenty percent (20%) final tax thereon in the sum of P946,362.50, broken down as follows: Treasury Exhibit Interest Total Interest 20% Final Tax Net Amount Notes Payment Date Payable Withheld Paid to MZIC FXTN 7-4 G-3, G-4 30 May '99 P372,843.75 P74,568.75 P298,275 G-5, G-6 30 Nov '99 372,843.75 74,568.75 298,275 FXTN 7-5 G-7, G-8 25 July '99 275,265.00 55,125.00 220,500 FXTN 10-1 G-9, G-10 26 Mar '99 400,000.00 80,000.00 320,000 G-11, G-12 26 Sept '99 400,000.00 80,000.00 320,000 FXTN 10-4 G-13, G-14 27 May '99 1,143,750.00 228,750.00 915,000 G-15, G-16 27 Nov '99 1,143,750.00 228,750.00 915,000 FXTN 10-7 G-17, G-18 26 May '99 311,500.00 62,300.00 249,200 26 Nov '99 311,500.00 62,300.00 249,200 TOTAL TAX WITHHELD 946,362.50 On March, 7, 2001, petitioner, through counsel, filed a formal claim for refund/tax credit 4 praying that respondent refund or issue a tax credit in the amount of Nine Hundred Forty Six Thousand Three Hundred Sixty Two and 50/100 Pesos (P946,362.50) corresponding to the tax withheld by the Bureau of Treasury on its Fixed Rate Treasury Notes from March 1999 to November 1999. As the two-year prescriptive period was due to expire without action from respondent CIR, petitioner elevated his claim for refund to the Court of Tax Appeals. Petitioner contended that the interest income derived from the treasury notes with a maturity of more than five (5) years amounted to ' gains realized from the sale or exchange or retirement of bonds, debentures or other certificates of indebtedness ' and were therefore exempt from the 20% withholding tax on deposit and deposit substitutes, pursuant to Sec. 32 (B)(7)(g) of the 1997 NIRC as well as BIR Ruling 166-99 dated October 25, 1999 5 ; that, hence the tax withheld by the Bureau was erroneously made and should be refunded or credited. For its part, respondent CIR maintained that " gains " as used in Section 32 (B)(7)(g) of the Tax Code referred only to gains from the sale of bonds, debentures, and other certificates of indebtedness. Hence, interest income derived from FXTNs, not being included in the term "gains," is still subject to tax. Citing the case of Nippon Life Insurance Company of the Philippines, Inc. vs. Commissioner of Internal Revenue , CTA Case No. 6142, 6 the CTA upheld the ruling of the CIR and dismissed the petition. Its motion for reconsideration having been denied, petitioner now comes before Us raising this lone issue: 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. 7 The petition lacks merit. cEaDTA At the outset, it bears noting that while Section 12 8 of Republic Act No. 9282 9 transferred jurisdiction over CTA appeals to the Supreme Court, this Court has retained jurisdiction over this petition since the appeal was filed and perfected before the effectivity of the said law, consonant with the Supreme Court's ruling in the case of Motoomull v. dela Paz 10 "The rule is that where a court has already obtained and is exercising jurisdiction over a controversy, its jurisdiction to proceed to the final determination of the cause is not effected by new legislation placing jurisdiction over such proceedings in another tribunal. The exception to the rule is where the statute expressly provides, or is construed to the effect that it is intended to operate as to actions pending before its enactment. Where a statute changing the jurisdiction of a court has no retroactive effect, it cannot be applied to a case that was pending prior to the enactment of the statute. . . Delving into the merits, petitioner contends that the only reasonable interpretation of Section 32 (B)(7)(g) would be to exempt all forms of gains realized from the sale, exchange or retirement of long-term bonds, including the interest income realized in relation to such bonds. We are not persuaded. In disposing of the petition, the CTA distinguished gains from sale or exchange or retirements of bonds, debentures or other certificates of indebtedness as falling within the general category of "Gains derived from dealings property " under Section 32(A) of the Tax Code, and interest from bonds, debentures or other certificates of indebtedness which falls within the category of " Interests ". 11 This Court will not set aside lightly the conclusion reached by the Court of Tax Appeals which, by the very nature of its function, is dedicated exclusively to the consideration of tax problems. 12 Moreover, We agree with respondent CTA, whose findings of facts will not ordinarily be reviewed absent any showing of gross error or abuse on its part because of its recognized expertise, 13 that if Congress had intended to exempt interest from bonds, debentures and other certificates of indebtedness under Section 32(B)(7)(g) of the Tax Code, it would have done so in clear and specific terms. The fact that it used the term "gains from sale" in the said section, knowing fully well the reference to interest under Sections 24, 25, 27 and 28 of the Tax Code shows that it did not intend to exempt such interest. 14 Under Section 32(B)(7)(g) of the National Internal Revenue Code (NIRC), only gains realized from the sale or exchange or retirement of bonds, debentures or other certificate of indebtedness with a maturity of more than five (5) years are excluded from gross income . The intent and meaning of the legislature is ascertained from the language of the law. Where the law is clear and unambiguous, as in this case, there is nothing for the courts to do except to apply it. 15 Courts are not allowed to interpret what has no need of interpretation, not to restrict or extend the meaning of words when they have a definite and precise meaning. To go elsewhere in search of conjectures in order to find a different meaning is not so much to interpret the law as to elude it. 16 Finally, it is a commonly accepted principle that tax refunds, being in the nature of tax exemptions, 17 are not presumed 18 and when granted, are strictly construed against the grantee, 19 such provisions being highly disfavored and may almost be said to be "odious to the law". 20 The burden of proof is upon him who claims the exemption in his favor and he must be able to justify his claim by the clearest grant of organic or statute law . . . and cannot be permitted to exist upon vague implications. 21 Thus, when tax exemption is claimed, it must be shown indubitably to exist, for every presumption is against it, and well-founded doubt is fatal to the claim. 22 WHEREFORE, premises considered, the assailed Decision of the Court of Tax Appeals is AFFIRMED in toto . cHAaEC SO ORDERED. Enriquez, Jr., and Roxas, JJ., concur . Footnotes 1. Rollo , p. 24 2. Rollo , p. 39 3. Dated April 28, 2003, Rollo , p. 40 4. Filed March 19, 2001, Rollo , p. 62 5. Rollo , pp. 52-53 6. promulgated February 4, 2002 7. Rollo , p. 9 8. Sec. 12 of RA 9282 states: "A party adversely affected by a decision or ruling of the CTA en banc may file with the Supreme Court a verified petition for review on certiorari pursuant to Rule 45 of the 1997 Rules of Civil Procedure" 9. An Act Expanding the Jurisdiction of the Court of Tax Appeals (CTA). Elevating its Rank to the Level of a Collegiate Court with Special Jurisdiction and Enlarging its Membership, Amending for the Purpose Certain Sections of R.A. No. 1125, as amended, Otherwise Known as the Law Creating the Court of Tax Appeals, and for Other Purposes, which took effect Apr. 23, 2004 10. 187 SCRA 743, 753-754, citing Bengzon v. Inciong , 91 SCRA 248, 256; See also the En Banc Resolution of the Court of Tax Appeals in the cases of ING Bank (Manila Branch) v. CIR 10 , Malayan Insurance Co., Inc. v. CIR 10 , KEPCO Philippines Corp. vs. CIR 10 and Commissioner of Customs v. CTA and Pilipinas Shell Petroleum Corporation 10 , dated March 1, 2005, where the CTA clarified that the Court of Appeals retained jurisdiction over cases filed before the effectivity of R.A. 9282. 11. Citing the cases of Nippon Life Insurance Company of the Philippines, Inc. v. CIR , CTA Case No. 6142, February 4, 2002 and Malayan Reinsurance Corp. v. CIR , CTA Case No. 6252; Rollo , pp 29-30, 37 12. Sea Land Service, Inc. v. CA, G.R. No, 122605, April 30, 2001 13. Commissioner of Internal Revenue vs. SOLIDBANK Corp ., G.R. No. 148191, November 25, 2003 14. CTA Decision, Rollo , p. 37 15. Luzon Stevedoring Corp. v. CTA, G.R. No. L-30232, July 29, 1988, 163 SCRA 647; Republic of the Philippines v. the Director of Lands , G.R. No. L-35376, September 11, 1980 16. CIR v. SOLIDBANK Corp., supra, Del Mar v. PAGCOR, G.R. No. 138298, November 29, 2000 17. CIR v. SOLIDBANK Corp., supra , citing Commissioner of Internal Revenue v. S.C. Johnson & Son, Inc ., 368 Phil. 388, 411, June 25, 1999; Magsaysay Lines, Inc., v. Court of Appeals , 329 Phil. 310, 324, August 12, 1996; Commissioner of Internal Revenue v. Tokyo Shipping Co., Ltd ., 314 Phil. 220, 228, May 26, 1995. 18. Floro Cement v. Gorospe , 200 SCRA 480 19. Sea Land Service, Inc. v. CA, supra , Note 12; Cyanamid Philippines, Inc. v. Court of Appeals , 322 SCRA 639, 650 [2000]; NAPOCOR v. Albay , 186 3CRA 198; Commissioner v. Mitsubishi Metal Corporation , 181 SCRA 214, 223-224 [1990]; People v. Castaeda , 165 SCRA 327; Luzon Stevedoring Co. v. CTA, 163 3CRA 647; Western Minolco Corp. v. CIR , 124 SCRA 121 20. Manila Electric Co. v. Vera , 67 SCRA 331 21. China Banking Corporation v. CA, G.R. No. 146749, June 10, 2003; CIR v. Procter and Gamble Philippines , G.R. No. 66838, December 2, 1991, citing the cases of Davao Light and Power Co. Inc. v. Commissioner of Custom , 44 SCRA 122; Asturia Sugar Central, Inc. v. Commissioner of Customs , 29 SCRA 617; Northern Phil. Tobacco Corp. v. Mun. of Agoo, La Union , 31 SCRA 304; Rogan v. Commissioner , 30 3CRA 968; Asiatic Petroleum Co. v. Llanes , 49 Phil. 466 22. CIR v. SolidBank , G.R. No. 148191, November 25, 2003; Manila Electric Co. v. Vera , L-29987, Oct. 22, 1975; Manila Electric Co. v. Tabios , L-23847, Oct. 22, 1975, 67 SCRA 451; Davao Light & Power Co., Inc. v. Com. Of Customs , 44 SCRA 122, 130; Farrington v. Tennessee & Country Shelby , 95 U.S. 679, 686