Manila Banking Corp. v. Commissioner of Internal Revenue

THIRD DIVISION [CA-G.R. SP No. 77177. May 11, 2005.] THE MANILA BANKING CORPORATION , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N LABITORIA , J p : This is a petition for review which prays, among others, to: 1. declare that BIR Ruling 007-2001 valid; 2. grant petitioner's claim for refund or tax credit of the Minimum Corporate Income Tax it has paid for taxable year 1999 in the amount of Thirty Three Million Eight Hundred Sixteen Thousand One Hundred Sixty Four Pesos (P33,816,164.00); and 3. to suspend the Minimum Corporate Income Tax. 1 On August 9, 2004, this Court issued a Resolution 2 dismissing the petition in view of the enactment of Republic Act No. 9282, that divested this Court of its power and authority to review all cases decided by the Court of Tax Appeals. However, petitioner moved for the reconsideration 3 of said Resolution contending that Republic Act No. 9282 cannot be applied retroactively. And in dismissing the instant petition in accordance with said law, this Court in effect applied said law retroactively, emphasizing that said law became effective only on April 22, 2004, while the petition was submitted for resolution as early as March 3, 2004. The motion for reconsideration filed by the petitioner was granted by this Court in a Resolution issued on November 9, 2004, 4 but referred the case back to the Court of Tax Appeals (CTA for brevity), the salient portions of which are hereunder quoted, as follows: "Considering that said Republic Act No. 9282 is a procedural law, we hold the opinion that it can be applied retroactively to the instant petition for review. Hence, the dismissal of the petition is legal and proper. However, in order to serve the ends of substantial justice, we resolve to recall our resolution dated August 9, 2004 dismissing the petition for review but instead we refer the case to the Court of Tax Appeals en banc . WHEREFORE, premises considered, the instant motion for reconsideration is hereby GRANTED and the Resolution dated August 09, 2004 is hereby RECALLED. Let the records of this case be forwarded to the Court of Tax Appeals en banc for proper disposition of the same. SO ORDERED." 5 However, on November 30, 2004, the instant case and several other cases, were returned by the CTA to this Court, contending that: "Considering that the above captioned cases were filed with the Court of Appeals long before April 23, 2004, the effectivity date of R.A. No. 9282, the CTA en banc cannot legally assume jurisdiction over the subject Petitions for review. It is a settled rule that the jurisdiction of a court is determined by the statute in force at the commencement of action, unless such statute provides for its retroactive application. Once the jurisdiction of a court attaches, it continues until the case is finally terminated. The trial court cannot be ousted therefrom by subsequent happenings or events, although of a character that would have prevented jurisdiction from attaching in the first instance ( Baritua vs. Mercader , 350 SCRA 86). Equally settled is the rule that where a court has already obtained and is exercising jurisdiction over a controversy, its jurisdiction to proceed to the final determination of the case is not affected by new legislation placing jurisdiction over such proceedings in another tribunal ( Ramos vs. Our lady of Peace School , 133 SCRA 741). The exception to the rule is when the law itself so provides or the statute is clearly intended to apply to actions pending before its enactment ( People vs. Cawaling , 293 SCRA 267). A careful perusal of the provisions of R.A. No. 9282 shows that it has no retroactive effect". 6 Hence, this Court is constrained to resolve the instant petition. The undisputed facts are: On April 17, 2000, petitioner paid the amount of Thirty Three Million Eight Hundred Sixteen Thousand One Hundred Sixty Four Pesos (P33,816,164.00) to the Bureau of Internal Revenue (BIR for brevity) through its authorized collecting bank as its Minimum Corporate Income Tax (MCIT) for taxable year 1999. 7 On December 28, 1999, petitioner requested for a ruling on the issues that 1. The Manila Banking Corporation (TMBC) is entitled to the 4-year leeway period reckoned from 1999 relative to the imposition of Minimum Corporate Income Tax (MCIT); or in the alternative 2. the TMBC is entitled to the suspension of the imposition of MCIT in view of the cessation of its business operations from 1987 to June 1999. On February 22, 2001, the BIR issued BIR Ruling No. 007-2001 on the above-issues, 8 (the pertinent portions of which are hereunder quoted, to wit: "In reply, we hereby confirm that the law and regulations allow new corporations as well as existing corporations a leeway or adjustment period of four years counted from the year of commencement of business operations (reckoned at the time of registration by the corporation with the BIR) during which the MCIT does not apply. If new corporations, as well as existing corporations such as those registered with the BIR in 1994 or earlier, are granted a 4-year grace period, we see no reason why TMBC, a corporation that has ceased business activities due to involuntary closure for more than a decade and is now only starting again to place its business back in order, may not be given the same opportunity. It should be stressed that although TMBC had been registered with the BIR before 1994, yet it did not have any business from 1987 to June 1999 due to its involuntary closure. This Office is therefore of an opinion, that for purposes of justice, equity and consistent with the intent of the law, TMBC's reopening last July 1999 is akin to the commencement of business operations of a new corporation, in consideration of which the law allows a 4-year period during which MCIT is not to be applied. Hence, MCIT (may be imposed upon TMBC not earlier than 2002, i.e., the fourth taxable year beginning 1999 which is the year when TMBC reopened. Likewise, we find merit, in your position that for having just come out of receivership proceedings, which not only resulted in substantial losses but actually brought about a complete cessation of all businesses. TMBC may be qualified to ask for suspension of the MCIT. The law provides that the Secretary of Finance, upon the recommendation of the Commissioner, may suspend the imposition of the MCIT. The law provides that the Secretary of Finance, upon the recommendation of the Commissioner, may suspend the imposition of the MCIT on any corporation which suffers losses on account of prolonged labor dispute, or because of force majeure, or because of legitimate business reverses . [NLRC, Sec 27 (E) (3)} Revenue Regulations 9-98 defines the term "legitimate business reverses" to include substantial losses sustained due to fire, robbery, theft or embezzlement, or for other economic reasons as determined by the Secretary of Finance. Cessation of business activities as a result of being placed under involuntary receivership may be one such economic reason. But to be a basis for the recognition of the suspension of MCIT, such a situation should be properly defined and included in the regulations, which this Office intends to do. Pending such inclusion, the same cannot yet be invoked. Nevertheless, it is the position of this Office that the counting of the fourth taxable year, insofar as TMBC is concerned, begins in the year 1999 when TMBC reopened such that it will be only subject to MCIT beginning the year 2002". 9 In view of said ruling of the BIR, petitioner, on March 30, 2001, requested the BIR for refund or tax credit. 10 Thus, BIR ordered the examination of petitioner's books of accounts. However, despite the examination of petitioner's books of accounts, said request for refund or tax credit has not been acted upon. Thus, petitioner filed a petition for review before the Court of Tax Appeals (CTA for brevity), pursuant to Section 229 of the Tax Code, as amended. DAEaTS On April 21, 2003, the assailed Decision was promulgated by the CTA, finding that "petitioner's payment of the amount of P33,816,164.00 representing its MCIT for taxable year 1999 is proper and in order", the dispositive portion of which reads: "WHEREFORE, in view of the foregoing, the instant petition for review is hereby DENIED for lack of merit. Accordingly, BIR Ruling 007-2001 dated February 22, 2001 is declared void and without force and effect. SO ORDERED". 11 Aggrieved, petitioner filed the instant petition. The issues raised by the petitioner for resolution are; "Whether or not the Court of Tax Appeals erroneously denied Petitioner's claim for refund or credit of the MCIT mistakenly paid by Petitioner for taxable year 1999 on the ground that Petitioner's reopening in 1999 cannot be considered as a "commencement of business operations". Whether or not the Court of Tax Appeals erroneously declared BIR Ruling 007-2001 as void and without force and effect". 12 At the outset, it is emphasized that tax refund or tax credit is in the nature of tax exemption, and as such they are regarded as in derogation of sovereign authority and therefore, must be construed strictissimi juris against the person or entity claiming the exemption. 13 The instant case is one good example where the above principle must be applied. Petitioner contends that the CTA erred in interpreting Revenue Regulations No 9-98, specifically that part which says that the "commencement of business operations" means "the year when the domestic corporation was registered with the Bureau of Internal Revenue". Referring to the Tax Code regarding the MCIT; the law is explicit that: "(E) Minimum Corporate Income Tax on Domestic Corporations. (1) Imposition of Tax . A minimum corporate income tax of two percent (2%) of the gross income as of the end of the taxable year, as defined herein, is hereby imposed on corporations taxable under this Title, beginning on the fourth taxable year immediately following the year in which such corporation commenced its business operations, when the minimum income tax is greater than the tax computed under Subsection income tax is greater than the tax computed under Subsection (A) of this Section for the taxable year. (2) Carry forward of excess minimum tax . Any excess of the minimum corporate income tax over the normal income tax as computed under subsection (A) of this Section shall be carried forward and credited against the normal income tax for the three (3) immediate succeeding years. (3) Relief from the minimum corporate income tax under certain conditions . The Secretary of Finance is hereby authorized to suspend the imposition of the minimum corporate income tax on any corporation which suffers losses on account of prolonged labor dispute, or because of force majeure, or because of legitimate business reverse ". 14 On the other hand, Revenue Regulations No. 9-98 is the implementing regulations of the Tax Code on the MCIT, which categorically says: "Section 2.27. (E) Minimum Corporate Income Tax (MCIT) on Domestic Corporations (1) Imposition of the Tax A minimum corporate income tax (MCIT) of two percent (2%) of the gross income as of the end of the taxable year (whether calendar or fiscal year, depending on the accounting period employed) is hereby imposed upon any domestic corporation beginning the fourth (4th) taxable year immediately following the taxable year in which such corporation commenced its business operation . The MCIT shall be imposed whenever such corporation has zero or negative taxable income tax is greater than the normal income tax due from such corporation. xxx xxx xxx (5) Specific Rules for Determining the Period When a Corporation Becomes Subject to the MCIT For purposes of the MCIT, the taxable year in which business operations commenced shall be the year in which the domestic corporation registered with the Bureau of Internal Revenue (BIR) . 15 The MCIT is one of the changes introduced by the 1997 Tax Code. This primarily aims to forestall tax evasion by corporations that declare losses despite their business operations. Thus, even if a corporation incurs net loss in its business operations, it is still subject to an MCIT of two percent (2%) of its gross income pursuant to said law. 16 While it is true that petitioner did not conduct business operations for almost twelve (12) years as it was placed under receivership proceedings, under the above-quoted provisions of the law, the former is subject to the 2% MCIT for the year 1999. Said provision of the Tax Code as well as its implementing regulations are clear and therefore, need no further interpretation, only application. "Elementary is the rule that when laws or rules are clear, it is incumbent upon the judge to apply them regardless of personal belief or predilections when the law unambiguous and unequivocal, application not interpretation thereof is imperative." 17 The function of all judicial and quasi-judicial instrumentalities is to apply the law as they find it, not to reinvent or second-guess it. 18 Thus, the CTA did not err in disregarding the BIR Ruling No. 007-2001 relied upon by the petitioner, which stated that the law allowing the suspension of the imposition of the MCIT applied to both newly-created and existing corporations. It is stressed that the four-year grace period provided in Section 27[E]{1} of the Tax Code is given only to newly-formed corporations and not to existing corporations such as petitioner in this case. Therefore, petitioner cannot avail of the 4-year grace period before it becomes liable for the MCIT. Even when it was placed under receivership, there was merely an interruption of its business operations, but its corporate existence was never affected. Thus, this Court concurs with the ruling of the CTA when it said: "Moreover, it must be emphasized that when herein petitioner was placed under receivership, there was merely an interruption of its business operations. However, its corporate existence was never affected. The general rule is that the appointment of the receiver does not terminate the charter or work a dissolution of the corporation, eventhough the receivership is a permanent one. In other words, the corporation continues to exist as a legal entity, clothed with its franchises (65 Am. Jur. 2d, p. 973-974). Petitioner, for all intents and purposes, remained to be the same corporation, registered with the SEC and with the BIR. While it may continue to perform its corporate functions, all its properties and assets were under the control and custody of a receiver, and its dealings with the public is somehow limited, if not momentarily suspended. Thus, in BF Homes, Incorporated vs. Court of Appeals, et al ., G.R. No. 76879, October 3, 1990, the Supreme Court held: "Under Sec. 6(d) of P.D. No. 902-A, the management committee or rehabilitation receiver is empowered to take custody and control of all existing assets and properties of such corporations under management; to evaluate the existing assets and liabilities, earnings and operations of such corporations; to determined the best way to salvage and protect the interest of investors and creditors; to study, review and evaluate the feasibility of continuing operations and restructure and rehabilitate such entities if determined to be feasible by the SEC." When petitioner was again granted a permit to do business, the receiver has already ascertained the viability of the corporation to continue its operations. Thus, when petitioner resumed its business, there is merely what we call a recommencement of business and not commencement. As defined, commencement means to initiate by performing the first act or step. To begin, institute or start (Black's Law Dictionary, 6th edition). This presupposes "firsts" in all actions, which of course cannot be performed by an already existing corporation which has long been registered with the BIR as a taxpayer. That is why upon resumption of its business operations, petitioner need not go all the way to the "nitty-gritty" process of registration with the SEC or with the BIR for that matter." 19 The interpretation of administrative agency, such as the BIR, which is tasked to implement a statute, is accorded great respect and ordinarily controls the construction of the courts. 20 While the Secretary of Finance is authorized to suspend the imposition of the MCIT on any corporation which "suffers losses on account of prolonged labor dispute, or because of force majeure, or because of legitimate business reverses," 21 a corporation must "submit proof duly verified by the Commissioner's authorized representative, that it sustained substantial losses due to aforestated grounds. Sadly, petitioner did not avail of this remedy, neither did it present proof to prove losses on its resumption of operation. The findings, therefore, of the CTA that petitioner's payment of the MCIT in the amount of P33,816,164.00 for taxable year 1999 is proper and in order, is sustained. WHEREFORE, the Decision of the Court of Tax Appeals dated April 21, 2003, is AFFIRMED, and the petition is hereby DISMISSED. SO ORDERED. Delos Santos and Brion, JJ., concur. Footnotes 1. P. 26, petition; p. 35, rollo . 2. Pp. 300-301, rollo . 3. Pp. 302-309, rollo . 4. Pp. 392-393, rollo . 5. P. 393, rollo . 6. P. 397, rollo . 7. As contained in the Joint Submission of Facts and Issues, Annex C, pp. 59-63, rollo ; Exh. A. pp. 17-26, records. 8. Pp. 64-66, rollo . 9. P. 65, rollo . 10. Pp. 67-68, rollo . 11. P. 155, records. 12. P. 17, rollo ; p. 8, petition. 13. Com. Of Internal Revenue vs. CA , 302 SCRA 442; Com. of Internal Revenue vs. S.C. Johnson & Son, Inc . 309 SCRA 87. 14. P. 18, rollo . 15. Pp. 150-151, records, Underlining ours. 16. Sec. 27 [E] (1). 17. De Guzman, Jr., vs. Sison , 355 SCRA 69. 18. Ang Bagong Bayani-OFW Labor Party vs. COMELEC 359 SCRA 698. 19. Pp. 152-153, rollo . 20. Energy Regulatory Board vs. CA , 357 SCRA 30. 21. Sec. 27 [E] (3)