SECOND DIVISION

Adm.Case No. 4749 - January 20, 2000

SOLIMAN M. SANTOS, JR., Complainant, v. ATTY. FRANCISCO R. LLAMAS, Respondent.
MENDOZA, J.:
This is a complaint for misrepresentation and non-payment of bar membership dues
filed against respondent Atty. Francisco R. Llamas.
In a letter-complaint to this Court dated February 8, 1997, complainant Soliman M.
Santos, Jr., himself a member of the bar, alleged that:
On my oath as an attorney, I wish to bring to your attention and appropriate sanction
the matter of Atty. Francisco R. Llamas who, for a number of years now, has not
indicated the proper PTR and IBP O.R. Nos. and data (date & place of issuance) in his
pleadings. If at all, he only indicates "IBP Rizal 259060" but he has been using this for at
least three years already, as shown by the following attached sample pleadings in
various courts in 1995, 1996 and 1997: (originals available).
Annex A "Ex-Parte Manifestation and Submission" dated December 1, 1995 in Civil Case
No. Q-95-25253, RTC, Br. 224, QC.
Annex B "Urgent Ex-Parte Manifestation Motion" dated November 13, 1996 in Sp. Proc.
No. 95-030, RTC Br. 259 (not 257), Parañaque, MM.
Annex C "An Urgent and Respectful Plea for extension of Time to File Required
Comment and Opposition" dated January 17, 1997 in CA-G.R. SP (not Civil Case) No.
42286, CA 6th Div.
This matter is being brought in the context of Rule 138, Section 1 which qualifies that
only a duly admitted member of the bar "who is in good and regular standing, is entitled
to practice law". There is also Rule 139-A, Section 10 which provides that "default in the
payment of annual dues for six months shall warrant suspension of membership in the
Integrated Bar, and default in such payment for one year shall be a ground for the
removal of the name of the delinquent member from the Roll of Attorneys."
Among others, I seek clarification (e.g. a certification) and appropriate action on the bar
standing of Atty. Francisco R. Llamas both with the Bar Confidant and with the IBP,
especially its Rizal Chapter of which Atty. Llamas purports to be a member.
Please note that while Atty. Llamas indicates "IBP Rizal 259060" sometimes, he does not
indicate any PTR for payment of professional tax.
Under the Rules, particularly Rule 138, Sections 27 and 28, suspension of an attorney
may be done not only by the Supreme Court but also by the Court of Appeals or a
Regional Trial Court (thus, we are also copy furnishing some of these courts).
Finally, it is relevant to note the track record of Atty. Francisco R. Llamas, as shown by:
1. his dismissal as Pasay City Judge per Supreme Court Admin. Matter No. 1037-CJ En
Banc Decision on October 28, 1981 (in SCRA).
2. his conviction for estafa per Decision dated June 30, 1994 in Crim. Case No. 11787,
RTC Br. 66, Makati, MM (see attached copy of the Order dated February 14, 1995
denying the motion for reconsideration of the conviction which is purportedly on appeal
in the Court of Appeals).
Attached to the letter-complaint were the pleadings dated December 1, 1995,
November 13, 1996, and January 17, 1997 referred to by complainant, bearing, at the
end thereof, what appears to be respondent's signature above his name, address and
the receipt number "IBP Rizal 259060."1 Also attached was a copy of the order,2 dated
February 14, 1995, issued by Judge Eriberto U. Rosario, Jr. of the Regional Trial Court,
Branch 66, Makati, denying respondent's motion for reconsideration of his conviction, in
Criminal Case No. 11787, for violation of Art. 316, par. 2 of the Revised Penal Code.
On April 18, 1997, complainant filed a certification3 dated March 18, 1997, by the then
president of the Integrated Bar of the Philippines, Atty. Ida R. Macalinao-Javier, that
respondent's "last payment of his IBP dues was in 1991. Since then he has not paid or
remitted any amount to cover his membership fees up to the present."
On July 7, 1997, respondent was required to comment on the complaint within ten days
from receipt of notice, after which the case was referred to the IBP for investigation,
report and recommendation. In his comment-memorandum4 dated June 3, 1998,
respondent alleged:5
3. That with respect to the complainant's absurd claim that for using in 1995, 1996 and
1997 the same O.R. No. 259060 of the Rizal IBP, respondent is automatically no longer a
member in good standing.
Precisely, as cited under the context of Rule 138, only an admitted member of the bar
who is in good standing is entitled to practice law.
The complainant's basis in claiming that the undersigned was no longer in good
standing, were as above cited, the October 28, 1981 Supreme Court decision of
dismissal and the February 14, 1995 conviction for Violation of Article 316 RPC,
concealment of encumbrances.
As above pointed out also, the Supreme Court dismissal decision was set aside and
reversed and respondent was even promoted from City Judge of Pasay City to Regional
Trial Court Judge of Makati, Br. 150.
Also as pointed out, the February 14, 1995 decision in Crim. Case No. 11787 was
appealed to the Court of Appeals and is still pending.
Complainant need not even file this complaint if indeed the decision of dismissal as a
Judge was never set aside and reversed, and also had the decision of conviction for a
light felony, been affirmed by the Court of Appeals. Undersigned himself would
surrender his right or privilege to practice law.
4. That complainant capitalizes on the fact that respondent had been delinquent in his
dues.
Undersigned since 1992 have publicly made it clear per his Income Tax Return, up to the
present, that he had only a limited practice of law. In fact, in his Income Tax Return, his
principal occupation is a farmer of which he is. His 30 hectares orchard and pineapple
farm is located at Calauan, Laguna.
Moreover, and more than anything else, respondent being a Senior Citizen since 1992, is
legally exempt under Section 4 of Rep. Act 7432 which took effect in 1992, in the
payment of taxes, income taxes as an example. Being thus exempt, he honestly believe
in view of his detachment from a total practice of law, but only in a limited practice, the
subsequent payment by him of dues with the Integrated Bar is covered by such
exemption. In fact, he never exercised his rights as an IBP member to vote and be voted
upon.
Nonetheless, if despite such honest belief of being covered by the exemption and if only
to show that he never in any manner wilfully and deliberately failed and refused
compliance with such dues, he is willing at any time to fulfill and pay all past dues even
with interests, charges and surcharges and penalties. He is ready to tender such
fulfillment or payment, not for allegedly saving his skin as again irrelevantly and
frustratingly insinuated for vindictive purposes by the complainant, but as an honest act
of accepting reality if indeed it is reality for him to pay such dues despite his candor and
honest belief in all food faith, to the contrary.
On December 4, 1998, the IBP Board of Governors passed a resolution 6 adopting and
approving the report and recommendation of the Investigating Commissioner which
found respondent guilty, and recommended his suspension from the practice of law for
three months and until he pays his IBP dues. Respondent moved for a reconsideration of
the decision, but this was denied by the IBP in a resolution,7 dated April 22, 1999.
Hence, pursuant to Rule 139-B, 12(b) of the Rules of Court, this case is here for final
action on the decision of the IBP ordering respondent's suspension for three months.
The findings of IBP Commissioner Alfredo Sanz are as follows:
On the first issue, Complainant has shown "respondent's non-indication of the proper
IBP O.R. and PTR numbers in his pleadings (Annexes "A", "B" and "C" of the letter
complaint, more particularly his use of "IBP Rizal 259060 for at least three years."
The records also show a "Certification dated March 24, 1997 from IBP Rizal Chapter
President Ida R. Makahinud Javier that respondent's last payment of his IBP dues was in
1991."
While these allegations are neither denied nor categorically admitted by respondent, he
has invoked and cited that "being a Senior Citizen since 1992, he is legally exempt under
Section 4 of Republic Act No. 7432 which took effect in 1992 in the payment of taxes,
income taxes as an example.
xxx-xxx-xxx
The above cited provision of law is not applicable in the present case. In fact,
respondent admitted that he is still in the practice of law when he alleged that the
"undersigned since 1992 have publicly made it clear per his Income tax Return up to the
present time that he had only a limited practice of law." (par. 4 of Respondent's
Memorandum).
Therefore respondent is not exempt from paying his yearly dues to the Integrated Bar of
the Philippines.
On the second issue, complainant claims that respondent has misled the court about his
standing in the IBP by using the same IBP O.R. number in his pleadings of at least six
years and therefore liable for his actions. Respondent in his memorandum did not
discuss this issue.
First. Indeed, respondent admits that since 1992, he has engaged in law practice
without having paid his IBP dues. He likewise admits that, as appearing in the pleadings
submitted by complainant to this Court, he indicated "IBP-Rizal 259060" in the pleadings
he filed in court, at least for the years 1995, 1996, and 1997, thus misrepresenting that
such was his IBP chapter membership and receipt number for the years in which those
pleadings were filed. He claims, however, that he is only engaged in a "limited" practice
and that he believes in good faith that he is exempt from the payment of taxes, such as
income tax, under R.A. No. 7432, 4 as a senior citizen since 1992.
Rule 139-A provides:
Sec. 9. Membership dues. Every member of the Integrated Bar shall pay such annual
dues as the Board of Governors shall determine with the approval of the Supreme
Court. A fixed sum equivalent to ten percent (10%) of the collections from each Chapter
shall be set aside as a Welfare Fund for disabled members of the Chapter and the
compulsory heirs of deceased members thereof.
Sec. 10. Effect of non-payment of dues. Subject to the provisions of Section 12 of this
Rule, default in the payment of annual dues for six months shall warrant suspension of
membership in the Integrated Bar, and default in such payment for one year shall be a
ground for the removal of the name of the delinquent member from the Roll of
Attorneys.
In accordance with these provisions, respondent can engage in the practice of law only
by paying his dues, and it does not matter that his practice is "limited." While it is true
that R.A. No. 7432, 4 grants senior citizens "exemption from the payment of individual
income taxes: provided, that their annual taxable income does not exceed the poverty
level as determined by the National Economic and Development Authority (NEDA) for
that year," the exemption does not include payment of membership or association
dues.
Second. By indicating "IBP-Rizal 259060" in his pleadings and thereby misrepresenting to
the public and the courts that he had paid his IBP dues to the Rizal Chapter, respondent
is guilty of violating the Code of Professional Responsibility which provides:
Rule 1.01 A lawyer shall not engage in unlawful, dishonest, immoral or deceitful
conduct.
CANON 7 A LAWYER SHALL AT ALL TIMES UPHOLD THE INTEGRITY AND DIGNITY OF THE
LEGAL PROFESSION, AND SUPPORT THE ACTIVITIES OF THE INTEGRATED BAR.
CANON 10 A LAWYER OWES CANDOR, FAIRNESS AND GOOD FAITH TO THE COURT.
Rule 10.01 A lawyer shall not do any falsehood, nor consent to the doing of any court;
nor shall he mislead or allow the court to be misled by any artifice.
Respondent's failure to pay his IBP dues and his misrepresentation in the pleadings he
filed in court indeed merit the most severe penalty. However, in view of respondent's
advanced age, his express willingness to pay his dues and plea for a more temperate
application of the law,8 we believe the penalty of one year suspension from the practice
of law or until he has paid his IBP dues, whichever is later, is appropriate.
WHEREFORE, respondent Atty. Francisco R. Llamas is SUSPENDED from the practice of
law for ONE (1) YEAR, or until he has paid his IBP dues, whichever is later. Let a copy of
this decision be attached to Atty. Llamas' personal record in the Office of the Bar
Confidant and copies be furnished to all chapters of the Integrated Bar of the Philippines
and to all courts in the land.
SO ORDERED.
Bellosillo, Quisumbing, Buena and De Leon, Jr., JJ., concur.

EN BANC
[G.R. NO. 166494 : June 29, 2007]
CARLOS SUPERDRUG CORP., doing business under the name and style "Carlos
Superdrug," ELSIE M. CANO, doing business under the name and style "Advance
Drug," Dr. SIMPLICIO L. YAP, JR., doing business under the name and style "City
Pharmacy," MELVIN S. DELA SERNA, doing business under the name and style "Botica
dela Serna," and LEYTE SERV-WELL CORP., doing business under the name and style
"Leyte Serv-Well Drugstore," Petitioners, v. DEPARTMENT OF SOCIAL WELFARE and
DEVELOPMENT (DSWD), DEPARTMENT OF HEALTH (DOH), DEPARTMENT OF FINANCE
(DOF), DEPARTMENT OF JUSTICE (DOJ), and DEPARTMENT OF INTERIOR and LOCAL
GOVERNMENT (DILG), Respondents.
DECISION
AZCUNA, J.:
1
This is a petition for Prohibition with Prayer for Preliminary Injunction assailing the
constitutionality of Section 4(a) of Republic Act (R.A.) No. 9257,2 otherwise known as the
"Expanded Senior Citizens Act of 2003."
Petitioners are domestic corporations and proprietors operating drugstores in the
Philippines.
Public respondents, on the other hand, include the Department of Social Welfare and
Development (DSWD), the Department of Health (DOH), the Department of Finance
(DOF), the Department of Justice (DOJ), and the Department of Interior and Local
Government (DILG) which have been specifically tasked to monitor the drugstores'
compliance with the law; promulgate the implementing rules and regulations for the
effective implementation of the law; and prosecute and revoke the licenses of erring
drugstore establishments.
The antecedents are as follows:
On February 26, 2004, R.A. No. 9257, amending R.A. No. 7432,3 was signed into law by
President Gloria Macapagal-Arroyo and it became effective on March 21, 2004. Section
4(a) of the Act states:
SEC. 4. Privileges for the Senior Citizens. - The senior citizens shall be entitled to the
following:
(a) the grant of twenty percent (20%) discount from all establishments relative to the
utilization of services in hotels and similar lodging establishments, restaurants and
recreation centers, and purchase of medicines in all establishments for the exclusive use
or enjoyment of senior citizens, including funeral and burial services for the death of
senior citizens;
...
The establishment may claim the discounts granted under (a), (f), (g) and (h) as tax
deduction based on the net cost of the goods sold or services rendered: Provided, That
the cost of the discount shall be allowed as deduction from gross income for the same
taxable year that the discount is granted. Provided, further, That the total amount of the
claimed tax deduction net of value added tax if applicable, shall be included in their
gross sales receipts for tax purposes and shall be subject to proper documentation and
to the provisions of the National Internal Revenue Code, as amended.4
On May 28, 2004, the DSWD approved and adopted the Implementing Rules and
Regulations of R.A. No. 9257, Rule VI, Article 8 of which states:
Article 8. Tax Deduction of Establishments. - The establishment may claim the discounts
granted under Rule V, Section 4 - Discounts for Establishments;5 Section 9, Medical and
Dental Services in Private Facilities[,]6 and Sections 107 and 118 - Air, Sea and Land
Transportation as tax deduction based on the net cost of the goods sold or services
rendered. Provided, That the cost of the discount shall be allowed as deduction from
gross income for the same taxable year that the discount is granted; Provided,
further, That the total amount of the claimed tax deduction net of value added tax if
applicable, shall be included in their gross sales receipts for tax purposes and shall be
subject to proper documentation and to the provisions of the National Internal Revenue
Code, as amended; Provided, finally, that the implementation of the tax deduction shall
be subject to the Revenue Regulations to be issued by the Bureau of Internal Revenue
(BIR) and approved by the Department of Finance (DOF).9
On July 10, 2004, in reference to the query of the Drug Stores Association of the
Philippines (DSAP) concerning the meaning of a tax deduction under the Expanded
Senior Citizens Act, the DOF, through Director IV Ma. Lourdes B. Recente, clarified as
follows:
1) The difference between the Tax Credit (under the Old Senior Citizens Act) and Tax
Deduction (under the Expanded Senior Citizens Act).
1.1. The provision of Section 4 of R.A. No. 7432 (the old Senior Citizens Act) grants
twenty percent (20%) discount from all establishments relative to the utilization of
transportation services, hotels and similar lodging establishment, restaurants and
recreation centers and purchase of medicines anywhere in the country, the costs of
which may be claimed by the private establishments concerned as tax credit.
Effectively, a tax credit is a peso-for-peso deduction from a taxpayer's tax liability due to
the government of the amount of discounts such establishment has granted to a senior
citizen. The establishment recovers the full amount of discount given to a senior citizen
and hence, the government shoulders 100% of the discounts granted.
It must be noted, however, that conceptually, a tax credit scheme under the Philippine
tax system, necessitates that prior payments of taxes have been made and the taxpayer
is attempting to recover this tax payment from his/her income tax due. The tax credit
scheme under R.A. No. 7432 is, therefore, inapplicable since no tax payments have
previously occurred.
1.2. The provision under R.A. No. 9257, on the other hand, provides that the
establishment concerned may claim the discounts under Section 4(a), (f), (g) and (h)
as tax deduction from gross income, based on the net cost of goods sold or services
rendered.
Under this scheme, the establishment concerned is allowed to deduct from gross
income, in computing for its tax liability, the amount of discounts granted to senior
citizens. Effectively, the government loses in terms of foregone revenues an amount
equivalent to the marginal tax rate the said establishment is liable to pay the
government. This will be an amount equivalent to 32% of the twenty percent (20%)
discounts so granted. The establishment shoulders the remaining portion of the granted
discounts.
It may be necessary to note that while the burden on [the] government is slightly
diminished in terms of its percentage share on the discounts granted to senior citizens,
the number of potential establishments that may claim tax deductions, have however,
been broadened. Aside from the establishments that may claim tax credits under the
old law, more establishments were added under the new law such as: establishments
providing medical and dental services, diagnostic and laboratory services, including
professional fees of attending doctors in all private hospitals and medical facilities,
operators of domestic air and sea transport services, public railways and skyways and
bus transport services.
A simple illustration might help amplify the points discussed above, as follows:
Tax Deduction Tax Credit
Gross Sales x x x x x x x x x x x x
Less : Cost of goods sold x x x x x x x x x x
Net Sales x x x x x x x x x x x x
Less: Operating Expenses:
Tax Deduction on Discounts x x x x - -
Other deductions: x x x x x x x x
Net Taxable Income x x x x x x x x x x
Tax Due x x x x x x
Less: Tax Credit - - ______x x
Net Tax Due - - x x
As shown above, under a tax deduction scheme, the tax deduction on discounts was
subtracted from Net Sales together with other deductions which are considered as
operating expenses before the Tax Due was computed based on the Net Taxable
Income. On the other hand, under a tax credit scheme, the amount of discounts which is
the tax credit item, was deducted directly from the tax due amount.10
Meanwhile, on October 1, 2004, Administrative Order (A.O.) No. 171 or the Policies and
Guidelines to Implement the Relevant Provisions of Republic Act 9257, otherwise known
as the "Expanded Senior Citizens Act of 2003"11 was issued by the DOH, providing the
grant of twenty percent (20%) discount in the purchase of unbranded generic medicines
from all establishments dispensing medicines for the exclusive use of the senior citizens.
On November 12, 2004, the DOH issued Administrative Order No 17712 amending A.O.
No. 171. Under A.O. No. 177, the twenty percent discount shall not be limited to the
purchase of unbranded generic medicines only, but shall extend to both prescription
and non-prescription medicines whether branded or generic. Thus, it stated that "[t]he
grant of twenty percent (20%) discount shall be provided in the purchase of medicines
from all establishments dispensing medicines for the exclusive use of the senior
citizens."
Petitioners assail the constitutionality of Section 4(a) of the Expanded Senior Citizens
Act based on the following grounds:13
1) The law is confiscatory because it infringes Art. III, Sec. 9 of the Constitution which
provides that private property shall not be taken for public use without just
compensation;
2) It violates the equal protection clause (Art. III, Sec. 1) enshrined in our Constitution
which states that "no person shall be deprived of life, liberty or property without due
process of law, nor shall any person be denied of the equal protection of the laws;"
andcralawlibrary
3) The 20% discount on medicines violates the constitutional guarantee in Article XIII,
Section 11 that makes "essential goods, health and other social services available to all
people at affordable cost."14
Petitioners assert that Section 4(a) of the law is unconstitutional because it constitutes
deprivation of private property. Compelling drugstore owners and establishments to
grant the discount will result in a loss of profit
and capital because 1) drugstores impose a mark-up of only 5% to 10% on branded
medicines; and 2) the law failed to provide a scheme whereby drugstores will be justly
compensated for the discount.
Examining petitioners' arguments, it is apparent that what petitioners are ultimately
questioning is the validity of the tax deduction scheme as a reimbursement mechanism
for the twenty percent (20%) discount that they extend to senior citizens.
Based on the afore-stated DOF Opinion, the tax deduction scheme does not fully
reimburse petitioners for the discount privilege accorded to senior citizens. This is
because the discount is treated as a deduction, a tax-deductible expense that is
subtracted from the gross income and results in a lower taxable income. Stated
otherwise, it is an amount that is allowed by law15 to reduce the income prior to the
application of the tax rate to compute the amount of tax which is due. 16 Being a tax
deduction, the discount does not reduce taxes owed on a peso for peso basis but merely
offers a fractional reduction in taxes owed.
Theoretically, the treatment of the discount as a deduction reduces the net income of
the private establishments concerned. The discounts given would have entered the
coffers and formed part of the gross sales of the private establishments, were it not for
R.A. No. 9257.
The permanent reduction in their total revenues is a forced subsidy corresponding to
the taking of private property for public use or benefit.17 This constitutes compensable
taking for which petitioners would ordinarily become entitled to a just compensation.
Just compensation is defined as the full and fair equivalent of the property taken from
its owner by the expropriator. The measure is not the taker's gain but the owner's loss.
The word just is used to intensify the meaning of the word compensation, and to convey
the idea that the equivalent to be rendered for the property to be taken shall be real,
substantial, full and ample.18
A tax deduction does not offer full reimbursement of the senior citizen discount. As
such, it would not meet the definition of just compensation.19
Having said that, this raises the question of whether the State, in promoting the health
and welfare of a special group of citizens, can impose upon private establishments the
burden of partly subsidizing a government program.
The Court believes so.
The Senior Citizens Act was enacted primarily to maximize the contribution of senior
citizens to nation-building, and to grant benefits and privileges to them for their
improvement and well-being as the State considers them an integral part of our
society.20
The priority given to senior citizens finds its basis in the Constitution as set forth in the
law itself. Thus, the Act provides:
SEC. 2. Republic Act No. 7432 is hereby amended to read as follows:
SECTION 1. Declaration of Policies and Objectives. ' Pursuant to Article XV, Section 4 of
the Constitution, it is the duty of the family to take care of its elderly members while the
State may design programs of social security for them. In addition to this, Section 10 in
the Declaration of Principles and State Policies provides: "The State shall provide social
justice in all phases of national development." Further, Article XIII, Section 11, provides:
"The State shall adopt an integrated and comprehensive approach to health
development which shall endeavor to make essential goods, health and other social
services available to all the people at affordable cost. There shall be priority for the
needs of the underprivileged sick, elderly, disabled, women and children." Consonant
with these constitutional principles the following are the declared policies of this Act:
...
(f) To recognize the important role of the private sector in the improvement of the
welfare of senior citizens and to actively seek their partnership.21
To implement the above policy, the law grants a twenty percent discount to senior
citizens for medical and dental services, and diagnostic and laboratory fees; admission
fees charged by theaters, concert halls, circuses, carnivals, and other similar places of
culture, leisure and amusement; fares for domestic land, air and sea travel; utilization of
services in hotels and similar lodging establishments, restaurants and recreation
centers; and purchases of medicines for the exclusive use or enjoyment of senior
citizens. As a form of reimbursement, the law provides that business establishments
extending the twenty percent discount to senior citizens may claim the discount as a tax
deduction.
The law is a legitimate exercise of police power which, similar to the power of eminent
domain, has general welfare for its object. Police power is not capable of an exact
definition, but has been purposely veiled in general terms to underscore its
comprehensiveness to meet all exigencies and provide enough room for an efficient and
flexible response to conditions and circumstances, thus assuring the greatest
benefits.22 Accordingly, it has been described as "the most essential, insistent and the
least limitable of powers, extending as it does to all the great public needs." 23 It is "[t]he
power vested in the legislature by the constitution to make, ordain, and establish all
manner of wholesome and reasonable laws, statutes, and ordinances, either with
penalties or without, not repugnant to the constitution, as they shall judge to be for the
good and welfare of the commonwealth, and of the subjects of the same." 24
For this reason, when the conditions so demand as determined by the legislature,
property rights must bow to the primacy of police power because property rights,
though sheltered by due process, must yield to general welfare.25
Police power as an attribute to promote the common good would be diluted
considerably if on the mere plea of petitioners that they will suffer loss of earnings and
capital, the questioned provision is invalidated. Moreover, in the absence of evidence
demonstrating the alleged confiscatory effect of the provision in question, there is no
basis for its nullification in view of the presumption of validity which every law has in its
favor.26
Given these, it is incorrect for petitioners to insist that the grant of the senior citizen
discount is unduly oppressive to their business, because petitioners have not taken time
to calculate correctly and come up with a financial report, so that they have not been
able to show properly whether or not the tax deduction scheme really works greatly to
their disadvantage.27
In treating the discount as a tax deduction, petitioners insist that they will incur losses
because, referring to the DOF Opinion, for every P1.00 senior citizen discount that
petitioners would give, P0.68 will be shouldered by them as only P0.32 will be refunded
by the government by way of a tax deduction.
To illustrate this point, petitioner Carlos Super Drug cited the anti-hypertensive
maintenance drug Norvasc as an example. According to the latter, it
acquires Norvasc from the distributors at P37.57 per tablet, and retails it at P39.60 (or at
a margin of 5%). If it grants a 20% discount to senior citizens or an amount equivalent
to P7.92, then it would have to sell Norvasc at P31.68 which translates to a loss from
capital of P5.89 per tablet. Even if the government will allow a tax deduction, only P2.53
per tablet will be refunded and not the full amount of the discount which is P7.92. In
short, only 32% of the 20% discount will be reimbursed to the drugstores.28
Petitioners' computation is flawed. For purposes of reimbursement, the law states that
the cost of the discount shall be deducted from gross income,29 the amount of income
derived from all sources before deducting allowable expenses, which will result in net
income. Here, petitioners tried to show a loss on a per transaction basis, which should
not be the case. An income statement, showing an accounting of petitioners' sales,
expenses, and net profit (or loss) for a given period could have accurately reflected the
effect of the discount on their income. Absent any financial statement, petitioners
cannot substantiate their claim that they will be operating at a loss should they give the
discount. In addition, the computation was erroneously based on the assumption that
their customers consisted wholly of senior citizens. Lastly, the 32% tax rate is to be
imposed on income, not on the amount of the discount.
Furthermore, it is unfair for petitioners to criticize the law because they cannot raise the
prices of their medicines given the cutthroat nature of the players in the industry. It is a
business decision on the part of petitioners to peg the mark-up at 5%. Selling the
medicines below acquisition cost, as alleged by petitioners, is merely a result of this
decision. Inasmuch as pricing is a property right, petitioners cannot reproach the law for
being oppressive, simply because they cannot afford to raise their prices for fear of
losing their customers to competition.
The Court is not oblivious of the retail side of the pharmaceutical industry and the
competitive pricing component of the business. While the Constitution protects
property rights, petitioners must accept the realities of business and the State, in the
exercise of police power, can intervene in the operations of a business which may result
in an impairment of property rights in the process.
Moreover, the right to property has a social dimension. While Article XIII of the
Constitution provides the precept for the protection of property, various laws and
jurisprudence, particularly on agrarian reform and the regulation of contracts and public
utilities, continuously serve as a reminder that the right to property can be relinquished
upon the command of the State for the promotion of public good.30
Undeniably, the success of the senior citizens program rests largely on the support
imparted by petitioners and the other private establishments concerned. This being the
case, the means employed in invoking the active participation of the private sector, in
order to achieve the purpose or objective of the law, is reasonably and directly related.
Without sufficient proof that Section 4(a) of R.A. No. 9257 is arbitrary, and that the
continued implementation of the same would be unconscionably detrimental to
petitioners, the Court will refrain from quashing a legislative act.31
WHEREFORE, the petition is DISMISSED for lack of merit.
No costs.
SO ORDERED.

Endnotes:

* On Official Leave.
** On Leave.
1 Under Rule 65 of the Rules of Court.
2 An Act Granting Additional Benefits and Privileges to Senior Citizens Amending for the

Purpose Republic Act No. 7432, otherwise known as "An Act to Maximize the
Contribution of Senior Citizens to Nation Building, Grant Benefits and Special Privileges
and for other Purposes."
3 Otherwise known as the Senior Citizens Act.
4 Emphasis supplied.
5 Section 4. Discounts from Establishments - The grant of twenty percent (20%) discount

on all prices of goods and services offered to the general public regardless of the
amount purchased from all establishments, irrespective of classification, relative to the
utilization of services for the exclusive use of senior citizen in the following:
...
d) DRUG STORES, HOSPITAL PHARMACIES, MEDICAL AND OPTICAL CLINICS AND SIMILAR
ESTABLISHMENTS DISPENSING MEDICINES - The discount for purchases of
drugs/medicines shall be subject to the Guidelines to be issued by the Bureau of Food
and Drugs, Department of Health (BFAD-DOH), in coordination with the Philippine
Health Insurance Corporation (PHILHEALTH).
6 Section 9. Medical and Dental Services in Private Facilities. - The senior citizen shall be

granted twenty percent (20%) discount on medical and dental services and diagnostic
and laboratory fees such as but not limited to x-ray, computerized tomography scans
and blood tests, including professional fees of attending doctors in all private hospitals
and medical facilities, in accordance with the rules and regulations to be issued by the
Department of Health, in coordination with the Philippine Health Insurance Corporation.
7 Section 10. Air and Transportation Privileges. - At least twenty percent (20%) discount

in fare for domestic air, and sea travel based on the actual fare, including the
promotional fare, advance booking and similar discounted fare shall be granted for the
exclusive use and enjoyment of senior citizens.
8 Section 11. Public Land Transportation Privileges. - Twenty percent (20%) discount in

public railways, including LRT, MRT, PNR, Skyways and fares in buses (PUB), jeepneys
(PUJ), taxi and shuttle services (AUV) shall be granted for the exclusive use and
enjoyment of senior citizens.
9 Rollo, p. 57.
10 Id. at 67-69; emphasis supplied.
11 The A.O. became effective on October 9, 2004, after its publication in two national

newspapers of general circulation.

12 "Amendment to Administrative Order No. 171, s. 2004 on the Policies and Guidelines

to Implement the Relevant Provisions of Republic Act 9257, otherwise known as the
"Expanded Senior Citizens Act of 2003."
13 Rollo, pp. 17-24.
14 According to petitioners, of the five (5) million Filipinos who are 60 years old and

above, only 500,000 are in Metro Manila and thus, have access to Mercury Drug which,
because of the bulk discounts it gets from pharmaceutical companies and suppliers, can
afford to give the 20% discount. Unlike Mercury Drug, small - to medium-scale
drugstores similar to those of petitioners', however, can only impose minimal mark-ups
for competitive pricing but are constrained to raise the prices of their medicines so that
they would be able to recoup the 20% discount that they extend to senior citizens. In
the end, roughly 4.5 million senior citizens in the provinces or in the areas where
Mercury Drug is not present will not be able to benefit fully from the discount that the
law provides.
15 Under Section 34 of the Tax Code, the itemized deductions considered as allowable

deductions from gross income include ordinary and necessary expenses, interest, taxes,
losses, bad debts, depreciation, depletion of oil and gas wells and mines, charitable and
other contributions, research and development expenditures, and pension trust
contributions.
16 Commissioner of Internal Revenue v. Central Luzon Drug Corporation, G.R. No.

159647, April 15, 2005, 456 SCRA 414, 428-429 citing Smith, West's Tax Law
Dictionary (1993), pp. 177-178, 196.
17 The concept of public use is no longer confined to the traditional notion of use by the

public, but held synonymous with public interest, public benefit, public welfare,
and public convenience. The discount privilege to which senior citizens are entitled is
actually a benefit enjoyed by the general public to which these citizens belong
(Commissioner of Internal Revenue v. Central Luzon Drug Corporation, supra note 14, at
444; Land Bank of the Philippines v. De Leon, 437 Phil. 347, 359 [2002] citing Estate of
Salud Jimenez v. Philippine Export Processing Zone, G.R. No. 137285, January 16, 2001,
349 SCRA 240, 264).
18 National Power Corporation v. Manubay Agro-Industrial Development Corporation,

G.R. No. 150936, August 18, 2004, 437 SCRA 60, 68 citing Association of Small
Landowners in the Philippines, Inc. v. Secretary of Agrarian Reform, G.R. No. 78742, July
14, 1989, 175 SCRA 343.
19 In the case of Commissioner of Internal Revenue v. Central Luzon Drug

Corporation, supra note 14, the Court held that just compensation confers the right to
receive an equivalent amount for the discount given and the prompt payment of such
amount. The advantage of a tax deduction is that the cost of the discount can
immediately be refunded, though not fully, by declaring it as a deductible expense in
computing for taxable income. In a tax credit, one has to await the issuance of a tax
credit certificate indicating the correct amount of the discounts given before the latter
can be refunded. Thus, the availment of a tax credit necessitates prior payment of
income tax.
20 Article XV of the Constitution states: "Section 1. The State recognizes the Filipino

family as the foundation of the nation. Accordingly, it shall strengthen its solidarity and
actively promote its total development."
21 Emphasis supplied.
22 Sangalang v. IAC, G.R. No. 71169, August 25, 1989, 176 SCRA 719.
23 Ermita-Malate Hotel and Motel Operators Association, Inc. v. City Mayor of Manila, L-

24693, July 31, 1967, 20 SCRA 849 citing Noble State Bank v. Haskell, 219 U.S. 412
(1911).
24 U.S. v. Toribio, 15 Phil.85 (1910) citing Commonwealth v. Alger, 7 Cush., 53 (Mass.

1851); U.S. v. Pompeya, 31 Phil. 245, 253-254 (1915).

25 Alalayan v. National Power Corporation, 24 Phil. 172 (1968).
26 Id.
27 The person who impugns the validity of a statute must have personal interest in the

case such that he has sustained, or will sustain, direct injury as a result of its
enforcement (People v. Vera, 65 Phil. 56 [1937]).
28 Rollo, p. 11.
29 Section 27(E)(4) of the National Internal Revenue Code (NIRC) provides that for

purposes of applying the minimum corporate income tax on domestic corporations, the
term 'gross income' shall mean gross sales less sales returns, discounts and allowances
and cost of goods sold. For a trading or merchandising concern, 'cost of goods sold' shall
include the invoice cost of the goods sold, plus import duties, freight in transporting the
goods to the place where the goods are actually sold including insurance while the
goods are in transit.
30 By the "general police power of the State, persons and property are subjected to all

kinds of restraints and burdens, in order to secure the general comfort, health, and
prosperity of the State; of the perfect right in the legislature to do which, no question
ever was, or, upon acknowledged and general principles, ever can be made, so far as
natural persons are concerned." (U.S. v. Toribio, supra note 24, at 98-99, citing Thorpe v.
Rutland & Burlington R.R. Co. (27 Vt., 140, 149).
31 Subject to the determination of the courts as to what is a proper exercise of police

power using the due process clause and the equal protection clause as
yardsticks, the State may interfere wherever the public interests demand it, and in this
particular a large discretion is necessarily vested in the legislature to determine, not only
what interests of the public require, but what measures are necessary for the protection
of such interests (U.S. v. Toribio, supra note 24, at 98, citing Lawton v. Steele, 152 U.S.
133,136; Barbier v. Connoly, 113 U.S. 27; Kidd v. Pearson, 128 U.S. 1).
 [G.R. No. 167688. July 27, 2005]
CIR vs. ANNO DOMINI DRUG, INC.
THIRD DIVISION
Sirs/Mesdames:
Quoted hereunder, for your information, is a resolution of this Court dated JUL 27 2005.
G.R. No. 167688 (COMMISSIONER OF INTERNAL REVENUE vs. ANNO DOMINI DRUG,
INC.)
Assailed in this petition for review on certiorari is the Decision [1]cralaw of the Court of
Tax Appeals (CTA) En Banc, dated March 31, 2005 in CTA EB No. 3, affirming the
Decision[2]cralaw dated December 15, 2003 of a Division in CTA Case No. 6437. The CTA
ordered the Commissioner of Internal Revenue (CIR), petitioner, to refund or issue a Tax
Credit Certificate in favor of Anno Domini Drug, Inc. (ADDI), herein respondent, in the
amount of P138,182.11 as overpaid income taxes for the years 1999 and 2000.
Respondent ADDI is a domestic corporation, doing business in Laoag City as a franchisee
of "Mercury Drug." For the period from January 1, 1999 to December 31, 2000,
respondent granted twenty percent (20%) discount to purchases of medicines by senior
citizens in the sum of P1,376,984.15, as mandated by Republic Act No. 7432[3]cralaw and
its implementing Rules and Regulations. Respondent claimed that petitioner CIR
seriously erred in treating the said amount as sales discount from its gross income or
gross sales, following Revenue Regulations No. 2-94, instead of treating it as a tax
credit under Section 4 of R.A. No. 7432.
On April 17, 2000, respondent filed under protest its annual income tax return for 1999,
declaring therein that it paid P22,562.69 as income tax for that year.
On April 17, 2001, respondent again filed, under protest, its annual income tax return,
stating therein that it paid P37,004.67 as income tax for 2000.
On March 1, 2002, respondent filed with the Bureau of Internal Revenue (BIR) a claim
for tax refund/credit in the amount of P924,291.62. Respondent alleged that this
amount represented the cost of the twenty percent (20%) discount it granted to
qualified senior citizens on their purchases of medicines from January 1, 1999 to
December 31, 2000 and overpaid income taxes for the said years; and that Section 2(1)
of Revenue Regulations No. 2-94 is an erroneous interpretation of the tax credit
provisions of R.A. No. 7432.
When no action from petitioner on its claim was forthcoming, respondent filed with a
Division of the CTA a petition for review, docketed as CTA Case No. 6437.
In its answer, petitioner CIR averred, among others, that while R.A. No. 7432 allows the
discounts granted to senior citizens to be claimed as a tax credit, nonetheless, the law is
silent as to the mechanics of how such tax credit is to be availed of. Hence, Revenue
Regulations No. 2-94, defining the terms tax credit and providing for the manner of
claiming the same, was issued as a curative measure. Under the said Regulations, the
tax credit is to be deducted by the establishment from its gross income, not from its
income tax liability. Petitioner CIR maintained that respondent's claim for tax credit is
not properly documented.
On December 15, 2003, the CTA Division issued its Decision, the dispositive portion of
which reads:
"WHEREFORE, petitioner's claim for refund is PARTIALLY GRANTED. Respondent is
hereby ORDERED to REFUND or ISSUE A TAX CREDIT CERTIFICATE in favor of the
petitioner in the amount of P138,182.11 representing overpaid income tax for the years
1999 and 2000.
SO ORDERED."
The CTA Division held that Section 4 of R.A. No. 7432 mandates that the 20% granted to
qualified senior citizens may be claimed as a "tax credit" or "an amount subtracted from
an individual or entity's tax liability to arrived at the total tax liability." Revenue
Regulations No. 2-94, in interpreting tax credit as an amount deductible from the
establishments gross sales, gave it a new meaning which is sharply in conflict with the
provisions of R.A. No. 7432. Revenue Regulations No. 2-94, being subordinate to R.A.
No. 7432, it follows that the clear and unequivocal language of the said statue must
prevail.
On appeal, the CTA En Banc dismissed the same for lack of merit.
Hence, the instant petition for review on certiorari. The basic issue for our resolution is:
"WHETHER THE COURT OF TAX APPEALS ERRED IN HOLDING THAT RESPONDENT MAY
CLAIM THE 20% DISCOUNT AS A TAX CREDIT, NOT AS A DEDUCTION FROM GORSS
INCOME OR GROSS SALES."
Petitioner contends that to allow respondent to claim the 20% discount as a tax credit,
to be deducted from its total tax liability, would be to grant it greater benefits than the
actual discounts it gave the elderly. In effect, the government would be reimbursing
respondent amounts which are way beyond what it gave to senior citizens. Upon the
other hand, if the discount is deducted from gross income or gross sales, as mandated
by Revenue Regulations No. 2-94, the tax benefit is only up to the extent of the rate of
tax prescribed.
On this point, the CTA held:
"Neither can we go along with petitioner's argument that to allow respondent to claim
the 20% discount as tax credit instead of a mere deduction from gross income/gross
sales would be to grant a benefit not intended by law. The main objective of R.A. No.
7432 is to provide assistance and special privileges to senior citizens. In the
implementation thereof, the State essentially requires drug stores, like herein
respondent, to give 20% of the value of the medicines sold in the form of a discount in
prices. This is tantamount to taking of private property for public use under the power
of eminent domain. While the State's power of expropriation is authorized by the
Constitution, it should not be exercised without payment of just compensation (Article
III, Section 9 of the Constitution). As aptly held in Manosca vs. Court of Appeals, 255
SCRA 412, the only direct constitutional qualification for the exercise of such power is
that 'private property shall not be taken for public use without just compensation.' The
tax credit scheme provided under the subject law is designed to compensate private
establishments the full and fair equivalent of the property taken from them, hence, it
would be highly inappropriate to consider the same as 'benefit not intended by law.'"
R.A. No. 7432 and Revenue Regulations No. 2-94 are hereby quoted as our guide posts
in resolving the issue before us, thus:
"Republic Act No. 7432
SECTION 4. Privileges for the Senior Citizens. - The senior citizens shall be entitled to the
following:
a) the grant of twenty percent (20%) discount from all establishments relative to
utilization of transportation services, hotels and similar lodging establishments,
restaurants and recreation centers and purchase of medicines anywhere in the
country: Provided, That private establishments may claim the cost as tax credit.
Revenue Regulations No. 2-94
Section 2. DEFINITIONS. For purposes of these regulations:
xxx xxx
i. Tax credit. - refers to the amount representing the 20% discount
granted to a qualified senior citizens by all establishments relative to their
utilization of transportation services, hotels and similar lodging
establishments, restaurants, drugstores, recreation centers, theaters,
cinema, houses, concert halls, circuses, carnivals and other similar places of
culture, leisure and amusement, which discount shall be deducted by the
said establishments from their gross income for income tax purposes and
from their gross sales for value-added tax or other percentage tax
purposes. (Underscoring supplied)
In Commissioner of Internal Revenue vs. Central Luzon Drug
Corporation,[4]cralaw penned by Mr. Justice Artemio V. Panganiban, we held:
"What RA 7432 grants the senior citizens is a mere discount privilege, not a sales
discount or any of the above discounts in particular. Prompt payment is not the reason
for (although a necessary consequence of) such grant. To be sure, the privilege enjoyed
by senior citizens must be equivalent to the tax credit benefit enjoyed by the private
establishment granting the discount. Yet, under the Revenue Regulations promulgated
by our tax authorities; this benefit has been erroneously likened and confined to a sales
discount.
To a senior citizen, the monetary effect of the privilege may be the same as that
resulting from a sales discount. To repeat from our earlier discourse, this benefit cannot
and should not be treated as a tax discount.
To stress, the effect of a sales discount on the income statement and income tax
return of an establishment covered by RA 7432 is different from that resulting from
the availament or use of its tax credit benefit. While the former is a deduction before,
the latter is a deduction after, the income tax is computed. As mentioned earlier, a
discount is not necessarily a sales discount, and a tax credit, as a simple discount
privilege should not be automatically treated like a sales discount, Ubi lex non distinguit,
nec nos distinguere debemus. Where the law does not distinguish, we ought not to
distinguish.
Section 2.i and 4 Revenue Regulations No. (RR) 2-94 define tax credit as the 20 percent
discount deductible from gross income for income tax purposes or from gross sales for
VAT or other percentage tax purposes. In effect, the tax credit benefit under RA 7432 is
related to a sales discount. This contrived definition is improper, considering that the
latter has to be deducted from gross sales in order to compute the gross income in
the income statement and cannot be deducted again, even for purposes of computing
the income tax.
When the law says that the cost of the discount may be claimed as a tax credit, it means
that the amount - when claimed - shall be treated as a reduction from any tax liability,
plain and simple. The option to avail of the tax credit benefit depends upon the
existence of a tax liability, but to limit the benefit to a sales discount - which is not even
identical to the discount privilege that is granted by law - does not define it all and
serves no useful purpose. The definition must, therefore, be stricken down."
In fine, it is clear that, as mandated by R.A. No. 7432, respondent's claim is a 20% tax
credit, to be deducted from its total tax liability. It is not a sales discount, to be
deducted from its gross income or gross sales, as alleged by CIR in its petition. The CTA,
therefore, did not err its conclusion of law.
WHEREFORE, for being insufficient in substance, the instant petition is hereby DENIED.
SO ORDERED.
Very truly yours,
(Sgd.) LUCITA ABJELINA-SORIANO
Clerk of Court

Endnotes:
[1]cralaw Rollo at 36-48. Penned by Associate Justice Caesar Cassanova and concurred in

by Presiding Justice Ernesto D. Acosta and Associate Justices Juanito Castaneda, Lovell R.
Bautista, Erlinda P. Uy, and Olga Palanca-Enriquez.
[2]cralaw Rollo at 49-64.
[3]cralaw "An Act to maximize Contribution of Senior Citizens to Nation Building, Grant

Benefits and Special Privileges, and for Other Purposes." Section 4(9) grants to senior
citizens the privilege of obtaining a 20% discount on their purchases of medicine from
any private establishment in the country.
[4]cralaw G.R. No. 159647, April 15, 2005.

SECOND DIVISION
[G.R. NO. 142299 : June 22, 2006]
BICOLANDIA DRUG CORPORATION (FORMERLY ELMAS DRUG
COPRORATION), Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
AZCUNA, J.:
This is a Petition for Review 1 by Bicolandia Drug Corporation, formerly known as Elmas
Drug Corporation, seeking the nullification of the Decision and Resolution of the Court
of Appeals, dated October 19, 1999 and February 18, 2000, respectively, in CA-G.R SP
No. 49946 entitled "Commissioner of Internal Revenue v. Elmas Drug Corporation."
The controversy primarily involves the proper interpretation of the term "cost" in
Section 4 of Republic Act (R.A.) No. 7432, otherwise known as "An Act to Maximize the
Contribution of Senior Citizens to Nation Building, Grant Benefits and Special Privileges
and for Other Purposes."
The facts2 of the case are as follows:
Petitioner Bicolandia Drug Corporation is a domestic corporation principally engaged in
the retail of pharmaceutical products. Petitioner has a drugstore located in Naga City
under the name and business style of "Mercury Drug."
Pursuant to the provisions of R.A. No. 7432, entitled "An Act to Maximize the
Contribution of Senior Citizens to Nation Building, Grant Benefits and Special Privileges
and for Other Purposes," also known as the "Senior Citizens Act," and Revenue
Regulations No. 2-94, petitioner granted to qualified senior citizens a 20% sales discount
on their purchase of medicines covering the period from July 19, 1993 to December 31,
1994.
When petitioner filed its corresponding corporate annual income tax returns for taxable
years 1993 and 1994, it claimed as a deduction from its gross income the respective
amounts of P80,330 and P515,000 representing the 20% sales discount it granted to
senior citizens.
On March 28, 1995, however, alleging error in the computation and claiming that the
aforementioned 20% sales discount should have been treated as a tax credit pursuant to
R.A. No. 7432 instead of a deduction from gross income, petitioner filed a claim for
refund or credit of overpaid income tax for 1993 and 1994, amounting to P52,215
and P334,750, respectively. Petitioner computed the overpayment as follows:
Income tax benefit of tax credit 100%
Income tax benefit of tax deduction 35%
Differential 65%
For 1993
20% discount granted in 1993 P80,330
Multiply by 65% x 65%
Overpaid corporate income tax P52,215
For 1994
 20% discount granted in 1993 P515,000
Multiply by 65% x 65%
Overpaid corporate income tax P334,750
On December 29, 1995, petitioner filed a Petition for Review with the Court of Tax
Appeals (CTA) in order to toll the running of the two-year prescriptive period for
claiming for a tax refund under Section 230, now Section 229, of the Tax Code.
It contended that Section 4 of R.A. No. 7432 provides in clear and unequivocal language
that discounts granted to senior citizens may be claimed as a tax credit. Revenue
Regulations No. 2-94, therefore, which is merely an implementing regulation cannot
modify, alter or depart from the clear mandate of Section 4 of R.A. No. 7432, and, thus,
is null and void for being inconsistent with the very statute it seeks to implement.
The Commissioner of Internal Revenue, on the other hand, maintained that the
aforesaid section providing for a 20% sales discount to senior citizens is a misnomer as it
runs counter to the solemn duty of the government to collect taxes. The Commissioner
likewise pointed out that the provision in question employs the word "may," thereby
implying that the availability of the remedy of tax credit is not absolute and mandatory
and it does not confer an absolute right on the taxpayer to avail of the tax credit scheme
if he so chooses. The Commissioner further stated that in statutory construction, the
contemporaneous construction of a statute by executive officers of the government
whose duty is to execute it is entitled to great respect and should ordinarily control in its
interpretation.
Thus, addressing the matter of the proper construction of Section 4(a) of R.A. No. 7432
regarding the treatment of the 20% sales discount given to senior citizens on their
medicine purchases, the CTA ruled on the issue of whether or not the discount should
be deductible from gross sales of value-added tax or other percentage tax purposes as
prescribed under Revenue Regulations No. 2-94 or as a tax credit deductible from the
tax due.
In its Decision, dated August 27, 1998, the CTA declared that:
"x x x
Revenue Regulations No. 2-94 gave a new meaning to the phrase "tax credit,"
interpreting it to mean that the 20% discount granted to qualified senior citizens is an
amount deductible from the establishment's gross sales, which is completely
contradictory to the literal or widely accepted meaning of the said phrase, as an amount
subtracted from an individual's or entity's tax liability to arrive at the total tax
liability (Black's Law Dictionary).
In view of such apparent discrepancy in the interpretation of the term "tax credit", the
provisions of the law under R.A. 7432 should prevail over the subordinate regulation
issued by the respondent under Revenue Regulation No. 2-94. x x x
Having settled the legal issue involved in the case at bar, We are now tasked to resolve
the factual issues of whether or not petitioner is entitled to the claim for refund of its
overpaid income taxes for the years 1993 and 1994 based on the evidence at hand.
Contrary to the findings of the independent CPA, aside from the unverifiable 20% sales
discounts in the amount of P18,653.70 (Exh. R-3), the Court noted some material
discrepancies. Not all the details listed in the 1994 "Summary of Sales and Discounts
Given to Senior Citizens" correspond with the cash slips presented. There are various
sales discounts granted which were not properly computed and there were also some
cash slips left unsigned by the buyers.
xxx
After a careful scrutiny of the documents presented, the Court, allows only the amount
of sales discounts duly supported by the pre-marked cash slips x x x.
Hence, only the above amounts which are properly documented can be used as base in
computing for the cost of 20% discount as tax credit. The overpaid income tax therefore
is computed as follows: 3
For 1993
Net Sales P31,080,508.00
Add: 20% Discount to Senior Citizens 80,330.00

Gross Sales P31,160,838.00

Less: Cost of Sales
Merchandise Inventory, beg. P 4,226,588.00
Add Purchases 29,234,361.00

Total Goods available for Sale P33,460,947.00

Less: Merchandise Inventory, End P 4,875.944.00 P28,585,003.00

Gross Income P 2,575,835.00

Less: Operating Expenses 1,706,491.00

Net Operating Income P 869,344.00
Add: Miscellaneous Income 72,680.00

Net Income P 942,024.00

Less: Interest Income Subject to Final Tax 21,140.00

Net Taxable Income P 920,884.00

Tax Due (P920,884 x 35%) P 322,309.40
Less: 1) Tax Credit (Cost of 20% Discount)
[(28,585,003.00/31,160,838.00)
x 80,330.34] P 73,690.03
2) Income Tax Payment for the Year 294,194.00 P 367,884.03

P 45,574.63
AMOUNT REFUNDABLE

For 1994
Net Sales P 29,904,734.00
Add: 20% Discount to Senior Citizens 515,000.00
Gross Sales P 30,419,734.00
 Less: Cost of Sales
Merchandise Inventory, beg. P 4,875,944.00
Add Purchases 28,138,103.00

Total Goods available for Sales P 33,014,047.00

Less: Merchandise Inventory, End 5,036.117.00 27,977,930.00

Gross Income P 2,441,804.00

Less: Operating Expenses 1,880,153.00

Net Operating Income P 561,651.00

Add: Miscellaneous Income 82,207.00

Net Income P 643,858.00

Less: Interest Income Subject to Final Tax 30,618.00

Net Taxable Income P 613,240.00

Tax Due (613,240 x 35%) P 214,634.00
Less: 1) Tax Credit (Cost of 20% Discount)
[(28,585,003.00/31,160,838.00)
x 80,330.34] P316,156.48
2) Income Tax Payment for the Year 34,384.00 P 350,540.48

AMOUNT REFUNDABLE P 135,906.48

WHEREFORE, in view of all the foregoing, petitioner's claim for refund is hereby partially
GRANTED. Respondent is hereby ORDERED to REFUND, or in the alternative, to ISSUE a
tax credit certificate in favor of the petitioner the amounts of P45,574.63 and
P135,906.48, representing overpaid income tax for the years 1993 and 1994,
respectively.
SO ORDERED.4
Both the Commissioner and petitioner moved for a reconsideration of the above
decision. Petitioner, in its Motion for Partial Reconsideration, claimed that the "cost"
that private establishments may claim as tax credit under Section 4 of R.A. No. 7432
should be construed to mean the full amount of the 20% sales discount granted to
senior citizens instead of the formula - - [Tax Credit = Cost of Sales/Gross Sales x 20%
discount] - used by the CTA in computing for the amount of the tax credit. In view of
this, petitioner prayed for the refund of the amount of income tax it allegedly overpaid
in the aggregate amount of P45,574.63 and P135,906.48, respectively, for the taxable
years 1993 and 1994 as a result of treating the sales discount of 20% as a tax deduction
rather than as a tax credit.
The Commissioner, on the other hand, moved for a re-computation of petitioner's tax
liability averring that the sales discount of 20% should be deducted from gross income
to arrive at the taxable income. Such discount cannot be considered a tax credit because
the latter, being in the nature of a tax refund, is treated as a return of tax payments
erroneously or excessively assessed and collected as provided under Section 204(3) of
the Tax Code, to wit:
(3) x x x No credit or refund of taxes or penalties shall be allowed unless the taxpayer
files in writing with the Commissioner a claim for credit or refund within two (2) years
after the payment of the tax or penalty.
ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
In its Resolution, dated December 7, 1998, the CTA modified its earlier decision, thus:
ACCORDINGLY, the petitioner's Motion for Partial Reconsideration is hereby GRANTED.
Respondent is hereby ORDERED to ISSUE tax credit certificates in favor of petitioner [in]
the amounts of P45,574.63 and P135,906.48 representing overpaid income tax for the
years 1993 and 1994, as prayed for in its motion. On the other hand, the Respondent's
Motion for Reconsideration is DENIED for lack of merit.
SO ORDERED.5
Consequently, the Commissioner filed a Petition for Review with the Court of Appeals
asking for the reversal of the CTA Decision and Resolution.
The Court of Appeals rendered its assailed Decision on October 19, 1999, the dispositive
portion of which reads:
WHEREFORE, in view of the foregoing premises, the petition is hereby GRANTED IN
PART. The resolution issued by the Court of Tax Appeals dated December [7], 1998 is
SET ASIDE and the Decision rendered by the latter is AFFIRMED IN TOTO.
No costs.
SO ORDERED.6
Hence, this petition positing that:
THE COURT OF APPEALS ERRED IN RULING THAT IN COMPUTING THE TAX CREDIT TO BE
ALLOWED PETITIONER FOR DISCOUNTS GRANTED TO SENIOR CITIZENS ON THEIR
PURCHASE OF MEDICINES, THE ACQUISITION COST RATHER THAN THE ACTUAL
DISCOUNT GRANTED TO SENIOR CITIZENS SHOULD BE THE BASIS.7
Otherwise stated, the matter to be determined is the amount of tax credit that may be
claimed by a taxable entity which grants a 20% sales discount to qualified senior citizens
on their purchase of medicines pursuant to Section 4(a) of R.A. No. 7432 which states:
Sec. 4. Privileges for the Senior citizens. - The senior citizens shall be entitled to the
following:
a) the grant of twenty percent (20%) discount from all establishments relative to
utilization of transportation services, hotels and similar lodging establishments,
restaurants and recreation centers and purchase of medicines anywhere in the
country: Provided, That private establishments may claim the cost8 as tax credit.
The term "cost" in the above provision refers to the amount of the 20% discount
extended by a private establishment to senior citizens in their purchase of medicines.
This amount shall be applied as a tax credit, and may be deducted from the tax liability
of the entity concerned. If there is no current tax due or the establishment reports a net
loss for the period, the credit may be carried over to the succeeding taxable year. This is
in line with the interpretation of this Court in Commissioner of Internal Revenue v.
Central Luzon Drug Corporation9 wherein it affirmed that R.A. No. 7432 allows private
establishments to claim as tax credit the amount of discounts they grant to senior
citizens.
The Court notes that petitioner, while praying for the reinstatement of the CTA
Resolution, dated December 7, 1998, directing the issuance of tax certificates in favor of
petitioner for the respective amounts of P45,574.63 and P135,906.48 representing
overpaid income tax for 1993 and 1994, asks for the refund of the same. 10
In this regard, petitioner's claim for refund must be denied. The law expressly provides
that the discount given to senior citizens may be claimed as a tax credit, and not a
refund. Thus, where the words of a statute are clear, plain and free from ambiguity, it
must be given its literal meaning and applied without attempted interpretation. 11
WHEREFORE, the petition is PARTLY GRANTED. The Decision and Resolution of the Court
of Appeals, dated October 19, 1999 and February 18, 2000, respectively, in CA-G.R SP
No. 49946 are REVERSED and SET ASIDE. The Resolution of the Court of Tax Appeals,
dated December 7, 1998, directing the issuance of tax credit certificates in favor of
petitioner in the amounts of P45,574.63 and P135,906.48 is hereby REINSTATED. No
costs.
SO ORDERED.
Endnotes:

1 Under Rule 45 of the Rules of Court.

2 Rollo, pp. 12-15, 30-32.
3 Rollo, pp. 36-41.
4 Rollo, pp. 42-43.
5 Rollo, p. 68.
6 Id. at 79.
7 Rollo, p. 15.
8 Emphasis supplied.
9 G.R. No. 159647, April 15, 2005, 456 SCRA 414.
10 Rollo, p. 27.
11 Fianza v. People's Law Enforcement Board (PLEB), G.R. No. 109638, March 31, 1995,

243 SCRA 165.

SECOND DIVISION
[G.R. NO. 160193 : March 3, 2008]
M.E. HOLDING CORPORATION, Petitioner, v. THE HON. COURT OF APPEALS, COURT OF
TAX APPEALS, and THE COMMISSIONER OF INTERNAL REVENUE, Respondents.

DECISION
VELASCO, JR., J.:
This case involves Republic Act No. (RA) 7432, otherwise known as An Act to Maximize
the Contribution of Senior Citizens to Nation Building, Grant Benefits and Special
Privileges and for Other Purposes,passed onApril 23, 1992. It granted, among others, a
20% sales discount on purchases of medicines by qualified senior citizens.
On April 15, 1996, petitioner M.E. Holding Corporation (M.E.) filed its 1995 Corporate
Annual Income Tax Return, claiming the 20% sales discount it granted to qualified senior
citizens. M.E. treated the discount as deductions from its gross income purportedly in
accordance with Revenue Regulation No. (RR) 2-94, Section 2(i) of the Bureau of Internal
Revenue (BIR) issued on August 23, 1993. Sec. 2(i) states:
Section 2. DEFINITIONS. - For purposes of these regulations:
xxx
i. Tax Credit - refers to the amount representing the 20% discount granted to a qualified
senior citizen by all establishments relative to their utilization of transportation services,
hotels and similar lodging establishments, restaurants, drugstores, recreation centers,
theaters, cinema houses, concert halls, circuses, carnivals and other similar places of
culture, leisure and amusement, which discount shall be deducted by the said
establishments from their gross income for income tax purposes and from their gross
sales for value-added tax or other percentage tax purposes. (Emphasis supplied.)
The deductions M.E. claimed amounted to PhP 603,424. However, it filed the return
under protest, arguing that the discount to senior citizens should be treated as tax
credit under Sec. 4(a) of RA 7432, and not as mere deductions from M.E.'s gross income
as provided under RR 2-94.
Sec. 4(a) of RA 7432 states:
SECTION 4. Privileges for the Senior Citizens. The senior citizens shall be entitled to the
following:
a) the grant of twenty percent (20%) discount from all establishments relative to the
utilization of transportation services, hotels and similar lodging establishments,
restaurants and recreation centers and purchase of medicines anywhere in the country:
Provided, That private establishments may claim the cost as tax credit; (Emphasis
supplied.)
Subsequently, on December 27, 1996, M.E. sent BIR a letter-claim dated December 6,
1996,1 stating that it overpaid its income tax owing to the BIR's erroneous interpretation
of Sec. 4(a) of RA 7432.
Due to the inaction of the BIR, and to toll the running of the two-year prescriptive
period in filing a claim for refund, M.E. filed an appeal before the Court of Tax Appeals
(CTA), reiterating its position that the sales discount should be treated as tax credit, and
that RR 2-94, particularly Section 2(i), was without effect for being inconsistent with RA
7432.
On April 25, 2000, the CTA rendered a Decision2 in favor of M.E., the fallo of which
reads:
WHEREFORE, in view of the foregoing, petitioner's claim for refund is hereby partially
GRANTED. Respondent is hereby ORDERED to REFUND in favor of petitioner the amount
of P122,195.74, representing overpaid income tax [for] the year 1995.
SO ORDERED.
The CTA ruled that the 20% sales discount granted to qualified senior citizens should be
treated as tax credit and not as item deduction from the gross income or sales, pointing
out that Sec. 4(a) of RA 7432 was unequivocal on this point. The CTA held that Sec. 2(i)
of RR 2-94 contravenes the clear proviso of RA 7432 prescribing that the 20% sales
discount should be claimed as tax credit. Further, it ruled that RA 7432 is a law that
necessarily prevails over an administrative issuance such as RR 2-94.
Unfortunately, what appears to be the victory of M.E. before the CTA was watered
down by the tax court's declaration that, while the independent auditor M.E. hired
found the amount PhP 603,923.46 as having been granted as sales discount to qualified
senior citizens, M.E. failed to properly support the claimed discount with corresponding
cash slips. Thus, the CTA reduced M.E.'s claim for PhP 603,923.46 sales discount to PhP
362,574.57 after the CTA disallowed PhP 241,348.89 unsupported claims, and
consequently lowered the refundable amount to PhP 122,195.74.
On May 24, 2000, M.E. filed a Motion for Reconsideration, therein attributing its failure
to submit and offer certain documents, specifically the cash slips, to the inadvertence of
its independent auditor who failed to transmit the documents to M.E.'s counsel. It also
argued that the tax credit should be based on the actual discount and not on the
acquisition cost of the medicines.
On July 11, 2000, the CTA denied M.E.'s motion for reconsideration which contained a
prayer to present additional evidence consisting of duplicate copies of the cash slips
allegedly not submitted to M.E. by its independent auditor.3 In refuting M.E.'s
contention that the tax credit should be based on the actual discount and not on the
acquisition cost of the medicines, the CTA applied the Court of Appeals (CA) ruling in CIR
v. Elmas Drug Corporation,4 where the term "cost of the discount" was interpreted to
mean only the direct acquisition cost, excluding administrative and other incremental
costs.
Aggrieved, M.E. went to the CA on a Petition for Review docketed as CA-G.R. SP No.
60134. On July 1, 2003, the CA rendered its Decision,5 dismissing the petition.
Even as it laid the entire blame on M.E. for its failure to present its additional evidence,
the CA pointed out that forgotten evidence is not newly discovered evidence which can
be presented to the appellate tax court, even after it had already rendered its decision.
Likewise, the CA interpreted, as did the CTA, the term "cost" to mean only the direct
acquisition cost, adding that to interpret the word "cost" to include "all administrative
and incremental costs to sales to senior citizens" would open the floodgates for
drugstores to pad the costs of the sales with such broad, undefined, and varied
administrative and incremental costs such that the government would ultimately bear
the escalated costs of the sales. And citing Commissioner of Internal Revenue v. Tokyo
Shipping Co., Ltd., the CA held that claims for refund, being in the nature of a claim for
exemption, should be construed in strictissimi juris against the taxpayer.6
The CA denied petitioner's Motion for Reconsideration on September 24, 2003.7
Hence, the instant Petition for Review, anchored essentially on the same issues raised
before the CA, as follows:
I.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS GRAVELY ERRED AND HAS
DEVIATED FROM APPLICABLE LAWS AND JURISPRUDENCE IN NOT APPRECIATING OTHER
COMPETENT EVIDENCE PROVING THE AMOUNT OF DISCOUNTS GRANTED TO SENIOR
CITIZENS AND MERELY RELYING SOLELY ON THE CASH SLIPS.
II.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS GRAVELY ERRED AND HAS
COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR IN EXCESS OF
JURISDICTION IN AFFIRMING THE COURT OF TAX APPEALS' DENIAL OF PETITIONER'S
MOTION TO ORDER AND SUBMIT AS DOCUMENTARY [EVIDENCE] THE CASH SLIPS
WHICH THE INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT INADVERTENTLY DID NOT
TURN OVER TO THE PETITIONER'S COUNSEL.
III.
WHETHER OR NOT THE TERM "COST" UNDER PARAGRAPH (A) SECTION 4 OF REPUBLIC
ACT 7432 IS EQUIVALENT ONLY TO ACQUISITION COST.8
Our Ruling
The petition is partly meritorious.
The 20% sales discount to senior citizens may be claimed by an establishment owner as
tax credit. RA 7432, the applicable law, is unequivocal on this. The implementing RR 2-
94 that considers such discount as mere deductions to the taxpayer's gross income or
gross sales clearly clashes with the clear language of RA 7432, the law sought to be
implemented. We need not delve on the nullity of the implementing rule all over again
as we have already put this issue at rest in a string of cases.9
Now, we will discuss the remaining issues in seriatim.
On the first issue, M.E. faults the CA for merely relying on the cash slips as basis for
determining the total 20% sales discount given to senior citizens. To M.E., there are
other competent pieces of evidence available to prove the same point, such as the
Special Record Book required by the Bureau of Food and Drugs10 and the Special Record
Book required under RR 2-94. According to M.E., these special record books containing,
as it were, the same information embodied in the cash slips were submitted to the CTA
during M.E.'s formal offer of evidence. Moreover, M.E. avers that the CA ought to have
considered the special record books since their authenticity and the veracity of their
contents were corroborated by the store supervisor, Amelita Gonzales, and Rene Amby
Reyes, its independent auditor.
M.E. fails to persuade. The determination of the exact amount M.E. claims as the 20%
sales discount it granted to the senior citizens calls for an evaluation of factual matters.
The unyielding rule is that the findings of fact of the trial court, particularly when
affirmed by the CA, are binding upon this Court, 11 save when the lower courts had
overlooked, misunderstood, or misinterpreted certain facts or circumstances of weight,
which, if properly considered, would affect the result of the case and warrant a reversal
of the decision. The instant case does not fall under the exception; hence, we do not
find any justification to review all over again the evidence presented before the CTA,
and the factual conclusions deduced therefrom.
Lest it be overlooked, the Rules of Court is of suppletory application in quasi-judicial
proceedings. Be this as it may, the CTA was correct in disallowing and not considering
the belatedly-submitted cash slips to be part of the 20% sales discount for M.E.'s taxable
year 1995. This is as it should be in the light of Sec. 34 of Rule 132 prescribing that no
evidence shall be considered unless formally offered with a statement of the purpose
why it is being offered. In addition, the rule is that the best evidence under the
circumstance must be adduced to prove the allegations in a complaint, petition, or
protest. Only when the best evidence cannot be submitted may secondary evidence be
considered. But, in the instant case, the disallowed cash slips, the best evidence at that
time, were not part of M.E.'s offer of evidence. While it may be true that the
authenticated special record books yield the same data found in the cash slips, they
cannot plausibly be considered by the courts a quo and made to corroborate pieces of
evidence that have, in the first place, been disallowed. Recall also that M.E. offered the
disallowed cash slips as evidence only after the CTA had rendered its assailed decision.
Thus, we cannot accept the excuse of inadvertence of the independent auditor as
excusable negligence. As aptly put by the CA, the belatedly-submitted cash slips do not
constitute newly-found evidence that may be submitted as basis for a new trial or
reconsideration of the decision.
We reiterate at this juncture that claims for tax refund/credit, as in the instant case, are
in the nature of claims for exemption. Accordingly, the law relied upon is not only
construed in strictissimi juris against the taxpayer, but also the proofs presented
entitling a taxpayer to an exemption are strictissimi scrutinized.
On the second issue, M.E. strongly asserts that the CA gravely abused its discretion in
denying M.E. the opportunity to submit the disallowed cash slips despite the
independent auditor's admission, via an Affidavit,12 of guilt for inadvertence. M.E.'s
counsel explains that he relied on the independent auditor's representation that all the
cash slips were turned over. Besides, M.E. asserts that the independent auditor, being
an officer of the court, having been commissioned by the CTA, is presumed to have
done his duty in a regular manner, and, therefore, his negligence should not be taken
against M.E.
We do not agree with M.E. Grave abuse of discretion connotes capricious, whimsical,
arbitrary, or despotic exercise of jurisdiction. The CA surely cannot be guilty of gravely
abusing its discretion when it refused to consider, in lieu of the unsubmitted additional
cash slips, the special record books which are only secondary evidence. The cash slips
were the best evidence. Also, the CA noted that the belatedly-offered cash slips were
presented only after the CTA had rendered its decision. All these factors argue against
the notion that the CA had, in sustaining the CTA, whimsically and capriciously exercised
its discretion.
On the third and last issue, M.E. contends that it is entitled, as a matter of law, to claim
as tax credit the full amount of the sales discount granted to senior citizens.
M.E.'s contention is correct. In Bicolandia Drug Corporation (formerly Elmas Drug
Corporation) v. Commissioner of Internal Revenue, we interpreted the term "cost" found
in Sec. 4(a) of RA 7432 as referring to the amount of the 20% discount extended by a
private establishment to senior citizens in their purchase of medicines. 13 There we
categorically said that it is the Government that should fully shoulder the cost of the
sales discount granted to senior citizens. Thus, we reversed and set aside the CA's
Decision in CA-G.R. SP No. 49946, which construed the same word "cost" to mean the
theoretical acquisition cost of the medicines purchased by qualified senior citizens.
Accordingly, M.E. is entitled to a tax credit equivalent to the actual 20% sales discount it
granted to qualified senior citizens.
With the disallowance of PhP 241,348.89 for being unsupported, and the net amount of
PhP 362,574.57 for the actual 20% sales discount granted to qualified senior citizens
properly allowed by the CTA and fully appreciated as tax credit, the amount due as tax
credit in favor of M.E. is PhP 151,201.71, computed as follows:
Net Sales PhP 94,724,284.00

Add: 20% Discount to Senior Citizens

(Per Petitioner's Summary) 603,923.46

Gross Sales PhP 95,328,207.46

Less: Cost of Sales

Merchandise Inventory, beg. PhP 9,519,210.00

Add Purchases 87,288,988.00

Total Goods available for PhP

Sale 96,808,198.00

Less: Merchandise
Inventory, End PhP 9,469.349.00 PhP 87,338,849.00

Gross Income PhP 7,989,358.46

Less: Operating Expenses 17,006,032.00

Net Operating Income

/(Loss) (PhP 9,016,673.54)

Add: Miscellaneous Income 43,489,663.00

Net Income PhP 34,472,989.46

Less: Interest Income Subject

to Final Tax 22,242,227.00

Net Taxable Income PhP 12,230,762.46

Tax Due (PhP 12,230,762.46 x 35%) PhP 4,280,766.86

Less: 1) Tax Credit (20% Discount with

supporting
documents) PhP 362,574.57

2) Income Tax Payment for the Year 4,069,394.00

Total PhP 4,431,968.57

AMOUNT OF TAX CREDIT PhP 151,201.71

Parenthetically, we note that M.E. originally prayed for a tax refund for its tax
overpayment for CY 1995. The CTA and the CA granted the desired refund, albeit at a
lower amount due to their interpretation, erroneous as it turned out to be, of the term
"cost." However, we cannot agree with the courts a quo on what M.E. is entitled to. RA
7432 expressly provides that the sales discount may be claimed as tax credit, not as tax
refund.
It ought to be noted, however, that on February 26, 2004, RA 9257, or The Expanded
Senior Citizens Act of 2003, amending RA 7432, was signed into law, ushering in, upon its
effectivity on March 21, 2004, a new tax treatment for sales discount purchases of
qualified senior citizens of medicines. Sec. 4(a) of RA 9257 provides:
SEC. 4. Privileges for the Senior Citizens. - The senior citizens shall be entitled to the
following:
(a) the grant of twenty percent (20%) discount from all establishments relative to the
utilization of services in hotels and similar lodging establishments, restaurants and
recreation centers, and purchase of medicines in all establishments for the exclusive use
or enjoyment of senior citizens, x x x;
xxx
The establishment may claim the discounts granted under (a), (f), (g) and (h) as tax
deduction based on the net cost of the goods sold or services rendered: Provided, That
the cost of the discount shall be allowed as deduction from gross income for the same
taxable year that the discount is granted. Provided, further, That the total amount of the
claimed tax deduction net of value added tax if applicable, shall be included in their
gross sales receipts for tax purposes and shall be subject to proper documentation and
to the provisions of the National Internal Revenue Code, as amended. (Emphasis
supplied.)
Conformably, starting taxable year 2004, the 20% sales discount granted by
establishments to qualified senior citizens is to be treated as tax deduction, no longer as
tax credit.14
IN VIEW OF THE FOREGOING, this petition is PARTLY GRANTED. The CA's Decision dated
July 1, 2003 and its Resolution of September 24, 2003 in CA-G.R. SP No. 60134, affirming
the Decision of the CTA dated April 25, 2000 in CTA Case No. 5604,
are AFFIRMED with MODIFICATIONS insofar as the amount and mode of payment of
M.E.'s claim are concerned. As modified, the fallo of the April 25, 2000 Decision of the
CTA shall read:
WHEREFORE, in view of the foregoing, petitioner M.E.'s claim for refund is hereby
PARTIALLY GRANTED in the form of a tax credit. Respondent Commissioner of Internal
Revenue is ORDERED to issue a tax credit certificate in favor of M.E. in the amount of
PhP 151,201.71.
No pronouncement as to costs.
SO ORDERED.
Quisumbing* ,Chairperson,Carpio, Azcuna** , Carpio-Morales, Tinga, JJ., concur.
Endnotes:

* On official leave.
** Additional member as per Special Order No. 485 dated February 14, 2008.
1 Rollo, pp. 137-139.
2 Id. at 39-51. Penned by Presiding Judge Ernesto D. Acosta and concurred in by

Associate Judge Ramon O. de Veyra. Associate Judge Amancio Q. Saga dissented.

3 Id. at 72-74.
4 CA-G.R. SP No. 49946, October 19, 1999.
5 Rollo, pp. 165-173. Penned by Presiding Justice Cancio C. Garcia (Chairperson, a retired

member of this Court) and concurred in by Associate Justices Eliezer R. Delos Santos and
Mariano C. Del Castillo.
6 314 Phil. 220, 228 (1995).
7 Rollo, p. 187.
8 Id. at 10-11.
9 Commissioner of Internal Revenue v. Bicolandia Drug Corporation, G.R. No. 148083,
July 21, 2006, 496 SCRA 176; Commissioner of Internal Revenue v. Central Luzon Drug
Corporation, G.R. No. 148512, June 26, 2006, 492 SCRA 575; Commissioner of Internal
Revenue v. Central Luzon Drug Corporation, G.R. No. 159647, April 15, 2005, 456 SCRA
414.
10 Under BFAD Memo Circular No. 4, Series of 1994.
11 Xentrex Automotive, Inc. v. Court of Appeals, G.R. No. 121559, June 18, 1998, 291

SCRA 66, 71; citations omitted.

12 Rollo, pp. 162-163.
13 G.R. No. 142299, June 22, 2006, 492 SCRA 159, 168.
14 Carlos Superdrug Corp. v. Department of Social Welfare and Development

(DSWD), G.R. No. 166494, June 29, 2007, 526 SCRA 130.

[G.R. NO. 148083 : July 21, 2006]

COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. BICOLANDIA DRUG
CORPORATION (Formerly known as ELMAS DRUG CO.), Respondent.

DECISION
VELASCO, JR., J.:
In cases of conflict between the law and the rules and regulations implementing the law,
the law shall always prevail. Should Revenue Regulations deviate from the law they seek
to implement, they will be struck down.
The Facts
In 1992, Republic Act No. 7432, otherwise known as "An Act to Maximize the
Contribution of Senior Citizens to Nation Building, Grant Benefits and Special Privileges
and For Other Purposes," granted senior citizens several privileges, one of which was
obtaining a 20 percent discount from all establishments relative to the use of
transportation services, hotels and similar lodging establishments, restaurants and
recreation centers and purchase of medicines anywhere in the country.1 The law also
provided that the private establishments giving the discount to senior citizens may claim
the cost as tax credit.2 In compliance with the law, the Bureau of Internal Revenue
issued Revenue Regulations No. 2-94, which defined "tax credit" as follows:
Tax Credit - refers to the amount representing the 20% discount granted to a qualified
senior citizen by all establishments relative to their utilization of transportation services,
hotels and similar lodging establishments, restaurants, halls, circuses, carnivals and
other similar places of culture, leisure and amusement, which discount shall be
deducted by the said establishments from their gross income for income tax purposes
and from their gross sales for value-added tax or other percentage tax purposes.3
In 1995, respondent Bicolandia Drug Corporation, a corporation engaged in the business
of retailing pharmaceutical products under the business style of "Mercury Drug,"
granted the 20 percent sales discount to qualified senior citizens purchasing their
medicines in compliance with R.A. No. 7432.4 Respondent treated this discount as a
deduction from its gross income in compliance with Revenue Regulations No. 2-94,
which implemented R.A. No. 7432.5 On April 15, 1996, respondent filed its 1995
Corporate Annual Income Tax Return declaring a net loss position with nil income tax
liability.6
On December 27, 1996, respondent filed a claim for tax refund or credit in the amount
of PhP 259,659.00 with the Appellate Division of the Bureau of Internal Revenue
because its net losses for the year 1995 prevented it from benefiting from the treatment
of sales discounts as a deduction from gross sales during the said taxable year. 7 It
alleged that the petitioner Commissioner of Internal Revenue erred in treating the 20
percent sales discount given to senior citizens as a deduction from its gross income for
income tax purposes or other percentage tax purposes rather than as a tax credit. 8
On April 6, 1998, respondent appealed to the Court of Tax Appeals in order to toll the
running of two (2)-year prescriptive period to file a claim for refund pursuant to Section
230 of the Tax Code then.9 Respondent argued that since Section 4 of R.A. No. 7432
provided that discounts granted to senior citizens may be claimed as tax credit, Section
2(i) of Revenue Regulations No. 2-94, which referred to the tax credit as the amount
representing the 20 percent discount that "shall be deducted by the said establishments
from their gross income for income tax purposes and from their gross sales for value-
added tax or other percentage tax purposes,"10 is illegal, void and without effect for
being inconsistent with the statute it implements.
Petitioner maintained that Revenue Regulations No. 2-94 is valid since the law tasked
the Department of Finance, among other government offices, with the issuance of the
necessary rules and regulations to carry out the objectives of the law.11
Ruling of the Court of Tax Appeals
The Court of Tax Appeals declared that the provisions of R.A. No. 7432 would prevail
over Section 2(i) of Revenue Regulations No. 2-94, whose definition of "tax credit"
deviated from the intendment of the law; and as a result, partially granted the
respondent's claim for a refund. After examining the evidence on record, the Court of
Tax Appeals reduced the claimed 20 percent sales discount, thus reducing the refund to
be given. It ruled that "Respondent is hereby ORDERED to REFUND in favor of Petitioner
the amount of P236,321.52, representing overpaid income tax for the year 1995." 12
Ruling of the Court of Appeals
On appeal, the Court of Appeals modified the decision of the Court of Tax Appeals as the
law provided for a tax credit, not a tax refund. The fallo of the Decision states:
WHEREFORE, premises considered, the present appeal is hereby GRANTED and the
Decision of the Court of Tax Appeals in C.T.A. Case No. 5599 is hereby MODIFIED in the
sense that the award of tax refund is ANNULLED and SET ASIDE. Instead, the petitioner
is hereby ORDERED to issue a tax credit certificate in favor of the respondent in the
amount of P 236,321.52.
No pronouncement as to costs.13
The Issue
Petitioner now argues that the Court of Appeals erred in holding that the 20 percent
sales discount granted to qualified senior citizens by the respondent pursuant to R.A.
No. 7432 may be claimed as a tax credit, instead of a deduction from gross income or
gross sales.14
The Court's Ruling
The petition is not meritorious.
Redefining "Tax Credit" as "Tax Deduction"
The problem stems from the issuance of Revenue Regulations No. 2-94, which was
supposed to implement R.A. No. 7432, and the radical departure it made when it
defined the "tax credit" that would be granted to establishments that give 20 percent
discount to senior citizens. Under Revenue Regulations No. 2-94, the tax credit is "the
amount representing the 20 percent discount granted to a qualified senior citizen by all
establishments relative to their utilization of transportation services, hotels and similar
lodging establishments, restaurants, drugstores, recreation centers, theaters, cinema
houses, concert halls, circuses, carnivals and other similar places of culture, leisure and
amusement, which discount shall be deducted by the said establishments from their
gross income for income tax purposes and from their gross sales for value-added tax or
other percentage tax purposes."15 It equated "tax credit" with "tax deduction," contrary
to the definition in Black's Law Dictionary, which defined tax credit as:
An amount subtracted from an individual's or entity's tax liability to arrive at the total
tax liability. A tax credit reduces the taxpayer's liability x x x, compared to a deduction
which reduces taxable income upon which the tax liability is calculated. A credit differs
from deduction to the extent that the former is subtracted from the tax while the latter
is subtracted from income before the tax is computed.16
The interpretation of an administrative government agency, which is tasked to
implement the statute, is accorded great respect and ordinarily controls the
construction of the courts.17 Be that as it may, the definition laid down in the
questioned Revenue Regulations can still be subjected to scrutiny. Courts will not
hesitate to set aside an executive interpretation when it is clearly erroneous. There is no
need for interpretation when there is no ambiguity in the rule, or when the language or
words used are clear and plain or readily understandable to an ordinary reader. 18 The
definition of the term "tax credit" is plain and clear, and the attempt of Revenue
Regulations No. 2-94 to define it differently is the root of the conflict.
Tax Credit is not Tax Refund
Petitioner argues that the tax credit is in the nature of a tax refund and should be
treated as a return for tax payments erroneously or excessively assessed against a
taxpayer, in line with Section 204(c) of Republic Act No. 8424, or the National Internal
Revenue Code of 1997. Petitioner claims that there should first be payment of the tax
before the tax credit can be claimed. However, in the National Internal Revenue Code,
we see at least one instance where this is not the case. Any VAT-registered person,
whose sales are zero-rated or effectively zero-rated may, within two (2) years after the
close of the taxable quarter when the sales were made, apply for the issuance of a tax
credit certificate or refund of creditable input tax due or paid attributable to such sales,
except transitional input tax, to the extent that such input tax has not been applied
against output tax.19 It speaks of a tax credit for tax due, so payment of the tax has not
yet been made in that particular example.
The Court of Appeals expressly recognized the differences between a "tax credit" and a
"tax refund," and stated that the same are not synonymous with each other, which is
why it modified the ruling of the Court of Tax Appeals.
Revenue Regulations No. 2-94 v. R.A. No. 7432 and
R.A. No. 7432 v. the National Internal Revenue Code
Petitioner contends that since R.A. No. 7432 used the word "may," the availability of the
tax credit to private establishments is only permissive and not absolute or mandatory.
From that starting point, petitioner further argues that the definition of the term "tax
credit" in Revenue Regulations No. 2-94 was validly issued under the authority granted
by the law to the Department of Finance to formulate the needed guidelines. It further
explained that Revenue Regulations No. 2-94 can be harmonized with R.A No. 7432,
such that the definition of the term "tax credit" in Revenue Regulations No. 2-94 is
controlling. It claims that to do otherwise would result in Section 4(a) of R.A. No. 7432
impliedly repealing Section 204 (c) of the National Internal Revenue Code.
These arguments must also fail.
Revenue Regulations No. 2-94 is still subordinate to R.A. No. 7432, and in cases of
conflict, the implementing rule will not prevail over the law it seeks to implement. While
seemingly conflicting laws must be harmonized as far as practicable, in this particular
case, the conflict cannot be resolved in the manner the petitioner wishes. There is a
great divide separating the idea of "tax credit" and "tax deduction," as seen in the
definition in Black's Law Dictionary.
The claimed absurdity of Section 4(a) of R.A. No. 7432 impliedly repealing Section 204(c)
of the National Internal Revenue Code could only come about if it is accepted that a tax
credit is akin to a tax refund wherein payment of taxes must be made in order for it to
be claimed. But as shown in Section 112(a) of the National Internal Revenue Code, it is
not always necessary for payment to be made for a tax credit to be available.
Looking into R.A. No. 7432
Finally, petitioner argues that should private establishments, which count respondent in
their number, be allowed to claim tax credits for discounts given to senior citizens, they
would be earning and not just be reimbursed for the discounts given.
It cannot be denied that R.A. No. 7432 has a laudable goal. Moreover, it cannot be
argued that it was the intent of lawmakers for private establishments to be the primary
beneficiaries of the law. However, while the purpose of the law to benefit senior citizens
is praiseworthy, the concerns of the affected private establishments were also
considered by the lawmakers. As in other cases wherein private property is taken by the
State for public use, there must be just compensation. In this particular case, it took the
form of the tax credit granted to private establishments, purposely chosen by the
lawmakers. In the similar case of Commissioner of Internal Revenue v. Central Luzon
Drug Corporation,20 scrutinizing the deliberations of the Bicameral Conference
Committee Meeting on Social Justice on February 5, 1992 which finalized R.A. No. 7432,
the discussions of the lawmakers clearly showed the intent that the cost of the 20
percent discount may be claimed by the private establishments as a tax credit. An
excerpt from the deliberations is as follows:
SEN. ANGARA. In the case of private hospitals they got the grant of 15% discount,
provided that, the private hospitals can claim the expense as a tax credit.
REP. AQUINO. Yah could be allowed as deductions in the preparation of (inaudible)
income.
SEN. ANGARA. I-tax credit na lang natin para walang cash-out?cralawlibrary
REP. AQUINO. Oo, tax credit. Tama. Okay. Hospitals ba o lahat ng establishments na
covered.
THE CHAIRMAN. Sa kuwan lang yon, as private hospitals lang.
REP. AQUINO. Ano ba yung establishments na covered?cralawlibrary
SEN. ANGARA. Restaurant, lodging houses, recreation centers.
REP. AQUINO. All establishments covered siguro?cralawlibrary
SEN. ANGARA. From all establishments. Alisin na natin `yung kuwan kung ganon. Can we
go back to Section 4 ha?cralawlibrary
REP. AQUINO. Oho.
SEN. ANGARA. Letter A. To capture that thought, we'll say the grant of 20% discount
from all establishments et cetera, et cetera, provided that said establishments may
claim the cost as a tax credit. Ganon ba `yon?cralawlibrary
REP. AQUINO. Yah.
SEN. ANGARA. Dahil kung government, they don't need to claim it.
THE CHAIRMAN. Tax credit.
SEN. ANGARA. As a tax credit [rather] than a kuwan - deduction, Okay.21
It is clear that the lawmakers intended the grant of a tax credit to complying private
establishments like the respondent.
If the private establishments appear to benefit more from the tax credit than originally
intended, it is not for petitioner to say that they shouldn't. The tax credit may actually
have provided greater incentive for the private establishments to comply with R.A. No.
7432, or quicker relief from the cut into profits of these businesses.
Revenue Regulations No. 2-94 Null and Void
From the above discussion, it must be concluded that Revenue Regulations No. 2-94 is
null and void for failing to conform to the law it sought to implement. In case of
discrepancy between the basic law and a rule or regulation issued to implement said
law, the basic law prevails because said rule or regulation cannot go beyond the terms
and provisions of the basic law.22
Revenue Regulations No. 2-94 being null and void, it must be ruled then that under R.A.
No. 7432, which was effective at the time, respondent is entitled to its claim of a tax
credit, and the ruling of the Court of Appeals must be affirmed.
But even as this particular case is decided in this manner, it must be noted that the
concerns of the petitioner regarding tax credits granted to private establishments giving
discounts to senior citizens have been addressed. R.A. No. 7432 has been amended by
Republic Act No. 9257, the "Expanded Senior Citizens Act of 2003." In this, the term "tax
credit" is no longer used. The 20 percent discount granted by hotels and similar lodging
establishments, restaurants and recreation centers, and in the purchase of medicines in
all establishments for the exclusive use and enjoyment of senior citizens is treated in the
following manner:
The establishment may claim the discounts granted under (a), (f), (g) and (h) as tax
deduction based on the net cost of the goods sold or services rendered: Provided, That
the cost of the discount shall be allowed as deduction from gross income for the same
taxable year that the discount is granted. Provided, further, that the total amount of the
claimed tax deduction net of value added tax if applicable, shall be included in their
gross sales receipts for tax purposes and shall be subject to proper documentation and
to the provisions of the National Internal Revenue Code, as amended.23
This time around, there is no conflict between the law and the implementing Revenue
Regulations. Under Revenue Regulations No. 4-2006, "(o)nly the actual amount of the
discount granted or a sales discount not exceeding 20% of the gross selling price can be
deducted from the gross income, net of value added tax, if applicable, for income tax
purposes, and from gross sales or gross receipts of the business enterprise concerned,
for VAT or other percentage tax purposes."24 Under the new law, there is no tax credit
to speak of, only deductions.
Petitioner can find some vindication in the amendment made to R.A. No. 7432 by R.A.
No. 9257, which may be more in consonance with the principles of taxation, but as it
was R.A. No. 7432 in force at the time this case arose, this law controls the result in this
particular case, for which reason the petition must fail.
This case should remind all heads of executive agencies which are given the power to
promulgate rules and regulations, that they assume the roles of lawmakers. It is well-
settled that a regulation should not conflict with the law it implements. Thus, those
drafting the regulations should study well the laws their rules will implement, even to
the extent of reviewing the minutes of the deliberations of Congress about its intent
when it drafted the law. They may also consult the Secretary of Justice or the Solicitor
General for their opinions on the drafted rules. Administrative rules, regulations and
orders have the efficacy and force of law so long as they do not contravene any statute
or the Constitution.25 It is then the duty of the agencies to ensure that their rules do not
deviate from or amend acts of Congress, for their regulations are always subordinate to
law.
WHEREFORE, the Petition is hereby DENIED. The assailed Decision of the Court of
Appeals is AFFIRMED. There is no pronouncement as to costs.
SO ORDERED.
Quisumbing, Chairman, Carpio-Morales, Tinga, JJ., concur.
Carpio, J., on official leave.
Endnotes:

1 Republic Act No. 7432 (1992), Sec. 4 (a).

2 Id.
3 Revenue Regulations No. 2-94 (1993), Sec. 1(i).
4 Rollo, p. 33.
5 Id.
6 Id. at 34.
7 Id.
8 Id.
9 Id.
10 Section 2 (i) Revenue Regulations 2-94, issued August 23, 1993.
11 Rollo, p. 34.
12 Id. at 46.
13 Id. at 36. (Penned by Associate Justice Martin S. Villarama, Jr. and concurred in by

Associate Justice Conrado M. Vasquez, Jr. and Associate Justice Eliezer R. Delos Santos).
14 Id. at 21.
15 Revenue Regulations No. 2-94 (1994), Section 2.
16 Black's Law Dictionary, Centennial Edition, p. 1461 (1991).
17 Melendres, Jr. v. Commission on Elections, G.R. No. 129958, November 25, 1999, 319

SCRA 262, 275.

18 Republic v. Sandiganbayan, G.R. No. 119292, July 31,1998, 293 SCRA 440, 454.
19 Republic Act No. 8424 (1998), Sec. 112 (A).
20 G.R. No. 159647, April 15, 2005, 456 SCRA 414.
21 Deliberations of the Bicameral Conference Committee Meeting on Social Justice,

February 5, 1992, pp. 22-24.

22 People v. Maceren, No. L-32166, October 8, 1977, 79 SCRA 450, 460.
23 Republic Act No. 9257 (2004), Sec. 4.
24 Revenue Regulations No. 4-2006 (2005), Sec. 8(3).
25 Cruz v. Del Rosario, G.R. No. L-17440, December 26, 1963, 9 SCRA 755, 758.