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.
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 resolution6 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.
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.:
This is a petition1 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.
[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:
x x x              x x x
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
SECOND DIVISION
[G.R. NO. 142299 : June 22, 2006]
BICOLANDIA DRUG CORPORATION
(FORMERLY ELMAS DRUG
COPRORATION), Petitioner, v. COMMISSIO
NER 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
P31,080,5
Net Sales
08.00
Ad 20% Discount to Senior
80,330.00
d: Citizens
P31,160,8
Gross Sales 38.00
Les
Cost of Sales
s:
 Merchandise P 4,226,5 P 45,574. s: Final Tax
Inventory, beg. 88.00 AMOUNT REFUNDABLE 63

29,234,3 P 613,240
Add Purchases
61.00 For 1994 Net Taxable Income .00

P 29,904, P 214,634
Net Sales Tax Due (613,240 x 35%)
Total Goods P33,460,9 734.00 .00
available for Sale 47.00
Ad 20% Discount to Senior 515,000.0 Les 1) Tax Credit (Cost
Les Merchandise P 4,875.9 P28,585,0 d: Citizens 0 s: of 20% Discount)
s: Inventory, End 44.00 03.00 [(28,585,003.00/31
Gross Sales P 30,419, ,160,838.00) P316,156.
734.00 x 80,330.34] 48
P 2,575,8
Gross Income 2) Income Tax 34,384.0 P 350,540
35.00
Les Payment for the 0 .48
Cost of Sales
s: Year
Les 1,706,491
Merchandise P 4,875,9 AMOUNT REFUNDABLE P 135,906
s: Operating Expenses .00
Inventory, beg. 44.00 .48
P 869,344
Net Operating Income 28,138,1
.00 Add Purchases
03.00 WHEREFORE, in view of all the foregoing,
Ad petitioner's claim for refund is hereby partially
Miscellaneous Income 72,680.00
d: GRANTED. Respondent is hereby ORDERED to
Total Goods P 33,014, REFUND, or in the alternative, to ISSUE a tax
available for Sales 047.00 credit certificate in favor of the petitioner the
P 942,024 amounts of P45,574.63 and P135,906.48,
Les Merchandise 5,036.11 27,977,93
Net Income .00 representing overpaid income tax for the years
s: Inventory, End 7.00 0.00
1993 and 1994, respectively.
Les Interest Income Subject to SO ORDERED.4
21,140.00
s: Final Tax
P 2,441,8
Gross Income Both the Commissioner and petitioner moved
04.00
for a reconsideration of the above decision.
P 920,884
Les 1,880,153 Petitioner, in its Motion for Partial
Net Taxable Income .00 Operating Expenses
s: .00 Reconsideration, claimed that the "cost" that
P 322,309 private establishments may claim as tax credit
Tax Due (P920,884 x 35%) under Section 4 of R.A. No. 7432 should be
.40
P 561,651 construed to mean the full amount of the 20%
Les 1) Tax Credit (Cost Net Operating Income .00 sales discount granted to senior citizens instead
s: of 20% Discount) of the formula - - [Tax Credit = Cost of
[(28,585,003.00/31 Ad
Miscellaneous Income 82,207.00 Sales/Gross Sales x 20% discount] - used by
,160,838.00) P 73,690. d: the CTA in computing for the amount of the tax
x 80,330.34] 03 credit. In view of this, petitioner prayed for the
refund of the amount of income tax it allegedly
2) Income Tax 294,194. P 367,884 P 643,858
overpaid in the aggregate amount
Payment for the 00 .03 Net Income .00
of P45,574.63 and P135,906.48, respectively,
Year
Les Interest Income Subject to 30,618.00 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.
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
Add: 20% Discount to Senior Citizens
(Per Petitioner's Summary)
It ought to be noted, however, that on February
Gross Sales
26, 2004, RA 9257, or The Expanded Senior
Citizens Act of 2003, amending RA 7432, was
Less: Cost of Sales
signed into law, ushering in, upon its effectivity
Merchandise Inventory, beg. PhP 9,519,210.00
on March 21, 2004, a new tax treatment for
Add Purchases 87,288,988.00 sales discount purchases of qualified senior
citizens of medicines. Sec. 4(a) of RA 9257
PhP provides:
Total Goods available for Sale 96,808,198.00 SEC. 4. Privileges for the Senior Citizens. - The
senior citizens shall be entitled to the following:
Less: Merchandise Inventory, (a) the grant of twenty percent (20%) discount
End PhP 9,469.349.00 from all establishments relative to the utilization
of services in hotels and similar lodging
Gross Income establishments, restaurants and recreation
centers, and purchase of medicines in all
Less: Operating Expenses establishments for the exclusive use or
enjoyment of senior citizens, x x x;
Net Operating Income /(Loss) xxx
The establishment may claim the discounts
Add: Miscellaneous Income granted under (a), (f), (g) and (h) as tax
deduction based on the net cost of the goods
Net Income sold or services rendered: Provided, That the
cost of the discount shall be allowed as
Less: Interest Income Subject deduction from gross income for the same
to Final Tax taxable year that the discount is
granted. Provided, further, That the total
Net Taxable Income amount of the claimed tax deduction net of
value added tax if applicable, shall be included
Tax Due (PhP 12,230,762.46 x 35%) in their gross sales receipts for tax purposes
and shall be subject to proper documentation
Less: 1) Tax Credit (20% Discount with supporting and to the provisions of the National Internal
documents) Revenue Code, as amended. (Emphasis
supplied.)
2) Income Tax Payment for the Year Conformably, starting taxable year 2004, the
20% sales discount granted by establishments
Total to qualified senior citizens is to be treated as tax
deduction, no longer as tax credit.14
AMOUNT OF TAX CREDIT IN VIEW OF THE FOREGOING, this petition
Parenthetically, we note that M.E. originally is PARTLY GRANTED. The CA's Decision dated
prayed for a tax refund for its tax overpayment July 1, 2003 and its Resolution of September
for CY 1995. The CTA and the CA granted the 24, 2003 in CA-G.R. SP No. 60134, affirming
desired refund, albeit at a lower amount due to the Decision of the CTA dated April 25, 2000 in
their interpretation, erroneous as it turned out CTA Case No. 5604,
to be, of the term "cost." However, we cannot are AFFIRMED with MODIFICATIONS insofar as
agree with the courts a quo on what M.E. is the amount and mode of payment of M.E.'s
entitled to. RA 7432 expressly provides that the claim are concerned. As modified, the fallo of
sales discount may be claimed as tax credit, not the April 25, 2000 Decision of the CTA shall
as tax refund. 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.
[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.