GENERAL MILLING CORPORATION v. COMMISSIONER OF INTERNAL REVENUE

,.� REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON SITY GENERAL MILLING CORPORATION, C.T.A. CASE NO. 5496 Petitioner, =J~~~~~~~~ Promulgated: ~ - versus - COMMISSIONER OF INTERNAL REVENUE, Respondent. X- - - - DECISION 1ssu~nce ot tax 1n tile-: .:?.mount Petitiorer is a Food ma~~fact~r1ng corporat1on, du!y unde.� -�r- 1. l J ,.J ~ 1 n e 1 av-.;. operates a feedmill plar.t 1n Cebu, Philippines, itJhich is duly req:stered w1th the Boa~c rf Investments u ' D .r " , t o t' il s s' tc-�h 4 i t 1ncome tax holiday <.:::n The facts are s1mple. of the adoption by On Hpt�i 1 1 o, i 997' method of c�omp_ttlng 1ncomE� ta>< hol::d<:>.y few ]ec:;s. thc:.n a through an am~nded 1ncome ~ax return.

DECISION C.T.A. CASE NO. 5496 called new method, the total sales/revenue and deductible expenses for the whole year of the feedmill plant were cons ide�r"�r::d in the computation instead of the previous method which considered only the period covered by the 1ncome tax holiday within the year. Based therefore on this new method, the amended and the or1ginal computation as presented by the Petitioner ClX'e as follcnvs, to wit: Amended Original Uan. 1-Dec. 311 1994) (Jan. 1-June 301 1994) A. Total Sales ~925,241,515.00 438,826,645.00 B. Eligible Sales c. Less: Base Figure 438,826,645.00 100 '/. D. Incre1ental Sales 22,417,541.00 E. Rate of Exempt1on (B/Ai 438,82&,645.00 7,846,139.00 F. TaKable Income 47.43 ~ G. Tax Due-35 '/. 100 '/. H. Rate of EKelption 53,414,654.00 7,846,139.00 18,695,129.10 I. Income Tax Holiday J. ADDITIONAL INCOME TAX 47.43 '/. 8,867,100.00 HOLIDAY p 1,020,960.00 Due to the near expiry of its right to claim for tax credit within two years from date of payment under Section 230 of the Tax constrained to institute the present appeal. At bar, Petitjoner echoed its stance a ouo. On the o t h e �r' h an d , Re s p o n cl e n t i n t e J�' p o s e s , f t' o m a mo n g o ":: h e J�' s. , t h e following special and affirmative defenses, to wit: X ){ X XXX 7. The BOl adopted method of computation of ITH CManCom Res. No. 80--2-4 s'96) elated OctDber' ~::2, 1':396 ha~; no

DECISION C.T.A. CASE NO. 5496 3 ;--�e�b-oactive effect and~ the�r-�efoi�-�e, does not apply to petitioner?s 1994 income tax payment; B. The petitioner has already filed its final corporation annual income tax return for the taxable year ending Decembe1��� 31, 19~-3�+ on Ar.:n'il 17.1 19'37.7.i' hence, the amended 1994 corporation annual income tax return filed only two y e <::n- s later on March 7, 1997 is highly i r��j�'e ~1 u 1ar��, i mpr���o p~"r' and ha~; no leqal basis; 11. He who claims exemption must be able to justify h1s claim or right ther�etlJ,J by a gr'ant expr'essed in te1�'ms too plain to be mistaken and too categor1cal to be misinte�r�p�r-�E~ted. <Comm. vs. Kiener�� Co. Ltd., L--�24754, July 18, 1'37~3; Reagan vs. Comm., L-26379, Dec. 27, 1969) An exemption from a common burden cannot be permitted to exist upon a vague implication o-r�� inff"�r��10nce. U~siatic Pet1�'oleum Co. vs. Yli=:mes, LJ.g Phil. '+66; fYian i l a E 1 ect r' i c: Co. v s. Ver��a, L --299f37 .1 (Jet a C~i::, 1 9-l~j) ; Dur'ing the hear'l ngs and in his memor�andum.J Respondent submitted in evidence his examiner's tindings on Petitioner's claim (Exhibit 2) which granted a reduced amount after disallowing admin_strative expenses and factory cost, in the amount of P10,688.70 <::tnd P13c~.J 5'32 .. 9~~:~ respectively (Schedule B of Memorandum~ Petitioner rebutted the findings of He<:,pondent' s examiner by contending that the alleged factory cost and admin1strative expense actually pertained to the :L3th month pay of its factory workers and administrative employees which were all be 1 o~-J P30,000.00 for each

DECISION C.T . A. CASE NO. 5496 - 4- thus~ not subject to income and withholding tax, ptu��'suant to Republic Act No. 2':3, 1':1'1Eq i'iemOl�~andum for~ the Petitioner~~ p. LJ.) Based on the facts and arguments of the parties~ the following are the issues confronting this Court~ namely: 1 . Whet h er or no t Pet i tioner is entitled to a retroactive application of the method of computing income tax holiday appr~oved by the BOI on October~ ;:::2~ 1996; ,;md if in the affirmative, 2. Whether or not petitioner i s entitled to its entire claim or limited only to a reduced amount of P348~317.00 as recommended b y Responde n t examiner . As this Court is not only a retroactive applicat io n of the BOI method of co mputing i n come t ax h oliday but most importantly, rules the method itsr::df, being contr-�.::n~y to Re!:;pondent �; s Revenue Regulations No. 2 on income taxation SEC. 61. Excl u sions t=rom gr~oss income.-�-The tel�-�m "gr'o~;s income" as us~:?d in the Ac t does not include those items of income exempted by statute or by fundamenta l law. S uch tax-free income should not be included in the income tax return unless information regarding it is specifically called for. The exclusion of such inco me should not be confused with the reduction of gross income by the application of allowable deductions. <Italics and emphasis supplied) It 1. ,- clear that the method approved by the :.:> BOI abovr:.� s 0~ct ion in view of the inclusion sales/revenues and dr:ductions by income ta>< holida.y within the period January

DECISION C.T.A. CASE NO. 5496 - 5- 1994 to June 30? In the computation of the Income tax return for year 1994, these should have been excluded as they fall within the period of exemption granted by the Omnibus Investment Code. An income tax holiday is but another term for income tax exemption, hence, all receipts accruing or covered ':;hould not be mixed or included in the computation of Petitioner?s taxable income from July 1, Respondent?s the go v et~nm ent agency specifically tasked with the implementation of income taxation. Its regulations necessarily prevail over the BOI method of computing income tax. This Court further belie ves that to sanction said 801 method would result in a spill over or an unwarranted extension of the benefit of income tax exemption to Petition~?t~' s taxable income fo1�~ the per"�iod J'uly 1? 1.'39�4 to December~ 31, J.99L~. This observation is taken from the fact that Petitioner is claiming a tax credit at bar when the computation is made for the whole year of 1994, inclusive of the income tax holiday period. On this score alone, this Court reiterates the well- settled rule that tax exemptions are strictly construed and can only be given force when the grant is clear and categor~i.cal. (Commissioner of Internal Revenue vs. F~io Tuba Nickel Mining Corp., 202 SCRA 137)

DECISION C.T.A. CASE NO. 5496 - 6- W1th the ~ind1ng that the EOI met~o~ 1n q0estior 1~ 1 2 ~ a 1 1 ,- f 1awed , t h .i s Co ,_w t d e e ms i t mo o t and a cad e mi c t '1 t1scuss the second 1ssue at bar. WHEREFORE, in view of the foregoing~ th f? inst;;..nt Pet i -':; i on f o 1�~ Re v i e w i s h r.~ ~ �P by DEN I ED f o "r"' c ~ ..:~ r{ o f rn e 1�� :i t . SO ORDERED . I I I ~~~ ERNESTO D. ACOSTA f..'t~ e s i c! in 1;1 Judge CERTIFICATION I hereby certify that th1s decision was reached after due consultation with the members of the Court of Tax Appeals in accordance with Section 13, 0rticle VIII of the Constttution. G c~ cQ. ERNESTO D. ACOSTA P~~esidinq Judqe Court of Tax Pppeals