COMMISSIONER OF INTERNAL REVENUE v. FIRST PHILIPPINE UTILITIES CORPORATION

REPUBLIC OF THE PHILIPPINES Court of Tax Appeals QUEZON CITY En Bane COMMISSIONER OF INTERNAL CTA EB No. 2500 REVENUE, Petitioner, (CTA Case No. 9431) Present: -versus- DEL ROSARIO, PJ, UY, RINGPIS-LIBAN , MANAHAN, BACORRO-VILLENA, MODESTO-SAN PEDRO, REYES-FAJARDO, CUI-DAVID, and FERRER-FLORES, JJ. FIRST PHILIPPINE UTILITIES CORPORATION , Promul, at2e0d23 Respondent. MAY 2 x -------------------------------------------------------------------------1--------------x DECISION DEL ROSARIO, PJ.: Before this Court is a Petition for Review posted via registered mail on July 26, 2021 by the Commissioner of Internal Revenue , praying that the Court En Bane reverse and set aside the Decision dated September 29, 2020 and the Resolution dated March 22 , 2021 promulgated by the Court of Tax Appeals (CTA) Third Division1 in CTA Case No. 9431 , entitled First Philippine Utilities Corporation vs. Commissioner of Internal Revenue, which granted respondent's Petition for Review, cancelled and set aside the deficiency income tax, value-added tax, documentary stamp tax, and compromise penalty assessments for taxable year 2012 against respondent First Philippine Utilities Corporation in the amount of P1 00,884,707. 73. 1 Composed of Associate Justice Erlinda P. Uy, Associate Justice Ma. Belen M. Ringpis-Liban, and Associate Justice Maria Rowena Modesto-San Pedrofl]

DECISION Commissioner of Internal Revenue vs. First Philippine Utilities Corporation CTA EB No. 2500 (CTA Case No. 9431) The dispositive portions of the assailed Decision and assailed Resolution of the Court in Division read: September 29. 2020 Decision: "WHEREFORE, in light of the foregoing considerations, the instant Petition for Review is GRANTED. Consequently, Respondent's deficiency assessments for income tax, VAT, DST, and compromise penalty against Petitioner in the amount of Php100,884,707.73, inclusive of penalties and interest, for taxable year 2012, are CANCELLED and SET ASIDE. SO ORDERED." March 22. 2021 Resolution: "WHEREFORE, premises considered, Respondent's 'Motion for Reconsideration (Re: Decision promulgated 23 September 2020)' is DENIED for lack of merit. SO ORDERED." THE PARTIES Petitioner is the Commissioner of the Bureau of Internal Revenue (BIR), the government agency tasked to, among others, collect all national internal revenue taxes. As Commissioner, respondent has the power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto or other matters arising under the National Internal Revenue Code (NIRC) of 1997, as amended, or other laws or portions thereof administered by the BIR. The Commissioner holds office at the 5th Floor, BIR Building, Agham Road, Diliman, Quezon City. 2 Respondent First Philippine Utilities Corporation is duly organized and existing under and by virtue of the laws of the Republic of the Philippines, with office address at 6th Floor, Benpres Building, Meralco Avenue cor. Exchange Road, Pasig City. 3 2 Par. 2, Summary of Admitted Facts, Joint Stipulation of Fact and Issues (JSFI), CTA Division Docket, Vol. 1, p. 269. 3 Par. 1, id., CTA Division Docket, Vol. 1, p. 270. ~

DECISION Commissioner of Internal Revenue vs. First Philippine Utilities Corporation CTA EB No. 2500 (CTA Case No. 9431) THE FACTS4 The facts of the case as found by the Court in Division are as follows: "Respondent issued Letter of Authority ('LOA') No. LOA-43A- 2013-00000272 dated July 12, 2013, authorizing the conduct of an audit of its taxable records for taxable year 2012. The said LOA was signed by OIC-Regional Director Jonas DP. Amora, and was received by Petitioner on July 16, 2013. Thereafter, Respondent issued the Preliminary Assessment Notice ('PAN') on December 04, 2015, informing Petitioner that it was found liable for deficiency income tax in the amount of Php92,615,265.14, VAT amounting to Php1 ,312,835.88, and DST totalling Php5,863,690.07, inclusive of increments, for taxable year 2012. Petitioner filed its reply to the PAN on December 17, 2015, arguing that the preliminary assessment is bereft of legal and factual bases. Respondent issued the Formal Letter of Demand with Final Assessment Notice ('FLD-FAN') on December 22, 2015. The FLO- FAN contains deficiency tax assessments for income tax, VAT, and DST, for taxable year 2012, in the total amount of Php100,884,707.73, inclusive of interests and penalties, broken down as follows: Tax Tvoe �Amount Income tax Php93,639,916.54 VAT DST 1,326,957.29 5,917,833.90 Total Pho100,884,707.73 On January 20, 2016, Petitioner filed its Protest to the Assessment, arguing against the BIR's findings and praying that Respondent's deficiency tax assessments be cancelled, for lack of factual and legal bases. Claiming inaction on the part of Respondent, Petitioner filed the present Petition for Review on August 17, 2016. The instant case was initially raffled to this Court's First Division. Respondent then filed his Answer on December 05, 2016. On December 16, 2017, Respondent elevated the entire BIR Records of the present case consisting of one folder, pre-numbered from pages 1 to 525. 4 The Commissioner of Internal Revenue was the respondent; and First Philippine Utilities Corporation was the petitioner in CTA Case No. 9431fJ

DECISION Commissioner of Internal Revenue vs. First Philippine Utilities Corporation CTA EB No. 2500 (CTA Case No. 9431) The Pre-Trial Conference was initially set on March 30, 2017. However, the same was reset to, and held on, May 24, 2017. In the meantime, the Pre- Trial Brief for Petitioner was filed on March 24, 2017, while Respondent's Pre-Trial Briefwas submitted on March 27, 2017. The parties submitted their Joint Stipulation of Facts & Issues ('JSFI') on June 19, 2017, which was approved by this Court in the Resolution dated June 23, 2017. The Pre-Trial Order was issued on July 21, 2017, deeming the termination of the Pre-Trial. Trial ensued. During trial, Petitioner presented its documentary and testimonial evidence. It offered the testimonies of the following individuals, namely: (1) Ms. Victoria A. Martinez, former Vice President of Petitioner assigned to handle the accounting operations of the latter; and (2) Ms. Carminda B. Miranda, Petitioner's accountant. On August 03, 2018, Petitioner filed its Formal Offer of Evidence, Respondent failed to file his comment thereto. Thus, in the Resolution dated January 23, 2019, this Court admitted all of Petitioner's exhibits. Meanwhile, in the Order dated October 01, 2018, the present case was transferred to the Third Division of this Court. Respondent likewise presented his documentary and testimonial evidence. He offered the testimony of his sole witness, Revenue Officer Renata M. Atos. On April 10, 2019, Respondent filed his Formal Offer of Evidence. Petitioner failed to file its comment thereto. In the Resolution dated June 17, 2019, the Court likewise admitted all of Respondent's formally offered exhibits. Petitioner's Memorandum was filed on September 16, 2019. Respondent, however, failed to file his memorandum. In the Resolution dated September 20, 2019, the present case was deemed submitted for decision."5 (Citations omitted) On September 29, 2020, the Court in Division rendered the assailed Decision6 granting respondent's Petition for Review. On November 9, 2020, petitioner filed a "Motion for Reconsideration (Decision dated 29 September 2020)". 7 5 Court in Division's September 29, 2020 Decision, CTA En Bane Docket, pp. 17 to 19. 6 Annex "A", CTA En Bane Docket, pp. 15 to 62fl]

DECISION Commissioner of Internal Revenue vs. First Philippine Utilities Corporation CTA EB No. 2500 (CTA Case No. 9431) On March 22, 2021, the Court in Division issued the assailed Resolution8 denying petitioner's "Motion for Reconsideration (Decision dated 29 September 2020)" for lack of merit. On July 8, 2021, petitioner filed a "Motion for Extension of Time to File Petition for Review" before the Court En BancB The same was granted in the Minute Resolution 10 dated July 12, 2021, and petitioner was given until July 24, 2021, within which to file his Petition for Review. Petitioner posted the present Petition for Review11 via registered mail on July 26, 2022. 12 With the filing of petitioner's "Comment (to petitioner's Petition for Review dated July 26, 2021 )"13 on August 14, 2021, the case was referred for mediation to the Philippine Mediation Center - Court of Tax Appeals (PMC-CTA) on March 31,2022. 14 As the parties decided not to have their case mediated by the PMC-CTA, 15 the Petition for Review was submitted for decision on May 25, 2022. 16 THE ISSUE Whether or not the Court in Division erred in granting the Petition for Review in CTA Case No. 9431 and cancelling/withdrawing the Final Assessment Notice (FAN) and Formal Letter of Demand (FLO) with Details of Discrepancies issued against respondent, assessing it for deficiency income tax, value-added tax (VAT) and documentary stamp tax (DST), and compromise penalty for the taxable year 2012 in the amount of P1 00,884,707. 73, inclusive of interests and penalties. 17 7 CTA Division Docket, Vol. 2, pp. 978 to 984. 8 Annex "B", CTA En Bane Docket, pp. 63 to 68. 9 CTA En Bane Docket, pp. 1 to 2. 10 CTA En Bane Docket, p. 3. 11 CTA En Bane Docket, pp. 4 to 13. 12 July 24, 2021 fell on a Saturday; while July 25, 2021 fell on a Sunday. 13 CTA En Bane Docket, pp. 149 to 167. 14 Resolution, CTA En Bane Docket, pp. 169 to 170. 15 No Agreement to Mediate, CTA En Bane Docket, p. 171. 16 CTA En Bane Docket, pp. 173 to 174. 17 Petition for Review, CTA En Bane Docket, p. 8CJ1

DECISION Commissioner of Internal Revenue vs. First Philippine Utilities Corporation CTA EB No. 2500 (CTA Case No. 9431) PARTIES' ARGUMENTS Petitioner's arguments Petitioner raises the following arguments in support of his Petition for Review: 1. The interest income not subjected to income tax in the amount of P179,288, 707.67 must be added back to the taxable income of respondent as it failed to prove that the said interest income was subjected to final withholding tax; 2. Respondent's Income Tax Return (ITR) reveals that it was not in a net loss position. Thus, respondent's net operating loss carry over (NOLCO) in the amount of P165,722,261.00, which was carried over to succeeding periods and from which respondent derived the corresponding tax benefit, must be added back to respondent's taxable income for the taxable year 2012; 3. Respondent's excess minimum corporate income tax (MCIT) in the amount of P123,060.00 and tax credits in the amount of P432,509.00 must be disallowed as credits against respondent's income tax due as the same were carried over and credited against respondent's income tax due for the succeeding periods; 4. Respondent's service income in the amount of P6,927,843.75, which was not fully declared in respondent's ITR for taxable year 2012, is subject to 12% VAT pursuant to Section 108 of the NIRC of 1997, as amended; and, 5. Tax assessments are presumed to be correct and there is a presumption of regularity in the performance of the Revenue Officer's duty to investigate respondent for its internal revenue tax liabilities. Respondent's arguments Respondent, on the other hand, counter-argues that: 1. The Court in Division was correct in holding that r!/ respondent's interest income from money market placements, being passive income, were correctly held by

DECISION Commissioner of Internal Revenue vs. First Philippine Utilities Corporation CTA EB No. 2500 (CTA Case No. 9431) the Court in Division as not subject to regular corporate income tax. Said passive income are subject to final withholding tax at the rate of twenty percent (20%) which must be withheld by the banks as payors thereof; 2. The Court in Division was correct in ruling that respondent validly claimed NOLCO as a deduction from its gross income; 3. The Court in Division did not err in finding that there is no basis for petitioner to disallow as credits against respondent's income tax due for taxable year 2012 the MCIT and excess tax credits of respondent, albeit the same were carried over to succeeding periods; and, 4. The Court in Division was correct in holding that there is no basis for petitioner to assess respondent for deficiency VAT on its service income. RULING OF THE COURT EN BANC The Petition for Review was timely filed before the Court En Bane The Court En Bane shall first determine whether the present Petition for Review was timely filed. Section 3(b), Rule 8 of the Revised Rules of the Court of Tax Appeals (RRCTA) states: "SEC. 3. Who may appeal; period to file petition. - xxx XXX XXX XXX (b) A party adversely affected by a decision or resolution of a Division of the Court on a motion for reconsideration or new trial may appeal to the Court by filing before it a petition for review within fifteen days from receipt of a copy of the questioned decision or resolution. Upon proper motion and the payment of the full amount of the docket and other lawful fees and deposit for costs before the expiration of the reglementary period herein fixed, the Court may grant an additional period not exceeding fifteen days from the expiration of the original period within which to file the petition for review. (Rules of Court, Rule 42, sec. 1a)" "'

DECISION Commissioner of Internal Revenue vs. First Philippine Utilities Corporation CTA EB No. 2500 (CTA Case No. 9431) Records show that petitioner received the assailed Resolution on June 24, 2021. 18 Petitioner had fifteen (15) days from June 24, 2021 or until July 9, 2021 within which to file his Petition for Review before the Court En Bane. With the filing of a "Motion for Extension of Time to File Petition for Review" on July 8, 2021,19 petitioner was given until July 24, 2021 20 (which fell on a Saturday) within which to file his Petition for Review. The Petition for Review was timely filed on July 26, 2021. 21 The Court in Division was correct in cancelling and setting aside the FAN and FLD issued against respondent for taxable year 2012 As correctly pointed out by respondent, petitioner's arguments in its Petition for Review are mere rehash of the arguments raised in his Motion for Reconsideration filed before the Court in Division which were adequately passed upon by the Court in Division in the assailed Resolution. Nonetheless, the Court En Bane will address petitioner's arguments to put to rest the issues it reiterated. A. Interest income from money market placement is subject to final withholding tax and not to regular corporate income tax; the liability to withhold the final tax rests upon the banks as payors of the interest income To recall, in the FAN and FLD, petitioner was of the position that the subject interest income is not a passive income that should be subject to the final tax but to the regular corporate income tax. The Court in Division found and declared in the assailed Decision that respondent did not dispute the fact that the assessed interest income amounting to P179,288,707.67 arose from 18 CTA Division Docket, Vol. 2, unpaginated. 19 Supra Note 9. 20 Supra Note 10. 21 Supra Notes 11 and 12.l1'J

DECISION Commissioner of Internal Revenue vs. First Philippine Utilities Corporation CTA EB No. 2500 (CTA Case No. 9431) investments on money market placements to various banks for calendar year ending December 31, 2012. 22 In his Motion for Reconsideration of the assailed Decision and in the subject Petition for Review, petitioner changed his theory for the subject item of assessment. Petitioner is no longer insisting that the interest income is an ordinary income that should have been subjected to regular corporate income tax. Instead, petitioner is arguing anew that respondent failed to prove that the said interest income was subjected to final withholding tax. Petitioner has effectively admitted that the said interest income is indeed a passive income subject to final withholding tax, albeit the fact of withholding has not been proven by respondent. It is settled that a party cannot, on appeal, change fundamentally the nature of the issue in the case. When a party deliberately adopts a certain theory and the case is decided upon that theory in the court below, he will not be permitted to change the same on appeal, because to permit him to do so would be unfair to the adverse party23 Thus, the Court cannot allow petitioner to change his theory, and rule on the merits of the new theory. Having initially assessed respondent for regular corporate income tax on the basis of his position that the interest income is an ordinary income, petitioner (who conceded in the present appeal as well as in the Motion for Reconsideration of the assailed Decision that the interest income is a passive income subject to final withholding tax) can no longer insist that respondent be subjected to regular corporate income tax on said interest income as it failed to prove that said interest income have been subjected to final withholding tax. The Court cannot sanction this last-minute effort on the part of the petitioner to save the subject item of assessment from being cancelled. Even assuming arguendo that petitioner is allowed to belatedly raise the issue of respondent's failure to prove that the interest income was subjected to final withholding tax, the Court En Bane finds the same bereft of merit. 22 CTA En Bane Docket, p. 31. 23 Philippine Ports Authority vs. City of Iloilo, G.R. No. 109791, 14 July 2003~

DECISION Commissioner of Internal Revenue vs. First Philippine Utilities Corporation CTA EB No. 2500 (CTA Case No. 9431) Below is the breakdown of respondent's interest income that had already been subjected to final withholding tax as computed by independent external auditors:24 Audited Interest Income for Year 2012 P174,003,788.99 Short-term cash investments 17,153.06 Cash Deposits in banks 174,020,942.05 Total interest income subject to final tax 5,303,298.70 Add: Interest Income from Unicapital Corporation Total Interest Income per Audited Financial Statements P179,324,240. 75 Records show that the foregoing interest income came from cash deposits and short-term cash investments with banks. 25 Interest income earned from any money market placement and bank deposit is considered as passive income subject to final withholding tax pursuant to Section 24(8)(1) of the NIRC of 1997, as amended. Petitioner committed a mistake when it subjected the same to regular corporate income tax at the rate of thirty percent (30%) under Section 32(A)(2) of the NIRC of 1997, as amended when it should have been subjected to a final withholding tax at the rate of twenty percent (20%). Truth to tell, it is not respondent's duty to pay the final withholding tax. The payors, as the withholding agent26 are the ones mandated by law to collect the final withholding tax and remit the same to the BIR. Section 2.57(A) of Revenue Regulations No. 02-98 states: Section 2.57. Withholding of Tax at Source (A) Final Withholding Tax.- Under the final withholding tax system[,) the amount of income tax withheld by the withholding agent is constituted as a full and final payment of the income tax due from the payee on the said income. The liability for payment of the tax rests primarily on the payor as a withholding agent. Thus, in case of his failure to withhold the tax or in case of under withholding, the deficiency tax shall be collected from the payor/withholding agent. The payee is not required to file an income tax return for the particular income. XXX XXX xxx" 24 Exhibit "P-31 ", CTA Division Docket, p. 566. 25 Exhibit "P-19", CTA Division Docket, p. 757; Exhibit "P-20", CTA Division Docket, p. 777. 26 Rizal Commercial Banking Corporation vs. Commissioner of Internal Revenue, G.R. No. 170257, September 7, 2011~

DECISION Commissioner of Internal Revenue vs. First Philippine Utilities Corporation CTA EB No. 2500 (CTA Case No. 9431) In the case at bar, the withholding agents are banks, namely, Philippine National Bank, Rizal Commercial Banking Corporation, and Unicapital Corporation as they are the payors of respondent's interest income. It is their duty to withhold the final tax on respondent's interest income and remit the same to the BIR. Thus, there is no basis to insist that respondent is liable for any deficiency income tax arising from its failure to prove that the interest income was subjected to final withholding tax. B. The item of assessments on NOLCO, MC/T and excess tax credits were properly cancelled by the Court in Division Net Operating Loss Carry Over In both the Preliminary Assessment Notice (PAN) and the FAN, petitioner claimed that respondent's operations showed taxable income instead of net operating loss as claimed by the latter in its ITR. The pertinent portion of this item of assessment as disclosed in the Details of Discrepancies reads as follows: "Net Operating Loss Carry-Over (NOLCO), P165,722,261.00 - Investigation disclosed that your operation showed taxable income instead of net operating loss as previously claimed in your ITR. The tax benefit of this amount has already been forwarded to succeeding periods as provided for under Section 34 (D) (3) the NIRC, as amended, to wit: 'The net operating loss of the business or enterprise for any taxable year immediately preceding the current taxable year, which had not been previously offset as deduction from gross income shall be carried over as deduction from gross income for the next three (3) consecutive taxable years immediately following the year of such loss."' Petitioner's investigation indeed disclosed that respondent had an adjustment in the taxable income amounting to P200,451 ,070.14 composed of undeclared service income, interest income not subjected to income tax, and non-deductible expenses amounting to P1,624,544.75, P179,288,707.67 and P19,537,817.72, as shown below:{1J

DECISION Commissioner of Internal Revenue vs. First Philippine Utilities Corporation CTA EB No. 2500 (CTA Case No. 9431) I. INCOME TAX Taxable Income per Income Tax Return (ITR) P(165,722,261.00) Add: Adjustments per investigation: Undeclared Service Income (Schedule 1) P1 ,624,544.75 179,288,707.67 Interest Income not subjected to Income Tax 19,537,817.72 Non-deductible Expenses (Schedule 2) 200,451,070.14 P34,728,809.14 Total 165,722,261.00 P200,451 ,070.14 Add: Net Operating Loss Carry-Over (NOLCO) Adjusted Taxable Income The adjusted taxable income amounting to P200,451 ,070.44 can be recomputed by adding the sum of both the undeclared service income and interest income not subjected to income tax which is P180,913,252.42 to the total gross income per ITR amounting to P6, 152,989.00, and deducting the non-deductible expenses of P19,537,817. 72 from the total itemized deductions per ITR amounting to P20,574, 137.00. After effecting such adjustments, the total net taxable income is now at P186,029,922.14. Adding the NOLCO for the current taxable year in the amount of P14,421,148.00 would result to an adjusted taxable amount of P200,451 ,070.14, as computed below: Total Gross Income Per ITR Per CIR's Adjusted Less: adjustments Reqular Allowable Itemized Deductions 6,152,989.00 180,913,252.42 187,066,241.42 Allowance for NOLCO Total Itemized Deductions 20,574,137.00 (19,537,817.72) 1,036,319.28 Net Taxable Income 151,301,113.00 Add: NOLCO for 2012 171,875,250.00 - - Adjusted Taxable Income (165,722,261.00) 14,421 '148.00 1,036,319.28 186,029,922.14 14,421' 148.00 200,451,070.14 By arguing that the tax benefit of the NOLCO in the total amount of P165,722,261.00 has already been forwarded to succeeding periods, petitioner is effectively claiming that the net taxable income (or loss in this case) as per ITR in the same amount was forwarded as NOLCO in the next taxable period. The Court finds petitioner's claim unmeritorious. Such claim is contrary to Schedule 1A in the ITR, which reveals that as of 2012, there is no balance shown under the "Net Operating Loss (Unapplied)" column. Thus, respondent could not have forwarded the entire amount of P165,722,261.00 to taxable year 2013, viz~

DECISION Commissioner of Internal Revenue vs. First Philippine Utilities Corporation CTA EB No. 2500 (CTA Case No. 9431) Year Incurred Amount Applied Current Net Operating Year 2009 Expired Loss 2010 2011 (Unapplied) 2012 50,766,794.00 50,766,794.00 - - 100,534,319.00 100,534,319.00 - - - - - - 14,421 '148.00 14,421 '148.00 - - In arguing that the amount of P165, 722,261.00 was forwarded to the succeeding taxable years, petitioner simply relied on the fact that respondent disclosed in its ITR a net operating loss of P165,722,261.00. The Court finds that the net operating loss in the current year is actually reflected as NOLCO in the ITR for the succeeding taxable year. While it is possible that respondent may have forwarded the same amount in the succeeding taxable year, petitioner, however, failed to consider Schedule 1A of the ITR which specifically covered matters on NOLCO. As shown in the above table, the accumulated NOLCO amounting to P165, 722,261.00 were all applied in the current year. Thus, there is no unapplied NOLCO as of the end of taxable year 2012. The Court En Bane notes that respondent erroneously applied in the current year the NOLCOs from taxable years 2009 and 2010 amounting to P50,766,794.00 and P100,534,319.00, respectively. Notably, the current taxable year yielded a net operating loss before NOLCO of P14,421, 148.00. There is no taxable income against which those available NOLCOs from taxable years 2009 and 2010 may be applied. The proper treatment for such NOLCOs is to report them as expired NOLCOs. In any case, it is correct that there is no balance reported as unapplied NOLCO as of taxable year 2012. Absent any ITR for taxable year 2013 showing that respondent reported the amount of P165,722,261.00 as available NOLCO, respondent could not be said to have benefited twice by applying the NOLCOs in the current taxable year and by reporting the same as available NOLCOs in the succeeding taxable year. In sum, it is erroneous for petitioner to claim that the tax benefit arising from the NOLCOs were forwarded to the succeeding taxable years. Minimum Corporate Income Tax Anent petitioner's argument that the MCIT and the excess tax credits must be disallowed considering that they were already fJ1

DECISION Commissioner of Internal Revenue vs. First Philippine Utilities Corporation CTA EB No. 2500 (CTA Case No. 9431) forwarded to the succeeding taxable years, the Court finds the same untenable. The Court agrees with the findings of the Court in Division which held that no substantial adjustment can be made on the items of gross income. Consequently, respondent's net loss from operations shall remain unadjusted. Considering that respondent incurred net loss from its operations, the MCIT still applies pursuant to Section 27(E)(1) of the NIRC of 1997, as amended. Notably, the tax benefit from the MCIT will redound to the succeeding years. It is incorrect for petitioner to disallow the MCIT when the taxpayer did not even benefit from it during the taxable year. Excess Tax Credits As for the excess tax credits carried over to succeeding periods, the Court finds that they are automatically allowed as tax credits against petitioner's income tax due for the taxable quarters/years immediately succeeding the taxable quarters/years in which the excess tax credits arose pursuant to Section 2.58.3(C) of Revenue Regulations No. 2-98. Again, the Court reiterates that respondent incurred net loss in the current taxable year; thus, respondent could not have benefitted from the excess tax credits during the taxable year. In sum, the disallowances of the excess MCIT over the regular corporate income tax and excess tax credits carried forward to succeeding periods amounting to P123,060.00 and P432,509.00, respectively, lack factual and legal bases. C. The VAT assessment on service income, which is actually an interest income, was properly cancelled by the Court in Division Petitioner reiterates its argument that the service income in the amount ofP6,927,843.75 should be subjected to VAT. The Court En Bane finds that respondent is not subject to VAT on the alleged service in the amount of P6,927,843. 75. C11

DECISION Commissioner of Internal Revenue vs. First Philippine Utilities Corporation CTA EB No. 2500 (CTA Case No. 9431) As found by the Court in Division, the amount of P6,927,843. 75 comprises of gross receipts from interest income during the taxable year 2012. There is nothing on record which would show that respondent is a lending company that earned aforesaid interest income in the ordinary course of business. Thus, there is no basis to assess respondent for deficiency VAT on the aforesaid interest 1ncome. All told, the Court En Bane finds no justifiable reason to reverse or set aside the assailed Decision and assailed Resolution of the Court in Division which cancelled the subject FAN and FLO issued against respondent for taxable year 2012. WHEREFORE, in light of the foregoing, the Petition for Review posted on July 26, 2021 by the Commissioner of Internal Revenue is DENIED for lack of merit. The Decision dated September 29, 2020 and Resolution dated March 22, 2021 of the Court in Division in CTA Case No. 9431 are AFFIRMED. The Commissioner of Internal Revenue, his representatives, agents or any person acting on his behalf are hereby ENJOINED from enforcing the collection of the deficiency income tax, value- added tax, documentary stamp tax and compromise penalty assessments issued against First Philippine Utilities Corporation. arising from the Formal Letter of Demand and Final Assessment Notice dated December 22, 2015 in the aggregate amount of P1 00,884,707. 73, inclusive of interests and penalties, for taxable year ended December 31, 2012. The order of suspension is IMMEDIATELY EXECUTORY consistent with Section 4, Rule 39 of the Rules of Court. SO ORDERED. Presiding Justice

DECISION Commissioner of Internal Revenue vs. First Philippine Utilities Corporation CTA EB No. 2500 (CTA Case No. 9431) WE CONCUR: ERL~UY ~- ~ __.,.. !.....___ Associate Justice MA. BELEN M. RINGPIS-LIBAN Associate Justice ON LEAVE CATHERINE T. MANAHAN Associate Justice OH OFFICIAL BUSINESS MARIA ROWENA MODESTO-SAN PEDRO Associate Justice ~ S;.,r r. ~ ..F~~ ON LEAVE MARIAN IVYY=. REYES-FAJARDO LANEE S. CUI-DAVID Associate Justice Associate Justice c~~-~ Associate Justice CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court. Presiding Justice