M.E. HOLDING CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY M.E. HOLDING CORPORATION, (i; C.T.A. CASE NO. 5604 Petitioner, Promulgated: , -versus - APR 2 5 200 _ COMMISSIONER OF INTERNAL REVENUE, Respondent. X - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - X DECISION Before Us for consideration is petitioner's claim for refund of alleged overpaid income tax arising from its interpretation that the 20% sales discount granted to senior citizens under Republic Act (R.A.) 7432 should be treated as tax credit instead of a deduction from gross income as declared by the respondent in Revenue Regulations No. 2-94 and BIR Ruling No. 67-95, in the total amount ofP392,226.00 for the calendar year ended December 3 1, 1995. The facts of the case are simple. Petitioner is a corporation duly organized and existing w1der the laws of the Philippines (Exh. A). It is engaged in the business of retailing pharmaceutical products under the business style of "MERCURY DRUG" (Exh. G). It is duly licensed by the Bureau of Food and Drugs to operate a drugstore with proper permits and licenses from

DECISION C.T.A. CASE NO. 5604 Page 2 the local government unit of Baguio City, and other government agencies (Exhs. B, B-1, C, D, E, and F). For the year 1995, petitioner granted 20% sales discounts to qualified semor citizens on their purchases of medicines pursuant to R.A. 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". Petitioner treated these discounts as a deduction from its gross income in compliance with Revenue Regulations No. 2-94 issued by the respondent which implemented the aforesaid law. On April 15, 1996, petitioner filed its 1995 Corporation A1mual Income Tax Return and claimed among others, as a deduction the amount of P603,424.00, representing the 20% sales discounts granted by the petitioner to senior citizens on their purchases of medicines (Exhs. M, M-a and M-2). This final adjustment return was filed by petitioner under protest considering that these discounts were claimed as mere deductions instead of as tax credit (Exh. N). Unconvinced with the interpretation of the respondent regarding R.A. 7432, particularly Section 4(a) thereof, petitioner on December 27, 1996, filed a letter claim for tax refund or credit with the Appellate Division of the Bureau of Internal Revenue.(Exh. 0). The request for tax refund or credit represents the alleged overpaid income tax arising from respondent's erroneous interpretation that the 20% sales discounts given to senior citizens on their purchases of medicines should be treated by petitioner as a deduction from its gross income for income tax purposes or from gross sales for value- added tax or other percentage tax purposes rather than as a tax credit. In the said letter-

DECISION C.T.A. CASE NO. 5604 Page 3 request for refund, petitioner treated the 20% sales discounts in complete disagreement with respondent's view, that is, as a tax credit rather than as a mere deduction. On April 7, 1998, petitioner lodged its appeal with this Court in order to toll the rmming of the two-year prescriptive period to file a claim for refund pursuant to Section 230 of the Tax Code, as amended. In its petition for review, petitioner argues that the 20% sales discount granted to senior citizens should be treated as tax credit because Section 4 of R.A. 7432 provides in clear and unequivocal language that discounts granted to senior citizens may be claimed as TAX CREDIT. It further asseverates that Section 2(i) of Revenue Regulations No. 2-94 which is a mere administrative regulation, cannot modify or alter the clear mandate of said law. Petitioner believes that Section 2(i) of Revenue Regulations No. 2-94 is illegal, void and without effect for being inconsistent with the statute it seeks to implement. Respondent, on the other hand, submits "that the provision under Republic Act 7432, which states that the 20% sales discounts on purchases of medicines by senior citizens to be treated as tax credit is a misnomer as it runs counter to the solemn duty of the govermnent to collect taxes." Respondent adds "that it is likewise important to note that the legal provision in question employs the word "may", 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 it so chooses, neither does it impose a duty on the part of the govermnent to sit back and allow an important facet of tax collection to be at the sole control and discretion of the taxpayer (BIR Ruling 067-95, dated April 11, 1995)." Lastly, respondent contends that "in

DECISION C.T.A. CASE NO. 5604 Page 4 Statutory Construction, the principle that 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 the construction is so firmly embedded in our jurisprudence that no authorities need be cited to support it (Phil. Association of Free Labor Unions vs. Bureau of Labor Relations, 72 SCRA 396)." Thus, the issues to be resolved by this Court are as follows: 1. The proper interpretation of Section 4(a) of Republic Act No. 7432, insofar as the treatment of the 20% sales discount granted to qualified senior citizens on their purchases of medicines; 2. The validity of Revenue Regulations No. 2-94 implementing the aforesaid law which treats the 20% sales discounts as deduction from gross income for income tax purposes and from gross sales for value-added tax or other percentage tax purposes; and 3. Whether or not petitioner was able to prove with substantial evidence its claim for refund. We find all the legal issues in favor of petitioner. In fact, We have already ruled on these similar issues in a number of cases (Tropical Hut Food Market, Inc. vs. Commissioner of Internal Revenue, CTA Case No. 5312, May 28, 1999, Elmas Drug Corporation vs. Commissioner of Internal Revenue, CTA Case NO. 5311, August 27, 1998; Trinity Franchising & Management Corporation vs. The Commissioner of Internal Revenue, CTA Case No. 5313, August 18, 1998; M.E. Holding Corporation vs. Commissioner of Internal Revenue, CTA Case No. 5314, August 17, 1998; Baliuag Drug Corporation vs. Commissioner of Internal Revenue, CTA Case No.

DECISION C.T.A. CASE NO. 5604 Page 5 5365, May 13, 1998, Del Rosario Corporation vs. Commissioner of Internal Revenue, CTA Case No. 5357, April 6, 1998; and Sto. Rosario Drug Corporation vs. Commissioner of Internal Revenue, CTA Case No. 5367, February 16, 1998) wherein it was held: After a painstaking scrutiny of the attending facts, the issues involved, the respective argumentation of the parties and the applicable jurisprudence, laws and regulations in point, this Court hereby rules in favor of the petitioner. For easy reference, the pertinent provisions of law and regulations in question are hereby reproduced, to wit: A) Section 4 of theR epublic 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 establislm1ents, 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) B) Section 2 (i) ofRR No. 2-94 1. Tax Credit-refers to the amount representing the 20% discount granted to a qualified senior citizen by all establislunents 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 establislunents from their gross income for income tax purposes and from their gross sales for value-added tax or other percentage tax purposes." (emphasis supplied)

DECISION C.T.A. CASE NO. 5604 Page 6 A cursory review of the wordings of Section 4 of Republic Act No. 7432 would reveal that the law literally intended the cost of the 20% discount to be claimed as tax credit by private establishments. We could not see any plausible reason for the respondent to interpret the phrase in a different way. The discount being available for tax credit as stated in the law cannot be made incoherent to mean that such discount be utilized instead as a deduction from gross income and from gross sales what is provided in RR No. 2-94. To be valid, an administrative regulation must not be in contravention but should conform to the standards that the law prescribes. (Tayug Rural Bank vs. Central Bank, 146 SCRA 120) Its promulgation must be authorized by the legislature. (Philippine Administrative Law, Cruz, 1994 ed., p. 32) XXX XXX XXX In declaring that the provisions of RA 7432 prevail over Revenue Regulations No. 2-94, it is important to point out that the cost of the 20% discount shall not be treated as deduction from the gross income of the petitioner nor deducted from its gross sales for VAT or other percentage tax purposes. The benefit that can be derived by taxpayers is the privilege of claiming these discounts as tax credit and no longer as deductions as what other taxpayers have done. They cannot avail of tax credit and claim said discounts as deductions at the same time because this would be tantamount to granting them benefits that are already disproportionate to the obligations imposed upon them by virtue of said law. This is to make clear for both the taxpayers and respondent that the tax credit privilege takes the place of claiming these discounts as deductions pursuant to this Court's stand that Section 2(1) of Revenue Regulations No. 2-94 is null and void and it is Section 4(a) of RA 7432 that will apply in cases of this nature (Del Rosario Drug Corporation vs. Commissioner of Internal Revenue, C.T.A. Case No. 5357, dated April 6, 1998, supra). The aforecited ruling has already been affirmed by the Court of Appeals in the case entitled Commissioner of Internal Revenue vs. Elmas Drug Corporation, CA-G.R. SP No. 49946, dated October 19, 1999. Pertinent portions of the said decision are quoted hereunder, thus:

r DECISION C.T.A. CASE NO. 5604 Page 7 (W)here the law is very clear, there is no room for interpretation. Section 4 of Republic Act 7432 clearly provides that the cost of the 20% discount may be claimed by respondent as tax credit and there is nothing more to interpret. The Court of Tax Apape ls, in its decision dated August 27, 1998 co!Tectly ruled that the direct cost or the cost o[sales ofthe 20% discount given to senior citizens is deductible as tax credit. (Underlining supplied). Having settled the legal issues involved in the case at bar, We are now tasked to resolve the factual issue of whether or not petitioner is entitled to the claim for refund of overpaid income tax for the year 1995 based on the evidence submitted during trial. It is apparent from the records of the case that the present claim for refund was seasonably filed within the reglementary period of two years from the date of payment of the tax pursuant to Section 230 of the Tax Code, as amended. The letter claim for refund was filed with the respondent on December 26, 1996, and the petition for review with this Com1 was filed on April 7, 1998. The two-year period commences on April 15, 1996, the time when petitioner filed its 1995 final adjustment return (Commissioner of Internal Revenue vs. TMX Sales, Inc. et al., G.R. No. 837736, dated January 15, 1992). In order to prove that it is entitled to the claim for refund, petitioner engaged the services of Vicente E. Reyes And Associates, an independent auditing fim1, pursuant to CTA Circular 1-95, as amended, to examine the voluminous documents supporting the alleged 20% sales discount in the amount of P603,424.00 granted to qualified senior A -t I ' ) t

r DECISION C.T.A. CASE NO. 5604 Page 8 citizens. In its report, dated February 8, 1999, the independent auditor, Mr. Rene Amby Reyes noted the following: (Exh. V, V-1 to V-3) III. Findings Based on the aforementioned procedures, we ascertained that: a) the details appearing in the cash slips agree with the details per 1995 Summary of Sales and Discounts to Senior Citizens; b) the cash slips on file are duplicate and triplicate original copies; c) the 20% sales discounts were properly computed; d) the sales discounts given to senior citizens for the year 1995 are summarized as follows: Discounts given wherein the required details 604.083.73 for the issuance of cash slips are complete This amount of P604,083.73 as found by the independent auditor is more than the P603,424.00 claimed by petitioner in its petition for review. However, the full amount of P604,083.73 as verified by Mr. Reyes is not properly supported by proper documents. A meticulous scrutiny of the evidence on record together with that of the certification issued by Vicente E. Reyes And Associates reveals that: 1. Not all the cash slips supporting the Summary of Sales and Discounts to Senior Citizens were presented; 2. Some of the cash slips offered in evidence were not admitted by the Court in its Resolution, dated September 3, 1999; 3. There is a minor footing error; and 4. Some of the cash slips were not properly inputted. These observations by the Court will reduce petitioner's claimed 20% sales discount to P362,574.57 only, details of which are enumerated hereunder:

DECISION C.T.A. CASE NO. 5604 Page 9 Summary Summation Substantiated Disallowances R E MAR KS Per Page By Evidence Made by the Court Page No. p 3,122.40 p p 3,122.40 No supporting documents and not offerred 1 2 3,301.22 3,971.14 3,301.22 No supporting documents and not offerred 3 4,221.36 4 3,326.30 4,342.07 3,326.30 No supporting documents and not offerred 5 4,660.80 6 4,012.24 2,849.21 41.10 No supporting documents and not offerred 7 4,037.66 8 4,221.36 4,558.03 9 3,207.77 10 4,342.07 4,338.34 11 4,831.59 12 4,660.80 3,817.22 13 5,643.99 14 2,849.21 3,932.52 15 4,709.27 16 4,037.66 4,853.99 17 3,898.24 18 4,558.03 4,609.43 19 3,836.89 20 3,207.77 4,299.37 21 4,676.73 22 4,338.34 4,157.46 23 4,187.16 24 4,925.59 4,879.64 94.00 Exh. Q-130901 not admitted ..p. 3,862.72 38.67 Exh. Q-130100 no supporting document 26 3,817.22 5,263.28 27 4,877.08 2.00 Overstatement in Exh. Q-131765 28 5,682.66 29 512.45 30 3,932.52 31 795.50 32 4,711.27 4,369.50 33 4,293.73 34 4,853.99 3,187.90 35 3,719.27 36 3,898.24 3,250.21 37 38 4,609.43 39 40 3,836.89 41 42 4,299.37 43 44 4,676.73 45 4,157.46 4,187.16 4,879.64 3,862.72 5,263.28 4,877.08 513.25 0.80 Error in summation (footing) 2,743.97 No supporting documents and not offerred 2,743.97 2,994.72 No supporting documents and not offerred 2,498.91 No supporting documents and not offerred 2,994.72 3,600.91 No supporting documents and not offerred 3,253.18 No supporting documents and not offerred 2,498.91 3,689.29 No supporting documents and not offerred 3,069.59 No supporting documents and not offerred 3,600.91 4,172.98 No supporting documents and not offerred 4,178.33 No supporting documents and not offerred 3,253.18 3,065.70 No supporting documents and not offerred 3,689.29 6.23 Exh. Q-211887 no supporting document 66.35 Exh. Q-212213 no supporting document 3,069.59 4,172.98 4,178.33 3,861.20 4,369.50 4,299.96 3,254.25 3,719.27 3,250.21

DECISION C.T.A. CASE NO. 5604 Page IO 46 3,274.99 2,549.30 725.69 Exhs Q-212786, and Exhs. Q-216101 to Q-216114 no supporting documents 47 3,813.96 2,334.38 3,813.96 No supporting documents and not offerred 48 3,683.41 3,994.40 3,683.41 No supporting documents and not offerred 3,139.35 2,735.55 No supporting documents and not offerred 49 2,735.55 1,486.23 3,936.31 No supporting documents and not offerred 4,122.04 3,857.89 No supporting documents and not offerred 50 3,936.31 3,231.00 4,162.57 No supporting documents and not offerred 3,048.32 3,432.03 No supporting documents and not offerred 51 3,857.89 2,844.51 3,168.79 637.47 Double Exhs. Q-217650 to Q-217657; 52 4,162.57 5,039.31 Exh. Q-217503 not admitted 5,559.79 53 3,432.03 4,058.29 24.31 Exh. Q-238101 no supporting document 4,545.61 4,774.95 No supporting documents and not offerred 54 2,971.85 3,880.31 3,777.10 No supporting documents and not offerred 3,751.89 3,922.64 No supporting documents and not offerred 55 3,994.40 3,978.32 No supporting documents and not offerred 3,654.95 No supporting documents and not offerred 56 3,139.35 4,698.78 No supporting documents and not offerred 4,264.24 No supporting documents and not offerred 57 1,486.23 4,470.55 No supporting documents and not offerred 3,790.32 No supporting documents and not offerred 58 4,122.04 4,383.29 No supporting documents and not offerred 3,765.83 No supporting documents and not offerred 59 3,231.00 4,110.65 No supporting documents and not offerred 3,947.85 No supporting documents and not offerred 60 3,048.32 3,718.98 No supporting documents and not offerred 2,145.73 No supporting documents and not offerred 61 2,844.51 4,666.64 No supporting documents and not offerred 3,486.50 No supporting documents and not offerred 62 3,168.79 3,640.05 No supporting documents and not offerred 4,321.68 No supporting documents and not offerred 63 5,039.31 4,262.50 No supporting documents and not offerred 3,389.70 No supporting documents and not offerred 64 5,559.79 5,109.56 No supporting documents and not offerred 5,570.03 No supporting documents and not offerred 65 4,058.29 4,319.01 No supporting documents and not offerred 66 4,545.61 67 3,880.31 68 3,776.20 69 4,774.95 70 3,777.10 71 3,922.64 72 3,978.32 73 3,654.95 74 4,698.78 75 4,264.24 76 4,470.55 77 3,790.32 78 4,383.29 79 3,765.83 80 4,110.65 81 3,947.85 82 3,718.98 83 2,145.73 84 4,666.64 85 3,486.50 86 3,640.05 87 4,321.68 88 4,262.50 89 3,389.70 90 5,109.56 91 5,570.03 92 4,319.01 t5CO

DECISION C.T.A. CASE NO. 5604 Page II 93 4,930.30 3,673.52 4,930.30 No supporting documents and not offerred 94 4,659.00 4,659.00 No supporting documents and not offerred 95 4,743.42 4,977.04 4,743.42 No supporting documents and not offerred 96 4,457.21 4,446.23 4,457.21 No supporting documents and not offerred 97 3,923.01 6,479.42 3,923.01 No supporting documents and not offerred 98 4,298.38 4,468.59 4,298.38 No supporting documents and not offerred 99 4,842.22 5,968.27 4,842.22 No supporting documents and not offerred 100 5,339.82 4,892.04 5,339.82 No supporting documents and not offerred 101 4,781.36 4,415.02 1,107.84 Exhs. Q-239690 to Q-239700 no supporting 3,478.33 102 4,977.04 4,209.96 documents 103 4,446.23 4,286.26 104 6,479.42 4,584.86 522.90 Exh. Q-237401 not admitted 105 4,468.59 5,321.63 50.95 Exh. Q-237402 not admitted 106 5,968.27 107 4,892.04 498.58 300.40 Exh. Q-237501 not admitted 108 4,415.02 4,810.18 109 3,478.33 5,186.56 1,483.67 Double Exhs. Q-238010 to Q-238023 110 4,209.96 5,312.22 111 4,286.26 4,119.54 243.90 Exh. Q-236300 not admitted 112 4,584.86 3,991.50 554.25 Exhs. Q-246401 to Q-246407 not admitted 113 5,321.63 4,035.94 114 4,352.34 495.82 Exhs. Q-236601 to Q-236610 no supporting 115 498.58 4,976.36 documents 116 5,333.08 4,469.22 117 5,237.51 4,794.97 118 5,312.22 4,628.68 119 4,419.94 4,494.16 120 3,991.50 4,412.12 121 4,035.94 4,306.88 122 4,352.34 4,484.09 -fi 4,976.36 4,827.54 124 4,469.22 3,789.55 125 4,794.97 3,943.06 126 4,628.68 4,365.25 127 4,494.16 5,105.14 128 4,412.12 3,740.72 129 5,790.55 6,076.20 130 4,484.09 3,832.63 131 4,827.54 3,988.79 132 3,789.55 3,426.14 133 3,943.06 134 4,609.15 135 5,105.14 136 4,294.97 137 6,076.20 138 3,832.63 139 3,988.79 3,921.96

DECISION C.T.A. CASE NO. 5604 Page 12 140 6,485.87 6,485.87 No supporting documents and not offerred 141 5,754.61 5,754.61 No supporting documents and not offerred 142 6,396.41 6,396.41 No supporting documents and not offerred 143 5,227.47 5,227.47 No supporting documents and not offerred 144 4,463.04 4,463.04 No supporting documents and not offerred 145 2,622.71 2,622.71 No supporting documents and not offerred Total p 603,923.46 p 362,574.57 -=p-----=-24:1- -= ,3:4- 8.8=9 Hence, petitioner is only entitled to a lesser amount of P122,195.74, computed as follows: Net Sales P94,724,284.00 Add: 20% Discount to Senior Citizens 603,923.46 P95,328,207.46 (Per Petitioner's Summary) 87,338,849.00 Gross Sales p 7,989,358.46 Less: Cost of Sales 17,006,032.00 p 9,016,673.54 Merchandise Inventory, beg. p 9,519,210.00 Add Purchases 87,288,988.00 43,489,663.00 p 34,472,989.46 Total Goods Available for Sales P96,808,198.00 22,242,227.00 Less: Merchandise Inventory, End 9,469,349.00 p 12.230.762.46 Gross Income Less: Operating Expenses Net Operating Loss Add: Miscellaneous Income Net Income Less: Interest Income Subject to Final Tax Net Taxable Income Tax Due (P12,230,762.46 x 35%) p 4,280,766.86 Less: 1) Tax Credit- Cost of 20% Discounts p 333,568.60 with supporting documents 1 4,069,394.00 [(P87,338,849/ P95,328,207.46) x P362,574.57] 2) Income Tax Payment for the Year p 4,402,962.60 Total p 122.195.74 Amount Refundable 1 Computation based on the latest decision of the Court of Appeals in the case entitled Conunissioner of Internal Revenue vs. Elmas Drug Corporation, CA-G.R. SP No. 49946, dated October 19, 1999, supra.

DECISION C.T.A. CASE NO. 5604 Page 13 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 the year 1995. SO ORDERED. b� ERNESTO D. ACOSTA Presiding Judge WE CONC R: :.!1 ./ tJ Associate Judge (Dissenting) AMANCIO Q. SAGA Associate Judge CERTIFICATION I hereby certify that the above decision was reached after due consultation with the members of the Court of Tax Appeals in accordance with Section 13, A1iicle VIII of the Constitution. - ERNESTO D. ACOSTA Presiding Judge

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY M. E. HOLDING CORPORATON, Petitioner, -versus- C.T.A. CASE NO. 5604 COMMISSIONER OF INTERNAL Promulgated: REVENUE, APR 25 2000 Respondent. ./ X - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -X DISSENTING OPINION The majority opinion granted the amount of P122,195.74 as tax credit based on Section 4 of Republic Act No. 7432. The amount of P l 22,195.74 was the result of the formula adopted by the majority where the cost of the 20% discount was added back to the net sales resulting to a gross sales ofP95,328,207.46. I an1 of the opinion that the amount to be refunded to Petitioner should be P334,293.75 based on the following formula: Taxpayers Annual Gross Sales P95,327,708.00 Less: Sales discounts granted to Senior Citizens 603,424.00 Sales Net of 20% Sales Discounts to Senior Citizens P94,724,284.00 Less: Cost of Goods Sold 87,338,849.00 Gross Profits p 7,385,435.00 Less: Operating Expenses 17,006,032.00 Net Operating Loss (P 9,620,597.00) Add: Miscellaneous Income- Schedule 2, ITR P 6,422,142.00 Schedule 3, ITR 14,825,294.00 21,247,436.00 Net Taxable Income Subject to 35% Tax P11.626.839.00 ,u ''t

Dissenting Opinion CTA CASE NO. 5604 PAGE2 Corporate Income Tax Due p 4,069,394.00 Less: Payments made- p 4,403,687.75 Section E(b)(1) P2,417,914.62 p 334.293.75 Section E(c) 1,083,616.54 Payment per final ITR 567,862.84 Approved Cost of the 20% Sales Discount 334,293.75 Tax Credit per return representing the cost of 20% Sales Discount Amount of 20% Sales discount per books P 603,923.46 241,348.89 Less: Amount per audit by the Court's technical staff 362.574.57 Allowable 20% sales discounts P Cost thereof = P87,338,849.00/P94,724,284.00 p 334.293.75 92.2% x P362,574.57 Amount of Tax Credit claimed p 392.226.00 perPetition for Review The amount of tax credit (cost) as determined by the Court of P334,293.75 should prevail and not the amount of the claim ofP392,226.00. Under Section 4 of Republic Act No. 7432, the senior citizens are 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 establishment, restaurants and recreation centers and purchase of medicines anywhere in the country: Provided, That private establishments may claim the cost as tax credit; (b) a minimum of twenty percent (20%) discount on admission fees charged by theaters, cinema houses and concert halls, circuses, carnivals and other similar places of culture, leisure, and amusement; XXX XXX XXX G5

Dissenting Opinion CTA CASE NO. 5604 PAGE3 Section 4(a) refers to private establishments which are engaged in businesses requiring the use of inventories and purchases of goods as a necessary requirement in order to determine clearly the income of any such taxpayers, (Section 35, Tax Code, as amended by P.D. No. 1994). Under sub-section (a) of Section 4, the private establishments granting the 20% sales discount to senior citizens can directly deduct the 20% sales discount from the gross sales. However, in order to countervail the effect in the reduction of sales income, the same Section 4(a) allows the private establishments to use the cost of the 20% sales discounts as tax credit. The said cost of the 20% sales discounts can be determined by the following formula, thus: Cost of Goods sold divided by Sales net of 20% sales discount equals the percentage rate of the Cost of Goods Sold multiplied by 20% sales discounts net of disallowed amounts by the Court's technical staff. However, for private establishments granting the 20% sales discounts to semor citizens classified under Section 4(b), the same are directly deductible on the gross sales made to senior citizens as is done under Section 4(a). The only difference is that the private establishments are not allowed to tax credit the cost of the 20% sales discounts. In addition to the above legal provision is Section 1OO(d)(3) of the 1995 Tax Code which provides, thus: Sales Return, allowances and sales discounts -the value of goods sold and subsequently returned or for which allowances were granted by a VAT registered person may be deducted from the gross sales or receipts for the quatier in which a refund is made or a credit memorandum or refw1d is issued. Sales discounts granted and indicated in the invoice at the time of sale may be excluded from the gross sales within the same quarter. (w1derlining for emphasis).

Dissenting Opinion CTA CASENO. 5604 PAGE4 WHEREFORE, in view of the foregoing, I disagree with the op1mon of the majority and hold thatPetitioner is entitled to the amount ofP334,293.75 as Tax Credit. 0 �. '"1 b(