CTA Case No. 2993 (Decision)

ltEPUBL1C OJ' THR PHILJPPlNU � COURT OF 'I'AX APPEALS Of"f70N CJTV I THE HANILA BANKING CORPORATION, Peti tioner, - versus - C.T.A. CASE NO . 2993 �rHE COr.iiUSSIOlJER OF IN'l'ERNAL REVBNUE , Hes >ondent . X- - - - - - - - - - - - X DBC I S I 0 N This action involving a claim for tax credit is nothing mo re than a question of the legality of an imposition of adillinistrative penalty directed against late payment of the transaction tax pre- scribed under ~ection 210\b) of the Tax Code of 1977, as amended by Presidential Decree No . 1154, providin9 insotar as pertinent, that - "Comnercial paper transactions. - There shall be levied, assessed, 'collected and paid on every commercial paper issued i n the primary market as principal instru- ment, a transaction tax e~uivalent to thirty- fi v e percent (35%) based on the gross amount of interest theretci a~ aefineJ hereunder, which shall be paid by the borrower/issuer; XXX XXX XXX "The tax herein � imposed shall be re- mitte by the borrower to the Commissioner of Internal Revenue or his Colledtion Agent in the municipality where such borrower has its principal place of business within five (5) working days from issuance of the comme r- cial paper . xxx xxx xxx"

DECISION - CTA CASE NO. 2993 - 2- It appears that petitioner Manila Banking Cor- poration which is duly authorized to engage in a general and commercial banking business, in a borrowing transactio~ issued instruments of i n- debtedness/commerical papers on June 3, 6, 7, 8, 9 , and 10, all in 1977, and paid the respondent Commis- sioner of Internal Revenue on June 22, 1~77, a total amount of Pl69,450.26 for the requisite 35% tran- saction tax inclusive of the ~34,295.45 representing surcharge and inter.est which had accrued therein incident to the delinquency pursuant to Section 193(a) of the Tax Code of 1977. The same ~enal clause was plucked and restated in the implementing Revenue Regulations No. 7-77, issued on June 3, 1917, by the then Secretary of Binance. Submitted for decision on the basis of the pleadings on purely question of law, petitioner assails the legality of the imposition and collection of the administrative penalty which amounted to ~34,295.26, sought in this instant claim for tax credit , alleging that the amendatory Presidential Decree No . 1154, incorporated as Section 210(b) of the Tax Code effective on June 3, 1977, did not prescribe any separate penalty and much less called for in an implementing regulation. In short, peti-

� DECISION - C'rA CASE NO . 2993 - 3- tioner categorically repudiates the applicability of any sanction on its admitted breach of the law. We disagree . Rather, we share and sustain respondent's view that Presidential Decree clo . 1154, entitled, "Further amending certain sections of the National Internal 1tcvenue Code , as amende� , so as to impose a final tax on the interest derived from every com- mercial paper issue in the primary market�, added Section 195-C, now Cect ion 210(b) ~to the Internal Revenue Code of 1971, relating to percentage taxes under Title v. Such being the case, it is unnecessary and superfluous for the decree to separately provide penalties for its violation, as Title V, specifically Section 193{a) of said 1977 Code , already contains penalties of 25~ surcharge and 14% interest per anQum for non-c~.p liance therewith . Thus, he im~osition. We find nothing ambi~uous or obscure )n the language of Section 193 ~a) of the Tax Code insofar as the same is brought to bear upon the transaction effected under Section 210 :b), suera, which reads thus, "Section 193. Payment of percentage taxes . - (a) In general . - Unless otherwise specifically provided, it shall be the duty o- every person conducting a busineso on which a percentage tax is imposed under this Title, to make a true and complete return of the amount of his, her or its gross

DECISION CTA CASE NO . 2993 - 4- quarterly sales, receipts or earnings, or gross value of output actually removed from the factory or mill warehouse and within twenty-days after the end of each quarter pay the tax due thereon; xxx (e mphasis supplieu1 "If t he percentage tax in any business is not paid 1ithin t he time specified above, the amount of the tax shall be increased by twenty-five ~e r centum, the increment to be part of the tax and tne entire unpaid amount shall be subject to i nterest at the rate of fou rteen per cent pe r annu~ . " The simJle is~ue witn which we are here conf ro nted is whether the cases o~ uelinquency in the paymen t of the ~ercentaye tax under Sect ion 210{b)~ are removed fro~ the operative sanctions p r escribed in Section 193 (a) ~ s pra. We find that the p r ovision of S2ct i on 210(b) erects no shiel - against t1e applicaoility of 1 ection l 9 3{a) ~bich p r o acript 1ons on the manner and time of payment ot the percentdge taxe� and penalty thereby c onse uencea remain ana continue in Loree even after the amendce t by President ial Decree No . 1154, now action 210(D) of the fax Co e. Given expression, "A1 a ~adeu stacue is construea, as re- gards any ac ion hdd a ter he am na.�. en t was maue , as i f th �� statu l.C �l been or ig i aally enacted in the amended form." (dolbrook v. ~Hchol, 36 Ill . 1 61; Tu r ney v. \T ilton, id. 3 '5; Conrad v. Nal l, 24 Mich. 275, 41 Nr:; 65, 33 LI<.i-1. 392; Hee r v � .uoard o.t

DECISION - C'rA CASE NO . 2993 - 5- Com 'r s, 26 Ind. App . 59 NE 65; Mortimer v. Chambers, 63 Hun 335, 17 NYS 874) ~ The effect of an amendme nt of a section of the law is not to sever it f rom its relatio n to other ~ections of the law, but to give it operation in i ts new form as if it had been drawn originally, treating the whole act as harmonious entir e l y with its several sections and parts mutually acting upon each other. (Farrell v . State , 54 NJ L 421, Atl . 727 , cited in Lewis' Sutherland Statu- tory Construction) ~ Both requisitions in Sections 193(a) and 210lb) are of symbiotic application to effect the end for which they were intended . It is evident that the sanctions in Section 193 {a) addressed to the violations of the provisions under the common denomination of percentage taxes in Title V of the Code , equally operate in the same manner and to the same extent evoked by the delin- quency arising in Section 210{b) . These provisions in pari ma teria under the said title have to be construed together as though they constitute one act. {U . S . v. Freeman, 3 How . 556, ll Led . 724) . Whe r e statutes are pa rt of a general system rel ating to the same class of subjects, and rest upon the same reason, they should be construed, if possible, as to be uniform in their application and in the

DECI S ION - CTA CASE NO. 29 9 3 - 6- r esults wh ic h they a ccompl ish . (Sh ield v. Boston, A. R. R. Co ., 172 Mass . 180, 182 , 51 NE 1078) . Section 210(b), used to be P . D. No . 1154, duly incorporated unde r Title V ~usiness Tax) of the National Internal Revenue Code of 197/, comes within the contemplated cove r age of the penal sanction of said title ao p rov ided in Section 193(a). The ~ r ophylactic function of Section 193(a) has lost none of its efficacy but r e ma ins just as valid. And this all what we need decide. Thus, petitioner's striveling agitation for a separ ate penal clause to govern the violation of the restrictive caveat of Section 210{b) is rendered super fluous. It is not essential, either. "'l'he law does not make the obviously impractical require- ment that every act shall recite all other acts that its operation mayfucidentally affect either by way of modification or extension." Jearrights ~s ta te , 163 Pa. Jt. 210, 217, ~~ Atl. 800. It is to be inferreu that a code of statutes relating to one subject was governed by one spirit and policy and was intended to be consist~nt anc harmonious in its several pctrtJ an provisions . (State v. ~dlliams, 1 3 SC 558). In a gesture of fairness, it will be of immense naivette if we do not ~resume that when tl1e law-makiny body enacted the statute, it had fill.ll

': OZCISIO~ - C1A CASE ~0 . 2993 - 7- knowl dg of prior existing laws and legislations on the aubj ct of t e statu n act d in accot aAc or with .r peot ti <U' to � l'l.'amian i 'l'.t iQl 'l1ours v. .' Ha il L I 194 l;) � l. � i'Ol � Cour peals, r..- ul, ;, pt.e oe.r o, �; 3 ~cru l 3, cite in Rur-l bc..nk o"' c 11 og, nc. � Co., Ei ion r of Intern l ~o. 65S, Janu ry 30, 1961}. Luciicrous and expedient i)iffle inde d to h v the ffcc i n ore j}f nt � 1 at tutor� re~uire ent o he �i ply de:::fu.se in a cul-d - c of im~c ncy, so t speak. In t 1. ailur to 1:) y the t.r ans etion ax f ixcu t a. .� 1van r te and !thin pee' f . ed ~erioU ~ � r uc ioed in ~ect on 2l0(b), n vit.. bl incur nc incrc.. ent 1 surcharge an� i su,)rn. And :such i$ cand ...ory ncl orks out uto- tically. :Jeo J...itl Co Chui v. Pos das, 47 l.,rlil.. 470; re torat in l~cp blic f th Philippines v. -� ~uz:on Indus ri 1 \.,.. rpor tion, L-79fl2, Octob r 30, 1957, cit"' i. ~ u l.ic � Li, 't n.., �on ~ co ., c. t lo ::>c;:~ ::~95. ';..'h proviso ''U 1 othrwi .specifically J::OVidaci� engr:afte in th- langu�g of the pro~iuion. f - otion 193{a); furnishes he b t ann of i epo ion. It i l x bl and bro d

.' DECISION - CTA CASE NO. 2993 - 8- enough to require inclusion of any delinquency in meeting the time frame set forth in Section 210(b). We find no justification in stultifying the import and scope of these terms, which but close any possible legal loophole in effecting proper compliance of the peremptory demands of 8ection 210(b), that 'the tax shall be remitted within five (5) workin~ days from the issuance of the commercial paper." There can therefore be no occasion to further speculate upon hO\v the prestation, far fror~ showing a me re ascinating resemblance of an illusion, should oe enforced. Suffice it to state, consideration of the con- venience of petitioner or any taxJayer for that matter, stands as an abe tion from the otherwise intended imperative. He cannot substitute and in ulge in any amorphous anu unworkable rule lest we suffer the cornerstone of effective collection to petrify at che cost of the animating principles tinged with strong issues of public policy that taxes are the lifebloo of government and their prompt ana certain availability are an imperious need (Commissioner of Internal .tevenue v. Pineda , L-22734, Se~tember 15, 1967, 21 SCRA 105; Collector of Internal levenue v. Goodrich International Rubber .I' I (

o��c ...;10. - - . 'TA ~t.. ! O. 2!J9J co . , r..-22 ... 6:;.>, .� r h :-:, l96a, 22 SCR. l2SG) , and L i!'l � h c.1l.t:: so rctJ o � v r u f r th c~ v rnm t to ,.ep it tu' ntng u.~t e ai U ;..C � !...- 251(1, c r - , 19 ,1, .. . 313 � O!J ...t riou ...y d nj 1 r ~ ..� c :ul 1 ~iti cn �ount tr 0 � 'r n.. n lout . i. uni t -a -o.. ) co ~1u~1on r rn~ rn rn c ll t g t. 1 'i JU U t n l 3{ ) o� d .JY 1 tr .r r in c jo 2 0( I r nder: si r o. i t,J lju i r .. u un ... nc T y no 1 n i � .... , id ic 0 � Associate Judge Const nte c. Roaquin dissents in a separ to opinion.

RKPUBLif: OF THR PHILIPPIMU COURT OF TAX APPEALS Ol"ll70N CITY / THE MANI tA BANKING CORPORATION 1 _ Petitioner. -versus - C. T. A. CASE NO . 2993 THE CO~ SSIONER OF INTERNAL REVENUE , Respondent . DISSENTING OPINION Considering the apparent lack of a complete factual exposition in the _jority decision and 1n ord r to v 1ao1 te tt. grain from the chaff', it is indispensabl that the s me be clearly recounted in this dissenting opinion. This is a claim by petitioner for tax credit of tl'e amount of 34. 295�45 � representing 25% surcharge , interest and compr mise penaltie for the late pay- nt of the 35% transaction tax on commerical papers it h d paid pursuant to Presidential Decree No. 1154 ffective on Jun 3 , 1977. Petitioner 1s a domestic corporation engaged in general b nking business . It is authorized to act as a commertial b nk by the Central nk of the Philippin � It can borrow money through th issuance of promissory notes or other instruments ,of indebt dness in the primary market and use the money brrowed in its busin s as a bank~. On its borrowing transactions on June 3 , 6 , 7 , s , 9 and 10, 1977, petitioner had intend d to pay the basic 35% transaction tax upon the interests paid Oft SUCh borrowings, imposed under fD 11541 but

/ DISSENTING OPINION - CTA CASE NO. 2993 .., 2 - was, however, required by respondent not only to pay the basic 35% transaction tax of !>1351 154:';81 on the borrowed amount, but also the 25% surcharges and 14% interests, plus compromise penalties in the total sum of 341 295'.45 for its failure to pay the said transaction tax within the period of five (5) days from the dates of the borrowing transactions~ Petitioner, accordingly, paid the P341 295.45 re- presenting surcharges~ interests and compromise pe- nalties, since respondent refused to accept the payments of the basic 35% transaction tax alone, and the said payments made were covered by offida 1 receipts, and itemized as follows: O.R. NO. BASIC TAX SURCHARGE, INTEREST & COMPROMISE PENALTIES 05281253 p 35,027,92 p 8,900.~85 10012763 10012774 25,261.05 6,423.36 10012796 12', 776.93 3,268.50 10012800 2,641.87 704.51 10012811 2,288.31 614.71 � 57�, 158. 7i 14,383.52 Pl35 1 154;.81 34,295.45 As admitted by petitioner, the payments of the aforesaid transaction tax were made more than five (5) days after the commeBial papers� dates of issue, which were on June 3 1 6, 7 1 a, 9 and 10 1 1977:

DISSENTING OPINION CTA CASE NO. 2993 - 3- Immediately after the payment of the trans - @Ction tax. surcharges, interests and compromise penalties, or on June 29, 1977, petitioner filed a claim for tax credit of the total sum of P3~t295~45, representing the aforesaid 25% surcharges, 14% in- terests, and compromise penalties it had paid.� Respondent Commissioner of Internal Revenue failed to act on petitioner's claim for tax credit,. Hence~ petitioner appealed, by way of a petition for review, filed with this Court on February 13, 1979~~~ After the filing of the respondent-' s answer to the petition for review, petitioner filed a motion to submit the case for decision based on tm pleadings and only on the issue of legality of the imposition of 25% surcharges, 14% interests ad:i compromise penalties in the total sum of P34, 29~~�45, which was paid, as required by res pondent1,. for violation of Section 210(b) of the Nation~l Internal Revenue Code of 1977'., and allegedly imposable under Section 193(a) of the same Code. The only issue therefore in this case, which is one of law, is whether or not petitioner is liable for the payment of 25% surcharges, inte� rests and compromise penalties, for late payment of the 35% transaction tax, in violation of the pro-

DISSENTING OPINION - -4 t ken 1n re� ation to ve tiun - 9J ( ) c! t.he sn�.ue Coue . :th 1 w 1nvo vca in ,.,f'.ti cuse are \:>E!Ctionn 19.J ( a ) .nu G::lV (u) o ~h .. l�ntl r.al 1terPal .t e VEn.u.e ~ol.ie of 1<)/'/ for�.�erl .t'ra~hh::I� t. ial ...;c- C..I"ee No . 1 )4; , t.nu t.eve.nue 1\e u at � on .-Jo . '1-77 ( w .. on voCi uela p u J..i.,.. 1eu i1 -.h ~ July 1 nnu 11, e t.lng 1971. tl:.l h VUI.l vvUO 0 J.'/1/ ' i'l 0 �iu . n!l .follo ;/ : t""'\-'!�- is r 't .. a.i.d the �mvun tWO' 'i;y... fiv

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DISSENTING OPINION - CTA CASE NO. 2993 - 9- He argues that Presidential Decree No. 1154 eQbrged ~he provisions in Title V the!:eof ''by adding Sec~ion 195-C Lof the lax Code by P.D 1154� now Section 210 (bl/ and the provisions of the Tax Code that are not affected by the amendment continue to be effec~ tive and operative" (p: 3~ Memorandum of Respon- dent}, and that S.ection 210(b} "eventua 11y became part of the taw it intended to amen~;" (Ibid:) Res- pondent insists that .Section 1~3(a)~ being a part of Title V of the Tax ~ode of 1977 1 should govern the imposition of penal sanctions for late payment of the 35% transaction tax in Section 210(b), which is also found under Title V~ He emphatically concluded that since Section 210(b) specifica 11 y provided the time or period w ithin which to pay the 35% transaction tax, whiCh is within five (~) working days from the issuance of the commercial paper, the failure to make such payment on time would subject the petitioner to the penalty of 25% ~urcharge and 14% interest under said Section 193(a) of said ~ode: I take the view that S-ection 193(a) of the Tax Code of 19771 which imposes a surcharge of 25% and 14% interest for late payment of a _percentage tax, is a provision that imposes a penalty and� therefore, is subject to the rule of strict interpretation aro

DISSENTING OPINION - CTA CASE NO. 2993 - 10 - construction and that, being a penal provision, should never be understood to include anything be- yond its letter even though it may be within its s spirit. (36 Am~ Ju ; 2d., Forfeiture and Penalties, S.eo: 8._ pp~ 615-616.) In ~ther words, since it is a penal statute, _Section 193(a) must be subject to a. strict judicial construction inorder to safeguard taxpayers and should not be extended beyond the clear import of the language used therein and nothing should be read into it by imp!icatiorf. (An{. Jur~- 2d~, Sec. 295, pp~ 453-454; Otd Colony R. Co vs~ Comnf.~ of Int~~, Rev~-~, 284_US 56!, 56~; 76 Led 490; Kuttner vs~ Collector, 18 Phit'~ _461: Luzon S,teve- doring Co�; __VS'o Trinidad, 43 Phil!: 803.) To state it more clearly~ under a ~trict interpretation and construction of a penal provision, this Court should presume nothing that is not expressed, and in that respect, courts of justice., like this Court, and if we truly conside~ it as such court of justice~ should refuse to enlarge and extend t~e taw to matters not necessarily or unmistakably implied therein~ (73 Am. Jur�. 2d�~, Sec~� 274, pp~- 440-441'.) Based on the letters of Section 193(a), only the non - paym nt of percentage taxes are subject to a penalty tax of 25% and interest of 14%, if such percentage taxes are not paid "within twenty (20) days at the end of each quartertt and based "on gross quarter! y .saJes, receipts, or earnings

DISSENTING OPINION - CTA CASE NO. 2993 - 11 - or gross value of output actually rem~ved from the factory or mill warehouse." Sgction 193(a} does not seem to clearly include therein as subject to said penalty the non-pgyment of the 35% transaction tax which is payable within a different Q�fiod of time that is 1 within five ( 5) �=days from the date of the issuance of the commercial paper. It is often stated that a statute imposing a penalty should not be constr~ed ~o as to include within its scope an.y act not plainly or fairly intended to be in- cluded th~rein, and for the tD~e intent of the law, care should be taken not to enlarge that statute by imp11cationo (73 Am. J~r: 2c_i!.., Igid 1 p; 617 citing _Stockwell vs. u.s. 13 Wall 531, 2J ted: 49f.) A penalty is one which is generallY imposed to in- s,re the performance of duty or conduct required by the statute, like the one imposed as surcharge and interest for the failure -~to pay a tax and this is a legis tative function (51 ~m-. Jur., 2d., For- feiture~ and Penalties, S~ c. 51, p. 643) exercised by the legislative body, or by tb:e President, in the proper exercise of his Iegistat!ve powera, like in the issuance of _presidential Qecrees in a Government under Martial taw~- A penalty for the non-payment of taxes takes the form of an imposi- tion of surcharge and interest charges on the d - linquent taxes, but neither the interest, nor any :_ q 'l -- u , r...

DISSENTING OPINION CTA CASE NO. 2993 - 12 - other form of pecuniary penalty, may be exacted for delay in the payment of taxes, unless autbo~ ritY is clearly given by legislative enactment (51 Am. Jur., Taxation 0 Sec. 970, pp�. 838-~49, citing _Western u. Ieleg. Co. vs. Indiana, 165 US 304., 4l Led. 725, 17 s, Ct 345) 1 or under a presi- gential decree. which has the force and effect of I strongly am in great doubt as to whether Section 193(a) of the Tax Code of 1977 is applicable to cover the liability of petitioner for the payment of 25% surcharge and 14% interest for late payment of the 35% transaction tax in the sum of P34,29~~45 1 imposed under Section 210(b) l,formerly . ll5Y of the same Code�~� 'Iihe original Presidential Decree No. 1154 which first imposed the 35% transaction tax on the issuance of commer- cial paper or instruments of indebtedness in the money market never provided the imposition therein of a surcharge and interest for the late payment or remittance of the 35% transaction taX': In the ~ase where the language of a statute, which is PD 1154 and Section 193(a) of the Tax Code of 1977 in this case, is obscure or doubtful with respect to the imposition of the surcharge and interest, the Court should, in construing such statute, take into serious consideration the history of t~e time the law was passed (73 Am. Jur: 2d�~. Sec~ 150, p�. 355), .'�, '

DISSENTING OPINION - CTA CASE NO. 2993 - 13 - or took into the taw� ttendant circumstances at that time'. (~; P: 355.) And if a,fter such study, there still remains a doubt as to the true and correct int rpretation and construction of the terms of that tax provision, or that another meaning is reached, that meaning of the words that would in- cline the sc le of construction ost favorabl to the t xpayer must be adopted. (Old Colony R. Co . s. Com:; of Int. Rev., 2.12� .Q:t..; Gould v, Gould, 263 US 179; Powers vs. New York, etc., 273 US ~46, 7 Led 984, 50 - Ct.;- 367; Burnet v ~. gara F llS Brewing Co., 282 US 648, 78 Led:' ~94, 575 S Ct'. 262~ ) This is in accord with the 9 neral principle that / .' t x taws must be constru d and interpreted in favor of the taxpayer and strictly against the government (Luzon Stevedoring Co. vs. Trinidad, 43 Phil. 803) and doubts as to the liability of the taxpayer must be resolved in its favor. (MRR Cd, vs. Cotl. of Customs, 53 Phil. 950; La Orden de Padre Be~ di~tines vs~:: Colli'. & Ir~as". of V\anila, CTA _76, July 16, 1955, 52 00. No, 6, 3123; e S!.l.!g Froelich & Kuttn r vs.' Insular Co11 �� of Customs, 18 Phil. 46]:. ) While I can agree that penalties for d linquency are intended to hasten tax payment , or to punisl'! neglect of duty as a matter of pub lie policy ( Cel o Jamor t �.� �; vs', Meer, 74 Phil~ 22), it must have ' '�

DISSENTING OPINION - CTA CASE NO o 2993 - 14- to be categorically stated that surcharges an~ __in- terests, being penalties, to be enforced at all must be based upon the strict construction and enforce- ment of the taw~ Unless the law (S~ction 193(a) ~ the Tax Code of 1977) is clear, and in unmistakable terms imposes the 25% surcharge and 14% interest', which aforesaid, 1 m in doubt, the said surcharge and interest for late payment of the 35% tra~saction tax should not b deemed to be ~mposed at _all~� The on1v remaining law, rule or regulation which clearly ~mposes without any doubt the 25% s~rcharge and 14% interest.._ for violation of Section 210(b) of the Tax Code of 1977, is Revenue Regulation No. 7-77( While it 1 true, as a~gued by respond!ntt that President!al Decree No'~:. 1154 subsequ~nt!y b came Section 210(b) of the National Internal Revenue Code of 1977-, and the latter became the law that governed the period within which the 35% transaction tax should be rem!tted by the borrower/payor on the interest payable ., or within fi~e (5) days upon ~he issuance of the co~er cial paper, Section 193(a) of the Tax Code of 1977 never, in the clearest terms or word a.foresaid, include<! therein the imposition of the 25% surcharge and 14% interest on the non-payment on time of the 35% transaction tax.

7 (( .. DISSENTING OPINION - .' c. o . L.;.}J... � (... . 29~~3 - 15 - It cannot li;Jhtly and validly COI1tenciod 1 y re"'pOn<nt th t r sidcntial .ecree ~o . 1154, which !.; y :its tcr n� s c�ic not actuti 11 p.rovid ~ a nalty or surch.n~ ~ e or intorest for the non-pa y .cnt of the cvuse "it 'Ja s oecessc:~ryu in St.;uch as tl c: aid l c .c>Eo' , V~1ich v;.J~ incorporut(~ d late as .:~ection 210 (b) o� the Tax C.o.e o{ 1977, could only lle cn.force d unccr the pc:~Dl sunction of tHli d ..Je ction 193 (a), a provision falling under 1itlc of th) S c; i � Lo 'e . Tt i"' cor t:.c~;:� ion is b.1s !0 u pon a wron co cepticm that boc,.u"'e ...jcct.io 210 (' ) f�lls un- !.~cr Title \ * non- pay ~nt of the 35, tran;,;.laction tax on tL.l , i.e . \:ithin fiv (5) days a tcr tho is;.luance of the cot. ~e:r.cinl papers i:lS fJJ:OVided in said ;;;~ctio 210 {b) , will ubj ct tte t x to Z), 5t..... char ..c and 14, interest un ' er >ecti on 193 (a). w.ich also �2 lls unier Title V of the Tax Cod~ of 1977 . ; scruti�ny of the r-rcrtir.ent provision of "ect ion 193 (a of t 1e Tax L ode of 1.977, tc~tu~ lly provi des: ~e c . 193 . .dL'fi�CDl_Qf.. )~.s;:en1J.i!:J.\L.i9-<e~ . - (c1) ln ~ J1Q~:....l. - Unle~s otherwise sr;eclfi- cally provi"C<. , it sha 1 he th duty of ev ry p:~rson con 1uct in Q�.Q.\1~ ineS� QlLl.111~&lL�!.....rJOr gwt e t'-'LJ.-'!-.ir. x~�S_c! under this �~it 1 , to n1 l~ u true at.c... co, ..plete r~turn o the 1. ount. of h i , her or il_.....t.~ �!Uarterl.)L i!Je~ ~ &J.ptS_.Q�_�E.�.n:_nt ~ ~~-rr..Q.Q~_v..fll.t_ __gf o_~_�lli;. gctujLlly_rt'~aove .l fro ..1 the ft..~t<?ry,or...........c'~ll �J��J' � !i

DISSENTING OPINION - CTA CASE NO. 2993 - 16 - warehous~ and within twenty days after the end of each guarter pay the tax due thereon: XXX XXX XXX XXX If the percentage tax in any business is not paid within the time specified above, the amount of the tax shall be increased by twenty-five ~ centym, the increment to be a part of the tax and the entire unpaid amount to be subject to interest... at the rate of fourteen ~ centym ~ annum. XXX XXX X XX (Underlining ours':) It seems to me th~t respondent, in a too much strained interpre~io~ and construction of the afa - cited provision, had leaned far over and stated, in e~fect~ that when the 35% transaction tax (which he claims to b a business tax) was not paid by peti- tioner within five (5) ~ays from the dates of the is- suance of the commercial papers, the tax is subj~ct to 25% surcharge and 14% interest under Section 193 (a). There is nothing in said Section 193(a) which provided that the period to pay the 35% transaction tax (which respondent refers to as percentage tax) should be made within five (5} days from date of issuanc of the commercia J paper the non-payment 3& of which will subject it to the 25% surcharge and 14% interest~ &l ! see ilt ~ percentage tax �2U� tempJoteg therein ~ ~ 1hs1 i ! ~ M�QU persoQ! conducting a business gu which ! i 1! +mposed ~ baseg QD. the gross gyarterl y sa Jes�, receipts ~ ."'

DISSENTING OPINION CTA CASE NO. 2993 - 17 - ea;:ninqs �1: gross vaJue 52! .Ql!lmG, .:U:Q.m a factou ~ mill warehouse Qf such business, and 1! payabl~ within twenty days afte;: the end 21 each gyartef, the non-payment of which percentage tax clearly shal!_ be subject to the imposition of 25% surcharge and 14% interest; {Emphasis mine .) In this case at bar , petitioner, being a bank, cannot be said to be a person engaged in a business on which the per - centage tax on its "gross quarterly sa]es , receipts, or earnings or gross value of output" is imposed. Petitioner, not being a person engaged in a business on which the perce~tage tax iS imposed, there is, therefore , no legal basis upon which to come to t~ conclusion that Section 193{a), is the 1aw upon which penatt:lie cahcbe o ilm~osedr up nt saadt liank for non- P yment. of _the 35% transaction tax. Stress, how- ever, was lai~ by respondent on the proviso in said Section 193(a), "Unless otherwise specifically & provided," to support its claim that the non- remittance by petitioner of the 35% transaction tax within fi~e (5) day period from the _issuance oft~ commercial papers will subject the latter to the penalties provided therein. otherwise st ted, res- pondent is of the view that the non-payment of the transaction tax within five (5) days from the issuance of tte commercial papers, which is a period other than the . '.

{ DIS~E~~~NG OPINION � - Ct N c,~c 0 2 93 - 18 - period roviQed for th y nt of percentage taxe � 11hic 1 i t1 ithin nty ( 20) ys aft r the nd of eac quart r und r ecti n 193 ( ) of the r x .od of 1977 , will sub j ct the non-payrr.ent thereof on tile t tl o pen-alty tax of 25,o <:lnd 14/ int r st fr riod to y th tr � nsaction tax fall~ un- r th proviso i the a. ~ ecti n 193 ( ). Th inter- pr tat ion and applic tion by r spo 1d nt 0 A.h pro- Vi o in i bec,ion 193 (a) � w� made .:t t P� r n r ogor to the chan es that took plac in t st h n th r od to v th rcer c gc tax 0 gro�s quarterly ale � r ceipt or arnin,.s o groGs valu of output of the bus�ne changed or amen ed by he 1 qis lativ bo y, y � n ing tl p io to � ay the percentage tax r.h (.;lee. 103, 1 . tion� 1 Inter � 1 en e Co e, 19~ d., s a, n by '~ ec. 1, 253 to ten .Q2 fter tl)e end C?f eac .;)ec . 103, nd by ec. 1, .� .:lee . l, Hi 1511: ' c � � 1612; l 5 ~ d . bee . 3, tion 1 lnterna 1 venue c d 1956 & � ) , r to of ( c. 183, n by .. ec.l, 48�, .)

DISSENTING OPINION C:!J {.,j � l u. 2993 - 19 - ~ec . 7 , ?5 ; ec . 1 , l \ 16 2 ; ~e . 5 , Rl 2025 ; 19 64 Ed. , ational Internal Revenue Cod0 . ) In 1974 , Ject�on 183 (now bection 193 of the Tax Code of 1977) , was gain umen ec y Presiden- t i a cree o . 539 , and, this i it reverted again tile pcrio o pay t G percentage ax 'wiih- Under the former .:.)ection 183 , and so is t 1e aw at present L-~ection 1 3 (a )J , the percentage tax ha" a 1 a s been i11posed on those persons con- ducting a business n which h percentage tax i s laid based on th gros- quarterly sa e~ , receipts or earni gs or gross v�lue of o tp t of the fd c- tory or mi 1 warehouse , and puyab c "within twenty Q_ c: after the end of each ouarter . " ot that during th develop ent of ~ection 19 (a) provi- ding for the payr. n of the percentage tax , it has ex~ riencai amen 1.ent on two occasions . 'o te tha � in;;,) ction 193 (a), � t hus be n consistently pro- vided th rein that the non- .aymerrt of the f>f'r centa'JC tax ~ithin h time provide therein c al le for th in o"ition of 2"'/ surcharge , to form part of the t a itself . I nd it ~as in th. saicl pro is ion of ection 183 that the 14 l interest was fir t i ..posed as part of the pen� lty for th uil re to pay the . e rcentage ta x on ti1 e . nd subs qucntly , in 1975, Se cti on 183 (a), .� J '

....... , D~SSENTING OPINION CTA CASE NO . 2993 - 20 - as amended by PD 69 and PD 820, included for the first time the proviso "Unless otherwise specifi- cally provided" which reads: sec . 183 . Payment of percentage taxes~ (a) In general .- Unless otherwise speci- fically provided, it shall be the duty of every person conducting a business on which a percen- tage tax is imposed under this Title, to make a true and complete return of the amount of his, her or its gross quarterly sales, receipts or earnings or gross value of output actually removed from the factory or mill warehouse and within twenty days after the end of each quar- ter pay the tax due thereon: x x x In 1977, the former Section 183, became the present Section 193 of the Tax Code of 1977 in question, which was effective on June 3. l977 . Analyzing the development of Section 193 (a), the fact stands out clearly that the proviso "!l.!l- less otherwise specifically provided, 11 which has as its object to cover any probabl~ change of the time in which the percentage tax on gross quarterly sales. receipts or earnings or gross value of out- put shall be paid that may be precipitated by a change in tax administration and policy, does not~ therefore, clearly purport to include the period within which to remit the 35% transaction tax withheld by petitioner, which is not a person conducting a business on which a percentage tax is imposed, but only the borrower/issuer in the transactions on commercial papers in the money market. ( alics mine.) Moreover. traditional studies in taxation ;"- <.;'.r,

.� :P,;I.,SSE~;r.NG OPINION 'I 'll w � Fu . 3 ..... 21 ... wil t le r y t.' t Titl v of the �l'a od of ! 77. Ut'tder bich .oectton 193 ($) ~tieularly r c nt ge t ax on tiGSe h produc � �Manuf eture, 11 OJ:' o h. rwl 0 import rt.i el � l to tl r l publ.ic fO'lt �r- f 1n (~ -c � 1(. 3�, 194, 196, 197 all of the ! 2{ d� o 1977); on th(lsc .d1o pro :ce agric ltu-� r l product (ii... c . 19 ), :: o odu oth - rtielea (vee . ls;9}; on thmH~ \~ho proc .as ~- t, 0 :1 ff _ \"Jh prot'uee r nut p. ou ctG (.:;; e. " 3).; � , n tho...c vh c-onl;}truct b il ng other in~t-.:..~lla ion$ { ec. 5);. c�: � th ~' o sell fo �.-.. am:: crinkS f~ec. :206}; .e;r �01 th , 'J 0 a in '"- ~n rtati such . t- c r- rie;.) r � ge ~ s~c .. 20 .. ) Th - a afor&cit t': btJ- e �>~a ... subject to rercent~ge tax e r �heir 1=.:.o:== t-x. sine 1 ev _nu o � (COli'- n lj alth i\ et 466) which ()C in fore nd ef � ive J �lv l, 1939 up to -~ o . e -78 d . te 12 , l:i7S (Ra~non Caeh ala c.. st p � 336- 2; E. G. GQ� ale

DISSENTING OPINION - CTA CASE NO . 2993 - 22 - Gonzales , Nation~l Internal Revenue Code of 1977, 1979 Ed ., pp . 280 & 296) officially published on July 24 , 1978 (Vol. 74, No. 30, Official Gazette, p . 5805) entitled "Sales Tax Regulations , " pro- mulgated by Secretary Cesar Virata, which inten- ded to provide the regulations to implement, by and large, the percentage provisions in the Tax Code, it did not include in that regulation for penal sanction under Section 193 (a), the~ te payment of the 35% transaction tax imposable in Section 210 (b) . As can be inferred from said revenue regulation, only the provisions of Sections 193, 194, 196, 197, 198, 1991 200, 201, 202, and 203, as amended by Presidential Decree No. 1358, are subject to the penal sanctions of Section 193 (a) of the Tax Code of 1977 . (~Sec. 1, Rev. Reg. No. 8-78) This confirms my dbubts that the 35% transaction tax"'is-'"a tax that is not subject to the penal provision of Section 193 (a), since this 35% transaction tax is not included as one of those p rovisions implemented in R9 venue Regu- lation No. 8-78. I took into very serious consideration the fact that the 35% transaction tax, which is a new tax provided under Presidential Decree No. 1145 (Section 195-C) is not only in the nature of income tax but is in reality one that is

DISSENTING OPINION CTA CASE NO . 2993 - 23 - imposed on interest earned by the lender and paid by the borrower upon the issuance of every cornrner- cial paper issued in the money market as principal instrument . The tax when paid is final and is with- held and remitted by the borrower/issuer, not the lender who actually earns or is legally entitled to receive the so- called interest on the commercial paper issued, and this tax when paid is deductible in computing the borrower's taxable income. The interest on which the 35% transaction tax is imposed is the difference between what the princip�m bor- rower received from the lender and the amount it will pay to the latter u p on maturity of the c c~mer- cial paper. This interest, synonymous with discount,. includes all fess, commissions , premiums and other payments forming integral part of the charges for the use of the borrowed money. This, therefore, is the tax that shall be remitted by the borrower to the Bureau of Internal Revenue within five (5} working days from the issuance of the commercial paper. As I see it, and borne by the explanation made by Hon. Efren I. Plana, Acting Commissioner of Internal Revenue (now Associate Justice of the Supreme Court}, in his article, .. BIR Explains New Tax Laws" (The Times llournal. June 24, 1977, p. 15)t the transaction tax came about as the result of inability of the tax administrators to reach the interest earnings dt

DISSENTING OPINION ': CTA CASE NO . 2993 - 24 - to the failure .of the income taxpayers (the lenders or recipients of interests earned in money market transactions) to report their interest earnings feD income tax purposes . Therefore, this resulted to the inequity in tax administration in that honest tax- payers who declared their interest income were taxed, while those that did not declare their interest income and remain anonymous went scot free. It was this sad experience in tax administration that, on account of the complexity of money market trans- action, it was difficult, if not virtually impossi- ble, to tax the interest earners or the lenders . It was on this account that the Bureau of Internal Revenue took this step to collect the income tax that is legally payable upon the interests earned, but which were not paid aforesaid, for the issuance of money market instrument . And since the borrower (not the lender) is the most convenient person upon whom the tax on the interest income may be collected, a tax in the nature of excise or transaction tax was, therefore, effected, In other words, in subs- tance, the borrower became the most convenient per- sonal instrument Government to collect the tax on this interest income. It was further stated by Acting Commissioner (now Associate Justice of the Supreme Court) Plana that this tax measure (PD 11541 now Section 210 (b) of the 1977 Tax Code) , which is an entirely new tax measure "x x x is in reality

.' DISSENTING OPINION - CTA CASE NO. 2993 l - 25 - just a collection measure designed to strengthen or re- enforce the effectiveness of tax administra- tl2!!� x x x . " Considering the reason of the Govern- ment in imposing the 35% transaction tax, in the truest sense of th word, this tax becemes the logical substitute of the income tax which should ~av be n paid upon interest earnings in a manner that "part of the int rest income (due to the len- der from the borrower in the money ~arket trans_ actions and which should have been subject to in- come tax on the lender) goes to the Government in the form of the 35% transaction tax." In recapi - tulation, the 35% tran action tax is more in the nature of a withheld tax on interest income earned by the lender or income earner . Acting Commissioner Plana had mphasized and quoting the words of Pre_ sident Marcos, that "The tax x x x is merely withheld by the borrower from the interest that he was supposed to pay the lender." The trans- action tax is, to my mind, clearly not. therefore a tax laid upon the groas sales, receipts, ear- nings or gros output of a business subject to percentag tax. Consequently, I entertain very serious, nay grave doubt , that the 35% transaction tax can be categorized as percentage tax subject to a 25% surcharge and 14% interest under Section 193 (a) of the 1977 Tax Code for failure of the J ~I

~ ' tft. { DISSENTING OPINION CTA CASE NO . 2993 - 26 - borrower, as t n the case of petitioner herein, to remit said tax within five (5) days from the dates of the issuance of the commercial papers . I am, therefore, of the opinion that Section 193 (a}, whic h imposes the 25% surcharge and 14% interest for failure to pay on time of the transaction tax, is inapplicable upon the petitioner ' s late payments of the transaction tax in question. The only provision of law, rule or regulation, which provides, with utmost clarity, for the imposition of a 25% surcharge and 14% interest for failure to pay the 35% transaction tax within five {5) days from the issuance of the commercial paper is Revenue Regulation No . 7- 77, dated June 3, 1977 (~ Ramon Cachuela Reyes, Tax Affairs , pp . 212- 216; E.G . Gonzales & C.R . Gonzales, National Internal Revenue Code of 1977, pp. 367- 371) and which was, as aforesaid, published in the Official Gazette on July 4 and 11, 1977. (Vol. 73, Nos. 27-28.) Assuming that Revenue Regulation No. 7-77 is not invalid because it was issued by the proper administrative authority in pursuance to the provisions of Sections 4 and 326 of the Tax Code of 1977, this Revenue Regulation cannot, however, be enforced retroactively to cover the transactions in question . The commercial papers dates of issue were June 3 , 6 , 7, 8, 9 ,. and 10, 1977 , which took - ���' ....... -~) ~ ' 1

DISSENTING OPINION - CTA GASE NO. 2993 - 27 - place before the date of effectivity of Revenue Regulation No . 7-77# which must be held to be fif - teen days after July 4 and 11, 1977, the dates on which the said regulation was officially published in the Official Gaz ette . (Pedro G. Peralta vs . Comm . on Elections , 82 SCRA 30 ; Art � 2 , Civil Code of the Philippines.) Revenue Regulation No . 7-77 never had any binding force upon any taxable person before the 15th day after its publication . (~ Angela E . Lazatin vs. Comm . of Customs, CTA 782, Jan. 19, 1962; Olsen & co. vs. Herstein and Rafferty, 32 Phil . 530 (1915); People vs. Que Po Lay, 94 Phil. 640, 642, 643 ; Lim Hoa Ting vs. Central Bank of the Phil ., GR L- 10666 , Sept . 24, 1958, 55 OG No. 1006.) In other words, Revenue Regulation No. 7-77 should be enforced only prospectively and cannot be applied retroactively to cover the late payments made by petitioner of the 35% transaction tax in question. (ABS - CBN Broadcasting Corp. vs. Court of Tax Appeals, GR No. L-52306, October 23, 1981.) It is, therefore, my humble o pinion that petitioner is not liable for the pay- ment of th~ 25% penalty and 14% int6rest in the total amount of ~34#295 .45, inclusive of compro- mise penalties, imposed under Section 10 of Revenue Regulation No. 7-77, and the said amount having been paid, petitioner is entitled

DISSENTING OPINION CTA CASE NO . 2993 - 28 - to tax credit thereof . However, the payment and collection by respondent of the 25% surcharges, interests and compromise penalties in the said amount of ~34 , 295 . 45 , not having been attended with arbitrariness , as it was collected upon relatively doubtful provision of law, petitioner should not be entitled to an interest on the said amount . (Coll . of Int . Rev. vs. Prieto, et. al . , 112 Phil . 907, 920; Victorias Milling Co., Inc. vs. Comm. of Int . Rev ., 19 SCRA 430 , 433 .) I , therefore , on the basis of the above legal discussion, interpose my dissent and vote against the conclusion reached by my majority colleagues . Quezon City, Metro Manila, December 8, 1981. . ~~ :