CTA Case No. 2041 (Decision)

RURAL BANK OF CAHILING, INC ., Petitioner, - versus - C. T. A. CASE NO. 204J. COl-MrSSIONER OF INTERNAL REVENUE, Respondent. x- - - ----- - ------x D E CISION Petitioner has appealed from the decision of respond- ent holding it liable for deficiency income tax and interest in the 'amount of P5 1 5.35 . 52, plus a compromise penalty of P;30. oo, or a total of 135 , 565 . 52, covering the period from July 1 to December .31, 1968. ~ Petitioner is a corporation doing business as a rural bank in Cami.ling, Tarlac, pursuant to Republic Act NO . '7201 as amended. Under Section 14 of said Act, it was exampt from all taxes1 charges , and fees of whatever nature and description. I However , under paragraph {d) of Section 24 of the NationeJ. Internal Revenue Code, as amended by Rep- ublic Act NO . 54.31, it is provided that "all corporate tax- ~ers not specifically exempt under Section 24(c)(l) and 27 of this Code shall pay the rates provided in this sec- tion," the provisions of existing special or general laws to the contrary notwithstanding. Pursuant to this amend- ment, respondent has required petitioner to pay the amount mentioned above , but the latt~ has resisted the assessment on the ground that Section 24(d) of the Revenue Code, as amended by Republic Act NO. 54.31, did not have the effect of repealing its exemption under Republic Act No. 7201 as

DECISION- C.T .A. CASE NO. 2041 . -2- amended. It is also alleged that, assuming that its exemp- tion has been repealed, it can not be held s~ject to income tax beginning July 1, 1968 ~in viev of Section 10 of Republic Act No.. 5431, which provides : usee. 10. The provisions of this Act shall apply to income for taxable years beginning after June 30, 1968.u It appears that petitioner is keeping its books of account on the calendar year basis. Its ntaxable yearat for purposes of the Income Tax Ie.w is the period from January 1 to December 31 each year, Therefore, the beginning of its taxable year after June 30:> 19681 is January 11 1969, and not July 1, 1968. The decision of respondent holding that the provisions of Republic --- Act No. 5431 are applicable to petitioner effective July 1, 1968, is obviously erroneous. As clearly and correctly explained by respondent himself: "The term �taxable year', in accounting and income taxation had indeed acquired the accepted meaning as an accounting period of twelve months beginning January 1 �and ending December 31 which is termed a calendar year or an accounting period of twelve months ending on the last dey of any month other than December which (is) termed a fis- cal year. (Section 84 (o) and {p), Tax Code) Since R.A. No. 5431 is an amendment to the corporate income tax law, this Office believes that Congress used the term �taxable year 1 in the light of its meaning as defined by the Tax Code itself. '"After June 30, 1968, the first and neact tax- able years are the fiscal years beginning July 1, 1968 - December 1, 1968 and the calendar year begin- ning January 1, 1969. Therefore, when Congress � stated in Section 10 of R.A. No. 5431 t~at 1The pro- visions of this Act shall apply to income for tax- able years beginning after June 30, 1968�, it is indubitable that it fixed the reckoning period of the increased rates of corporate income tax to income earned for fiscal periods beginning July 1, 1968 - December 1, 1968 and for the calendar period begin- ning January 1, 1969, these periods being the first

DECISION - uf C.T.A. CASE NO. 20~ -3- and next taxable years beginning after June 301 1968. "In view of the foregoing as well as of the now well entrenched doctrine in jurisprudence that terms used in statutes should be understood in their ordinar,y meaning unless the context provides otherwise, it is the opinion of this Office as it hereby holds that as regards calendar year corpora- - tions the increased rates of corporate income tax prescribed by R.A. No. 5431 shall apply on/ income earned by them only beginning January 1, 19/1.11 (B.I.R. ruling addressed to the Tax Service of the Philippines, Inc., dated Nov. 14, 19/1; see also 'l:he Manila Times Publishing Co., Inc. v. Commissioner of Int. Rev., C.T.A. No. 2263, Dec. 17, 1973.)'' Respondent has reversed himself and now wants this Court to agree with him that by Section 10 of Republic Act No. 5431, the law has intended that the provisions of said Act should apply to income earned from July 1, 1968 regardle�s of the taxpeyers 1 accounting period. The theory of respondent has been rejected by us in our decision in The 11anila Times Pub- lishing Co., Inc. v. Commissioner of Int. Rev., C.T.A. No. 2263, Dec. 17, 1973, involving the same issue, and we feel not called upon to make further elaboration on the matter. In view of our opinion on the effectivity clause of Republic Act No. 5431, we find it unnecessar,y to pass upon the issue of whether or not said Act repealed the exemption from taxation of petitioner under Republic Act No. 720, as amended. At any rate, the exemption from taxation of rural ( banks has apparently been restored by Republic Act No. 5939 1 assuming that Republic Act No. 5431 repealed the prior exemption. IN VIEW OF THE FOREGOING1 the decision appealed from is

DECISION - kl C..T.A. CASE NO. 2~ -4- hereby reversed. � SO ORDERED. Q.uezon City, March 1 1 1974. ROMAN M. UMA.LI Presiding Judge ~~~�k �~~ ANISLAO R. ALV Associate Judge ~ '1-~ RANON L. AVAIDENA Associate Judge