COMMISSIONER OF INTERNAL REVENUE v. AYALA LAND, INC.

r REPUBLIC OF THE PHILIPPINES COURT OFTAX APPEALS QUEZON CITY ENBANC COMMISSIONER OF INTERNAL REVENUE, Petitioner, C.T.A. EB No. 402 (C.T.A. Case No. 7261) Present: -versus- Acosta, P.J. Castaneda, Jr. Bautista, Uy, Casanova, and Palanca-Enriquez, JJ. AYALA LAND, INC., Respondent. Promulgated: FEB 1. 2 2009 , X--------------------------------------------------------------------- ----~---- D�CJSJQN BAUTISTA,[.: The Case Before Us is a Petition for Revtew1 filed on August 6, 2008, praying for the reversal of: I. the Decision dated April U , 2008 of the Second Division of the Court ("Court in Division") in C.T.A. Case No. 7261, ' Rt,llo, CT. A. EB No. 402 (CT. A. C~se No. 7261), pp. 6- 66 w ith Annexes. 128

DECISION CfA EB No. 402 (Cf A Case No. 7261) canceling and setting aside the assessment for deficiency value added tax ("VAT") against h erein respondent in the amount of P103,346,691.40 for the year 2003; and I 2. the Resolution dated July 3, 2008, denying the "Motion for Reconsideration" of herein petitioner. Antecedent Facts As recapitulated by the Court in Division, the following facts are undisputed : "Pe titione r,2 Ayala La nd, In corpora ted, is a corporation duly organized and ex isting und e r Philippine laws, with principal place of business loca ted at the 29th Floor Tower One, Ayala Triangle, Ayala Avenue, Makati City. It is primarily e ngaged in the sale and/or lease of rea l properties, and among others, likewise owns and operates theaters or cinemas. On the other hand, responden t,3 Commissioner of Internal Reve nue, is the duly-appointed officer of the Bureau of Internal Revenue (BIR), with exclusive and original jurisdiction to: (a) interpret the provisions of the National Internal Revenu e Cod e (NIRC) of 1997, as amended, and other tax lavVs, s ubject td review by the Secretary of Fi nan ce; and (2) decide disputed assessments, refunds of internal revenue ta xes, fees o r other charges, penalties imposed in relation thereto, or other matters arising under the NIRC or other laws or portions thereof administered by the BIR, subject to the exclusive jurisdiction of the Court of Tax Appeals; with office address at the 5th Floor, BIR National Office Building, Agham Road, Diliman, Quezon City. On November 12, 2004, petitione r received respondent's Formal Lette r of Demand and Assessme11t Notice No. 002-03, both dated October 29, 2004; whereby responde nt assessed petitioner for an alleged d eficiency ten percent (10 %) VAT on its alleged incom e from cinema operations fo r ta xable year 2003 in the aggregate amount of P103,346,691.40, inclusive of twenty percent (20 %) interes t. The deficiency VAT is computed as foll ows: Income from cinema operation 896,424,485.80 Rate of Tax (Sec. 108, NIRC) 10% ' Herein RespondPnl. ' He rein Petit io ne r. 129

DECISION Cr A EB No. 402 (CTA Case No. 7261) Pa ge 3 of �17 Basic VAT due 89,642,448.58 Add: 20 % interest from 01/26/04 to 10/31/04 13,704,242.82 To tal Amount Due 103.346.691.40 On December 10, 2004, pe titioner filed its protest with the office of respondent contesting the factual and legal bases of the VAT assessment. Subsequentl y on April28, 2005, petitioner received respondent's Decision d a ted April 25, 2005 den yin g pe titi on er's protest with a notation that the sam e con stitutes res pondent's 'Final Decision' on the matter, thus cons h�aining p e tition er to fil e the instant Petition for Review on May 27, 2005. Respondent filed an Answer on A ug ust 25, 2005. After the pre- trial h eld on September 29, 2005, the parties submitted their Joint Stipulation of Facts and Issues on January 26, 2006, which was approved by this Co urt in the Resolution dated Februa ry 1, 2006 . During trial, pe titioner presented tes timonial and documentary evidence to prove its case. Upon admission of pe titioner's documentary evidence, the Court set the presen tation of res pondent's evidence on Ja nu ary 31, 2007, March 7, 2007, and April 25, 2007, but respondent's counsel faile d to do so. Upon motion of petitioner's counsel, respondent was declared to have waived the right to present evidence in the Resolution dated April 30, 2007 rand the parties were directed to submit their respective Memorandum. Both petitioner and respondent submitted the required Memorandum on May 22, 2007 and on July 6, 2007, respec tively. This case was considered s ubmitted for decision in the Resolution dated July 30, 2007. In the m eantime h owever, pe titioner filed a n 'Urgent Omnibus Motion' on January 21, 2008 alleging, am on g others, that respondent's January 11, 2008 Letter, requirin g petitioner to settle and pay the alleged deficiency tax liabilities involved in this case on or before January 18, 2008 to prevent the issuance of a Warrant of Distraint and Garnishment and/ or Levy, h as no basis under ex istin g laws cons idering that petitioner appealed the ins tant case to the H onorable Co urt of Tax Appeals prior to the finality of respond ent's assessment, which cannot therefore be con s ide red as delinquent. In said Motion, petitioner prayed for the issuance of an order directing respondent to desist from enforcing its January 11, 2008 le tter and collecting the a lleged deficiency taxes until the case is decide d with finality; requiring resp ondent not to issue the Warrant of Dish�aint and Garnishment and/ or Levy against the petitioner and suspend the collection of th e disputed VAT assessm ent until this case is decide d with finality. During the hea rin g of sa id Motion o n January 31, 2008, respondent's counsel interposed no objection to p etitioner's Motion to s uspend collection of taxes. Thus, the same was correspondingly granted by ::"""'Y7, 2008, th;, Com! ;0 the Re,olut;on dat:d fm the pmpo'eY

DECISION erA EB No. 402 (CrA Case No. 7261) Page 4 o f 17 preserv in g the sta tus quo during th e pend en cy of this appeal, and in o rd er no t to rend e r ineffec ti ve an d n u g?. tory the jud gm ent that will be rend ered in this case, pursuant to R.A No. 9282, in relati on to Rule 10 of the Rev ised Rules of the Co urt of Tax A ppea ls, subjec t to the filing of an accep table surety bond in an am ount d ouble the disputed amount or valu e. On February 22, 2008, pe titioner filed the required sure ty bond and the sam e was appro ved in the Reso lution d a te d February 29, 2008."4(Citntions omitted) The Ruling of the Court in Division The following issues w ere submitted by the parties for resolution by the Court in Division: "(A) Wh e ther or not the gross receipts fro m a dmission to pe titioner'ss cinem as are subjec t to th e 10 % va lu e-adde d tax? (B) W he th er or n o t the gross receip ts, or a po rtion the reof, by cin em a/ thea ter proprie tors are subjec t to VAT considering the fo ll owing: 1. Wh e ther or no t the re is a p rov ts to n in th e Local Governm ent Code of 1991 (R .A No. 7160) that ex pressly excludes the Na ti ona l Governm ent from imposing VAT on the g ross receipts of cine ma/ th ea ter op erators or pro prie tors? 2. W h e ther o r no t there is a current, existing prov ision of law in this jurisdiction w hich exem p ts the business, or a p o rtion of th e business, of opera tors or proprie tors of cinem as/ theater h ou ses from the coverage of VAT? (C) W h e the r or no t the assessm ent for deficiency VAT on p e titioner's incom e from cinema opera tions for the taxa ble year 2003 in the am ount of P103,346,691.40 is vali d and acc ura te?"6 In resolving the iss ues, the Court in Division made a run-through of all the tax laws en ac ted in the Philippines involv ing op erators of theaters and I cinem a tographs. According to the Court in Division, operators of theaters were formerly subjected to amusem ent tax under Section 260 of Commonwealth Act � Rollo, pp 37 -40. ; Herein Res po ndent. � Rolla, pp. 40-41. 131

DECISION G A EB No. 402 (GA Case No. 7261) No. ("CA") 466, the first codifica tion of the National Internal Revenue Code (IINIRC") of 1939. However, the National Government's right to subject operators of thea ters to amusemeht tax was removed with the passage of Presidential Decree No. ("PD") 231, otherwise known as the Local Tax Code. Th e power to tax operators of theaters and cinematographs was thereafter transferred exclusively to th e Local Government. As a result, the revisions made on th e NIRC, particularly PD 1158, o therwise known as the NIRC of 1977, no longer imposed II amusement tax" on the "proprietor, lessee, or operator of thea ters of cinematographs" which was previously provided under CA 466. On the o ther h and, the subsequ ent repeal of the Local Tax Code by Republic Act No . (liRA") 7160, otherwise known as the Local Governm ent Code, re tained the provision on a1nusement tax. Althou gh the phrase to II the exclu sion of both the national or municipal government" is no longer found il\ RA 7160, the Court in Division did not take this to m ean that the National Government is now empowered or authorized to levy and collect tax o n the gross receipts from ad mission fees collected by the operators/proprietors of thea ters, cinemas and other amusernent places, without Congress enac ting a sta tute enabling the Nation al Govenunent to do so. It said that when the legislature en acts a provision, it is understood that it is aware of previous s tatu tes relating to the same subject matter and that in the absence of any express repeal or am endment therein, the new provision should be deemed enacted pursuant to the legislative policy embodied in the prior statutes. In support of this view, the Court in Division pointed out the fact that Section 125 of 132

DECISION CTA EB No. 402 (CTA Case No. 7261) Page6of1 7 the NIRC of 1997 only imposes amusement tax on proprietors, lessees or operators of cockpits, cabarets, night or day clubs, boxing exhibitions, professional basketball games, jni-nlai, and race h�acks; and not on proprietors and opera tors of theaters and cinemas. TI1e Court in Division saw this as an indication of the legislature's intention to impose only one form of tax on proprietors / operators of theaters or cinemas, and that is, the amusement tax as found in RA 7160. To the mind of the Court in Division, this interpretation holds true even after the passage of Executive Order No. ("EO") 273, otherwise known as "Adopting A Value-Added Tax, Amending For This Purpose Certain Provisions Of The National Internal Revenue Code And For Other Purposes," and its I I subsequent amendments (RA Nos. 7716, 8241, 8424 and 9238). The Court in Division explained that: "While the meanin g of the phrase 'sales or exchange of services' re mains unchan ged and may appear a ll-en compassin g, the intention of the legislature to sul;>ject specific sales of services to VAT is clear. Had Congress intend ed the phrase to co mprehend all kinds of sales of services, it wou ld not have included more types or kinds of sales of services to be subject to VAT in every amendment of the VAT laws. Moreover, the showing of films by operators of cinematographs and th ea te rs is a wide ly known service too significant to be omitted in the en ume ration if the la wmaking body ind eed intend ed to include the same as being subject to VAT. The sa me remains true notw iths tandin g that the phrase 'sa le or exchange of services' is qualified at the e nd of the e numeration with the phrase 'and other similar services.' Under th e principle of ejusdem generis, where genera l words follow an enumeration of persons or things by words of a particular and specific meanin g, such general words are not to be co nstrued in their widest ex tent, but are to be held as applying only to persons or thin gs of the sa me kind or class as those specifically menti o ned . Its purpose is to giye effec t to both the particular and genera l words, by trea ting the particular words as indicating the class and the gene ral words as includin g all that is e mbraced in said class, although not 133

DECISION CTA EB No. 402 (CTA Case No . 7261) specifically named by the particular wo rds. Had the lawmaking body intended the gene ral terms to be used in their unrestricted sense, it would ha ve n o t made an enum era lion of particular s ubjects but would have used only general terms . Moreove r, th e exclusion of petiti oner's cinema / theater operation from pa yment of value-added tax under Secti on 108 of the Tax Code find s affirm a tion in th e H ouse of Representa ti ves' H ouse Resolution No. 975, submitted by the Committee on Rul es on October 11, 2005, recommending its approval by the H ouse of Re presentatives as House Joint Resolution No. 13, w hich,reads: "WH EREAS, it is impera tive fo r the State to promo te and support the d evelopment an d growth of the theater and local film indus try as a m edium for the dissemination of aes thetic, cultural and soc ial values for the be tter understanding and appreciation of the Filipino id entity; WHEREAS, thea ters and / or m ov ie h o uses are the primary m edia thro ugh w hich the output or artistic crea tion of the local film indus try is ex hibited; WH EREAS, U1e v iability of U1e cinema / theater industry is n o w und er threat due to continu o us o perational losses bro ught about by low pa tronage a nd hi gh taxation regime; WHE REAS, bo U1 thea ter own ers and local m ovie pro ducers are greatl y pi�ejudiced by ch eap er home movie altern a ti ves like telev isio n and ca ble progr am s, as w ell as b y ramp ant film piracy which turns out in exp ensive and untaxed films in VCD or DVD fo rma ts and severely unde rcut the cos t o f m ov ie tickets; WH EREAS, fu e indus try is n ow s uffering from the wron g collection of two busin ess ta xes, each imposed by U.e n a tion a l goverrunent and local government units on ticke t sales; WHE REAS, wh en li�e coll ec tion o f the amusem ent ta x on admission to thea ters w as trans ferred by the o ld Local Tax Code o f 1973 from the n ation al government to fue local government, the indus try has been s ubject to U1e top rate of thirty percent (30%) am usem ent tax imposed by the local government w1its to the exclu sion of th e n a tional government until the Bureau of Intern al Revenu e erroneousl y appreciated the Local Government Cod e of 1991 and imposed a busin ess ta x of ten p ercent (10%) on tl}e sam e gross receipts by wa y o f fue value-ad ded ta x (VAT). WH EREAS, s uch erroneo us interpretation of U1e law will res ult to U.e imposition of a to tal to p rate of forty p ercent (40%) business taxes (30% local and 10% n a tional) on gross 13 �1 y receipts which , under the circums tances, is unjus t, oppressive a nd confisca tory;

DECISION CTA EB No. 402 (CTA Case No. 7261) Page Bof 17 WHEREAS, th e fo regoing tax imposi ti on, which is consis tent with the Stctte's po licy to hctve ct victble, sustainable and compe titive theater and film induslTy, wi ll surely lead to the demise of the indu sh�y. Now, therefore, be it; I Reso lved, as it is1 hereby resolved by the House of R epresentatives, That it is the sense of Congress that there should only be one business tax applicable to .theaters and movie houses, same being the top rate of thirty percent (30''l\,) amusement tax imposed by cities and provinces under the Local Government Code of 1991, and that consistent with the State's policy to have a viable, sustainable and competitive theater and film industry, it is the intent of Congress under prevailing la~s, that the national government be precluded from imposing its own business tax in addition to that already imposed and collected by local govern ment units.'" 7 Simply put, the Court in Division found that the gross receipts derived from cinema or thea ter ticke t sales are not subjec t to VAT. Accordingly, the Court in Division disposed of the case in this wise: "WHEREFORE, the instant Petition for Review is hereby GRANTED and the assessm en t against petitioner for deficiency VAT in the am o unt of P103,346,691.40 for calendar year 2003 is here by CANCELLED and SET ASIDE. Accordin gly, the Surety Bond posted by petitioner for the suspension of collecti on of tax@-5 is likewise �rdered ca ncelled . SO ORDERED."s On May 2, 2008, herein petitioner filed a "Motion for Reconsideration"9 which was d enied by the Court in Division in its Resolution dated July 3, 200810 for la ck of merit. The Issue Hence, the instant Petition where the petitioner interposes the following assigned errors: ' Rollo, pp. 54 - 56. � /d ., pp. 56 - 57. " l~ eco rds, C T. A Case No . 7261 , pp. 371-389. 10 Rollo, pp. 59- 63. 135

DECISION O"A EBNo. 402 (CfA Case No. 7261) Pa ge9o fl 7 "THE ASSESSMENT ISSUED BY PETITIONER IS . VALID IN ALL RESPECTS AND WAS ERRONEOUSLY CANCELLED BY THE SECOND DIVISION OF THE HONORABLE CTA. TI-IE SECOND DIVISION OF THE HONORABLE CTA ERRONEOUSLY UTILIZED LEGISLATIVE HISTORY, RULES OF STATUTORY CONSTRUCTION AND A PROPOSED HOUSE RESOLUTION TO INTEPRET A CLEAR PROVISION OF LAW."ll Based on the following errors, the crux of the conh�oversy boils down to w h e ther or not the operation of thea.ters and cinematographs is s ubject to VAT. The Ru.lingofthe Court En Bane The Petition for Review is bereft of m erit. The tax provision in dispute reads: "SEC. 108. Value-added Tax on Sa le of Services and Use or Lease of Properties. - I (A) Rate and Base of Tax. - There shall be levied, assessed and collected, a va lue-a dded ta x equivalent to ten percent (10 %) of gross receipts derived from the sale or exch an ge of serv ices, includin g the use or lease of properties. The phrase 'sale or exchange of services' means the performance of all kinds of sei�vices in the Philippines for o th ers for a fee, remuneration or consideration, including those performed or rendered by constru ction and service conh�actors; stock, real es tate, commercial, customs and immigration brokers; lessors of prope rty, whether personal or real; wareh ousing serv ices; lessors or dish�ibu tors of cinematographic fi lms; persons engaged in milling, processing, manufacturing or re packing goods for others; proprietors, opera tors or keepers of h otels, motels, res t h ouses, pension h ouses, in ns, resorts; proprietors or operators of restaurants, refreshment parlors, cafes and other ea ting places, including clubs a nd caterers; dea lers in securities; lending investors; h�ansportation conh�actors on thei r h�anspor t of goods or cargoes, including persons w ho transport goods or cargoes for hire and other domestic common carriers by land, air and water relative to their transport of goods or cargoes; se rvices of fran chise gra ntees of tele phone and telegraph , radio and te lev ision broadcasti ng and all other franchise gra ntees except those under Sec ti on 119 of this Code; serv ices of banks, non-bank financial intermediaries and fu1 ~mce companies; and non-life ins uran ce companies (except their crop insurances), including surety, 11 Rollo, p. 9. 13G

DECISION CTA EB No. 402 (CfA Case No. 7261) Page10of ] 7 fid e lity, indemnity and bonding companies; and similar services regardless of whether or not the pe rforman ce thereof calls for the exercise or use of th e physical or m e ntal facu lties . The phrase 'sale or exchange of services' sh all likewise include: (1) The lease or the use of or the righ t or privilege to use any cop y ri ght, patent, d esign or m odel, p lan, secre t fo rmula or process, goodwill, trademark, h�ade brand or o ther like property or ri ght; (2) The lease o r the use of, or th e ri ght to use of any industria l, commercia l or scie ntifi c equipment; (3) Th e s upply of scientific, techni ca l, indus trial or comm ercial know ledge o r information; (4) The supply of any ass istance that is ancillary and s ubsidiary to and is furnish ed as a m e<t ns of e nabling the application or enj oyment of any such property, o r right as is m entioned in subpa ragraph (2) or any such knowledge or information as is m entioned in subparagraph (3); (5) The s upply of serv ices by a nonresident person or his employee in connection with the u se of p roperty o r rights belonging to, or the ins tallation or op eration of any brand, machinery or o ther apparatus purchased from s uch nonresident pe rson; (6) Th e supply of technical advice, assistance or se rvi ces rende red in con n ec ti o n with techni cal mana gement or administration of any scientific, industrial or comm e rci<t l unde rtaking, venture, projec t or scheme; (7) The lease of motion picture film s, films, ta pes and discs; and (8) The lease or the use of or the right to use ra dio, television, sa tell ite transmission and cable telev ision tim e. XXX XXX xxx" Pe titioner's view is that Section 108 of the NIRC of 1997 does not categorically d efine what con slit+utes "service," which may be "sold or I exchanged" in the co urse of business. Rather, the phrase "sale or exchange of service" is a catch-all phrase which embraces the p erformance of all kinds of serv1ces rendered m the Philippines by a person for others for a fee, 137

DECISION CfA EB No. 402 (CfA Case No. 7261) Page 11 of ] 7 remuneration, or consid eration, regardless of w h e th er the performance thereof calls for the exercise or u se of the ph ysical or mental faculties, including but not limited to, sev eral item s of services as enumera ted and similar services. I Therefore, even in th e absence of a specific m ention in the provision, the op era tion of thea ters and cinem a tographs ren dered in the Philippines by a p erson for o thers for a fee, remunera tion, or consideration, w hich is not expressly exemp t from VAT under the N IRC of ] 997 or any sp ecial law, is a sale of service contempla ted under Sec tion 108 of the NIRC of 1997. We do no t agree with petitioner. Th e issu e p resented before Us is not novel. In th e case of Cornmissioner of Internal Re11erzue v. SM Prime Holdings, Inc. and Firs t Asia Realty Development Corpomtion,12 We d eclared that the activity of showing m o tion pictures, films or m ovies by the proprietors, lessees, or opera tors of theaters or cin em as i~, n ot a "sale ,or exch an ge of service" s ubject to VAT, as it is no t am ong the enumera ted activities contemplated in the phrase "sale or exch an ge of serv ices" found in Sec tion 108 of the NIRC of 1997. Althou gh the said provision m akes use of the phrase " all kinds of services" to define w h a t "sale or exch an ge of services" is subjec t to VAT, it ac tually se ts forth an exhaustive enumera tion of wh a t services are intended to be subject to VAT. The only provision rela ting to films or m o tion pictures in the said section is the lease of m o tion picture films, films, tapes and d iscs, w hich is different and distinct fr om the ac t of sh owin g or exhibiting movies, mo tion pictures or films. "C.T.i\ FB CasP No. 244 (C.TA Ca se Nos. 7079, 7085, 71n & 7272), April 30, 2008. I 138

D EC IS IO N CTA EB No. 402 (CTA Case No. 7261) Pa ge 12 of 17 "Exhibi tion" in Black's Law Dictionary is defined as "to show or displa y xxx to produce anything in public so that it may be taken il1to possession." While the word "lease" is d efined as "a conh�act by which one owning such property grants to an oth er the right to possess, use and enjoy it on specified period of time in exchange for perio dic payment of a stipula ted price, referred to as rent." Without a doubt, the law in specifically providing the lease of motion pichtre films, films, tapes and discs as a "sale or exchan ge of service" subject to VAT, did not intend to include the shown1g of motion picture/ films by cinema and theaters operators or proprietors. It is well to note that film showin g is a widely known activity too significant to be omitted in the enumeration, if it was intended to be subject to VAT. In fact, il1 Our jurisdiction, th~ ta x laws, past and present, did not include the showing of films in public by the owners, operators or proprietors of cinematographs or thea ters as "sale or exchange of services" subject to VAT. We further ruled in the case of SM Prillle Holdings that such interpretation holds true n otwith standu-ig the fact that the phrase "sale or exchange of services" is qualified at the end of the enumeration with the phrase "and other similar services ." Under the principle of ejusdem generis, w here gen eral words follow an enumera tion of persons or things, by words of a par ticular and specific meaning, such general words are not to be construed in their widest extent, but are to be held as applyn1g only to persons or things of the same kind or class as those specifically m entioned.13 Its purpose is to give effect to both the particular and general words, by trea ting the p~_rticular words as indicating the class and the n Phil ipp ine Bas ke tball Association v. Co urt of Appea ls, G.R. No. 11 9122, Augus t 8, 2000, 337 SCRA 358. 13 '9

DECISION C f A EB No. 402 (C f A Case No. 7261) gen eral wo rds as including all that is embraced in said class, although not specifically n am ed by the particular words. rD1is is justified on the ground that if the lawm aking body intended the genera l terms to be u sed in their umesh�icted sense, it w ould have n o t made an enumera tion of particular subjects but would h ave u sed only gen eral terms. It is a h ornbook d oc h�ine in the interpre ta tion of ta x laws that: "A statute will no t be con sh�u ed as imposing a tax unless it d oes so clearly, expressly, and unambigu ou sly xxx. A tax canno t be imposed wi thout clear and express words for tha t purpose. Accordingly, the general rule of requiring adherence to the le tter in cons h�uing statutes applies with peculiar sh�ich1ess to tax laws and the p rov isions of a taxing ac t are n o t to be ex tended by implica tion ."14 A tax is never presumed and there must be clear lan guage in the law imposing the tax . Any doubt whether a p erson, article or ac tivity is ta xable is resolved against taxa tion .15 Thus, in answering the question of w ho is subject to tax statutes, the rule is tha t in case of d oubt, ta x statutes are to be consh�u ed strictly against the government and liberally in fav or of the taxpayer, for ta xes being burdens, are no t to be presumed beyond w ha t the applicable statute expressly and clearly declares.16 Th e reason und erlying the rule of sh�ict construction of statutes imposing taxes or cu stom s d uties is that ta xa tion is a d esh�u ctiv e power which I I interferes with the personal and property rights of the people and takes from them a p ortion of their proper ty for the su pp ort of the governmentY " Co mmissioner of Tn terna l Revf' nu e v. Co urt of Appeals, G. R No. 115349, April 18, 1997, 271 SCRA 605. '' Philippine Fisheries Deve lopment A'! tho rity v. Court of Appeals, G. R No. 169836, July 31, 2007, 528 SCRA 707. "' Republic of the Phihpp mes v In ter med iate Appella te Court, G R N o 69344, April 26, 1991, 196 SCRA 335 / "At\P<l lo, Ruben E , Statutory Cm zslmctw11, 3rd Edihon (1995), p 235 140

DECISION CfA EB No. 402 (CfA Case No. 7261) In v1ew of the foregoing disquisition, the contention of p e tition er that respondent has the burden to prove its exemption from the imposition of VAT I I no longer has any leg to s tand on . The principles of tax exemption may not be applied without first applying the well-settled doch�ine of strict interpretation in the imposition of taxes. It is obviously both illogical and impractical to determine who are exempted without first determining who are covered by the provision.18 The rule that ta x exemptions should be cons trued sh�ictly against the taxpayer presupposes that the ta xpayer is clearly s ubject to the ta x being levied against him. Unless a statute imposes a tax clearly, expressly, and unambiguously, w h a t applies is the equally well-settled rule that the imposition of a tax carmot be presumed.19 For this reason, petitioner must fiJ:st prove that respondent is indeed covered by Seclion 108 of the NIRC of 1997 before h e can impose upon it the burden of prov_~ng its exemption from the imposition of VAT. This petitioner failed to do. What is clear, instead, is tha t respondent is not subject to VAT, and con sequently, h as n o burd en to prove its exemption from it. Neither do We find an y error on the part of the Court iJ1 Division in applying the doch�iJ1e of ejusdem gweris, nor in utilizing legislative history, rules of sta tutory consh�uction, and a proposed House Resolution to interpre t a clear provision of law. It is a basic precept in statutory consh�uction that the intent of the legislature is the conh�olling factor in the interpretation of a statute. 20 And in case of doubt as to w ha t a provision of a stalute m eans, the m eaning put to the '"Commiss io ner of Interna l Revenu e v. Court of Appea ls, surra at note 14 . '"Commiss ione r of Internal Revenue v. Philippine America n Accident Ins urance Co mpany, Inc., e t. al., G. R No . 141658, March lR. 21105, 453 SCRA 668. ' "Co mmission o n Au dit of the P rov ince of Ce btt v. Province of Cebu, G.R No. 141386, November 29, 2001,371 SCRJ\ 196. 141

DECISION CTA EB No. 402 (O'A Case No. 7261) r~ ge 15 of 17 provision during the legislative d elibera tions may be adopted. 21 It bears stressing that statutes should receive a sensible consh�uction, such as will give effect to the legislative intention, and so as to avoid an unjust or an absurd conclusion. 22 As We see it then, the activity of sh owing motion pictures, films or movies by the proprietors, lessees, or op era tors of theaters or cinemas is not a "sale or exchange o f service" subject to VAT, but is an "amusement activity" subject to amusement tax und er Section 140 of the RA 7160, to wit: "SEC 140. Amusement Tax. - (a) The province may levy an am usement ta x to be collec ted from the proprie tors, lessees, or operators of theaters, cinemas, concert halls, circuses, boxing stadia, and o the r places of amuseme nt at a rate of nC)t more than thirty percent (30%) of the gross receipts from admissio n fe,es. (b) In th e case of thea ters or cinemas, the tax shall first be deducted and withheld by their proprie tors, lessees, or operators and paid to the provincial treas urer befo re the gross receipts are divided betw een said proprietors, lessees, or opera tors and th e distributors of the cinematogra phic film s. (c) The l1oldin g o f o peras, co nce rts, dramas, reci tals, painting and ar t exhibitions, fl ower sh ows, m us ical programs, literary and ora torical presen tations, except pop, rock, or similar concerts shall be exempt from the payment of the ta x hereon imposed. (d) The sanggunian g panlal aw igan may prescribe the time, mam1 er, terms a nd conditions fo r the pay ment of tax. In case of fraud or failure to pay th e ta x, the sa ngguniang panlalawigan m ay impose such s urcharges, interes t and penalties as it ma y deem a ppropriate. (e) The proceeds from th e a musement tax shall be sha red equally by th e province a nd the muni cipal ity where s uch amuseme nt p laces are loca ted." "Na ti onal Poli ce Co mmission (NAPOLCOM) v. De Guzma n, Jr., G. R No. 106724, February 9,1994, 229 SCRA 801. 22 Co mm issioner of Internal Revenue v. TMX Sales, Inc., G.R. No. 83736, janua ry 15, 1992, 205 SCRA 184, citing People v. l~ izwrn, 59 Pl! il . 236 (7 933) . 142 I

DECISION CfA EB No. 402 (CfA Case No. 7261) Pa ge 16 of1 7 In arrivin g a t this conclusion, We explain ed m the case of SM Prime Holdings that: "It must be emphas ized that motion picture/film/movie exhibiti on or sh owin g is an amusement activity subjec t to amusement tax . Unde r RA 7160, o therwise known as ('An Act Providing for A Local Gov ernment Code of 1991'), 'Amusem e nt' is defined as a ' pleasurable diversion and ente rtainment. It is synonymous to relaxation, avocation, pastime, or fun' (Section 131 {b), RA 7160). Whi le, 'Amusement Places' 'i nclude theaters, cinemas, concer t halls, ci rcuses and other places of am usement where one seeks admission to enter tain oneself by seeing or view ing the sh ow or performances' (Section 131 (c), RA 7160) . Specifically, Section 140 of the RA 7160 imposes amusement tax to proprietors, lessees, or opera tors of theaters and cine mas, to wit: XXX XXX XXX Pursuant to the foregoing provisions of RA 7160, it is clear that the ac ti vi ty of s howin g motion pictures, films or movies by the proprietors, lessees, o r operators of thea ters or cin emas is considered an 'amusement activity' s ubject to amusem ent tax. It is not considered a 'sale or exchange of se rv ice' subjec t to VAT. All told, We find no convincing reason to d epart from Our previous ruling. TI1en and now, the sam e ta x principle applies: "No person or property is subject to taxation unless they fall within the terms or plain impor t of a taxing s ta lute." 23 WHEREFORE, the instant Petition for Review is hereby DISMISS ED . Accordingly, the Decision dated April 11, 2008 and the Resolution da ted July 3, � 2008 are hereby AFFIRMED. SO ORDERED. "Commiss ioner of Internal Revenue v. Co urt of Appeals, G. R. No. 86785, November 21, 1991, 204 SCRA 182. 143

DECISION CfA EB No. 402 (CfA Case No. 7261) WE CONCUR: ~..a. o~ ERNE~TO D. ACOSTA Presiding Justice JW . ~Hc�~~.Q.. ER~P.UY J{:JANITO C. CASTANEDA, Assocrate Justice Associate Justice CAESAR A. CASANOVA ~A~~A-ENIUQUEZ Associate Justice Associate Justice CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the above Decision has been reached in consultation with the members of the Court En Bane before the case was assigned to the writer of the opinion of this Court. t~o-- 0.~ ERNESTO D. ACOSTA Presiding Justice