CTA Case No. 5924 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY CARMELINO F. PANSACOLA, C.T.A. CASE NO. 5924 Petitioner, ifs- Pr omul gated : -versus- JUN 1 3 2000 COM1v1ISSIONER OF INTERNAL REVENUE, Respondent. x-----------------------------------------------------------x DECISION The instant petition seeks for the refund of the amount P5,950.00 representing alleged erroneously withheld income tax for the year 1997. The facts of the case are not disputed. Petitioner is an individual taxpayer, of legal age, Filipino, m;miccl, presently employed and with residence at No.9 Balete Road, Pilar Village, Las Pi.nas City. On Aprill3, 1998, Petitioner filed his i\nnual Income Tax Return for the year 1997 showing an oveqMyment of P5,950.00 arising from the di1Iercucc in the mmmcr by d which the tax ue was computed, detailed as follows: Per Appellant Per l3 IR Dirtcrence Gross compensation income P654,270.LI3 P654,2 70.,13 Pl7,000.00 p 5,950.00 Less: Personal exemptions P32,000.00� Pl8,000.00 5,000.00 Additional exemptions 8,000.00 40,000.00 23,000.00 TaJ<clble income P614,270.43 P63l,270.-IJ Tax Due Pl62,169.65 Plo8,119.o5 Less: \1./ithholdingtax (BIR W-2) Refundable Ammmt Pl68,119.65 Pl68,ll9.05 p 5,950.00 p ) .' ) ! :v

DECISION- CTA CASE NO. 5924 PAGE-:2 Petitioner computed the lax due in his retum on the basis of RA 84-24-, olhenvise known as the Tax Refom1 Act of 1997, granting personal exemption as a married individual in the amount ofP32,000.00 and an additional exemption ofP 8,000.00 for each dependent. On the other hand, the tax withheld fi�om Petitioner as shown by his Certificate of Income Tax 'Vithheld on Compensation was arrived at pursuant to RA 7167 which granted a personal exemption of P18,000.00 for manied individuals and PS,OOO.OO for each dependent. Thus, on Aplil 16, 1999, Petitioner invoking the provisions of RA 8424 as applicable to his case, filed a claim for refund befon; the office of herci11 Respondent (Atmex B, Petition for Review). Through a letter dated June 7, 1999 which was received by Petitioner on July 22, 1999, Respondent denied with finality Petitioner's claim for refund (Atmc.\ C, Petition for Review). Hence, the instant petition. Respondent, in his Answer, raised the following Special and Aftfrmative Defenses : "4. In denying Petitioner's claim for refund, Respondent pointed out that the same was without factual as well as legal basis, R epublic Act No. 8424 having taken effect on January 1, 1998, as expressly provided in the law. The legislative intent as to when the increase in pcr sonal and additional exemptions pr ovided in RA No. 7167 will take effect, is not applicable in the case ofRA No. 8424. In interpreting RA No. 7167, the Supreme Court declared that the adjustmen ts made by Congress "to the povert)' threshold level'' meant that Congress intended the increase in personal and additional exemptions to apply at the time of its enactment, \vhich is 1991,

DEClSlON- CTA CASE NO. 5924 PAGE3 although the law (R.A. 7167) became effective on January 30, 1992 (Umali vs. Estanislao, 209 SCRA 446). On the other hand, the intention of Congress as to \vhen the amendatory provisions introduced by RA No. 8424 will take effect is very clear. There is no doubt or room for interpretations as to the legislative intent as Congress has explicitly and categorically declared it to be effective on January 1, 1998. In sum, the distinction lies in the ascertailm1ent of the legislative intent. In RA No. 7167, Congress intended the increase in personal and additional exemptions to apply to income earned during the vear 1991, whereas in RA No. 8424, Congress intended its provisions to apply to income starting JanuaiJ' 1, 1998. 5. Taxes are presumed to have been paid and collected in accordance vvith law; 6. In an action for tax refund, the burden is on the taxpayer to establish its right to refund, and failure to sustain the burden is fatal to the claim for refund; 7. It is il1cumbent upon petitioner to show that it has complied with the provisions of Section 204 in relation to Section 229 of the Tax Code; 8. Well-established is the rule that claims for refund/tax credit arc construed ill strictissin1i juris against the taxpayer as they partake the nature of exemption from tax." Both parties agree that the issue involved is purely legal: whether or not the increased personal and additional exemptions under RA 8424 can b availed of by the Petitioner for purposes of computing his income tax liability for the taxable year 1997 and thus be entitled to the refund (p. 45, CTA records). In his Petition for Review, Petitioner contends that the rulings enunciated in Umali vs. Estanislao.. 209 SCRA -146, are applicable to RA 8424, otherwise knovvn as the Tax Rcfonn Act of 1997. b1 the said case, the Supreme Court ruled that Rep. Act 7167 took �!1 'I tJ. . !

DECISION- CTA CASE NO. 5924 PAGE4 effect on 30 January 1992, which is after fifteen (15) days following its publication on 14 January 1992 in the "Malaya," but at the same time held that the said Act should cover or extend to compensation income eamed or received during calendar year 1991, thus: "It will also be observed that Rep. Act 7167 speaks of the adjustments that it provides for, as adjustments "to the po1�erty threshold level." Certainly, "the poverty threshold lePe!'' is the poPertv threshold level at the time Rep. Act 7167 �was enacted bv Congress, not !' threshold levels in filfuro, at which time there may be need of further adjustments in personal exemptions. xxx And then, Rep. Act 7167 says that the increased personal exemptions that it provides for shall be available thenceforth, !hat is, after Rep. Act 7167 shall have become effective. In other vvords, these exemptions are available upon the filing of personal income tax rclums which is, under the National IntemalRevenue Code, done not later tkm the 15111 clay of April after the end of a calendar year. Thus, under Rep. Act 7167, which became effective, as aforestated, on 30 January 1992, the increased exemptions are literally available on or before 15 .-lpril 1992 (though not before 30 January 1992). But these increased exemptions can be available on 15 April 1992 only in respect of compensution income � earned or received during the calendar year 1991. X.\:X The personal exemptions as increased by Rep. Act 7167 cannot be regarded as available on(v in respect of compensation income received during 1992, as the implementingRevenueRegulations No. 1-92 purport to provide. Revenue Regulations No. 1-92 would in effect postpone the availability of the increased exemptions to 1 January-15 April 1993, and thus literally defer the effectivity ofRep. Act 7167 to 1 January 1993. Thus, the implementing regulations collide frontally with Section 3 ofRep. Act 7167 which states that the statute "shall take effect upon its Jpproval.., The objective of the Secretary of Finance and the Conunissioner of Internal Revenue in postponing tlu�ough Revenue Regulations No. 1-92 the legal effectivity ofRep. Act 7167 is, of course, entirely understandable - to defer to 1993 the reduction of govemmental tax revenues which irresistibly follows from the application of Rep. Act 7167. But the law-making authority has spoken and the Court can not refuse to apply the lavv-maker's words. \Vhether or not the govemment can afford the drop in tax revenues resulting from such increased exemptions was for Congress (not this Court) to decide." . IJ ! r(.J! '

DECISION- CTA CASE NO. 5924 PAGES Respondent, on his part, argues that Petitioner's claim for refund has no factual nor legal basis, RA 8424 having taken effect on Janumy 1, 1998, as expressly provided in the law. vVe rule in favor of the Respondent To begin with, this Court fmds the provision under RA 8424 on the effcctivity datc of the Act to be too clear to admit of the interpretation advanced by Petitioner and We simply caruwt adopt the pronouncements made by the Highest Tribunal in the aforementioned case ofUmali vs. Estanislao. Firstly, the effectivity clauses of RA 7167 and RA 8424 are not similarly worded, the fotmer to take effect upon its approval and the latter, on a specified elate, January 1, 1998. As correctly pointed out by Respondent, the intention of Congress as to when the amendatory provisions introduced by RA 8424 will take effect is very clear. It need not be overemphasized that the court may not construe a statute that is clear and :fi�ee from doubt. "Time and time again, it has been repeatedly declared by this com1 that where the law speaks in clear and categorical language, there is no room for interpretation. There is only room for application." (Cebu Pm1land Cement Co., v. Nlunicipality of Naga, G.R. A No. 24116, ug. 22, 1968, 24 SCRA 708, cited in Statutory Construction, Agpalo, 3rd edition) 1\lloreover, "tax laws operate prospectively whether they enact, amend, or repeal unless the purpose of the legislature to give retrospective effect is expressly declared or may be implied from the language used." (Philippine Education Co. ,,.. Conunissioncr, CTA Case No. 703, Sept. 20, 1965 citing Lorenzo V. Posadas, 4 Phil. 353; Co1mnissioncr .) I') . :,

DECISION- CTA CASE NO. 5924 PAGE6 v. Filipinas Cia. de Seguros, 58 O.G. No. 3, p. 460, all cited in Law of Basic Taxation, Aban). Verily, RA 8424, by its express tenns, does not fall under any of the exceptions. In the case, however, of RA 7167, considering that its supposed effectivity elate would come earlier than the publication requirement under Article 2 of the Civil Code, the Supreme Court found the need to inteq)ret the said Act after taking into account the circwnstances obtaining at the time. In interpreting the effectivity clause under RA 7167, the "poverty tlu�eshold level" at the time the said Act was enacted was given utmost consideration. This is because the cardinal rule in the interpretation of all laws is to ascettain, and give effect to, the intent of the law. Furthermore, it is worthy to note that before the court may construe or interpret a statute, there must be doubt or ambiguity in its language. Unfortunately for the Petitioner, this Court fmds nothing ambiguous in the effectivity clause of RA 8424. Petitioner likewise contencl(} that unlike the other allowable deductions which speak of a time or period covered, the allowance of the personal and additional exemptions as stated in theTa.'.: Code recognizes no time frame or period of coverage. Rather, the same are fixed amounts allowed when, and are to be reckoned at the time of, computing or detetmining the tax due. According to Petitioner, these personal and additional exemptions are simply granted by law to be available at the time of filing the retum and payment of the tax due thereof. \Ve do not agree. For the pmvose of detetmining the tax due from an individual taxpayer's income eamed on a particular year, the law allows the deduction of basic personal and additional .' ' ' 0Q ,

DECISION- CTA CASE NO. 5924 PAGE 7 exemptions of the taxpayer ce11ainly for the same taxable year. It >vould be absurd for the law to allow the deduction from a taxpayer's gross income earned on a cntain y.:ar of exemptions availing on a different taxable year. And like busi11css expenses which are required to be paid or incuned during the taxable year in ord<.:r that they mi.ly be allowed as deductions, personal and additional exemptions, though fi.\ecl amounts, likewise refer to the status of the taxpayer at the end of the year. This is why under Section 35 (C) of the Tax Code, the taxpayer may still claim in full the exemptions conesponding for a taxable year where a change of status has occurred duri11g such year, thus: Sec. 35. Allowance of Personal Exemption for Individual Taxpayer. -"(C) Change of Status. - If the taxpayer manics or should have additional dependent(s) as defined above during the taxable year, the taxpayer may claim the corresponding additional exemption, as the case may be, in full for such year. If the taxpayer dies during the taxable year, his csl.atc may still claim the personal and additional exemptions for himself and his dependent(s) as if he died at the close or such year. If the spouse or any of the dependents dies or if any of such dependents manies, becomes twenty-one (21) years old or becomes gainfully employed during the taxable year, the taxpayer may still claim the same exemptions as if the spouse or any of tbc dependents odlided'p, robreacsamifesugcahindfeuplleynedmenptlsoymeadrraiet dt,hebecclaomseeotfwseuncthy-yoenaer(.2" 1) years Clearly from the above, what the law considers for purposes of determining the tax due from an individual taxpayer is his status and qualified dependents at the close of the taxable year and not at the time of the filing of the return ancl payment of the tax due thereon, as alleged by Petitioner. I'-) I� ' .

DECISION CTACASENO. 5924 PAGES 'VHEREFORE, in the light of all the foregoing, the instant Petition for Review is hereby DENIED for lack of merit. SOORDERED. "VE CONCUR: lQ- ERNESTO D. ACOSTA Pr siding Judge ::. w ONO. DE I As- socia� te Judge CERTIFICATION I hereby cettify that the above decision was reached after due consultation with the members of the Court of Tax Appeals in accordance with Sectjon 13, .Article VIII of the Constitution. ERNESTO D. ACOSTA Presiding J uclge