CTA Case No. 2658 (Decision)

aiP08LIC OP TBI PRIUPPINQ COURT OF TAX APPEALS , or:azoH CITY RURAL BANK OF CALINOG, INC. Petitioner, C.T.A. CASE NO. 2658 COMMISSIONER OF INTERNAL REVENUE, Respondent. X- - ---- ---X DE C I S I 0 N Hhether the amendatory provision of sub-section 24 {d) .introduced by Republic Act No. 5431 in the National Internal Revenue Code withdrew the tax exemption of rural banks under Section 14 of Republic Act No. 720, as amended, is the precise issue in this claim for tax refund by petitioner Rural Bank of Calinog, Inc. against respondent Commissioner of Internal Revenue. Quoted are the incorporated sub-section and implementing regulation, respectively, as foliows: "The provisions of existing special or general laws to the contrary notwith- standing, all corporate taxpayers not specllica1ly exempt under Sections twenty- four (c) (1) and twenty-seven of this Code shall pay the rates provided in this section. All corporations, agencies or instrumentalities owned or controlled by the Government, including the Government Service Insurance System and the Social Security System but excluding educational institutions, shall pay such rate of tax upon their taxable net income as are imposed by this section upon associations or corporations engaged in a similar GS

DECISION - CTA CASE NO. 2658 - 2- business or industry." (Section 24(d), National Internal Revenue Code, as amended.) "This is a new sub-section added to Section 24. This section subjects corpo- rate taxpayers other than those exempted under sub-section (c) (1} of Section 24 and Section 27 to the "corporate income tax regardless of the provisions of existing special or general laws in t he contrary. By virtue of these new provisions, all corporations which under special laws are exempted from income tax are now subject to tax." (REvenue Ivlemorandum Circular No. 41-68) Petitioner corporation heretofore entitled to and privileged with tax exemption a_ccorded under the provisions of Republic Act No. 720, as amended, filed pursuant to the provision of Section 24(d) ~ supra, as implemented, its corporate income tax return cove ring the period of January 1, 1969 to June 20, 1969 (R.A. 5939 re-enacted the tax exemption of rural banks effective June 21, 1969) ~ and paid the amount of 1!!6,383.90 corresponding to the tax due. Petitioner deemed the payment erroneously and illegally col lected by the respondent. In see ki ng the refund therefor, petitioner con- tends that the tax exemption it used to avail and enjoy by vir t ue of Section 14 of R.A. No. 720, as amended, is contractual in nature, and could not have bee�n withdrawn impliedly by R.A. 5431. The provision reads -

DECISION - CTA CASE NO. 2658 - 3- "Sec. 14. All rural banks created and or ganized under the provisions of this Act with net assets not exceeding one million pesos excluding the counterpart capital subscribed and paid in by the government under Sections 7 and 8 of this Act, shall be exempt from the payment of all taxes, charges and fees of whatever nature and description." (R.A. No. 720 as amended by R.A. No. 1097, R.A. No. 3128 and R.A. No. 4106) Respondent maintains that the amendatory pro- vision of sub-section 24(d) ?f R.A. No. 5431, approved on June 27, 1968 and implemented by Revenue Memo- randum Circular No. 41-68 dated November 15, 1968, repealed by clear and specific terms all inconsistent "special laws". Section 9 thereof thus provides: "All special laws, acts and parts there- . of, which are inconsistent with the provisions of this Act are hereby amended or repealed." (R.A. No. 5431) We think the statute is broade r both in . purpose and effect. The problem viewed solely as one of statutory construction without adverting to con.sider- ations of legislative power~ we think the answer is not doubtful. The language of Section 24(d) ~ supra, is not simply strung together with syntactical correctness but appears su~ficiently plain and obvious as t o cover all corporate taxpayers not specifical ly exempt under Section 24 (c) (1) _and Section 27 o f the National Internal Revenue Code, as amended. The pellucidity of the intendment 70

DECISION CTA CASE NO. 2658 - 4- requires no further exegesis. As pointed out by the Supreme Court in the Philippine Oxygen and Acetylene Co. v. Central Bank of the Philippines case (L-23395, February 27, 1971, 37 SCRA 691) '� the first and fundamenta l duty of the Court is the application of the law according to its express terms, interpretation being called only when such literal application is impossible. It has to be as "We do not assume to pass judgment upon the wisdom of the legislature. Our duty is done when we ascertain that it has kept within its power." (Justice Holmes in Missouri, Kansas and Texas Ry Co v. May, 194 us Rep. 267, cited in Notable Opinions of Mr. Justice Cardozo)~ Short of uncritical leniency, we cannot say that any different conclusion ought to follow but to apply the law as we find it. Likew ise, we think it fair to presume that when the law-making body enacted. the statute, it had full knowledge of prior existing laws and legislations on the subject of the statute and acted in accordance or with r espect thereto. (Tami ani Trial Tours v. Lee, 194 So. 305; Ma nila Lodge No. 701 v. Court of Appeals, L- 41061, September 30, 1976, 73 SCRA 163) �. And, when the amendatory R.A. 5431 provides that the "provisions of existing special or general laws to 7i

DECISION CTA CASE NO . 2658 - 5- the contrary notwithstanding", the law-making power cannot be said to have intended the establishment of conflicting and hostile systems upon the same subjec�t, or to leave in force provisions of a prior law by which the later will of . the legislature may be thwarted and overthrown. Such result would render legislation a useless and idle ceremony, and subject the law to t he reproach of uncertainty and untelli- gibility." (See Separate Opinion of Justice John in Lichuaco v. Apostpl, 44 Phil. 145, fn 3, citing Lewis' $utherland Statutory Construction; Bagatsing v. Ramirez, 74 SCRA 313) �. The intendment of the amendment cannot be ascribed as mere quirky insights of the draft~rs. Even if we were to entertain petitioner's proposition that its exemption grant can only be repealed in express terms, such elenchus will not necessarily yield the result desired. It does not need to be. No such rule prohibits repeal by implication of a special and specific Act by a general or broad one. (See 73 Am Jur 2d. 251; Bagatsing v. Ramirez, L-41631, December 17, 1976) ~ t-1oreover, an implied repeal is nonetheless as effective as an express (State v. Herdon, 158 Fla. 115; Posadas vs. NCBNY, 80 L. Ed. 331) ~ and stands upon the same footing as a direct or an express repeal.

DECISION - CTA CASE NO. 2658 - 6- (Beatrice v. Masslich, 108 Fed. 743, 47 C.C.A. 657) ~ The constitution does not make the obviously imprac- tical requirement that every Act shall recite all other Acts that its operation may incidentally affect either by way of repeal or modification. (Searight Estate, 163 Pa. St. 210, 29 Atl. 800) ~ Our vi ew is not new. It has been expressed with more or less distinctness in the case of Koronadal Electric Light and Power Co. Inc. v. Commissioner of Internal Revenue (CTA Case No. 2600, June 26, 1979) ~ which, perhaps, is not inappropriate to quote, in- sofar as pertinent, thus - "x x x x Section 24(d) was evidently meant to be applicable even 'to corporations enjoying income tax exemption before the enactment of R.A. 5431. Otherwise, there would have been no need for said exclusion. The resulting conclusion is that outside of these referred to in Sectiom 24(c) (1) and 27 of the Tax Code, all corporations whose liability for income tax was before governed by general laws or special statutes appli- cable to designated classes or groups of corporate entities, are now subject to the rates prescribed in R.A. 5431." (Excerpts from the Opinion _of the Secretary (now Minister) of Justice contained in a 3rd indorsement to the Secretary (now Minister) of Finance dated March 28, 1969) We conc lude, and this is all that we need decide, that the absence of rural banks as among those ex- eluded from the coverage of the broad scope of Section 24(d) ~ supra, is not a legal legerdemain but a purposeful and deliberate choice. We see n-o

DECISION - CTA CASE NO. 2658 - 7- reason in the present situation to graft further exception into it. Again, we do not hesitate to apply, not that we are helplessly beholden, the rules, oft-quoted and well fortified with re-~ssuring precedents, i.e.: Exemptions are never presumed, the burden being on the claimant to establish clearly his rights thereto, and that an alleged grant of exemption will be strictly construed and cannot be made out of infer- ence or implication but must be beyond reasonable doubt, have lost none of their validity in the case at bar. Since a refund undoubtedly partakes of a nature of an exemption, it cannot be allowed unless granted in the most explicit and categorical language. (Resins, Inc. v. Auditor General, L-17888, October 29, 1968, 25 SCRA 754) ~ Petitioner has failed "to justify its exemption by words too plain to be mistaken and too categor i cal to be misinterpreted". (Reagan v. Commissioner of Internal Revenue, L-26379, December 27, 1969, 30 SCRA 969) �. Although the reach of the issue on which we rest our decision makesit unnecessary for us to consider other questions argued, viz.: impairs the obligation of con t ract created by the exemption grant, and, as a consequence, negatives the growth of rural banking nurtured by the grant of special privilege

D2CI3 I0N CT A C ~3 E NO. 2658 - 8- and inc en tive s , it may suffice to st a t~ tha t - F ir s t, we canno t share the pret e nse th a t the privile ge of the petitione r u nder Section 14 of R. A. 7 20, as ame nded, pa rt akes a v a lid c ontrac tual ob li ga tion and may not be impaired. It must be st a te d th a t even when an exemp tion is clearly g r anted, the gr ant is not necessarily a contract (Sas t Niscon s in R. Co. v. Trempea l ea n, 93 u.s. 595 , 23 u. s . (L. ed .) 814 ), hence , r e voc a ble by the power which made the g rant . And, a statute exempting corpor a tions engaged in a certain bus i- ness from t axe tio n has none of the ~ emen ts of a contrac t a nd corp ora tions organized when such st a tute was in fo rc e has no r e d ress if it is subse q uently repealed . ( ~ e lch v. Cook, 97 u.s. 541 , 24 u. s . (L. ed .) 112; East Saginaw Mf a . c o. v . E2s t Sa g i naw , 19 Much. 25 9, 2 Am Rep 82 1 aff irme d 13 ~:J a ll 373 , 20 u . s . (L. ed .) 611; Pratt Institut e v . Ne w York, 1 8 ~ NY 151 , 25 NE 1119, 5 Ann Cas 198 ; 26 ~ . G .L. 304 ). It is we ll settled t h a t an exe mp tion g r a~ted ~ ro m motives of s t a te po lic y mere l y, con f e rs no _ves t e d ri gh t s and is subj ect to modific a tion and repea l i n the l e gis- l 2tiv e discr e tion . ( 2 Cool e y Taxa tion 4 th 1469) . The t ax exemption accorded petitioner rurel bank does n')t cons titut e a contr ac t but a " spontaneous

::::J.i:!:C I .3 I ON CT.;.; c ::; :~ S iJ O 2 6 5 8 - 9- c oncess ion b y the l 8gis l a ture not conne cted wi t h any s e r v ic e or d ut y i mp e>sed" wh ic h m_: y be wi thd r a wn at the pl eas ure of t he s t a t e . S e co nd , it i s t 0 o much o f a s tr e tc h t o hold t ha t t he wit hd r awa l o f the ta x exe mp tio n wou l d f o re c lo s e the g ro wth a nd d e velopme n t of t he r u r al bank or f rus t ra t e t he s ha r p l y def ined obj e c t i ves of t he l aw . The t ax i mp o si tio n s o u gh t to be r e co n- s i de r ed affec t s no t a l o ne t he peti tbn e r b u t all ent iti es simi l a r ly s itu ated i nclud ing gove r nment owne d o r cont r o ll ed c orp or 2t ions , agen cies or i ns t r u men t a liti es wh i ch must b e a r a shar e at t he common b ur den of t axa tion tm-.rards mee ting the broade r co mmi t ~en t of t h e n a tion's we lfa r e a n d i nte r es t. I t t ake s mo re t ha n a t ax ex e mp tie>n to atta i n a ny mean i n g f ul p rogress in t he r ura l ' ua nki ng b u s i ness . ~ . e , t herefo r e , h ol d t ~Q t th e r es p ond ent Co m- mi s s ion e r of In tern a l ~evenue co ntr a v ene d n o l a w, and , i n f a ct , none o f his own ru l es and re gul a ti o ns i n co l l e ctin g the a~oun t of ~ 6 , 3 8 3 . 90 r ep r e s e nt in g t h e income t a x li ab il i t y o� pe t i tio ne r Ru r a l Ba nk of Ca li no g , Inc . >.c c or d i n g l y , petit io ne r is not e ~ ti tl ed to a ju dgrn~ n t o f r ef u nd . :,-.lll EREFORE , the pe titi on f or revi ew i s he r e b y

DEC I S I ON - CTA CAS E NO . 26 58 - 10 - d i s ~ issed wi t h cost aga in s t pe titioner . SO C..'l.:(D~R ED .. ~ u ezon City , J a nuary 30 , 198 1 . �,,J 8 CO :~ CUR : A:-,_::...N�rE Presi d i ',..., 1"'1 ;