CTA Case No. 5824 (Decision)

d.:--..Pl f . REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEAL.S QUEZON CITY PHILIPPINE AIRLiNES, INC. (PAL), Petitioner, -versus- C.T.A. CASE NO. 5824 COMMISSIONER OF lNTER]'JAL Promulgated: REVENUE, JUN 1t1:-JJ>2o0/0l)1t1~--ft/,;J;' q -z \ ~,.._ Respondent. X - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - �� - - - - - - - - - �- - - X DECISION This is a judicial cla im for the refund of the amo unt of P731 , 190.45 filed by the Petitioner on April 23, 1999, representing alleged erroneo us ly with held and/or collected 20% final withholding tax on interest income from bank deposits. As to how the issues in this case arose, this Co trt now proceeds to unravel the factual background as contained in the contending parties ' Joint Stipu lation of Facts: I . That PAL is a domestic corporation organized in accorda nce wi th the Ja ws of the Republic of the Philippines with principal office at the 9F PAL Center, Legazpi Street, Lcgazpi Vi llage, Makati City; 2. That respondent is the Commissioner of Internal Revenue and is in charge of the assessment and co ll ection of the 20% linal tax on interest on Philippine currency bank deposits and yield or any other monetary benefit fi�om deposit substitutes and from trust ''''4 ":. -I

DEC ISION- CTA CASE NO. 5824 PAGE 2 fund and similar arrangements, imposed on domestic corporations under Sec. 24(e)(l) [now Sec. 27(0 )( 1)] of the Nati onal Internal Revenue Cnde (N IRC), with principal office at the BIR Building, Agham Road, Diliman, Quezon City. 3. That on November 5, 1997, petitioner's AVP-Revenue Operati ons and Tax Services Atty. Edgardo P. Curbita, filed with the office of the then Co mm iss ioner of Internal Revenue Mdm . Li wayway Vinzons-C hato, a written request for refund of the amount of Pl--IP2,241 ,927 .22 (Annex "D" of the petiti on for review) whi ch is the total amount of 20% fina withholding ta withheld from the p.e.titioner by vari ous withholding agent banks, and vvhich amount includes the 20% fi nal withho ' g tax withheld by the ._____.....- United Coconut Planters Bank (U CPB) and Ri zal C :�mmercial Banking Corporati on (RCBC) for the peri od startin g March 1995 through February 1997, attaching thereto the certifications of the taxes withheld, referred to as Annexes "A" and "B" of the Petiti on for Review. The sa id request cites Section 13 of petitioner's franchi se, Presidenti al Decree No. 15 90 as petiti oner's basis fo r claiming for refun d; 4. That on December 4, 1997, the same !\. VP-Revcnue Operations and Tax <....__ Services of Petitioner Jil ed with the ofli ce of the then Comm issioner of lntcrna l Revenue Mclm. Li1,vayway Vinzons-Chato, anot:her written request fo r re fund invo lving the amount of PHP 1,048,047.23 (Annex "L" of the petiti on for rev iew) representing the total amount of 20% fin al withholding withheld by vari ous depos itory banks of the peti tioner which amount includes the 20% final withholding tax wi thheld by the Philippine National bank (PNB ), Equitable Banking Corporati on (ES C), and the Jade Progress ive Savings and Mortgage Bank (.JPSMB) for the period starting Marc h 1995 through November 1997, attachin g thereto the certifications of the taxes wi thheld, referred to as Annexes "F', "G", , ., r- r . t tJU

DEC ISION- CTA CASE NO. 5824 PA GE 3 and ''1-1" of the Pe tition for Rev iew. As in th e first requ est, thi s requ est cites Secti o n 13 of P.O . 1590 as petiti oner's bas is for claiming refund ; 5. That the BIR Chief of the Appe llate di vision Rodul fo L. Salazar ack nowledged (Annex " M" of the petiti on fo r review) the fil ing of the petiti oner 's D ecem ber 4, 1997 written request (Annex " L" of th e petiti on fo r review) fo r re fund of the a bove-mentioned 20% final w ithho lding tax withhe ld by PNB , EBC, and JP SMB ; 6. That up to thi s date, the res ponde nt has no t rt.'s ponded to the above- menti oned written requests for refund admitted by th e respondent as havi ng been fil ed by the petitioner; 7. That petiti oner is claimin g und er thi s Petition fo r Rev iew th e refun d onl y o f the amo unt of PJ IP73 1, 190.45 representin g th e 20% fin al w ithho lding tax w ithhe ld on petitioner's interest income for the period January 1997 to No ve mber 1997 ; XXX XXX XXX To contradi ct Pet iti oner's nsse rti ons, Responde nt. . in h is Answer fil ed o n Jun e 16, 1999, interposed the fo llow ing Specia l and A ffirm ati ve De fenses, to w it : 5. The " in li e u of all tax es" prov isio n in the pe titi oner's franchi se appli es o nl y if petiti oner paid the taxes un der subsecti ons (a) and (b) of Presidenti a l Decree No. 1590 and since petit io ne r is not pay in g any of th e said taxes, then no s uch tax can be appli ed in li eu of the I0% overseas communicati ons tax, hence, pe titi oner is s ubj ect there to and th erefore not entitled to the refun d c la imed; 6. Petiti oner's claim has parti all y, if not totall y, prescribed ; 7. T he petiti on states no ca use o f ac ti on as it does not a ll ege th e da te/s w hen th e taxes so ught to he re fund ed vvcre ac tua ll y paid ; l J ...- , J..

DEC ISIO N- CTA CASE NO. 5824 PAGE 4 8. In an actio n fo r tax refund/credit, the burden of proof is on the tax payer to establi sh its ri ght to the refund and fa ilure to susta in the burden is fatal to the action for tax refund ; 9. Taxes paid and co llected are pres umed to have been made 111 accord ance wit h law and regul ations, hence, not refund able; and 10. We ll-settled is th e rul e thai c laim s fo r re fund are co nstru ed strictl y aga inst th e cl a im ants since it partakes of the nature of an exe mpti on from taxa ti o n. (Res ins, Inc. vs. A udit or Ge nera l, 7) SC RA 754, 1968). On October 12, 2000, this case was considered submitted for decision sans the me morandum of the Respond ent. The iss ues in thi s case are four-fold . a. Wheth er or not Petiti oner PAL IS entitl ed to the re fund of the 20% fin a l withholding tax prayed fo r; b. Whethe r or not th e " in lieu of a ll taxes" provision in the Petiti oner's fran chi se applies onl y if Petiti oner pa id the taxes uc�J er subsecti ons (a) and (b) of Presidential Decree No. 1590; c. Whe ther or not Peti tioner's claim has parti a ll y, if not tota ll y, presc ribed; d . Whe th er or not petition sta tes no ca use of ac ti on as it does no t a ll ege the date/s when the taxes so ught to be re fund ed we re ac tua ll y pa id . In its mem orandum fil ed on June .8, 2000, Petiti oner's protesta ti on hin ges ma inl y on th e terms o f its fi"anchise, i.e. Secti on 13 o f PO 1590, w hi ch all egedl y s ubj ects the Petiti oner o nl y to th e pay ment o f th e bas ic corpo ra te income tax based on its annu al net taxabl e income co mputed in acco rd ance w ith th e pro',risio ns of the Na ti ona l Intern a l Revenue Code, or a franchi se tax of two percent (2%) of its gross reve nues derived from a ll so urces, w hi chever will result in a lower tax and exempts it fro m other k inds of taxes ', ..' u ) f ...

DEC ISION- CTA CASE NO. 5824 PAGES since the said franchi se also provides that the aforesaid taxes 'shall be in li eu of all other taxes, x x x of any kind , nature or description imposed, lev ied, established, assessed, or collected by any muni cipal, city, provincial, or nati onal authority or government age ncy, now or in the fu ture, x x x.'' Thus, Petitioner concludes that the 20% fin al tax on �its interest income from bank deposits and its yield from de::1os it substitutes such as Treasury / Bills and notes were therefore erroneously coll ected in view of Petitioner's exempti on / from the said tax under PO 1590. In addition to this, Petitioner opines that it can validl y ask for a refund of the tax withheld in the interest earned by its bank depos its or the yield li�om its deposit substitutes regardl ess of the fact that it did not pay the basic corporate income tax or the franchi se tax of 2% on its gross revenues since its tax exemption under the franchi se is not dependent upon pay ment of either of the two. We are not persuaded. The vortex of the controversy li es on the provision of Section 13 of PO 1590, and which, for proper di spos ition of this case are hereby reprod uced: "Section 13. In considerati on of the franchi se and ri ghts hereby granted, the grantee shall pay to the Philippine Government during the life of this fran chi se whichever of subsecti ons (a) and (b) hereunder will result to a lower tax: \ (a) The basic _coEporat inco ntc tax based on the grantee's annual net taxab le income co mputed in acco rdance with the prov ision s of th e Na ti onal internal Revenue Code; or (b) A Ji�anchi sc tax of two per cent (2%) of the gross revenues deri ved by the grantee from all so urces, without di stincti on as lo transport or non-transport operati ons; prov ided that with respect to international air-transport service, only the gross passe ngers, I J (.- fu

DEC ISION- CTA CASE NO. 5824 PAGE 6 mail , and freight revenues from its outgo ing fli ghts shall be subj ect to thi s tax. The tax paid by the grantee under either of the above alternati ves shall be in li eu o f all other taxes, duti es, royalti es, registration, license, and other fees and charges of an y kind , nature, or de<::cription imposed, lev ied, estab lished. assessed, or co ll ected by any muni cipal, city, or pro vincial, or national authority or government agency, now or in the future x x x". The wordings of the aforesa id franchi se are quite clear and not susceptibl e of several interpretations nor is there any ambi guity in its language. The rule is that the intent of the legislature to be ascertained and thereafter given effect is the intent expressed in the language of the .statute. If a statute is clear, plain and free from ambiguity, it must be given its literal meaning and applied without attempted interpretati on. The rul e rests on the valid pres umption that the word s empl oyed by the legislature in a statute correc tl y express its intent or will and preclude the court from construing it differentl y. Verba legis non est recedendum, or fro m the word s of a statute there should be no departure. Prescinding from the above, the Petiti oner's franchi se cl earl y prov ides that "in consideration of th e franchise and ri ghts hereby granted, !b_Lg!'ante~ s h alL!~ to th e Philippine Government during the life of thi s franchi se" either the basic corporate income tax. based on the grantee's annual net taxa ble income computed in acco rdance with the provisions of the Nati onal Intern al Revenue Code, or a franchi se tax of two percent (2%) of the gross re v e n~1 es derived by the grantee from all so urces. From the forego ing, it is quite unequi vocal that Petiti oner is required und er its fran chi se to pay a franchise tax of two percent of its gross reve nues without any fu rther ---- '., \ qualifi cati on that it is exempt from such wheq it is at a net loss posit io n aL he end of the I "-------

DEC ISION- CTA CA SE N O. 5824 PA GE 7 taxabl e year. Under the franchi se, it is mandatory th at th e Petiti oner must pay its fra nchise tax of two percent (2%) or to pay its corporate tax so that it may avail o f the ince ntives provided under the last paragra ph that " the tax paid by the grantee under either o f the abo ve alt ern ati ves .shall be in lie u of a ll other taxes, duti es, roya lti es, registrati o n, license and other fees and charges of any kind1 x x x.", regardl ess of w hether or not it suffered a net loss durin g a particul ar taxa ble year. The phrase " in li eu or' means instead o f: in pl ace of; or in substitutio n fo r (Bl ack vs . Barnes, 46 P. 2d 625, 626, 142 kan. 361 ; Rutherl and vs. O roville-Wyand otte [rr. Di st. , 22 P. 2d 505, 2 18 Cal. 242; Words and Pharses, Vo l. 2 1, p. 472). T he " in lieu of' impli es th e ex istence of som ething fo r which a substitution is be ing made. Analyzing, therefore, the wordings of the fl�anchi se more pa rticul arl y the las t paragraph of Secti on J 3 of PD 1590, it is cl ear th at Petiti oner has the option to pay either a corporate income tax or 2% franchise tax to avail of the incenti ve . Had Petiti oner paid th e 2% franchi se tax, then the final withholding taxes withheld may be considered as "other taxes" as it fall s und er income tax . Ho wever, should it choose to ava il o f the Jirst altern ati ve, then fin al w ithho lding tax on income may not be co nsidered as "o the r taxes". In othe r wo rds, should PA L opt to ava il of the first alternati ve, tha t is, to pay co rporate income tax, paym ent of final w ithholdin J tax is deemed part o r its corporate income tax li a bility, the refore not refunda ble. Witha l, exemptions from taxa ti on are hi ghl y di s f~tvored in law; and he who claims an exempti on must be able to justi fy his claim by the clea res t grant of orga nic or statute law. An exempti on fi�om the common burden cann ot 1-e permitted to ex ist upon vague

.. DECISION- CTA CASE NO. 5824 PAGE 8 implications (Asiatic petroleum Co. vs. Llanas, 49 Phil. 466 cited in Collector vs. Manila .Jockey C lub , lnc. vs. Com miss ioner of C ustoms, L-8 755, March 23, 1956). Other issues raised in the petition are deemed moot and academi c by the above pronoun ce ment s . WHEREFORE, in view of all the forego in g, the Petiti on for Review is hereby DENIED for lack of merit. SO ORDERED. ~ LQ-~ ERNESTO D. ACOSTA Presiding Judge I CONCUR: ( ~A / ' ' ~~;,~~i~e'~~~~ge CERTIFICATION I hereby certify that the above dec ision was reached arter due consultation with the members of the Co urt of Tax Appeals in accordance with Section 13, Article Vlii of the Co nstituti on. ~~ . c~ ERNESTO D. ACOSTA Presiding .Judge I j ,-: "") t <.JU