BICOLANDIA DRUG CORPORATION v. COMMISSIONER OF INTERNAL REVENUE

��~ REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY ENBANC BICOLANDIA DRUG CORPORATION, Petitioner, C.T.A. EB No. 320 (C.T.A. Case No. 7210) Present: -versus- Acosta, P.J., Castaneda, Jr., Bautista, Uy, Casanova, and Palanca-Enriquez, JJ.: COMMISSIONER OF INTERNAL REVENUE, Respondent. Promulgated: -----------------Or~u'1h-AY-2-2--20-~ 0r8Ai'"r':.t.fDP/VI -~- ---X DECISION THE CASE . _,;'. On appeal are the Decision dated July 23, 2007 dismissil1:g the on for review, due to insufficiency of evidence, and the Resolution ~ 499

.RESOLUTION . CTA EB CASE No. 320 (CTA Case No. 7210) dated October 3, 2007 denying petitioner's motion for reconsideration for lack of merit, both issued by the Court's First Division, in the case entitled, "Bicolandia Drug Corporation vs. Commissioner of Internal Revenue" docketed as CTA Case No. 7210. THE FACTS Bicolandia Drug Corporation ("petitioner''), a corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines is engaged in the sale of pharmaceutical �products. The �. Commissioner of Internal Revenue ("respondent''), on the other hand, is vested by law to decide, approve and grant claims for .refund or tax credit � . of erroneously or excessively paid taxes. . On April 15, 2003, petition~r filed its 2002 annual income tax return..~ i . � . � -~ �. f'ITR'') and treated the amouf!t of PS, 13~,�836.59�as pre-paid, tax Ctjdit ' ; ;,'~ �. . . . . ,. . .;. . allegedly representing the �.0�/o sales discounts g~anted� to qualified Seilior ,, ~ . i : � .. ~ .� . . '� �. ~. ' 'on I� � .jo � ,� � . �cittiens�.. tnefr purchase of medicines py.r.~uant to Republic Act ("R.A.") j' " )' 7432 and its Implementing RCJies..2md t!cgulations. 1 � .� On April 13, 2005, .the petitioner applied with the Bureau of Internal nue ("BIR'') for the issuance of a tax credit certificate in the amount P8,133,836.59, equivalent to the 20�/o sales discounts allegedly availed ~ c. 500 '

) RESOLUTION CTA EB CASE No. 320 (GA Case No. 7210) by qualified senior citizens on their purchase of medicines during the taxable year 2002. 2 On April 14, 2005, the petitioner appealed by way of a petition for review docketed as CTA Case No. 7210 praying for the issuance of a tax credit certificate in the arnount of P8, 133,836.59 covering taxable year .. 2002 before the Court's First Division. In the Decision dated July 23, 2007, the Court in Division dismissed the petition rlue to insufficiency of evidence. Unfazed, the petitioner moved for a reconsideration of the Decision dated July 23, 2007, and prayed for the issuance of tax credit certificate in the reduced amount of PS, 186,883.74 which the Court in Division denied in the Resolution dated October 3, 2007. ISSUE Petitioner sought redress with this Court en bane by filing a petition for review ascribing the sole error committed by the Division: BE WHETHER OR NOT THE PETITION SHOULD DISMISSED FOR THE ALLEGED FAILURE OF THE PETITIONER TO SMOW THAT ITS GROSS SALES TO SENIQR CITIZENS WER.E DECLARED AS PART OF ITS TAXABLE INCOME3 ~ 501

RESOLUTION CT"A EB CASE No. 320 (CfA Case No. 7210) The res'pondent failed to file any comment to the petition within the period fixed by this Court. RULING This Court en bane takes judicial notice that R.A. No. 92574 which took effect on March 21, 2004 now considers the 20�/o sales discounts I granted to senior citizens as a tax deduction from the grbss income incurred by private establishments engaged in selected transportation hotels and similar lodging establishments, restaurants and recreation centers, medical services, dental services, entities involved in funeral and burial services and sale of medicines. 5 However, since the instant case involves the taxable year 2002, the applicable statute is R.A. � 4326 which entitles qualified senior citizens to 20�/o .~ales discount from . establishments such as those entities enga~ed in the sale of medicines. Considering that petitioner sells pharmaceutical products to the ic, it may claim the cost or the 20�/o discount extended to qualified citizens in their purchase of medicines as tax credit. Section 4(a) of R.A. 7432 provides: Sec. 4. Privileges for the Senior citizens. -The senior citizens � shal~ .be entitled to the following; ~ �~;' ��. Expanded Senior Citizens Act ot� 2003. �.�Carlos Superdrug Corp. vs. Department of Social Welfare and Developmeat (DSWD), G.R. June 29, 2007, 526 SCRA 130. "An Act to Maximize the Contribution of Senior Citizens to Nation Building, Gr~Qt Benefits and ,. . I Privileges and For Other Purposes" which took effect on May 14, 1992. �� :::� ��� 502 ,~

'RESOLUTION CTA EB CASE No. 320 (CfA Case No. 7210) a) the grant of twenty percent(20%) discount from all establishments relative to utilization of transportation services, hotels and similar lodging establishments, rest~urants and recreation centers and purchase of medicines anywhere it.� the country: Provided, that private establishments may claim the cost ~s tax credit; x x x Black's Law Dictionary explained the distinction between a tax credit, �and a tax deduction in the following manner: Tax credit is defined as the amount subtracted from an individual's or entity's tax liability to arrive at the total tax liability. A tax credit reduces the taxpayer's liability x x x, compared to a deduction which reduces taxable income upon which the tax liability is calculated. A credit differs from deduction to the extent that the former is subtracted from the tax while the latter is subtracted from income before the tax is computed. 7 The Supreme Court further clarified the nature of a tax credit and a deduction in the case of Commissioner of Internal Revenue vs. Central Drug Corporation 8where it was ruled, viz. Although the term is not specifically defined in our Tax Code, tax credit generally refers to an amount that is "subtracted directly from one's total tax liability." It is an "an allowance against the tax itself" or "a deduction from what is owed" by a taxpayer to the government. Examples of tax credits are withheld taxes, payments of estimated tax, and investment tax credits . � Tax credit should be understood in� relation to other tax concepts. One of these is tax deduction - defined as a subtraction "from income for tax purposes," or an amount that is "allowed by law to reduce income prior to [the] application of the tax rate to compute the amount of tax which is due." An example of a tax deduction is any of the allowable deductions enumerated in Section 34 of the Tax Code. 9-V '~ ~ UJITJ'm!S~"onlerofInternal Revenue vs. bicolandia Drug Corporation, G.R. No. 148083, July 21, 496 SCRA 176 citing Black's Law Dictionary, Centennial Edition, p.1461 (1991). No. 159647, April 15, 2005, 456 SCRA 414. " 503

EB CASE No. 320 (CfA Case No. 7210) 6 of 9 A tax credit differs from a tax deduction. On the one hand, a tax credit reduces the tax due, including -whenever applicable -the income tax that is determined after applying the corresponding tax rates to taxable income. A tax deduction, on the other, reduces the income that is subject to tax in order to arrive at a taxable income. To think of the former as the later is to avoid, if not entirely confuse, the issue. A tax credit is used only after the tax has been computed; a tax deduction, before.9 Before a taxpayer may claim a tax credit for the 20�/o sales discount R.A. 7432, it must first establish that the related gross sales to senior citizens formed part of its taxable income. According to the petitioner, it was able to prove that the gross sales rted by cash slips in the amount of P5, 186,833.74 cover all its sales uding sales to senior citizens. Finance Manager _Romeo David testified that sales of the corporation- summarized in the schedule of sales and declared in the book of , annual 2002 ITR and audited fi-nancial statements showing the of sales per branch and the total amount of sales in the amount of 'h.hhVU-',499.95 from January to December 2002. The total sales in the schedule of sales and annual ITR include all types of sale as regular sales, discounted sal~s, bulk sales, small sales and sale by 504

RESOLUTION CTA EB CASE No. 320 (CTA Case No. 7210) Mr. David also attested that the amount of prepaid tax consisting of the 20�/o sales discount granted to senior citizens was properly shown in audited financial statements. The testimony of ~1r. David was never subjected to cross- examination nor questioned by the respondent. Thus, it was clearly � �proven that the sale transactions pertaining to purchases of medicines qualified senior citizens formed part of petitioner's gross income. We disagree. The petitioner's reliance on the schedule of sales, 2002 annual ITR, audited financial statements, cash slips and testimony of Financial er Romeo David cannot be given weight by this Court because these mentary and testimonial evidence do not sufficiently establish the reported sales of P4l4,089,492.00 for the taxable year 2002 the 20�/o sales discount granted to qualified senior citizens. Decision dated July 23, 2007, the Court in Divisipn the following documentary evidence necessary in ntiating petitioner's claimed tax:. credit: Petitioner merely presented a Schedule of Sales (Net) for 2002, Schedule of Prepaid Tax-OSCA for 2002, and sample of its BIR and BFAD Special Record Books. Petitioner should have submitted its detailed general rv ledger, cash receipts book, sales book or any other document that will establish that petitioner's reported sales of P434,089,4~2.00 fo: 2002 505

'RESOLUTION CTA EB CASE No. 320 (CTA Case No. 7210) included its gross saics (irlciusive of the 20(>�o sales discounts) to s~;;! o:� citizens.(Underscoring Ours for enwhasis). 10 This Court en bane upholds the verdict of the Division in finding petitioner's documentary and testimonial evidence, insufficient, and the allegation that the 20�/o senior citizen sales discount incorporated in the sales amounting to P434,089,492.00 for taxable year 2002, unmeritorious. Accordingly, the denial by the Division of petitioner's claimed tax credit is sustained. WHEREFORE, premises considered, the petition is hereby DISMISSED for lack of merit. The assailed Decision dated July 23, 2007 and the Resolution dated October 3, 2007 are AFFIRMED. SO ORDERED. ~~ (? . G.i:I-~"7:4..L S1 . 'JUANITO C. CASTANEuA", JR. Associate Justice CONCUR: E~R_..N..E::S::~TO.-cD.. .A~~OSTA Presiding Ju~~ice c ��� ER~' .UY Associate Justice

RESOLUTION CTA EB CASE No. 320 (CTA Case No. 7210) CAESAR A. CASANOVA OLG~ PALANCA-EN ~IQUEZ Associate Justice Associate Justice CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in the above decision were reached in consultation before the case was assigned to the writer of the opinion of the Court. L~. D___._ ERNESTO D. ACOSTA Presiding Justice 507