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THIRD DIVISION
COMMISSIONER OF INTERNAL G.R. No.159647REVENUE,
Petitioe!, P!e"et#
P$%$i&$,J., C'$i!($, S$)o*$+G-tie!!e,
*e!"-" Co!o$, C$!/io Mo!$+e", $) G$!0i$,JJ
CENTRAL LUON DRUG P!o(-+%$te)#CORPORATION, Re"/o)et. A/!i+ 15, 2335
DECISION
PANGANIAN,J.:
he 20 percent discount required by the law to be given
to senior citizens is a tax credit not !erely a tax
deduction"ro! the gross inco!e or gross sale o" the
establish!ent concerned# $ tax creditis used by a private
%
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establish!ent only a"ter the ta& has been co!puted' a tax
deduction be"ore the ta& is co!puted# ($ )*+2
unconditionally grants a tax credit to all covered entities#
%hus the provisions o" the revenue regulation that withdraw
or !odi"y such grant are void# ,asic is the rule that
ad!inistrative regulations cannot a!end or revo-e the law#
T'e C$"e
,e"ore us is a .etition "or (eview/1under (ule * o"
the (ules o" Court see-ing to set aside the $ugust 23 2002
Decision/21and the $ugust 200+ (esolution/+1o" the
Court o" $ppeals 4C$5 in C$67( S. No# 8)*+3# %he assailed
Decision reads as "ollows9
WHEREFORE, premises considered, the Resolution appealedfrom is AFFIRMEDin toto. No costs.[4]
%he assailed (esolution denied petitioner:s ;otion "or
(econsideration#
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o" .30+0+?#+3# It reasoned that (epublic $ct No# 4($5 )*+2
required neither a ta& liability nor a pay!ent o" ta&es by
private establish!ents prior to the avail!ent o" a ta& credit#
;oreover such credit is not tanta!ount to an unintended
bene>t "ro! the law but rather a @ust co!pensation "or the
ta-ing o" private property "or public use#
Aence this .etition#/?1
%he Issues
.etitioner raises the "ollowing issues "or our
consideration9
Bhether the ;ourt of 0ppeals erred in holding that respondent may claimthe +- sales discount as a ta credit instead of as a deduction fromgross income or gross sales.
Bhether the ;ourt of 0ppeals erred in holding that respondent is entitledto a refund.[9]
%hese two issues !ay be su!!ed up in only one9
whether respondent despite incurring a net loss !ay still
clai! the 20 percent sales discount as a ta& credit#
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%he Court:s (uling
%he .etition is not !eritorious#
Sole Issue9Claim of 20 Percent Sales Discount
as T$ C!e)itDespite Net Lo""
Section *a5 o" ($ )*+2/01grants to senior citizens the
privilege o" obtaining a 20 percent discount on their
purchase o" !edicine "ro! any private establish!ent in the
country#/1 %he latter !ay then clai! the cost o" the
discount as a tax credit#/21 ,ut can such credit be clai!ed
even though an establish!ent operates at a lossB
e answer in the a=ir!ative#
T$ C!e)it versusT$ De)-0tio
$lthough the ter! is not speci>cally de>ned in our %a&
Code/+1tax creditgenerally re"ers to an a!ount that is
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subtracted directly "ro! one:s total ta& liability#/*1 It is
an allowance against the ta& itsel"/1or a deduction
"ro! what is owed/81by a ta&payer to the govern!ent#
E&a!ples o" tax creditsare withheld ta&es pay!ents o"
esti!ated ta& and invest!ent ta& credits#/)1
Tax creditshould be understood in relation to other ta&
concepts# One o" these is tax deduction66 de>ned as asubtraction "ro! inco!e "or ta& purposes/?1or an
a!ount that is allowed by law to reduce inco!e prior to
/the1 application o" the ta& rate to co!pute the a!ount o"
ta& which is due#/31 $n e&a!ple o" a tax deductionis any
o" the allowable deductions enu!erated in Section +*/201o"
the %a& Code#
$ tax creditdi=ers "ro! a tax deduction# On the one
hand a tax creditreduces the ta& due including 66 whenever
applicable 66 the income taxthat is deter!ined a"ter applying
the corresponding ta& rates to taxable income#/21 $ tax
deduction on the other reduces the inco!e that is sub@ect
to ta&/221in order to arrive at taxable income#/2+1 %o thin-
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i!practicable# Nevertheless the irre"utable "act re!ains
that under ($ )*+2 Congress has granted without
conditions a tax creditbene>t to all covered establish!ents#
$lthough this tax creditbene>t is available it need not
be used by losing ventures since there is no ta& liability that
calls "or its application# Neither can it be reduced to nil by
the quic- yet callow stro-e o" an ad!inistrative pen si!plybecause no reduction o" ta&es can instantly be e=ected# ,y
its nature the tax credit!ay still be deducted "ro! afuture
not a present ta& liability without which it does not have
any use# In the !eanti!e it need not !ove# ,ut it
breathes#
Prior Tax Payments #ote!uire" for T$ C!e)it
hile a ta& liability is essential to the availment or useo"
any tax credit prior ta& pay!ents are not# On the contrary
"or the existence or grantsolely o" such credit neither a ta&
liability nor a prior ta& pay!ent is needed# %he %a& Code is
in "act replete with provisions granting or allowing tax
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is not our govern!ent but the do!iciliary country that
credits against the inco!e ta& payable to the latter by the
"oreign corporation the ta& to be "oregone or spared#/2?1
In contrast Section +*4C54+5 in relation to Section +*4C5
4)54b5 categorically allows as credits against the inco!e ta&
i!posable under %itle II the a!ount o" inco!e ta&es !erely
incurred 66 not necessarily paid 66 by a do!estic corporationduring a ta&able year in any "oreign country# ;oreover
Section +*4C545 provides that "or such ta&es incurred but
not paid a tax credit!ay be allowed sub@ect to the
condition precedent that the ta&payer shall si!ply give a
bond with sureties satis"actory to and approved by
petitioner in such su! as !ay be required' and "urther
conditioned upon pay!ent by the ta&payer o" any ta& "ound
due upon petitioner:s redeter!ination o" it#
In addition to the above6cited provisions in the %a& Code
there are also ta& treaties and special laws that grant or
allow tax credits even though no prior ta& pay!ents have
been !ade#
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Fnder the treaties in which the tax credit!ethod is used
as a relie" to avoid double ta&ation inco!e that is ta&ed in
the state of sourceis also ta&able in the state of residence
but the ta& paid in the "or!er is !erely allowed as a credit
against the ta& levied in the latter#/231 $pparently pay!ent
is !ade to the state of source not the state of residence# No
ta& there"ore has been previouslypaid to the latter#
Fnder special laws that particularly a=ect businesses
there can also be tax creditincentives# %o illustrate the
incentives provided "or in $rticle *? o" .residential Decree
No# 4.D5 )?3 as a!ended by ,atas .a!bansa ,lg# 4,.5
+3 include tax creditsequivalent to either >ve percent o"
the net value earned or >ve or ten percent o" the net local
content o" e&ports#/+01 In order to avail o" such credits
under the said law and still achieve its ob@ectives no prior
ta& pay!ents are necessary#
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anything#/+81 %o be !ore precise it is in business parlance
a deduction or lowering o" an a!ount o" !oney'/+)1or a
reduction "ro! the "ull a!ount or value o" so!ething
especially a price#/+?1 In business there are !any -inds o"
discount the !ost co!!on o" which is that a=ecting
the income statement/+31or >nancial report upon which
the income taxis based#
)usiness DiscountsDe"ucte" from G!o"" S$+e"
$ cash discount "or e&a!ple is one granted by business
establish!ents to credit customers"or their pro!pt
pay!ent#/*01 It is a reduction in price o=ered to the
purchaser i" pay!ent is !ade within a shorter period o" ti!e
than the !a&i!u! ti!e speci>ed#/*1 $lso re"erred to as
a sales discounton the part o" the seller and a purchase
discounton the part o" the buyer it !ay be e&pressed in
such
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syste!#/*31 %his role usually involves warehousing or
advertising#
,ased on this discussion we >nd that the nature o"
a sales discountis peculiar# $pplying generally accepted
accounting principles 47$$.5 in the country this type o"
discount is reected in the income statement/01as a line
ite! deducted 66 along with returns allowances rebates andother si!ilar e&penses 66 "ro! gross salesto arrive at net
sales#/1 %his type o" presentation is resorted to because
the accounts receivableand sales>gures that arise
"ro! sales discounts 66 as well as "ro! quantity,
volumeor bulk discounts66 are recorded in the !anual and
co!puterized books of accountsand reected in the
>nancial state!ents at the gross a!ounts o" the invoices#
/21 %his !anner o" recording credit sales 66 -nown as
the gross method66 is !ost widely used because it is si!ple
!ore convenient to apply than the net method and produces
no !aterial errors over ti!e#/+1
Aowever under the net methodused in
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all these two provisions a=ir! thatsales discountsare
a!ounts that are always deductible "ro! gross sales#
eason for t*e Senior Citi+en Discount:T*e La, #ot Prompt Payment
$ distinguishing "eature o" the i!ple!enting rules o" ($
)*+2 is the private establish!ent:s outright deduction o" the
discount "ro! the invoice price o" the !edicine sold to thesenior citizen#/801 It is there"ore e&pected that "or each
retail sale !ade under this law the discount period lasts no
!ore than a day because such discount is given 66 and the
net a!ount thereo" collected 66 i!!ediately upon per"ection
o" the sale#/81 $lthough pro!pt pay!ent is !ade "or an
ar!:s6length transaction by the senior citizen the real and
co!pelling reason "or the private establish!ent giving the
discount is that the law itsel" !a-es it !andatory#
hat ($ )*+2 grants the senior citizen is a !ere
discount privilege not a sales discountor any o" the above
discounts in particular# .ro!pt pay!ent is not the reason
"or 4although a necessary consequence o"5 such grant# %o be
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the income taxis co!puted# $s !entioned earlier a
discount is not necessarily a sales discount and a tax
credit"or a si!ple discount privilege should not be
auto!atically treated li-e a sales discount# Ubi lex non
distinguit, nec nos distinguere debemus# here the law
does not distinguish we ought not to distinguish#
Sections 2#i and * o" (evenue (egulations No# 4((5 263*de>ne tax creditas the 20 percent discount deductible
"ro! gross income"or income taxpurposes or "ro! gross
sales"or G$% or other percentage ta& purposes# In e=ect
the tax creditbene>t under ($ )*+2 is related to a sales
discount# %his contrived de>nition is i!proper considering
that the latter has to be deducted "ro! gross salesin order
to co!pute the gross incomein the income statementand
cannot be deducted again even "or purposes o" co!puting
the income tax#
hen the law says that the cost o" the discount !ay be
clai!ed as a tax credit it !eans that the a!ount 66 when
clai!ed 66 shall be treated as a reduction "ro! any ta&
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liability plain and si!ple# %he option to avail o" the tax
creditbene>t depends upon the e&istence o" a ta& liability
but to li!it the bene>t to a sales discount66 which is not
even identical to the discount privilege that is granted by
law 66 does not de>ne it at all and serves no use"ul purpose#
%he de>nition !ust there"ore be stric-en down#
Las #ot -men"e"
by e%ulations
econd the law cannot be a!ended by a !ere
regulation# In "act a regulation that operates to create a
rule out o" har!ony with
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the statute is a !ere nullity'/821it cannot prevail#
It is a cardinal rule that courts will and should respect
the conte!poraneous construction placed upon a statute by
the e&ecutive o=icers whose duty it is to en"orce it & &
/8+1 In the sche!e o" @udicial ta& ad!inistration the
need "or certainty and predictability in the i!ple!entation
o" ta& laws is crucial#/8*1 Our ta& authorities >ll in thedetails that Congress !ay not have the opportunity or
co!petence to provide#/81 %he regulations these
authorities issue are relied upon by ta&payers who are
certain that these will be "ollowed by the courts#/881 Courts
however will not uphold these authorities: interpretations
when clearly absurd erroneous or i!proper#
In the present case the ta& authorities have given the
ter! tax creditin Sections 2#i and * o" (( 263* a !eaning
utterly in contrast to what ($ )*+2 provides# %heir
interpretation has !uddled up the intent o" Congress in
granting a !ere discount privilege not a sales discount#
%he ad!inistrative agency issuing these regulations !ay not
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7ranting that there is a ta& liability and respondent
clai!s such cost as a tax credit then the tax creditcan
easily be applied# I" there is none the credit cannot be used
and will @ust have to be carried over and
revalidated/)1accordingly# I" however the business
continues to operate at a loss and no other ta&es are due
thus co!pelling it to close shop the credit can never be
applied and will be lost altogether#
In other words it is the e&istence or the lac- o" a ta&
liability that deter!ines whether the cost o" the discounts
can be used as a tax credit# ($ )*+2 does not give
respondent the un"ettered right to avail itsel" o" the credit
whenever it pleases# Neither does it allow our ta&
ad!inistrators to e&pand or contract the legislative
!andate# %he Kplain !eaning rule: or verba legisin
statutory construction is thus applicable & & here the
words o" a statute are clear plain and "ree "ro! a!biguity it
!ust be given its literal !eaning and applied without
atte!pted interpretation#/)81
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corresponding to the ta-ing o" private property "or public
use or benet#
$s a result o" the 20 percent discount i!posed by ($
)*+2 respondent beco!es entitled to a!ust compensation#
%his ter! re"ers not only to the issuance o" a tax
creditcerti>cate indicating the correct a!ount o" the
discounts given but also to the pro!ptness in its release#Equivalent to the pay!ent o" property ta-en by the State
such issuance 66 when not done within a reasonable
time"ro! the grant o" the discounts 66 cannot be considered
as!ust compensation# In e=ect respondent is !ade to su=er
the consequences o" being i!!ediately deprived o" its
revenues while awaiting actual receipt through the
certi>cate o" the equivalent a!ount it needs to cope with
the reduction in its revenues#/)31
,esides the ta&ation power can also be used as an
i!ple!ent "or the e&ercise o" the power o" e!inent do!ain#
/?01 %a& !easures are but en"orced contributions e&acted
on pain o" penal sanctions/?1and clearly i!posed "or
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statutory ob@ectives#
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can supplant or !odi"y the acts o" Congress#
WHEREFORE, the Petition is hereby DENIED. The assailed Decision
and Resolution of the Court of !!eals AFFIRMED. "o !ronounce#ent as
to costs.
SO O(DE(ED#
ARTEMIO V. PANGANIAN
$ssociate LusticeChair!an %hird Division
8 E C O N C U R#
ANGELINA SANDOVALGUTIERRE
RENATO C.CORONA
$ssociate Lustice $ssociate Lustice
CONCHITA CARPIO MORALES CANCIO C. GARCIA$ssociate Lustice $ssociate Lustice
ATTESTATION
I attest that the conclusions in the above decision had
been reached in consultation be"ore the case was assigned
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to the writer o" the opinion o" the Court:s Division#
ARTEMIO V. PANGANIAN
$ssociate LusticeChair!an %hird Division
CERTIFICATION
.ursuant to Section + $rticle GIII o" the Constitution
and the Chair!an:s $ttestation it is hereby certi>ed that the
conclusions in the above Decision had been reached in
consultation be"ore the case was assigned to the writer o"
the opinion o" the Court:s Division#
HILARIO G. DAVIDE, R. Chie" Lustice
/1 (ollo pp# 36+#
$%& 'd., !!. (()*+. Penned by ustice Rebecca de -uia)al/ador, 0ith the
concurrence of ustices -odardo . acinto 1Fourth Di/ision chair2 and Eloy R.
3ello r. 1#e#ber, no0 retired2.
$(& 'd., !. *(.
$*& C Decision, !. 45 rollo, !. *+.$6& Penned by ud7e Ra#on O. De 8eyra 0ith the concurrence of ud7e #ancio
9. a7a. Presidin7 ud7e 1no0 Presidin7 ustice2 Ernesto D. costa dissented.
$:& Penned by Presidin7 ud7e 1no0 Presidin7 ustice2 Ernesto D. costa 0ith the
concurrence of ud7e 1no0 ustice2 uanito C. Casta;eda, r. ud7e #ancio 9.
a7a dissented.
$
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recei!t by the Court of res!ondent@s Ae#orandu#, si7ned by tty. oy nn
Aarie -. "olasco. Petitioner@s Ae#orandu# )) si7ned by olicitor -eneral
lfredo B. 3eni!ayo, ssistant olicitor -eneral Aa. ntonia Edita C. Dion, and
olicitor Aa7tan77ol A. Castro )) 0as filed on une %, %??*.
$4& Petitioner@s Ae#orandu#, !. 65 rollo, !. 4:. Ori7inal in u!!er case.
$+?& Entitled n ct to Aai#ie the Contribution of enior Citiens to "ation3uildin7, -rant 3enefits and !ecial Pri/ile7es and for other !ur!oses, this la0
too effect in +44%. ee Santos, Jr. v. Llamas, (
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$%6& G*.+?6)+ of 3'R Re/enue Re7ulations "o. 1RR2 Phil.
(>>, *?6)*?:, une %6, +444.
$(?& 'ili0inas 1ao, &nc. v. #A, *%( Phil. >(*, >(>)>(4, >6+, Dece#ber +>, %??+.
$(+& C Decision, !. 45 rollo, !!. *?)*+.
$(%& 'd., !!. 5 id., !!. (4)*?.
$((& G*.a of R
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De/elo!#ent uthority 1"ED2 ocial De/elo!#ent Co##ittee.
$:+& Theoretically, an allowance for sales $iscontaccount can also be set u! by a
business establish#ent in its boos of account at the end of its accountin7 !eriod
to reflect its esti#ates of cash discounts on o!en accounts based on !ast
e!erience. The accountin7 entry for this account is then re/ersed at the
be7innin7 of the net accountin7 !eriod, so that such discounts can a7ain benor#ally char7ed to thesales $iscontaccount. 8ali and Peralta, su!ra, !. (*>.
$:%& #ommissioner of &nternal *evene v. :$a. $e 'rieto, +?4 Phil. 64%, 64
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%??( 1citin7;eirs of Jancho Ar$ona v. ;on. *eyes, %+? Phil. +>(, > .Ct. 44%, 446, !ril 4, +>>>2.
$>+& *e0/lic v. #O#O)8D, *%( Phil. , !ril 4,
%??( 1citin7 8itu7 and costa, Tax Law an$ Jris0r$ence$%nded., %???&, !!.+)
%2.
$>*& Salon!a v. )arrales, +4% Phil. :+*, :%*, uly +?, +4>+, !er Fernande,J.
$>6& Break(evenis the !oint at 0hich a business neither 7enerates an inco#e nor
incurs a loss fro# its o!erations.
$>:& 'te#s + = %, %nd!ara7ra!h of G+ of R 4& Deliberations of the 3ica#eral Conference Co##ittee Aeetin7 on ocial
ustice, February 6, +44%, !!. %%)%*. 'talics su!!lied.
$4?& Leyte As0halt - %ineral Oil #o., Lt$. v. Block, Johnston - reen/am, 6%
Phil. *%4, *(%, Dece#ber +*, +4%>, !er Ro#ualde,J.
$4+& #ity %ayor v. The #hief 'olice #onsta/lary, +%> Phil. :
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