ltEPUBL1C OJ' THR PHILJPPlNU COURT OF 'I'AX APPEALS Of"f70N CJTV I THE HANILA BANKING CORPORATION vs. ·rHE COr.iiUSSIOlJER OF IN'l'ERNAL REVBNUE, Hes >ondent. X - - - - - - - - - - - - X D B C I S I 0 N This action involving a claim for TAX credit is nothing more than a question of the legality of an imposition of adillinistrative penalty directed against late payment of the transaction TAX pre- scribed under ~ection 210\b of the TAX Code of 1977, as amended by Presidential Decree No. 1154, providin9 insotar as pertinent, that - "Comnercial paper transactions. - There shall be levied, et al.

DECISION -

CTA CASE NO. 2993 - 2 - It appears that petitioner Manila Banking Cor- poration which is duly authorized to engage in a general and commercial banking business, in a borrowing transactio~ issued instruments of i n- debtedness/commerical papers on June 3, 6, 7, 8, 9 , and 10, all in 1977, and paid the respondent Commis- sioner of Internal Revenue on June 22, 1~77, a total amount of Pl69,450.26 for the requisite 35% tran- saction tax inclusive of the ~34,295.45 representing surcharge and inter.est which had accrued therein incident to the delinquency pursuant to Section 193(a) of the Tax Code of 1977.

The same ~enal clause was plucked and restated in the implementing Revenue Regulations No. 7-77, issued on June 3, 1917, by the then Secretary of Binance.

Submitted for decision on the basis of the pleadings on purely question of law, petitioner assails the legality of the imposition and collection of the administrative penalty which amounted to ~34,295.26, sought in this instant claim for tax credit , alleging that the amendatory Presidential Decree No . 1154, incorporated as Section 210(b) of the Tax Code effective on June 3, 1977, did not prescribe any separate penalty and much less called for in an implementing regulation. In short, peti- •

DECISION -

C'rA CASE NO . 2993 - 3 - tioner categorically repudiates the applicability of any sanction on its admitted breach of the law. We disagree .

Rather, we share and sustain respondent's view that Presidential Decree clo . 1154, entitled, "Further amending certain sections of the National Internal 1tcvenue Code , as amende· , so as to impose a final tax on the interest derived from every com- mercial paper issue in the primary market•, added Section 195-C, now Cection 210(b) ~to the Internal Revenue Code of 1971, relating to percentage taxes under Title v.

Such being the case, it is unnecessary and superfluous for the decree to separately provide penalties for its violation, as Title V, specifically Section 193{a) of said 1977 Code , already contains penalties of 25~ surcharge and 14% interest per anQum for non-c~.p liance therewith .

Thus, he im~osition.

We find nothing ambi~uous or obscure )n the language of Section 193 ~a) of the Tax Code insofar as the same is brought to bear upon the transaction effected under Section 210 :b), suera, which reads thus, "Section 193.

Payment of percentage taxes . -

(a) In general . - Unless otherwise specifically provided, it shall be the duty o- every person conducting a busineso on which a percentage tax is imposed under this Title, to make a true and complete return of the amount of his, her or its gross

DECISION

CTA CASE NO . 2993 - 4 - quarterly sales, receipts or earnings, or gross value of output actually removed from the factory or mill warehouse and within twenty-days after the end of each quarter pay the tax due thereon; xxx (e mphasis supplieu1 "If t he percentage tax in any business is not paid 1ithin t he time specified above, the amount of the tax shall be increased by twenty-five ~e r centum, the increment to be part of the tax and tne entire unpaid amount shall be subject to i nterest at the rate of fou rteen per cent pe r annu~ . "

The simJle is~ue witn which we are here confronted is whether the cases o~ uelinquency in the payment of the ~ercentaye tax under Section 210{b)~ are removed fro~ the operative sanctions p r escribed in Section 193 (a) ~ s pra.

We find that the p r ovision of S2cti on 210(b) erects no shiel - against t1e applicaoility of 1 ection l 93{a) ~bich p r oacript1ons on the manner and time of payment ot the percentdge taxe· and penalty thereby c onse uencea remain ana continue in Loree even after the amendce t by Presidential Decree No . 1154, now action 210(D) of the fax Co e.

Given

expression, "A1 a ~adeu stacue is construea, as re- gards any ac ion hdd a ter he am na. •. en t was maue , as i f th ·· statu l.C •l been or ig i aally enacted in the amended form."

(dolbrook v. ~Hchol, 36 Ill .

161; Tur ney v. \Tilton, id. 3 '5; Conrad v. Nall, 24 Mich. 275, 41 Nr:; 65, 33 LI<.i-1. 392; Heer v • .uoard o.t

DECISION -

C'rA CASE NO . 2993 - 5 - Com 'rs, 26 Ind.

App . 59 NE 65; Mortimer v. Chambers, 63 Hun 335, 17 NYS 874) ~ The effect of an amendme nt of a section of the law is not to sever it f rom its relation to other ~ections of the law, but to give it operation in i ts new form as if it had been drawn originally, treating the whole act as harmonious entir e l y with its several sections and parts mutually acting upon each other.

(Farrell v . State , 54 NJ L 421, Atl . 727 , cited in Lewis' Sutherland Statu- tory Construction) ~ Both requisitions in Sections 193(a) and 210lb) are of symbiotic application to effect the end for which they were intended . It is evident that the sanctions in Section 193 {a) addressed to the violations of the provisions under the common denomination of percentage taxes in Title V of the Code , equally operate in the same manner and to the same extent evoked by the delin- quency arising in Section 210{b) . These provisions in pari materia under the said title have to be construed together as though they constitute one act.

{U . S . v. Freeman, 3 How . 556, ll Led . 724) . Wher e statutes are part of a general system relating to the same class of subjects, and rest upon the same reason, they should be construed, if possible, as to be uniform in their application and in the

DECISION -

CTA CASE NO. 29 93 - 6 - r esults which they accompl ish . (Shield v. Boston, A. R. R. Co., 172 Mass . 180, 182 , 51 NE 1078) .

Section

210(b), used to be P . D. No . 1154, duly incorporated unde r Title V ~usiness Tax) of the National Internal Revenue Code of 197/, comes within the contemplated cove r age of the penal sanction of said title ao provided in Section 193(a).

The ~ r ophylactic function of Section 193(a) has lost none of its efficacy but r ema ins just as valid.

And this all what we need decide.

Thus, petitioner's striveling agitation for a separ ate penal clause to govern the violation of the restrictive caveat of Section 210{b) is rendered super fluous.

It is not essential, either.

"'l'he law does not make the obviously impractical require- ment that every act shall recite all other acts that its operation mayfucidentally affect either by way of modification or extension."

Jearrights

~s ta te , 163 Pa. Jt. 210, 217, ~~ Atl. 800.

It is to be inferreu that a code of statutes relating to one subject was governed by one spirit and policy and was intended to be consist~nt anc harmonious in its several pctrtJ an provisions .

(State v. ~dlliams, 1 3 SC 558).

In a gesture of fairness, it will be of immense naivette if we do not ~resume that when tl1e law-makiny body enacted the statute, it had fill.ll

DACISION =

CTA CASE HO. 2993 knowledge of prior existing laws and legislations on the subject of the statute and acted in accordance or with respect thereto. (Tamiani Trial fours v. Lee, 194 So. 305; manila Lodge We. /01 v. Court of Appeals, L-41061, September 30, 19/6, {3 SCRA 163, cited in Rural Sank of Calinog, inc. v. Commissioner of Internal sevenue, CTA Case No. 2658, January 30, 1961). lUGudicrous and expedient piffle indeed to have the effective enforcement of the statutory requirement to be simply derfuse’ in a cul-de-sac of impotency, so to speak. satura vaguum abhoret. In the case at bar, petitioner's failugce to pay the transaction tax fixed at a given rate and within a specified period as prescribed in Section 210(b), supra, inevitably incurs the incremental surcharge and interest imposed in Section 193(a), Supra. And such is mandatory and works out auto- matically. ‘See Lim Co Chui v. Posadas, 47 Phil. 470; reiterated in Republic of the Philippines v. Luzon Industrial Corporation, L-7992, Geteber 30, 1957, cited in Republic v. Lim Teng Sons & Co., Ince 16 SCRA 595. ‘the proviso “unless otherwise specifically provided" engrafted in the language of the provision: ef Section 193(a), furnishes the best means of ita exposition, it is flexible and broad . '

DECISION -

CTA CASE NO. 2993 - 8 - enough to require inclusion of any delinquency in meeting the time frame set forth in Section 210(b). We find no justification in stultifying the import and scope of these terms, which but close any possible legal loophole in effecting proper compliance of the peremptory demands of 8ection 210(b), that 'the tax shall be remitted within five (5) workin~ days from the issuance of the commercial paper."

There

can therefore be no occasion to further speculate upon hO\v the prestation, far fror~ showing a mere ascinating resemblance of an illusion, should oe enforced.

Suffice it to state, consideration of the con- venience of petitioner or any taxJayer for that matter, stands as an abe tion from the otherwise intended imperative.

He cannot substitute and in ulge in any amorphous anu unworkable rule lest we suffer the cornerstone of effective collection to petrify at che cost of the animating principles tinged with strong issues of public policy that taxes are the lifebloo of government and their prompt ana certain availability are an imperious need (Commissioner of Internal .tevenue v. Pineda , L-22734, Se~tember 15, 1967, 21 SCRA 105; Collector of Internal levenue v. Goodrich International Rubber

I'

I .

(

DECISION ~

CTA CASE HO. 2933 Coo, Um22265, March 27, 1964, 22 SCKA 1256), and being the chief source of revenue for the Covernmant to keep it running sust be paid immediately and with- out delay. (Collector of Internal Revenue y. Yuseco, L-12518, tober 28, 1961, 3 SCRA 313:. To requ less would seriously and unjustifiably tetter per- fectfuly legitimate methods of enforcement. ‘ecitner can we countenance petitioner's posture which by its own wrong and inequity the law could be protitously flouted with impunity. 2x dole malo non oritu actio.

Our conclusion that respondent commissioner of Internal Revenue did no err. in isposing and collecting the administrative penalty pursuant to Section 193(a)} o£ the Tax Code consequenced by late vayment of the transaction tax prescribed in section 210(b), Supga, renders consideration of the subsidiary questions un= necessary, Tiey no longer fascinate.

WHERZFURL, petition is dismissed with cost against peticioner.

SO QRDERLL, Quezon City, Metso Manila, Uctober 39, i981.

" amenieke de Judge

I CONCUA:

Presiding Judge

Associate Judge Constante C. Roaquin in a separate aie

RKPUBLif: OF THR PHILIPPIMU

COURT OF TAX APPEALS

Ol"ll70N CITY / THE MANI tA BANKING CORPORATION 1 _ Petitioner.

-versus -

THE CO~ SSIONER OF INTERNAL

REVENUE, Respondent .

DISSENTING OPINION

C.T.A. CASE NO. 2993 Considering the apparent lack of a complete factual exposition in the _ jority decision and 1n ord r to v 1ao1 te tt. grain from the chaff', it is indispensabl that the s me be clearly recounted in this dissenting opinion.

This is a claim by petitioner for tax credit of tl'e amount of 34. 295•45• representing 25% surcharge, interest and compr mise penaltie for the late pay- nt of the 35% transaction tax on commerical papers it h d paid pursuant to Presidential Decree No. 1154 ffective on Jun 3, 1977.

Petitioner 1s a domestic corporation engaged in general b nking business. It is authorized to act as a commertial b nk by the Central nk of

the Philippin

• It can borrow money through th issuance of promissory notes or other instruments ,of indebt dness in the primary market and use the money brrowed in its busin s as a bank~.

On its borrowing transactions on June 3, 6 , 7, s, 9 and 10, 1977, petitioner had intend d to pay the basic 35% transaction tax upon the interests paid Oft SUCh borrowings, imposed under fD 11541 but

DISSENTING OPINION -

CTA CASE NO. 2993 .., 2 - / was, however, required by respondent not only to pay the basic 35% transaction tax of !>135 1 154:';81 on the borrowed amount, but also the 25% surcharges and 14% interests, plus compromise penalties in the total sum of 341 295'.45 for its failure to pay the said transaction tax within the period of five (5) days from the dates of the borrowing transactions~ Petitioner, accordingly, paid the P341 295.45 re- presenting surcharges~ interests and compromise pe- nalties, since respondent refused to accept the payments of the basic 35% transaction tax alone, and the said payments made were covered by off ida 1 receipts, and itemized as follows: O.R. NO.

05281253 10012763 10012774 10012796 10012800 10012811

BASIC TAX

p 35,027,92 25,261.05 12', 776.93 2,641.87 2,288.31 • 57·, 158. 7i Pl35 1 154;.81 SURCHARGE, INTEREST

& COMPROMISE

PENALTIES

p 8,900.~85 6,423.36 3,268.50 704.51 614.71 14,383.52 34,295.45 As admitted by petitioner, the payments of the aforesaid transaction tax were made more than five (5) days after the commeBial papers• dates of issue, which were on June 3 1 6, 7 1 a, 9 and 10 1 1977:

DISSENTING OPINION

CTA CASE NO. 2993 - 3- Immediately after the payment of the trans- @Ction tax. surcharges, interests and compromise penalties, or on June 29, 1977, petitioner filed a claim for tax credit of the total sum of P3~t295~45, representing the aforesaid 25% surcharges, 14% in- terests, and compromise penalties it had paid.·

Respondent Commissioner of Internal Revenue

failed to act on petitioner's claim for tax credit,. Hence~ petitioner appealed, by way of a petition for review, filed with this Court on February 13, 1979~~~ After the filing of the respondent-' s answer to the petition for review, petitioner filed a motion to submit the case for decision based on tm pleadings and only on the issue of legality of the imposition of 25% surcharges, 14% interests ad:i compromise penalties in the total sum of P34, 29~~·45, which was paid, as required by res pondent1,. for violation of Section 210(b) of the Nation~l Internal Revenue Code of 1977'., and allegedly imposable under Section 193(a) of the same Code.

The only issue therefore in this case, which is one of law, is whether or not petitioner is liable for the payment of 25% surcharges, inte• rests and compromise penalties, for late payment of the 35% transaction tax, in violation of the pro-

DISSENTING OPINION <=

CLA Chol Wo. 2995 — visions of section 2lu (by) {formerly vu 11547 of the hational Internal hevenue vode of 1977, taken in relation to section 193 (a) of the same LOU.

The laws involved in thls case are Jections 195 (a) ana 210 (b) of the National Internel meVenue Vode of 1977 (formerly Presidential ve- cree Wo. 1154), amd Kevenue Kegulation No. 7-77 (Aa.on vachuela Keyes, lax Afinizs, pp. 2lie-<lv), published in the any 4 ami 11, 1977 issue of the Gfficial Gazette (Vol. 73, Nos. 27 & 20), inple- menting Section 21 (b/ of sald Tax vode of 1977.

The pertinent provisions of Jetticn 193 (a) and Section 210 (b) both of the Nativnal Inter- nal Kevenue Vode of 1977, provide as follows:

See. 193 +AtMeDi Ol SATEEN LASS —LAAGAs /

(9) In General. Unless otherwise specifi- esis proviced, it shall be the duty cof every person conducting s business om which a per- centage tax is imposed uncer this litle, to wake a true and complete return of the amount of his, her or its gross quarterly Sales, receipts, or carnings or gross value of outpu %~ actually removed from the factory seuia Wareliouse and within twenty days after the end of each quarter pay the tax due thereon; x x x XA AX xxx , a if the percentage tax in any ssiness is not paid within the tine specified avwve, the amount os the tax shail be increased by twerty-five per ceutug, thie increment to be

DISSENTING OPINION -

wii wre

MWe 2793

& part of the tax and the entire unpaid eameunt sheil ve subject to interest at the rate of fourteen per Centum ber Supls ZAAEz xXxi2nz 2A vec. 210. Pereentege tax on trans~ actions. = xxx Zax xa xX xaaixz

(b) aide er GAid add —ebains Aka <- There shall be ievi sessed, coliected and per as paia on every counereial pe issued in the primary warket as prineipal instrument, « transaction tax equivalent to thirty-five per cent (35%) besed on the es amount of in- terest thereto as def hereunder, which shall be paid by the borrower/issuers prg- , » That in the case of a longtern commercial paper whose aaturity exceeds one year, the borrower shall pay the tax based on the emount of interest corresponding. to one year, end thereafter shell pay the tex upon acerual or actual payment (whichever is earlier) of the aniaxed. portion of the interest which ecorresporms to a period not exceeding one )ear.

The tramaaction tex imposed in this section shail be 6 final tax to be paid hy the berrcwer smd shali be allowed as e de- ; ductible item for purposes of computing the borrower's taseble income.

Yor purposes of this tax ~

(i) Commercial paper shell be defined as an instrument evidencing indebdiedness of any persson or entity, including benks and none banks performing quasi-banking functions, which ia issued, endorsed, sold, transferred or in sny manner conveyed to another person or entity, either with or without recourse and irrespective of waturity. Principally, counerclal papers sre promissory sotes end/ or similar instruments iasued in the primary market amd shall not include repurchase agreements, certificates of assignueuts, Ce! tifiesates of participations, and such other debt instrusents issued the se- coméary merket.

DESSENTING OPINION -

LbA vase Ro. 2993 @ 6 - Ag) The term interest shall mean the aifference between what the principal boriower received and the amount it paid upon uwaturity. of the commereial paper which shall, in no case, be lower than the interest rate pre- vai at the tiwe of the issuance or renewal of the commercial paper. terest shall be deenea synonymous with discount and shall in- Glude all fees, commissions, premiums and other payments whieh fora integral parts of the charges imposed as a consequence of the use of money.

XZ + a Se 4 AEX

Kevenue Hegulation No. 7-77, entitled “Jmposition Asaued in the prigary market,” promulgated by Seere- tary Cesar Virata pursuant to Section 3-0, in Fre- lation to Section 4, of the National Internal HKevenue Goede of 1977, provides in its sections 3, 7 and 10 (Remon Caehuelea Reyes, [bids ppe 213, 214-215) thereof

as Sollows:

Section 3. danoaliisn-ef—late: Svery - pbeomissory note or asinilar instruments issueu as a commercial paper in the prinary market as a money market instrument shall be subject to the transaction tax of 354 based on the “ross amount. of agg herein defined: Provided, DAMSYArs hat pro- missory notes issued by an entity availing iteelf of credit facilities of the Central Bank of the Philippines, vevelopment Bank ef the Philippines, Land Bank of the rhi- lippines, end such other government insti- tutions as may be authorized to extend the Same, and promissory notes issued for inter- benk loans, including those between or among quasi~banks, shall not be subject to the tax herein imposed.

Debt instruments issued in the secon- dary market such es repurchase agreements, certificates of assignment, certificates of participation and/or similar insiruwents are exempt trom the transaction tex herein im posed provided that the underlying debt ins- trumenthas been previously taxed univer rre- sidential veeree 4e, 1151 cad ¢

DISSENTING OPINION -

cl Gase No. <993 «ts The transaction tax shal] become due onee the promissory notes is issued, renewed or extenued regardless of the Marne: of pay- ment of interest agreed upon.

Section 7. banner of iid pi pears - Within five (5) working days trom the issuance of the commercial pa- per and in the case of a commercial paper with a maturity of sore than 465 8S, within five Gays from date of issue and wi five days after every year thereafter, the borrower shall file a return covering ail interest on the comercial paper issuec and pay the tex aue thereon to the Commissioner of Internal Kevenue, hevenue Hegional virector, Kevenhue Vistrict “flicer or the Uollection Agent of the eity or municipality where the corporation's principal office is located and where its books of ecounts and other data from which the return is pre pared are kept. Vor this purpose, H.I.i. Form No. <5.26 shall be used.

| Section 10. ESLBd doe + - Where the amount shown by the taxpayer to uue on its return or part of such payment is not paid on or ve-~ fore the dete prescribed for its payment, the amount of tax shall be inereased by twenty- five (254) per centum, the increment to be a part of the tax and the entire amount shall be subject to interest at the rete of fourteen (i4~) per centum per annum from the dete pregs- eribed for its payment.

Petitioner contends that Section 193 (se) of the National internal Kevenue Vode is not applicable in vhe dmposition of 25% surcharge and i+, interest on the late payment of the 35» transaction tax, and Section lu of Levenue kegulation Wo. 7-77, imposing the 256 surcharge and l'a interest for lete payment of ine 35s transaction tax is illegal snd wating of any Valid basis. it argues tliat while under Jection 4% of the National 4ntermal Aevernue Vode of 19/7, the secretary of ¥inance is authorized to promulgate the implementing regulation to enforce Fresidential ve- cree lio. 1154, thet regulation should however, comply

Las

oF

DISSENTING OPINION -

L.A Case No. 2993 ~ § «- strictly with the provisions thereof. It further argues that when the Kevenue regulation in question imposed the 254 surcharge for late payment, the in- erement to be a part of the tax, and the entire tax pius 25» surcharge subjeet to ls. interest, such im- pesition becomes illegal fer lack of basis under Sectian 210 (b) ZPD 11547 of the National Internal Revenue Code of 1977, or under any other statute. Finally, petitioner urged this Court, as alternative claim, that Revenue Regulation 7-77, insofar as it affects its liability for the payment of 25% surcharge and les ine terest, is in violation of the provisions of Section 79 (mu) of the Revised Administrative Code and Section 1 of Commonwealth Act No. 638 which provides for the publication of said regulation in order to be valid and enforceable. | | Gn the other hand, respondent contemis that the provision imposing a penalty of 25% surcharge and 1*% interest for late payment ef the 35s transaction tax in Section 10 of Kevenue Kegulation No. 7-77 is super- flucus snd unnecessary because Section 193 (a), taken in relation to Section 210 (b), both found under Title V of the National Internal Aevenue Code of 1977, al- ready provided for the imposition of 25% sureharge and 14% interest for late payment of said 35% transaction taxe Respondent maintains that Kevenue Regulation No.p77 merely reiterated what was already previded in Section 193 (a) of the 1977 Tax Code, i. @. the impesition of 25% surcharge and 143% inte: est aforesaid on any percentage tax on business that ia not paid within the period provided therein.

r -

DISSENTING OPINION -

CTA CASE NO. 2993 - 9- He argues that Presidential Decree No. 1154 eQbrged ~he provisions in Title V the!:eof ''by adding Sec~ion 195-C Lof the lax Code by P.D 1154• now Section 210 (bl/ and the provisions of the Tax Code that are not affected by the amendment continue to be effec~ tive and operative" (p: 3~ Memorandum of Respon- dent}, and that S.ection 210(b} "eventua 11 y became part of the taw it intended to amen~;" (Ibid:) Res- pondent insists that .Section 1~3(a)~ being a part of Title V of the Tax ~ode of 1977 1 should govern the imposition of penal sanctions for late payment of the 35% transaction tax in Section 210(b), which is also found under Title V~ He emphatically concluded that since Section 210(b) specifica 11 y provided the time or period w ithin which to pay the 35% transaction tax, whiCh is within five (~) working days from the issuance of the commercial paper, the failure to make such payment on time would subject the petitioner to the penalty of 25% ~urcharge and 14% interest under said Section 193(a) of said ~ode: I take the view that S-ection 193(a) of the Tax Code of 19771 which imposes a surcharge of 25% and 14% interest for late payment of a_percentage tax, is a provision that imposes a penalty and• therefore, is subject to the rule of strict interpretation aro

DISSENTING OPINION -

CTA CASE NO. 2993 - 10 - construction and that, being a penal provision, should never be understood to include anything be- yond its letter even though it may be within its s spirit.

(36 Am~ Ju ; 2d., Forfeiture and Penalties, S.eo: 8._ pp~ 615-616.) In ~ther words, since it is a penal statute, _Section 193(a) must be subject to

a. strict judicial construction inorder to safeguard taxpayers and should not be extended beyond the clear import of the language used therein and nothing should be read into it by imp!icatiorf. (An{. Jur~- 2d~, Sec. 295, pp~ 453-454; Otd Colony R. Co vs~ Comnf.~ of Int~~, Rev~-~, 284 _US 56!, 56~; 76 Led 490; Kuttner vs~ Collector, 18 Phit '~ _461: Luzon S,teve- doring Co·; __ VS'o Trinidad, 43 Phil!: 803.) To state it more clearly~ under a ~trict interpretation and construction of a penal provision, this Court should presume nothing that is not expressed, and in that respect, courts of justice., like this Court, and if we truly conside~ it as such court of justice~ should refuse to enlarge and extend t~e taw to matters not necessarily or unmistakably implied therein~ (73 Am. Jur·.

2d·~, Sec~ · 274, pp~- 440-441'.) Based on the letters of Section 193(a), only the non- paym nt of percentage taxes are subject to a penalty tax of 25% and interest of 14%, if such percentage taxes are not paid "within twenty

(20) days at the end of each quartertt and based "on gross quarter! y .saJes, receipts, or earnings

DISSENTING OPINION -

CTA CASE NO. 2993 - 11 - or gross value of output actually rem~ved from the factory or mill warehouse." Sgction 193(a} does not seem to clearly include therein as subject to said penalty the non-pgyment of the 35% transaction tax which is payable within a different Q§fiod of time that is 1 within five ( 5) days from the date of ·= the issuance of the commercial paper. It is often stated that a statute imposing a penalty should not be constr~ed ~o as to include within its scope an.y act not plainly or fairly intended to be in- cluded th~rein, and for the tD~e intent of the law, care should be taken not to enlarge that statute by imp11cationo (73 Am.

J~r: 2c_i!.., Igid 1 p; 617 citing _Stockwell vs. u.s. 13 Wall 531, 2J ted: 49f.) A penalty is one which is generallY imposed to in- s,re the performance of duty or conduct required by the statute, like the one imposed as surcharge and interest for the failure -~to pay a tax and this is a legis tative function (51 ~m-. Jur., 2d., For- feiture~ and Penalties, S~ c. 51, p. 643) exercised by the legislative body, or by tb:e President, in the proper exercise of his Iegistat!ve powera, like in the issuance of_presidential Qecrees in a Government under Martial taw~- A penalty for the non-payment of taxes takes the form of an imposi- tion of surcharge and interest charges on the d - linquent taxes, but neither the interest, nor any :_ q 'l ,r ... u --

DISSENTING OPINION

CTA CASE NO. 2993 - 12 - other form of pecuniary penalty, may be exacted for delay in the payment of taxes, unless autbo~ ritY is clearly given by legislative enactment (51 Am. Jur., Taxation 0 Sec. 970, pp·. 838-~49, citing _Western u. Ieleg. Co. vs. Indiana, 165 US 304., 4l Led. 725, 17 s, Ct 345) 1 or under a presi- gential decree. which has the force and effect of I strongly am in great doubt as to whether Section 193(a) of the Tax Code of 1977 is applicable to cover the liability of petitioner for the payment of 25% surcharge and 14% interest for late payment of the 35% transaction tax in the sum of P34,29~~45 1 imposed under Section 210(b) l,formerly .

ll5Y of the same Code ·~· 'Iihe original Presidential Decree No. 1154 which first imposed the 35% transaction tax on the issuance of commer- cial paper or instruments of indebtedness in the money market never provided the imposition therein of a surcharge and interest for the late payment or remittance of the 35% transaction taX': In the ~ase where the language of a statute, which is PD 1154 and Section 193(a) of the Tax Code of 1977 in this case, is obscure or doubtful with respect to the imposition of the surcharge and interest, the Court should, in construing such statute, take into serious consideration the history of t~e time the law was passed (73 Am. Jur: 2d ·~. Sec~ 150, p •. 355), '·, ' .

DISSENTING OPINION -

CTA CASE NO. 2993 or took into the taw• - 13 - ttendant circumstances at that time'.

(~; P: 355.) And if a,fter such study, there still remains a doubt as to the true and correct int rpretation and construction of the terms of that tax provision, or that another meaning is reached, that meaning of the words that would in- cline the sc le of construction ost favorabl to the t xpayer must be adopted.

(Old Colony R. Co . s. Com:; of Int. Rev., 2.12• .Q:t..; Gould v, Gould, 263 US 179; Powers vs. New York, etc., 273 US ~46, 7 Led 984, 50 - Ct.;- 367; Burnet v ~. gara F llS Brewing Co., 282 US 648, 78 Led:' ~94, 575 S Ct'. 262~ ) This is in accord with the 9 neral principle that /.' t x taws must be constru d and interpreted in favor of the taxpayer and strictly against the government (Luzon Stevedoring Co. vs. Trinidad, 43 Phil. 803) and doubts as to the liability of the taxpayer must be resolved in its favor.

(MRR Cd, vs. Cotl. of Customs, 53 Phil. 950; La Orden de Padre Be~ di~tines vs~:: Colli'. & Ir~as". of V\anila, CTA _76, July 16, 1955, 52 00. No, 6, 3123;

e S!.l.!g Froelich & Kuttn r vs.' Insular Co11 ·• of Customs, 18 Phil. 46]:. ) While I can agree that penalties for d linquency are intended to hasten tax payment , or to punisl'! neglect of duty as a matter of pub lie policy ( Cel o

Jamor

t ·.· ·; vs', Meer, 7 4 Phil~ 22), it must have ' '•

DISSENTING OPINION -

CTA CASE NOo 2993

- 14- to be categorically stated that surcharges an~ __ in- terests, being penalties, to be enforced at all must be based upon the strict construction and enforce- ment of the taw~ Unless the law (S~ction 193(a) ~ the Tax Code of 1977) is clear, and in unmistakable terms imposes the 25% surcharge and 14% interest', which aforesaid, 1 m in doubt, the said surcharge and interest for late payment of the 35% tra~saction tax should not b deemed to be ~mposed at _all~ · The on1v remaining law, rule or regulation which clearly ~mposes without any doubt the 25% s~rcharge and 14% interest.._ for violation of Section 210(b) of the Tax Code of 1977, is Revenue Regulation No. 7-77( While it 1 true, as a~gued by respond!ntt that President!al Decree No'~:. 1154 subsequ~nt!y b came Section 210(b) of the National Internal Revenue Code of 1977-, and the latter became the law that governed the period within which the 35% transaction tax should be rem!tted by the borrower/payor on the interest payable., or within fi~e (5) days upon ~he issuance of the co~er cial paper, Section 193(a) of the Tax Code of 1977 never, in the clearest terms or word a.foresaid, include<! therein the imposition of the 25% surcharge and 14% interest on the non-payment on time of the 35% transaction tax.

DISSENTING OPINION =

GIs CASE NU, 2993 = It cannot lightly and validly contended by respondent thet Presidential Decree No, 1154, which by its terms did not actually provide @ penalty or surcharce or interest for the non-payment of the tax on time, cid not provide for the penelty be- cause “it was unnecessary” inasmuch as the seid dec.ee, which was incorporated leter as Section 210 (b) of the Tax Code of 1977, could only be enforcec uncer the pene] Sanction of sbeic Section 193 (a), 4 provision falling uncer Title V of the Said Code. This contention is based upon a wrong conception that because bection 210 (b) falls un- der Title V, non-payment of the 35 transaction tex om time, i.e. within five (5) days after the issuance of the commercial papers as provided in Said Section 210 (b), will subject the tax to 25% surcharge and 14% interest uncer Section 193 (a), which also falls under Title V of the Tax Code of 1977, 4 scrutiny of the pertinent provision of Section 193 (a) of the Tax Code of 1977, textually provides;

a asnerel. - Unless se Specifi- vided a cally pro t shall be the duty of ever person conduct ing & business h ~ a wosed under this Title, to make @ true am) complete return of the amount of his, her or its aross quarterly Sales, re- Bt th

DISSENTING OPINION -

CTA CASE NO. 2993 - 16 - warehous~ and within twenty days after the end of each guarter pay the tax due thereon:

X X X

X X X

X X X

X X X

If the percentage tax in any business is not paid within the time specified above, the amount of the tax shall be increased by twenty-five ~ centym, the increment to be a part of the tax and the entire unpaid amount to be subject to interest ... at the rate of fourteen ~ centym ~ annum.

X X X

X X X

X X X

(Underlining ours':)

It seems to me th~t respondent, in a too much strained interpre~io~ and construction of the afa - cited provision, had leaned far over and stated, in e~fect~ that when the 35% transaction tax (which he claims to b a business tax) was not paid by peti- tioner within five (5) ~ays from the dates of the is- suance of the commercial papers, the tax is subj~ct to 25% surcharge and 14% interest under Section 193 (a).

There is nothing in said Section 193(a) which provided that the period to pay the 35% transaction tax (which respondent refers to as percentage tax) should be made within five (5} days from date of issuanc of the commercia J paper the non-payment 3& of which will subject it to the 25% surcharge and 14% interest~ &l ! see ilt ~ percentage tax £2U• tempJoteg therein ~ ~ 1hs1 i! ~ M£QU persoQ!

conducting a business gu which !i 1! +mposed ~ baseg QD. the gross gyarterl y sa Jes·, receipts ~ "' .

DISSENTING OPINION

CTA CASE NO. 2993 - 17 - ea;:ninqs £1: gross vaJue 52! .Ql!lmG, .:U:Q.m a factou ~ mill warehouse Qf such business, and 1! payabl~ within twenty days afte;: the end 21 each gyartef, the non-payment of which percentage tax clearly shal!_ be subject to the imposition of 25% surcharge and 14% interest; {Emphasis mine.) In this case at bar , petitioner, being a bank, cannot be said to be a person engaged in a business on which the per- centage tax on its "gross quarterly sa]es , receipts, or earnings or gross value of output" is imposed. Petitioner, not being a person engaged in a business on which the perce~tage tax iS imposed, there is, therefore , no legal basis upon which to come to t~ conclusion that Section 193{a), is the 1aw upon which penatt:lie cahc be o ilm~osed r up nt saadt liank for non- P yment. of _the 35% transaction tax. Stress, how- ever, was lai~ by respondent on the proviso in said Section 193(a), "Unless otherwise specifically & provided," to support its claim that the non- remittance by petitioner of the 35% transaction tax within fi~e (5) day period from the _issuance oft~ commercial papers will subject the latter to the penalties provided therein.

otherwise st ted, res- pondent is of the view that the non-payment of the transaction tax within five (5) days from the issuance of tte commercial papers, which is a period other than the . '.

DISSENTING OPINION. = CTA CAsE NO, 2993 period provided for the payment of percentage taxes, which is within twenty (20) days after the end of each quarter under Section 193 (a) of the Tax Code of 1977, will subject the non-payment thereof on time to the penalty tax of 25% and 14% interest for the period to pay the transaction tax falls un- der the proviso “Unless otherwise specifically provided” in the same Section 193 (a), The inter- pretation and application by respondent of the pro~- viso in said Section 193 (a), was made withat apparent regard to the changes that took plece in the past when the period to pay the percentage tax on gross quarterly sales, receipts or earnings or gross value of output of the business wes changed or amended by the legislative body, by amending the peried to pay the percentage tax from day Galendar quarter" (Sec.

Revenue Code, 1950 Ed., a8 amended by Sec. 1, RA 233) to “within ten days after the end of each month” (Sec. 163, a8 amended by Sec. 1, RA 594; Sec. 1, RA I5lis Sec. 5, RA 1612;

1956 Ed. Sec. 3, National Internel Revenue Code, 1956 Ed.), or to “within twenty dave after the end ef each month" (Sec. 183, as amended by Sec.1, RA 48;

2 Git FI ia 34 =3hie *> } 183, National Interna}

DISSENTING OPINION

C:!J {.,j • l u. 2993 - 19 - ~ec . 7 , ?5 ;

ec . 1 , l \ 16 2;

~e . 5 , Rl 2025; 1964 Ed. , ational Internal Revenue Cod0 . ) In 1974 , Ject·on 183 (now bection 193 of the Tax Code of 1977) , was gain umen ec y Presiden- t i a cree o . 539 , and, this i it reverted again tile pcrio o pay t G percentage ax 'wiih- Under the former .:.)ection 183, and so is t 1e aw at present L-~ection 1 3 (a )J, the percentage tax ha" a 1 a s been i11posed on those persons con- ducting a business n which h percentage tax i s laid based on th gros- quarterly sa e~ , receipts or earni gs or gross v·lue of o tp t of the fd c- tory or mi 1 warehouse , and puyab c "within twenty Q_ c: after the end of each ouarter . " ot that during th develop ent of ~ection 19

(a) provi- ding for the payr. n of the percentage tax , it has ex~ riencai amen 1.ent on two occasions . 'ote tha · in;;,) ction 193 (a), · t hus be n consistently pro- vided th rein that the non- .aymerrt of the f>f'r centa'JC tax ~ithin h time provide therein cal le for th in o"ition of 2"'/ surcharge , to form part of the t a itself .

I nd it ~as in th. saicl pro is ion of ection 183 that the 14 l interest was fir t i .. posed as part of the pen· lty for th uil re to pay the .

ercentage ta x on ti1 e .

nd subs qucntly , in 1975, Se cti on 183 (a), .• J ' ....... ,

D~SSENTING OPINION

CTA CASE NO . 2993 - 20 - as amended by PD 69 and PD 820, included for the first time the proviso "Unless otherwise specifi- cally provided" which reads:

sec . 183 .

Payment of percentage taxes~ ­

(a) In general .- Unless otherwise speci- fically provided, it shall be the duty of every person conducting a business on which a percen- tage tax is imposed under this Title, to make a true and complete return of the amount of his, her or its gross quarterly sales, receipts or earnings or gross value of output actually removed from the factory or mill warehouse and within twenty days after the end of each quar- ter pay the tax due thereon: x x x In 1977, the former Section 183, became the present Section 193 of the Tax Code of 1977 in question, which was effective on June 3. l977 . Analyzing the development of Section 193 (a), the fact stands out clearly that the proviso "!l.!l- less otherwise specifically provided, 11 which has as its object to cover any probabl~ change of the time in which the percentage tax on gross quarterly sales. receipts or earnings or gross value of out- put shall be paid that may be precipitated by a change in tax administration and policy, does not~ therefore, clearly purport to include the period within which to remit the 35% transaction tax withheld by petitioner, which is not a person conducting a business on which a percentage tax is imposed, but only the borrower/issuer in the transactions on commercial papers in the money market.

( alics mine.)

Moreover. traditional studies in taxation ; - <;' r, " ..

. PISSENLING OPINION - CTA CAsE NO. 2993 «= 21 « will show cleerly that Title V of the Tax Code of 1977, under which Section 193 (a) particularly belongs, generally imposes percentage tax on those whe produce, manufecture, sell or otherwise import articles for sale to the general public fer pur- poses of gain (Secs, 193, 104, 196, 197 all of the Tax Code of 1977); on those who preduce egricultu- ral products (Sec. 198); on those who produce other articles (Sec. 199); on those who process meat, food stuffs and other essential articles (Sec. 21); on these who produce rope, Suger, casava and coco- mut products (Sec. 203); «= on those who construct buildings and other installations (Sec. 205); ©» on those who sell foods end drinks (Sec. 206); or on those who engage in trensportation such a8 car- riers and garages. (Sec. 207.) These aforecited bu- Sinesses were made subject to percentage tax com puted upon their “gross sales, receipts o¢ earnings mill werehouse.* These were substantially the seme provisions of the lew on the percentage taxes since the enactment of the Netional inter- nal Reverwe Code (Commonwealth Act 466) which was in force and effective July 1, 1939 up to the present. Note that in Keverwe Hegulation No. 8-78 dated Mey 12, 1976 (Ramon Cachuela Reyes, Tax Affaizs, pp. 336-352; 5.G. Gonzales & C.A.

DISSENTING OPINION -

CTA CASE NO . 2993 - 22 - Gonzales, Nation~l Internal Revenue Code of 1977, 1979 Ed., pp . 280 & 296) officially published on July 24 , 1978 (Vol. 74, No. 30, Official Gazette, p . 5805) entitled "Sales Tax Regulations , " pro- mulgated by Secretary Cesar Virata, which inten- ded to provide the regulations to implement, by and large, the percentage provisions in the Tax Code, it did not include in that regulation for penal sanction under Section 193 (a), the~ te payment of the 35% transaction tax imposable in Section 210 (b) .

As can be inferred from said revenue regulation, only the provisions of Sections 193, 194, 196, 197, 198, 199 1 200, 201, 202, and 203, as amended by Presidential Decree No. 1358, are subject to the penal sanctions of Section 193

(a) of the Tax Code of 1977 . (~Sec. 1, Rev.

Reg. No. 8-78) This confirms my dbubts that the 35% transaction tax"'is-'"a tax that is not subject to the penal provision of Section 193 (a), since this 35% transaction tax is not included as one of those provisions implemented in R9 venue Regu- lation No. 8-78.

I took into very serious consideration the fact that the 35% transaction tax, which is a new tax provided under Presidential Decree No. 1145 (Section 195-C) is not only in the nature of income tax but is in reality one that is

DISSENTING OPINION

CTA CASE NO . 2993 - 23 - imposed on interest earned by the lender and paid by the borrower upon the issuance of every cornrner- cial paper issued in the money market as principal instrument .

The tax when paid is final and is with- held and remitted by the borrower/issuer, not the lender who actually earns or is legally entitled to receive the so- called interest on the commercial paper issued, and this tax when paid is deductible in computing the borrower's taxable income. The interest on which the 35% transaction tax is imposed is the difference between what the princip•m bor- rower received from the lender and the amount it will pay to the latter upon maturity of the c c~mer- cial paper.

This interest, synonymous with discount,. includes all fess, commissions , premiums and other payments forming integral part of the charges for the use of the borrowed money.

This, therefore, is the tax that shall be remitted by the borrower to the Bureau of Internal Revenue within five (5} working days from the issuance of the commercial paper. As I see it, and borne by the explanation made by Hon. Efren I. Plana, Acting Commissioner of Internal Revenue (now Associate Justice of the Supreme Court}, in his article, .. BIR Explains New Tax Laws" (The Times llournal. June 24, 1977, p. 15)t the transaction tax came about as the result of inability of the tax administrators to reach the interest earnings dt

DISSENTING OPINION

CTA CASE NO . 2993 - 24 - ' :

to the failure .of the income taxpayers (the lenders or recipients of interests earned in money market transactions) to report their interest earnings feD income tax purposes .

Therefore, this resulted to the inequity in tax administration in that honest tax- payers who declared their interest income were taxed, while those that did not declare their interest income and remain anonymous went scot free.

It

was this sad experience in tax administration that, on account of the complexity of money market trans- action, it was difficult, if not virtually impossi- ble, to tax the interest earners or the lenders . It was on this account that the Bureau of Internal Revenue took this step to collect the income tax that is legally payable upon the interests earned, but which were not paid aforesaid, for the issuance of money market instrument .

And since the borrower (not the lender) is the most convenient person upon whom the tax on the interest income may be collected, a tax in the nature of excise or transaction tax was, therefore, effected, In other words, in subs- tance, the borrower became the most convenient per- sonal instrument Government to collect the tax on this interest income.

It was further stated by Acting Commissioner (now Associate Justice of the Supreme Court) Plana that this tax measure (PD 11541 now Section 210 (b) of the 1977 Tax Code) , which is an entirely new tax measure "x x x is in reality

DISSENTING OPINION -

CTA CASE NO. 2993 l . ' - 25 - just a collection measure designed to strengthen or re- enforce the effectiveness of tax administra- tl2!!· x x x . "

Considering the reason of the Govern- ment in imposing the 35% transaction tax, in the truest sense of th word, this tax becemes the logical substitute of the income tax which should ~av be n paid upon interest earnings in a manner that "part of the int rest income (due to the len- der from the borrower in the money ~arket trans_ actions and which should have been subject to in- come tax on the lender) goes to the Government in the form of the 35% transaction tax." In recapi- tulation, the 35% tran action tax is more in the nature of a withheld tax on interest income earned by the lender or income earner .

Acting Commissioner

Plana had mphasized and quoting the words of Pre_ sident Marcos, that "The tax x x x is merely withheld by the borrower from the interest that he was supposed to pay the lender." The trans- action tax is, to my mind, clearly not. therefore a tax laid upon the groas sales, receipts, ear- nings or gros output of a business subject to percentag tax.

Consequently, I entertain very serious, nay grave doubt , that the 35% transaction tax can be categorized as percentage tax subject to a 25% surcharge and 14% interest under Section 193 (a) of the 1977 Tax Code for failure of the

J

~

I

' ~ tft. {

DISSENTING OPINION

CTA CASE NO . 2993 - 26 - borrower, as t n the case of petitioner herein, to remit said tax within five (5) days from the dates of the issuance of the commercial papers . I am, therefore, of the opinion that Section 193 (a}, which imposes the 25% surcharge and 14% interest for failure to pay on time of the transaction tax, is inapplicable upon the petitioner ' s late payments of the transaction tax in question. The only provision of law, rule or regulation, which provides, with utmost clarity, for the imposition of a 25% surcharge and 14% interest for failure to pay the 35% transaction tax within five {5) days from the issuance of the commercial paper is Revenue Regulation No . 7- 77, dated June 3, 1977 (~ Ramon Cachuela Reyes, Tax Affairs , pp . 212- 216; E.G . Gonzales & C.R . Gonzales, National Internal Revenue Code of 1977, pp. 367- 371) and which was, as aforesaid, published in the Official Gazette on July 4 and 11, 1977.

(Vol. 73, Nos. 27-28.)

Assuming that Revenue Regulation No. 7-77 is not invalid because it was issued by the proper administrative authority in pursuance to the provisions of Sections 4 and 326 of the Tax Code of 1977, this Revenue Regulation cannot, however, be enforced retroactively to cover the transactions in question .

The commercial papers dates of issue were June 3, 6 , 7, 8, 9 ,. and 10, 1977, which took ···' - .......

-~) ~ ' 1

DISSENTING OPINION -

CTA GASE NO. 2993 - 27 - place before the date of effectivity of Revenue Regulation No . 7-77# which must be held to be fif- teen days after July 4 and 11, 1977, the dates on which the said regulation was officially published in the Official Gaz ette .

(Pedro G. Peralta vs . Comm.

on Elections, 82 SCRA 30 ; Art • 2 , Civil Code of the Philippines.)

Revenue Regulation No . 7-77 never had any binding force upon any taxable person before the 15th day after its publication . (~ Angela E .

Lazatin vs. Comm. of Customs, CTA 782, Jan. 19, 1962; Olsen & co. vs. Herstein and Rafferty, 32 Phil . 530 (1915); People vs. Que Po Lay, 94 Phil. 640, 642, 643 ; Lim Hoa Ting vs. Central Bank of the Phil ., GR L- 10666, Sept . 24, 1958, 55 OG No. 1006.) In other words, Revenue Regulation No. 7-77 should be enforced only prospectively and cannot be applied retroactively to cover the late payments made by petitioner of the 35% transaction tax in question.

(ABS- CBN Broadcasting Corp. vs. Court of Tax Appeals, GR No. L-52306, October 23, 1981.) It is, therefore, my humble opinion that petitioner is not liable for the pay- ment of th~ 25% penalty and 14% int6rest in the total amount of ~34#295 .45, inclusive of compro- mise penalties, imposed under Section 10 of Revenue Regulation No. 7-77, and the said amount having been paid, petitioner is entitled

DISSENTING OPINION

CTA CASE NO . 2993 - 28 - to tax credit thereof .

However, the payment and collection by respondent of the 25% surcharges, interests and compromise penalties in the said amount of ~34 , 295 . 45 , not having been attended with arbitrariness , as it was collected upon relatively doubtful provision of law, petitioner should not be entitled to an interest on the said amount . (Coll .

of Int . Rev. vs. Prieto, et. al . , 112 Phil . 907, 920; Victorias Milling Co., Inc. vs. Comm. of Int . Rev., 19 SCRA 430 , 433 .)

I , therefore , on the basis of the above legal discussion, interpose my dissent and vote against the conclusion reached by my majority colleagues . Quezon City, Metro Manila, December 8, 1981. ~~ : .