CTA Case No. 4392

DECISION

1 hts case mvolves petitioner's clatm for refund or tax credtt of overpatd mcome tax for the fiscal year 1987 amounting to P289.03U 00. lJetitioner avatled the net operating loss carry-over lor

NOLCO

for shortt on the remammg unapplied balance of J-i825.BO l .UO, as net operating loss tncurred on its reg1stered operattons for the fiscal year 1981.

1lle matertaltacts are as follows:

Petit1nner ts a corporatiOn duly orgamzed and extsting under the laws nt the Republic of the Philippines. It was mcorporated on feh ruary lJ , t 97<J.

Petitioner ts engaged in the husmess of manuf act urmg cocc a ancl chocolate products. 108 .

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DECISION -

C.I.A . CASE NO. 'f39Z - 2 - On April 11 . 1980. petitioner \\'as registered with the Board of lnve~tment IBOI) as a non-pioneer enterprise enjoying certain incentives as a registered agricultural enterprise under Presidential Decree No. 1159. Petitioners registration covers the processing of cocoa powder and cocoa butter. It enjoys certain incentives granted to a registered agricultural enterprise. One of these is the NOLCO. Sec. 61d of P.D. 1159 (Prescribing Incentives For Investments In Agricultural Enterprise) provides:

"SEC.

6.

Incentives to a Kegistered

Agricultural Enterprise. - A registered enterprise, to the extent engaged in a preferred of investment, shall be granted the following incentive benefits:

X X X

X X X

X X X.

(c) Net Operating Loss Carry-over.

A net operating loss incurred in any of the first ten years of operations may be carried over as a deduction from taxable income for the six years immediately following the year of such loss. The entire amount of the loss ~hall be carried over to the first of the six taxable years l ollO\\'ing the loss, and any portion of such loss which exceeds that taxable income of such first year shall be deducted in like manner from the taxable income of the next remaining five years. The net operating loss shall be computed in accordance with the provisions of the ational Internal Revenue Code, any provisions of this Decree to the contrary not\\'ithstancling, except that income not taxable either in whole or in part under this or other laws shall be included in gross income.

X X X

X X X

X X x.'' Under BOI letter dated 1985-07-22 (july 22, 1985), the BOI approved petitioner's request to transfer its registration as a non- pioneer enterprise under P.D. No. 1159 to an export producer under 1 () hh

DEClSJON -

- 3 - PD. ~ o. 1789. as amended. Pursuant. thereto, on January 21 , 1986, the BOI issued to petitioner a Cer ificate of Registration as an Existing Export Producer effective ).lay 18, l 984. in accordance with the provi~ions of P.D. No. 178<} (Omnibus Investment Codei, as amended by Bat as Pambansa Blg. 391 (An Act Declaring The 1983 Investment JncentiYe~ Policy By Modifying The System on the Grant of Investment Incentives l. The NOLCO incentives were not among the incenti ·es granted to existing producers under the amendment. Fur the fiscal year ending June 30. 1981. petitioner incurred a net operating loss of P2.564,662.00. For taxable years 1982 and l 983, petitiuner deducted from its taxable income the NOLCO in the amounts ()f P 1.7 2).763.00 and P343.509.00. respectively.

There

remaineJ a balance uf net operating loss of P825.801.00 which was not applied for the years 1984, 1985 and 1986. However. the amount of P825.80 1.00 '\vas later applied in 1987, the sixth year following the loss. This was reflected in the Amended Income Tax Ret urn filed by petitioner \\'lth the Bureau of Internal Revenue on October 2. 1989.

The BOJ -BIR Working Committee i\.1e moranclum. dated March l 0. l ()87. ~ho\\· s that pelitioner deducted the net operating loss from its total taxable income as follows:

TAXABLE INCOME

, OLCO }ear UOI-reg op n Nnn -P,Oireg

Total

Availed

J 9'32

Pl 5 l 0.256 00 P21l6 50' 00 PJ 725. 63 on Pl. 25, · 3 oo 191l.3 p 21 () 605 1)0 Pl23 91.14 no P 343 509.00 P .H3.509 00 Tile (nm mit tee findings disclosed that the net operating loss \.\·as deductible onJ\· fr om the taxable i come from its registered

10 E) '(

_,

DECISION -

C.T.A. CASE NO. <f392 - 4 - operations. There was an unauthorized deduction of NOLCO in the amounts of P206j07.00 and P 123.904.00 for the years 1982 and 1983. respectively.

It was therefore recommended that the corresponding income taxes due thereon be paid. Thus, on December 30, 1987, petitioner paid the amounts of P99,643.20 and P53.385.60, representing deficiency income taxes for the years 1982 and 1983, respectively.

For fiscal y_ear ending june 30, 1987, petitioner's Income Tax Return reflected an income tax due of P5,7 23.17 2.00, computed as follows:

I ncnme

Les~ : Deductions

Net Inc me Tax ue p 60,782.7 12.00 14.430.791 .00 lJ 16.351,92 1.00 p 5.7 23.172.00 llpnn investigatic n. r titioner was as ses ~ed by the Bureau of Internal Re\·enue < r Deficiency Income and E panded Withholding Tax for the fiscal year 19R7. On December 24. 1987. petitioner paid the Deficiency Inc< me Tax of P21 .79 3.32. inclusive of interest. and the Deficiency E: panded Withholding Tax of P7.169.9 3. inclusive of intere~t and com promise penalty.

Sometime in September 1988, petitioner received from the BIR a pre -asse<;sment notice. dated July 2. 1988. for Additional Deficiency Income Tax for fi scal year 1987 in the amount of P8.h913.00. computed as follows:

Net Income Per Return

Add

Di~allo\\·a n ce~ per · n vestigation Net In rome Per In esligation Add Additional tlnalln' ·<hie

DedtJctinn Per Return

A) Def In crllne Tax!fY·6 '.}0 '%) 1 B ~ See Srhedule nfTaxes Pl 6,351 92 1.00 . 60.000.00 Pl6 411.921 00 21 000 00 ·'

DECIS ION -

- 5 - and Licen~e~ paid a~ 'Jf 6 '.30 ~ ~s:-· stamp received 10 ' 15 ·<\-. Authority to

Jssue Re"- Tax Receipt

Re payment of Def Income

Tax for 6131)/ 86

• 1et In come Per Review Incn.me Tax Due Less Amounts PreYiously Paid.

Per Return

Pt>r Investigation

Def Income Tax Per Review

Add 20"0 int p a fr l(l ' l6 /8i lo 9 '15 /'3'3 ti) 1 '3 ~ 334) Total Def lllcllme Tax & Inter est

P5 723 172 00

21.000.00 Pl6.432.921.00 p 5 75 1.522 00 5.744.172 00 p 7,350 00 l.HS 00 p 8,69'3.00 On September 23. 1988, petitioner paid the BIR P8.731.00, comprising the basic tax of P7.350.00 and interest of Pl.381.00 computeu frnm October 16. 1987 to September 23, 1988. In a letter dated Dece'mber 23. t 988, respondent informed petitioner that upon investigation no deficiency business tax was found due from it. But the sum of P37.693.6S. was found due and collected from petitioner, itemized as f llotwT DeiH:ien <:y inc meta Addi tional Defidency income tax Deficiency expanded withh olding tax

Total

P 0 No

[JL o.

Date

Amount

l272Ui4 4'79673) 12-24-87 P21 .793 32 3374248 1))4ll344 9-23-88

8. 31.00 12':'21_169 { 7%i34 12-24-87 7.169:) ~ P37.693.6)' On October 2. 1989. petitioner filed an Amended Income Tax Return for fi~cal year end ing .June 30, l 987. Petitioner applied the remaining . 10LCO of P82).80 l .OO, as a deduction from net income. The A mended J nco me Tax Return of petitioner for FY 1987. showed a refundable amount of P289.030.00. computed as follows: .I

DECISION -

C.T.A. CASE NO. 'f.39Z

Income

Less: Deductions

Net Income

- 6 - Less: Deductions under Special Laws Net Loss (arry-over

Net Taxahle Income

Tax Due

Less: Tax Paid

Total Amount Refundable

P60.782.712.00 44.4 30.791.00 PlE.351.921.00 8/5.801 .00 p 15.526,120.00 p 5.434.142.00 5.7 23.17 2.00 p 289,030.00 , claim for refund in the amount of P289.030.00 was filed with the HIR on October 9, 1989. In order to toll the running of the prescripti':e period for filing a judicial claim for refund/credit of taxes. petitioner instituted the present petition on October 13. 1989. without \\·aiting for respondent. Commissioner of Internal Revenue. decision on the matter.

In this petition. petitioner al~o impleaded as a necessary party respondent the Secretary< f Trade and Industry whc is the Chairman of the noard c . Gn · tornnp: of the BOI and \ ested with the authority to issue/grant the claim for ta. credit applied for b • petitioner as pr<widecl hy the Secretary of Finance Memorandum dated January 2 (, . l 9 g C) .

The issue presented I efore Us or resolution is whether or not petitioner is entitled to deduct from the 1987 ta able income the NOLCO balance of P825.80 1.00 under P.D. 1159 after it became .a registered existing export producer under P.D. 1789. as amended by B.P. Blg. 391. in order tc be entitled to the refund/credit of P289.030.00. representing alleged overpaid income tax for said year.

DECISION --

C_T_A_ CASE NO. 1392 - 7 - Petitioner alleged that the balance of P825.80 1.00 net operating Jo~s incurred in 1981 can ..;till be applied as a NOLCO for FY 1987.

Petitioner maintains that its subsequent registration on January 21. 1986 as an Exi~ting Export Producer (effective May 18. 19841 under P.D. 1789. as amended by B.P. 39 1. did not revoke the NOLCO incentive which had already accrued in Hs favor since 1981 . Re~pondeni, on the other hand. contends that the BOI decided against the application of the balance of P825,80 1.00 NOLCO for FY 1987. The OLCO i~ not among the incenti\ es granted to petitioner as an Existing Export Producer under Article 48 of P.D. 1789. as amended by B.P. 391 . In other words. although it was entitled to a\·ail the '-l'OLCO incentive under its original registration as an Agricultural Enterprise. it however waived" the NOLCO incentive under P.D. 1159 when it opted to transfer its registration to an Existing Export Producer under P.D. 1789, as amended by B.P. 391. The \\·aiYer of the NOLCO incentive is a precondition for registration under the new incentives law.

P.D. 1789 !Omnibus Incentives Code I. effective january 16. 1981 . expres..;Jy repealed P.D. 1159 and other investment incentives la\\·s. without prejudice to the righ{..; of an registered enterprise which at the time of effectivity of the Code have been registered under R.A. 5186. R.A.6135. P.D. 1159 and R.A. 5455. Art. 45(c) of P.D. 1789 provides NOLCO incentives to registered enterprises. The NOLCO incentive was withdrawn under B.P. 391 {effective April 28. 198}) limiting the a ailment of such incentive to registered domestic producers.

The contention of petitioner ts not meritorious.

The deductibilitv of the i\OLCO balance of P825.80 1.00 from the 1987 1 1),_, _,

DECISION -

C.T.A. CI\Sf. NO. 1.392 - 8 - taxable fiscal year finds no legal basis. Petitioners claim for refund of P289.030.00 ~hould therefore be denied. Petitioner was entitled to a\·ail of NOLCO incentives under its original registration a~ an agricultural enterprise under P.D. 1159. The subsequent repeal of P.D. 11 )9 by P.D. 1789 did not prejudice any righ1s acquired prior to the effectivity- of the latter. Like any other right. ho\\·ever. the ! 1QLCO incentive may be wai ed and this petitioner did. When petitioner o ted t transfer its registration as an agricultural enterprise IP.D. 11 ~9) t an existing export producer ef(ecli_.::_e Mav 1.8 •. 1984 IP.D. l78t . as amended b B.P. 391 ). it waivect all the incentives that may be a\'ailed under P.D. 1159. The \\'aiver finds its basis or1 Section 21 f B.P. 39 1 which provides:

"Sec. 21. The pru\·isions of the preceding section n()t\\·ithstanding.

existing enterprises which are enjoying the incentives under the laws shall continue to enjoy <:uch incenti\·es for the period therein stated.

Provided.

howe,·er.

that thev may \\ ai\·e such incentives and opt to be go\'erned by the pro isions of this Act. in which event . their period of availment of the incentives herein provided shall be reckoned from the Qrjgjnal date of their entitlement to the incentives under the said la\\·s.·· (Underscoring supplied.) This prm·ision clearly sho\\·s that enterprises ~-hich opt to be gO\·erned t:y the provisir ns of P.D. J 78CJ un B.P. 391 waive their incenti\·es that may be granted under previous incentive laws (P.D. ll59l.

It is claimed by petitioner that B.P. 391 has only prospective and no retroactive application. Thus. what could be waived, according to petitioner. are those 1 OLCO incentives pertaining to any ·'

- 9 - net operating lo~s incurred from 1984 i the date of registration under P.D. 1789. as amended l.

Petitioner added that NOLCO incentives "earned" by petitioner in 1 CJ81 can not be affected and are still available and allowable to be claimed as deductions in 1987. This theory of petitioner has no leg to stand on. There is no basis for petitioner'~ argument that B.P. 391 is prospective. The law itself pro\'iues for its retroactive application in that the period of availment provided under B.P. 391, shall be reckoned from the original elate of their entitlement to the incentives under the previous la\\ s. \\1hen petitioner was registered as an export producer effe.ctive ~lay 18, 1984 under P.D. 1789. as amended, it became entitled to the incentives provided in said decree. Since NOLCO is not included in the package of incentives granted to export producers under P.D. 1789. as amended by B.P. 391 which took effect (April 28, 1983) earlier that petitioner's registration ac: an export producer i !\lay 18. 1984) then such NOLCO incentive is deemed not to have ever been granted to petitioner as an export producer.

If

petitioners argument is \·ali d. then it could have availed of two sets of incentives - surely. that is not the intent of the la.,. ·. From another perspective. the net operating loss to be deductible mu~t belong to the same set of registered operations from which the taxable income against \\ hich the losses will be deducted arises. The net operating loss in fiscal year 1981 was incurred from operations as an agricultural producer.

Necessarily, it can be deducted only from income derived from the same operations. Howe\·er. petitioner ad mit ted in its petition that effective May 18, 1984. it cea~ed to be an agricultural producer. Allowing petitioner then to deduct net operating loss incurred in 1981 from 1987 ·'

Df:CISJON -

C.T . ~ . CASE NO. 139Z -

JO -

income on operation~ as registered export producer under P.D. 178 9. as amended. is improper and therefore should not be allowed.

WHEREFORE.

premi"es considered. judgment is hereby rendered DENYING the instant petition for lack of merit. Costs again~t petitioner.

WE CONCUR:

~I·

. GRUBA ssnciate lud e 0~ P~J..c RAMON 0. Dn_tynYRA /

Assoctate Judge

~~Q

.. ~ ERNESTO D. A COST A , .. /

Presiding Judge

I

CERTJFJC ATION

I hereby certify that the decision \Vas reached after due comultatinn among the memher~ of the Court of Tax Appeals in · accordance with Section 13. , rticle VI I I of the Cm~st_itution . 1074 €~R : .CUa.

ERNESTO D. A COST A Presiding .ludge

Court of Tax Appeals