Title
Commissioner of Internal Revenue vs. Philippine Airlines, Inc.
Case
G.R. No. 179259
Decision Date
Sep 25, 2013
CIR assessed PAL for MCIT deficiency; PAL claimed exemption under PD 1590. SC ruled MCIT is "other tax," exempting PAL under franchise.

Case Digest (G.R. No. 179259)
Expanded Legal Reasoning Model

Facts:

  • Parties and Subject Matter
    • Petitioner: Commissioner of Internal Revenue (CIR), with authority to assess and collect national internal revenue taxes, including the 2% Minimum Corporate Income Tax (MCIT) under Section 27(E) of the National Internal Revenue Code (NIRC) of 1997, as amended.
    • Respondent: Philippine Airlines, Inc. (PAL), a domestic corporation organized under Philippine law, holder of a legislative franchise under Presidential Decree No. 1590 (PD 1590) granting it special tax privileges.
    • Dispute: CIR assessed PAL a deficiency MCIT of P326,778,723.35 for fiscal year ending 31 March 2000. PAL contested liability based on its franchise tax exemption provisions.
  • Chronology of Events
    • PAL filed its Tentative Corporate Income Tax Return on 17 July 2000 reflecting zero taxable income and creditable withholding tax of P524,957.00 for fiscal year ending 31 March 2000.
    • On 16 July 2001, PAL filed a written claim for refund with CIR for creditable withholding tax.
    • BIR issued Letter of Authority in September 2001 authorizing audit of PAL’s books regarding its refund claim. Various correspondences and presentations of documents followed.
    • On 16 July 2003, PAL received a summary of creditable withholding tax and a computation of compromise penalties for late filing. An informal conference was set for 17 July 2003.
    • On 11 August 2003, PAL received computation of an initial deficiency MCIT assessment amounting to P537,477,867.64.
    • On 20 October 2003, a Preliminary Assessment Notice assessing a deficiency MCIT including interest for P315,566,368.68 was issued. PAL filed a written protest on 3 November 2003.
    • On 16 December 2003, Formal Letter of Demand was issued requiring payment of total P326,778,723.35 inclusive of interest under Assessment Notice No. INC-FY-99-2000-000085.
    • PAL filed a formal protest on 13 January 2004, asserting exemption from MCIT under Section 13 of PD 1590 and claiming the assessment period lapsed.
    • No final action was taken by CIR on the protest; PAL filed a Petition for Review before the Court of Tax Appeals (CTA) Second Division on 4 August 2004.
  • Rulings at the CTA
    • CTA Second Division (22 August 2006) ruled in favor of PAL, cancelling the deficiency MCIT assessment and demand, emphasizing:
a) Section 13 of PD 1590 grants PAL option to pay either basic corporate income tax (based on net taxable income) or 2% franchise tax on gross revenues, whichever is lower. b) MCIT is neither the basic income tax nor the franchise tax but classified as “other taxes” exempted from payment by PAL’s franchise. c) The franchise tax or basic income tax paid is in lieu of all other taxes except real property tax. d) PAL’s zero taxable income meant basic income tax option resulted in no tax liability, thus no MCIT liability.
  • The CTA En Banc (19 July 2007) affirmed the Second Division’s Decision and the denial of CIR’s Motion for Reconsideration, holding MCIT as not covered by PAL’s franchise tax obligation and thus exempted.
  • Petition Before the Supreme Court
    • CIR filed Petition for Review on Certiorari seeking reversal of the CTA En Banc decision affirming PAL’s exemption from MCIT.
    • CIR argued:
a) PAL’s election to be covered under the NIRC income tax provisions includes liability for MCIT. b) MCIT is an income tax under the NIRC and not “other taxes” exempted by the franchise. c) The MCIT provision supplements and complements, not amends, PD 1590, so it still applies. d) PAL’s option requires it to pay tax and share in tax burden, not evade MCIT by zero basic income tax payment. e) Exemptions from tax are not presumed; PAL thus liable for deficiency MCIT.
  • PAL countered that the franchise granted an absolute exemption from MCIT given its classification as “other taxes” and that there was no obligation under PD 1590 to pay MCIT particularly where taxable income was zero.

Issues:

  • Whether the CTA En Banc erred in classifying the MCIT as “other taxes” exempt under PAL’s franchise, thereby exempting PAL from MCIT liability.
  • Whether the CTA En Banc erred in ruling that PAL is not liable to pay the deficiency MCIT for fiscal year ending 31 March 2000, despite filing under the income tax provisions of the NIRC and reporting zero taxable income.

Ruling:

  • (Subscriber-Only)

Ratio:

  • (Subscriber-Only)

Doctrine:

  • (Subscriber-Only)
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