Commissioner of Internal Revenue vs. Bases Conversion and Development Authority

Factual Background

BCDA owned four contiguous parcels in Bonifacio Global City, Taguig City, collectively called the Expanded Big Delta Lots, with a total area of 12,036 square meters and a total purchase price of Php2,032,749,327.96. BCDA contracted to sell the properties to an unincorporated joint venture called the Net Group, composed of four corporate entities. The Net Group agreed to withhold and remit Php101,637,466.40 as creditable tax withheld at source (CWT) only if BCDA failed to present a tax-exemption certification by June 9, 2008. BCDA requested the certification from the CIR on May 28, 2008, received no response, and the Deeds of Absolute Sale were executed on July 31, 2008. Because BCDA did not present a certification, the Net Group deducted Php101,637,466.40 as CWT, issued the corresponding certificates, and remitted the amount to the BIR. BCDA sought refund administratively and then filed a petition for refund in the CTA on July 29, 2010.

Procedural History in the Court of Tax Appeals

BCDA petitioned the CTA for refund of the Php101,637,466.40 allegedly erroneously withheld. The CIR answered, contesting BCDA’s entitlement on procedural and substantive grounds, asserting that BCDA failed to prove that the withholding was erroneous and that its claim did not satisfy procedural requirements for refund. The CTA First Division granted BCDA’s petition for refund in a decision dated September 13, 2013, ordering the CIR to refund the amount. The CIR’s motion for reconsideration before the First Division was denied by resolution dated January 30, 2014. On the CIR’s appeal, the CTA En Banc affirmed the First Division in its Decision dated December 16, 2014 and denied the CIR’s motion for reconsideration in a Resolution dated April 15, 2015.

CTA First Division Ruling

The CTA First Division concluded that BCDA was entitled to refund of the Php101,637,466.40 withheld on July 31, 2008 in connection with the sale of the Expanded Big Delta Lots, and ordered the CIR to refund that amount. The First Division’s decision rested on the view that the sale proceeds were exempt from taxation under BCDA’s charter and related implementing instruments, such that there was no taxable income to support the withholding.

CTA En Banc Ruling

The CTA En Banc affirmed the First Division and elaborated that while BCDA was not among the exempt entities enumerated in Section 27(c) of the NIRC, BCDA’s specific charter provisions in RA 7227, as amended by RA 7917, expressly exempted the sale proceeds of the enumerated properties from all taxes and fees. The CTA En Banc treated RA 7227, as amended, as a special law that was not impliedly repealed or superseded by the later general provisions of the NIRC. The CTA En Banc also relied on Section 32(B)(7)(b) of the NIRC and Section 2.57.5 of Revenue Regulation No. 2-98 to support the position that withholding of CWT does not apply to national government instrumentalities, and concluded that there was no income to be included in BCDA’s gross income for the specified sales.

Petition to the Supreme Court and Parties' Contentions

The CIR petitioned the Supreme Court to annul the CTA En Banc Decision and Resolution. The CIR argued principally that Section 27(c) of the NIRC modified or supplanted the tax exemptions in RA 7227 and that, in any event, BCDA failed to satisfy procedural requirements for a refund under Revenue Regulation No. 6-85, Section 10, which requires that the income allegedly taxed be shown as part of gross income and that the fact of withholding be established by the withholding tax statement. The CIR relied on precedents denying refunds for failure to present competent proof of withholding. BCDA countered that Section 8 of RA 7227, as amended by RA 7917, explicitly appropriates and earmarks sale proceeds and expressly provides that such proceeds “shall not be diminished” and are “exempt from all forms of taxes and fees,” and that Administrative Order 236 recognized the proceeds as government funds automatically appropriated for specified beneficiaries. BCDA further argued that, because the sale proceeds were not its income but public funds appropriated by law for specific purposes, the general refund and procedural rules applicable to GOCCs do not apply.

Issue Presented

Whether BCDA was exempt from Creditable Withholding Tax on the sale of the Expanded Big Delta Lots and therefore entitled to refund of the Php101,637,466.40 withheld and remitted to the BIR.

Supreme Court Ruling

The Supreme Court denied the petition and affirmed the CTA En Banc Decision dated December 16, 2014 and Resolution dated April 15, 2015. The Court held that BCDA was exempt from all forms of taxes and fees on the proceeds from the sale of the enumerated properties under Section 8 of RA 7227, as amended by RA 7917, and that the NIRC’s general provisions did not impliedly repeal or supersede the specific exemption in the BCDA Charter.

Legal Basis and Reasoning

The Court anchored its decision on the twofold character of Section 8 of RA 7227, as amended by RA 7917: first, it deems the sale proceeds of specified Metro Manila military camp lands as appropriated for enumerated public purposes and beneficiaries, thereby establishing that such proceeds are public funds rather than BCDA income; second, it expressly provides that the proceeds “shall not be diminished” and are “exempt from all forms of taxes and fees.” The Court applied the rule that a special law governs over a subsequent general law in the absence of an express repeal or irre