FORT BONIFACIO DEVELOPMENT CORPORATION, 

Petitioner, 
vs.
COMMISSIONER OF INTERNAL REVENUE and REVENUE DISTRICT OFFICER, REVENUE DISTRICT NO. 44, TAGUIG
and PATEROS, BUREAU OF INTERNAL REVENUE, Respondents.

DECISION

DEL CASTILLO, J.:

Courts cannot limit the application or coverage of a law, nor can it impose conditions not provided therein. To do so constitutes
judicial legislation.

This Petition for Review on Certiorari under Rule 45 of the Rules of Court assails the July 7, 2006 Decision 1 of the Court of Appeals
(CA) in CA-G.R. SP No. 61436, the dispositive portion of which reads.

WHEREFORE, the instant petition is hereby DISMISSED. ACCORDINGLY, the Decision dated October 12,
2000 of the Court of Tax Appeals in CTA Case No. 5735, denying petitioner’s claim for refund in the amount of
Three Hundred Fifty-Nine Million Six Hundred Fifty-Two Thousand Nine Pesos and Forty-Seven Centavos (₱
359,652,009.47), is hereby AFFIRMED.

SO ORDERED.2

Factual Antecedents

Petitioner Fort Bonifacio Development Corporation (FBDC) is a duly registered domestic corporation engaged in the development
and sale of real property.3 The Bases Conversion Development Authority (BCDA), a wholly owned government corporation created
under Republic Act (RA) No. 7227,4 owns 45% of petitioner’s issued and outstanding capital stock; while the Bonifacio Land
Corporation, a consortium of private domestic corporations, owns the remaining 55%.5

On February 8, 1995, by virtue of RA 7227 and Executive Order No. 40, 6 dated December 8, 1992, petitioner purchased from the
national government a portion of the Fort Bonifacio reservation, now known as the Fort Bonifacio Global City (Global City).7

On January 1, 1996, RA 77168 restructured the Value-Added Tax (VAT) system by amending certain provisions of the old National
Internal Revenue Code (NIRC). RA 7716 extended the coverage of VAT to real properties held primarily for sale to customers or
held for lease in the ordinary course of trade or business.9

On September 19, 1996, petitioner submitted to the Bureau of Internal Revenue (BIR) Revenue District No. 44, Taguig and
Pateros, an inventory of all its real properties, the book value of which aggregated ₱ 71,227,503,200. 10Based on this value,
petitioner claimed that it is entitled to a transitional input tax credit of ₱ 5,698,200,256,11pursuant to Section 10512 of the old NIRC.

In October 1996, petitioner started selling Global City lots to interested buyers.13

For the first quarter of 1997, petitioner generated a total amount of ₱ 3,685,356,539.50 from its sales and lease of lots, on which
the output VAT payable was ₱ 368,535,653.95.14 Petitioner paid the output VAT by making cash payments to the BIR totalling ₱
359,652,009.47 and crediting its unutilized input tax credit on purchases of goods and services of ₱ 8,883,644.48.15

Realizing that its transitional input tax credit was not applied in computing its output VAT for the first quarter of 1997, petitioner on
November 17, 1998 filed with the BIR a claim for refund of the amount of ₱ 359,652,009.47 erroneously paid as output VAT for
the said period.16

Ruling of the Court of Tax Appeals

On February 24, 1999, due to the inaction of the respondent Commissioner of Internal Revenue (CIR), petitioner elevated the
matter to the Court of Tax Appeals (CTA) via a Petition for Review.17

In opposing the claim for refund, respondents interposed the following special and affirmative defenses:

xxxx

8. Under Revenue Regulations No. 7-95, implementing Section 105 of the Tax Code as amended by E.O. 273, the
basis of the presumptive input tax, in the case of real estate dealers, is the improvements, such as buildings,
roads, drainage systems, and other similar structures, constructed on or after January 1, 1988.

9. Petitioner, by submitting its inventory listing of real properties only on September 19, 1996, failed to comply
with the aforesaid revenue regulations mandating that for purposes of availing the presumptive input tax credits
 under its Transitory Provisions, "an inventory as of December 31, 1995, of such goods or properties and
improvements showing the quantity, description, and amount should be filed with the RDO no later than January
31, 1996. x x x"18

On October 12, 2000, the CTA denied petitioner’s claim for refund. According to the CTA, "the benefit of transitional input tax
credit comes with the condition that business taxes should have been paid first." 19 In this case, since petitioner acquired the Global
City property under a VAT-free sale transaction, it cannot avail of the transitional input tax credit.20 The CTA likewise pointed out
that under Revenue Regulations No. (RR) 7-95, implementing Section 105 of the old NIRC, the 8% transitional input tax credit
should be based on the value of the improvements on land such as buildings, roads, drainage system and other similar structures,
constructed on or after January 1, 1998, and not on the book value of the real property. 21 Thus, the CTA disposed of the case in
this manner:

WHEREFORE, in view of all the foregoing, the claim for refund representing alleged overpaid value-added tax
covering the first quarter of 1997 is hereby DENIED for lack of merit.

SO ORDERED.22

Ruling of the Court of Appeals

Aggrieved, petitioner filed a Petition for Review23 under Rule 43 of the Rules of Court before the CA.

On July 7, 2006, the CA affirmed the decision of the CTA. The CA agreed that petitioner is not entitled to the 8% transitional input
tax credit since it did not pay any VAT when it purchased the Global City property. 24 The CA opined that transitional input tax credit
is allowed only when business taxes have been paid and passed-on as part of the purchase price. 25 In arriving at this conclusion,
the CA relied heavily on the historical background of transitional input tax credit. 26 As to the validity of RR 7-95, which limited the
8% transitional input tax to the value of the improvements on the land, the CA said that it is entitled to great weight as it was
issued pursuant to Section 24527 of the old NIRC.28

Issues

Hence, the instant petition with the principal issue of whether petitioner is entitled to a refund of ₱ 359,652,009.47 erroneously
paid as output VAT for the first quarter of 1997, the resolution of which depends on:

3.05.a. Whether Revenue Regulations No. 6-97 effectively repealed or repudiated Revenue Regulations No. 7-95
insofar as the latter limited the transitional/presumptive input tax credit which may be claimed under Section 105
of the National Internal Revenue Code to the "improvements" on real properties.

3.05.b. Whether Revenue Regulations No. 7-95 is a valid implementation of Section 105 of the National Internal
Revenue Code.

3.05.c. Whether the issuance of Revenue Regulations No. 7-95 by the Bureau of Internal Revenue, and
declaration of validity of said Regulations by the Court of Tax Appeals and Court of Appeals, were in violation of
the fundamental principle of separation of powers.

3.05.d. Whether there is basis and necessity to interpret and construe the provisions of Section 105 of the
National Internal Revenue Code.

3.05.e. Whether there must have been previous payment of business tax by petitioner on its land before it may
claim the input tax credit granted by Section 105 of the National Internal Revenue Code.

3.05.f. Whether the Court of Appeals and Court of Tax Appeals merely speculated on the purpose of the
transitional/presumptive input tax provided for in Section 105 of the National Internal Revenue Code.

3.05.g. Whether the economic and social objectives in the acquisition of the subject property by petitioner from
the Government should be taken into consideration.29

Petitioner’s Arguments

Petitioner claims that it is entitled to recover the amount of ₱ 359,652,009.47 erroneously paid as output VAT for the first quarter
of 1997 since its transitional input tax credit of ₱ 5,698,200,256 is more than sufficient to cover its output VAT liability for the said
period.30

Petitioner assails the pronouncement of the CA that prior payment of taxes is required to avail of the 8% transitional input tax
credit.31 Petitioner contends that there is nothing in Section 105 of the old NIRC to support such conclusion.32
Petitioner further argues that RR 7-95, which limited the 8% transitional input tax credit to the value of the improvements on the
land, is invalid because it goes against the express provision of Section 105 of the old NIRC, in relation to Section 10033 of the
same Code, as amended by RA 7716.34

Respondents’ Arguments

Respondents, on the other hand, maintain that petitioner is not entitled to a transitional input tax credit because no taxes were
paid in the acquisition of the Global City property. 35 Respondents assert that prior payment of taxes is inherent in the nature of a
transitional input tax.36 Regarding RR 7-95, respondents insist that it is valid because it was issued by the Secretary of Finance,
who is mandated by law to promulgate all needful rules and regulations for the implementation of Section 105 of the old NIRC.37

Our Ruling

The petition is meritorious.

The issues before us are no longer new or novel as these have been resolved in the related case of Fort Bonifacio Development
Corporation v. Commissioner of Internal Revenue.38

Prior payment of taxes is not required

for a taxpayer to avail of the 8%
transitional input tax credit

Section 105 of the old NIRC reads:

SEC. 105. Transitional input tax credits. – A person who becomes liable to value-added tax or any person who
elects to be a VAT-registered person shall, subject to the filing of an inventory as prescribed by regulations, be
allowed input tax on his beginning inventory of goods, materials and supplies equivalent to 8% of the value of
such inventory or the actual value-added tax paid on such goods, materials and supplies, whichever is higher,
which shall be creditable against the output tax. (Emphasis supplied.)

Contrary to the view of the CTA and the CA, there is nothing in the above-quoted provision to indicate that prior payment of taxes
is necessary for the availment of the 8% transitional input tax credit. Obviously, all that is required is for the taxpayer to file a
beginning inventory with the BIR.

To require prior payment of taxes, as proposed in the Dissent is not only tantamount to judicial legislation but would also render
nugatory the provision in Section 105 of the old NIRC that the transitional input tax credit shall be "8% of the value of [the
beginning] inventory or the actual [VAT] paid on such goods, materials and supplies, whichever is higher" because the actual VAT
(now 12%) paid on the goods, materials, and supplies would always be higher than the 8% (now 2%) of the beginning inventory
which, following the view of Justice Carpio, would have to exclude all goods, materials, and supplies where no taxes were paid.
Clearly, limiting the value of the beginning inventory only to goods, materials, and supplies, where prior taxes were paid, was not
the intention of the law. Otherwise, it would have specifically stated that the beginning inventory excludes goods, materials, and
supplies where no taxes were paid. As retired Justice Consuelo Ynares-Santiago has pointed out in her Concurring Opinion in the
earlier case of Fort Bonifacio:

If the intent of the law were to limit the input tax to cases where actual VAT was paid, it could have simply said
that the tax base shall be the actual value-added tax paid. Instead, the law as framed contemplates a situation
where a transitional input tax credit is claimed even if there was no actual payment of VAT in the underlying
transaction. In such cases, the tax base used shall be the value of the beginning inventory of goods, materials
and supplies.39

Moreover, prior payment of taxes is not required to avail of the transitional input tax credit because it is not a tax refund per se but
a tax credit. Tax credit is not synonymous to tax refund. Tax refund is defined as the money that a taxpayer overpaid and is thus
returned by the taxing authority.40 Tax credit, on the other hand, is an amount subtracted directly from one’s total tax liability. 41 It
is any amount given to a taxpayer as a subsidy, a refund, or an incentive to encourage investment. Thus, unlike a tax refund, prior
payment of taxes is not a prerequisite to avail of a tax credit. In fact, in Commissioner of Internal Revenue v. Central Luzon Drug
Corp.,42 we declared that prior payment of taxes is not required in order to avail of a tax credit.43 Pertinent portions of the Decision
read:

While a tax liability is essential to the availment or use of any tax credit, prior tax payments are not. On the
contrary, for the existence or grant solely of such credit, neither a tax liability nor a prior tax payment is needed.
The Tax Code is in fact replete with provisions granting or allowing tax credits, even though no taxes have been
previously paid.

For example, in computing the estate tax due, Section 86(E) allows a tax credit -- subject to certain limitations --
for estate taxes paid to a foreign country. Also found in Section 101(C) is a similar provision for donor’s taxes --
again when paid to a foreign country -- in computing for the donor’s tax due. The tax credits in both instances
allude to the prior payment of taxes, even if not made to our government.

Under Section 110, a VAT (Value-Added Tax) - registered person engaging in transactions -- whether or not
subject to the VAT -- is also allowed a tax credit that includes a ratable portion of any input tax not directly
attributable to either activity. This input tax may either be the VAT on the purchase or importation of goods or
services that is merely due from -- not necessarily paid by -- such VAT-registered person in the course of trade
or business; or the transitional input tax determined in accordance with Section 111(A). The latter type may in
fact be an amount equivalent to only eight percent of the value of a VAT-registered person’s beginning inventory
of goods, materials and supplies, when such amount -- as computed -- is higher than the actual VAT paid on the
said items. Clearly from this provision, the tax credit refers to an input tax that is either due only or given a value
by mere comparison with the VAT actually paid -- then later prorated. No tax is actually paid prior to the
availment of such credit.

In Section 111(B), a one and a half percent input tax credit that is merely presumptive is allowed. For the
purchase of primary agricultural products used as inputs -- either in the processing of sardines, mackerel and
milk, or in the manufacture of refined sugar and cooking oil -- and for the contract price of public works
contracts entered into with the government, again, no prior tax payments are needed for the use of the tax
credit.

More important, a VAT-registered person whose sales are zero-rated or effectively zero-rated may, under Section
112(A), apply for the issuance of a tax credit certificate for the amount of creditable input taxes merely due --
again not necessarily paid to -- the government and attributable to such sales, to the extent that the input taxes
have not been applied against output taxes. Where a taxpayer is engaged in zero-rated or effectively zero-rated
sales and also in taxable or exempt sales, the amount of creditable input taxes due that are not directly and
entirely attributable to any one of these transactions shall be proportionately allocated on the basis of the
volume of sales. Indeed, in availing of such tax credit for VAT purposes, this provision -- as well as the one
earlier mentioned -- shows that the prior payment of taxes is not a requisite.

It may be argued that Section 28(B)(5)(b) of the Tax Code is another illustration of a tax credit allowed, even
though no prior tax payments are not required. Specifically, in this provision, the imposition of a final withholding
tax rate on cash and/or property dividends received by a nonresident foreign corporation from a domestic
corporation is subjected to the condition that a foreign tax credit will be given by the domiciliary country in an
amount equivalent to taxes that are merely deemed paid. Although true, this provision actually refers to the tax
credit as a condition only for the imposition of a lower tax rate, not as a deduction from the corresponding tax
liability. Besides, it is not our government but the domiciliary country that credits against the income tax payable
to the latter by the foreign corporation, the tax to be foregone or spared.

In contrast, Section 34(C)(3), in relation to Section 34(C)(7)(b), categorically allows as credits, against the
income tax imposable under Title II, the amount of income taxes merely incurred -- not necessarily paid -- by a
domestic corporation during a taxable year in any foreign country. Moreover, Section 34(C)(5) provides that for
such taxes incurred but not paid, a tax credit may be allowed, subject to the condition precedent that the
taxpayer shall simply give a bond with sureties satisfactory to and approved by petitioner, in such sum as may be
required; and further conditioned upon payment by the taxpayer of any tax found due, upon petitioner’s
redetermination of it.

In addition to the above-cited provisions in the Tax Code, there are also tax treaties and special laws that grant
or allow tax credits, even though no prior tax payments have been made.

Under the treaties in which the tax credit method is used as a relief to avoid double taxation, income that is
taxed in the state of source is also taxable in the state of residence, but the tax paid in the former is merely
allowed as a credit against the tax levied in the latter. Apparently, payment is made to the state of source, not
the state of residence. No tax, therefore, has been previously paid to the latter.

Under special laws that particularly affect businesses, there can also be tax credit incentives. To illustrate, the
incentives provided for in Article 48 of Presidential Decree No. (PD) 1789, as amended by Batas Pambansa Blg.
(BP) 391, include tax credits equivalent to either five percent of the net value earned, or five or ten percent of
the net local content of export. In order to avail of such credits under the said law and still achieve its objectives,
no prior tax payments are necessary.

From all the foregoing instances, it is evident that prior tax payments are not indispensable to the availment of a
tax credit. Thus, the CA correctly held that the availment under RA 7432 did not require prior tax payments by
private establishments concerned. However, we do not agree with its finding that the carry-over of tax credits
under the said special law to succeeding taxable periods, and even their application against internal revenue
taxes, did not necessitate the existence of a tax liability.

The examples above show that a tax liability is certainly important in the availment or use, not the existence or
grant, of a tax credit. Regarding this matter, a private establishment reporting a net loss in its financial
 statements is no different from another that presents a net income. Both are entitled to the tax credit provided
for under RA 7432, since the law itself accords that unconditional benefit. However, for the losing establishment
to immediately apply such credit, where no tax is due, will be an improvident usance.44

In this case, when petitioner realized that its transitional input tax credit was not applied in computing its output VAT for the 1st
quarter of 1997, it filed a claim for refund to recover the output VAT it erroneously or excessively paid for the 1st quarter of 1997.
In filing a claim for tax refund, petitioner is simply applying its transitional input tax credit against the output VAT it has paid.
Hence, it is merely availing of the tax credit incentive given by law to first time VAT taxpayers. As we have said in the earlier case
of Fort Bonifacio, the provision on transitional input tax credit was enacted to benefit first time VAT taxpayers by mitigating the
impact of VAT on the taxpayer.45 Thus, contrary to the view of Justice Carpio, the granting of a transitional input tax credit in favor
of petitioner, which would be paid out of the general fund of the government, would be an appropriation authorized by law,
specifically Section 105 of the old NIRC.

The history of the transitional input tax credit likewise does not support the ruling of the CTA and CA. In our Decision dated April 2,
2009, in the related case of Fort Bonifacio, we explained that:

If indeed the transitional input tax credit is integrally related to previously paid sales taxes, the purported causal
link between those two would have been nonetheless extinguished long ago. Yet Congress has reenacted the
transitional input tax credit several times; that fact simply belies the absence of any relationship between such
tax credit and the long-abolished sales taxes.

Obviously then, the purpose behind the transitional input tax credit is not confined to the transition from sales
tax to VAT.

There is hardly any constricted definition of "transitional" that will limit its possible meaning to the shift from the
sales tax regime to the VAT regime. Indeed, it could also allude to the transition one undergoes from not being a
VAT-registered person to becoming a VAT-registered person. Such transition does not take place merely by
operation of law, E.O. No. 273 or Rep. Act No. 7716 in particular. It could also occur when one decides to start a
business. Section 105 states that the transitional input tax credits become available either to (1) a person who
becomes liable to VAT; or (2) any person who elects to be VAT-registered. The clear language of the law entitles
new trades or businesses to avail of the tax credit once they become VAT-registered. The transitional input tax
credit, whether under the Old NIRC or the New NIRC, may be claimed by a newly-VAT registered person such as
when a business as it commences operations. If we view the matter from the perspective of a starting
entrepreneur, greater clarity emerges on the continued utility of the transitional input tax credit.

Following the theory of the CTA, the new enterprise should be able to claim the transitional input tax credit
because it has presumably paid taxes, VAT in particular, in the purchase of the goods, materials and supplies in
its beginning inventory. Consequently, as the CTA held below, if the new enterprise has not paid VAT in its
purchases of such goods, materials and supplies, then it should not be able to claim the tax credit. However, it is
not always true that the acquisition of such goods, materials and supplies entail the payment of taxes on the part
of the new business. In fact, this could occur as a matter of course by virtue of the operation of various
provisions of the NIRC, and not only on account of a specially legislated exemption.

Let us cite a few examples drawn from the New NIRC. If the goods or properties are not acquired from a person
in the course of trade or business, the transaction would not be subject to VAT under Section 105. The sale
would be subject to capital gains taxes under Section 24 (D), but since capital gains is a tax on passive income it
is the seller, not the buyer, who generally would shoulder the tax.

If the goods or properties are acquired through donation, the acquisition would not be subject to VAT but to
donor’s tax under Section 98 instead. It is the donor who would be liable to pay the donor’s tax, and the
donation would be exempt if the donor’s total net gifts during the calendar year does not exceed ₱ 100,000.00.

If the goods or properties are acquired through testate or intestate succession, the transfer would not be subject
to VAT but liable instead for estate tax under Title III of the New NIRC. If the net estate does not exceed ₱
200,000.00, no estate tax would be assessed.

The interpretation proffered by the CTA would exclude goods and properties which are acquired through sale not
in the ordinary course of trade or business, donation or through succession, from the beginning inventory on
which the transitional input tax credit is based. This prospect all but highlights the ultimate absurdity of the
respondents’ position. Again, nothing in the Old NIRC (or even the New NIRC) speaks of such a possibility or
qualifies the previous payment of VAT or any other taxes on the goods, materials and supplies as a pre-requisite
for inclusion in the beginning inventory.

It is apparent that the transitional input tax credit operates to benefit newly VAT-registered persons, whether or
not they previously paid taxes in the acquisition of their beginning inventory of goods, materials and supplies.
During that period of transition from non-VAT to VAT status, the transitional input tax credit serves to alleviate
the impact of the VAT on the taxpayer. At the very beginning, the VAT-registered taxpayer is obliged to remit a
 significant portion of the income it derived from its sales as output VAT. The transitional input tax credit
mitigates this initial diminution of the taxpayer's income by affording the opportunity to offset the losses incurred
through the remittance of the output VAT at a stage when the person is yet unable to credit input VAT
payments.

There is another point that weighs against the CTA’s interpretation. Under Section 105 of the Old NIRC, the rate
of the transitional input tax credit is "8% of the value of such inventory or the actual value-added tax paid on
such goods, materials and supplies, whichever is higher." If indeed the transitional input tax credit is premised
on the previous payment of VAT, then it does not make sense to afford the taxpayer the benefit of such credit
based on "8% of the value of such inventory" should the same prove higher than the actual VAT paid. This intent
that the CTA alluded to could have been implemented with ease had the legislature shared such intent by
providing the actual VAT paid as the sole basis for the rate of the transitional input tax credit.46

In view of the foregoing, we find petitioner entitled to the 8% transitional input tax credit provided in Section 105 of the old NIRC.
The fact that it acquired the Global City property under a tax-free transaction makes no difference as prior payment of taxes is not
a pre-requisite.

Section 4.105-1 of RR 7-95 is

inconsistent with Section 105 of the old
NIRC

As regards Section 4.105-147 of RR 7-95 which limited the 8% transitional input tax credit to the value of the improvements on the
land, the same contravenes the provision of Section 105 of the old NIRC, in relation to Section 100 of the same Code, as amended
by RA 7716, which defines "goods or properties," to wit:

SEC. 100. Value-added tax on sale of goods or properties. – (a) Rate and base of tax. – There shall be levied,
assessed and collected on every sale, barter or exchange of goods or properties, a value-added tax equivalent to
10% of the gross selling price or gross value in money of the goods or properties sold, bartered or exchanged,
such tax to be paid by the seller or transferor.

(1) The term "goods or properties" shall mean all tangible and intangible objects which are capable of pecuniary
estimation and shall include:

(A) Real properties held primarily for sale to customers or held for lease in the ordinary course of trade or
business; x x x

In fact, in our Resolution dated October 2, 2009, in the related case of Fort Bonifacio, we ruled that Section 4.105-1 of RR 7-95,
insofar as it limits the transitional input tax credit to the value of the improvement of the real properties, is a nullity. 48 Pertinent
portions of the Resolution read:

As mandated by Article 7 of the Civil Code, an administrative rule or regulation cannot contravene the law on
which it is based. RR 7-95 is inconsistent with Section 105 insofar as the definition of the term "goods" is
concerned. This is a legislative act beyond the authority of the CIR and the Secretary of Finance. The rules and
regulations that administrative agencies promulgate, which are the product of a delegated legislative power to
create new and additional legal provisions that have the effect of law, should be within the scope of the statutory
authority granted by the legislature to the objects and purposes of the law, and should not be in contradiction to,
but in conformity with, the standards prescribed by law.

To be valid, an administrative rule or regulation must conform, not contradict, the provisions of the enabling
law.1âwphi1 An implementing rule or regulation cannot modify, expand, or subtract from the law it is intended to
implement. Any rule that is not consistent with the statute itself is null and void.

While administrative agencies, such as the Bureau of Internal Revenue, may issue regulations to implement
statutes, they are without authority to limit the scope of the statute to less than what it provides, or extend or
expand the statute beyond its terms, or in any way modify explicit provisions of the law. Indeed, a quasi-judicial
body or an administrative agency for that matter cannot amend an act of Congress. Hence, in case of a
discrepancy between the basic law and an interpretative or administrative ruling, the basic law prevails.

To recapitulate, RR 7-95, insofar as it restricts the definition of "goods" as basis of transitional input tax credit
under Section 105 is a nullity.49

As we see it then, the 8% transitional input tax credit should not be limited to the value of the improvements on the real properties
but should include the value of the real properties as well.
In this case, since petitioner is entitled to a transitional input tax credit of ₱ 5,698,200,256, which is more than sufficient to cover
its output VAT liability for the first quarter of 1997, a refund of the amount of ₱ 359,652,009.47 erroneously paid as output VAT for
the said quarter is in order.

WHEREFORE, the petition is hereby GRANTED. The assailed Decision dated July 7, 2006 of the Court of Appeals in CA-G.R. SP
No. 61436 is REVERSED and SET ASIDE. Respondent Commissioner of Internal Revenue is ordered to refund to petitioner Fort
Bonifacio Development Corporation the amount of ₱ 359,652,009.47 paid as output VAT for the first quarter of 1997 in light of the
transitional input tax credit available to petitioner for the said quarter, or in the alternative, to issue a tax credit certificate
corresponding to such amount.

SO ORDERED.

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. SOLIDBANK CORPORATION, respondent.

DECISION

PANGANIBAN, J.:

Under the Tax Code, the earnings of banks from passive income are subject to a twenty percent final withholding tax (20%
FWT). This tax is withheld at source and is thus not actuallyand physically received by the banks, because it is paid directly to the
government by the entities from which the banks derived the income. Apart from the 20% FWT, banks are also subject to a five
percent gross receipts tax (5% GRT) which is imposed by the Tax Code on their gross receipts, including the passive income.

Since the 20% FWT is constructively received by the banks and forms part of their gross receipts or earnings, it follows that it
is subject to the 5% GRT. After all, the amount withheld is paid to the government on their behalf, in satisfaction of their
withholding taxes. That they do not actually receive the amount does not alter the fact that it is remitted for their benefit in
satisfaction of their tax obligations.

Stated otherwise, the fact is that if there were no withholding tax system in place in this country, this 20 percent portion of
the passive income of banks would actually be paid to the banks and then remitted by them to the government in payment of their
income tax. The institution of the withholding tax system does not alter the fact that the 20 percent portion of their passive income
constitutes part of their actual earnings, except that it is paid directly to the government on their behalf in satisfaction of the 20
percent final income tax due on their passive incomes.

The Case

Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, seeking to annul the July 18, 2000 Decision[2] and
the May 8, 2001 Resolution[3] of the Court of Appeals[4] (CA) in CA-GR SP No. 54599. The decretal portion of the assailed Decision
reads as follows:

WHEREFORE, we AFFIRM in toto the assailed decision and resolution of the Court of Tax Appeals.[5]

The challenged Resolution denied petitioners Motion for Reconsideration.

The Facts

Quoting petitioner, the CA[6] summarized the facts of this case as follows:

For the calendar year 1995, [respondent] seasonably filed its Quarterly Percentage Tax Returns reflecting gross receipts (pertaining
to 5% [Gross Receipts Tax] rate) in the total amount of P1,474,691,693.44 with corresponding gross receipts tax payments in the
sum of P73,734,584.60, broken down as follows:

Period Covered Gross Receipts Gross Receipts Tax

January to March 1994 P 188,406,061.95 P 9,420,303.10

April to June 1994 370,913,832.70 18,545,691.63
July to September 1994 481,501,838.98 24,075,091.95
October to December 1994 433,869,959.81 21,693,497.98

Total P 1,474,691,693.44 P 73,734,584.60
[Respondent] alleges that the total gross receipts in the amount of P1,474,691,693.44 included the sum of P350,807,875.15
representing gross receipts from passive income which was already subjected to 20% final withholding tax.

On January 30, 1996, [the Court of Tax Appeals] rendered a decision in CTA Case No. 4720 entitled Asian Bank Corporation vs.
Commissioner of Internal Revenue[,] wherein it was held that the 20% final withholding tax on [a] banks interest income should
not form part of its taxable gross receipts for purposes of computing the gross receipts tax.

On June 19, 1997, on the strength of the aforementioned decision, [respondent] filed with the Bureau of Internal Revenue [BIR] a
letter-request for the refund or issuance of [a] tax credit certificate in the aggregate amount of P3,508,078.75, representing
allegedly overpaid gross receipts tax for the year 1995, computed as follows:

Gross Receipts Subjected to the Final Tax

Derived from Passive [Income] P 350,807,875.15
Multiply by Final Tax rate 20%
20% Final Tax Withheld at Source P 70,161,575.03
Multiply by [Gross Receipts Tax] rate 5%
Overpaid [Gross Receipts Tax] P 3,508,078.75

Without waiting for an action from the [petitioner], [respondent] on the same day filed [a] petition for review [with the Court of
Tax Appeals] in order to toll the running of the two-year prescriptive period to judicially claim for the refund of [any] overpaid
internal revenue tax[,] pursuant to Section 230 [now 229] of the Tax Code [also National Internal Revenue Code] x x x.

x x x x x x x x x

After trial on the merits, the [Court of Tax Appeals], on August 6, 1999, rendered its decision ordering x x x petitioner to refund in
favor of x x x respondent the reduced amount of P1,555,749.65 as overpaid [gross receipts tax] for the year 1995. The legal issue
x x x was resolved by the [Court of Tax Appeals], with Hon. Amancio Q. Saga dissenting, on the strength of its earlier
pronouncement in x x x Asian Bank Corporation vs. Commissioner of Internal Revenue x x x, wherein it was held that the 20%
[final withholding tax] on [a] banks interest income should not form part of its taxable gross receipts for purposes of computing
the [gross receipts tax].[7]

Ruling of the CA

The CA held that the 20% FWT on a banks interest income did not form part of the taxable gross receipts in computing the
5% GRT, because the FWT was not actually received by the bank but was directly remitted to the government.  The appellate court
curtly said that while the Tax Code does not specifically state any exemption, x x x the statute must receive a sensible construction
such as will give effect to the legislative intention, and so as to avoid an unjust or absurd conclusion.[8]

Hence, this appeal.[9]

Issue

Petitioner raises this lone issue for our consideration:

Whether or not the 20% final withholding tax on [a] banks interest income forms part of the taxable gross receipts in computing
the 5% gross receipts tax.[10]

The Courts Ruling

The Petition is meritorious.

Sole Issue:
Whether the 20% FWT Forms Part
of the Taxable Gross Receipts

Petitioner claims that although the 20% FWT on respondents interest income was not actually received by respondent
because it was remitted directly to the government, the fact that the amount redounded to the banks benefit makes it part of the
taxable gross receipts in computing the 5% GRT. Respondent, on the other hand, maintains that the CA correctly ruled otherwise.
 We agree with petitioner. In fact, the same issue has been raised recently in China Banking Corporation v. CA,[11] where this
Court held that the amount of interest income withheld in payment of the 20% FWT forms part of gross receipts in computing for
the GRT on banks.

The FWT and the GRT:

Two Different Taxes

The 5% GRT is imposed by Section 119[12] of the Tax Code,[13] which provides:

SEC. 119. Tax on banks and non-bank financial intermediaries. There shall be collected a tax on gross receipts derived from
sources within the Philippines by all banks and non-bank financial intermediaries in accordance with the following schedule:

(a) On interest, commissions and discounts from lending activities as well as income from financial leasing, on the basis of
remaining maturities of instruments from which such receipts are derived.

Short-term maturity not in excess of two (2) years5%

Medium-term maturity over two (2) years
but not exceeding four (4) years....3%
Long-term maturity:
(i) Over four (4) years but not exceeding
seven (7) years1%
(ii) Over seven (7) years..0%
(b) On dividends...0%
(c) On royalties, rentals of property, real or personal, profits from exchange and all other items treated as gross
income under Section 28[14] of this Code....................................................................5%

Provided, however,  That in case the maturity period referred to in paragraph (a) is shortened thru pretermination, then the
maturity period shall be reckoned to end as of the date of pretermination for purposes of classifying the transaction as short,
medium or long term and the correct rate of tax shall be applied accordingly.

Nothing in this Code shall preclude the Commissioner from imposing the same tax herein provided on persons performing similar
banking activities.

The 5% GRT[15] is included under Title V. Other Percentage Taxes of the Tax Code and is not subject to withholding. The
banks and non-bank financial intermediaries liable therefor shall, under Section 125(a)(1), [16] file quarterly returns on the amount
of gross receipts and pay the taxes due thereon within twenty (20)[17] days after the end of each taxable quarter.

The 20% FWT,[18] on the other hand, falls under Section 24(e)(1)[19] of Title II. Tax on Income. It is a tax on passive income,
deducted and withheld at source by the payor-corporation and/or person as withholding agent pursuant to Section 50, [20] and paid
in the same manner and subject to the same conditions as provided for in Section 51.[21]

A perusal of these provisions clearly shows that two types of taxes are involved in the present controversy: (1) the GRT,
which is a percentage tax; and (2) the FWT, which is an income tax. As a bank, petitioner is covered by both taxes.

A percentage tax  is a national tax measured by a certain percentage of the gross selling price or gross value in money of
goods sold, bartered or imported; or of the gross receipts or earnings derived by any person engaged in the sale of services. [22] It
is not subject to withholding.

An income tax, on the other hand, is a national tax imposed on the net or the gross income realized in a taxable year. [23] It is
subject to withholding.

In a withholding tax system, the payee is the taxpayer, the person on whom the tax is imposed; the payor, a separate entity,
acts as no more than an agent of the government for the collection of the tax in order to ensure its payment. Obviously, this
amount that is used to settle the tax liability is deemed sourced from the proceeds constitutive of the tax base. [24] These proceeds
are either actual or constructive. Both parties herein agree that there is no actual receipt by the bank of the amount
withheld. What needs to be determined is if there is constructive receipt thereof. Since the payee -- not the payor -- is the real
taxpayer, the rule on constructive receipt can be easily rationalized, if not made clearly manifest.[25]

Constructive Receipt
Versus Actual Receipt

Applying Section 7 of Revenue Regulations (RR) No. 17-84,[26] petitioner contends that there is constructive receipt of the
interest on deposits and yield on deposit substitutes.[27]Respondent, however, claims that even if there is, it is Section 4(e) of RR
12-80[28] that nevertheless governs the situation.
 Section 7 of RR 17-84 states:

SEC. 7. Nature and Treatment of Interest on Deposits and Yield on Deposit Substitutes.

(a) The interest earned on Philippine Currency bank deposits and yield from deposit substitutes subjected to the withholding taxes
in accordance with these regulations need not be included in the gross income in computing the depositors/investors income tax
liability in accordance with the provision of Section 29(b),[29] (c)[30] and (d) of the National Internal Revenue Code, as amended.

(b) Only interest paid or accrued on bank deposits, or yield from deposit substitutes declared for purposes of imposing the
withholding taxes in accordance with these regulations shall be allowed as interest expense deductible for purposes of computing
taxable net income of the payor.

(c) If the recipient of the above-mentioned items of income are financial institutions, the same shall be included as part of the tax
base upon which the gross receipt[s] tax is imposed.

Section 4(e) of RR 12-80, on the other hand, states that the tax rates to be imposed on the gross receipts of banks, non-bank
financial intermediaries, financing companies, and other non-bank financial intermediaries not performing quasi-banking activities
shall be based on all items of income actually received. This provision reads:

SEC. 4. x x x x x x x x x

(e) Gross receipts tax on banks, non-bank financial intermediaries, financing companies, and other non-bank financial
intermediaries not performing quasi-banking activities. The rates of tax to be imposed on the gross receipts of such financial
institutions shall be based on all items of income actually received. Mere accrual shall not be considered, but once payment is
received on such accrual or in cases of prepayment, then the amount actually received shall be included in the tax base of such
financial institutions, as provided hereunder x x x.

Respondent argues that the above-quoted provision is plain and clear: since there is no actual receipt, the FWT is not to be
included in the tax base for computing the GRT. There is supposedly no pecuniary benefit or advantage accruing to the bank from
the FWT, because the income is subjected to a tax burden immediately upon receipt through the withholding process. Moreover,
the earlier RR 12-80 covered matters not falling under the later RR 17-84.[31]

We are not persuaded.

By analogy, we apply to the receipt of income the rules on actual and constructive possession provided in Articles 531 and
532 of our Civil Code.

Under Article 531:[32]

Possession is acquired by the material occupation of a thing or the exercise of a right, or by the fact that it is subject to the action
of our will, or by the proper acts and legal formalities established for acquiring such right.

Article 532 states:

Possession may be acquired by the same person who is to enjoy it, by his legal representative, by his agent, or by any person
without any power whatever; but in the last case, the possession shall not be considered as acquired until the person in whose
name the act of possession was executed has ratified the same, without prejudice to the juridical consequences of negotiorum
gestio in a proper case.[33]

The last means of acquiring possession under Article 531 refers to juridical acts -- the acquisition of possession by sufficient
title to which the law gives the force of acts of possession.[34] Respondent argues that only items of income actually received should
be included in its gross receipts. It claims that since the amount had already been withheld at source, it did not have actual receipt
thereof.

We clarify. Article 531 of the Civil Code clearly provides that the acquisition of the right of possession is through the proper
acts and legal formalities established therefor. The withholding process is one such act. There may not be actual receipt of the
income withheld; however, as provided for in Article 532, possession by any person without any power whatsoever shall be
considered as acquired when ratified by the person in whose name the act of possession is executed.

In our withholding tax system, possession is acquired by the payor as the withholding agent of the government, because the
taxpayer ratifies the very act of possession for the government. There is thus constructive receipt. The processes of bookkeeping
and accounting for interest on deposits and yield on deposit substitutes that are subjected to FWT are indeed -- for legal purposes
-- tantamount to delivery, receipt or remittance.[35] Besides, respondent itself admits that its income is subjected to a tax burden
immediately upon receipt, although it claims that it derives no pecuniary benefit or advantage through the withholding
process. There being constructive receipt of such income -- part of which is withheld -- RR 17-84 applies, and that income is
included as part of the tax base upon which the GRT is imposed.
RR 12-80 Superseded by RR 17-84

We now come to the effect of the revenue regulations on interest income constructively received.

In general, rules and regulations issued by administrative or executive officers pursuant to the procedure or authority
conferred by law upon the administrative agency have the force and effect, or partake of the nature, of a statute. [36] The reason is
that statutes express the policies, purposes, objectives, remedies and sanctions intended by the legislature in general terms. The
details and manner of carrying them out are oftentimes left to the administrative agency entrusted with their enforcement.

In the present case, it is the finance secretary who promulgates the revenue regulations, upon recommendation of the BIR
commissioner. These regulations are the consequences of a delegated power to issue legal provisions that have the effect of law.
[37]

A revenue regulation is binding on the courts as long as the procedure fixed for its promulgation is followed. Even if the
courts may not be in agreement with its stated policy or innate wisdom, it is nonetheless valid, provided that its scope is within the
statutory authority or standard granted by the legislature.[38] Specifically, the regulation must (1) be germane to the object and
purpose of the law;[39] (2) not contradict, but conform to, the standards the law prescribes;[40] and (3) be issued for the sole
purpose of carrying into effect the general provisions of our tax laws.[41]

In the present case, there is no question about the regularity in the performance of official duty. What needs to be
determined is whether RR 12-80 has been repealed by RR 17-84.

A repeal may be express or implied. It is express when there is a declaration in a regulation -- usually in its repealing clause
-- that another regulation, identified by its number or title, is repealed. All others are implied repeals.[42] An example of the latter is
a general provision that predicates the intended repeal on a substantial conflict between the existing and the prior regulations.[43]

As stated in Section 11 of RR 17-84, all regulations, rules, orders or portions thereof that are inconsistent with the provisions
of the said RR are thereby repealed. This declaration proceeds on the premise that RR 17-84 clearly reveals such an intention on
the part of the Department of Finance. Otherwise, later RRs are to be construed as a continuation of, and not a substitute for,
earlier RRs; and will continue to speak, so far as the subject matter is the same, from the time of the first promulgation.[44]

There are two well-settled categories of implied repeals: (1) in case the provisions are in irreconcilable conflict, the later
regulation, to the extent of the conflict, constitutes an implied repeal of an earlier one; and (2) if the later regulation covers the whole
subject of an earlier one and is clearly intended as a substitute, it will similarly operate as a repeal of the earlier one. [45] There is no implied
repeal of an earlier RR by the mere fact that its subject matter is related to a later RR, which may simply be a cumulation or continuation of
the earlier one.[46]

Where a part of an earlier regulation embracing the same subject as a later one may not be enforced without nullifying the
pertinent provision of the latter, the earlier regulation is deemed impliedly amended or modified to the extent of the repugnancy.
[47]
 The unaffected provisions or portions of the earlier regulation remain in force, while its omitted portions are deemed repealed.
[48]
 An exception therein that is amended by its subsequent elimination shall now cease to be so and instead be included within the
scope of the general rule.[49]

Section 4(e) of the earlier RR 12-80 provides that only items of income actually received shall be included in the tax base for
computing the GRT, but Section 7(c) of the later RR 17-84 makes no such distinction and provides that all interests earned shall be
included. The exception having been eliminated, the clear intent is that the later RR 17-84 includes the exception within the scope
of the general rule.

Repeals by implication are not favored and will not be indulged, unless it is manifest that the administrative agency intended
them. As a regulation is presumed to have been made with deliberation and full knowledge of all existing rules on the subject, it
may reasonably be concluded that its promulgation was not intended to interfere with or abrogate any earlier rule relating to the
same subject, unless it is either repugnant to or fully inclusive of the subject matter of an earlier one, or unless the reason for the
earlier one is beyond peradventure removed.[50] Every effort must be exerted to make all regulations stand -- and a later rule will
not operate as a repeal of an earlier one, if by any reasonable construction, the two can be reconciled.[51]

RR 12-80 imposes the GRT only on all items of income actually received, as opposed to their mere accrual, while RR 17-84
includes all interest income in computing the GRT. RR 12-80 is superseded by the later rule, because Section 4(e) thereof is not
restated in RR 17-84. Clearly therefore, as petitioner correctly states, this particular provision was impliedly repealed when the later
regulations took effect.[52]

Reconciling the Two Regulations

Granting that the two regulations can be reconciled, respondents reliance on Section 4(e) of RR 12-80 is misplaced and
deceptive. The accrual referred to therein should not be equated with the determination of the amount to be used as tax base in
computing the GRT. Such accrual merely refers to an accounting method that recognizes income as earned although not received,
and expenses as incurred although not yet paid.

Accrual should not be confused with the concept of constructive possession or receipt as earlier discussed. Petitioner correctly
points out that income that is merely accrued -- earned, but not yet received -- does not form part of the taxable gross receipts;
income that has been received, albeit constructively, does.[53]
 The word actually, used confusingly in Section 4(e), will be clearer if removed entirely. Besides, if actually is that
important, accrual should have been eliminated for being a mere surplusage. The inclusion of accrual stresses the fact that Section
4(e) does not distinguish between actual and constructive receipt. It merely focuses on the method of accounting known as
the accrual system.

Under this system, income is accrued or earned in the year in which the taxpayers right thereto becomes fixed and definite,
even though it may not be actually received until a later year; while a deduction for a liability is to be accrued or incurred and
taken when the liability becomes fixed and certain, even though it may not be actually paid until later.[54]

Under any system of accounting, no duty or liability to pay an income tax upon a transaction arises until the taxable year in
which the event constituting the condition precedent occurs.[55] The liability to pay a tax may thus arise at a certain time and the
tax paid within another given time.[56]

In reconciling these two regulations, the earlier one includes in the tax base for GRT all income,
whether actually or constructively received, while the later one includes specifically interest income. In computing the income tax
liability, the only exception cited in the later regulations is the exclusion from gross income of interest income, which is already
subjected to withholding. This exception, however, refers to a different tax altogether. To extend mischievously such exception to
the GRT will certainly lead to results not contemplated by the legislators and the administrative body promulgating the regulations.

Manila Jockey Club

Inapplicable

In Commissioner of Internal Revenue v. Manila Jockey Club,[57] we held that the term gross receipts shall not include money
which, although delivered, has been especially earmarked by law or regulation for some person other than the taxpayer.[58]

To begin, we have to nuance the definition of gross receipts[59] to determine what it is exactly. In this regard, we note that US
cases have persuasive effect in our jurisdiction, because Philippine income tax law is patterned after its US counterpart.[60]

[G]ross receipts with respect to any period means the sum of: (a) The total amount received or accrued during such period from
the sale, exchange, or other disposition of x x x other property of a kind which would properly be included in the inventory of the
taxpayer if on hand at the close of the taxable year, or property held by the taxpayer primarily for sale to customers in the ordinary
course of its trade or business, and (b) The gross income, attributable to a trade or business, regularly carried on by the taxpayer,
received or accrued during such period x x x.[61]

x x x [B]y gross earnings from operations x x x was intended all operations xxx including incidental, subordinate, and subsidiary
operations, as well as principal operations.[62]

When we speak of the gross earnings of a person or corporation, we mean the entire earnings or receipts of such person or
corporation from the business or operations to which we refer.[63]

From these cases, gross receipts[64]  refer to the total, as opposed to the net, income. [65] These are therefore the total receipts
before any deduction[66] for the expenses of management.[67] Websters New International Dictionary, in fact, defines gross as whole
or entire.

Statutes taxing the gross receipts, earnings, or income of particular corporations are found in many jurisdictions.[68] Tax
thereon is generally held to be within the power of a state to impose; or constitutional, unless it interferes with interstate
commerce or violates the requirement as to uniformity of taxation.[69]

Moreover, we have emphasized that the BIR has consistently ruled that gross receipts does not admit of any deduction.
[70]
 Following the principle of legislative approval by reenactment, [71] this interpretation has been adopted by the legislature
throughout the various reenactments of then Section 119 of the Tax Code.[72]

Given that a tax is imposed upon total receipts and not upon net earnings,[73] shall the income withheld be included in the tax
base upon which such tax is imposed? In other words, shall interest income constructively received still be included in the tax base
for computing the GRT?

We rule in the affirmative.

Manila Jockey Club  does not apply to this case. Earmarking is not the same as withholding. Amounts earmarked do not form
part of gross receipts, because, although delivered or received, these are by law or regulation reserved for some person other than
the taxpayer. On the contrary, amounts withheld form part of gross receipts, because these are in constructivepossession and not
subject to any reservation, the withholding agent being merely a conduit in the collection process.

The Manila Jockey Club had to deliver to the Board on Races, horse owners and jockeys amounts that never became the
property of the race track.[74] Unlike these amounts, the interest income that had been withheld for the government became
property of the financial institutions upon constructive possession thereof. Possession was indeed acquired, since it was ratified by
the financial institutions in whose name the act of possession had been executed. The money indeed belonged to the taxpayers;
merely holding it in trust was not enough.[75]
 The government subsequently becomes the owner of the money when the financial institutions pay the FWT to extinguish
their obligation to the government. As this Court has held before, this is the consideration for the transfer of ownership of the FWT
from these institutions to the government. [76] It is ownership that determines whether interest income forms part of taxable gross
receipts.[77] Being originally owned by these financial institutions as part of their interest income, the FWT should form part of their
taxable gross receipts.

Besides, these amounts withheld are in payment of an income tax liability, which is different from a percentage tax
liability. Commissioner of Internal Revenue v. Tours Specialists, Inc. aptly held thus:[78]

x x x [G]ross receipts subject to tax under the Tax Code do not include monies or receipts entrusted to the taxpayer which do not
belong to them and do not redound to the taxpayers benefit; and it is not necessary that there must be a law or regulation which
would exempt such monies and receipts within the meaning of gross receipts under the Tax Code.[79]

In the construction and interpretation of tax statutes and of statutes in general, the primary consideration is to ascertain and
give effect to the intention of the legislature.[80] We ought to impute to the lawmaking body the intent to obey the constitutional
mandate, as long as its enactments fairly admit of such construction.[81] In fact, x x x no tax can be levied without express
authority of law, but the statutes are to receive a reasonable construction with a view to carrying out their purpose and intent.[82]

Looking again into Sections 24(e)(1) and 119 of the Tax Code, we find that the first imposes an income tax; the second, a
percentage tax. The legislature clearly intended two different taxes. The FWT is a tax on passive income, while the GRT is on
business.[83] The withholding of one is not equivalent to the payment of the other.

Non-Exemption of FWT from GRT:

Neither Unjust nor Absurd

Taxing the people and their property is essential to the very existence of government. Certainly, one of the highest attributes
of sovereignty is the power of taxation,[84] which may legitimately be exercised on the objects to which it is applicable to the utmost
extent as the government may choose.[85] Being an incident of sovereignty, such power is coextensive with that to which it is an
incident.[86] The interest on deposits and yield on deposit substitutes of financial institutions, on the one hand, and their business as
such, on the other, are the two objects over which the State has chosen to extend its sovereign power. Those not so chosen are,
upon the soundest principles, exempt from taxation.[87]

While courts will not enlarge by construction the governments power of taxation,[88] neither will they place upon tax laws so
loose a construction as to permit evasions, merely on the basis of fanciful and insubstantial distinctions. [89] When the legislature
imposes a tax on income and another on business, the imposition must be respected. The Tax Code should be so construed, if
need be, as to avoid empty declarations or possibilities of crafty tax evasion schemes. We have consistently ruled thus:

x x x [I]t is upon taxation that the [g]overnment chiefly relies to obtain the means to carry on its operations, and it is of the utmost
importance that the modes adopted to enforce the collection of the taxes levied should be summary and interfered with as little as
possible. x x x.[90]

Any delay in the proceedings of the officers, upon whom the duty is devolved of collecting the taxes, may derange the operations
of government, and thereby cause serious detriment to the public.[91]

No government could exist if all litigants were permitted to delay the collection of its taxes.[92]

A taxing act will be construed, and the intent and meaning of the legislature ascertained, from its language. [93] Its clarity and
implied intent must exist to uphold the taxes as against a taxpayer in whose favor doubts will be resolved. [94] No such doubts exist
with respect to the Tax Code, because the income and percentage taxes we have cited earlier have been imposed in clear and
express language for that purpose.[95]

This Court has steadfastly adhered to the doctrine that its first and fundamental duty is the application of the law according
to its express terms -- construction and interpretation being called for only when such literal application is impossible or inadequate
without them.[96] In Quijano v. Development Bank of the Philippines,[97] we stressed as follows:

No process of interpretation or construction need be resorted to where a provision of law peremptorily calls for application. [98]

A literal application of any part of a statute is to be rejected if it will operate unjustly, lead to absurd results, or contradict the
evident meaning of the statute taken as a whole.[99] Unlike the CA, we find that the literal application of the aforesaid sections of
the Tax Code and its implementing regulations does not operate unjustly or contradict the evident meaning of the statute taken as
a whole. Neither does it lead to absurd results. Indeed, our courts are not to give words meanings that would lead to absurd or
unreasonable consequences.[100] We have repeatedly held thus:

x x x [S]tatutes should receive a sensible construction, such as will give effect to the legislative intention and so as to avoid an
unjust or an absurd conclusion.[101]
While it is true that the contemporaneous construction placed upon a statute by executive officers whose duty is to enforce it
should be given great weight by the courts, still if such construction is so erroneous, x x x the same must be declared as null and
void.[102]

It does not even matter that the CTA, like in China Banking Corporation,[103] relied erroneously on Manila Jockey Club. Under
our tax system, the CTA acts as a highly specialized body specifically created for the purpose of reviewing tax cases.[104] Because of
its recognized expertise, its findings of fact will ordinarily not be reviewed, absent any showing of gross error or abuse on its part.
[105]
 Such findings are binding on the Court and, absent strong reasons for us to delve into facts, only questions of law are open for
determination.[106]

Respondent claims that it is entitled to a refund on the basis of excess GRT payments. We disagree.

Tax refunds are in the nature of tax exemptions.[107] Such exemptions are strictly construed against the taxpayer, being highly
disfavored[108] and almost said to be odious to the law.Hence, those who claim to be exempt from the payment of a particular tax
must do so under clear and unmistakable terms found in the statute. They must be able to point to some positive provision, not
merely a vague implication,[109] of the law creating that right.[110]

The right of taxation will not be surrendered, except in words too plain to be mistaken. The reason is that the State cannot
strip itself of this highest attribute of sovereignty -- its most essential power of taxation -- by vague or ambiguous language. Since
tax refunds are in the nature of tax exemptions, these are deemed to be in derogation of sovereign authority and to be
construed strictissimi juris against the person or entity claiming the exemption.[111]

No less than our 1987 Constitution provides for the mechanism for granting tax exemptions. [112] They certainly cannot be
granted by implication or mere administrative regulation. Thus, when an exemption is claimed, it must indubitably be shown to
exist, for every presumption is against it,[113] and a well-founded doubt is fatal to the claim.[114] In the instant case, respondent has
not been able to satisfactorily show that its FWT on interest income is exempt from the GRT. Like China Banking Corporation, its
argument creates a tax exemption where none exists.[115]

No exemptions are normally allowed when a GRT is imposed. It is precisely designed to maintain simplicity in the tax
collection effort of the government and to assure its steady source of revenue even during an economic slump.[116]

No Double Taxation

We have repeatedly said that the two taxes, subject of this litigation, are different from each other. The basis of their
imposition may be the same, but their natures are different, thus leading us to a final point. Is there double taxation?

The Court finds none.

Double taxation  means taxing the same property twice when it should be taxed only once; that is,   x x x taxing the same
person twice by the same jurisdiction for the same thing.[117] It is obnoxious when the taxpayer is taxed twice, when it should be but
once.[118] Otherwise described as direct duplicate taxation,[119] the two taxes must be imposed on the same subject matter, for the same
purpose, by the same taxing authority, within the same jurisdiction, during the same taxing period; and they must be of the same kind or
character.[120]

First, the taxes herein are imposed on two different subject matters. The subject matter of the FWT is the passive income
generated in the form of interest on deposits and yield on deposit substitutes, while the subject matter of the GRT is the privilege
of engaging in the business of banking.

A tax based on receipts is a tax on business rather than on the property; hence, it is an excise [121] rather than a property tax.
[122]
 It is not an income tax, unlike the FWT. In fact, we have already held that one can be taxed for engaging in business and
further taxed differently for the income derived therefrom. [123] Akin to our ruling in Velilla v. Posadas,[124] these two taxes are
entirely distinct and are assessed under different provisions.

Second, although both taxes are national in scope because they are imposed by the same taxing authority -- the national
government under the Tax Code -- and operate within the same Philippine jurisdiction for the same purpose of raising revenues,
the taxing periods they affect are different. The FWT is deducted and withheld as soon as the income is earned, and is paid after
every calendar quarter in which it is earned. On the other hand, the GRT is neither deducted nor withheld, but is paid only after
every taxable quarter in which it is earned.

Third, these two taxes are of different kinds or characters. The FWT is an income tax subject to withholding, while the GRT is
a percentage tax not subject to withholding.

In short, there is no double taxation, because there is no taxing twice, by the same taxing authority, within the same
jurisdiction, for the same purpose, in different taxing periods, some of the property in the territory. [125] Subjecting interest income
to a 20% FWT and including it in the computation of the 5% GRT is clearly not double taxation.

WHEREFORE, the Petition is GRANTED. The assailed Decision and Resolution of the Court of Appeals are
hereby REVERSED and SET ASIDE. No costs.

SO ORDERED.
CHINA BANKING CORPORATION, Petitioner, 
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

DECISION

PERALTA, J.:

This resolves the Petition for Review on Certiorari  under Rule 45 of the Rules of Court which seeks the review and reversal of the
Decision1 dated June 16, 2006 and Resolution2 dated October 1 7, 2006 of the former Fifth Division of the Court of Appeals (CA).

The factual antecedents follow.

For the four quarters of 1996, petitioner paid Il93,119,433.50 as gross receipts tax (GRD  on its income from the interests on loan
investments, commissions, service and collection charges, foreign exchange profit and other operating earnings.

In computing its taxable gross receipts, petitioner included the 20% final withholding tax on its passive interest income,3 hereunder
summarized as follows:

Date of Filing
Taxable Gross Receipts
1996 Exhs. Return/Payment
Gross Receipts Tax Paid
of Tax to the BIR

1st qtr. A 22-Apr-96 P 534,500,491.61 P 24,055,944.08

2nd qtr. A-1 22-Jul-96 582,985,457.89 26,394,956.47

3rd qtr. A-2 21-Oct-96 427,801,196.81 18,427,999.31

4th qtr. A-3 20-Jan-97 552,378,276.18 24,240,533.64

Total: P 2,097,665,422.49 P 93,119,433.50

On January 30, 1996, the Court of Tax Appeals (CTA) rendered a Decision entitled Asian Bank Corporation v. Commissioner of
Internal Revenue,4 wherein it ruled that the 20% final withholding tax on a bank’s passive interest income should not form part of
its taxable gross receipts.

On the strength of the aforementioned decision, petitioner filed with respondent a claim for refund on April 20, 1998, of the alleged
overpaid GRT for the four (4) quarters of 1996 in the aggregate amount of ₱6,646,829.67, detailed as follows:

Gross Receipts Corrected Gross Excess GRT

1996
Tax Paid Receipts Tax Payment

1st qtr. P 24,055,944.08 P 22,114,548.10 P 1,941,395.99

2nd qtr. 26,394,956.45 25,050,429.40 1,344,527.06

3rd qtr. 18,427,999.33 17,087,138.98 1,340,860.34

4th qtr. 24,240,533.64 22,219,487.36 2,021,046.28

Total: P 93,119,433.50 P 86,471,603.84 P 6,646,829.67

On even date, petitioner filed its Petition for Review with the CTA.
The CTA, on November 8, 2000, rendered a Decision 5 agreeing with petitioner that the 20% final withholding tax on interest
income does not form part of its taxable gross receipts. However, the CTA dismissed petitioner’s claim for its failure to prove that
the 20% final withholding tax forms part of its 1996 taxable gross receipts. The Decision states in part:

Moreover, the Court of Appeals in the case of Commissioner of Internal Revenue vs. Citytrust Investment Philippines, Inc., CA G.R.
Sp No. 52707, August 17, 1999, affirmed our stand that the 20% final withholding tax on interest income should not form part of
the taxable gross receipts. Hence, we find no cogent reason nor justification to depart from the wisdom of our decision in the Asian
Bank case, supra.

xxxx

Lastly, since Petitioner failed to prove the inclusion of the 20% final withholding taxes as part of its 1996 taxable gross receipts
(passive income) or gross receipts (passive income) that were subjected to 5% GRT, it follows that proof was wanting that it paid
the claimed excess GRT, subject of this petition.

xxxx

IN THE LIGHT OF ALL THE FOREGOING, the instant Petition for Review is DISMISSED for insufficiency of evidence.

SO ORDERED.6

Not in conformity with the CTA’s ruling, petitioner interposed an appeal before the CA.

In its appeal, petitioner insists that it erroneously included the 20% final withholding tax on the bank’s passive interest income in
computing the taxable gross receipts. Therefore, it argues that it is entitled, as a matter of right, to a refund or tax credit.

In a Decision7 dated June 16, 2006, the CA denied petitioner’s appeal. It ruled in this wise:

x x x Unfortunately for China Bank, it is flogging a dead horse as this argument has already been shot down in China Banking
Corporation vs. Court of Appeals  (G.R. No. 146749 & No. 147983, June 10, 2003) where it was ruled the Tax Court, which
decided Asia Bank  on June 30, 1996 not only erroneously interpreted Section 4(e) of Revenue Regulations No. 12-80, it also cited
Section 4(e) when it was no longer the applicable revenue regulation. The revenue regulations applicable at the time the tax court
decided Asia Bank  was Revenue Regulations No. 17-84, not Revenue Regulation 12-80.

xxxx

WHEREFORE, the instant petition is DENIED DUE COURSE and DISMISSED.

SO ORDERED.8

Petitioner sought reconsideration of the aforementioned decision arguing that Section 4 (e) of Revenue Regulations ( RR) No. 12-80
remains applicable as the basis of GRT for banks in taxable year 1996.

On October 17, 2006, the CA issued a Resolution9 denying petitioner’s motion for reconsideration on the ground that no new or
compelling reason was presented by petitioner to warrant the reversal or modification of its decision.

Hence, this petition wherein petitioner contends that:

THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER HAS FAILED TO POINT TO THE LEGAL BASIS FOR THE
EXCLUSION OF THE AMOUNT OF TAX WITHHELD ON PASSIVE INCOME FROM ITS GROSS RECEIPTS FOR PURPOSES OF
TAXATION.10

In essence, the issue to be resolved is whether the 20% final tax withheld on a bank’s passive income should be included in the
computation of the GRT.

Petitioner avers that the 20% final tax withheld on its passive income should not be included in the computation of its taxable
gross receipts. It insists that the CA erred in ruling that it failed to show the legal basis for its claimed tax refund or credit, since
Section 4 (e) of RR No. 12-80 categorically provides for the exclusion of the amount of taxes withheld from the computation of
gross receipts for GRT purposes.

We do not agree.

In a catena of cases, this Court has already resolved the issue of whether the 20% final withholding tax should form part of the
total gross receipts for purposes of computing the GRT.
In China Banking Corporation v. Court of Appeals,11 we ruled that the amount of interest income withheld, in payment of the 20%
final withholding tax, forms part of the bank’s gross receipts in computing the GRT on banks. The discussion in this case is
instructive on this score:

The gross receipts tax on banks was first imposed on 1 October 1946 by Republic Act No. 39 ("RA No. 39") which amended Section
249 of the Tax Code of 1939. Interest income on banks, without any deduction, formed part of their taxable gross receipts. From
October 1946 to June 1977, there was no withholding tax on interest income from bank deposits.

On 3 June 1977, Presidential Decree No. 1156 required the withholding at source of a 15% tax on interest on bank deposits. This
tax was a creditable, not a final withholding tax. Despite the withholding of the 15% tax, the entire interest income, without any
deduction, formed part of the bank’s taxable gross receipts. On 17 September 1980, Presidential Decree No. 1739 made the
withholding tax on interest a final tax at the rate of 15% on savings account, and 20% on time deposits. Still, from 1980 until the
Court of Tax Appeals decision in Asia Bank  on 30 January 1996, banks included the entire interest income, without any deduction,
in their taxable gross receipts.

In Asia Bank, the Court of Tax Appeals held that the final withholding tax is not part of the bank’s taxable gross receipts. The tax
court anchored its ruling on Section 4(e) of Revenue Regulations No. 12-80, which stated that the gross receipts "shall be based on
all items actually received" by the bank. The tax court ruled that the bank does not actually receive the final withholding tax. As
authority, the tax court cited Collector of Internal Revenue v. Manila Jockey Club, which held that "gross receipts of the proprietor
should not include any money which although delivered to the amusement place had been especially earmarked by law or
regulation for some person other than the proprietor. x x x

Subsequently, the Court of Tax Appeals reversed its ruling in Asia Bank. In Far East Bank & Trust Co. v.
Commissioner  and Standard Chartered Bank v. Commissioner, both promulgated on 16 November 2001, the tax court ruled
that the final withholding tax forms part of the bank’s gross receipts in computing the gross receipts tax . The tax
court held that Section 4(e) of Revenue Regulations 12-80 did not prescribe the computation of the gross receipts but merely
authorized "the determination of the amount of gross receipts on the basis of the method of accounting being used by the
taxpayer.

The tax court also held in Far East Bank  and Standard Chartered Bank  that the exclusion of the final withholding tax from
gross receipts operates as a tax exemption which the law must expressly grant. No law provides for such
exemption. In addition, the tax court pointed out that Section 7(c) of Revenue Regulations No. 17-84 had already
superseded Section 4(e) of Revenue Regulations No. 12-80. x x x12 (Emphasis supplied)

Notably, this Court, in the same case, held that under RR Nos. 12-80 and 17-84, the Bureau of Internal Revenue ( BIR) has
consistently ruled that the term gross receipts do not admit of any deduction. It emphasized that interest earned by banks, even if
subject to the final tax and excluded from taxable gross income, forms part of its gross receipt for GRT purposes. The interest
earned refers to the gross interest without deduction, since the regulations do not provide for any deduction.13

Further, in Commissioner of Internal Revenue v. Solidbank Corporation,14 this Court held that "gross receipts" refer to the total, as
opposed to the net, income. These are, therefore, the total receipts before any deduction for the expenses of management.15

In Commissioner of Internal Revenue v. Bank of Commerce ,16 we again adhered to the ruling that the term "gross receipts" must
be understood in its plain and ordinary meaning. In this case, we ruled that gross receipts should be interpreted as the whole
amount received as interest, without deductions; otherwise, if deductions were to be made from gross receipts, it would be
considered as "net receipts." The Court ratiocinated as follows:

The word "gross" must be used in its plain and ordinary meaning. It is defined as "whole, entire, total, without deduction." A
common definition is "without deduction." x x x Gross is the antithesis of net. Indeed, in China Banking Corporation v. Court of
Appeals, the Court defined the term in this wise:

As commonly understood, the term "gross receipts" means the entire receipts without any deduction. Deducting any amount from
the gross receipts changes the result, and the meaning, to net receipts. Any deduction from gross receipts is inconsistent with a
law that mandates a tax on gross receipts, unless the law itself makes an exception. As explained by the Supreme Court of
Pennsylvania in Commonwealth of Pennsylvania v. Koppers Company, Inc.  –

Highly refined and technical tax concepts have been developed by the accountant and legal technician primarily because of the
impact of federal income tax legislation. However, this in no way should affect or control the normal usage of words in the
construction of our statutes; x x x Under the ordinary basic methods of handling accounts, the term gross receipts, in the absence
of any statutory definition of the term, must be taken to include the whole total gross receipts without any deductions,  x x x.17

Again, in Commissioner of Internal Revenue v. Bank of the Philippine Islands ,18 this Court ruled that "the legislative intent to apply
the term in its ordinary meaning may also be surmised from a historical perspective of the levy on gross receipts. From the time
the gross receipts tax on banks was first imposed in 1946 under R.A. No. 39 and throughout its successive reenactments, the
legislature has not established a definition of the term ‘gross receipts.’ Absent a statutory definition of the term, the BIR had
consistently applied it in its ordinary meaning, i.e., without deduction. On the presumption that the legislature is familiar with the
contemporaneous interpretation of a statute given by the administrative agency tasked to enforce the statute, subsequent
legislative reenactments of the subject levy sans  a definition of the term ‘gross receipts’ reflect that the BIR’s application of the
term carries out the legislative purpose."19

In sum, all the aforementioned cases are one in saying that "gross receipts" comprise "the entire receipts without any deduction."
Clearly, then, the 20% final withholding tax should form part of petitioner’s total gross receipts for purposes of computing the GRT.

Also worth noting is the fact that petitioner’s reliance on Section 4 (e) of RR 12-80 is misplaced as the same was already
superseded by a more recent issuance, RR No. 17-84.

This fact was elucidated on by the Court in the case of Commissioner of Internal Revenue v. Citytrust Investment Phils.
Inc.,20 where it held that RR No. 12-80 had already been superseded by RR No. 17-84, viz.:

x x x Revenue Regulations No. 12-80, issued on November 7, 1980, had been superseded by Revenue Regulations
No. 17-84 issued on October 12, 1984. Section 4 (e) of Revenue Regulations No. 12-80 provides that only items of income
actually received shall be included in the tax base for computing the GRT.1âwphi1 On the other hand, Section 7 (c) of Revenue
Regulations No. 17-84 includes all interest income in computing the GRT, thus:

Section 7. Nature and Treatment of Interest on Deposits and Yield on Deposit Substitutes. –

(a) The interest earned on Philippine Currency bank deposits and yield from deposit substitutes subjected to the withholding taxes
in accordance with these regulations need not be included in the gross income in computing the depositor’s investor’s income tax
liability. x x x

(b) Only interest paid or accrued on bank deposits, or yield from deposit substitutes declared for purposes of imposing the
withholding taxes in accordance with these regulations shall be allowed as interest expense deductible for purposes of computing
taxable net income of the payor.

(c) If the recipient of the above-mentioned items of income are financial institutions, the same shall be included as part of the tax
base upon which the gross receipt tax is imposed.

Revenue Regulations No. 17-84 categorically states that if the recipient of the above-mentioned items of income are
financial institutions, the same shall be included as part of the tax base upon which the gross receipts tax is
imposed.  x x x.21 (Emphasis supplied)

Significantly, the Court even categorically stated in the aforementioned case that there is an implied repeal of Section 4 (e). It held
that there exists a disparity between Section 4 (e) of RR No. 12-80, which imposes the GRT only on all items of income actually
received (as opposed to their mere accrual) and Section 7 (c) of RR No. 17-84, which includes all interest income (whether
actual or accrued) in computing the GRT. Plainly, RR No. 17-84, which requires interest income, whether actually received or
merely accrued, to form part of the bank’s taxable gross receipts, should prevail.22

All told, petitioner failed to point to any specific provision of law allowing the deduction, exemption or exclusion from its taxable
gross receipts, of the amount withheld as final tax. Besides, the exclusion sought by petitioner of the 20% final tax on its passive
income from the taxpayer’s tax base constitutes a tax exemption, which is highly disfavored. A governing principle in taxation
states that tax exemptions are to be construed in strictissimi juris  against the taxpayer and liberally in favor of the taxing authority
and should be granted only by clear and unmistakable terms.23

WHEREFORE, premises considered, the Decision dated June 16, 2006 and Resolution dated October 17, 2006 of the former Fifth
Division of the Court of Appeals are hereby AFFIRMED in toto.

SO ORDERED.

PHILIPPINE BANK OF COMMUNICATIONS, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

DECISION

SERENO, C.J.:

This is a Petition for Review1 filed by the Philippine Bank of Communications (petitioner) under Rule 45 of the 1997 Rules of Civil
Procedure assailing the Court of Tax Appeals en banc (CTA en banc) Decision2dated 13 May 2010 and Resolution3 dated 14
October 2010 in C.T.A. EB Nos. 555 and 556.
 THE FACTS

Pursuant to Revenue Regulations (RR) No. 7-92, the Bureau of Internal Revenue (BIR) issued Certificate No. 08-0434 on 31 July
2001 authorizing petitioner to operate and use the On-line Electronic Documentary Stamp Metering Machine (DS metering
machine) with Serial No. SN363 1711.

Petitioner purchased documentary stamps from the BIR and loaded them to its DS metering machine. During the period 23 March
2004 to 23 December 2004, petitioner executed several repurchase agreements with the Bangko Sentral ng Pilipinas (BSP). The
documentary stamps were imprinted on the Confirmation Letters corresponding to those repurchase agreements through
petitioner's DS metering machine.

Petitioner claimed that the repurchase agreements were not subject to the documentary stamp tax (DST). Thus, on 12 May 2006,
it filed with the BIR an administrative claim for the issuance of tax credit certificates for the alleged erroneous payment of the DST
in the total amount of P11,063,866.67.

Alleging the inaction of the BIR on the administrative claim of petitioner, the latter filed a Petition for Review with the CTA on 18
May 2006. Petitioner reiterated its claim for the refund or issuance of its tax credit certificate for the amount of P11,063,866.67
representing the erroneously paid DST for several repurchase agreements it had executed with the BSP.

THE CTA SECOND DIVISION RULING4

The CTA Division found that the evidence adduced by petitioner showed that the latter had duly executed various repurchase
agreements with the BSP from 23 March 2004 to 23 December 2004. It further held that the repurchase agreements were exempt
from the imposition of the DST pursuant to Section 9 of Republic Act (R.A.) No. 9243,5 which provides:ChanRoblesVirtualawlibrary
SECTION 9. Section 199 of the National Internal Revenue Code of 1997, as amended is hereby further
amended to read as follows:

chanRoblesvirtualLawlibrarySEC. 199. Documents and Papers Not Subject to Stamp Tax. - The provisions of
Section 173 to the contrary notwithstanding, the following instruments, documents and papers shall be exempt
from the documentary stamp tax:

chanRoblesvirtualLawlibraryx x x x

(h) Derivatives: Provided, That for purposes of this exemption, repurchase agreements and reverse repurchase
agreements shall be treated similarly as derivatives.

xxxx

(l) All contracts, deeds, documents and transactions related to the conduct of business of the Banko Sentral ng
Pilipinas.
Although the DST on the repurchase agreements were paid, the CTA Division found that petitioner had substantiated only
P10,633,881.20. Out of that amount, P3,072,521.60 was barred by prescription, and only the claim for the remaining
P7,561,359.60 fell within the two-year prescriptive period. The CTA Division reckoned the counting of the two-year period from the
date of the Confirmation Letters of the repurchase agreements. Considering that petitioner filed its administrative claim on 12 May
2006 and the judicial claim on 18 May 2006, the DST paid on the repurchase agreements earlier than 18 May 2004 was disallowed
due to prescription.

THE CTA en banc RULING6

The CTA en banc ruled that insofar as the taxpayers using the DS metering machine were concerned, the DST was deemed paid
upon the purchase of documentary stamps for loading and reloading on the DS metering machine, through the filing of the DST
Declaration under BIR Form No. 2000. Thus, the two-year prescriptive period for taxpayers using DS metering machine started to
run from the date of filing of the DST Declaration under BIR Form No. 2000, and not from the date appearing on the documentary
stamp imprinted through the DS metering machine. Consequently, the refundable amount was further reduced to P5,238,495.40
representing the erroneously paid DST that had not yet been barred by prescription.

ISSUE

The arguments raised by petitioner boil down to the sole issue of whether the date of imprinting the documentary stamps on the
document or the date of purchase of documentary stamps for loading and reloading on the DS metering machine should be
deemed as payment of the DST contemplated under Section 200 (D) of the NIRC for the purpose of counting the two-year
prescriptive period for filing a claim for a refund or tax credit.

THE COURT'S RULING

Under Section 2297 of the NIRC of 1997, the claim for a refund of erroneously paid DST must be within two years from the date of
payment of the DST. When read in conjuction with Section 2008 of the same Code, Section 229 shows that payment of the DST
may be done by imprinting the stamps on the taxable document through a DS metering machine, in the manner as may be
prescribed by rules and regulations.
In relation thereto, the BIR has issued the following regulations:ChanRoblesVirtualawlibrary
REVENUE REGULATIONS NO. 05-979

SUBJECT: Revised Regulations Prescribing the New Procedure on the Purchase and Affixture of
Documentary Stamp on Taxable Documents/Transactions

xxxx

SECTION 4. New Procedure on Purchase of a Documentary Stamp for Use in BIR Registered
Metering Machine. — Purchase of Documentary Stamps for future applications not covered by
Sections 2 and 3 of these Regulations shall be allowed only to persons authorized to use BIR
Registered Metering Machine under Revenue Regulations No. 7-92, dated September 7, 1992.

SECTION 5. Documentary Stamp Tax Declaration. — The following persons are required to
accomplish and file a documentary stamp tax declaration under BIR Form 2000;

x x x x  
 
Any person duly authorized to use DST Metering Machine shall file a DST Declaration under BIR Form No. 2000
each time documentary stamps are purchased for loading or reloading on the said machine.  This declaration shall
be filed with any duly Authorized Agent Bank, Revenue Recollection Officer, or duly authorized City or Municipal Treasurer in
5.3
the Philippines. The amount of documentary stamps to be reloaded on the Metering Machine should be equal to the amount
of documentary stamps consumed from previous purchase. The details of usage or consumption of documentary stamps
should be indicated on the declaration.
On the basis of these provisions, the CTA en banc ruled in this case that payment of the DST was done when the documentary
stamps were loaded/reloaded on the DS metering machine and the corresponding DST Declaration was filed. Thus, the two-year
prescriptive period for the claim for a refund of petitioner's erroneously paid DST was reckoned from the date the DS metering
machine was reloaded.

The CTA en banc, in ruling on the particular issue of prescription, said that RR No. 05-97 should govern the payment of the DST
considering that petitioner is a DS metering machine user. The DST is deemed paid upon the purchase of documentary stamps for
loading/reloading on the DS metering machine through the filing of the DST Declaration (BIR Form No. 2000) as required by the
said regulation.

We do not agree.

The DS metering machine was developed and used for businesses with material DST transactions like banks and insurance
companies for their regular transactions. These businesses authorized by the BIR may load documentary stamps on their DS
metering machine in accordance with the rules and regulations. In other words, this system allows advanced payment of the DST
for future applications.

However, for purposes of determining the prescriptive period for a claim for a refund or tax credit, this Court finds it imperative to
emphasize the nature of the DST.

A DST is a tax on documents, instruments, loan agreements, and papers evidencing the acceptance, assignment, sale or transfer
of an obligation, right or property incident thereto. The DST is actually an excise tax, because it is imposed on the transaction
rather than on the document.10chanrobleslaw

The rule is that the date of payment is when the tax liability falls due. Jurisprudence has made exceptions for reckoning the period
of prescription from the actual date of payment of tax by instead reckoning that date from the filing of the final adjusted returns,
i.e. income tax and other withholding taxes.11 These exceptions are nevertheless grounded on the same rationale that payment of
the tax is deemed made when it falls due.

In Gibbs v. Commissioner of Internal Revenue,12 this Court ruled that "[p]ayment is a mode of extinguishing obligations (Art. 1231,
Civil Code) and it means not only the delivery of money but also the performance, in any other manner, of an obligation. A
taxpayer, resident or non-resident, does so not really to deposit an amount to the Commissioner of Internal Revenue, but, in truth,
to perform and extinguish his tax obligation for the year concerned. In other words, he is paying his tax liabilities for that year.
Consequently, a taxpayer whose income is withheld at source will be deemed to have paid his tax liability when the same falls due
at the end of the tax year. It is from this latter date then, or when the tax liability falls due, that the two-year prescriptive period
under Section 306 (now part of Section 230) of the Revenue Code starts to run with respect to payments effected through the
withholding tax system." The aforequoted ruling presents two alternative reckoning dates: (1) the end of the tax year; and (2) the
date when the tax liability falls due.13chanrobleslaw

Applying the same rationale to this case, the payment of the DST and the filing of the DST Declaration Return upon
loading/reloading of the DS metering machine must not be considered as the "date of payment" when the prescriptive period to file
a claim for a refund/credit must commence. For DS metering machine users, the payment of the DST upon loading/reloading is
merely an advance payment for future application. The liability for the payment of the DST falls due only upon the occurrence of a
taxable transaction. Therefore, it is only then that payment may be considered for the purpose of filing a claim for a refund or tax
credit. Since actual payment was already made upon loading/reloading of the DS metering machine and the filing of the DST
Declaration Return, the date of imprinting the documentary stamp on the taxable document must be considered as the date of
payment contemplated under Section 229 of the NIRC.

This interpretation is more logical and consistent with Section 200 (D) that "the tax may be paid xxx by imprinting the stamps
through a documentary stamp metering machine, on the taxable document, in the manner as may be prescribed by rules and
regulations to be promulgated by the Secretary of Finance, upon recommendation of the Commissioner." The policies issued by the
Secretary of Finance were made to regulate the use of the DS metering machine, but they cannot be interpreted to limit the
prescriptive period for claims for a refund. In fact, the details attached to the DST Declaration Return are those of usage or
consumption of the DST from the previous purchase. It is in effect a final return of the DST previously purchased, but advances
the payment for the new purchase. Thus, to cure the ambiguity caused by the uniqueness of this system, we must bear in mind
the nature of the tax for the purpose of determining prescription.

Applying the foregoing to this case, the DST fell due when petitioner entered into repurchase agreements with the BSP and the
corresponding documentary stamps were imprinted on the Confirmation Letters. Considering, however, that this transaction is
exempt from tax, petitioner is entitled to a refund. The prescriptive period for the filing of a claim for a refund or tax credit under
Section 229 must be reckoned from the date when the documentary stamps were imprinted on the Confirmation Letters.

Consequently, the CTA Division's counting of the prescriptive period from the date when the documentary stamps were imprinted
on the Confirmation Letters of the repurchase agreements is more in accord with the rationale of Section 229. Since we also find
that the evidence presented by petitioner was carefully considered, we find no reason to overturn the factual finding of the CTA
Division. Accordingly, the Decision in C.T.A. Case No.7486 dated 13 July 200914 must be reinstated.

WHEREFORE, premises considered, the Petition is PARTLY GRANTED. The CTA en banc Decision dated 13 May 2010 and
Resolution dated 14 October 2010 in C.T.A. EB Nos. 555 and 556 are hereby SET ASIDE, and the Decision in C.T.A. Case No.7486
dated 13 July 2009 is REINSTATED.

SO ORDERED.c

COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. PHILIPPINE NATIONAL BANK, Respondent.

DECISION

BERSAMIN, J.:

At issue is whether or not the respondent bank's interbank call loans transacted in 1997 were subject to documentary stamp taxes.

The petitioner appeals the September 21, 2010 decision rendered in C.T.A. EB Case No. 512, 1 whereby the Court of Tax Appeals
(CTA) En Bane affirmed the cancellation of Assessment No. 97-000064 for deficiency documentary stamp taxes imposed on the
interbank call loans of respondent Philippine National Bank (PNB); and the resolution issued on January 10, 2011 2 denying the
petitioner's motion for reconsideration. 

Antecedents

On March 23, 2000, the petitioner issued Letter of Authority No. 00058992, which PNB received on March 28, 2000. The letter of
authority authorized the examination of PNB's books of accounts and other accounting records in relation to its internal revenue
taxes for taxable year 1997.3 On May 12, 2003, PNB received the preliminary assessment notice with details of discrepancies dated
March 31, 2003, which indicated that PNB had deficiency payments of documentary stamp taxes (DST), withholding taxes on
compensation, and expanded withholding taxes for taxable year 1997. 4 On May 26, 2003, the petitioner issued a formal
assessment notice, together with a formal letter of demand and details of discrepancies, requiring PNB to pay the following
deficiency taxes: 5chanrobleslaw

Assessment No. 97-000064 for deficiency DST rising from PNB's

P39,550,963.50
interbank call loans and special savings account

Assessment No. 97-000067 for deficiency expanded withholding

2,173,972.25
tax

TOTAL P41,724,935.75

PNB immediately paid Assessment No. 97-000067 on May 30, 2003, but filed a protest against Assessment No. 97-000064. The
petitioner denied PNB's protest through the final decision on disputed assessment dated December 10, 2003. 6chanrobleslaw

On January 16, 2004, PNB filed its petition for review in the CTA (C.T.A. Case No. 6850). 7chanrobleslaw

On March 3, 2009, after trial, the CTA (First Division) rendered judgment, disposing:
chanRoblesvirtualLawlibrary
WHEREFORE, the instant Petition for Review is hereby PARTIALLY GRANTED. Accordingly, the assessment for
deficiency documentary stamp taxes on petitioner's Interbank Call Loans for taxable year 1997 is
hereby CANCELLED. However, the assessment for deficiency documentary stamp tax on petitioner's Special
Savings Account for taxable year 1997 is hereby AFFIRMED.

Petitioner is hereby ORDERED to PAY respondent the amount of FOURTEEN MILLION SIX HUNDRED

EIGHTY EIGHT THOUSAND FOUR HUNDRED SIXTY THREE PESOS AND FIFTEEN CENTAVOS
(P14,688,463.15), representing deficiency documentary stamp tax for taxable year 1997, computed as
follows:
Special Savings Account 7,833,847,016.00
Documentary Stamp Tax (0.30/200) 11,750,770.52
Surcharge - 25%        2,937,692.63
Total Amount Due 14,688,463.15
In addition, petitioner is hereby ORDERED to PAY a penalty equivalent to twenty five percent (25%) and a
delinquency interest equivalent to twenty percent (20%) per annum on the amount of P14,688,463.15 from
February 15, 2004 until such amount is paid in full, pursuant to Sections 248 and 249 of the Tax Code.

SO ORDERED.8chanroblesvirtuallawlibrary
Both parties moved for partial reconsideration. 9 On July 7, 2009, the CTA in Division denied the petitioner's motion for partial
reconsideration but held in abeyance the resolution of PNB's motion for partial reconsideration pending its submission of its
supplemental formal offer of evidence to admit tax abatement documents. 10chanrobleslaw

Consequently, the petitioner appealed to the CTA En Banc on August 10, 2009.

On September 21, 2010, the CTA En Banc promulgated its assailed decision, viz.:

WHEREFORE, the instant Petition for Review is hereby DENIED for lack of merit. The assailed Decision dated
March 3, 2009 and Resolution dated July 7, 2009 insofar as the cancellation of the assessment for Documentary
Stamp Taxes on PNB's Interbank Call Loans for the taxable year 1997 is concerned, are AFFIRMED. No
pronouncement as to costs.

SO ORDERED.11

The petitioner sought reconsideration,12 but the CTA En Banc denied the motion through the resolution dated January 10,
2011.13chanrobleslaw

Hence, this appeal by the petitioner.

The sole issue concerns whether or not PNB's interbank call loans for taxable year 1997 are subject to DST. The petitioner argues
that:

chanRoblesvirtualLawlibrary
I

THE PNB'S TRANSACTIONS UNDER INTERBANK CALL LOANS ARE CONSIDERED LOAN
AGREEMENTS BETWEEN PNB AND THE OTHER BANKS, HENCE, THEY ARE SUBJECT TO
DOCUMENTARY STAMP TAXES (DST) UNDER SECTION 180 OF THE NATIONAL INFERNAL
REVENUE CODE (NIRC) OF 1977, AS AMENDED BY REPUBLIC ACT (R.A.) NO. 7660 OF 1994. 

II

THE FURTHER AMENDMENTS OF SECTION 180 OF THE 1977 NIRC (AS AMENDED BY R.A. NO. 7660 OF 1994)
BY R.A. NO. 8424 OF 1998 AND R.A. NO. 9243 OF 2004 CONFIRM THE NATURE AND CHARACTER OF
INTERBANK CALL LOANS AS LOAN AGREEMENTS AND/OR DEBT INSTRUMENTS, HENCE, THEY ARE SUBJECT TO
DST.  

III

THERE IS NO LAW OR PROVISION IN THE 1977 NIRC, AS " AMENDED BY R.A. NO. 7660 OF 1994, THAT
SPECIFICALLY AND EXPRESSLY EXEMPTS PNB'S INTERBANK CALL LOANS FOR THE TAXABLE YEAR 1997 FROM
THE PAYMENT OF DST.14chanroblesvirtuallawlibrary

Ruling

The appeal lacks merit.

The petitioner claims that while interbank call loans were not considered as deposit substitute debt instruments, PNB's interbank
call loans, which had a maturity of more than five days, were included in the concept of loan agreements; hence, the interbank call
loans were subject to DST.15chanrobleslaw

The petitioner's claim cannot be upheld.

Firstly, the maturity of PNB's interbank call loans was irrelevant in determining its DST liability for taxable year 1997, relation to
which the applicable law was the National Internal Revenue Code of 1977 (1977 NIRC), as amended by Presidential Decree No.
195916 and Republic Act No. 7660.17 The five-day maturity of interbank call loans came to be introduced only by Section 22(y)18 of
the National Internal Revenue Code of 1997 (1997 NIRC), to wit:

chanRoblesvirtualLawlibrary
xxxx

(y) The term 'deposit substitutes' shall mean an alternative from of obtaining funds from the public (the
term 'public means borrowing from twenty (20) or more individual or corporate lenders at any one time) other
than deposits, through the issuance, endorsement, or acceptance of debt instruments for the borrowers own
account, for the purpose of relending or purchasing of receivables and other obligations, or financing their own
needs or the needs of their agent or dealer. These instruments may include, but need not be limited to bankers'
acceptances, promissory notes, repurchase agreements, including reverse repurchase agreements entered into
by and between the Bangko Sentral ng Pilipinas (BSP) and any authorized agent bank, certificates of assignment
or participation and similar instruments with recourse: Provided, however, That debtinstruments issued for
interbank call loans with maturity of not more than five (5) days to cover deficiency in reserves
against deposit liabilities, including those between or among banks and quasi-banks, shall not be
considered as deposit substitute debt instruments. (Bold underscoring supplied for emphasis)

xxxx

The provisions of the 1997 NIRC cannot be given retrospective effect to the prejudice of PNB. This is because tax laws are
prospective in application, unless their retroactive application is expressly provided.19chanrobleslaw

Secondly, PNB's interbank call loans are not taxable under Section 180 of the 1977 NIRC, as amended by R.A. No. 7660, which
states:

chanRoblesvirtualLawlibrary
Sec. 180. Stamp tax on all loan agreements, promissory notes, bills of exchange, drafts, instruments and
securities issued by the government or any of its instrumentalities, certificates of deposit bearing interest and
others not payable on sight or demand. - On all loan agreements signed abroad wherein the object of the
contract is located or used in the Philippines; bills of exchange (between points within the Philippines), drafts,
instruments and securities issued by the Government or any of its instrumentalities o r certificates
of deposits drawing interest, or orders for the payment of any sum of money otherwise than at
sight or on demand, or on all promissory notes, whether negotiable or non- negotiable, except bank
notes issued for circulation, and on each renewal of any such note, there shall be collected a
documentary stamp tax of Thirty centavos (P0.30) on each two hundred pesos, or fractional part thereof, of the
face value of any such agreement, bill of exchange, draft, certificate of deposit, or note: Provided, That only one
documentary stamp tax shall be imposed on either loan agreement, or promissory notes issued to secure such
loan, whichever will yield a higher tax: Provided, however, That loan agreements or promissory notes the
aggregate of which does not exceed Two hundred fifty thousand pesos (P250,000) executed by an individual for
his purchase on installment for his personal use or that of his family and not for business, resale, barter or hire
of a house, lot, motor vehicle, appliance or furniture shall be exempt from the payment of the documentary
stamp tax provided under this section." (Bold underscoring supplied for emphasis)

The petitioner insists that PNB's interbank call loans fell under the definition of a loan agreement found in Section 3(b) of Revenue
Regulations No. 9-94, to wit:

chanRoblesvirtualLawlibrary
xxxx

(b) 'Loan agreement' refers to a contract in writing where one of the parties delivers to another money or other
consumable thing, upon the condition that the same amount of the same kind and quality shall be paid. The
term shall include credit facilities, which may be evidenced by credit memo, advice or drawings.

The terms "Loan Agreement" under Section 180 and "Mortgage" under Section 195, both of the Tax Code, as
amended, generally refer to distinct and separate instruments. A loan agreement shall be taxed under Section
180, while a deed of mortgage shall be taxed under Section 195.20chanrobleslaw

xxxx

The insistence is bereft of merit.

An interbank call loan refers to the cost of borrowings from other resident banks and non-bank financial institutions with quasi-
banking authority that is payable on call or demand.21 It is transacted primarily to correct a bank's reserve requirements.22 Under
the Manual of Regulation for Banks (MORB) issued by the Bangko Sentral ng Pilipinas (BSP), interbank borrowings,23 which include
interbank call loans, shall be evidenced by deposit substitute instruments containing the minimum features prescribed -under
Section X235.3 of the MORB, except those that are settled through the banks' respective demand deposit accounts with the BSP
via Philpass.24chanrobleslaw

Simply put, an interbank call loan is considered as a deposit substitute transaction by a bank performing quasi-banking functions to
cover reserve deficiencies. It does not fall under the definition of a loan agreement. Even if it does, the DST liability under Section
180, supra, will only attach if the loan agreement was signed abroad but the object of the contract is located or used in the
Philippines, which was not the case in regard to PNB's interbank call loans.

We note, however, that for taxation purposes interbank call loans are not considered as deposit substitutes by express provision of
Section 20(y) of the 1977 NIRC, as amended by P.D. No. 1959, viz.:

Sec. 1. A new subsection (y) is inserted in Sec. 2 of the National Internal Revenue Code to read as follows:

chanRoblesvirtualLawlibrary x x x x

(y) 'Deposit substitutes' shall mean an alternative form of obtaining funds from the public, other than deposit,
through the issuance, endorsement, or acceptance of debt instruments for the borrower's own account, for the
purpose of relending or purchasing of receivables and other obligations, or financing their own needs or the
needs of their agent or dealer. These instruments may include but need not be limited to banker's acceptances,
promissory notes, repurchase agreements, certificates of assignment or participation and similar instruments
with recourse as may be authorized by the Central Bank of the Philippines, for banks and non-bank financial
intermediaries or by the Securities and Exchange Commission of the Philippines for commercial, industrial,
finance companies and other non-financial

companies: Provided, however, that only debt instruments issued for inter-bank call loans to cover
deficiency in reserves against deposit liabilities including those between or among banks and
quasi-banks shall not be considered as deposit substitute debt instruments. (Bold Emphasis supplied.)

The foregoing notwithstanding, it can readily be discerned from Section 180, supra, that the DST of P0.30 on each P200.00, or
fractional part thereof, shall only be imposed on the face value of: (1) loan agreements; (2) bills of exchange; (3) drafts; (4)
instruments and securities issued by the Government or any of its instrumentalities; (5) certificates of deposits drawing interest;
(6) orders for the payment of any sum of money otherwise than at sight or on demand; and (7) promissory notes, whether
negotiable or non-negotiable, except bank notes issued for circulation, and on each renewal of any such note. Interbank call loans,
although not considered as deposit substitutes, are not expressly included among the taxable instruments listed in Section 180;
hence, they may not be held as taxable. As the Court has pointedly pronounced in Commissioner of Internal Revenue vs. Fortune
Tobacco Corporation:25cralawredchanrobleslaw

xxx The rule in the interpretation of tax laws is that a statute will not be construed as imposing a tax unless it
does so clearly, expressly, and unambiguously. A tax cannot be imposed without clear and express words for
that purpose. Accordingly, the general rule of requiring adherence to the letter in construing statutes applies with
peculiar strictness to tax laws and the provisions of a taxing act are not to be extended by implication. In
answering the question of who is subject to tax statutes, it is basic that in case of doubt, such statutes are to be
construed most strongly against the government and in favor of the subjects or citizens because burdens are not
to be imposed nor presumed to be imposed beyond what statutes expressly and clearly import. As burdens,
taxes should not be unduly exacted nor assumed beyond the plain meaning of the tax laws.

In fine, the cancellation of Assessment No. 97-000064 was in order.

WHEREFORE, the Court DENIES the petition for review on certiorari; and AFFIRMS the decision promulgated on September

21, 2010 in C.T.A. EB Case No. 512. No pronouncement on costs of suit.

SO ORDERED.