July 21, 2006 COMMISSIONER OF INTERNAL REVENUE, petitioner , vs. BICOLANDIA DRUG CORPORATION (formerly known ! ELMAS DRUG CO"#, respondent . Velasco, Jr., J.: J.: NATURE$ Petition NATURE$ Petition for review of a CA decision. Original action for ta refund or credit !efore t"e #$% A&&ellate 'ivision 'ivision SUMMAR%$ ("e )enior Citi*ens Act gave 20+ discount to senior citi*ens -edicine &urc"ases. ("e law allowed t"e druggists to clai- t"e discount as a ta credit !ut t"e %egulations issued !y t"e #$% defined /ta credit for t"e &ur&oses of t"e )enior Citi*ens Act as a ta deduction. #icolandia 'rug filed a clai- for ta credit under t"e )enior Citi*ens Act, on t"e ground t"at t"e definition in t"e %% is erroneous. C(A gave #icolandia 'rug a refund CA "eld t"at it was a credit, !ecause t"at is w"at t"e law &rovided. C$% elevated t"e case to t"e )C, w"ic" u&"eld t"e CA. ("e &lain -eaning and intention of t"e law was to give relief relief to t"e druggists druggists in t"e for- of a ta credit. credit. #eing contrary contrary to suc" -eaning -eaning and intentio intention, n, t"e %% issued !y t"e C$% was incorrect and void !ut t"e &olicy !e"ind it was later e-!odied into t"e a-end-ent to t"e )enior Citi*ens Act "ence t"e discount is now clai-a!le as a deduction, !ut at t"e ti-e t"at #icolandia 'rug clai-ed it, it was treated as a ta credit and t"e C$% -ust res&ect suc" treat-ent. DOCTRINE$ $n DOCTRINE$ $n cases of conflict !etween t"e law and t"e rules and regulations i-&le-enting t"e law, law, t"e law s"all always &revail. )"ould %evenue %egulations deviate fro- t"e law t"ey see to i-&le-ent, t"ey will !e struc down. A &' re)*& re)+e! &e &'-yer.! l*/*l*&y, l*/*l*&y, w*le )e)+&*on re)+e! re)+e! &'/le *nome +-on w* &e &' l*/*l*&y *! l+l&e)" A l+l&e)" A credit differs fro- deduction to t"e etent t"at t"e for-er is su!tracted fro- t"e ta w"ile t"e latter is su!tracted fro- inco-e !efore t"e ta is co-&uted. ("e 20+ discount under t"e &anded )enior Citi*ens Act Act s"ould !e treated as a ta deduction. FACTS •
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1332 4 %A 572, ot"erwise nown as 8An Act to 9ai-i*e t"e Contri!ution of )enior Citi*ens to ation #uilding, ;rant #enefits and )&ecial Privileges and A'$A '%?; Cor&oration, a cor&oration engaged in t"e !usiness of retailing &"ar-aceutical &roducts under t"e !usiness style of 89ercury 'rug,8 granted t"e 20+ sales discount to @ualified senior citi*ens &urc"asing t"eir -edicines in co-&liance wit" %A 572. #ico #icola land ndia ia 'rug 'rug &re&e &re&e) ) &*! &*! )*!o )*!o+n +n&& ! )e)+ )e)+&*o &*on n frofro- its its gross gross inco-e inco-e in o co-&liance wit" %% 243, w"ic" i-&le-ented %A 572. A&ril 1=, 1336 4 #icolandia 'rug filed its 133= Cor&orate Annual $nco-e (a %eturn declaring a net loss &osition wit" nil inco-e ta lia!ility. lia!ility. 'ece-!er 25, 1336 4 #icolandia 'rug filed a l*m for &' ref+n) or re)*& in re)*& in t"e a-ount of P"P 2=3,6=3.00 wit" t"e #$% A&&ellate 'ivision !ecause its net losses for t"e year 133= &revented it fro- !enefiting fro- t"e treat-ent of sales discounts as a deduction fro- gross sales during t"e said taa!le year.
$t alleged t"at t"e C$% erred in treating t"e 20 &ercent sales discount given to senior citi*ens as a deduction fro- its gross inco-e for inco-e ta &ur&oses or ot"er &ercentage ta &ur&oses rat"er t"an as a ta credit. A&ril 6, 133 4 #icolandia 'rug a&&ealed to t"e C(A in order to toll t"e running of t"e 24year &rescri&tive &eriod to file a clai- for refund &ursuant to )ection 270 of t"e (a Code t"en. B*oln)* Dr+0$ )ince )ection of %A 572 &rovided t"at discounts granted to senior o citi*ens -ay !e clai-ed as ta credit, )ection 2Bi of %% 243, w"ic" referred to t"e ta credit as t"e a-ount re&resenting t"e 20 &ercent discount t"at 8s"all !e deducted !y t"e said esta!lis"-ents fro- t"eir gross inco-e for inco-e ta &ur&oses and fro- t"eir gross sales for value4added ta or ot"er &ercentage ta &ur&oses,8 is illegal, void and wit"out effect for !eing inconsistent wit" t"e statute it i-&le-ents. o CIR$ %% 243 is valid since t"e law tased t"e 'e&art-ent of
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ISSUE (1ELD#$ $s t"e 20 &ercent sales discount granted to @ualified senior citi*ens &ursuant to %A 572 clai-a!le as a ta credit or as a deduction fro- gross inco-e or gross salesE (TA2 CREDIT +n)er RA 3456, /+& TA2 DEDUCTION +n)er RA 7683# RATIO 1 !! 2"# $&'!!(&)*+ !(-($( )/ &!($) /1 )/ (&)$' %% 243 e@uated 8ta credit8 wit" 8ta deduction. ?nder said %%, t"e ta credit was defined as t"e discount itself . ("is is contrary to t"e definition in #lacFs >aw 'ictionary, w"ic" defined ta credit as: /An a-ount su!tracted fro- an individualFs or entityFs ta lia!ility to arrive at t"e total ta lia!ility. A &' re)*& re)+e! &e &'-yer.! l*/*l*&y ' ' ', om-re) &o )e)+&*on w* re)+e! &'/le *nome +-on w* &e &' l*/*l*&y *! l+l&e)" A credit differs fro- deduction to t"e etent t"at t"e for-er is su!tracted fro- t"e ta w"ile t"e latter is su!tracted fro- inco-e !efore t"e ta is co-&uted. Alt"oug" t"e inter&retation of an i-&le-enting ad-inistrative agency is accorded great res&ect and ordinarily controls t"e construction of t"e courts, t"e definition laid down in t"e @uestioned %% can still !e su!Dected to scrutiny. Courts will not "esitate to set aside an eecutive inter&retation w"en it is clearly erroneous. ("ere is no need for inter&retation w"en t"ere is no a-!iguity in t"e rule, or w"en t"e language or words used are clear and &lain or readily understanda!le to an ordinary reader. ("e definition of t"e ter- 8ta credit is &lain and clear, and t"e atte-&t of %% 243 to define it differently is t"e root of t"e conflict. BICOLANDIA DRUG$ (a credit is in t"e nature of a ta refund and s"ould !e treated as a return for ta &ay-ents erroneously or ecessively assessed against a ta&ayer, in line wit" )ection 20Bc of %e&u!lic Act o. 2, or t"e ational $nternal %evenue Code of 1335. CIR$ (a s"ould !e &aid !efore t"e ta credit can !e clai-ed. SC$ ("ere is at least one instance in t"e $%C w"ere t"is is not t"e case: Clai-s relating to *ero4 rated VA( sales are treated as ta credits for ta due, so &ay-ent of t"e ta "as not yet !een -ade in t"at &articular ea-&le. CA e&ressly recogni*ed t"e differences !etween a 8ta credit8 and a 8ta refund8. CIR$ )ince %A 572 used t"e word 8-ay,8 t"e availa!ility of t"e ta credit to &rivate esta!lis"-ents is only &er-issive and not -andatory.
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aw 'ictionary. ("e clai-ed a!surdity of )ection Ba of %A 572 i-&liedly re&ealing )ection 20Bc of t"e ational $nternal %evenue Code could only co-e a!out if it is acce&ted t"at a ta credit is ain to a ta refund w"erein &ay-ent of taes -ust !e -ade in order for it to !e clai-ed. #ut as s"own in )ection 112Ba of t"e ational $nternal %evenue Code, it is not always necessary for &ay-ent to !e -ade for a ta credit to !e availa!le. 2 $)()$' '- !/ 3#42 5/1 )' 6$7( / )/ &!($) CIR$ )"ould &rivate esta!lis"-ents lie #icolandia 'rug !e allowed to clai- ta credits for discounts given to senior citi*ens, t"ey would !e earning and not Dust !e rei-!ursed for t"e discounts given. SC$ ("e deli!erations s"ow t"at Congress tried to !alance t"e &ro-otion of senior citi*en interests wit" t"e i-&act of t"e &ro&osed discount on retailers. Congress &ur&osely c"ose ta credit as t"e for- of Dust co-&ensation to t"e retailers, w"ose &ro&erty "as !een taen away !y t"e )tate for &u!lic use, as seen fro- t"e following ecer&t @uoted in &$! v. v. &entral *uzon rug : ). A;A%A: >etter A. (o ca&ture t"at t"oug"t, well say t"e grant of 20+ discount fro- all esta!lis"-ents et cetera, et cetera, &rovided t"at said esta!lis"-ents -ay clai- t"e cost as a ta credit. ;anon !a FyonE %P. AH?$O: Ia". ). A;A%A: 'a"il ung govern-ent, t"ey dont need to clai- it. ( CA$%9A: (a credit. ). A;A%A: As a ta credit Krat"erL t"an a uwan 4 deduction, $f t"e &rivate esta!lis"-ents a&&ear to !enefit -ore fro- t"e ta credit t"an originally intended, it is not for t"e C$% to say t"at t"ey s"ouldnFt. ("e ta credit -ay actually "ave &rovided greater incentive for t"e &rivate esta!lis"-ents to co-&ly wit" %A 572, or @uicer relief fro- t"e cut into &rofits of t"ese !usinesses. 7 !! 2"# ** / 7'$ (! )8( !/ 3#42 !(6$9(
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promulgate rules and regulations, that they assume the roles of lawma>ers. $t is wellsettled that a regulation should not conflict with the law it implements. )hus, those drafting the regulations should study well the laws their rules will implement, even to the extent of reviewing the minutes of the deliberations of &ongress about its intent when it drafted the law. )hey may also consult the 1ecretary of Justice or the 1olicitor 6eneral for their opinions on the drafted rules. /dministrative rules, regulations and orders have the efficacy and force of law so long as they do not contravene any statute or the &onstitution. $t is then the duty of the agencies to ensure that their rules do not deviate from or amend acts of &ongress, for their regulations are always subordinate to law. DISPOSITION$ Petition '$', CA 'ecision A<<$%9'.
