SECOND DIVISION

Adm.Case No. 4749 - January 20, 2000

SOLIMAN M. SANTOS, JR., Complainant, v. ATTY. FRANCISCO R. LLAMAS, Respondent.
MENDOZA, J.:
This is a complaint for misrepresentation and non-payment of bar membership dues filed against
respondent Atty. Francisco R. Llamas.
In a letter-complaint to this Court dated February 8, 1997, complainant Soliman M. Santos, Jr.,
himself a member of the bar, alleged that:
On my oath as an attorney, I wish to bring to your attention and appropriate sanction the matter
of Atty. Francisco R. Llamas who, for a number of years now, has not indicated the proper PTR
and IBP O.R. Nos. and data (date & place of issuance) in his pleadings. If at all, he only indicates
"IBP Rizal 259060" but he has been using this for at least three years already, as shown by the
following attached sample pleadings in various courts in 1995, 1996 and 1997: (originals
available).
Annex A "Ex-Parte Manifestation and Submission" dated December 1, 1995 in Civil Case No. Q-
95-25253, RTC, Br. 224, QC.
Annex B "Urgent Ex-Parte Manifestation Motion" dated November 13, 1996 in Sp. Proc. No. 95-
030, RTC Br. 259 (not 257), Parañaque, MM.
Annex C "An Urgent and Respectful Plea for extension of Time to File Required Comment and
Opposition" dated January 17, 1997 in CA-G.R. SP (not Civil Case) No. 42286, CA 6th Div.
This matter is being brought in the context of Rule 138, Section 1 which qualifies that only a duly
admitted member of the bar "who is in good and regular standing, is entitled to practice law".
There is also Rule 139-A, Section 10 which provides that "default in the payment of annual dues
for six months shall warrant suspension of membership in the Integrated Bar, and default in such
payment for one year shall be a ground for the removal of the name of the delinquent member
from the Roll of Attorneys."
Among others, I seek clarification (e.g. a certification) and appropriate action on the bar standing
of Atty. Francisco R. Llamas both with the Bar Confidant and with the IBP, especially its Rizal
Chapter of which Atty. Llamas purports to be a member.
Please note that while Atty. Llamas indicates "IBP Rizal 259060" sometimes, he does not indicate
any PTR for payment of professional tax.
Under the Rules, particularly Rule 138, Sections 27 and 28, suspension of an attorney may be
done not only by the Supreme Court but also by the Court of Appeals or a Regional Trial Court
(thus, we are also copy furnishing some of these courts).
Finally, it is relevant to note the track record of Atty. Francisco R. Llamas, as shown by:
1. his dismissal as Pasay City Judge per Supreme Court Admin. Matter No. 1037-CJ En
Banc Decision on October 28, 1981 (in SCRA).
2. his conviction for estafa per Decision dated June 30, 1994 in Crim. Case No. 11787, RTC Br. 66,
Makati, MM (see attached copy of the Order dated February 14, 1995 denying the motion for
reconsideration of the conviction which is purportedly on appeal in the Court of Appeals).
Attached to the letter-complaint were the pleadings dated December 1, 1995, November 13,
1996, and January 17, 1997 referred to by complainant, bearing, at the end thereof, what appears
to be respondent's signature above his name, address and the receipt number "IBP Rizal
259060."1 Also attached was a copy of the order,2 dated February 14, 1995, issued by Judge
Eriberto U. Rosario, Jr. of the Regional Trial Court, Branch 66, Makati, denying respondent's
motion for reconsideration of his conviction, in Criminal Case No. 11787, for violation of Art. 316,
par. 2 of the Revised Penal Code.
On April 18, 1997, complainant filed a certification3 dated March 18, 1997, by the then president
of the Integrated Bar of the Philippines, Atty. Ida R. Macalinao-Javier, that respondent's "last
payment of his IBP dues was in 1991. Since then he has not paid or remitted any amount to cover
his membership fees up to the present."
On July 7, 1997, respondent was required to comment on the complaint within ten days from
receipt of notice, after which the case was referred to the IBP for investigation, report and
recommendation. In his comment-memorandum4 dated June 3, 1998, respondent alleged:5
3. That with respect to the complainant's absurd claim that for using in 1995, 1996 and 1997 the
same O.R. No. 259060 of the Rizal IBP, respondent is automatically no longer a member in good
standing.
Precisely, as cited under the context of Rule 138, only an admitted member of the bar who is in
good standing is entitled to practice law.
The complainant's basis in claiming that the undersigned was no longer in good standing, were
as above cited, the October 28, 1981 Supreme Court decision of dismissal and the February 14,
1995 conviction for Violation of Article 316 RPC, concealment of encumbrances.
As above pointed out also, the Supreme Court dismissal decision was set aside and reversed and
respondent was even promoted from City Judge of Pasay City to Regional Trial Court Judge of
Makati, Br. 150.
Also as pointed out, the February 14, 1995 decision in Crim. Case No. 11787 was appealed to the
Court of Appeals and is still pending.
Complainant need not even file this complaint if indeed the decision of dismissal as a Judge was
never set aside and reversed, and also had the decision of conviction for a light felony, been
affirmed by the Court of Appeals. Undersigned himself would surrender his right or privilege to
practice law.
4. That complainant capitalizes on the fact that respondent had been delinquent in his dues.
Undersigned since 1992 have publicly made it clear per his Income Tax Return, up to the present,
that he had only a limited practice of law. In fact, in his Income Tax Return, his principal
occupation is a farmer of which he is. His 30 hectares orchard and pineapple farm is located at
Calauan, Laguna.
Moreover, and more than anything else, respondent being a Senior Citizen since 1992, is legally
exempt under Section 4 of Rep. Act 7432 which took effect in 1992, in the payment of taxes,
income taxes as an example. Being thus exempt, he honestly believe in view of his detachment
from a total practice of law, but only in a limited practice, the subsequent payment by him of
dues with the Integrated Bar is covered by such exemption. In fact, he never exercised his rights
as an IBP member to vote and be voted upon.
Nonetheless, if despite such honest belief of being covered by the exemption and if only to show
that he never in any manner wilfully and deliberately failed and refused compliance with such
dues, he is willing at any time to fulfill and pay all past dues even with interests, charges and
surcharges and penalties. He is ready to tender such fulfillment or payment, not for allegedly
saving his skin as again irrelevantly and frustratingly insinuated for vindictive purposes by the
complainant, but as an honest act of accepting reality if indeed it is reality for him to pay such
dues despite his candor and honest belief in all food faith, to the contrary.
On December 4, 1998, the IBP Board of Governors passed a resolution 6 adopting and approving
the report and recommendation of the Investigating Commissioner which found respondent
guilty, and recommended his suspension from the practice of law for three months and until he
pays his IBP dues. Respondent moved for a reconsideration of the decision, but this was denied
by the IBP in a resolution,7 dated April 22, 1999. Hence, pursuant to Rule 139-B, 12(b) of the Rules
of Court, this case is here for final action on the decision of the IBP ordering respondent's
suspension for three months.
The findings of IBP Commissioner Alfredo Sanz are as follows:
On the first issue, Complainant has shown "respondent's non-indication of the proper IBP O.R.
and PTR numbers in his pleadings (Annexes "A", "B" and "C" of the letter complaint, more
particularly his use of "IBP Rizal 259060 for at least three years."
The records also show a "Certification dated March 24, 1997 from IBP Rizal Chapter President Ida
R. Makahinud Javier that respondent's last payment of his IBP dues was in 1991."
While these allegations are neither denied nor categorically admitted by respondent, he has
invoked and cited that "being a Senior Citizen since 1992, he is legally exempt under Section 4 of
Republic Act No. 7432 which took effect in 1992 in the payment of taxes, income taxes as an
example.
xxx-xxx-xxx
The above cited provision of law is not applicable in the present case. In fact, respondent
admitted that he is still in the practice of law when he alleged that the "undersigned since 1992
have publicly made it clear per his Income tax Return up to the present time that he had only a
limited practice of law." (par. 4 of Respondent's Memorandum).
Therefore respondent is not exempt from paying his yearly dues to the Integrated Bar of the
Philippines.
On the second issue, complainant claims that respondent has misled the court about his standing
in the IBP by using the same IBP O.R. number in his pleadings of at least six years and therefore
liable for his actions. Respondent in his memorandum did not discuss this issue.
First. Indeed, respondent admits that since 1992, he has engaged in law practice without having
paid his IBP dues. He likewise admits that, as appearing in the pleadings submitted by
complainant to this Court, he indicated "IBP-Rizal 259060" in the pleadings he filed in court, at
least for the years 1995, 1996, and 1997, thus misrepresenting that such was his IBP chapter
membership and receipt number for the years in which those pleadings were filed. He claims,
however, that he is only engaged in a "limited" practice and that he believes in good faith that
he is exempt from the payment of taxes, such as income tax, under R.A. No. 7432, 4 as a senior
citizen since 1992.
Rule 139-A provides:
Sec. 9. Membership dues. Every member of the Integrated Bar shall pay such annual dues as the
Board of Governors shall determine with the approval of the Supreme Court. A fixed sum
equivalent to ten percent (10%) of the collections from each Chapter shall be set aside as a
Welfare Fund for disabled members of the Chapter and the compulsory heirs of deceased
members thereof.
Sec. 10. Effect of non-payment of dues. Subject to the provisions of Section 12 of this Rule, default
in the payment of annual dues for six months shall warrant suspension of membership in the
Integrated Bar, and default in such payment for one year shall be a ground for the removal of the
name of the delinquent member from the Roll of Attorneys.
In accordance with these provisions, respondent can engage in the practice of law only by paying
his dues, and it does not matter that his practice is "limited." While it is true that R.A. No. 7432,
4 grants senior citizens "exemption from the payment of individual income taxes: provided, that
their annual taxable income does not exceed the poverty level as determined by the National
Economic and Development Authority (NEDA) for that year," the exemption does not include
payment of membership or association dues.
Second. By indicating "IBP-Rizal 259060" in his pleadings and thereby misrepresenting to the
public and the courts that he had paid his IBP dues to the Rizal Chapter, respondent is guilty of
violating the Code of Professional Responsibility which provides:
Rule 1.01 A lawyer shall not engage in unlawful, dishonest, immoral or deceitful conduct.
CANON 7 A LAWYER SHALL AT ALL TIMES UPHOLD THE INTEGRITY AND DIGNITY OF THE LEGAL
PROFESSION, AND SUPPORT THE ACTIVITIES OF THE INTEGRATED BAR.
CANON 10 A LAWYER OWES CANDOR, FAIRNESS AND GOOD FAITH TO THE COURT.
Rule 10.01 A lawyer shall not do any falsehood, nor consent to the doing of any court; nor shall
he mislead or allow the court to be misled by any artifice.
Respondent's failure to pay his IBP dues and his misrepresentation in the pleadings he filed in
court indeed merit the most severe penalty. However, in view of respondent's advanced age, his
express willingness to pay his dues and plea for a more temperate application of the law, 8 we
believe the penalty of one year suspension from the practice of law or until he has paid his IBP
dues, whichever is later, is appropriate.
WHEREFORE, respondent Atty. Francisco R. Llamas is SUSPENDED from the practice of law for
ONE (1) YEAR, or until he has paid his IBP dues, whichever is later. Let a copy of this decision be
attached to Atty. Llamas' personal record in the Office of the Bar Confidant and copies be
furnished to all chapters of the Integrated Bar of the Philippines and to all courts in the land.
SO ORDERED.
Bellosillo, Quisumbing, Buena and De Leon, Jr., JJ., concur.

EN BANC
[G.R. NO. 166494 : June 29, 2007]
CARLOS SUPERDRUG CORP., doing business under the name and style "Carlos Superdrug,"
ELSIE M. CANO, doing business under the name and style "Advance Drug," Dr. SIMPLICIO L.
YAP, JR., doing business under the name and style "City Pharmacy," MELVIN S. DELA SERNA,
doing business under the name and style "Botica dela Serna," and LEYTE SERV-WELL CORP.,
doing business under the name and style "Leyte Serv-Well
Drugstore," Petitioners, v. DEPARTMENT OF SOCIAL WELFARE and DEVELOPMENT (DSWD),
DEPARTMENT OF HEALTH (DOH), DEPARTMENT OF FINANCE (DOF), DEPARTMENT OF JUSTICE
(DOJ), and DEPARTMENT OF INTERIOR and LOCAL GOVERNMENT (DILG), Respondents.
DECISION
AZCUNA, J.:
This is a petition1 for Prohibition with Prayer for Preliminary Injunction assailing the
constitutionality of Section 4(a) of Republic Act (R.A.) No. 9257,2 otherwise known as the
"Expanded Senior Citizens Act of 2003."
Petitioners are domestic corporations and proprietors operating drugstores in the Philippines.
Public respondents, on the other hand, include the Department of Social Welfare and
Development (DSWD), the Department of Health (DOH), the Department of Finance (DOF), the
Department of Justice (DOJ), and the Department of Interior and Local Government (DILG) which
have been specifically tasked to monitor the drugstores' compliance with the law; promulgate
the implementing rules and regulations for the effective implementation of the law; and
prosecute and revoke the licenses of erring drugstore establishments.
The antecedents are as follows:
On February 26, 2004, R.A. No. 9257, amending R.A. No. 7432,3 was signed into law by President
Gloria Macapagal-Arroyo and it became effective on March 21, 2004. Section 4(a) of the Act
states:
SEC. 4. Privileges for the Senior Citizens. - The senior citizens shall be entitled to the following:
(a) the grant of twenty percent (20%) discount from all establishments relative to the utilization
of services in hotels and similar lodging establishments, restaurants and recreation centers, and
purchase of medicines in all establishments for the exclusive use or enjoyment of senior citizens,
including funeral and burial services for the death of senior citizens;
...
The establishment may claim the discounts granted under (a), (f), (g) and (h) as tax
deduction based on the net cost of the goods sold or services rendered: Provided, That the cost
of the discount shall be allowed as deduction from gross income for the same taxable year that
the discount is granted. Provided, further, That the total amount of the claimed tax deduction net
of value added tax if applicable, shall be included in their gross sales receipts for tax purposes
and shall be subject to proper documentation and to the provisions of the National Internal
Revenue Code, as amended.4
On May 28, 2004, the DSWD approved and adopted the Implementing Rules and Regulations of
R.A. No. 9257, Rule VI, Article 8 of which states:
Article 8. Tax Deduction of Establishments. - The establishment may claim the discounts granted
under Rule V, Section 4 - Discounts for Establishments;5 Section 9, Medical and Dental Services in
Private Facilities[,]6 and Sections 107 and 118 - Air, Sea and Land Transportation as tax deduction
based on the net cost of the goods sold or services rendered. Provided, That the cost of the
discount shall be allowed as deduction from gross income for the same taxable year that the
discount is granted; Provided, further, That the total amount of the claimed tax deduction net of
value added tax if applicable, shall be included in their gross sales receipts for tax purposes and
shall be subject to proper documentation and to the provisions of the National Internal Revenue
Code, as amended; Provided, finally, that the implementation of the tax deduction shall be
subject to the Revenue Regulations to be issued by the Bureau of Internal Revenue (BIR) and
approved by the Department of Finance (DOF).9
On July 10, 2004, in reference to the query of the Drug Stores Association of the Philippines
(DSAP) concerning the meaning of a tax deduction under the Expanded Senior Citizens Act, the
DOF, through Director IV Ma. Lourdes B. Recente, clarified as follows:
1) The difference between the Tax Credit (under the Old Senior Citizens Act) and Tax Deduction
(under the Expanded Senior Citizens Act).
1.1. The provision of Section 4 of R.A. No. 7432 (the old Senior Citizens Act) grants twenty percent
(20%) discount from all establishments relative to the utilization of transportation services, hotels
and similar lodging establishment, restaurants and recreation centers and purchase of medicines
anywhere in the country, the costs of which may be claimed by the private establishments
concerned as tax credit.
Effectively, a tax credit is a peso-for-peso deduction from a taxpayer's tax liability due to the
government of the amount of discounts such establishment has granted to a senior citizen. The
establishment recovers the full amount of discount given to a senior citizen and hence, the
government shoulders 100% of the discounts granted.
It must be noted, however, that conceptually, a tax credit scheme under the Philippine tax
system, necessitates that prior payments of taxes have been made and the taxpayer is attempting
to recover this tax payment from his/her income tax due. The tax credit scheme under R.A. No.
7432 is, therefore, inapplicable since no tax payments have previously occurred.
1.2. The provision under R.A. No. 9257, on the other hand, provides that the establishment
concerned may claim the discounts under Section 4(a), (f), (g) and (h) as tax deduction from gross
income, based on the net cost of goods sold or services rendered.
Under this scheme, the establishment concerned is allowed to deduct from gross income, in
computing for its tax liability, the amount of discounts granted to senior citizens. Effectively, the
government loses in terms of foregone revenues an amount equivalent to the marginal tax rate
the said establishment is liable to pay the government. This will be an amount equivalent to 32%
of the twenty percent (20%) discounts so granted. The establishment shoulders the remaining
portion of the granted discounts.
It may be necessary to note that while the burden on [the] government is slightly diminished in
terms of its percentage share on the discounts granted to senior citizens, the number of potential
establishments that may claim tax deductions, have however, been broadened. Aside from the
establishments that may claim tax credits under the old law, more establishments were added
under the new law such as: establishments providing medical and dental services, diagnostic and
laboratory services, including professional fees of attending doctors in all private hospitals and
medical facilities, operators of domestic air and sea transport services, public railways and
skyways and bus transport services.
A simple illustration might help amplify the points discussed above, as follows:
Tax Deduction Tax Credit
Gross Sales x x x x x x x x x x x x
Less : Cost of goods sold x x x x x x x x x x
Net Sales x x x x x x x x x x x x
Less: Operating Expenses:
Tax Deduction on Discounts x x x x - -
Other deductions: x x x x x x x x
Net Taxable Income x x x x x x x x x x
Tax Due x x x x x x
Less: Tax Credit - - ______x x
Net Tax Due - - x x
As shown above, under a tax deduction scheme, the tax deduction on discounts was subtracted
from Net Sales together with other deductions which are considered as operating expenses
before the Tax Due was computed based on the Net Taxable Income. On the other hand, under
a tax credit scheme, the amount of discounts which is the tax credit item, was deducted directly
from the tax due amount.10
Meanwhile, on October 1, 2004, Administrative Order (A.O.) No. 171 or the Policies and
Guidelines to Implement the Relevant Provisions of Republic Act 9257, otherwise known as the
"Expanded Senior Citizens Act of 2003"11 was issued by the DOH, providing the grant of twenty
percent (20%) discount in the purchase of unbranded generic medicines from all establishments
dispensing medicines for the exclusive use of the senior citizens.
On November 12, 2004, the DOH issued Administrative Order No 177 12 amending A.O. No. 171.
Under A.O. No. 177, the twenty percent discount shall not be limited to the purchase of
unbranded generic medicines only, but shall extend to both prescription and non-prescription
medicines whether branded or generic. Thus, it stated that "[t]he grant of twenty percent (20%)
discount shall be provided in the purchase of medicines from all establishments dispensing
medicines for the exclusive use of the senior citizens."
Petitioners assail the constitutionality of Section 4(a) of the Expanded Senior Citizens Act based
on the following grounds:13
1) The law is confiscatory because it infringes Art. III, Sec. 9 of the Constitution which provides
that private property shall not be taken for public use without just compensation;
2) It violates the equal protection clause (Art. III, Sec. 1) enshrined in our Constitution which
states that "no person shall be deprived of life, liberty or property without due process of law,
nor shall any person be denied of the equal protection of the laws;" andcralawlibrary
3) The 20% discount on medicines violates the constitutional guarantee in Article XIII, Section 11
that makes "essential goods, health and other social services available to all people at affordable
cost."14
Petitioners assert that Section 4(a) of the law is unconstitutional because it constitutes
deprivation of private property. Compelling drugstore owners and establishments to grant the
discount will result in a loss of profit
and capital because 1) drugstores impose a mark-up of only 5% to 10% on branded medicines;
and 2) the law failed to provide a scheme whereby drugstores will be justly compensated for the
discount.
Examining petitioners' arguments, it is apparent that what petitioners are ultimately questioning
is the validity of the tax deduction scheme as a reimbursement mechanism for the twenty
percent (20%) discount that they extend to senior citizens.
Based on the afore-stated DOF Opinion, the tax deduction scheme does not fully reimburse
petitioners for the discount privilege accorded to senior citizens. This is because the discount is
treated as a deduction, a tax-deductible expense that is subtracted from the gross income and
results in a lower taxable income. Stated otherwise, it is an amount that is allowed by law 15 to
reduce the income prior to the application of the tax rate to compute the amount of tax which is
due.16 Being a tax deduction, the discount does not reduce taxes owed on a peso for peso basis
but merely offers a fractional reduction in taxes owed.
Theoretically, the treatment of the discount as a deduction reduces the net income of the private
establishments concerned. The discounts given would have entered the coffers and formed part
of the gross sales of the private establishments, were it not for R.A. No. 9257.
The permanent reduction in their total revenues is a forced subsidy corresponding to the taking
of private property for public use or benefit.17 This constitutes compensable taking for which
petitioners would ordinarily become entitled to a just compensation.
Just compensation is defined as the full and fair equivalent of the property taken from its owner
by the expropriator. The measure is not the taker's gain but the owner's loss. The word just is
used to intensify the meaning of the word compensation, and to convey the idea that the
equivalent to be rendered for the property to be taken shall be real, substantial, full and ample.18
A tax deduction does not offer full reimbursement of the senior citizen discount. As such, it would
not meet the definition of just compensation.19
Having said that, this raises the question of whether the State, in promoting the health and
welfare of a special group of citizens, can impose upon private establishments the burden of
partly subsidizing a government program.
The Court believes so.
The Senior Citizens Act was enacted primarily to maximize the contribution of senior citizens to
nation-building, and to grant benefits and privileges to them for their improvement and well-
being as the State considers them an integral part of our society.20
The priority given to senior citizens finds its basis in the Constitution as set forth in the law itself.
Thus, the Act provides:
SEC. 2. Republic Act No. 7432 is hereby amended to read as follows:
SECTION 1. Declaration of Policies and Objectives. ' Pursuant to Article XV, Section 4 of the
Constitution, it is the duty of the family to take care of its elderly members while the State may
design programs of social security for them. In addition to this, Section 10 in the Declaration of
Principles and State Policies provides: "The State shall provide social justice in all phases of
national development." Further, Article XIII, Section 11, provides: "The State shall adopt an
integrated and comprehensive approach to health development which shall endeavor to make
essential goods, health and other social services available to all the people at affordable cost.
There shall be priority for the needs of the underprivileged sick, elderly, disabled, women and
children." Consonant with these constitutional principles the following are the declared policies
of this Act:
...
(f) To recognize the important role of the private sector in the improvement of the welfare of
senior citizens and to actively seek their partnership.21
To implement the above policy, the law grants a twenty percent discount to senior citizens for
medical and dental services, and diagnostic and laboratory fees; admission fees charged by
theaters, concert halls, circuses, carnivals, and other similar places of culture, leisure and
amusement; fares for domestic land, air and sea travel; utilization of services in hotels and similar
lodging establishments, restaurants and recreation centers; and purchases of medicines for the
exclusive use or enjoyment of senior citizens. As a form of reimbursement, the law provides that
business establishments extending the twenty percent discount to senior citizens may claim the
discount as a tax deduction.
The law is a legitimate exercise of police power which, similar to the power of eminent domain,
has general welfare for its object. Police power is not capable of an exact definition, but has been
purposely veiled in general terms to underscore its comprehensiveness to meet all exigencies
and provide enough room for an efficient and flexible response to conditions and circumstances,
thus assuring the greatest benefits.22 Accordingly, it has been described as "the most essential,
insistent and the least limitable of powers, extending as it does to all the great public needs."23 It
is "[t]he power vested in the legislature by the constitution to make, ordain, and establish all
manner of wholesome and reasonable laws, statutes, and ordinances, either with penalties or
without, not repugnant to the constitution, as they shall judge to be for the good and welfare of
the commonwealth, and of the subjects of the same."24
For this reason, when the conditions so demand as determined by the legislature, property rights
must bow to the primacy of police power because property rights, though sheltered by due
process, must yield to general welfare.25
Police power as an attribute to promote the common good would be diluted considerably if on
the mere plea of petitioners that they will suffer loss of earnings and capital, the questioned
provision is invalidated. Moreover, in the absence of evidence demonstrating the alleged
confiscatory effect of the provision in question, there is no basis for its nullification in view of the
presumption of validity which every law has in its favor.26
Given these, it is incorrect for petitioners to insist that the grant of the senior citizen discount is
unduly oppressive to their business, because petitioners have not taken time to calculate
correctly and come up with a financial report, so that they have not been able to show properly
whether or not the tax deduction scheme really works greatly to their disadvantage. 27
In treating the discount as a tax deduction, petitioners insist that they will incur losses because,
referring to the DOF Opinion, for every P1.00 senior citizen discount that petitioners would
give, P0.68 will be shouldered by them as only P0.32 will be refunded by the government by way
of a tax deduction.
To illustrate this point, petitioner Carlos Super Drug cited the anti-hypertensive maintenance
drug Norvasc as an example. According to the latter, it acquires Norvasc from the distributors
at P37.57 per tablet, and retails it at P39.60 (or at a margin of 5%). If it grants a 20% discount to
senior citizens or an amount equivalent to P7.92, then it would have to sell Norvasc at P31.68
which translates to a loss from capital of P5.89 per tablet. Even if the government will allow a tax
deduction, only P2.53 per tablet will be refunded and not the full amount of the discount which
is P7.92. In short, only 32% of the 20% discount will be reimbursed to the drugstores.28
Petitioners' computation is flawed. For purposes of reimbursement, the law states that the cost
of the discount shall be deducted from gross income,29 the amount of income derived from all
sources before deducting allowable expenses, which will result in net income. Here, petitioners
tried to show a loss on a per transaction basis, which should not be the case. An income
statement, showing an accounting of petitioners' sales, expenses, and net profit (or loss) for a
given period could have accurately reflected the effect of the discount on their income. Absent
any financial statement, petitioners cannot substantiate their claim that they will be operating at
a loss should they give the discount. In addition, the computation was erroneously based on the
assumption that their customers consisted wholly of senior citizens. Lastly, the 32% tax rate is to
be imposed on income, not on the amount of the discount.
Furthermore, it is unfair for petitioners to criticize the law because they cannot raise the prices
of their medicines given the cutthroat nature of the players in the industry. It is a business
decision on the part of petitioners to peg the mark-up at 5%. Selling the medicines below
acquisition cost, as alleged by petitioners, is merely a result of this decision. Inasmuch as pricing
is a property right, petitioners cannot reproach the law for being oppressive, simply because they
cannot afford to raise their prices for fear of losing their customers to competition.
The Court is not oblivious of the retail side of the pharmaceutical industry and the competitive
pricing component of the business. While the Constitution protects property rights, petitioners
must accept the realities of business and the State, in the exercise of police power, can intervene
in the operations of a business which may result in an impairment of property rights in the
process.
Moreover, the right to property has a social dimension. While Article XIII of the Constitution
provides the precept for the protection of property, various laws and jurisprudence, particularly
on agrarian reform and the regulation of contracts and public utilities, continuously serve as a
reminder that the right to property can be relinquished upon the command of the State for the
promotion of public good.30
Undeniably, the success of the senior citizens program rests largely on the support imparted by
petitioners and the other private establishments concerned. This being the case, the means
employed in invoking the active participation of the private sector, in order to achieve the
purpose or objective of the law, is reasonably and directly related. Without sufficient proof that
Section 4(a) of R.A. No. 9257 is arbitrary, and that the continued implementation of the same
would be unconscionably detrimental to petitioners, the Court will refrain from quashing a
legislative act.31
WHEREFORE, the petition is DISMISSED for lack of merit.
No costs.
SO ORDERED.

[G.R. No. 167688. July 27, 2005]

CIR vs. ANNO DOMINI DRUG, INC.
THIRD DIVISION
Sirs/Mesdames:
Quoted hereunder, for your information, is a resolution of this Court dated JUL 27 2005.
G.R. No. 167688 (COMMISSIONER OF INTERNAL REVENUE vs. ANNO DOMINI DRUG, INC.)
Assailed in this petition for review on certiorari is the Decision [1]cralaw of the Court of Tax
Appeals (CTA) En Banc, dated March 31, 2005 in CTA EB No. 3, affirming the
Decision[2]cralaw dated December 15, 2003 of a Division in CTA Case No. 6437. The CTA ordered
the Commissioner of Internal Revenue (CIR), petitioner, to refund or issue a Tax Credit Certificate
in favor of Anno Domini Drug, Inc. (ADDI), herein respondent, in the amount of P138,182.11 as
overpaid income taxes for the years 1999 and 2000.
Respondent ADDI is a domestic corporation, doing business in Laoag City as a franchisee of
"Mercury Drug." For the period from January 1, 1999 to December 31, 2000, respondent granted
twenty percent (20%) discount to purchases of medicines by senior citizens in the sum
of P1,376,984.15, as mandated by Republic Act No. 7432[3]cralaw and its implementing Rules and
Regulations. Respondent claimed that petitioner CIR seriously erred in treating the said amount
as sales discount from its gross income or gross sales, following Revenue Regulations No. 2-94,
instead of treating it as a tax credit under Section 4 of R.A. No. 7432.
On April 17, 2000, respondent filed under protest its annual income tax return for 1999, declaring
therein that it paid P22,562.69 as income tax for that year.
On April 17, 2001, respondent again filed, under protest, its annual income tax return, stating
therein that it paid P37,004.67 as income tax for 2000.
On March 1, 2002, respondent filed with the Bureau of Internal Revenue (BIR) a claim for tax
refund/credit in the amount of P924,291.62. Respondent alleged that this amount represented
the cost of the twenty percent (20%) discount it granted to qualified senior citizens on their
purchases of medicines from January 1, 1999 to December 31, 2000 and overpaid income taxes
for the said years; and that Section 2(1) of Revenue Regulations No. 2-94 is an erroneous
interpretation of the tax credit provisions of R.A. No. 7432.
When no action from petitioner on its claim was forthcoming, respondent filed with a Division of
the CTA a petition for review, docketed as CTA Case No. 6437.
In its answer, petitioner CIR averred, among others, that while R.A. No. 7432 allows the discounts
granted to senior citizens to be claimed as a tax credit, nonetheless, the law is silent as to the
mechanics of how such tax credit is to be availed of. Hence, Revenue Regulations No. 2-94,
defining the terms tax credit and providing for the manner of claiming the same, was issued as a
curative measure. Under the said Regulations, the tax credit is to be deducted by the
establishment from its gross income, not from its income tax liability. Petitioner CIR maintained
that respondent's claim for tax credit is not properly documented.
On December 15, 2003, the CTA Division issued its Decision, the dispositive portion of which
reads:
"WHEREFORE, petitioner's claim for refund is PARTIALLY GRANTED. Respondent is
hereby ORDERED to REFUND or ISSUE A TAX CREDIT CERTIFICATE in favor of the petitioner in the
amount of P138,182.11 representing overpaid income tax for the years 1999 and 2000.
SO ORDERED."
The CTA Division held that Section 4 of R.A. No. 7432 mandates that the 20% granted to qualified
senior citizens may be claimed as a "tax credit" or "an amount subtracted from an individual or
entity's tax liability to arrived at the total tax liability." Revenue Regulations No. 2-94, in
interpreting tax credit as an amount deductible from the establishments gross sales, gave it a
new meaning which is sharply in conflict with the provisions of R.A. No. 7432. Revenue
Regulations No. 2-94, being subordinate to R.A. No. 7432, it follows that the clear and
unequivocal language of the said statue must prevail.
On appeal, the CTA En Banc dismissed the same for lack of merit.
Hence, the instant petition for review on certiorari. The basic issue for our resolution is:
"WHETHER THE COURT OF TAX APPEALS ERRED IN HOLDING THAT RESPONDENT MAY CLAIM THE
20% DISCOUNT AS A TAX CREDIT, NOT AS A DEDUCTION FROM GORSS INCOME OR GROSS
SALES."
Petitioner contends that to allow respondent to claim the 20% discount as a tax credit, to be
deducted from its total tax liability, would be to grant it greater benefits than the actual discounts
it gave the elderly. In effect, the government would be reimbursing respondent amounts which
are way beyond what it gave to senior citizens. Upon the other hand, if the discount is deducted
from gross income or gross sales, as mandated by Revenue Regulations No. 2-94, the tax benefit
is only up to the extent of the rate of tax prescribed.
On this point, the CTA held:
"Neither can we go along with petitioner's argument that to allow respondent to claim the 20%
discount as tax credit instead of a mere deduction from gross income/gross sales would be to
grant a benefit not intended by law. The main objective of R.A. No. 7432 is to provide assistance
and special privileges to senior citizens. In the implementation thereof, the State essentially
requires drug stores, like herein respondent, to give 20% of the value of the medicines sold in the
form of a discount in prices. This is tantamount to taking of private property for public use under
the power of eminent domain. While the State's power of expropriation is authorized by the
Constitution, it should not be exercised without payment of just compensation (Article III, Section
9 of the Constitution). As aptly held in Manosca vs. Court of Appeals, 255 SCRA 412, the only
direct constitutional qualification for the exercise of such power is that 'private property shall not
be taken for public use without just compensation.' The tax credit scheme provided under the
subject law is designed to compensate private establishments the full and fair equivalent of the
property taken from them, hence, it would be highly inappropriate to consider the same as
'benefit not intended by law.'"
R.A. No. 7432 and Revenue Regulations No. 2-94 are hereby quoted as our guide posts in
resolving the issue before us, thus:
"Republic Act No. 7432
SECTION 4. Privileges for the Senior Citizens. - The senior citizens shall be entitled to the following:
a) the grant of twenty percent (20%) discount from all establishments relative to
utilization of transportation services, hotels and similar lodging establishments,
restaurants and recreation centers and purchase of medicines anywhere in the country:
Provided, That private establishments may claim the cost as tax credit.
Revenue Regulations No. 2-94
Section 2. DEFINITIONS. For purposes of these regulations:
xxx xxx
i. Tax credit. - refers to the amount representing the 20% discount granted to a
qualified senior citizens by all establishments relative to their utilization of
transportation services, hotels and similar lodging establishments, restaurants,
drugstores, recreation centers, theaters, cinema, houses, concert halls, circuses,
carnivals and other similar places of culture, leisure and amusement, which discount
shall be deducted by the said establishments from their gross income for income tax
purposes and from their gross sales for value-added tax or other percentage tax
purposes. (Underscoring supplied)
In Commissioner of Internal Revenue vs. Central Luzon Drug Corporation,[4]cralaw penned by Mr.
Justice Artemio V. Panganiban, we held:
"What RA 7432 grants the senior citizens is a mere discount privilege, not a sales discount or any
of the above discounts in particular. Prompt payment is not the reason for (although a necessary
consequence of) such grant. To be sure, the privilege enjoyed by senior citizens must be
equivalent to the tax credit benefit enjoyed by the private establishment granting the discount.
Yet, under the Revenue Regulations promulgated by our tax authorities; this benefit has been
erroneously likened and confined to a sales discount.
To a senior citizen, the monetary effect of the privilege may be the same as that resulting from
a sales discount. To repeat from our earlier discourse, this benefit cannot and should not be
treated as a tax discount.
To stress, the effect of a sales discount on the income statement and income tax return of an
establishment covered by RA 7432 is different from that resulting from the availament or use of
its tax credit benefit. While the former is a deduction before, the latter is a deduction after,
the income tax is computed. As mentioned earlier, a discount is not necessarily a sales
discount, and a tax credit, as a simple discount privilege should not be automatically treated like
a sales discount, Ubi lex non distinguit, nec nos distinguere debemus. Where the law does not
distinguish, we ought not to distinguish.
Section 2.i and 4 Revenue Regulations No. (RR) 2-94 define tax credit as the 20 percent discount
deductible from gross income for income tax purposes or from gross sales for VAT or other
percentage tax purposes. In effect, the tax credit benefit under RA 7432 is related to a sales
discount. This contrived definition is improper, considering that the latter has to be deducted
from gross sales in order to compute the gross income in the income statement and cannot be
deducted again, even for purposes of computing the income tax.
When the law says that the cost of the discount may be claimed as a tax credit, it means that the
amount - when claimed - shall be treated as a reduction from any tax liability, plain and simple.
The option to avail of the tax credit benefit depends upon the existence of a tax liability, but to
limit the benefit to a sales discount - which is not even identical to the discount privilege that is
granted by law - does not define it all and serves no useful purpose. The definition must,
therefore, be stricken down."
In fine, it is clear that, as mandated by R.A. No. 7432, respondent's claim is a 20% tax credit, to
be deducted from its total tax liability. It is not a sales discount, to be deducted from its gross
income or gross sales, as alleged by CIR in its petition. The CTA, therefore, did not err its
conclusion of law.
WHEREFORE, for being insufficient in substance, the instant petition is hereby DENIED.
SO ORDERED.

SECOND DIVISION
[G.R. NO. 142299 : June 22, 2006]
BICOLANDIA DRUG CORPORATION (FORMERLY ELMAS DRUG
COPRORATION), Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
AZCUNA, J.:
This is a Petition for Review 1 by Bicolandia Drug Corporation, formerly known as Elmas Drug
Corporation, seeking the nullification of the Decision and Resolution of the Court of Appeals,
dated October 19, 1999 and February 18, 2000, respectively, in CA-G.R SP No. 49946 entitled
"Commissioner of Internal Revenue v. Elmas Drug Corporation."
The controversy primarily involves the proper interpretation of the term "cost" in Section 4 of
Republic Act (R.A.) No. 7432, otherwise known as "An Act to Maximize the Contribution of Senior
Citizens to Nation Building, Grant Benefits and Special Privileges and for Other Purposes."
The facts2 of the case are as follows:
Petitioner Bicolandia Drug Corporation is a domestic corporation principally engaged in the retail
of pharmaceutical products. Petitioner has a drugstore located in Naga City under the name and
business style of "Mercury Drug."
Pursuant to the provisions of R.A. No. 7432, entitled "An Act to Maximize the Contribution of
Senior Citizens to Nation Building, Grant Benefits and Special Privileges and for Other Purposes,"
also known as the "Senior Citizens Act," and Revenue Regulations No. 2-94, petitioner granted to
qualified senior citizens a 20% sales discount on their purchase of medicines covering the period
from July 19, 1993 to December 31, 1994.
When petitioner filed its corresponding corporate annual income tax returns for taxable years
1993 and 1994, it claimed as a deduction from its gross income the respective amounts
of P80,330 and P515,000 representing the 20% sales discount it granted to senior citizens.
On March 28, 1995, however, alleging error in the computation and claiming that the
aforementioned 20% sales discount should have been treated as a tax credit pursuant to R.A. No.
7432 instead of a deduction from gross income, petitioner filed a claim for refund or credit of
overpaid income tax for 1993 and 1994, amounting to P52,215 and P334,750, respectively.
Petitioner computed the overpayment as follows:

Income tax benefit of tax credit 100%

Income tax benefit of tax deduction 35%

Differential 65%

For 1993

20% discount granted in 1993 P80,330

Multiply by 65% x 65%

Overpaid corporate income tax P52,215

For 1994

20% discount granted in 1993 P515,000

Multiply by 65% x 65%

Overpaid corporate income tax P334,750

On December 29, 1995, petitioner filed a Petition for Review with the Court of Tax Appeals (CTA)
in order to toll the running of the two-year prescriptive period for claiming for a tax refund under
Section 230, now Section 229, of the Tax Code.
It contended that Section 4 of R.A. No. 7432 provides in clear and unequivocal language that
discounts granted to senior citizens may be claimed as a tax credit. Revenue Regulations No. 2-
94, therefore, which is merely an implementing regulation cannot modify, alter or depart from
the clear mandate of Section 4 of R.A. No. 7432, and, thus, is null and void for being inconsistent
with the very statute it seeks to implement.
The Commissioner of Internal Revenue, on the other hand, maintained that the aforesaid section
providing for a 20% sales discount to senior citizens is a misnomer as it runs counter to the solemn
duty of the government to collect taxes. The Commissioner likewise pointed out that the
provision in question employs the word "may," thereby implying that the availability of the
remedy of tax credit is not absolute and mandatory and it does not confer an absolute right on
the taxpayer to avail of the tax credit scheme if he so chooses. The Commissioner further stated
that in statutory construction, the contemporaneous construction of a statute by executive
officers of the government whose duty is to execute it is entitled to great respect and should
ordinarily control in its interpretation.
Thus, addressing the matter of the proper construction of Section 4(a) of R.A. No. 7432 regarding
the treatment of the 20% sales discount given to senior citizens on their medicine purchases, the
CTA ruled on the issue of whether or not the discount should be deductible from gross sales of
value-added tax or other percentage tax purposes as prescribed under Revenue Regulations No.
2-94 or as a tax credit deductible from the tax due.
In its Decision, dated August 27, 1998, the CTA declared that:
"x x x
Revenue Regulations No. 2-94 gave a new meaning to the phrase "tax credit," interpreting it to
mean that the 20% discount granted to qualified senior citizens is an amount deductible from the
establishment's gross sales, which is completely contradictory to the literal or widely accepted
meaning of the said phrase, as an amount subtracted from an individual's or entity's tax liability
to arrive at the total tax liability (Black's Law Dictionary).
In view of such apparent discrepancy in the interpretation of the term "tax credit", the provisions
of the law under R.A. 7432 should prevail over the subordinate regulation issued by the
respondent under Revenue Regulation No. 2-94. x x x
Having settled the legal issue involved in the case at bar, We are now tasked to resolve the factual
issues of whether or not petitioner is entitled to the claim for refund of its overpaid income taxes
for the years 1993 and 1994 based on the evidence at hand.
Contrary to the findings of the independent CPA, aside from the unverifiable 20% sales discounts
in the amount of P18,653.70 (Exh. R-3), the Court noted some material discrepancies. Not all the
details listed in the 1994 "Summary of Sales and Discounts Given to Senior Citizens" correspond
with the cash slips presented. There are various sales discounts granted which were not properly
computed and there were also some cash slips left unsigned by the buyers.
xxx
After a careful scrutiny of the documents presented, the Court, allows only the amount of sales
discounts duly supported by the pre-marked cash slips x x x.
Hence, only the above amounts which are properly documented can be used as base in
computing for the cost of 20% discount as tax credit. The overpaid income tax therefore is
computed as follows: 3

For 1993

Net Sales P31,080,508.00

Add: 20% Discount to Senior Citizens 80,330.00

Gross Sales P31,160,838.00

Less: Cost of Sales

Merchandise Inventory, beg. P 4,226,588.00

Add Purchases 29,234,361.00

 Total Goods available for Sale P33,460,947.00

Less: Merchandise Inventory, End P 4,875.944.00 P28,585,003.00

Gross Income P 2,575,835.00

Less: Operating Expenses 1,706,491.00

Net Operating Income P 869,344.00

Add: Miscellaneous Income 72,680.00

Net Income P 942,024.00

Less: Interest Income Subject to Final Tax 21,140.00

Net Taxable Income P 920,884.00

Tax Due (P920,884 x 35%) P 322,309.40

Less: 1) Tax Credit (Cost of 20% Discount)

[(28,585,003.00/31,160,838.00)
x 80,330.34] P 73,690.03

2) Income Tax Payment for the Year 294,194.00 P 367,884.03

P 45,574.63
AMOUNT REFUNDABLE

For 1994

Net Sales P 29,904,734.00

Add: 20% Discount to Senior Citizens 515,000.00

Gross Sales P 30,419,734.00

Less: Cost of Sales

Merchandise Inventory, beg. P 4,875,944.00

Add Purchases 28,138,103.00

 Total Goods available for Sales P 33,014,047.00

Less: Merchandise Inventory, End 5,036.117.00 27,977,930.00

Gross Income P 2,441,804.00

Less: Operating Expenses 1,880,153.00

Net Operating Income P 561,651.00

Add: Miscellaneous Income 82,207.00

Net Income P 643,858.00

Less: Interest Income Subject to Final Tax 30,618.00

Net Taxable Income P 613,240.00

Tax Due (613,240 x 35%) P 214,634.00

Less: 1) Tax Credit (Cost of 20% Discount)

[(28,585,003.00/31,160,838.00)
x 80,330.34] P316,156.48

2) Income Tax Payment for the Year 34,384.00 P 350,540.48

AMOUNT REFUNDABLE P 135,906.48

WHEREFORE, in view of all the foregoing, petitioner's claim for refund is hereby partially
GRANTED. Respondent is hereby ORDERED to REFUND, or in the alternative, to ISSUE a tax credit
certificate in favor of the petitioner the amounts of P45,574.63 and P135,906.48, representing
overpaid income tax for the years 1993 and 1994, respectively.
SO ORDERED.4
Both the Commissioner and petitioner moved for a reconsideration of the above decision.
Petitioner, in its Motion for Partial Reconsideration, claimed that the "cost" that private
establishments may claim as tax credit under Section 4 of R.A. No. 7432 should be construed to
mean the full amount of the 20% sales discount granted to senior citizens instead of the formula
- - [Tax Credit = Cost of Sales/Gross Sales x 20% discount] - used by the CTA in computing for the
amount of the tax credit. In view of this, petitioner prayed for the refund of the amount of income
tax it allegedly overpaid in the aggregate amount of P45,574.63 and P135,906.48, respectively,
for the taxable years 1993 and 1994 as a result of treating the sales discount of 20% as a tax
deduction rather than as a tax credit.
The Commissioner, on the other hand, moved for a re-computation of petitioner's tax liability
averring that the sales discount of 20% should be deducted from gross income to arrive at the
taxable income. Such discount cannot be considered a tax credit because the latter, being in the
nature of a tax refund, is treated as a return of tax payments erroneously or excessively assessed
and collected as provided under Section 204(3) of the Tax Code, to wit:
(3) x x x No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in
writing with the Commissioner a claim for credit or refund within two (2) years after the payment
of the tax or penalty.
ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
In its Resolution, dated December 7, 1998, the CTA modified its earlier decision, thus:
ACCORDINGLY, the petitioner's Motion for Partial Reconsideration is hereby GRANTED.
Respondent is hereby ORDERED to ISSUE tax credit certificates in favor of petitioner [in] the
amounts of P45,574.63 and P135,906.48 representing overpaid income tax for the years 1993
and 1994, as prayed for in its motion. On the other hand, the Respondent's Motion for
Reconsideration is DENIED for lack of merit.
SO ORDERED.5
Consequently, the Commissioner filed a Petition for Review with the Court of Appeals asking for
the reversal of the CTA Decision and Resolution.
The Court of Appeals rendered its assailed Decision on October 19, 1999, the dispositive portion
of which reads:
WHEREFORE, in view of the foregoing premises, the petition is hereby GRANTED IN PART. The
resolution issued by the Court of Tax Appeals dated December [7], 1998 is SET ASIDE and the
Decision rendered by the latter is AFFIRMED IN TOTO.
No costs.
SO ORDERED.6
Hence, this petition positing that:
THE COURT OF APPEALS ERRED IN RULING THAT IN COMPUTING THE TAX CREDIT TO BE
ALLOWED PETITIONER FOR DISCOUNTS GRANTED TO SENIOR CITIZENS ON THEIR PURCHASE OF
MEDICINES, THE ACQUISITION COST RATHER THAN THE ACTUAL DISCOUNT GRANTED TO SENIOR
CITIZENS SHOULD BE THE BASIS.7
Otherwise stated, the matter to be determined is the amount of tax credit that may be claimed
by a taxable entity which grants a 20% sales discount to qualified senior citizens on their purchase
of medicines pursuant to Section 4(a) of R.A. No. 7432 which states:
Sec. 4. Privileges for the Senior citizens. - The senior citizens shall be entitled to the following:
a) the grant of twenty percent (20%) discount from all establishments relative to utilization of
transportation services, hotels and similar lodging establishments, restaurants and recreation
centers and purchase of medicines anywhere in the country: Provided, That private
establishments may claim the cost8 as tax credit.
The term "cost" in the above provision refers to the amount of the 20% discount extended by a
private establishment to senior citizens in their purchase of medicines. This amount shall be
applied as a tax credit, and may be deducted from the tax liability of the entity concerned. If there
is no current tax due or the establishment reports a net loss for the period, the credit may be
carried over to the succeeding taxable year. This is in line with the interpretation of this Court
in Commissioner of Internal Revenue v. Central Luzon Drug Corporation9 wherein it affirmed that
R.A. No. 7432 allows private establishments to claim as tax credit the amount of discounts they
grant to senior citizens.
The Court notes that petitioner, while praying for the reinstatement of the CTA Resolution, dated
December 7, 1998, directing the issuance of tax certificates in favor of petitioner for the
respective amounts of P45,574.63 and P135,906.48 representing overpaid income tax for 1993
and 1994, asks for the refund of the same.10
In this regard, petitioner's claim for refund must be denied. The law expressly provides that the
discount given to senior citizens may be claimed as a tax credit, and not a refund. Thus, where
the words of a statute are clear, plain and free from ambiguity, it must be given its literal meaning
and applied without attempted interpretation.11
WHEREFORE, the petition is PARTLY GRANTED. The Decision and Resolution of the Court of
Appeals, dated October 19, 1999 and February 18, 2000, respectively, in CA-G.R SP No. 49946
are REVERSED and SET ASIDE. The Resolution of the Court of Tax Appeals, dated December 7,
1998, directing the issuance of tax credit certificates in favor of petitioner in the amounts
of P45,574.63 and P135,906.48 is hereby REINSTATED. No costs.
SO ORDERED.

SECOND DIVISION
[G.R. NO. 160193 : March 3, 2008]
M.E. HOLDING CORPORATION, Petitioner, v. THE HON. COURT OF APPEALS, COURT OF TAX
APPEALS, and THE COMMISSIONER OF INTERNAL REVENUE, Respondents.

DECISION
VELASCO, JR., J.:
This case involves Republic Act No. (RA) 7432, otherwise known as An Act to Maximize the
Contribution of Senior Citizens to Nation Building, Grant Benefits and Special Privileges and for
Other Purposes,passed onApril 23, 1992. It granted, among others, a 20% sales discount on
purchases of medicines by qualified senior citizens.
On April 15, 1996, petitioner M.E. Holding Corporation (M.E.) filed its 1995 Corporate Annual
Income Tax Return, claiming the 20% sales discount it granted to qualified senior citizens. M.E.
treated the discount as deductions from its gross income purportedly in accordance with
Revenue Regulation No. (RR) 2-94, Section 2(i) of the Bureau of Internal Revenue (BIR) issued on
August 23, 1993. Sec. 2(i) states:
Section 2. DEFINITIONS. - For purposes of these regulations:
xxx
i. Tax Credit - refers to the amount representing the 20% discount granted to a qualified senior
citizen by all establishments relative to their utilization of transportation services, hotels and
similar lodging establishments, restaurants, drugstores, recreation centers, theaters, cinema
houses, concert halls, circuses, carnivals and other similar places of culture, leisure and
amusement, which discount shall be deducted by the said establishments from their gross
income for income tax purposes and from their gross sales for value-added tax or other
percentage tax purposes. (Emphasis supplied.)
The deductions M.E. claimed amounted to PhP 603,424. However, it filed the return under
protest, arguing that the discount to senior citizens should be treated as tax credit under Sec.
4(a) of RA 7432, and not as mere deductions from M.E.'s gross income as provided under RR 2-
94.
Sec. 4(a) of RA 7432 states:
SECTION 4. Privileges for the Senior Citizens. The senior citizens shall be entitled to the following:
a) the grant of twenty percent (20%) discount from all establishments relative to the utilization
of transportation services, hotels and similar lodging establishments, restaurants and recreation
centers and purchase of medicines anywhere in the country: Provided, That private
establishments may claim the cost as tax credit; (Emphasis supplied.)
Subsequently, on December 27, 1996, M.E. sent BIR a letter-claim dated December 6,
1996,1 stating that it overpaid its income tax owing to the BIR's erroneous interpretation of Sec.
4(a) of RA 7432.
Due to the inaction of the BIR, and to toll the running of the two-year prescriptive period in filing
a claim for refund, M.E. filed an appeal before the Court of Tax Appeals (CTA), reiterating its
position that the sales discount should be treated as tax credit, and that RR 2-94, particularly
Section 2(i), was without effect for being inconsistent with RA 7432.
On April 25, 2000, the CTA rendered a Decision2 in favor of M.E., the fallo of which reads:
WHEREFORE, in view of the foregoing, petitioner's claim for refund is hereby partially GRANTED.
Respondent is hereby ORDERED to REFUND in favor of petitioner the amount of P122,195.74,
representing overpaid income tax [for] the year 1995.
SO ORDERED.
The CTA ruled that the 20% sales discount granted to qualified senior citizens should be treated
as tax credit and not as item deduction from the gross income or sales, pointing out that Sec. 4(a)
of RA 7432 was unequivocal on this point. The CTA held that Sec. 2(i) of RR 2-94 contravenes the
clear proviso of RA 7432 prescribing that the 20% sales discount should be claimed as tax credit.
Further, it ruled that RA 7432 is a law that necessarily prevails over an administrative issuance
such as RR 2-94.
Unfortunately, what appears to be the victory of M.E. before the CTA was watered down by the
tax court's declaration that, while the independent auditor M.E. hired found the amount PhP
603,923.46 as having been granted as sales discount to qualified senior citizens, M.E. failed to
properly support the claimed discount with corresponding cash slips. Thus, the CTA reduced
M.E.'s claim for PhP 603,923.46 sales discount to PhP 362,574.57 after the CTA disallowed PhP
241,348.89 unsupported claims, and consequently lowered the refundable amount to PhP
122,195.74.
On May 24, 2000, M.E. filed a Motion for Reconsideration, therein attributing its failure to submit
and offer certain documents, specifically the cash slips, to the inadvertence of its independent
auditor who failed to transmit the documents to M.E.'s counsel. It also argued that the tax credit
should be based on the actual discount and not on the acquisition cost of the medicines.
On July 11, 2000, the CTA denied M.E.'s motion for reconsideration which contained a prayer to
present additional evidence consisting of duplicate copies of the cash slips allegedly not
submitted to M.E. by its independent auditor.3 In refuting M.E.'s contention that the tax credit
should be based on the actual discount and not on the acquisition cost of the medicines, the CTA
applied the Court of Appeals (CA) ruling in CIR v. Elmas Drug Corporation,4 where the term "cost
of the discount" was interpreted to mean only the direct acquisition cost, excluding
administrative and other incremental costs.
Aggrieved, M.E. went to the CA on a Petition for Review docketed as CA-G.R. SP No. 60134. On
July 1, 2003, the CA rendered its Decision,5 dismissing the petition.
Even as it laid the entire blame on M.E. for its failure to present its additional evidence, the CA
pointed out that forgotten evidence is not newly discovered evidence which can be presented to
the appellate tax court, even after it had already rendered its decision. Likewise, the CA
interpreted, as did the CTA, the term "cost" to mean only the direct acquisition cost, adding that
to interpret the word "cost" to include "all administrative and incremental costs to sales to senior
citizens" would open the floodgates for drugstores to pad the costs of the sales with such broad,
undefined, and varied administrative and incremental costs such that the government would
ultimately bear the escalated costs of the sales. And citing Commissioner of Internal Revenue v.
Tokyo Shipping Co., Ltd., the CA held that claims for refund, being in the nature of a claim for
exemption, should be construed in strictissimi juris against the taxpayer.6
The CA denied petitioner's Motion for Reconsideration on September 24, 2003.7
Hence, the instant Petition for Review, anchored essentially on the same issues raised before the
CA, as follows:
I.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS GRAVELY ERRED AND HAS DEVIATED
FROM APPLICABLE LAWS AND JURISPRUDENCE IN NOT APPRECIATING OTHER COMPETENT
EVIDENCE PROVING THE AMOUNT OF DISCOUNTS GRANTED TO SENIOR CITIZENS AND MERELY
RELYING SOLELY ON THE CASH SLIPS.
II.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS GRAVELY ERRED AND HAS COMMITTED
GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR IN EXCESS OF JURISDICTION IN
AFFIRMING THE COURT OF TAX APPEALS' DENIAL OF PETITIONER'S MOTION TO ORDER AND
SUBMIT AS DOCUMENTARY [EVIDENCE] THE CASH SLIPS WHICH THE INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANT INADVERTENTLY DID NOT TURN OVER TO THE PETITIONER'S COUNSEL.
III.
WHETHER OR NOT THE TERM "COST" UNDER PARAGRAPH (A) SECTION 4 OF REPUBLIC ACT 7432
IS EQUIVALENT ONLY TO ACQUISITION COST.8
Our Ruling
The petition is partly meritorious.
The 20% sales discount to senior citizens may be claimed by an establishment owner as tax credit.
RA 7432, the applicable law, is unequivocal on this. The implementing RR 2-94 that considers
such discount as mere deductions to the taxpayer's gross income or gross sales clearly clashes
with the clear language of RA 7432, the law sought to be implemented. We need not delve on
the nullity of the implementing rule all over again as we have already put this issue at rest in a
string of cases.9
Now, we will discuss the remaining issues in seriatim.
On the first issue, M.E. faults the CA for merely relying on the cash slips as basis for determining
the total 20% sales discount given to senior citizens. To M.E., there are other competent pieces
of evidence available to prove the same point, such as the Special Record Book required by the
Bureau of Food and Drugs10 and the Special Record Book required under RR 2-94. According to
M.E., these special record books containing, as it were, the same information embodied in the
cash slips were submitted to the CTA during M.E.'s formal offer of evidence. Moreover, M.E. avers
that the CA ought to have considered the special record books since their authenticity and the
veracity of their contents were corroborated by the store supervisor, Amelita Gonzales, and Rene
Amby Reyes, its independent auditor.
M.E. fails to persuade. The determination of the exact amount M.E. claims as the 20% sales
discount it granted to the senior citizens calls for an evaluation of factual matters. The unyielding
rule is that the findings of fact of the trial court, particularly when affirmed by the CA, are binding
upon this Court,11 save when the lower courts had overlooked, misunderstood, or misinterpreted
certain facts or circumstances of weight, which, if properly considered, would affect the result of
the case and warrant a reversal of the decision. The instant case does not fall under the
exception; hence, we do not find any justification to review all over again the evidence presented
before the CTA, and the factual conclusions deduced therefrom.
Lest it be overlooked, the Rules of Court is of suppletory application in quasi-judicial proceedings.
Be this as it may, the CTA was correct in disallowing and not considering the belatedly-submitted
cash slips to be part of the 20% sales discount for M.E.'s taxable year 1995. This is as it should be
in the light of Sec. 34 of Rule 132 prescribing that no evidence shall be considered unless formally
offered with a statement of the purpose why it is being offered. In addition, the rule is that the
best evidence under the circumstance must be adduced to prove the allegations in a complaint,
petition, or protest. Only when the best evidence cannot be submitted may secondary evidence
be considered. But, in the instant case, the disallowed cash slips, the best evidence at that time,
were not part of M.E.'s offer of evidence. While it may be true that the authenticated special
record books yield the same data found in the cash slips, they cannot plausibly be considered by
the courts a quo and made to corroborate pieces of evidence that have, in the first place, been
disallowed. Recall also that M.E. offered the disallowed cash slips as evidence only after the CTA
had rendered its assailed decision. Thus, we cannot accept the excuse of inadvertence of the
independent auditor as excusable negligence. As aptly put by the CA, the belatedly-submitted
cash slips do not constitute newly-found evidence that may be submitted as basis for a new trial
or reconsideration of the decision.
We reiterate at this juncture that claims for tax refund/credit, as in the instant case, are in the
nature of claims for exemption. Accordingly, the law relied upon is not only construed
in strictissimi juris against the taxpayer, but also the proofs presented entitling a taxpayer to an
exemption are strictissimi scrutinized.
On the second issue, M.E. strongly asserts that the CA gravely abused its discretion in denying
M.E. the opportunity to submit the disallowed cash slips despite the independent auditor's
admission, via an Affidavit,12 of guilt for inadvertence. M.E.'s counsel explains that he relied on
the independent auditor's representation that all the cash slips were turned over. Besides, M.E.
asserts that the independent auditor, being an officer of the court, having been commissioned
by the CTA, is presumed to have done his duty in a regular manner, and, therefore, his negligence
should not be taken against M.E.
We do not agree with M.E. Grave abuse of discretion connotes capricious, whimsical, arbitrary,
or despotic exercise of jurisdiction. The CA surely cannot be guilty of gravely abusing its discretion
when it refused to consider, in lieu of the unsubmitted additional cash slips, the special record
books which are only secondary evidence. The cash slips were the best evidence. Also, the CA
noted that the belatedly-offered cash slips were presented only after the CTA had rendered its
decision. All these factors argue against the notion that the CA had, in sustaining the CTA,
whimsically and capriciously exercised its discretion.
On the third and last issue, M.E. contends that it is entitled, as a matter of law, to claim as tax
credit the full amount of the sales discount granted to senior citizens.
M.E.'s contention is correct. In Bicolandia Drug Corporation (formerly Elmas Drug Corporation) v.
Commissioner of Internal Revenue, we interpreted the term "cost" found in Sec. 4(a) of RA 7432
as referring to the amount of the 20% discount extended by a private establishment to senior
citizens in their purchase of medicines.13 There we categorically said that it is the Government
that should fully shoulder the cost of the sales discount granted to senior citizens. Thus, we
reversed and set aside the CA's Decision in CA-G.R. SP No. 49946, which construed the same word
"cost" to mean the theoretical acquisition cost of the medicines purchased by qualified senior
citizens. Accordingly, M.E. is entitled to a tax credit equivalent to the actual 20% sales discount it
granted to qualified senior citizens.
With the disallowance of PhP 241,348.89 for being unsupported, and the net amount of PhP
362,574.57 for the actual 20% sales discount granted to qualified senior citizens properly allowed
by the CTA and fully appreciated as tax credit, the amount due as tax credit in favor of M.E. is
PhP 151,201.71, computed as follows:

Net Sales PhP 94,724,284.00

 Add: 20% Discount to Senior Citizens
(Per Petitioner's Summary) 603,923.46

Gross Sales PhP 95,328,207.46

Less: Cost of Sales

Merchandise Inventory, beg. PhP 9,519,210.00

Add Purchases 87,288,988.00

PhP
Total Goods available for Sale 96,808,198.00

Less: Merchandise Inventory,

End PhP 9,469.349.00 PhP 87,338,849.00

Gross Income PhP 7,989,358.46

Less: Operating Expenses 17,006,032.00

Net Operating Income /(Loss) (PhP 9,016,673.54)

Add: Miscellaneous Income 43,489,663.00

Net Income PhP 34,472,989.46

Less: Interest Income Subject

to Final Tax 22,242,227.00

Net Taxable Income PhP 12,230,762.46

Tax Due (PhP 12,230,762.46 x 35%) PhP 4,280,766.86

Less: 1) Tax Credit (20% Discount with supporting

documents) PhP 362,574.57

2) Income Tax Payment for the Year 4,069,394.00

Total PhP 4,431,968.57

AMOUNT OF TAX CREDIT PhP 151,201.71

Parenthetically, we note that M.E. originally prayed for a tax refund for its tax overpayment for
CY 1995. The CTA and the CA granted the desired refund, albeit at a lower amount due to their
interpretation, erroneous as it turned out to be, of the term "cost." However, we cannot agree
with the courts a quo on what M.E. is entitled to. RA 7432 expressly provides that the sales
discount may be claimed as tax credit, not as tax refund.
It ought to be noted, however, that on February 26, 2004, RA 9257, or The Expanded Senior
Citizens Act of 2003, amending RA 7432, was signed into law, ushering in, upon its effectivity on
March 21, 2004, a new tax treatment for sales discount purchases of qualified senior citizens of
medicines. Sec. 4(a) of RA 9257 provides:
SEC. 4. Privileges for the Senior Citizens. - The senior citizens shall be entitled to the following:
(a) the grant of twenty percent (20%) discount from all establishments relative to the utilization
of services in hotels and similar lodging establishments, restaurants and recreation centers, and
purchase of medicines in all establishments for the exclusive use or enjoyment of senior citizens,
x x x;
xxx
The establishment may claim the discounts granted under (a), (f), (g) and (h) as tax
deduction based on the net cost of the goods sold or services rendered: Provided, That the cost
of the discount shall be allowed as deduction from gross income for the same taxable year that
the discount is granted. Provided, further, That the total amount of the claimed tax deduction net
of value added tax if applicable, shall be included in their gross sales receipts for tax purposes
and shall be subject to proper documentation and to the provisions of the National Internal
Revenue Code, as amended. (Emphasis supplied.)
Conformably, starting taxable year 2004, the 20% sales discount granted by establishments to
qualified senior citizens is to be treated as tax deduction, no longer as tax credit. 14
IN VIEW OF THE FOREGOING, this petition is PARTLY GRANTED. The CA's Decision dated July 1,
2003 and its Resolution of September 24, 2003 in CA-G.R. SP No. 60134, affirming the Decision
of the CTA dated April 25, 2000 in CTA Case No. 5604,
are AFFIRMED with MODIFICATIONS insofar as the amount and mode of payment of M.E.'s claim
are concerned. As modified, the fallo of the April 25, 2000 Decision of the CTA shall read:
WHEREFORE, in view of the foregoing, petitioner M.E.'s claim for refund is hereby PARTIALLY
GRANTED in the form of a tax credit. Respondent Commissioner of Internal Revenue is ORDERED
to issue a tax credit certificate in favor of M.E. in the amount of PhP 151,201.71.
No pronouncement as to costs.
SO ORDERED.

[G.R. NO. 148083 : July 21, 2006]

COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. BICOLANDIA DRUG CORPORATION
(Formerly known as ELMAS DRUG CO.), Respondent.

DECISION
VELASCO, JR., J.:
In cases of conflict between the law and the rules and regulations implementing the law, the law
shall always prevail. Should Revenue Regulations deviate from the law they seek to implement,
they will be struck down.
The Facts
In 1992, Republic Act No. 7432, otherwise known as "An Act to Maximize the Contribution of
Senior Citizens to Nation Building, Grant Benefits and Special Privileges and For Other Purposes,"
granted senior citizens several privileges, one of which was obtaining a 20 percent discount from
all establishments relative to the use of transportation services, hotels and similar lodging
establishments, restaurants and recreation centers and purchase of medicines anywhere in the
country.1 The law also provided that the private establishments giving the discount to senior
citizens may claim the cost as tax credit.2 In compliance with the law, the Bureau of Internal
Revenue issued Revenue Regulations No. 2-94, which defined "tax credit" as follows:
Tax Credit - refers to the amount representing the 20% discount granted to a qualified senior
citizen by all establishments relative to their utilization of transportation services, hotels and
similar lodging establishments, restaurants, halls, circuses, carnivals and other similar places of
culture, leisure and amusement, which discount shall be deducted by the said establishments
from their gross income for income tax purposes and from their gross sales for value-added tax
or other percentage tax purposes.3
In 1995, respondent Bicolandia Drug Corporation, a corporation engaged in the business of
retailing pharmaceutical products under the business style of "Mercury Drug," granted the 20
percent sales discount to qualified senior citizens purchasing their medicines in compliance with
R.A. No. 7432.4 Respondent treated this discount as a deduction from its gross income in
compliance with Revenue Regulations No. 2-94, which implemented R.A. No. 7432.5 On April 15,
1996, respondent filed its 1995 Corporate Annual Income Tax Return declaring a net loss position
with nil income tax liability.6
On December 27, 1996, respondent filed a claim for tax refund or credit in the amount of PhP
259,659.00 with the Appellate Division of the Bureau of Internal Revenue because its net losses
for the year 1995 prevented it from benefiting from the treatment of sales discounts as a
deduction from gross sales during the said taxable year.7 It alleged that the petitioner
Commissioner of Internal Revenue erred in treating the 20 percent sales discount given to senior
citizens as a deduction from its gross income for income tax purposes or other percentage tax
purposes rather than as a tax credit.8
On April 6, 1998, respondent appealed to the Court of Tax Appeals in order to toll the running of
two (2)-year prescriptive period to file a claim for refund pursuant to Section 230 of the Tax Code
then.9 Respondent argued that since Section 4 of R.A. No. 7432 provided that discounts granted
to senior citizens may be claimed as tax credit, Section 2(i) of Revenue Regulations No. 2-94,
which referred to the tax credit as the amount representing the 20 percent discount that "shall
be deducted by the said establishments from their gross income for income tax purposes and
from their gross sales for value-added tax or other percentage tax purposes,"10 is illegal, void and
without effect for being inconsistent with the statute it implements.
Petitioner maintained that Revenue Regulations No. 2-94 is valid since the law tasked the
Department of Finance, among other government offices, with the issuance of the necessary
rules and regulations to carry out the objectives of the law.11
Ruling of the Court of Tax Appeals
The Court of Tax Appeals declared that the provisions of R.A. No. 7432 would prevail over Section
2(i) of Revenue Regulations No. 2-94, whose definition of "tax credit" deviated from the
intendment of the law; and as a result, partially granted the respondent's claim for a refund. After
examining the evidence on record, the Court of Tax Appeals reduced the claimed 20 percent sales
discount, thus reducing the refund to be given. It ruled that "Respondent is hereby ORDERED to
REFUND in favor of Petitioner the amount of P236,321.52, representing overpaid income tax for
the year 1995."12
Ruling of the Court of Appeals
On appeal, the Court of Appeals modified the decision of the Court of Tax Appeals as the law
provided for a tax credit, not a tax refund. The fallo of the Decision states:
WHEREFORE, premises considered, the present appeal is hereby GRANTED and the Decision of
the Court of Tax Appeals in C.T.A. Case No. 5599 is hereby MODIFIED in the sense that the award
of tax refund is ANNULLED and SET ASIDE. Instead, the petitioner is hereby ORDERED to issue a
tax credit certificate in favor of the respondent in the amount of P 236,321.52.
No pronouncement as to costs.13
The Issue
Petitioner now argues that the Court of Appeals erred in holding that the 20 percent sales
discount granted to qualified senior citizens by the respondent pursuant to R.A. No. 7432 may be
claimed as a tax credit, instead of a deduction from gross income or gross sales. 14
The Court's Ruling
The petition is not meritorious.
Redefining "Tax Credit" as "Tax Deduction"
The problem stems from the issuance of Revenue Regulations No. 2-94, which was supposed to
implement R.A. No. 7432, and the radical departure it made when it defined the "tax credit" that
would be granted to establishments that give 20 percent discount to senior citizens. Under
Revenue Regulations No. 2-94, the tax credit is "the amount representing the 20 percent discount
granted to a qualified senior citizen by all establishments relative to their utilization of
transportation services, hotels and similar lodging establishments, restaurants, drugstores,
recreation centers, theaters, cinema houses, concert halls, circuses, carnivals and other similar
places of culture, leisure and amusement, which discount shall be deducted by the said
establishments from their gross income for income tax purposes and from their gross sales for
value-added tax or other percentage tax purposes."15 It equated "tax credit" with "tax
deduction," contrary to the definition in Black's Law Dictionary, which defined tax credit as:
An amount subtracted from an individual's or entity's tax liability to arrive at the total tax liability.
A tax credit reduces the taxpayer's liability x x x, compared to a deduction which reduces taxable
income upon which the tax liability is calculated. A credit differs from deduction to the extent
that the former is subtracted from the tax while the latter is subtracted from income before the
tax is computed.16
The interpretation of an administrative government agency, which is tasked to implement the
statute, is accorded great respect and ordinarily controls the construction of the courts.17 Be that
as it may, the definition laid down in the questioned Revenue Regulations can still be subjected
to scrutiny. Courts will not hesitate to set aside an executive interpretation when it is clearly
erroneous. There is no need for interpretation when there is no ambiguity in the rule, or when
the language or words used are clear and plain or readily understandable to an ordinary
reader.18 The definition of the term "tax credit" is plain and clear, and the attempt of Revenue
Regulations No. 2-94 to define it differently is the root of the conflict.
Tax Credit is not Tax Refund
Petitioner argues that the tax credit is in the nature of a tax refund and should be treated as a
return for tax payments erroneously or excessively assessed against a taxpayer, in line with
Section 204(c) of Republic Act No. 8424, or the National Internal Revenue Code of 1997.
Petitioner claims that there should first be payment of the tax before the tax credit can be
claimed. However, in the National Internal Revenue Code, we see at least one instance where
this is not the case. Any VAT-registered person, whose sales are zero-rated or effectively zero-
rated may, within two (2) years after the close of the taxable quarter when the sales were made,
apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid
attributable to such sales, except transitional input tax, to the extent that such input tax has not
been applied against output tax.19 It speaks of a tax credit for tax due, so payment of the tax has
not yet been made in that particular example.
The Court of Appeals expressly recognized the differences between a "tax credit" and a "tax
refund," and stated that the same are not synonymous with each other, which is why it modified
the ruling of the Court of Tax Appeals.
Revenue Regulations No. 2-94 v. R.A. No. 7432 and
R.A. No. 7432 v. the National Internal Revenue Code
Petitioner contends that since R.A. No. 7432 used the word "may," the availability of the tax
credit to private establishments is only permissive and not absolute or mandatory. From that
starting point, petitioner further argues that the definition of the term "tax credit" in Revenue
Regulations No. 2-94 was validly issued under the authority granted by the law to the Department
of Finance to formulate the needed guidelines. It further explained that Revenue Regulations No.
2-94 can be harmonized with R.A No. 7432, such that the definition of the term "tax credit" in
Revenue Regulations No. 2-94 is controlling. It claims that to do otherwise would result in Section
4(a) of R.A. No. 7432 impliedly repealing Section 204 (c) of the National Internal Revenue Code.
These arguments must also fail.
Revenue Regulations No. 2-94 is still subordinate to R.A. No. 7432, and in cases of conflict, the
implementing rule will not prevail over the law it seeks to implement. While seemingly conflicting
laws must be harmonized as far as practicable, in this particular case, the conflict cannot be
resolved in the manner the petitioner wishes. There is a great divide separating the idea of "tax
credit" and "tax deduction," as seen in the definition in Black's Law Dictionary.
The claimed absurdity of Section 4(a) of R.A. No. 7432 impliedly repealing Section 204(c) of the
National Internal Revenue Code could only come about if it is accepted that a tax credit is akin to
a tax refund wherein payment of taxes must be made in order for it to be claimed. But as shown
in Section 112(a) of the National Internal Revenue Code, it is not always necessary for payment
to be made for a tax credit to be available.
Looking into R.A. No. 7432
Finally, petitioner argues that should private establishments, which count respondent in their
number, be allowed to claim tax credits for discounts given to senior citizens, they would be
earning and not just be reimbursed for the discounts given.
It cannot be denied that R.A. No. 7432 has a laudable goal. Moreover, it cannot be argued that it
was the intent of lawmakers for private establishments to be the primary beneficiaries of the
law. However, while the purpose of the law to benefit senior citizens is praiseworthy, the
concerns of the affected private establishments were also considered by the lawmakers. As in
other cases wherein private property is taken by the State for public use, there must be just
compensation. In this particular case, it took the form of the tax credit granted to private
establishments, purposely chosen by the lawmakers. In the similar case of Commissioner of
Internal Revenue v. Central Luzon Drug Corporation,20 scrutinizing the deliberations of the
Bicameral Conference Committee Meeting on Social Justice on February 5, 1992 which finalized
R.A. No. 7432, the discussions of the lawmakers clearly showed the intent that the cost of the 20
percent discount may be claimed by the private establishments as a tax credit. An excerpt from
the deliberations is as follows:
SEN. ANGARA. In the case of private hospitals they got the grant of 15% discount, provided that,
the private hospitals can claim the expense as a tax credit.
REP. AQUINO. Yah could be allowed as deductions in the preparation of (inaudible) income.
SEN. ANGARA. I-tax credit na lang natin para walang cash-out?cralawlibrary
REP. AQUINO. Oo, tax credit. Tama. Okay. Hospitals ba o lahat ng establishments na covered.
THE CHAIRMAN. Sa kuwan lang yon, as private hospitals lang.
REP. AQUINO. Ano ba yung establishments na covered?cralawlibrary
SEN. ANGARA. Restaurant, lodging houses, recreation centers.
REP. AQUINO. All establishments covered siguro?cralawlibrary
SEN. ANGARA. From all establishments. Alisin na natin `yung kuwan kung ganon. Can we go back
to Section 4 ha?cralawlibrary
REP. AQUINO. Oho.
SEN. ANGARA. Letter A. To capture that thought, we'll say the grant of 20% discount from all
establishments et cetera, et cetera, provided that said establishments may claim the cost as a tax
credit. Ganon ba `yon?cralawlibrary
REP. AQUINO. Yah.
SEN. ANGARA. Dahil kung government, they don't need to claim it.
THE CHAIRMAN. Tax credit.
SEN. ANGARA. As a tax credit [rather] than a kuwan - deduction, Okay.21
It is clear that the lawmakers intended the grant of a tax credit to complying private
establishments like the respondent.
If the private establishments appear to benefit more from the tax credit than originally intended,
it is not for petitioner to say that they shouldn't. The tax credit may actually have provided greater
incentive for the private establishments to comply with R.A. No. 7432, or quicker relief from the
cut into profits of these businesses.
Revenue Regulations No. 2-94 Null and Void
From the above discussion, it must be concluded that Revenue Regulations No. 2-94 is null and
void for failing to conform to the law it sought to implement. In case of discrepancy between the
basic law and a rule or regulation issued to implement said law, the basic law prevails because
said rule or regulation cannot go beyond the terms and provisions of the basic law.22
Revenue Regulations No. 2-94 being null and void, it must be ruled then that under R.A. No. 7432,
which was effective at the time, respondent is entitled to its claim of a tax credit, and the ruling
of the Court of Appeals must be affirmed.
But even as this particular case is decided in this manner, it must be noted that the concerns of
the petitioner regarding tax credits granted to private establishments giving discounts to senior
citizens have been addressed. R.A. No. 7432 has been amended by Republic Act No. 9257, the
"Expanded Senior Citizens Act of 2003." In this, the term "tax credit" is no longer used. The 20
percent discount granted by hotels and similar lodging establishments, restaurants and
recreation centers, and in the purchase of medicines in all establishments for the exclusive use
and enjoyment of senior citizens is treated in the following manner:
The establishment may claim the discounts granted under (a), (f), (g) and (h) as tax deduction
based on the net cost of the goods sold or services rendered: Provided, That the cost of the
discount shall be allowed as deduction from gross income for the same taxable year that the
discount is granted. Provided, further, that the total amount of the claimed tax deduction net of
value added tax if applicable, shall be included in their gross sales receipts for tax purposes and
shall be subject to proper documentation and to the provisions of the National Internal Revenue
Code, as amended.23
This time around, there is no conflict between the law and the implementing Revenue
Regulations. Under Revenue Regulations No. 4-2006, "(o)nly the actual amount of the discount
granted or a sales discount not exceeding 20% of the gross selling price can be deducted from
the gross income, net of value added tax, if applicable, for income tax purposes, and from gross
sales or gross receipts of the business enterprise concerned, for VAT or other percentage tax
purposes."24 Under the new law, there is no tax credit to speak of, only deductions.
Petitioner can find some vindication in the amendment made to R.A. No. 7432 by R.A. No. 9257,
which may be more in consonance with the principles of taxation, but as it was R.A. No. 7432 in
force at the time this case arose, this law controls the result in this particular case, for which
reason the petition must fail.
This case should remind all heads of executive agencies which are given the power to promulgate
rules and regulations, that they assume the roles of lawmakers. It is well-settled that a regulation
should not conflict with the law it implements. Thus, 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 Congress about its intent when it drafted the law. They may also consult the
Secretary of Justice or the Solicitor General for their opinions on the drafted rules. Administrative
rules, regulations and orders have the efficacy and force of law so long as they do not contravene
any statute or the Constitution.25 It is then the duty of the agencies to ensure that their rules do
not deviate from or amend acts of Congress, for their regulations are always subordinate to law.
WHEREFORE, the Petition is hereby DENIED. The assailed Decision of the Court of Appeals
is AFFIRMED. There is no pronouncement as to costs.
SO ORDERED.
Quisumbing, Chairman, Carpio-Morales, Tinga, JJ., concur.
Carpio, J., on official leave.
Endnotes: