GR 148083; (July, 2006) (Digest)
G.R. No. 148083 ; July 21, 2006
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. BICOLANDIA DRUG CORPORATION, respondent.
FACTS
Republic Act No. 7432 granted senior citizens a 20% discount on medicines and provided that establishments granting such discounts “may claim the cost as tax credit.” In 1995, respondent Bicolandia Drug Corporation complied with the law. The Bureau of Internal Revenue, however, issued Revenue Regulations No. 2-94, which defined the “tax credit” under the law as an amount that “shall be deducted… from gross income for income tax purposes.” Due to a net loss position in 1995, Bicolandia could not utilize this “deduction.” It thus filed a claim for a tax refund or credit, arguing that the law’s “tax credit” provision should prevail over the revenue regulation’s redefinition of it as a mere deduction.
ISSUE
Whether the 20% sales discount granted to senior citizens under R.A. No. 7432 should be treated as a tax credit, as stated in the law, or as a deduction from gross income, as defined by Revenue Regulations No. 2-94.
RULING
The Supreme Court ruled in favor of Bicolandia, affirming that the discount must be treated as a tax credit. The Court emphasized the fundamental principle that an administrative regulation, such as a revenue regulation, cannot amend or deviate from the law it seeks to implement. R.A. No. 7432 explicitly used the term “tax credit.” A tax credit is legally distinct from a tax deduction; a credit is an amount subtracted directly from the tax liability, while a deduction reduces taxable income. By redefining “tax credit” to mean a “deduction,” Revenue Regulations No. 2-94 effectively amended the law, which is beyond the rule-making power of the administrative agency. Since the law was clear, it must be applied as written. Consequently, Bicolandia was entitled to a tax credit certificate for the applicable amount, not merely a deduction. The Court noted that while subsequent legislation ( R.A. No. 9257 ) later amended the provision to allow a deduction, the law in force at the time of the transaction controlled the disposition of the case.