GR 180043; (July, 2009) (Digest)
G.R. No. 180043 ; July 14, 2009
COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. PHILIPPINE AIRLINES, INC., Respondent.
FACTS
For the period April to December 2001, Philippine Airlines, Inc. (PAL) paid Overseas Communications Tax (OCT) to the Philippine Long Distance Telephone Company (PLDT), which in turn remitted the tax to the Bureau of Internal Revenue. PAL filed an administrative claim for refund, arguing it was exempt from the OCT under its franchise, Presidential Decree No. 1590. Section 13 of this franchise grants PAL the option to pay either the basic corporate income tax or a two percent franchise tax on gross revenues, whichever is lower, “in lieu of all other taxes,” with the sole exception of real property tax. PAL incurred a net loss in 2001, resulting in zero basic corporate income tax liability, which was lower than any potential franchise tax. The Commissioner of Internal Revenue failed to act on the claim, prompting PAL to file a petition for review with the Court of Tax Appeals (CTA).
ISSUE
Whether PAL is entitled to a refund of the OCT it paid for the period April to December 2001 based on the tax exemption under its franchise.
RULING
Yes, PAL is entitled to the refund. The Supreme Court affirmed the CTA En Banc’s decision. The legal logic hinges on the proper interpretation of Section 13 of P.D. No. 1590. The franchise grants PAL an option between two tax regimes: pay the basic corporate income tax or the franchise tax. The chosen tax is paid “in lieu of all other taxes.” The Court ruled that the exercise of this option is not contingent upon the actual payment of a positive tax amount. When PAL incurred a net loss, its basic corporate income tax liability was zero. This zero liability constitutes a valid choice under the franchise, as it is definitively lower than any franchise tax computation. Consequently, by opting for the basic income tax (even with a zero liability), PAL is deemed to have availed itself of the “in lieu of all taxes” clause and is thus exempt from the OCT. The OCT, being a percentage tax, is clearly among the “all other taxes” from which PAL is exempt. The Court found PAL’s claim substantiated by evidence, including billing statements and receipts, for the amount of ₱126,243.80.