THIRD DIVISIONCOMMISSIONER OF INTERNALG.R. No. 172231REVENUE,Petitioner,Present:- versus -Ynares-Santiago,J.(Chairperson),Austria-Martinez,Callejo, Sr.,Chico-Nazario, andNachura,JJ.ISABELA CULTURALCORPORATION,Promulgated:Respondent.February 12, 2007x ---------------------------------------------------------------------------------------- xDECISIONYNARES-SANTIAGO,J.:Petitioner Commissioner of Internal Revenue (CIR) assails the September 30, 2005 Decision[1]of the Court of Appeals in CA-G.R. SP No. 78426 affirming the February 26, 2003 Decision[2]of the Court of Tax Appeals (CTA) in CTA Case No. 5211, which cancelled and set aside the Assessment Notices for deficiency income tax and expanded withholding tax issued by the Bureau of Internal Revenue (BIR) against respondent Isabela Cultural Corporation (ICC).The facts show that onFebruary 23, 1990, ICC, a domestic corporation, received from the BIR Assessment Notice No. FAS-1-86-90-000680 for deficiency income tax in the amount of P333,196.86, and Assessment Notice No. FAS-1-86-90-000681 for deficiency expanded withholding tax in the amount of P4,897.79, inclusive of surcharges and interest, both for the taxable year 1986.The deficiency income tax ofP333,196.86, arose from:(1)The BIRs disallowance of ICCs claimed expense deductions for professional and security services billed to and paid by ICC in 1986, to wit:(a)Expenses for the auditing services of SGV & Co.,[3]for the year endingDecember 31, 1985;[4](b)Expenses for the legal services [inclusive of retainer fees] of the law firm Bengzon Zarraga Narciso Cudala Pecson Azcuna & Bengsonfor the years 1984 and 1985.[5](c)Expense for security services of El Tigre Security & Investigation Agency for the months of April and May 1986.[6](2)The alleged understatement of ICCs interest income on the three promissory notes due from Realty Investment, Inc.The deficiency expanded withholding tax ofP4,897.79(inclusive of interest and surcharge) was allegedly due to the failure of ICC to withhold 1% expanded withholding tax on its claimed P244,890.00 deduction for security services.[7]OnMarch 23, 1990, ICC sought a reconsideration of the subject assessments.OnFebruary 9, 1995, however, it received a final notice before seizure demanding payment of the amounts stated in the said notices.Hence, it brought the case to the CTA which held that the petition is premature because the final notice of assessment cannot be considered as a final decision appealable to the tax court.This was reversed by the Court of Appeals holding that a demand letter of the BIR reiterating the payment of deficiency tax, amounts to a final decision on the protested assessment and may therefore be questioned before the CTA.This conclusion was sustained by this Court onJuly 1, 2001, in G.R. No. 135210.[8]The case was thus remanded to the CTA for further proceedings.OnFebruary 26, 2003, the CTA rendered a decision canceling and setting aside the assessment notices issued against ICC.It held that the claimed deductions for professional and security services were properly claimed by ICC in 1986 because it was only in the said year when the bills demanding payment were sent to ICC.Hence, even if some of these professional services were rendered to ICC in 1984 or 1985, it could not declare the same as deduction for the said years as the amount thereof could not be determined at that time.The CTA also held that ICC did not understate its interest income on the subject promissory notes.It found that it was the BIR which made an overstatement of said income when it compounded the interest income receivable by ICC from the promissory notes of Realty Investment, Inc., despite the absence of a stipulation in the contract providing for a compounded interest; nor of a circumstance, like delay in payment or breach of contract, that would justify the application of compounded interest.Likewise, the CTA found that ICC in fact withheld 1% expanded withholding tax on its claimed deduction for security services as shown by the various payment orders and confirmation receipts it presented as evidence.The dispositive portion of the CTAs Decision, reads:WHEREFORE, in view of all the foregoing, Assessment Notice No. FAS-1-86-90-000680 for deficiency income tax in the amount of P333,196.86, and Assessment Notice No. FAS-1-86-90-000681 for deficiency expanded withholding tax in the amount of P4,897.79, inclusive of surcharges and interest, both for the taxable year 1986, are hereby CANCELLED and SET ASIDE.SO ORDERED.[9]Petitioner filed a petition for review with the Court of Appeals, which affirmed the CTA decision,[10]holding that although the professional services (legal and auditing services) were rendered to ICC in 1984 and 1985, the cost of the services was not yet determinable at that time, hence, it could be considered as deductible expenses only in 1986 when ICC received the billing statements for said services.It further ruled that ICC did not understate its interest income from the promissory notes of Realty Investment, Inc., and that ICC properly withheld and remitted taxes on the payments for security services for the taxable year 1986.Hence, petitioner, through the Office of the Solicitor General, filed the instant petition contending that since ICC is using the accrual method of accounting, the expenses for the professional services that accrued in 1984 and 1985, should have been declared as deductions from income during the said years and the failure of ICC to do so bars it from claiming said expenses as deduction for the taxable year 1986.As to the alleged deficiency interest income and failure to withhold expanded withholding tax assessment, petitioner invoked the presumption that the assessment notices issued by the BIR are valid.The issue for resolution is whether the Court of Appeals correctly:(1) sustained the deduction of the expenses for professional and security services from ICCs gross income; and (2) held that ICC did not understate its interest income from the promissory notes of Realty Investment, Inc; and that ICC withheld the required 1% withholding tax from the deductions for security services.The requisites for the deductibility of ordinary and necessary trade, business, or professional expenses, like expenses paid for legal and auditing services, are: (a) the expense must be ordinary and necessary;(b) it must have been paid or incurred during the taxable year; (c) it must have been paid or incurred in carrying on the trade or business of the taxpayer; and (d) it must be supported by receipts, records or other pertinent papers.[11]The requisite that it must have beenpaid or incurredduring the taxable year is further qualified by Section 45 of the National Internal Revenue Code (NIRC) which states that: [t]he deduction provided for in this Title shall be taken for the taxable year in which paid or accrued or paid or incurred,dependent upon the method of accountingupon the basis of which the net income is computed x x x.Accounting methods for tax purposes comprise a set of rules for determining when and how to report income and deductions.[12]In the instant case, the accounting method used by ICC is the accrual method.Revenue Audit Memorandum Order No. 1-2000, provides that under the accrual method of accounting, expenses not being claimed as deductions by a taxpayer in the current year when they are incurred cannot be claimed as deduction from income for the succeeding year.Thus, a taxpayer who is authorized to deduct certain expenses and other allowable deductions for the current year but failed to do so cannot deduct the same for the next year.[13]The accrual method relies upon the taxpayers right to receive amounts or its obligation to pay them, in opposition to actual receipt or payment, which characterizes the cash method of accounting.Amounts of income accrue where the right to receive them become fixed, where there is created an enforceable liability.Similarly, liabilities are accrued when fixed and determinable in amount, without regard to indeterminacy merely of time of payment.[14]For a taxpayer using the accrual method, the determinative question is, when do the facts present themselves in such a manner that the taxpayer must recognize income or expense?The accrual of income and expense is permitted when the all-events test has been met.This test requires: (1) fixing of a right to income or liability to pay; and (2) the availability of the reasonable accurate determination of such income or liability.The all-events test requires the right to income or liability be fixed, and the amount of such income or liability be determined with reasonable accuracy.However, the test does not demand that the amount of income or liability be known absolutely, only that a taxpayer has at his disposal the information necessary to compute the amount with reasonable accuracy.The all-events test is satisfied where computation remains uncertain, if its basis is unchangeable; the test is satisfied where a computation may be unknown, but is not as much as unknowable, within the taxable year.The amount of liability does not have to be determined exactly; it must be determined with reasonable accuracy.Accordingly, the term reasonable accuracy implies something less than an exact or completely accurate amount.[15]The propriety of an accrual must be judged by the facts that a taxpayer knew, or could reasonably be expected to have known, at the closing of its books for the taxable year.[16]Accrual method of accounting presents largely a question of fact; such that the taxpayer bears the burden of proof of establishing the accrual of an item of income or deduction.[17]Corollarily, it is a governing principle in taxation that tax exemptions must be construedinstrictissimi jurisagainst the taxpayer and liberally in favor of the taxing authority; and one who claims an exemption must be able to justify the same by the clearest grant of organic or statute law. An exemption from the common burden cannot be permitted to exist upon vague implications.And since a deduction for income tax purposes partakes of the nature of a tax exemption, then it must also be strictly construed.[18]In the instant case, the expenses for professional fees consist of expenses for legal and auditing services.The expenses for legal services pertain to the 1984 and 1985 legal and retainer fees of the law firm Bengzon Zarraga Narciso Cudala Pecson Azcuna & Bengson, and for reimbursement of the expenses of said firm in connection with ICCs tax problems for the year 1984.As testified by the Treasurer of ICC, the firm has been its counsel since the 1960s.[19]From the nature of the claimed deductions and the span of time during which the firm was retained, ICC can be expected to have reasonably known the retainer fees charged by the firm as well as the compensation for its legal services.The failure to determine the exact amount of the expense during the taxable year when they could have been claimed as deductions cannot thus be attributed solely to the delayed billing of these liabilities by the firm.For one, ICC, in the exercise of due diligence could have inquired into the amount of their obligation to the firm, especially so that it is using the accrual method of accounting.For another, it could have reasonably determined the amount of legal and retainer fees owing to its familiarity with the rates charged by their long time legal consultant.As previously stated, the accrual method presents largely a question of fact and that the taxpayer bears the burden of establishing the accrual of an expense or income.However, ICC failed to discharge this burden.As to when the firms performance of its services in connection with the 1984 tax problems were completed, or whether ICC exercised reasonable diligence to inquire about the amount of its liability, or whether it does or does not possess the information necessary to compute the amount of said liability withreasonableaccuracy, are questions of fact which ICC never established.It simply relied on the defense of delayed billing by the firm and the company, which under the circumstances, is not sufficient to exempt it from being charged with knowledge of the reasonable amount of the expenses for legal and auditing services.In the same vein, the professional fees of SGV & Co. for auditing the financial statements of ICC for the year 1985 cannot be validly claimed as expense deductions in 1986.This is so because ICC failed to present evidence showing that even with only reasonable accuracy, as the standard to ascertain its liability to SGV & Co. in the year 1985, it cannot determine the professional fees which said company would charge for its services.ICC thus failed to discharge the burden of proving that the claimed expense deductions for the professional services were allowable deductions for the taxable year 1986.Hence, per Revenue Audit Memorandum Order No. 1-2000, they cannot be validly deducted from its gross income for the said year and were therefore properly disallowed by the BIR.As to the expenses for security services, the records show that these expenses were incurred by ICC in 1986[20]and could therefore be properly claimed as deductions for the said year.Anent the purported understatement of interest income from the promissory notes of Realty Investment, Inc., we sustain the findings of the CTA and the Court of Appeals that no such understatement exists and that only simple interest computation and not a compounded one should have been applied by the BIR.There is indeed no stipulation between the latter and ICC on the application of compounded interest.[21]Under Article 1959 of the Civil Code, unless there is a stipulation to the contrary, interest due should not further earn interest.Likewise, the findings of the CTA and the Court of Appeals that ICC truly withheld the required withholding tax from its claimed deductions for security services and remitted the same to the BIR is supported by payment order and confirmation receipts.[22]Hence, the Assessment Notice for deficiency expanded withholding tax was properly cancelled and set aside.In sum, Assessment Notice No. FAS-1-86-90-000680 in the amount of P333,196.86 for deficiency income tax should be cancelled and set aside but only insofar as the claimed deductions of ICC for security services.Said Assessment is valid as to the BIRs disallowance of ICCs expenses for professional services.The Court of Appeals cancellation of Assessment Notice No. FAS-1-86-90-000681 in the amount of P4,897.79 for deficiency expanded withholding tax, is sustained.WHEREFORE, the petition isPARTIALLY GRANTED.The September 30, 2005 Decisionof the Court of Appeals in CA-G.R. SP No. 78426, isAFFIRMEDwith theMODIFICATIONthat Assessment Notice No. FAS-1-86-90-000680, which disallowed the expense deduction of Isabela Cultural Corporation for professional and security services, is declared valid only insofar as the expenses for the professional fees of SGV & Co. and of the law firm, Bengzon Zarraga Narciso Cudala Pecson Azcuna & Bengson, are concerned.The decision is affirmed in all other respects.The case is remanded to the BIR for the computation of Isabela Cultural Corporations liability under Assessment Notice No. FAS-1-86-90-000680.SO ORDERED.CONSUELO YNARES-SANTIAGOAssociate JusticeWE CONCUR:MA. ALICIA AUSTRIA-MARTINEZAssociate JusticeROMEO J. CALLEJO, SR.MINITA V. CHICO-NAZARIOAssociate JusticeAssociate JusticeANTONIO EDUARDO B. NACHURAAssociate Justice

ATTESTATIONI attest that the conclusions in the above decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.CONSUELO YNARES-SANTIAGOAssociate JusticeChairperson, Third DivisionCERTIFICATIONPursuant to Section 13, Article VIII of the Constitution and the Division Chairpersons Attestation, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.REYNATO S. PUNOChief Justice

THIRD DIVISIONCARMELINO F. PANSACOLA,Petitioner,G.R. No. 159991

- versus -Present:QUISUMBING,J., Chairperson,CARPIO,CARPIO MORALES,TINGA, andVELASCO, JR.,JJ.

COMMISSIONER OF INTERNAL REVENUE,Respondent.Promulgated:November 16, 2006

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -xDECISIONQUISUMBING,J.:For review on certiorari is the Decision[1]datedJune 5, 2003of the Court of Appeals in CA-G.R. S.P. No. 60475.The appellate court denied petitioners availment of the increased amounts of personal and additional exemptions under Republic Act No. 8424, the National Internal Revenue Code of 1997[2](NIRC), which took effect on January 1, 1998.Also assailed is the appellate courts Resolution[3]datedSeptember 11, 2003, denying the motion for reconsideration.The facts are undisputed.OnApril 13, 1998, petitioner Carmelino F. Pansacola filed his income tax return for the taxable year 1997 that reflected an overpayment ofP5,950.In it he claimed the increased amounts of personal and additional exemptions under Section 35[4]of the NIRC, although his certificate of income tax withheld on compensation indicated the lesser allowed amounts[5]on these exemptions.He claimed a refund ofP5,950with the Bureau of Internal Revenue, which was denied.Later, the Court of Tax Appeals also denied his claim because according to the tax court, it would be absurd for the law to allow the deduction from a taxpayers gross income earned on a certain year of exemptions availing on a different taxable year[6]Petitioner sought reconsideration, but the same was denied.[7]On appeal, the Court of Appeals denied his petition for lack of merit.The appellate court ruled thatUmali v. Estanislao,[8]relied upon by petitioner, was inapplicable to his case.It further ruled that the NIRC took effect onJanuary 1, 1998, thus the increased exemptions were effective only to cover taxable year 1998 and cannot be applied retroactively.Petitioner, before us, raises a single issue:[W]hether or not the increased personal and additional exemptions under [the NIRC] can be availed of by the [p]etitioner for purposes of computing his income tax liability for the taxable year 1997 and thus be entitled to the refund.[9]Simply stated, the issue is: Could the exemptions under Section 35 of the NIRC, which took effect onJanuary 1, 1998, be availed of for the taxable year 1997?Petitioner argues that the personal and additional exemptions are of a fixed character based on Section 35 (A) and (B) of the NIRC[10]and as ruled by this Court inUmali, these personal and additional exemptions are fixed amounts to which an individual taxpayer is entitled. He contends that unlike other allowable deductions, the availability of these exemptions does not depend on the taxpayers profession, trade or business for a particular taxable period.Relying again inUmali, petitioner alleges that the Court of Appeals erred in ruling that the increased exemptions were meant to be applied beginning taxable year 1998 and were to be reflected in the taxpayers returns to be filed on or beforeApril 15, 1999.Petitioner reasons that such ruling would postpone the availability of the increased exemptions and literally defer the effectivity of the NIRC toJanuary 1, 1999.Petitioner insists that the increased exemptions were already available onApril 15, 1998, the deadline for filing income tax returns for taxable year 1997, because the NIRC was already effective.Respondent, through the Office of the Solicitor General, counters that the increased exemptions were not yet available for taxable year 1997 because all provisions of the NIRC took effect on January 1, 1998 only; that the fixed character of personal and additional exemptions does not necessarily mean that these were not time bound; and petitioners proposition was contrary to Section 35 (C)[11]of the NIRC.It further stated that petitioners exemptions were determined as of December 31, 1997 and the effectivity of the NIRC during the period of January 1 to April 15, 1998 did not affect his tax liabilities within the taxable year 1997; and the inclusive period from January 1 to April 15, 1998, the filing dates and deadline for administrative purposes, was outside of the taxable year 1997.Respondent also maintains thatUmaliis not applicable to this case.Prefatorily, personal and additional exemptions under Section 35 of the NIRC are fixed amounts to which certain individual taxpayers (citizens, resident aliens)[12]are entitled.Personal exemptions are the theoretical personal, living and family expenses of an individual allowed to be deducted from the gross or net income of an individual taxpayer.These are arbitrary amounts which have been calculated by our lawmakers to be roughly equivalent to the minimum of subsistence,[13]taking into account the personal status and additional qualified dependents of the taxpayer.They are fixed amounts in the sense that the amounts have been predetermined by our lawmakers as provided under Section 35 (A) and (B).Unless and until our lawmakers make new adjustments on these personal exemptions, the amounts allowed to be deducted by a taxpayer are fixed as predetermined by Congress.A careful scrutiny of the provisions[14]of the NIRC specifically shows that Section 79 (D)[15]provides that the personal and additional exemptions shall be determined in accordance with the main provisions in Title II of the NIRC. Its main provisions pertain to Section 35 (A) and (B) which state,

SEC. 35.Allowance of Personal Exemption for Individual Taxpayer.-(A)In General.-For purposes of determining the tax provided in Section 24(A) of this Title,[16]there shall be allowed a basic personal exemption as follows:xxxxFor each married individual P32,000xxxx(B)Additional Exemption for Dependents.There shall be allowed an additional exemption of Eight thousand pesos (P8,000) for each dependent not exceeding four (4).(Emphasis ours.)Section 35 (A) and (B) allow the basic personal and additional exemptions as deductions from gross or net income, as the case maybe, to arrive at the correct taxable incomeof certain individual taxpayers.Section 24 (A) (1) (a) imposed income tax on a resident citizens taxable income derived for each taxable year.It provides as follows:SEC. 24.Income Tax Rates.(A)Rates of Income Tax on Individual Citizen (1)An income tax is hereby imposed:(a)On the taxable income defined in Section 31 of this Code, other than income subject to tax under Subsections (B),[17](C),[18]and (D)[19]of this Section,derived for each taxable yearfrom all sources within and without the Philippines by every individual citizen of the Philippines residing therein;(Emphasis ours.)Section 31 defines taxable income as the pertinent items of gross income specified in the NIRC, less the deductions and/or personal and additional exemptions, if any, authorized for such types of income by the NIRC or other special laws.As defined in Section 22 (P),[20]taxable year means the calendar year, upon the basis of which the net income is computed under Title II of the NIRC.Section 43[21]also supports the rule that the taxable income of an individual shall be computed on the basis of the calendar year.In addition, Section 45[22]provides that the deductions provided for under Title II of the NIRC shall be taken for thetaxable yearin which they are paid or accrued or paid or incurred.Moreover,Section 79 (H)[23]requires the employer to determine, on or before the end of the calendar year but prior to the payment of the compensation for the last payroll period, the tax due from each employees taxable compensation income for the entire taxable year in accordance with Section 24 (A).This is for the purpose of either withholding from the employees December salary, or refunding to him not later than January 25 of the succeeding year, the difference between the tax due and the tax withheld.Therefore, as provided in Section 24 (A) (1) (a) in relation to Sections 31 and 22 (P) and Sections 43, 45 and 79 (H) of the NIRC, the income subject to income tax is the taxpayers income as derived and computedduring the calendar year, his taxable year.Clearly from theabovequotedprovisions, what the law should consider for the purpose of determining the tax due from an individual taxpayer is his status and qualified dependents at theclose of the taxable yearand not at the time the return is filed and the tax due thereon is paid.Now comes Section 35 (C) of the NIRC which provides,Sec. 35.Allowance of Personal Exemption for Individual Taxpayer.xxxx(C)Change of Status. If the taxpayer marries or should have additional dependent(s) as defined above during the taxable year, the taxpayer may claim the corresponding additional exemption, as the case may be, in full for such year.If the taxpayer dies during the taxable year, his estate may still claim the personal and additional exemptions for himself and his dependent(s) as if he died at the close of such year.If the spouse or any of the dependents dies or if any of such dependents marries, becomes twenty-one (21) years old or becomes gainfully employed during the taxable year, the taxpayer may still claim the same exemptions as if the spouse or any of the dependents died, or as if such dependents married, became twenty-one (21) years old or became gainfully employed at the close of such year.Emphasis must be made that Section 35 (C) of the NIRC allows a taxpayer to still claim the corresponding full amount of exemption for a taxable year,e.g.if he marries; have additional dependents; he, his spouse, or any of his dependents die; and if any of his dependents marry, turn 21 years old; or become gainfully employed.It is as if the changes in his or his dependents status took place at the close of the taxable year.Consequently, his correct taxable income and his corresponding allowable deductionse.g.personal and additional deductions, if any, had already been determined as of the end of the calendar year.In the case of petitioner, the availability of the aforementioned deductions if he is thusentitled,would be reflected on his tax return filed on or before the 15thday of April 1999 as mandated by Section 51 (C) (1).[24]Since the NIRC took effect onJanuary 1, 1998, the increased amounts of personal and additional exemptions under Section 35, can only be allowed as deductions from the individual taxpayers gross or net income, as the case maybe, for the taxable year 1998 to be filed in 1999.The NIRC made no reference that the personal and additional exemptions shall apply on income earned beforeJanuary 1, 1998.Thus, petitioners reliance inUmaliis misplaced.InUmali, we noted that despite being given authority by Section 29 (1) (4)[25]of the National Internal Revenue Code of 1977 to adjust these exemptions, no adjustments were made to cover 1989.Note that Rep. Act No. 7167 is entitled An Act Adjusting the Basic Personal and Additional Exemptions Allowable to Individuals for Income Tax Purposes to the Poverty Threshold Level, Amending for the Purpose Section 29, Paragraph (L), Items (1) and (2) (A), of the National Internal Revenue Code, As Amended, and For Other Purposes.Thus, we said inUmali,that the adjustment provided by Rep. Act No. 7167 effective 1992, should consider the poverty threshold level in 1991, the time it was enacted.And we observed therein that since the exemptions would especially benefit lower and middle-income taxpayers, the exemption should be made to cover the past year 1991.To such an extent, Rep. Act No. 7167 was a social legislation intended to remedy the non-adjustment in 1989.And as cited inUmali, this legislative intent is also clear in the records of the House of Representatives Journal.This is not so in the case at bar.There is nothing in the NIRC that expresses any such intent.The policy declarations in its enactment do not indicate it was a social legislation that adjusted personal and additional exemptions according to the poverty threshold level nor is there any indication that its application should retroact.At the time petitioner filed his 1997 return and paid the tax due thereon in April 1998, the increased amounts of personal and additional exemptions in Section 35 were not yet available.It has not yet accrued as ofDecember 31, 1997, the last day of his taxable year.Petitioners taxable income covers his income for the calendar year 1997.The law cannot be given retroactive effect.It is established that tax laws are prospective in application, unless it is expressly provided to apply retroactively.[26]In the NIRC, we note, there is no specific mention that the increased amounts of personal and additional exemptions under Section 35 shall be given retroactive effect.Conformably too, personal and additional exemptions are considered as deductions from gross income. Deductions for income tax purposes partake of the nature of tax exemptions, hence strictly construed[27]against the taxpayer[28]and cannot be allowed unless granted in the most explicit and categorical language[29]too plain to be mistaken.[30]They cannot be extended by mere implication or inference.[31]And, where a provision of law speaks categorically, the need for interpretation is obviated, no plausible pretense being entertained to justify non-compliance.All that has to be done is to apply it in every case that falls within its terms.[32]Accordingly, the Court of Appeals and the Court of Tax Appeals were correct in denying petitioners claim for refund.WHEREFORE, the petition isDENIEDfor lack of merit.The DecisiondatedJune 5, 2003and the Resolution datedSeptember 11, 2003of the Court of Appeals in CA-G.R. S.P. No. 60475 are herebyAFFIRMED.SO ORDERED.LEONARDO A. QUISUMBINGAssociate Justice

WE CONCUR:ANTONIO T. CARPIOAssociate Justice

CONCHITA CARPIO MORALESAssociate JusticeDANTE O. TINGAAssociate Justice

PRESBITERO J. VELASCO, JR.Associate Justice

A T T E S T A T I O NI attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.LEONARDO A. QUISUMBINGAssociate JusticeChairperson

C E R T I F I C A T I O NPursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.ARTEMIO V. PANGANIBANChief Justice

THIRD DIVISIONCOMMISSIONER OF INTERNAL G.R. No. 159647REVENUE,Petitioner, Present: Panganiban,J., Chairman, Sandoval-Gutierrez, - versus - Corona, Carpio Morales, and Garcia,JJCENTRAL LUZON DRUG Promulgated:CORPORATION, Respondent. April 15, 2005x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- xDECISIONPANGANIBAN,J.:T

he 20 percent discount required by the law to be given to senior citizens is atax credit, not merely atax deductionfrom the gross income or gross sale of the establishment concerned. Atax creditis used by a private establishment only after the tax has been computed; atax deduction, before the tax is computed. RA 7432 unconditionally grants atax creditto all covered entities. Thus, the provisions of the revenue regulation that withdraw or modify such grant are void. Basic is the rule that administrative regulations cannot amend or revoke the law.The CaseAn Inside Look At The Newest And Most Amazing Cruise Ship In The World(The Daily Western)Before us is a Petition for Review[1]under Rule 45 of the Rules of Court, seeking to set aside the August 29, 2002 Decision[2]and the August 11, 2003 Resolution[3]of the Court of Appeals (CA) in CA-GR SP No. 67439. The assailed Decision reads as follows:WHEREFORE, premises considered, the Resolution appealed from isAFFIRMEDin toto.No costs.[4]The assailed Resolution denied petitioners Motion for Reconsideration.

The FactsThe CA narrated the antecedent facts as follows: Respondent is a domestic corporation primarily engaged in retailing of medicines and other pharmaceutical products. In 1996, it operated six (6) drugstores under the business name and style Mercury Drug. From January to December 1996, respondent granted twenty (20%) percent sales discount to qualified senior citizens on their purchases of medicines pursuant to Republic Act No. [R.A.] 7432 and its Implementing Rules and Regulations. For the said period, the amount allegedly representing the 20% sales discount granted by respondent to qualified senior citizens totaledP904,769.00. On April 15, 1997, respondent filed its Annual Income Tax Return for taxable year 1996 declaring therein that it incurred net losses from its operations. On January 16, 1998, respondent filed with petitioner a claim for tax refund/credit in the amount ofP904,769.00 allegedly arising from the 20% sales discount granted by respondent to qualified senior citizens in compliance with [R.A.] 7432. Unable to obtain affirmative response from petitioner, respondent elevated its claim to the Court of Tax Appeals [(CTA or Tax Court)]viaa Petition for Review. On February 12, 2001, the Tax Court rendered aDecision[5]dismissing respondents Petition for lack of merit. In said decision, the [CTA] justified its ruling with the following ratiocination: x x x, if no tax has been paid to the government, erroneously or illegally, or if no amount is due and collectible from the taxpayer, tax refund or tax credit is unavailing. Moreover, whether the recovery of the tax is made by means of a claim for refund or tax credit, before recovery is allowed[,] it must be first established that there was an actual collection and receipt by the government of the tax sought to be recovered. x x x.x x x x x x x x x Prescinding from the above, it could logically be deduced that tax credit is premised on the existence of tax liability on the part of taxpayer. In other words, if there is no tax liability, tax credit is not available. Respondent lodged a Motion for Reconsideration. The [CTA], in its assailed resolution,[6]granted respondents motion for reconsideration and ordered herein petitioner to issue a Tax Credit Certificate in favor of respondent citing the decision of the then Special Fourth Division of [the CA] in CA G.R. SP No. 60057 entitled Central [Luzon] Drug Corporation vs. Commissioner of Internal Revenuepromulgated on May 31, 2001, to wit: However, Sec. 229 clearly does not apply in the instant case because the tax sought to be refunded or credited by petitioner was not erroneously paid or illegally collected. We take exception to the CTAs sweeping but unfounded statement that both tax refund and tax credit are modes of recovering taxes which are either erroneously or illegally paid to the government. Tax refunds or credits do not exclusively pertain to illegally collected or erroneously paid taxes as they may be other circumstances where a refund is warranted. The tax refund provided under Section 229 deals exclusively with illegally collected or erroneously paid taxes but there are other possible situations, such as the refund of excess estimated corporate quarterly income tax paid, or that of excess input tax paid by a VAT-registered person, or that of excise tax paid on goods locally produced or manufactured but actually exported. The standards and mechanics for the grant of a refund or credit under these situations are different from that under Sec. 229. Sec. 4[.a)] of R.A. 7432, is yet another instance of a tax credit and it does not in any way refer to illegally collected or erroneously paid taxes, x x x.[7]Ruling of the Court of Appeals The CA affirmedin totothe Resolution of the Court of Tax Appeals (CTA) ordering petitioner to issue a tax credit certificate in favor of respondent in the reduced amount ofP903,038.39. It reasoned that Republic Act No. (RA) 7432 required neither a tax liability nor a payment of taxes by private establishments prior to the availment of a tax credit. Moreover, such credit is not tantamount to an unintended benefit from the law, but rather a just compensation for the taking of private property for public use.Hence this Petition.[8]The IssuesPetitioner raises the following issues for our consideration:Whether the Court of Appeals erred in holding that respondent may claim the 20% sales discount as a tax credit instead of as a deduction from gross income or gross sales.Whether the Court of Appeals erred in holding that respondent is entitled to a refund.[9] These two issues may be summed up in only one: whether respondent, despite incurring a net loss, may still claim the 20 percent sales discount as a tax credit.The Courts RulingThe Petition is not meritorious.Sole Issue:Claim of 20 Percent Sales DiscountasTax CreditDespiteNet Loss Section 4a) of RA 7432[10]grants to senior citizens the privilege of obtaining a 20 percent discount on their purchase of medicine from any private establishment in the country.[11] The latter may then claim the cost of the discount as atax credit.[12] But can such credit be claimed, even though an establishment operates at a loss? We answer in the affirmative.Tax CreditversusTax Deduction Although the term is not specifically defined in our Tax Code,[13]tax creditgenerally refers to an amount that is subtracted directly from ones total tax liability.[14] It is an allowance against the tax itself[15]or a deduction from what is owed[16]by a taxpayer to the government. Examples oftax creditsare withheld taxes, payments of estimated tax, and investment tax credits.[17]Tax creditshould be understood in relation to other tax concepts. One of these istax deduction-- defined as a subtraction from income for tax purposes,[18]or an amount that is allowed by law to reduce income prior to [the] application of the tax rate to compute the amount of tax which is due.[19] An example of atax deductionis any of the allowable deductions enumerated in Section 34[20]of the Tax Code. Atax creditdiffers from atax deduction. On the one hand, atax creditreduces the tax due, including -- whenever applicable -- theincome taxthat is determined after applying the corresponding tax rates totaxable income.[21] Atax deduction, on the other, reduces the income that is subject to tax[22]in order to arrive attaxable income.[23] To think of the former as the latter is to avoid, if not entirely confuse, the issue. Atax creditis used onlyafterthe tax has been computed; atax deduction,before.Tax Liability RequiredforTax Credit Since atax creditis used to reduce directly the tax that is due, there ought to be a tax liabilitybeforethetax creditcan be applied. Without that liability, anytax creditapplication will be useless. There will be no reason for deducting the latter when there is, to begin with, no existing obligation to the government. However, as will be presented shortly, theexistenceof a tax credit or itsgrantby law is not the same as theavailmentoruseof such credit. While the grant is mandatory, the availment or use is not. If anet lossis reported by, and no other taxes are currently due from, a business establishment, there will obviously be no tax liability against which anytax creditcan be applied.[24] For the establishment to choose the immediate availment of atax creditwill be premature and impracticable. Nevertheless, the irrefutable fact remains that, under RA 7432, Congress has granted without conditions atax creditbenefit to all covered establishments. Although thistax creditbenefit is available, it need not be used by losing ventures, since there is no tax liability that calls for its application. Neither can it be reduced to nil by the quick yet callow stroke of an administrative pen, simply because no reduction of taxes can instantly be effected. By its nature, thetax creditmay still be deducted from afuture, not apresent, tax liability, without which it does not have any use. In the meantime, it need not move. But it breathes.Prior Tax Payments NotRequired forTax Credit While a tax liability is essential to theavailment or useof anytax credit, prior tax payments are not. On the contrary, for theexistence or grantsolely of such credit, neither a tax liability nor a prior tax payment is needed. The Tax Code is in fact replete with provisions granting or allowingtax credits, even though no taxes have been previously paid. For example, in computing theestate tax due, Section 86(E) allows atax credit-- subject to certain limitations -- for estate taxes paid to a foreign country. Also found in Section 101(C) is a similar provision for donors taxes -- again when paid to a foreign country -- in computing for thedonors tax due. Thetax creditsin both instances allude to the prior payment of taxes, even if not made to our government. Under Section 110, a VAT (Value-Added Tax)- registered person engaging in transactions -- whether or not subject to the VAT -- is also allowed atax creditthat includes a ratable portion of any input tax not directly attributable to either activity. This input tax mayeitherbe the VAT on the purchase or importation of goods or services that is merely due from -- not necessarily paid by -- such VAT-registered person in the course of trade or business;orthe transitional input tax determined in accordance with Section 111(A). The latter type may in fact be an amount equivalent to only eight percent of the value of a VAT-registered persons beginning inventory of goods, materials and supplies, when such amount -- as computed -- is higher than the actual VAT paid on the said items.[25] Clearly from this provision, thetax creditrefers to an input tax that is either due only or given a value by mere comparison with the VAT actually paid -- then later prorated. No tax is actually paid prior to the availment of such credit. In Section 111(B), a one and a half percent inputtax creditthat is merely presumptive is allowed. For the purchase of primary agricultural products used as inputs -- either in the processing of sardines, mackerel and milk, or in the manufacture of refined sugar and cooking oil -- and for the contract price of public work contracts entered into with the government, again, no prior tax payments are needed for the use of thetax credit. More important, a VAT-registered person whose sales are zero-rated or effectively zero-rated may, under Section 112(A), apply for the issuance of atax creditcertificate for the amount of creditable input taxes merely due -- again not necessarily paid to -- the government and attributable to such sales, to the extent that the input taxes have not been applied against output taxes.[26] Where a taxpayeris engaged in zero-rated or effectively zero-rated sales and also in taxable or exempt sales, the amount of creditable input taxes due that are not directly and entirely attributable to any one of these transactions shall be proportionately allocated on the basis of the volume of sales. Indeed, in availing of suchtax creditfor VAT purposes, this provision -- as well as the one earlier mentioned -- shows that the prior payment of taxes is not a requisite. It may be argued that Section 28(B)(5)(b) of the Tax Code is another illustration of atax creditallowed, even though no prior tax payments are not required. Specifically, in this provision, the imposition of a final withholding tax rate on cash and/or property dividends received by a nonresident foreign corporation from a domestic corporation is subjected to the condition that a foreigntax creditwill be given by the domiciliary country in an amount equivalent to taxes that are merely deemed paid.[27] Although true, this provision actually refers to thetax creditas aconditiononly for the imposition of a lower tax rate, not as adeductionfrom the corresponding tax liability. Besides, it is not our government but the domiciliary country that credits against the income tax payable to the latter by the foreign corporation, the tax to be foregone or spared.[28] In contrast, Section 34(C)(3), in relation to Section 34(C)(7)(b), categorically allows as credits, against the income tax imposable under Title II, the amount of income taxes merely incurred -- not necessarily paid -- by a domestic corporation during a taxable year in any foreign country. Moreover, Section 34(C)(5) provides that for such taxes incurred but not paid, atax creditmay be allowed, subject to the condition precedent that the taxpayer shall simply give a bond with sureties satisfactory to and approved by petitioner, in such sum as may be required; and further conditioned upon payment by the taxpayer of any tax found due, upon petitioners redetermination of it. In addition to the above-cited provisions in the Tax Code, there are also tax treaties and special laws that grant or allowtax credits, even though no prior tax payments have been made. Under the treaties in which thetax creditmethod is used as a relief to avoid double taxation,income that is taxed in thestate of sourceis also taxable in thestate of residence, but the tax paid in the former is merely allowed as a credit against the tax levied in the latter.[29] Apparently, payment is made to thestate of source, not thestate of residence. No tax, therefore, has beenpreviouslypaid to the latter. Under special laws that particularly affect businesses, there can also betax creditincentives. To illustrate,the incentives provided for in Article 48 of Presidential Decree No. (PD) 1789, as amended by Batas Pambansa Blg. (BP) 391, includetax creditsequivalent to either five percent of the net value earned, or five or ten percent of the net local content of exports.[30] In order to avail of such credits under the said law and still achieve its objectives, no prior tax payments are necessary. From all the foregoing instances, it is evident that prior tax payments are not indispensable to the availment of atax credit. Thus, the CA correctly held that the availment under RA 7432 did not require prior tax payments by private establishments concerned.[31] However, we do not agree with its finding[32]that the carry-over oftax creditsunder the said special law to succeeding taxable periods, and even their application against internal revenue taxes, did not necessitate the existence of a tax liability. The examples above show that a tax liability is certainly important in theavailment or use, not theexistence or grant, of atax credit. Regarding this matter, a private establishment reporting anet lossin its financial statements is no different from another that presents anet income. Both are entitled to thetax creditprovided for under RA 7432, since the law itself accords that unconditional benefit. However, for the losing establishment to immediately apply such credit, where no tax is due, will be an improvident usance.Sections 2.i and 4 of RevenueRegulations No. 2-94 Erroneous RA 7432 specifically allows private establishments to claim astax creditthe amount of discounts they grant.[33] In turn, the Implementing Rules and Regulations, issued pursuant thereto, provide the procedures for its availment.[34] To deny such credit, despite the plain mandate of the law and the regulations carrying out that mandate, is indefensible.First, the definition given by petitioner is erroneous. It refers totax creditas the amount representing the 20 percent discount that shall be deducted by the said establishments from theirgross incomefor income tax purposes and from theirgross salesfor value-added tax or other percentage tax purposes.[35] In ordinary business language, thetax creditrepresents the amount of such discount. However, the manner by which the discount shall be credited against taxes has not been clarified by the revenue regulations. By ordinary acceptation, a discount is an abatement or reduction made from the gross amount or value of anything.[36] To be more precise, it is in business parlance a deduction or lowering of an amount of money;[37]or a reduction from the full amount or value of something, especially a price.[38] In business there are many kinds of discount, the most common of which is that affecting theincome statement[39]or financial report upon which theincome taxis based.Business DiscountsDeducted fromGross Sales Acash discount, for example, is one granted by business establishments tocredit customersfor their prompt payment.[40] It is a reduction in price offered to the purchaser if payment is made within a shorter period of time than the maximum time specified.[41] Also referred to as asales discounton the part of the seller and apurchase discounton the part of the buyer, it may be expressed in suchterms as 5/10, n/30.[42] Aquantity discount, however, is a reduction in price allowed for purchases made in large quantities, justified by savings in packaging, shipping, and handling.[43] It is also called avolumeorbulk discount.[44] A percentage reduction from the list price x x x allowed by manufacturers to wholesalers and by wholesalers to retailers[45]is known as atrade discount. No entry for it need be made in the manual or computerizedbooks of accounts, since the purchase or sale is already valued at the net price actually charged the buyer.[46] The purpose for the discount is to encourage trading or increase sales, and the prices at which the purchased goods may be resold are also suggested.[47] Even achain discount-- a series of discounts from one list price -- is recorded at net.[48] Finally, akin to atrade discountis afunctional discount. It is a suppliers price discount given to a purchaser based on the [latters] role in the [formers] distribution system.[49] This role usually involves warehousing or advertising. Based on this discussion, we find that the nature of asales discountis peculiar. Applying generally accepted accounting principles (GAAP) in the country, this type of discount is reflected in theincome statement[50]as a line item deducted -- along with returns, allowances, rebates and other similar expenses -- fromgross salesto arrive atnet sales.[51] This type of presentation is resorted to, because theaccounts receivableandsalesfigures that arise fromsales discounts, -- as well as fromquantity, volumeorbulk discounts-- are recorded in the manual and computerizedbooks of accountsand reflected in the financial statements at the gross amounts of the invoices.[52] This manner of recording credit sales -- known as thegross method-- is most widely used, because it is simple, more convenient to apply than thenet method, and produces no material errors over time.[53] However, under thenet methodused in recordingtrade,chainorfunctional discounts, only the net amounts of the invoices -- after the discounts have been deducted -- are recorded in thebooks of accounts[54]and reflected in the financial statements. A separate line item cannot be shown,[55]because the transactions themselves involving bothaccounts receivableandsaleshave already been entered into, net of the said discounts. The termsales discountsis not expressly defined in the Tax Code, but one provision adverts to amounts whose sum -- along withsales returns,allowancesandcost of goods sold[56]-- is deducted fromgross salesto come up with thegross income,profitormargin[57]derived from business.[58] In another provision therein,sales discountsthat are granted and indicated in the invoices at the time of sale -- and that do not depend upon the happening of any future event -- may be excluded from thegross saleswithin the same quarter they were given.[59] While determinative only of the VAT, the latter provision also appears as a suitable reference point for income tax purposes already embraced in the former. After all, these two provisions affirm thatsales discountsare amounts that are always deductible fromgross sales.Reason for the Senior Citizen Discount:The Law, Not Prompt Payment A distinguishing feature of the implementing rules of RA 7432 is the private establishments outright deduction of the discount from the invoice price of the medicine sold to the senior citizen.[60] It is, therefore, expected that for each retail sale made under this law, the discount period lasts no more than a day, because such discount is given -- and the net amount thereof collected -- immediately upon perfection of the sale.[61] Although prompt payment is made for an arms-length transaction by the senior citizen, the real and compelling reason for the private establishment giving the discount is that the law itself makes it mandatory. What RA 7432 grants the senior citizen is a mere discount privilege, not asales discountor 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 the senior citizen must be equivalent to thetax creditbenefit 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 asales discount. To a senior citizen, the monetary effect of the privilege may be the same as that resulting from asales discount. However, to a private establishment, the effect is different from a simple reduction in price that results from such discount. In other words, thetax creditbenefit is not the same as asales discount. To repeat from our earlier discourse, this benefit cannot and should not be treated as atax deduction. To stress, the effect of asales discounton theincome statementandincome tax returnof an establishment covered by RA 7432 is different from that resulting from theavailmentoruseof itstax creditbenefit. While the former is a deductionbefore, the latter is a deductionafter, theincome taxis computed. As mentioned earlier, a discount is not necessarily asales discount, and atax creditfor a simple discount privilege should not be automatically treated like asales discount.Ubi lex non distinguit, nec nos distinguere debemus. Where the law does not distinguish, we ought not to distinguish. Sections 2.i and 4 of Revenue Regulations No. (RR) 2-94 definetax creditas the 20 percent discount deductible fromgross incomeforincome taxpurposes, or fromgross salesfor VAT or other percentage tax purposes. In effect, thetax creditbenefit under RA 7432 is related to asales discount. This contrived definition is improper, considering that the latter has to be deducted fromgross salesin order to compute thegross incomein theincome statementand cannot be deducted again, even for purposes of computing theincome tax. When the law says that the cost of the discount may be claimed as atax 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 thetax creditbenefit depends upon the existence of a tax liability, but to limit the benefit to asales discount-- which is not even identical to the discount privilege that is granted by law -- does not define it at all and serves no useful purpose. The definition must, therefore, be stricken down.Laws Not Amendedby RegulationsSecond, the law cannot be amended by a mere regulation. In fact, aregulation that operates to create a rule out of harmony withthe statute is a mere nullity;[62]it cannot prevail. It is a cardinal rule that courts will and should respect the contemporaneous construction placed upon a statute by the executive officers whose duty it is to enforce it x x x.[63] In the scheme of judicial tax administration, the need for certainty and predictability in the implementation of tax laws is crucial.[64] Our tax authorities fill in the details that Congress may not have the opportunity or competence to provide.[65] The regulations these authorities issue are relied upon by taxpayers, who are certain that these will be followed by the courts.[66] Courts, however, will not uphold these authorities interpretations when clearly absurd, erroneous or improper. In the present case, the tax authorities have given the termtax creditinSections 2.i and 4 of RR 2-94a meaning utterly in contrast to what RA 7432 provides. Their interpretation has muddled up the intent of Congress in granting a mere discount privilege, not asales discount. The administrative agency issuing these regulations may not enlarge, alter or restrict the provisions of the law it administers; it cannot engraft additional requirements not contemplated by the legislature.[67] In case of conflict, the law must prevail.[68] A regulation adopted pursuant to law is law.[69] Conversely, a regulation or any portion thereof not adopted pursuant to law is no law and has neither the force nor the effect of law.[70]Availment ofTaxCreditVoluntary

Third, the wordmayin the text of the statute[71]implies that theavailability of thetax creditbenefit is neither unrestricted nor mandatory.[72] There is no absolute right conferred upon respondent, or any similar taxpayer, to avail itself of thetax creditremedy whenever it chooses; neither does it impose a duty on the part of the government to sit back and allow an important facet of tax collection to be at the sole control and discretion of the taxpayer.[73] For the tax authorities to compel respondent to deduct the 20 percent discount from either itsgross incomeor itsgross sales[74]is, therefore, not only to make an imposition without basis in law, but also to blatantly contravene the law itself. What Section 4.a of RA 7432 means is that thetax creditbenefit is merely permissive, not imperative. Respondent is given two options -- either to claim or not to claim the cost of the discounts as atax credit. In fact, it may even ignore the credit and simply consider the gesture as an act of beneficence, an expression of its social conscience.

Granting that there is a tax liability and respondent claims such cost as atax credit, then thetax creditcan easily be applied. If there is none, the credit cannot be used and will just have to be carried over and revalidated[75]accordingly. If, however, the business continues to operate at a loss and no other taxes are due, thus compelling it to close shop, the credit can never be applied and will be lost altogether. In other words, it is the existence or the lack of a tax liability that determines whether the cost of the discounts can be used as atax credit. RA 7432 does not give respondent the unfettered right to avail itself of the credit whenever it pleases. Neither does it allow our tax administrators to expand or contract the legislative mandate. The plain meaning rule orverba legisin statutory construction is thus applicable x x x. 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.[76]

Tax CreditBenefitDeemedJust CompensationFourth, Sections2.i and 4 of RR 2-94deny the exercise by the State of its power of eminent domain. Be it stressed that the privilege enjoyed by senior citizens does not comedirectlyfrom the State, but rather from the private establishments concerned. Accordingly, thetax creditbenefit granted to these establishments can be deemed as theirjust compensationfor private property taken by the State for public use.[77] The concept ofpublic useis no longer confined to the traditional notion ofuse by the public, but held synonymous withpublic interest,public benefit,public welfare, andpublic convenience.[78] The discount privilege to which our senior citizens are entitled is actually a benefit enjoyed by the general public to which these citizens belong. The discounts given would have entered the coffers and formed part of thegross salesof the private establishments concerned, were it not for RA 7432. The permanent reduction in their total revenues is a forced subsidy corresponding to the taking of private property forpublic use or benefit. As a result of the 20 percent discount imposed by RA 7432, respondent becomes entitled to ajust compensation. This term refers not only to the issuance of atax creditcertificate indicating the correct amount of the discounts given, but also to the promptness in its release. Equivalent to the payment of property taken by the State, such issuance -- when not done within areasonable timefrom the grant of the discounts -- cannot be considered asjust compensation. In effect, respondent is made to suffer the consequences of being immediately deprived of its revenues while awaiting actual receipt, through the certificate, of the equivalent amount it needs to cope with the reduction in its revenues.[79] Besides, the taxation power can also be used as an implement for the exercise of the power of eminent domain.[80]Tax measures are but enforced contributions exacted on pain of penal sanctions[81]and clearly imposed for apublic purpose.[82] In recent years, the power to tax has indeed become a most effective tool to realize social justice,public welfare, and the equitable distribution of wealth.[83] While itis a declared commitment under Section 1 of RA 7432, social justice cannot be invoked to trample on the rights of property owners who under our Constitution and laws are also entitled to protection. The social justice consecrated in our [C]onstitution [is] not intended to take away rights from a person and give them to another who is not entitled thereto.[84] For this reason, a just compensation for income that is taken away from respondent becomes necessary. It is in thetax creditthat our legislators find support to realize social justice, and no administrative body can alter that fact.To put it differently, a private establishment that merely breaks even[85]-- without the discounts yet -- will surely start to incur losses because of such discounts. The same effect is expected if its mark-up is less than 20 percent, and if all its sales come from retail purchases by senior citizens. Aside from the observation we have already raised earlier, it will also be grossly unfair to an establishment if the discounts will be treated merely as deductions from either itsgross incomeor itsgross sales. Operating at a loss through no fault of its own, it will realize that thetax creditlimitation under RR 2-94 is inutile, if not improper. Worse, profit-generating businesses will be put in a better position if they avail themselves oftax creditsdenied those that are losing, because no taxes are due from the latter.Grant ofTax CreditIntended by the LegislatureFifth, RA 7432 itself seeks to adopt measures whereby senior citizens are assisted by the community as a whole and to establish a program beneficial to them.[86] These objectives are consonant with the constitutional policy of making health x x x services available to all the people at affordable cost[87]and of giving priority for the needs of the x x x elderly.[88] Sections2.i and 4 of RR 2-94, however, contradict these constitutional policies and statutory objectives. Furthermore, Congress has allowed all private establishments a simpletax credit, not a deduction. In fact, no cash outlay is required from the government for theavailmentoruseof such credit.The deliberations on February 5, 1992 of the Bicameral Conference Committee Meeting on Social Justice, which finalized RA 7432, disclose the true intent of our legislators to treat thesales discountsas atax credit, rather than as a deduction fromgross income. We quote from those deliberations as follows:"THE CHAIRMAN (Rep. Unico). By the way, before that ano, about deductions from taxable income. I think we incorporated there a provision na - on the responsibility of the private hospitals and drugstores, hindi ba?SEN. ANGARA. Oo.THE CHAIRMAN. (Rep. Unico), So, I think we have to put in also a provision here about the deductions from taxable income of that private hospitals, di ba ganon 'yan?MS. ADVENTO. Kaya lang po sir, and mga discounts po nila affecting government and public institutions, so, puwede na po nating hindi isama yung mga less deductions ng taxable income.THE CHAIRMAN. (Rep. Unico). Puwede na. Yung about the private hospitals. Yung isiningit natin?MS. ADVENTO. Singit na po ba yung 15% on credit. (inaudible/did not use the microphone).SEN. ANGARA. Hindi pa, hindi pa.THE CHAIRMAN. (Rep. Unico) Ah, 'di pa ba naisama natin?SEN. ANGARA. Oo. You want to insert that?THE CHAIRMAN (Rep. Unico). Yung ang proposal ni Senator Shahani, e.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 perpetrations of (inaudible) income.SEN. ANGARA. I-tax credit na lang natin para walang cash-out ano?REP. AQUINO. Oo, tax credit. Tama, Okay. Hospitals ba o lahat ng establishments na covered.THE CHAIRMAN. (Rep. Unico). Sa kuwan lang yon, as private hospitals lang.REP. AQUINO. Ano ba yung establishments na covered?SEN. ANGARA. Restaurant lodging houses, recreation centers.REP. AQUINO. All establishments covered siguro?SEN. ANGARA. From all establishments. Alisin na natin 'Yung kuwan kung ganon. Can we go back to Section 4 ha?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 - provided that private establishments may claim the cost as a tax credit. Ganon ba 'yon?REP. AQUINO. Yah.SEN. ANGARA. Dahil kung government, they don't need to claim it.THE CHAIRMAN. (Rep. Unico). Tax credit.SEN. ANGARA.As a tax credit [rather] than a kuwan - deduction, Okay.REP. AQUINO Okay.SEN. ANGARA. Sige Okay. Di subject to style na lang sa Letter A".[89]Special LawOver General LawSixth and last, RA 7432 is a special law that should prevail over the Tax Code -- a general law.x x x [T]he rule is that on a specific matter the special law shall prevail over the general law, which shallbe resorted to only to supply deficiencies in the former.[90] In addition, [w]here there are two statutes, the earlier special and the later general -- the terms of the general broad enough to include the matter provided for in the special -- the fact that one is special and the other is general creates a presumption that the special is to be considered as remaining an exception to the general,[91]one as a general law of the land, the other as the law of a particular case.[92] It is a canon of statutory construction that a laterstatute,general in its termsand not expressly repealing aprior specialstatute, will ordinarily not affect the special provisions of such earlier statute.[93] RA 7432 is an earlier law not expressly repealed by, and therefore remains an exception to, the Tax Code -- a later law. When the former states that atax creditmay be claimed, then the requirement of prior tax payments under certain provisions of the latter, as discussed above, cannot be made to apply. Neither can the instances of or references to atax deductionunder the Tax Code[94]be made to restrict RA 7432. No provision of any revenue regulation can supplant or modify the acts of Congress.WHEREFORE, the Petition is herebyDENIED. The assailed Decision and Resolution of the Court of AppealsAFFIRMED. No pronouncement as to costs. SO ORDERED.ARTEMIO V. PANGANIBANAssociate JusticeChairman, Third DivisionW E C O N C U R:ANGELINA SANDOVAL-GUTIERREZRENATO C. CORONA

Associate JusticeAssociate Justice

CONCHITA CARPIO MORALESCANCIO C. GARCIA

Associate JusticeAssociate Justice

ATTESTATION I attest that the conclusions in the above decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.ARTEMIO V. PANGANIBANAssociate JusticeChairman, Third DivisionCERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, and the Chairmans Attestation, it is hereby certified that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.SECOND DIVISIONCOMMISSIONER OF INTERNALG.R. No. 148512REVENUE,Petitioner,Present:PUNO,J., Chairperson,-versus SANDOVAL-GUTIERREZ,CORONA,AZCUNA, andGARCIA,JJ.CENTRAL LUZONDRUGCORPORATION,Promulgated:Respondent.June 26, 2006x ---------------------------------------------------------------------------------------- xDECISIONAZCUNA,J.:This is a petition for review under Rule 45 of the Rules of Court seeking the nullification of the Decision, dated May 31, 2001, of the Court of Appeals (CA) in CA-G.R. SP No. 60057, entitled Central Luzon Drug Corporation v. Commissioner of Internal Revenue, granting herein respondent Central Luzon Drug Corporations claim for tax credit equal to the amount of the 20% discount that it extended to senior citizens on the latters purchase of medicines pursuant to Section 4(a) of Republic Act (R.A.) No. 7432, entitled An Act to Maximize the Contribution ofSenior Citizens to Nation Building, Grant Benefits and Special Privileges and for other Purposes otherwise known as the Senior Citizens Act.The antecedents are as follows:

Central Luzon Drug Corporation has been a retailer of medicines and other pharmaceutical products sinceDecember 19, 1994. In 1995, it opened three (3) drugstores as a franchisee under the business name and style of Mercury Drug.For the period January 1995 to December 1995, in conformity to the mandate of Sec. 4(a) of R.A. No. 7432, petitioner granted a 20% discount on the sale of medicines to qualified senior citizens amounting toP219,778.Pursuant to Revenue Regulations No. 2-94[1]implementing R.A. No. 7432, which states that the discount given to senior citizens shall be deducted by the establishment from its gross sales for value-added tax and other percentage tax purposes, respondent deducted the total amount ofP219,778 from its gross income for the taxable year 1995. For said taxable period, respondent reported a net loss ofP20,963 in its corporate income tax return.As a consequence, respondent did not pay income tax for 1995.Subsequently, onDecember 27, 1996, claiming that according to Sec. 4(a) of R.A. No. 7432, the amount ofP219,778 should be applied as a tax credit, respondent filed a claim for refund in the amount ofP150,193, thus:

Net SalesP37,014,807.00Add:Cost of 20% Discountto Senior Citizens219,778.00Gross SalesP37,234,585.00Less:Cost ofSalesMerchandise Inventory, begP1,232,740.00Purchases41,145,138.00Merchandise Inventory, end8,521,557.0033,856,621.00Gross ProfitP3,377,964.00Miscellaneous Income39,014.00Total Income3,416,978.00Operating Expenses3,199,230.00Net Income Before TaxP217,748.00Income Tax (35%)69,585.00Less:Tax Credit(Cost of 20% Discountto Senior Citizens)219,778.00Income Tax Payable(P150,193.00)Income Tax Actually Paid-0-Tax Refundable/Overpaid Income Tax(P150,193.00)As shown above, the amount ofP150,193 claimed as a refund represents the tax credit allegedly due to respondent under R.A. No. 7432. Since the Commissioner of Internal Revenue was not able to decide the claim for refund on time,[2]respondent filed a Petition for Review with the Court of Tax Appeals (CTA) onMarch 18, 1998.OnApril 24, 2000, the CTA dismissed the petition, declaring that even if the law treats the 20% sales discounts granted to senior citizens as a tax credit, the same cannot apply when there is no tax liability or the amount of the tax credit is greater than the tax due. In the latter case, the tax credit will only be to the extent of the tax liability.[3]Also, no refund can be granted as no tax was erroneously, illegally and actually collected based on the provisions of Section 230, now Section 229, of the Tax Code. Furthermore, the law does not state that a refund can be claimed by the private establishment concerned as an alternative to the tax credit.Thus, respondent filed with the CA a Petition for Review onAugust 3, 2000.OnMay 31, 2001, the CA rendered a Decision stating that Section 229 of the Tax Code does not apply in this case. It concluded that the 20% discount given to senior citizens which is treated as a tax credit pursuant to Sec. 4(a) of R.A. No. 7432 is considered just compensation and, as such, may be carried over to the next taxable period if there is no current tax liability. In view of this, the CA held:WHEREFORE, the instant petition is hereby GRANTED and the decision of the CTA dated24 April 2000and its resolution dated06 July 2000are SET ASIDE. A new one is entered granting petitioners claim for tax credit in the amount of Php: 150,193.00. No costs.SO ORDERED.[4]Hence, this petition raising the sole issue of whether the 20% sales discount granted by respondent to qualified senior citizens pursuant to Sec. 4(a) of R.A. No. 7432 may be claimed as a tax credit or as a deduction from gross sales in accordance with Sec. 2(1) of Revenue Regulations No. 2-94.Sec. 4(a) of R.A. No. 7432 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 utilization of transportations services, hotels and similar lodging establishments, restaurants and recreation centers and purchase of medicines anywhere in the country:Provided,That private establishments may claim thecostas tax credit.The CA and the CTA correctly ruled that based on the plain wording of the law discounts given under R.A. No. 7432 should be treated as tax credits, not deductions from income.It is a fundamental rule in statutory construction that the legislative intent must be determined from the language of the statute itself especially when the words and phrases therein are clear and unequivocal. The statute in such a case must be taken to mean exactly what it says.[5]Its literal meaning should be followed;[6]to depart from the meaning expressed by the words is to alter the statute.[7]The above provision explicitly employed the word tax credit.Nothing in the provision suggests for it to mean a deduction from gross sales. To construe it otherwise would be a departure from the clear mandate of the law.Thus, the 20% discount required by the Act to be given to senior citizens is a tax credit, not a deduction from the gross sales of the establishment concerned. As a corollary to this, the definition of tax credit found in Section 2(1) of Revenue Regulations No. 2-94 is erroneous as it refers totax creditas the amount representing the 20% discountthat shall be deducted by the said establishment from their gross sales for value added tax and other percentage tax purposes. This definition is contrary to what our lawmakers had envisioned with regard to the treatment of the discount granted to senior citizens.Accordingly, 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.[8]The law cannot be amended by a mere regulation. The administrative agencies issuing these regulations may not enlarge, alter or restrict the provisions of the law they administer.[9]In fact, a regulation that operates to create a rule out of harmony with the statute is a mere nullity.[10]Finally, for purposes of clarity, Sec. 229[11]of the Tax Code does not apply to cases that fall under Sec. 4 of R.A. No. 7432 because the former provision governs exclusively all kinds of refund or credit of internal revenue taxes that were erroneously or illegally imposed and collected pursuant to the Tax Code while the latter extends the tax credit benefit to the private establishments concerned even before tax payments have been made. The tax credit that is contemplated under the Act is a form of just compensation, not a remedy for taxes that were erroneously or illegally assessed and collected. In the same vein, prior payment of any tax liability is not a precondition before a taxable entity can benefit from the tax credit. The credit may be availed of upon payment of the tax due, if any. Where there is no tax liability or where a private establishment reports a net loss for the period, the tax credit can be availed of and carried over to the next taxable year.It must also be stressed that unlike in Sec. 229 of the Tax Code wherein the remedy of refund is available to the taxpayer, Sec. 4 of the law speaks only of a tax credit, not a refund.As earlier mentioned, the tax credit benefit granted to the establishments can be deemed as their just compensation for private property taken by the State for public use. The privilege enjoyed by the senior citizens does not come directly from the State, but rather from the private establishments concerned.[12]WHEREFORE, the petition isDENIED. The Decision of the Court of Appeals in CA-G.R. SP No. 60057, datedMay 31, 2001, isAFFIRMED.No pronouncement as to costs.SO ORDERED.ADOLFO S. AZCUNAAssociate JusticeWE CONCUR:REYNATO S. PUNOChairpersonAssociate Justice

ANGELINA SANDOVAL-GUTIERREZRENATO C. CORONAAssociate JusticeAssociate JusticeCANCIO C. GARCIAAssociate JusticeATTESTATIONI attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.REYNATO S. PUNOAssociate JusticeChairperson, Second DivisionCERTIFICATIONPursuant to Section 13, Article VIII of the Constitution and the Division Acting Chairpersons Attestation, it is hereby certified that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.ARTEMIO V. PANGANIBAN

BICOLANDIA DRUG CORPORATIONG.R. No. 142299(FORMERLY ELMAS DRUGCOPRORATION),Present:Petitioner,PUNO,J., Chairperson,-versus-SANDOVAL-GUTIERREZ,CORONA,AZCUNA, andGARCIA,JJ.COMMISSIONER OF INTERNALREVENUE,Promulgated:Respondent.June 22, 2006x ---------------------------------------------------------------------------------------- xDECISIONAZCUNA,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, datedOctober 19, 1999andFebruary 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 toNation

Building, Grant Benefits and Special Privileges and for Other Purposes.The facts[2]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 inNagaCityunder 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 ofP80,330 andP515,000 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 toP52,215 andP334,750, respectively. Petitioner computed the overpayment as follows:

Income tax benefit of tax credit100%Income tax benefit of tax deduction35%Differential65%For 199320% discount granted in 1993P80,330Multiply by 65%x 65%Overpaid corporate income taxP52,215For 199420% discount granted in 1993P515,000Multiply by 65%x65%Overpaid corporate income taxP334,750OnDecember 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, datedAugust 27, 1998, the CTA declared that:x x xRevenue 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 isan amount deductible from the establishments gross sales,which is completely contradictory to the literal or widely accepted meaning of the said phrase, asan amount subtracted from an individuals or entitys tax liability to arrive at the total tax liability(Blacks 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 xHaving 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 ofP18,653.70 (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.x x xAfter 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 thecost of 20% discount as tax credit.The overpaid income tax therefore is computed as follows:[3]For 1993Net SalesP31,080,508.00Add: 20% Discount to Senior Citizens80,330.00Gross SalesP31,160,838.00Less: Cost ofSalesMerchandise Inventory, beg.P4,226,588.00Add Purchases29,234,361.00Total Goods available forSaleP33,460,947.00Less: Merchandise Inventory, EndP4,875.944.00P28,585,003.00Gross IncomeP2,575,835.00Less: Operating Expenses1,706,491.00Net Operating IncomeP869,344.00Add: Miscellaneous Income72,680.00Net IncomeP942,024.00Less: Interest Income Subject to Final Tax21,140.00Net Taxable IncomeP920,884.00Tax Due (P920,884 x 35%)P322,309.40Less: 1) Tax Credit (Cost of 20% Discount)[(28,585,003.00/31,160,838.00)x 80,330.34]P73,690.032) Income Tax Payment for the Year294,194.00P367,884.03AMOUNT REFUNDABLEP45,574.63For 1994Net SalesP29,904,734.00Add: 20% Discount to Senior Citizens515,000.00Gross SalesP30,419,734.00Less: Cost ofSalesMerchandise Inventory, beg.P4,875,944.00Add Purchases28,138,103.00Total Goods available for SalesP33,014,047.00Less: Merchandise Inventory, End5,036.117.0027,977,930.00Gross IncomeP2,441,804.00Less: Operating Expenses1,880,153.00Net Operating IncomeP561,651.00Add: Miscellaneous Income82,207.00Net IncomeP643,858.00Less: Interest Income Subject to Final Tax30,618.00Net Taxable IncomeP613,240.00Tax Due (613,240 x 35%)P214,634.00Less: 1) Tax Credit (Cost of 20% Discount)[(28,585,003.00/31,160,838.00) x80,330.34]P316,156.482) Income TaxPayment for the Year34,384.00P350,540.48AMOUNT REFUNDABLEP135,906.48WHEREFORE, in view of all the foregoing, petitioners 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 ofP45,574.63 andP135,906.48, 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 petitioners 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 creditbecause 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.In its Resolution, datedDecember 7, 1998, the CTA modified its earlier decision, thus:ACCORDINGLY, the petitioners Motion for Partial Reconsideration is hereby GRANTED. Respondent is hereby ORDERED to ISSUE tax credit certificates in favor of petitioner [in] the amounts ofP45,574.63 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 Respondents 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 onOctober 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 thecost[8]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 inCommissioner of Internal Revenue v. Central Luzon Drug Corporation[9]wherein it affirmed that R.A. No. 7432 allows private establishm