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    CIR V Central Luzon

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    Agnes Francisco
    Respondent operated six drugstores under the name Mercury Drug. From 1996 to 1997, respondent granted 20% sales discounts to qualified senior citizens per RA 7432, totaling 904,769 PHP. Respondent claimed this amount as a tax credit despite reporting net losses. The Court of Tax Appeals initially dismissed the claim but later ordered a tax credit be issued. The Supreme Court ruled that while a tax credit requires a tax liability to apply it against, RA 7432 grants establishments the right to claim the discount as a tax credit, even without a tax liability in that year. Therefore, respondent could claim the sales discount as a tax credit despite having net losses.

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    CIR V Central Luzon

    Uploaded by

    Agnes Francisco
    94 views2 pages
    Respondent operated six drugstores under the name Mercury Drug. From 1996 to 1997, respondent granted 20% sales discounts to qualified senior citizens per RA 7432, totaling 904,769 PHP. Respondent claimed this amount as a tax credit despite reporting net losses. The Court of Tax Appeals initially dismissed the claim but later ordered a tax credit be issued. The Supreme Court ruled that while a tax credit requires a tax liability to apply it against, RA 7432 grants establishments the right to claim the discount as a tax credit, even without a tax liability in that year. Therefore, respondent could claim the sales discount as a tax credit despite having net losses.

    Original Description:

    G.R. No. 159647 April 15, 2005

    Original Title

    2. CIR v Central Luzon

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    Respondent operated six drugstores under the name Mercury Drug. From 1996 to 1997, respondent granted 20% sales discounts to qualified senior citizens per RA 7432, totaling 904,769 PHP. Respondent claimed this amount as a tax credit despite reporting net losses. The Court of Tax Appeals initially dismissed the claim but later ordered a tax credit be issued. The Supreme Court ruled that while a tax credit requires a tax liability to apply it against, RA 7432 grants establishments the right to claim the discount as a tax credit, even without a tax liability in that year. Therefore, respondent could claim the sales discount as a tax credit despite having net losses.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    94 views2 pages

    CIR V Central Luzon

    Uploaded by

    Agnes Francisco
    Respondent operated six drugstores under the name Mercury Drug. From 1996 to 1997, respondent granted 20% sales discounts to qualified senior citizens per RA 7432, totaling 904,769 PHP. Respondent claimed this amount as a tax credit despite reporting net losses. The Court of Tax Appeals initially dismissed the claim but later ordered a tax credit be issued. The Supreme Court ruled that while a tax credit requires a tax liability to apply it against, RA 7432 grants establishments the right to claim the discount as a tax credit, even without a tax liability in that year. Therefore, respondent could claim the sales discount as a tax credit despite having net losses.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    Tax Case Digest: Commissioner of Internal Revenue vs Central Luzon Drug Corporation GR No

    159647

    Commissioner of Internal Revenue vs. Central Luzon Drug Corporation


    G.R. No. 159647 April 15, 2005

    Facts:
    Respondents operated six drugstores under the business name Mercury Drug. From January to December
    1996 respondent granted 20% sales discount to qualified senior citizens on their purchases of medicines
    pursuant to RA 7432 for a total of ₱ 904,769.

    On April 15, 1997, respondent filed its annual Income Tax Return for taxable year 1996 declaring therein net
    losses. On Jan. 16, 1998 respondent filed with petitioner a claim for tax refund/credit of ₱ 904,769.00
    allegedly arising from the 20% sales discount. Unable to obtain affirmative response from petitioner,
    respondent elevated its claim to the Court of Tax Appeals. The court dismissed the same but upon
    reconsideration, the latter reversed its earlier ruling and ordered petitioner to issue a Tax Credit Certificate in
    favor of respondent citing CA GR SP No. 60057 (May 31, 2001, Central Luzon Drug Corp. vs. CIR) citing that
    Sec. 229 of RA 7432 deals exclusively with illegally collected or erroneously paid taxes but that there are other
    situations which may warrant a tax credit/refund.

    CA affirmed Court of Tax Appeal's decision reasoning that 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.

    Issue:
    Whether or not respondent, despite incurring a net loss, may still claim the 20% sales discount as a tax credit.

    Ruling:
    Yes, it is clear that Sec. 4a of RA 7432 grants to senior citizens the privilege of obtaining a 20% discount on
    their purchase of medicine from any private establishment in the country. The latter may then claim the cost
    of the discount as a tax credit. Such credit can be claimed even if the establishment operates at a loss.

    A tax credit generally refers to an amount that is “subtracted directly from one’s total tax liability.” It is an
    “allowance against the tax itself” or “a deduction from what is owed” by a taxpayer to the government.
    A tax credit should be understood in relation to other tax concepts. One of these is tax deduction – which is
    subtraction “from income for tax purposes,” 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.” In other words, whereas a tax
    credit reduces the tax due, tax deduction reduces the income subject to tax in order to arrive at the taxable
    income.

    A tax credit is used to reduce directly the tax that is due, there ought to be a tax liability before the tax credit
    can be applied. Without that liability, any tax credit application 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, the existence of a tax credit or its grant by law is not the same as the availment or use
    of such credit. While the grant is mandatory, the availment or use is not. If a net loss is reported by, and no
    other taxes are currently due from, a business establishment, there will obviously be no tax liability against
    which any tax credit can be applied. For the establishment to choose the immediate availment of a tax credit
    will be premature and impracticable.

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