Commissioner of Internal Revenue vs.

Central Luzon Drug Corporation

G.R. No. 159647 pril 15! "##5

FACTS:
Respondent is a domestic corporation primarily engaged in retailing of medicines and
other pharmaceutical products. In 1996 it operated si! "6# drugstores under the
$usiness name and style %ercury &rug.
From 'anuary to &ecem$er 1996 respondent granted ()* sales discount to +ualified
senior citi,ens on their purchases of medicines pursuant to RA -/(. For the said
period the amount allegedly representing the ()* sales discount totaled
09)-69.)).
Respondent filed its Annual Income Ta! Return for ta!a$le year 1996 declaring
therein that it incurred net losses from its operations.
Respondent filed ith petitioner a claim for ta! refund2credit in the amount of
09)-69.)) allegedly arising from the ()* sales discount granted $y respondent to
+ualified senior citi,ens in compliance ith RA -/(. 3na$le to o$tain affirmati4e
response from petitioner respondent ele4ated its claim to the CTA via a 0etition for
Re4ie.
The CTA then dismissed respondents 0etition for lac5 of merit. In a su$se+uent %R
the CTA ordered petitioner to issue a Ta! Credit Certificate in fa4or of respondent.
n appeal the CA affirmed the CTA ordering petitioner to issue a ta! credit
certificate in fa4or of respondent in the reduced amount of 09)/)/7./9. 8ence this
petition.

ISS3:
hether or not the CA erred in holding that respondent may claim the ()* sales discount as a
ta! credit instead of as a deduction from gross income or gross sales

8;&:

<o. RA -/( specifically allos pri4ate esta$lishments to claim as ta! credit the amount
of discounts they grant. In turn the Implementing Rules and Regulations issued pursuant

thereto pro4ide
of the la theregulations
and the procedurescarrying
for its a4ailment. To denyissuch
out that mandate credit despite
indefensi$le. the plainCongress
Furthermore mandate
has alloed all pri4ate esta$lishments a simple ta! credit not a deduction. In fact no cash outlay
is re+uired from the go4ernment for the a4ailment or use of such credit. The deli$erations of the
=icameral Conference Committee %eeting on Social 'ustice hich finali,ed RA -/( disclose
the true intent of our legislators to treat the sales discounts as a ta! credit rather than as a
deduction from gross income.

%oreo4er RA -/( is an earlier la not e!pressly repealed $y and therefore remains an

e!ception to the Ta! Code. hen the former states that a ta! credit may $e claimed then the
re+uirement of prior ta! payments under certain pro4isions of the latter cannot $e made to apply.
<either can the instances of or references to a ta! deduction under the Ta! Code $e made to
restrict RA -/(.
 $a% Cre&it vs. $a% De&u'tion

Although the term is not specifically defined in our Ta! Code ta! credit generally refers to an
amount that is su$tracted directly from ones total ta! lia$ility. It is an alloance against the ta!
itself or a deduction from hat is oed $y a ta!payer to the go4ernment. !amples of ta! credits
are ithheld ta!es payments of estimated ta! and in4estment ta! credits.

n the other hand ta! deduction is defined as a su$traction from income for ta! purposes or an
amount that is alloed $y la to reduce income prior to >the? application of the ta! rate to
compute the amount of ta! hich is due. An e!ample of a ta! deduction is any of the alloa$le
deductions enumerated in Section / of the Ta! Code.

A ta! credit differs from a ta! deduction. n the one hand a ta! credit reduces the ta! due
including @@ hene4er applica$le @@ the income ta! that is determined after applying the
corresponding ta! rates to ta!a$le income. A ta! deduction on the other reduces the income that
is su$ect to ta! in order to arri4e at ta!a$le income. To thin5 of the former as the latter is to
a4oid if not entirely confuse the issue. A ta! credit is used only after the ta! has $een computedB
a ta! deduction $efore.
 C())I**I(N+R (, IN$+RNL R+-+N+ vs. C+N$RL L/(N DRG
C(R0(R$I(N

G.R. No. 1451" 2une "6! "##6

FACTS:
Central ;u,on &rug Corporation has $een a retailer of medicines and other pharmaceutical
products. It opened / drugstores as a franchisee under the $usiness name and style of
%ercury &rug.
For the period 'anuary 199D to &ecem$er 199D in conformity to Sec. "a# of R.A. <o. -/(
petitioner granted a ()* discount on the sale of medicines to +ualified senior citi,ens
amounting to 0(19--7
0ursuant to Re4enue Regulations <o. (@9 implementing R.A. <o. -/( hich states that
the discount gi4en to senior citi,ens shall $e deducted $y the esta$lishment from its gross
sales for 4alue@added ta! and other percentage ta! purposes respondent deducted the total
amount of 0(19--7 from its gross income for the ta!a$le year 199D. For said ta!a$le period
respondent reported a net loss of 0()96/ in its corporate income ta! return. As a
conse+uence respondent did not pay income ta! for 199D.
Su$se+uently on &ecem$er (- 1996 claiming that according to Sec. "a# of R.A. <o. -/(

the amount
in the of of
amount 0(19--7 should $e applied as a ta! credit respondent filed a claim for refund
01D)19/
Since the Commissioner of Internal Re4enue as not a$le to decide the claim for refund on
time respondent filed a 0etition for Re4ie ith the CTA hich dismissed the petition.
n a 0etition for Re4ie the CA granted petitionerEs claim for ta! credit. 8ence this petition

ISS3: hether or not the ()* sales discount granted $y respondent to +ualified senior citi,ens
is a ta! credit or a deduction from gross sales

8;&:
It is a ta! credit. The a$o4e pro4ision e!plicitly employed the ord ta! credit. <othing
in the pro4ision suggests for it to mean a deduction from gross sales. To construe it otherise
ould $e a departure from the clear mandate of the la.

Thus the ()* discount re+uired $y the Act to $e gi4en to senior citi,ens is a ta! credit
not a deduction from the gross sales of the esta$lishment concerned. As a corollary to this the
definition of ta! creditE found in Section ("1# of Re4enue Regulations <o. (@9 is erroneous as it
refers to ta! credit as the amount representing the ()* discount that shall $e deducted $y the
said esta$lishment from their gross sales for 4alue added ta! and other percentage ta! purposes.
This definition is contrary to hat our lama5ers had en4isioned ith regard to the treatment of
the discount granted to senior citi,ens.

Accordingly hen the la says that the cost of the discount may $e claimed as a ta!
credit it means that the amount @@ hen claimed G shall $e treated as a reduction from any ta!
lia$ility. The la cannot $e amended $y a mere regulation. The administrati4e agencies issuing
these regulations may not enlarge alter or restrict the pro4isions of the la they administer. In
fact a regulation that operates to create a rule out of harmony ith the statute is a mere nullity.