Paper Industries Corp v. CA

PAPER INDUSTRIES CORPORATION OF THE PHILIPPINES (PICOP), against PICOP, to enforce collection of the contested
petitioner, vs. COURT OF APPEALS, COMMISSIONER OF INTERNAL assessments, thereby denying PICOP's protests. Thereupon,
REVENUE and COURT OF TAX APPEALS, respondents. PICOP went before (CTA) appealing the assessments.
 On 15 August 1989, CTA rendered a decision, modifying the
G.R. Nos. 106949-50 December 1, 1995
CIR’s findings and holding PICOP liable for the reduced
COMMISSIONER INTERNAL REVENUE, petitioner, vs. PAPER aggregate amount of P20,133,762.33. Both parties went to
INDUSTRIES CORPORATION OF THE PHILIPPINES, THE COURT OF the Supreme Court, which referred the case to the Court of
APPEALS and THE COURT OF TAX APPEALS, respondents. Appeals (CA).
 CA denied the appeal of the CIR and modified the judgment
G.R. Nos. 106984-85 December 1, 1995 against PICOP holding it liable for transaction tax and
absolved it from payment of documentary and science
Ponente: Feliciano
stamp tax and compromise penalty. It also held PICOP
Facts: liable for deficiency of income tax.
 Paper Industries Corporation of the Philippines (PICOP) is a Issues:

Philippine corporation registered with the Board of
1. Whether PICOP is liable for transaction tax
Investments (BOI) as a preferred pioneer enterprise with
2. Whether PICOP is liable for documentary and science stamp
respect to its integrated pulp and paper mill, and as a
tax
preferred non-pioneer enterprise with respect to its
3. Whether PICOP is liable for deficiency income tax
integrated plywood and veneer mills. Petitioner received
from the Commissioner of Internal Revenue (CIR) two (2) Held:
letters of assessment and demand (a) one for deficiency
transaction tax and for documentary and science stamp tax; 1st Issue: Yes
and (b) the other for deficiency income tax for 1977, for an
 PICOP reiterates that it is exempt from the payment of the
aggregate amount of PhP88,763,255.00.
transaction tax by virtue of its tax exemption under R.A. No.
 PICOP protested the assessment of deficiency transaction
5186, as amended, known as the Investment Incentives Act,
tax , the documentary and science stamp taxes, and the
which in the form it existed in 1977-1978, read in relevant
deficiency income tax assessment. CIR did not formally act
part as follows: "SECTION 8. Incentives to a Pioneer
upon these protests, but issued a warrant of distraint on
Enterprise. — In addition to the incentives provided in the
personal property and a warrant of levy on real property
preceding section, pioneer enterprises shall be granted the
following incentive benefits: (a) Tax Exemption. Exemption withholding, agent, PICOP is made personally liable for the
from all taxes under the National Internal Revenue Code, thirty-five percent (35%) transaction tax 10 and if it did not
except income tax, from the date of investment is included actually withhold thirty-five percent (35%) of the interest
in the Investment Priorities Plan x x x”. The Supreme Court monies it had paid to its lenders, PICOP had only itself to
holds that that PICOP's tax exemption under R.A. No. 5186, blame.
as amended, does not include exemption from the thirty-
five percent (35%) transaction tax. 2nd Issue: NO
 In the first place, the thirty-five percent (35%) transaction The CIR assessed documentary and science stamp taxes,
tax is an income tax, a tax on the interest income of the amounting to PhP300,000.00, on the issuance of PICOP's
lenders or creditors as held by the Supreme Court in the debenture bonds. Tax exemptions are, to be sure, to be
case of Western Minolco Corporation v. Commissioner of "strictly construed," that is, they are not to be extended
Internal Revenue. The 35% transaction tax is an income tax beyond the ordinary and reasonable intendment of the
on interest earnings to the lenders or placers. The latter are language actually used by the legislative authority in
actually the taxpayers. Therefore, the tax cannot be a tax granting the exemption. The issuance of debenture bonds is
imposed upon the petitioner. certainly conceptually distinct from pulping and paper
 In other words, the petitioner who borrowed funds from manufacturing operations. But no one contends that
several financial institutions by issuing commercial papers issuance of bonds was a principal or regular business
merely withheld the 35% transaction tax before paying to activity of PICOP; only banks or other financial institutions
the financial institutions the interest earned by them and are in the regular business of raising money by issuing
later remitted the same to the respondent CIR. The tax bonds or other instruments to the general public. The actual
could have been collected by a different procedure but the dedication of the proceeds of the bonds to the carrying out
statute chose this method. Whatever collecting procedure is of PICOP's registered operations constituted a sufficient
adopted does not change the nature of the tax. It is thus nexus with such registered operations so as to exempt
clear that the transaction tax is an income tax and as such, PICOP from taxes ordinarily imposed upon or in connection
in any event, falls outside the scope of the tax exemption with issuance of such bonds. The Supreme Court agrees
granted to registered pioneer enterprises by Section 8 of with the Court of Appeals on this matter that the CTA and
R.A. No. 5186, as amended. PICOP was the withholding the CIR had erred in rejecting PICOP's claim for exemption
agent, obliged to withhold thirty-five percent (35%) of the from stamp taxes.
interest payable to its lenders and to remit the amounts so
withheld to the Bureau of Internal Revenue ("BIR"). As a
3rd Issue: YES
PICOP did not deny the existence of discrepancy in their

Income Tax Return and Books of Account owing to their
procedure of recording its export sales (reckoned in U.S.
dollars) on the basis of a fixed rate, day to day and month to
month, regardless of the actual exchange rate and without
waiting when the actual proceeds are received. In other
words, PICOP recorded its export sales at a pre-determined
fixed exchange rate. That pre-determined rate was decided
upon at the beginning of the year and continued to be used
throughout the year. Because of this, the CIR has made out
at least a prima facie case that PICOP had understated its
sales and overstated its cost of sales as set out in its Income
Tax Return. For the CIR has a right to assume that PICOP's
Books of Accounts speak the truth in this case since, as
already noted, they embody what must appear to be
admissions against PICOP's own interest.

Paper Industries Corp v. CA

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PAPER INDUSTRIES CORPORATION OF THE PHILIPPINES (PICOP), against PICOP, to enforce collection of the contested

 Paper Industries Corporation of the Philippines (PICOP) is a Issues:

PICOP did not deny the existence of discrepancy in their

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