WESTERN MINOLCO CORPORATION, PETITIONER, VS. COMMISSIONER OF INTERNAL REVENUE AND COURT OF TAX APPEALS, RESPONDENTS.

This is a petition for review on certiorari of a Court of Tax Appeals’
decision denying the petitioner’s claim for the refund of P1,317,801.03,
representing money market transaction
taxes which the petitioner paid
from June 3, 1977
to August 5, 1977,
and the resolution denying its motion for reconsideration.

Petitioner is a domestic
corporation engaged in mining, particularly copper concentrates for export
mined from mineral lands in Atok and Kibungan, Benguet.

In October 1972, upon
application for tax exemption filed
with the Bureau of Mines, the
petitioner was granted Certificate of Qualification for Tax Exemption No. 34.

On December 24,
1976, the petitioner
was also granted by the Securities and Exchange Commission, under Certificate
of Renewal No. R-1056, authority to borrow money and issue commercial papers. Pursuant to
this authority, the petitioner borrowed funds from several financial
institutions from June, 1977 to October 1977 and paid the corresponding 35%
transaction tax due thereon in the amount of P1,317,801.03.
The tax was paid pursuant to Section 210(b) of the National Internal Revenue
Code of 1977.

On February 16, 1978, the
petitioner applied for the refund of the P1,317,801.03 alleging that it
was not liable to pay the 35% transaction tax under its Certificate of
Qualification for Tax Exemption No. 34 issued by the Secretary of Agriculture and Natural
Resources, and pursuant to Section 79-A of Commonwealth Act No. 137, otherwise known as The Mining Act and Presidential Decree No. 463, the Mineral Resources Development
Decree of 1974, as implemented
by Consolidated Mines Administrative Order of the Secretary of Natural
Resources dated May 17, 1974.

On February
19, 1979, the
respondent Commissioner of Internal Revenue denied the petitioner’s claim for
refund.

On May 29,
1979, the petitioner
filed a petition for review with the respondent Court of Tax Appeals. On August 28, 1979, the Commissioner of Internal Revenue filed
his answer alleging inter alia that:

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“(a)  The 35% transaction tax is actually a tax on the interest
earnings of the lender who is actually
the taxpayer on whose income, the
tax is imposed;

“(b)  Petitioner did not pay the 35% transaction tax
in its own behalf, as this liability has been fully
shifted to and paid for the account of the lender;

“(c)  Petitioner
merely acted as withholding agent in paying the 35% transaction tax based on the gross interest income of the
lender;

“(d)  Petitioner’s
exemption from taxes granted
under Sections 52 and 53 of Presidential Decree No. 463 relates to importations of machineries, tools and
equipment to be used in the mining operations and taxes on mining claims,
improvement thereon and mineral products, whereas the 35% transaction
tax is levied on transactions
pertaining to commercial papers issued
in the primary money market as principal
instruments; in other words, Sections 52 and 53 of P.D. 463 do not apply to
this case of petitioner.”

After due hearing but
before the respondent court could render its decision, the petitioner filed a pleading entitled “Request for
Judicial Notice and Request for Admission” alleging that the subject tax
was paid in the nature of a business tax, that petitioner’s claim for refund is
based on its exemption from business taxes, and that its exemption is protected by existing tax exemptions granted it under the mining law.

On January
29, 1982, the
respondent court denied the petitioner’s
“Request for Judicial Notice and Request for Admission.”

On May 21,
1982, the respondent
court rendered its decision dismissing the petition for review for lack of
merit.

The petitioner
raised the following assignments of
errors:

Assignment of Error No. 1

THAT THE TAX COURT ERRONEOUSLY CONCLUDED BY SUPPORTING RESPONDENT
COMMISSIONER’S CONTENTION THAT THE 35%
TRANSACTION TAX ON COMMERCIAL PAPER (INVOLVED IN THIS CASE) IS AN INCOME
TAX IMPOSED UPON THE INTEREST EARNINGS OF THE MONEY
LENDER WHO (ACCORDING TO THE TAX COURT) IS ACTUALLY THE TAXPAYER ON WHOSE INCOME THE 35% TAX IS IMPOSED.

Assignment of Error No. 2

THAT THE TAX COURT ERRED IN THAT ITS CONCLUSIONS
CONTRAVENE THE MANDATES IN SAID P.D. NO. 1154 (particularly SEC. 2 OF
WHICH) AMENDING SECTION 29(b) OF THE
1977 REVENUE CODE BY ‘EXCLUDING FROM GROSS INCOME’ THE ‘INTEREST EARNED ON
COMMERCIAL PAPER ISSUED IN THE PRIMARY MARKET (WHICH) SHALL NOT BE INCLUDED IN THE DETERMINATION OF GROSS
INCOME OF THE LENDER FOR PURPOSES OF INCOME TAXATION.

Assignment of Error
No. 3

THAT THE TAX COURT ERRED IN CONFUSING TWO DISTINCT AND SEPARATE
ASPECTS OF THE TAXATION AND PERSONS OF THE TAXPAYER AS IF THEY ARE ONE AND
THE SAME
PERSON, WHEN THE LAW TREATS THEM AS DISTINCT AND SEPARATE PERSONS AND ASPECTS
THEREOF: – NAMELY: – (A) THE INCIDENCE OF THE TAX AND THE
PERSON LEGALLY LIABLE FOR THE TAX; AND THE (B) ‘ACTUAL PAYOR’ OR ‘RESULTING
PAYOR’ OF THE 35% TRANSACTION TAX.

Assignment of Error No. 4

THAT THE TAX COURT ERRED IN RULING
THAT THE 35% TRANSACTION TAX IS
AN INCOME TAX FROM WHICH MINOLCO IS
NOT EXEMPT AND NOT A BUSINESS TAX.

Assignment of Error No. 5

THAT THE TAX COURT ERRED IN
CONFUSING THE ‘INCIDENCE OF THE TAX’ AND THE ‘ACTUAL PAYOR’ OR
‘RESULTING PAYOR’ OF THE 35% TRANSACTION TAX; THAT CONFUSION OF THE TWO SEPARATE PERSONS HAS RESULTED INTO THE
ERRONEOUS CONCLUSION THAT THE 35% TRANSACTION TAX IS AN INCOME TAX IMPOSED UPON THE INTEREST EARNED BY THE
MONEY LENDER INVOLVED IN THE
ISSUANCE OF THE COMMERCIAL PAPER UPON WHICH INTEREST INCOME IS PAID OR
COLLECTED; THAT THIS ERROR HAS RESULTED IN RESPONDENT COMMISSIONER’S (AND THE
TAX COURT’S) VIEW THAT PETITIONER MINOLCO IS A WITHHOLDING AGENT IN RESPECT OF THE INCOME TAX DUE TO BE WITHHELD ON
INTEREST INCOME OF MONEY LENDER.

Assignment of Error No. 6

THAT THE TAX COURT ERRED IN FAILING
TO RECOGNIZE THAT PETITIONER MINOLCO IS A QUALIFIED MINING LESSEE AND
DEVELOPER UNDER THE MINING LAW (C.A. No.
137, As Amended), AND UNDER THE MINERAL RESOURCE DEVELOPMENT DECREE OF 1974
(P.D. No. 463, As Amended); THAT AS SUCH, PETITIONER IS EXEMPTED FROM ALL TAXES (EXEMPT INCOME
TAX) PURSUANT TO THE LAW AND THE IMPLEMENTING REGULATIONS THEREOF (CONSOLIDATED MINES ADMINISTRATIVE ORDER, DATED AND EFFECTIVE MAY 17,
1975); FURTHER, THAT THE TAX COURT HAS
ERRONEOUSLY RULED TO IMPOSE THE INCOME TAX UPON MINOLCO, WHICH IS ON
BASED ON SECTION 24 OF THE REVENUE CODE AND MAY NOT BE THE SUBJECT OF THE LITIGATION AS PART OF PETITIONER’S APPEAL BEFORE THE
TAX COURT.

Assignment of Error No. 7

THAT RESPONDENT HAVE FAILED TO CONSIDER THE ‘WHEREAS CLAUSES’ OF THE
ENABLYING ACT IMPOSING THE 35% TRANSACTION TAX LAW (P.D. NO. 1154) IN THE APPLICATION OF THE LAW, TOGETHER WITH THE
IMPLEMENTING REGULATIONS THEREOF AS WELL AS THE ‘WHEREAS CLAUSES’ OF THE
REPEALING LAW (P.D. NO. 1739)
WHICH RECOGNIZES
PETITIONER’S RIGHT OF RELIEF AGAINST THE TRANSACTION TAX (SEE PEOPLE VS. PURISIMA,
L-42050-66; NOV. 20, 1978;
86 SCRA 542).

The errors raised by the
petitioner are grounded on one main issue, whether or not the petitioner is
exempt from the 35% transaction tax.

We find the alleged
errors without merit.

The petitioner claims
exemption from the 35% transaction tax on the basis of the following
statutory provisions:

(1) Sec. 1 of Republic Act No. 3823, amending Commonwealth Act No.
137, otherwise known as the “Mining Act” which reads:

“Section 1. There is hereby inserted
after Section seventy-nine, Chapter VI of the
Mining Act, a new section which shall read as follows:

” ‘Sec. 79-A. However, new mines, and
old mines which resume operation,
when certified to as such by the
Secretary of Agriculture and
Natural Resources upon the recommendation of the Director of Mines, shall be
granted five years complete tax exemptions, except income tax, from the time of
its actual bona fide orders for equipment for commercial
production.

“If any of the tax-exempt articles acquired under this
provision are sold, transferred or otherwise disposed of within a period of
five years from such tax-exempt acquisition, all taxes and duties which would
have been due at the time of such acquisition shall become due and payable, together with all
interests and surcharges, and which amount shall constitute a lien on these
properties.”

(2) Sec. 1 of Presidential Decree No. 237, amending the Tax Code,
which reads:

“Section. 1. The last paragraph of
Section One hundred ninety of Commonwealth Act Numbered Four hundred sixty-six,
otherwise known as the ‘National Internal Revenue Code’ is further amended to
read as follows:

” ‘Sec. 190. Compensating Tax. –

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“The provisions of existing laws to the contrary
notwithstanding exemption from this tax shall be limited to the following:

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“4. Machineries, equipment, tools for production,
plants to convert mineral ores into saleable form, spare parts, supplies,
materials, accessories, explosives, chemicals, and transportation and
communication facilities imported by and for the use of new mines and old mines which resume
operations, when certified, to as such by the Secretary of Agriculture and
Natural Resources upon the recommendation of the Director of Mines, for a
period ending five (5) years from the first date of actual commercial production
of saleable mineral products: Provided, That such articles are not locally available in reasonable quantity, quality
and price and are necessary or incidental in the proper operation of the mine;

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(3)
Sec. 1 of P.D. No. 238, further amending
the Tax Code, which reads:

“Section 1. Section One hundred five
of Republic Act Numbered Nineteen hundred and thirty-seven, otherwise known as the
‘Tariff and Customs Code of the Philippines,’ is further amended by inserting
two new paragraphs ‘(u)’ and ‘(v)’ therein after paragraph (t) thereof which
shall read as follows:

“Sec. 105. Conditionally-Free
Importations. —

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” ‘x x x Machineries, equipment, tools for production, plants to
convert mineral ores into saleable form, spare parts, supplies, materials,
accessories, explosives, chemicals, and transportation and communication
facilities imported by and for the use
of new mines and old mines which resume operations, when certified to as such
by the Secretary of Agriculture and Natural Resources upon the recommendation
of the Director of Mines, for a period ending five (5) years from the first
date of actual commercial production of saleable mineral product; Provided, That such articles are
not locally available in reasonable quantity, quality and price and are
necessary or incidental in the proper operation of the mine.”

(4) Secs. 52 and 53 of Presidential
Decree No. 463, amending Section 79-A, Commonwealth Act No. 137, which read:

“Sec. 52. Power
to Levy Taxes on Mines. Mining Operations and
Mineral Products.
– Any law to the contrary notwithstanding, no province, city,
municipality, barrio or municipal district shall levy and collect taxes, fees,
rentals royalties or charges of any kind whatosever
on mines, mining claims, mineral
products, or on any operation, process or activity connected therewith.

“Sec. 53. Tax Exemptions. ? Machineries, equipment, tools
for production, plants to convert mineral
ores into saleable form, spare parts,
supplies, materials, accessories, explosives, chemicals and transportation and communication
facilities imported by and for the use of new mines and old mines which resume
operation, when certified as such by the Secretary upon recommendation of the
Director, are exempt from the payment of customs duties and all taxes except income tax for a period starting from exploration
and ending five (5) years from the first date of actual commercial production
of saleable mineral products: Provided, That such articles are not locally
available in reasonable quantity, quality
and price and are necessary or incidental in the proper operation of the
mine.

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“All mining claims, improvements thereon and mineral products
derived therefrom shall likewise be exempt from the
payment of all taxes, except income tax, for the same period provided for in the first paragraph of this
section.”

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The statutory provisions
on tax exemptions clearly exclude the 35% transaction tax.

Section 1 of Presidential Decree No. 237 on Compensating Tax, Section 1 of P.D. No. 238 on
Conditionally Free Importations, and Section 53 of P. D. No. 463 all refer to
tax exemptions for importations of machineries, tools for production, plants to
convert mineral ores into saleable form, spare parts, supplies, materials,
accessories, explosives, chemicals and transportation and communication
facilities, to be used in mining operations. Section 53 of P.D. No. 463
likewise refers to tax exemptions for mining claims and improvements thereon,
and mineral products, except income tax. The petitioner’s Certificate of
Qualification for Tax Exemption No. 34 exempts “x x x from
payment of all taxes except income tax, payable by him in the conduct of his
business and in the importation of machineries, spare parts and/or equipment
listed in the stamped “Annex I” which are considered to be
indispensable in the operation and will be used by said operator/lessee
exclusively in the mineral land mentioned above.

Clearly, the transaction
tax of P1,317,801.03 paid by the petitioner was not
actually imposed upon it in the conduct of its mining business or in the
importation of machinery, spare parts and/or equipment listed in the stamped
“ANNEX I” of its certificate of qualification for tax exemption and
which are indispensable in the operation and used exclusively on petitioner’s
mineral land.

Petitioner submits that
inasmuch as taxes in general constitute allowable deductions from gross income
in the determination of taxable net income, the 35% transaction tax is a business tax and not an income tax because the Revenue Code itself
classifies it as “Business Tax” under Title V, and that P. D. No.
1154 expressly states that the transaction tax shall be allowed as a deductible
item for purposes of determining the borrower’s taxable income.”

The petitioner’s
contentions deserve scant consideration. The 35% transaction tax is imposed on
interest income from commercial papers issued in the primary money market. Being
a tax on interest, it is a tax on income.

As correctly ruled by the
respondent Court of Tax Appeals:

“‘Accordingly, we need not and do not think it necessary to
discuss further the nature of the transaction tax more than to say that the incipient
scheme in the issuance of Letter of Instructions No. 340 on November 24, 1975
(O.G. Dec. 15, 1975), i.e., to achieve operational simplicity and effective
administration in capturing the interest-income ‘windfall’ from money market
operations as a new source of revenue, has
lost none of its animating principle in parturition of amendatory Presidential
Decree No. 1154, now Section 210 (b) of the Tax Code. The tax thus imposed is
actually a tax on interest
earnings of the lenders or placers who are actually the taxpayers in whose income is imposed. Thus, ‘the
borrower withholds the tax of 35% from the interest he would have to pay the lender
so that he (borrower) can pay the 35% of the interest to
the Goverment.’ (President Marcos, Times Journal, June 17, 1977 cited in Respondent’s Memorandum, p. 6). x
x x. Suffice it to
state that the broad concensus of fiscal and monetary
authorities is that ‘even if nominally, the borrower is made to pay the tax, actually, the tax is on the interest earning of the immediate and all prior lenders/placers of the money.’ x x x.” (Rollo, pp. 36-37)

The 35% transaction tax
is an income tax on interest earnings of the lenders or placers. The latter are actually the taxpayers. Therefore,
the tax cannot be a tax imposed upon the petitioner. In other words, the
petitioner who borrowed funds from several financial institutions by issuing
commercial papers merely withheld the 35% transaction tax before paying to the
financial institutions the interests earned by them and later remitted the same
to the respondent Commissioner of Internal Revenue. The tax could have been
collected by a different procedure but the statute chose this method. Whatever
collecting procedure is adopted does not change the nature of the tax.

Furthermore, whether or
not certain taxes are on income is not necessarily determined by their
deductibility or non-deductibility from gross income. As correctly observed by
the Solicitor General, income in the form of dividends, capital gains on real
property pursuant to Batas Pambansa Blg. 37, shares of stock pursuant to Presidential Decree
1739, and interests on savings in bank accounts, for instance, are incomes, yet
they are not includible in the gross income when income taxes are paid because
these are subject to final withholding taxes.

The petitioner also
submits that the 35% transaction tax is a business tax because it is imposed
under Title V, entitled “Taxes on Business” and classified specially
under Chapter II, entitled “Tax on Business.”

The location of the 35%
tax in the Tax Code does not necessarily determine its nature. Again, we agree
with the Solicitor General that the legislative body must have realized later
that the subject tax was inappropriately
included among the taxes on business because Section 210 of the Tax Code has
been repealed by Presidential Decree No. 1739, which now imposes a tax of 20%
on interests from deposits and yields from deposit substitutes such as
commercial papers issued in the primary market as principal instrument
and provides for them in Section 24(cc), under Chapter III, Tax on
Corporations, Title II – Income Tax.

Petitioner Western Minolco Corporation has failed to justify its
claimed exemption from the 35%
transaction tax. The decision of the Commissioner of Internal Revenue denying
the petitioner’s claim for refund is affirmed. It bears repeating that the law
looks with disfavor on tax exemptions and he who would seek to be thus
privileged must justify it by words too plain to be mistaken and too categorical
to be misinterpreted. (Commissioner
of Internal Revenue v. P. J. Kiener Company Ltd.,
International Construction Corporation, et al., L-24754, July 18, 1975, 65 SCRA 142).

WHEREFORE, the instant petition is DENIED for lack of
merit. The decision of the respondent Court of Tax Appeals is AFFIRMED in toto.

SO ORDERED.

Makasiar, Concepcion,
Jr., Guerrero, Melencio-Herrera, Escolin,
Vasquez, and Relova,
JJ., concur.

Teehankee, Acting C.J., in the result.

Aquino and
Plana, JJ., no part.

Fernando, C.J., and Abad Santos, J., on official leave.

De Castro, J., on leave.