G.R. No. 164050 - MERCURY DRUG CORPORATION, VS. COMMISSIONER OF INTERNAL REVENUE.D E C I S I O N - Supreme Court E-Library

Ruling

WHEREFORE, in view of the foregoing, the instant Petition for Review is hereby PARTIALLY GRANTED. Accordingly, Revenue Regulations No. 2-94 of the Respondent is declared null and void insofar as it treats the 20% discount given by private establishments as a deduction from gross sales. Respondent is hereby ORDERED to GRANT A REFUND OR ISSUE A TAX CREDIT CERTIFICATE to Petitioner in the reduced amount of P1,688,178.43 representing the latters overpaid income tax for the taxable year 1993. However, the claim for refund for taxable year 1994 is denied for lack of merit. [5] The Court of Tax Appeals favored petitioner by declaring that the 20% sales discount should be treated as tax credit rather than a mere deduction from gross income. The Court of Tax Appeals however found some discrepancies and irregularities in the cash slips submitted by petitioner as basis for the tax refund. Hence, it disallowed the claim for taxable year 1994 and some portion of the amount claimed for 1993 by petitioner, viz : So, contrary to the allegation of Petitioner that it granted 20% sales discounts to senior citizens in the total amount of P3,719,888.00 for taxable year 1993 and P35,500,554.00 for taxable year 1994, this Courts study and evaluation of the evidence show that for taxable year 1993 only the amounts of P3,522,123.25 and for 1994, the amount of P8,789,792.27 were properly substantiated. The amount of P3,522,123.25 corresponding to 1993 will be further reduced to P2,989,930.43 as this Courts computation is based on the cost of the 20% discount and not on the total amount of the 20% discount based on the decision of the Court of Appeals in Commissioner of Internal Revenue v. Elmas Drug Corporation, CA-SP No. 49946 promulgated on October 19, 1999, where it ruled: Thus the cost of the 20% discount represents the actual amount spent by drug corporations in complying with the mandate of RA 7432 . Working on this premise, it could not have been the intention of the lawmakers to grant these companies the full amount of the 20% discount as this could be extending to them more than what they actually sacrificed when they gave the 20% discount to senior citizens. (Underscoring supplied). Similarly the amount of P8,789,792.27 corresponding to taxable year 1994 will be reduced to P7,393,094.28 based on the aforequoted Court of Appeals decision. These reductions are illustrated as follows: TAXABLE YEAR 1993 Cost of Sales P 8,686,622,733.00 Divided by Gross Sales 10,232,237,623.00 Cost of Sales Percentage 84.89% Adjusted Amount of 20% Discount given to Senior Citizens 3,522,123.25 Multiply by 84.89% Allowable Tax Credit P 2,989,930.43 TAXABLE YEAR 1994 Cost of Sales P9,847,287,207.00 Divided by Gross Sales 11,706,866,996.00 Cost of Sales Percentage 84.11% Adjusted Amount of 20% Discount given to Senior Citizens P 8,789,792.27 Multiply by 84.11% Allowable Tax Credit P 7,393,094.28 With the foregoing changes in the amount of discounts granted by Petitioner in 1993 an