AFFIRMING that sales of military property are not taxable, the Court of Tax Appeals (CTA) has dismissed the appeal of the Bureau of Internal Revenue (BIR) against a previous decision to refund the Bases Conversion and Development Authority (BCDA) P101.6 million in withholding taxes after a land sale in 2008.
In a 31-page decision dated Dec. 16, 2014, the CTA en banc affirmed the decision issued by the court’s first division on Dec. 13, 2013, which said that “while [the BCDA] is not entitled to exemption from income tax, the proceeds from the sale of portions of Metro Manila military camps are tax exempt.”
The en banc decision penned by Associate Justice Juanito C. Castañeda, Jr. agreed with the BIR’s argument that the BCDA was not among the government corporations exempted by the National Internal Revenue Code (NIRC, or the Tax Code) from paying taxes.
However, it noted that the Bases Conversion and Development Act of 1992 “clearly provides that the proceeds from [the BCDA’s] sale of government lands and other properties [under the law] are government funds and shall be remitted to the National Treasury… and automatically appropriated for the budget requirement of the several beneficiary-agencies.”
“To tax the proceeds of the sale would be to tax an appropriation made by law, a power that the Commissioner of Internal Revenue does not have,” the decision read.
“Such payment would in effect have resulted in diminishing the proceeds of the sale that the Republic received and turned over to the respondent to capitalize it,” it added.
The petition for review filed by the Commissioner on Internal Revenue (CIR) stated that the 1997 Tax Code could not be overridden by the Bases Conversion and Development Act (implemented in 1995) because it was “the later legislative will,” an argument the CTA disagreed with because the latter was not repealed.
The decision also dismissed the CIR’s argument that BCDA was barred from claiming the refund because it already opted to carry over its 2008 excess credit to its 2009 income tax return, an option that is irrevocable according to the Tax Code.
The court said that the income from which the taxes were withheld in 2008 did not include the 2008 land sale because it was exempted from the creditable withholding tax system, which meant that the irrevocability clause did not apply to the transaction.
It added that the Tax Code excluded sales of government property from declarations of gross income.
The decision recalled that the BCDA entered into four separate contracts on May 23, 2008, selling a total of 12,036 square meters of land -- collectively known as the Expanded Big Delta Lots -- to an unincorporated joint venture called the Net Group for P2.03 billion.
The BCDA then wrote BIR in a letter received on May 28, requesting a confirmation that it is exempted from all taxes and fees, including the creditable withholding tax (CWT) and value-added tax on the land sale, which the commissioner’s office did not reply to.
On July 2008, the BCDA and the buyer-companies remitted P101.6 million, equivalent to the 5% CWT on the land sale. BCDA later filed on March 2009 a request for the amount to be refunded, which was not acted on.
The BCDA then brought the matter to the CTA on July 2010.
The BIR responded in October, arguing that BCDA was not among the government corporations exempted by the Tax Code from paying taxes and that it failed to substantiate the refund claim.
The BIR’s appeal was docketed as CTA EB No. 1123, Commissioner of Internal Revenue versus Bases Conversion and Development Authority.
It sought to reverse the decision made on CTA Case No. 8140, Bases Conversion and Development Authority versus Commissioner of Internal Revenue.
source: Businessworld
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