Commissioner of Internal Revenue v. Trustworthy Pawnshop
REITERATIONFacts
The Antecedents: Respondent Trustworthy Pawnshop, Inc. (Pawnshop) is engaged in the pawnshop business. On March 11, 1991, the Commissioner of Internal Revenue (CIR) issued Revenue Memorandum Order (RMO) No. 15-91, classifying pawnshop businesses as akin to lending investors and subjecting them to a 5% lending investor's tax based on gross income, pursuant to Section 116 of the National Internal Revenue Code (NIRC) of 1977, as amended. This was clarified by Revenue Memorandum Circular (RMC) No. 43-91, mandating that pawnshop operators become liable for the lending investor's tax starting January 1, 1991, and also subject them to documentary stamp taxes. Procedural History: Pursuant to these issuances, the Bureau of Internal Revenue (BIR) issued an assessment notice dated June 13, 1997, against the Pawnshop for deficiency percentage tax for 1994, amounting to P2,108,335.19, plus surcharges, interests, and a compromise penalty. The Pawnshop filed an administrative protest on July 4, 1997, alleging that a pawnshop business is distinct from a lending investor's business and should not be subjected to the 5% lending investor's tax. When its protest remained unacted upon, the CIR issued a warrant of levy and/or distraint, which the Pawnshop considered a final denial. The Pawnshop then filed a Petition for Review with the Court of Tax Appeals (CTA), which ruled in favor of the Pawnshop, declaring RMO No. 15-91 and RMC No. 43-91 null and void for being contrary to law and the Constitution, and consequently cancelling the assessment notice. The CIR's motion for reconsideration was denied. The CIR appealed to the Court of Appeals (CA), which dismissed the case for lack of merit. The Petition: The CIR filed a Petition for Review on Certiorari with the Supreme Court, alleging that the CA erred in holding that pawnshops are not subject to the 5% lending investor's tax under Section 116 of the NIRC of 1977, as amended.
Issue(s)
Whether pawnshops are considered lending investors under the provisions of the NIRC of 1977, as amended, for the purpose of subjecting them to the 5% lending investor's tax. Whether Revenue Memorandum Order No. 15-91 and Revenue Memorandum Circular No. 43-91 are valid.
Ruling
The petition is DENIED. The Decision dated August 29, 2001 of the Court of Appeals in CA-G.R. SP No. 59250 is AFFIRMED.
Ratio Decidendi
On the issue of whether pawnshops are considered lending investors for the purpose of the 5% lending investor's tax: The Supreme Court affirmed the ruling of the Court of Appeals, holding that pawnshops cannot be classified as lending investors for the purpose of imposing the 5% lending investor's tax under Section 116 of the National Internal Revenue Code (NIRC) of 1977, as amended. This conclusion is anchored on several reasons. Firstly, under previous versions of the NIRC (Section 192, paragraph 3, sub-paragraphs (dd) and (ff) of the NIRC of 1997, and Section 161, paragraph 2, sub-paragraphs (dd) and (ff) of the NIRC of 1986), pawnshops and lending investors were subjected to different tax treatments. Secondly, Congress never intended pawnshops to be treated identically to lending investors, as evidenced by the distinct tax treatments in various iterations of the NIRC. Section 116 of the NIRC of 1977, as amended by E.O. No. 273, specifically subjects dealers in securities and lending investors to a percentage tax, with no mention of pawnshops. Applying the maxim expressio unius est exclusio alterius, the enumeration of specific entities implies the exclusion of those not mentioned. Furthermore, prior BIR rulings had consistently held that pawnshops were not subject to the 5% percentage tax under Section 116, a stance admitted by the CIR itself in RMO No. 15-91. The Court reiterated its ruling in Commissioner of Internal Revenue v. Michael J. Lhuillier Pawnshop, which directly addressed this issue and concluded in the negative. On the validity of RMO No. 15-91 and RMC No. 43-91: The Court found these issuances to be invalid. The basis for these issuances, Section 116 of the NIRC of 1977, as amended, was repealed by Republic Act No. 7716. Consequently, RMO No. 15-91 and RMC No. 43-91, which depended on the repealed provision, are deemed automatically repealed. Additionally, the Court noted the absence of publication for these administrative issuances, which is a requirement for their validity. The CIR's rule-making authority does not permit it to disregard legal requirements such as notice, hearing, and publication. Therefore, RMO No. 15-91 and RMC No. 43-91 were declared null and void.
Main Doctrine
Pawnshops cannot be classified as lending investors for the purpose of imposing the 5% lending investor's tax under Section 116 of the National Internal Revenue Code of 1977, as amended, as they were treated differently by law and legislative intent.