Commissioner of Internal Revenue v. East Asia Utilities Corporation
REITERATIONFacts
The Antecedents: East Asia Utilities Corporation (East Asia Utilities), a domestic corporation registered with the Philippine Economic Zone Authority (PEZA) as an ECOZONE Utilities Enterprise, is entitled to incentives under Republic Act No. 7916, including a special five percent (5%) tax on gross income in lieu of national and local taxes. The Commissioner of Internal Revenue (CIR) assessed East Asia Utilities for deficiency income tax and expanded withholding tax for the calendar year 2006. The CIR disallowed various costs and expenses totaling P34,467,835.76, which East Asia Utilities disputed. Procedural History: Following the CIR's assessment and subsequent denial of protest, East Asia Utilities filed a Petition for Review with the Court of Tax Appeals (CTA) Division, seeking the cancellation of the assessment. The CTA Division partially granted the petition, finding East Asia Utilities liable for deficiency income tax in the reduced amount of P612,406.94, holding that the enumeration of allowable deductions under Revenue Regulations (RR) No. 11-2005 was not exclusive. Both parties filed motions for reconsideration, which were denied. The CIR appealed to the CTA En Banc, which affirmed the CTA Division's decision. The CIR then filed a motion for reconsideration with the CTA En Banc, which was also denied. Subsequently, the CIR filed a motion for extension of time to file a petition for review with the Supreme Court, docketed as G.R. No. 222824, but this was withdrawn. The CIR later filed the present Petition for Review on Certiorari with the Supreme Court, docketed as G.R. No. 225266. The Petition: The Commissioner of Internal Revenue, through a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assails the Decision and Resolution of the CTA En Banc. The CIR contends that the enumeration of direct costs deductible from a PEZA-registered enterprise's gross income in RR No. 11-2005 is exclusive, invoking the principle of expressio unius est exclusio alterius. Alternatively, the CIR argues that even if the list is not exclusive, the CTA erroneously allowed P24,669,324.88 as deductible costs because these expenses are not directly related to East Asia Utilities’ power generation services. East Asia Utilities, in its Comment, raises several procedural issues, including forum shopping and lack of authority of the BIR's Litigation Division, and argues that RR No. 11-2005 is not exclusive and that the issue of factual relatedness of expenses is not a proper subject for a Rule 45 petition.
Issue(s)
Whether the enumeration of direct costs deductible from a PEZA-registered enterprise’s gross income in RR No. 11-2005 is exclusive. Whether the P24,669,324.88 amount allowed as deduction by the CTA En Banc is directly related to East Asia Utilities’ power generation services. Whether the CIR committed forum shopping. Whether the BIR’s Litigation Division has the authority to file the petition before the Supreme Court. Whether the erroneous docket number in the petition warrants its dismissal.
Ruling
The Supreme Court denied the petition for review on certiorari for lack of merit. The Court found that the enumeration of direct costs in RR No. 11-2005 is not exclusive and that the issue of whether the allowed deductions were directly related to the PEZA-registered activities is a factual question not cognizable in a Rule 45 petition. The Court also addressed procedural issues, finding no forum shopping, acknowledging the OSG as the proper party to represent the government but allowing the petition to proceed despite the BIR Litigation Division's involvement, and holding that the erroneous docket number did not warrant dismissal.
Ratio Decidendi
On the exclusivity of the enumeration of direct costs in RR No. 11-2005: The Court held that RR No. 11-2005, which amended RR No. 2-2005, removed the exclusivity of the enumeration of allowable deductions. The use of the word "included" in RR No. 11-2005, as opposed to the restrictive phrase "shall consist only of" in RR No. 2-2005, signifies that the list is illustrative and not exhaustive. The Court cited jurisprudence, such as Sterling Selections Corp. v. LLDA and United Coconut Planters Bank v. E. Ganzon, Inc., which interpret the word "including" as indicative of non-exclusivity. Therefore, the principle of expressio unius est exclusio alterius does not apply, and other expenses directly related to the PEZA-registered activity can be deducted. On whether the allowed deductions were directly related to East Asia Utilities’ power generation services: The Court ruled that this issue is factual in nature and not appropriate for a Rule 45 petition, which is limited to questions of law. The Court reiterated that the findings of fact of the CTA, as a specialized tax court, are generally final and binding unless exceptions apply, which were not sufficiently demonstrated by the CIR. The Court emphasized that it is not its function to re-weigh evidence already considered by the lower courts. On forum shopping: The Court found that the CIR was not guilty of forum shopping. While there was an identity of parties and the motions pertained to the same CTA En Banc Decision, the rights asserted were different: one was a motion for extension to file a petition for review (G.R. No. 222824), and the other was a motion for reconsideration of the CTA En Banc Decision. Furthermore, G.R. No. 222824 was declared closed and terminated, negating the possibility of conflicting judgments or res judicata. On the authority of the BIR’s Litigation Division: The Court acknowledged that the Office of the Solicitor General (OSG) is the proper party to represent the Republic in appellate proceedings before the Supreme Court, as stressed in LG Electronics Philippines, Inc. v. CIR. However, the Court noted that the OSG was aware of the proceedings and that the government's interests were protected. Therefore, the Court chose to disregard this procedural lapse to give due course to the petition, while reminding the BIR to adhere to established procedures in the future. On the erroneous docket number in the petition: The Court found that while the petition initially bore the erroneous docket number G.R. No. 222824, the correct docket number G.R. No. 225266 was written by hand beside it, and all subsequent court issuances and pleadings were correctly associated with G.R. No. 225266. This prevented the misplacement of pleadings and court issuances, unlike in the case of Llantero v. CA. Thus, the petition was not dismissed on this ground.
Main Doctrine
The Court clarified that Revenue Regulation (RR) No. 11-2005, which amended RR No. 2-2005, did not intend to provide an exclusive list of deductible costs for PEZA-registered enterprises. Instead, the enumeration of direct costs was meant to be illustrative, and the principle of expressio unius est exclusio alterius does not apply. Therefore, expenses directly related to the PEZA-registered services are deductible from gross income when computing the 5% Gross Income Tax (GIT), even if not explicitly listed, as long as they are not administrative, marketing, selling, or operating expenses, or incidental losses.