Revenue v. Central Luzon Drug Corporation

AZCUNA, J.:

This is a petition for review under Rule 45 of the Rules of Court seeking the nullification of the Decision, dated May 31, 2001, of the Court of Appeals (CA) in CA-G.R. SP No. 60057, entitled "Central Luzon Drug Corporation v. Commissioner of Internal Revenue," granting herein respondent Central Luzon Drug Corporation's claim for tax credit equal to the amount of the 20% discount that it extended to senior citizens on the latter's purchase of medicines pursuant to Section 4(a) of Republic Act (R.A.) No. 7432, entitled "An Act to Maximize the Contribution of Senior Citizens to Nation Building, Grant Benefits and Special Privileges and for other Purposes" otherwise known as the Senior Citizens Act.

The antecedents are as follows: Central Luzon Drug Corporation has been a retailer of medicines and other pharmaceutical products since December 19, 1994. In 1995, it opened three (3) drugstores as a franchisee under the business name and style of "Mercury Drug." For the period January 1995 to December 1995, in conformity to the mandate of Sec. 4(a) of R.A. No. 7432, petitioner granted a 20% discount on the sale of medicines to qualified senior citizens amounting to ~~P~~ 219,778.

Pursuant to Revenue Regulations No. 2-941 implementing R.A. No. 7432, which states that the discount given to senior citizens shall be deducted by the establishment from its gross sales for value-added tax and other percentage tax purposes, respondent deducted the total amount of ~~P~~ 219,778 from its gross income for the taxable year 1995. For said taxable period, respondent reported a net loss of ~~P~~ 20,963 in its corporate income tax return. As a consequence, respondent did not pay income tax for 1995.

Subsequently, on December 27, 1996, claiming that according to Sec. 4(a) of R.A. No. 7432, the amount of ~~P~~ 219,778 should be applied as a tax credit, respondent filed a claim for refund in the amount of ~~P~~ 150,193, thus: Net Sales ~~P~~ 37,014,807.00 Add: Cost of 20% Discount to Senior Citizens 219,778.00