Revenue v. Operations

MENDOZA, J.:

These are two consolidated petitions for review on certiorari under Rule 45 of the Rules of Court. In G.R. No. 171742, petitioner Commissioner of Internal Revenue (CIR) seeks the reversal of the January 17, 2006 Decision1 and March 9, 2006 Resolution2 of the Court of Tax Appeals (CTA) En Banc in CTA E.B. Case No. 123. In G.R. No. 176165, petitioner Mirant (Philippines) Operations, Corporation (Mirant) seeks the reversal of the October 26, 2006 Decision3 and January 5, 2007 Resolution4 of the CTA En Banc in CTA E.B. Case No. 125.

THE FACTS Petitioner is empowered to perform the lawful duties of his office including, among others, the duty to act on and approve claims for refund or tax credit as provided by law. Respondent Mirant is a corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines, with principal office at Bo. Ibabang Pulo, Pagbilao Grande Island, Pagbilao, Quezon.5 Mirant also operated under the names Southern Energy Asia-Pacific Operations (Phils.), Inc., CEPA Operations (Philippines) Corporation; CEPA Tileman Project Management Corporation; and Hopewell Tileman Project Management Corporation.6 Mirant, duly licensed to do business in the Philippines, is primarily engaged in the design, construction, assembly, commissioning, operation, maintenance, rehabilitation and management of gas turbine and other power generating plants and related facilities using coal, distillate, and other fuel provided by and under contract with the Government of the Republic of the Philippines or any subdivision, instrumentality or agency thereof, or any government-owned or controlled corporations or other entities engaged in the development, supply or distribution of energy.7 Mirant entered into Operating and Management Agreements with Mirant Pagbilao Corporation (formerly Southern Energy Quezon, Inc.) and Mirant Sual Corporation (formerly Southern Energy Pangasinan, Inc.) to provide these companies with maintenance and management services in connection with the operation, construction and commissioning of coal-fired power stations situated in Pagbilao, Quezon, and Sual, Pangasinan respectively.8 On October 15, 1999, Mirant filed with the Bureau of Internal Revenue (BIR) its income tax return for the fiscal year ending June 30, 1999 , declaring a net loss of ₱235,291,064.00 and unutilized tax credits of ₱ 32,263,388.00: Gross Income ₱ (64,438,434.00) Less: Deductions 170,852,630.00 Net Loss ₱ (235,291,064.00)