WESTERN MINOLCO CORPORATION, Petitioner, v.

COMMISSIONER OF
INTERNAL REVENUE and COURT OF TAX APPEALS, Respondents. [G.R. No. L-
61632. August 16, 1983]

Nature of the case:

Petition for review on certiorari of the Court of Tax Appeals decision denying
petitioners claim for refund of P1.3M representing money market transaction taxes
which the petitioner paid.

Facts:
In 1972, petitioner [a domestic corporation engaged in mining] was granted with a
Certificate of Qualification for Tax Exemption by the Bureau of Mines. In 1977, pursuant
to the authority granted by SEC authorizing it to borrow money and issue commercial
papers, petitioner borrowed funds from several financial institutions and paid the
corresponding 35% transaction tax due [P1.3M] thereon pursuant to Section 210 (b) of
the 1977 NIRC.

However in 1978, petitioner applied for refund of said amount alleging that it was not
liable to pay under its Certificate of Qualification for Tax Exemption, the The Mining
Act, and Mineral Resources Development Decree of 1974. In 1979, the CIR denied the
claim holding, among others, that the 35% transaction tax is a tax on the interest earnings
of the lender who is actually the taxpayer on whose income, the tax is imposed, and that
the 35% transaction tax is levied on transactions pertaining to commercial papers issued
in the primary money market as principal instruments, thus not a business tax.

Petitioner went to CTA via petition for review, which in turn, dismissed the petition in
1982 for lack of merit. Hence, the petition. Petitioner argues that the 35% transaction tax
is a business tax because the Revenue Code itself classifies it as "Business Tax" under
Title V; and that PD No 1154 provides that the transaction tax shall be allowed as a
deductible item for purposes of determining the borrowers taxable income. Since it is not
an income tax, but a business tax, petitioner is exempt from the 35% transaction tax.

When is there a business tax? - [Clearly, the transaction tax of P1,317,801.03 paid by the
petitioner was not actually imposed upon it in the conduct of its mining business or in the
importation of machinery, spare parts and/or equipment listed in the stamped "ANNEX I"
of its certificate of qualification for tax exemption and which are indispensable in the
operation and used exclusively on petitioners mineral land.]

Issue:
Whether the 35% transaction tax is a business tax to which petitioner is exempt under the
mining law. [NO]

Ratio:

The 35% transaction tax is imposed on interest income from commercial papers issued in
the primary money market. Being a tax on interest, it is a tax on income.
Taxation; the 35% transactions tax is a tax on the interest income of the lender and,
therefore, a mining company who borrowed money, and withheld and paid said tax
on interest paid to the lender cannot claim exemption therefrom even if it has a tax
exemption certificate - as a mining company
The 35% transaction tax is an income tax on interest earnings to the lenders or placers.
The latter are actually the taxpayers. Therefore, the tax cannot be a tax imposed upon the
petitioner. In other words, the petitioner who borrowed funds from several financial
institutions by issuing commercial papers merely withheld the 35% transaction tax before
paying to the financial institutions the interests earned by them and later remitted the
same to the respondent Commissioner of Internal Revenue. The tax could have been
collected by a different procedure but the statute chose this method. Whatever collecting
procedure is adopted does not change the nature of the tax.

Deductibility or non-deductibility from gross income does not determine the nature
of the tax. [chanrobles]
Whether or not certain taxes are on income is not necessarily determined by their
deductibility or non-deductibility from gross income. As correctly observed by the
Solicitor General, income in the form of dividends, capital gains on real property
pursuant to Batas Pambansa Blg. 37, shares of stock pursuant to Presidential Decree
1739, and interests on savings in bank accounts, for instance, are incomes, yet they are
not includible in the gross income when income taxes are paid because these are subject
to final withholding taxes.

The location of the 35% tax in the Tax Code does not necessarily determine its
nature. A tax is a tax on income even if located on the Codes provisions on business
taxes.

Contention: The petitioner also submits that the 35% transaction tax is a business tax
because it is imposed under Title V, entitled "Taxes on Business" and classified specially
under Chapter II, entitled "Tax on Business."

The location of the 35% tax in the Tax Code does not necessarily determine its nature.
Again, we agree with the Solicitor General that the legislative body must have realized
later that the subject tax was inappropriately included among the taxes on business
because Section 210 of the Tax Code has been repealed by Presidential Decree No. 1739,
which now imposes a tax of 20% on interests from deposits and yields from deposit
substitutes such as commercial papers issued in the primary market as principal
instrument and provides for them in Section 24(cc) under Chapter III, Tax on
Corporations, Title II Income Tax.

- Digested [21 November 2017, 00:26]