CTA junks P292-M tax demand vs energy firm

THE COURT of Tax Appeals (CTA) has ordered the cancellation and withdrawal of the Bureau of Internal Revenue’s (BIR) P292-million tax assessment against energy and power firm Conal Holdings Corporation over the lack of legal and factual bases.

In a 19-page decision issued by the Second Division, the tax court has granted Conal Holdings’ petition for review of the P291,875,839.72 tax deficiency assessment, stemming from the company’s purchase of two diesel power plants from the Iligan City government in 2013.

To recall, in October 2014, the BIR issued the deficiency expanded withholding tax (EWT) assessment against Conal Holdings, in connection with the acquisition of the power plants.

However, Conal Holdings argued its income payments to the Iligan city government for the power plants are excluded from the coverage of withholding tax as provided by Section 2.57.5(A) of the Revenue Regulation No. 2-98.

Conal Holdings also pointed out that the sale should be exempted from tax since it was done in the course of Iligan City’s performance of its functions as local government unit.

The energy company also noted that the City Government acquired Iligan Diesel Power Plants through government levy on Northern Mindanao Power Corporation and decided to eventually sell it. It stressed that this “proves that the City sold the subject power plants to petitioner because the City is not in the business, and is not capable of operating a power plant.”

The CTA gave merit with Conal Holdings’ argument, stressing that: “A reading of Section 2.57.5(A) of the RR No. 2-98, as amended, shows that the withholding of creditable withholding tax shall not apply to income payments made to the National Government and its instrumentalities, including provincial, city of municipal governments and barangays.”

“In the present case, there is no question that the sale of other real property was made by the City Government of Iligan,” the Court held.

“[P]etitioner is not liable to the deficiency [EWT] assessed by respondent on its income payments made to the City Government of Iligan.”

“Section 2.57.5(A) of RR No. 2-98 is clear and unequivocal, leaving no room for interpretation. A regulation adopted pursuant to law is law. And where the law speaks in clear and categorical language, there is no occasion for interpretation; there is only room for application,” the Court emphasized.

The decision dated July 17, 2017 was penned by Associate Justice Juanito C. Castañeda, Jr. Concurring are Associate Justices Caesar A. Casanova and Catherine T. Manahan. —