COMMISSIONER OF INTERNAL REVENUE

vs

PHILIPPINE AIRLINES
G.R. No. 179259
September 25, 2013
FACTS:
Respondent PAL filed on July 17, 2000 its Tentative Corporate Income
Tax Return for the Fiscal Year Ended March 31, 2000.

The Return reflects a creditable withheld for the fourth quarter and a
zero taxable income for the said year.
Hence, it filed on July 16, 2001 a written claim for refund before the
petitioner, CIR.

Consequently, a Letter of Authority was issued by the BIR Large

Taxpayers Service to authorize the examination and evaluation by the
revenue officers of the respondents claim for refund. An informal
Conference was held, and on August 11, 2003, respondent received a
computation of their Initial Deficiency MCIT Assessment amounting to
P537,477,867.64.
Thereafter, Written Protest

Filed by Respondent on Nov. 3,

2003
Preliminary Assessment
Notice (PAN)

Issued by the Large Taxpayers Formal Letter of Demand

Service on Sept. 22, 2003
Received by Respondent on Dec.
16, 2003

Formal Written Protest

Filed by Respondent
Defenses Raised:
1. That it is exempt from, or is not subject to,
the 2% MCIT by virtue of its Charter, PD
1590;
2. The 3-year period for assessment had
already lapse.
Respondents Formal written protest was not acted upon by the
petitioner thereby compelling respondent to file a Petition for Review
before the CTA.

The CTA Division granted the petition, hence, ordering the cancellation
and withdrawal of Assessment Notice and Formal Letter of Demand for
the payment of deficiency MCIT covering the fiscal year ending March
31 2000, issued against respondent.
The CTA Division pronounced that the only qualification provided for in
the law is the option given to respondent to choose between the taxes
which will yield the lesser liability. Thus, if as a result of the exercise of
the option, the respondent ends up without any tax liability, it should
not be held liable for any other tax, such as the MCIT, except for real
property tax.

A Motion for Reconsideration was filed by the petitioner but was

denied for lack of merit. Hence, petitioner filed an appeal to the CTA en
banc, which affirmed the Decision and the Resolution of the CTA
Division.
Consequently, a Petition for Review on Certiorari was filed before the
Supreme Court.
ISSUE:

WHETHER OR NOT PAL IS LIABLE FOR MCIT.

HELD:
The Supreme Court held that PAL is not liable for the MCIT. PALs
franchise (PD 1590) refers to basic corporate income tax, which relates
to the general rate of 35% (now 30%) as stipulated in Sec. 27 (A) of the
NIRC of 1997.
Moreover, sec. 13 (a) of PD 1590 provides that the basic corporate
income tax of PAL shall be based on its annual net taxable income,
which is consistent with sec. 27 (A) of the NIRC, which provides that the
basic corporate income shall be imposed on the taxable income of the
domestic corporation.

There is an apparent distinction between taxable income as basis for

the basic corporate income tax and gross income which is the basis for
the MCIT.

Hence, the basic corporate income tax, for which PAL is liable under
sec. 13(a) of PD 1590 does not cover MCIT since the basis for the first is
annual net taxable income, while the basis for the second is gross
income.