BPI Leasing Corp vs Court of Appeals

FACTS: BLC is a corporation engaged in the business of leasing properties. For the calendar year 1986, BLC paid the Commissioner of Internal Revenue (CIR) a total of P1,139,041.49 representing 4% contractors percentage tax then imposed by Section 205 of the National Internal Revenue Code (NIRC), based on its gross rentals from equipment leasing for the said year amounting to P27,783,725.42.

On November 10, 1986, the CIR issued Revenue Regulation 19-86. Section 6.2 thereof provided that finance and leasing companies registered under Republic Act 5980 shall be subject to gross receipt tax of 5%-3%-1% on actual income earned. This means that companies registered under Republic Act 5980, such as BLC, are not liable for contractors percentage tax under Section 205 but are, instead, subject to gross receipts tax under Section 260 (now Section 122) of the NIRC. Since BLC had earlier paid the aforementioned contractors percentage tax, it re-computed its tax liabilities under the gross receipts tax and arrived at the amount of P361,924.44.

On April 11, 1988, BLC filed a claim for a refund with the CIR for the amount of P777,117.05, representing the difference between the P1,139,041.49 it had paid as contractors percentage tax and P361,924.44 it should have paid for gross receipts tax. Four days later, to stop the running of the prescriptive period for refunds, petitioner filed a petition for review with the CTA. CTA dismissed the petition and denied BLCs claim of refund. The CTA held that Revenue Regulation 19-86, as amended, may only be applied prospectively such that it only covers all leases written on or after January 1, 1987. The CTA ruled that, since BLCs rental income was all received prior to 1986, it follows that this was derived from lease transactions prior to January 1, 1987, and hence, not covered by the revenue regulation.

ISSUE:

1) Whether or not Revenue Regulation 19-86 is legislative rather than interpretative in character

RULING: The Court finds the questioned revenue regulation to be legislative in nature. LEGISLATIVE

2) Whether or not its application should be prospective or retroactive. PROSPECTIVE

RULING:

1) Section 1 of Revenue Regulation 19-86 plainly states that it was promulgated pursuant to Section 277 of the NIRC. Section 277 (now Section 244) is an express grant of authority to the Secretary of Finance to promulgate all needful rules and regulations for the effective enforcement of the provisions of the NIRC. The Court recognized that the application of Section 277 calls for none other than the exercise of quasi-legislative or rule-making authority. Verily, it cannot be disputed that Revenue Regulation 19-86 was issued pursuant to the rule-making power of the Secretary of Finance, thus making it legislative, and not interpretative as alleged by BLC.

2) The principle is well entrenched that statutes, including administrative rules and regulations, operate prospectively only, unless the legislative intent to the contrary is manifest by express terms or by necessary implication. In the present case, there is no indication that the revenue regulation may operate retroactively. Furthermore, there is an express provision stating that it shall take effect on January 1, 1987, and that it shall be applicable to all leases written on or after the said date. Being clear on its prospective application, it must be given its literal meaning and applied without further interpretation. Thus, BLC is not in a position to invoke the provisions of Revenue Regulation 19-86 for lease rentals it received prior to January 1, 1987.