CIR vs. Mitsubishi Metal

7/29/2019 CIR vs. Mitsubishi Metal

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COMMISSIONER OF INTERNAL REVENUE, vs.MITSUBISHIMETAL CORPORATION, ATLAS CONSOLIDATED MINING ANDDEVELOPMENT CORPORATION and the COURT OF TAXAPPEALS

Facts:

April 17, 1970, Atlas Consolidated Mining and DevelopmentCorporation entered into a Loan and Sales Contract withMitsubishi Metal Corporation for purposes of the projectedexpansion of the productive capacity of the former's mines inCebu. Under said contract, Mitsubishi agreed to extend a loan toAtlas 'in the amount of $20,000,000.00 for the installation of anew concentrator for copper production. Atlas, in turn undertook

to sell to Mitsubishi all the copper concentrates produced fromsaid machine for a period of fifteen years. It was contemplatedthat $9,000,000.00 of said loan was to be used for the purchaseof the concentrator machinery from Japan.

Mitsubishi thereafter applied for a loan with the Export-Import Bank of Japan for purposes of its obligation under saidcontract. The records in the Bureau of Internal Revenue show thatthe approval of the loan by Eximbank to Mitsubishi was subject tothe condition that Mitsubishi would use the amount as a loan toAtlas and as a consideration for importing copper concentratesfrom Atlas, and that Mitsubishi had to pay back the total amountof loan by September 30, 1981.

Pursuant to the contract between Atlas and Mitsubishi,interest payments were made by the former to the latter totallingP13,143,966.79. The corresponding 15% tax thereon in theamount of P1,971,595.01 was and duly remitted to theGovernment.

On March 5, 1976, private respondents filed a claim for tax creditrequesting that the sum of P1,971,595.01 be applied against theirexisting and future tax liabilities. The petitioner not having actedon the claim for tax credit, private respondents filed a petition forreview with respondent court.


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Respondent court decided ordering petitioner to grant a tax creditin favor of Atlas in the amount of P1,971,595.01. A motion forreconsideration having been denied, petitioner interposed anappeal to the Supreme Court.

While CTA Case No. 2801 was still pending before the tax court,the corresponding 15% tax was withheld and remitted to theGovernment. Atlas again filed a claim for tax credit with thepetitioner, repeating the same basis for exemption. Respondentcourt rendered judgment ordering the petitioner to credit Atlasthe aforesaid amount of tax paid. A motion for reconsiderationwas filed but was was denied.

Hence, this petition.

Issue:

Whether or not the interest income from the loans extendedto Atlas by Mitsubishi is excludible from gross income taxationand therefore, exempt from withholding tax.

Ruling:

The court ruled that laws granting exemption from tax are

construed strictissimi juris against the taxpayer and liberally infavor of the taxing power. Taxation is the rule and exemption isthe exception. The burden of proof rests upon the party claimingexemption to prove that it is in fact covered by the exemption soclaimed, which onus petitioners have failed to discharge.Significantly, private respondents are not even among the entitieswhich, under Section 29 (b) (7) (A) of the tax code, are entitled toexemption and which should indispensably be the party ininterest in this case.

Definitely, the taxability of a party cannot be blandly glossed overon the basis of a supposed "broad, pragmatic analysis" alonewithout substantial supportive evidence, lest governmentaloperations suffer due to diminution of much needed funds. Norcan we close this discussion without taking cognizance ofpetitioner's warning, of pervasive relevance at this time, that


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while international comity is invoked in this case on the nebulousrepresentation that the funds involved in the loans are those of aforeign government, scrupulous care must be taken to avoidopening the floodgates to the violation of our tax laws. Otherwise,

the mere expedient of having a Philippine corporation enter into acontract for loans or other domestic securities with private foreignentities, which in turn will negotiate independently with theirgovernments, could be availed of to take advantage of the taxexemption law.

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CIR vs. Mitsubishi Metal