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I-REMIT v. CIR

FACTS:

The case involves the interpretation of Section 127(B) of the National Internal Revenue Code (NIRC) regarding the computation of tax on the sale of shares of stock through an initial public offering (IPO). The petitioner, I-Remit, Inc., is seeking a refund of excess taxes from the Commissioner of Internal Revenue (CIR). The petitioner argues that the tax should be jointly computed for both the primary offering and the secondary offering, while the CIR argues that the tax should be separately computed. I-Remit, Inc. is a domestic corporation engaged in fund transfer and remittance services. It offered 140,604,000 shares to the public through the IPO, with 107,417,000 shares offered in the primary offering and 33,187,000 shares offered in the secondary offering. The petitioner paid the tax but later filed a claim for refund, alleging an overpayment due to the inclusion of treasury shares in the divisor used to compute the tax rate. The Court of Tax Appeals (CTA) initially ruled in favor of the petitioner on the exclusion of treasury shares but denied the claim for refund for failure to prove closely held corporation status. The CTA En Banc upheld the separate computation of taxes for primary and secondary offerings, leading the petitioner to file a petition for review.

ISSUES:

  1. Whether the computation in Section 6(C) of Revenue Regulation No. 06-2008 is consistent with Section 127(B) of the tax code.

  2. Whether Revenue Regulation No. 06-2008 can be applied retroactively and affect vested rights.

  3. Whether the tax on the sale of shares of stock in closely held corporations sold or exchanged through an initial public offering should be separately computed for shares offered in primary and secondary offerings.

RULING:

  1. Yes, the computation in Section 6(C) of Revenue Regulation No. 06-2008 is consistent with Section 127(B) of the tax code. Section 127(B) clearly requires a separate computation of tax on shares offered in primary and secondary offerings. Section 6(C), in illustrating how the tax should be computed separately, is therefore consistent with the law.

  2. Revenue Regulation No. 06-2008 was not applied retroactively in deciding the case. The Court of Tax Appeals (CTA) En Banc's decision was based on the clarity of Section 127(B) and not on the retroactive application of the regulation. Therefore, the argument that the regulation cannot be applied retroactively and affect vested rights is misplaced.

  3. The Supreme Court ruled that the tax on the sale of shares of stock in closely held corporations sold or exchanged through an initial public offering should be separately computed for shares offered in primary and secondary offerings. The Court emphasized that there is a clear distinction between primary and secondary offerings in the law and the corresponding tax is separately computed. The Tax Code and the related regulations require a separate computation of the tax due for each type of offering. The Court rejected the argument that a joint computation should be used based on a previous erroneous interpretation of the law.

PRINCIPLES:

  • A statutory provision must be construed to give effect to all its provisions whenever possible.

  • The use of the word "every" preceding "sale" in the provision indicates that more than one sale may transpire under Section 127(B) of the NIRC.

  • The provision in Section 127(B) of the NIRC for primary and secondary offerings indicates the intent to differentiate the computation of tax for each offering.

  • Section 127(C) of the NIRC provides for separate time and manner of payment of tax for primary and secondary offerings.

  • Administrative rules, such as revenue regulations, may be issued to implement and interpret the law, as long as they are consistent with the law they seek to implement.

  • Retroactive application of administrative regulations may be allowed if it is not contrary to law and if it does not affect vested rights.

  • Sale of shares in primary and secondary offerings are subject to separate computation of tax.

  • Vested rights may not arise from a wrong construction of the law.

  • The erroneous interpretation of the law does not create a vested right.