Facts: Petitioner, Cyanamid Philippines, Inc., a corporation organized under Philippine laws, is a wholly owned subsidiary of American Cyanamid Co. based in Maine, USA. It is engaged in the manufacture of pharmaceutical products and chemicals, a wholesaler of imported finished goods, and an importer/indenter.
February 7, 1985, the CIR sent an assessment letter to petitioner and demanded the payment of deficiency in come tax of P119,817 for taxable year 1981 which the petitioner on March 4, 1985, protested particularly (1) 25% surtax assessment of P3,774,867.50; (2) 1981 deficiency income tax assessment of P119,817; (3) 1981 deficiency percentage assessment of P3,346.72. CIR refused to allow the cancellation of the assessment notices.
During the pendency of the case on appeal to the CTA, both parties agreed to compromise the 1981 deficiency income assessment of P119,817 and reduced to P26,577 as compromise settlement. But the surtax on improperly accumulated profits remained unresolved. Petitioner claimed that the assessment representing the 25% surtax had no legal basis for the following reasons: (a) petitioner accumulated its earnings and profits for reasonable business requirements to meet working capital needs and retirement of indebtedness, (b) petitioner is wholly owned subsidiary of American Cyanamid Co., a corporation organized under the laws of the State of Maine, in the USA, whose shares of stock are listed and traded in New York Stock Exchange. This being the case, no individual shareholder of petitioner could have evaded or prevented the imposition of individual income taxes by petitioner’s accumulation of earnings and profits, instead contribution of the same.
CTA denied said petition.
Issue: Whether petitioner is liable for the accumulated earnings tax for the year 1981.
Held: The amendatory provision of Sec. 25 of the 1977 NIRC, which was PD1739, enumerated the corporations exempt from the imposition of improperly accumulated tax: (a) banks, (b) non-bank financial intermediaries; (c) insurance companies; and (d) corporations organized primarily and authorized by the Central Bank to hold shares of stocks of banks. Petitioner does not fall among those exempt classes. Besides, the laws granting exemption form tax are construed strictissimi juris against the taxpayer and liberally in favor of the taxing power. Taxation is the rule and exemption is the exception. The burden of proof rests upon the party claiming the exemption to prove that it is, in fact, covered by the exemption so claimed; a burden which petitioner here has failed to discharge.
Unless rebutted, all presumptions generally are indulged in favor of the correctness of the CIR’s assessment against the taxpayer. With petitioner’s failure to prove the CIR incorrect, clearly and conclusively, this court is constrained to uphold the correctness of tax court’s ruling as affirmed by the CA.
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