Tan v. Del Rosario, Jr., G.R. Nos. 109289 & 109446, October 3, 1994
Summary: Two special civil actions for prohibition were filed before the SC. First one, GR 109289 assailed the constitutionality of RA 7496 aka Simplified Net Income Taxation Scheme (SNIT), saying that it violates Art 6, Sec 26(1), Art 6 Sec 28(1) and Art 3, Sec 1 of the Constitution. Second one, GR 109446 contended that the respondents have exceeded their rule-making authority in promulgating Sec 6, Revenue Regulations No. 2-93(applying SNIT to general professional partnerships), to carry out Republic Act No. 7496.
SC
dismissed both petitions. The first failed to show that the amedatory law
violates the said constitutional provisions. The second, for wrongly construing that the Sec 6, Revenue Regulations No. 2-93 is imposing an
income tax liability on GPP.
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Ponente: VITUG, J.
Facts:
Petitioners
Argument in G.R. No. 109289
(1)
the title of House Bill No. 34314, progenitor of Republic Act No. 7496, is a
misnomer or, at least, deficient for being merely entitled, "Simplified
Net Income Taxation Scheme for the Self-Employed and Professionals Engaged in
the Practice of their Profession" when in reality the law changes the
taxation scheme from net income to a gross income taxation scheme. (violates
Art 6, Sec 26(1) of the Constitution.)
(2)
desecrates the constitutional requirement that taxation "shall be uniform
and equitable" in that the law would now attempt to tax single
proprietorships and professionals differently from the manner it imposes the
tax on corporations and partnerships. (violates Art 6, Sec 28(1) of the
Constitution.)
(3) given the above, the tax measures now imposed amount to unjust confiscation of property which is violative of the equal protection clause.
Petitioners Argument in G.R. No. 109446
Respondents have exceeded their rule-making authority in promulgating Sec 6, Revenue Regulations No. 2-93, which applied SNIT to GPPs. The law is intended by the lawmakers to apply only to individuals and professionals not to business corporations and partnerships.
The questioned regulation reads:
Sec.
6. General Professional Partnership —
The general professional partnership (GPP) and the partners comprising the GPP
are covered by R. A. No. 7496. Thus, in determining the net profit of the partnership,
only the direct costs mentioned in said law are to be deducted from partnership
income. Also, the expenses paid or incurred by partners in their individual
capacities in the practice of their profession which are not reimbursed or paid
by the partnership but are not considered as direct cost, are not deductible
from his gross income.
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Issue 1 of 2: WON RA 7496 is constitutional
Held:
Yes.
(a) The full text of the title actually reads:
An Act Adopting the Simplified Net Income Taxation Scheme For The Self-Employed and Professionals Engaged In The Practice of Their Profession, Amending Sections 21 and 29 of the National Internal Revenue Code, as Amended.
Allowance for deductible items was reduced but the law still adopts the net income, not the gross income, taxation scheme.
(b)
Single proprietorships and professionals are tax differently from corporations
and partnerships. Such a system of income taxation has long been the prevailing
rule even prior to Republic Act No. 7496.
(c) Tax measure not unconscionable and unjust as to amount to confiscation of property. No clear contravention of inherent or constitutional limitations in the exercise of the tax power was shown.
Issue 2 of 2: WON respondents have exceeded their rule-making authority in promulgating Section 6, Revenue Regulations No. 2-93
Held:
No.
Sec 6 of Revenue Regulation No. 2-93 did not alter, but merely confirmed, the standing rule that the partners themselves, not the gpp, are liable for the payment of income tax in their individual capacity computed on their respective and distributive shares of profits.
Sec 6 tackles the extent of allowable deductions applicable to all individual income taxpayers on their non-compensation income. There is no evident intention of the law, either before or after the amendatory legislation, to place in an unequal footing or in significant variance the income tax treatment of professionals who practice their respective professions individually and of those who do it through a general professional partnership.
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Note: The Code classifies taxpayers into four main groups, namely: (1) Individuals, (2) Corporations, (3) Estates under Judicial Settlement and (4) Irrevocable Trusts (irrevocable both as to corpus and as to income).
Partnerships are either "taxable partnerships" or "exempt partnerships." Ordinarily, partnerships, no matter how created or organized, are subject to income tax (and thus alluded to as "taxable partnerships") which, for purposes of the above categorization, are by law assimilated to be within the context of, and so legally contemplated as, corporations. SNIT is not intended or envisioned to cover corporations and partnerships which are independently subject to the payment of income tax.
"Exempt partnerships," upon the other hand, are not similarly identified as corporations nor even considered as independent taxable entities for income tax purposes. A general professional partnership is such an example. Here, the partners themselves, not the partnership (although it is still obligated to file an income tax return [mainly for administration and data]), are liable for the payment of income tax in their individual capacity computed on their respective and distributive shares of profits.
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