John Gotamcs & Gone, Inc., et al. vs. A Cage No, et al.

DECISION -

CTA CASE NO. 1625 ?

the burden of which say however be shifted by it onto enother. This would do violence to the clear intent of the exemption.

A tax exemption is granted to relieve the grantee from the burden resulting from the taxe The obvious intent of the exeaption in question is to relieve the wiO from shouldering the burden resulting from direct and indirect taxes without any limitation or condition other then those provided in the agreements, There is nothing in said agreements that limite the scope of the exemption from indirect taxes to cases where the wiO pays the tax in the first instance but ean shift the burden thereof to ancther and we see no reason to reed such a limitetion into the agreenent 8. Indeed, imposing such a limitation would lead to abeurd results. If we limit the scope of the exeaption to indirect taxes: that are payable io the first instance by the WHO, the insertion of the word “indirect” would he purposeless because the WHO can easily pass the burden to another. On the other hand, the WHO will not be relieved of the burden imposed by the indirect taxes that are shifted to it by whoever pays the tax in the first inetenee. The word “indirect” would thus appear like an ironic insertion. 4 tax enenption shovld not be interpreted in @ manner that thwarts the . purpose and destroys its spirit. (The Lew of Taex- 120

DECISION -

_ OTA CASE NO. 1625 8 ation, Cooley, Vol. II, pe 1416, eiting Spokane Valley Lané < water Company vy. Kootenai, idaho, 199 Fed. 481.) | | In holding that the WHO is exempt from the burden of the contractor's tax because of the exenption from indirect taxes, we are not unmind- ful of the case of Philippine acetylene “o., Ine.

v. Commissioner of Internal Nevenue and Court of Tax Appeals (C.R. lo. 1=19707, August 17, 1967) where the seller was held lfeble for sales taxcs for sales made to the Nations] Fower Corporation, an ageney of the Philippine Government, which is tax-exempt under these terms:

"ORC. 2. To ert Ae yee ment of its indebtedness Nation- al Power Corporation math os be exempt from all taxes, except real property tax, and from all duties, fees imposts, charges, and restrietions of the hepublte of the Philippines oar provinees, cities and uni eipel~ es."

We note that tn the decision of caid case it was said that - | “Many years ago, ‘r. Justice Oliver Wendel tiolmes expressed dis- aatisfaction with the use of the phrase ‘pass the tax on.’ Writing the opinion of the U.S. Supreme

Court in

» he said: ne phrase “passed he ax on" is inaccurate, as obvious- ly the tax is laid and remains on the manufacturer and on him slone.

~~ does f° really pey the ax. Oe on pay the seller more for the goods because of the 12]

DECISION «

CTA CASE NO, 1625 'e - seller's eo MYT but that is all. +s * The priee ia the sup total paid for the goods. The amount added because of the tax is paid to get the goods and for nothing else.

Therefore 4% is part of the price * $ @, and we further note that in the light of the fore- going quotation the Court held that the sales tax is « tax on the seller and the fact that the seller may pase the burden on the lis tional Power Company does convert the sare inte « tex on the latter for the purpose of the exemption.

We think that the Philippine Acetylene Co., inc. ease aforesaid is not eppliceble to the present, The exeaption of the lations) Power Company merely stetes “that the corporation shall be exempt from #11 texes . . ." in the instant case the agreewent states thet it shell be “exempt without saying that the State sey exempt any en- tity, not only froma the burden of taxes that are directly payable by it, bet also from the ultimate burden of an indirect tax that the payer may pass on to it, and this we think is what the Agreenents ef July 22, 1951 and liovember 26, 1957 ourport to do when they used the phrase “exempt from all direct and indirect taxes," Seetion 12 of the agreement of July 22, 1951, ' gside from what we have said further above, brings home our point. Said Section provides that - 122 x

DECISION -

CTA CASE BK. 1625 10 © dhile the Organization will not, as a@ general rule, in the case of ainor purchases, claim exeaption from ex- cise duties, and from taxes on the sale of movable and immovable property — which form part of the price to be peid, nevertheless, when the Organiza- tion is making importent purchases for official use of property on which such duties and taxes have been char or are chargeable the Government the ‘Republie of the Philippines shall make appropriate administrative ar- rangements for the Fomission_or return ° era seoring supplied.

The foregoing provision clearly relieves the WHO from the burden of the sales taxes in its pur- ehases and yet the sales tax is payable by the seller, not the purehaser, And it should be noted in this connection that Section 12 aforesaid is so phrased that it appears like a waiver of a previous- ly stipulated exemption and the only vrovision to whieh this waiver can be linked is the exemption from “all direct and indireet taxes" in Section

41. It would thus seem that the agreement: of July 22, 1951 and November 6, 1957 intended to relieve the WiO from taxes thet it indirectly pays because this burden ultimately falls on them; the agreements expressed this intention not in 80 wany words, but in the phrase “exempt from all direct and indirect texes.* We do not think that our interpretation of the tax exemption in question violates the rule on striet eonetruection which means no more than

DECISION -

CTA CASE BO, 1625 11 that such previsions should be interpreted so as to carry out its expressed intention. (Soughton

v. City of Hertford, 85 Conn. 67%, 6 Atl. 95.)

And we may even say further that sinee the anderbying principles of our system of taxation are of Auer= fean origin perforce the established doctrines there recognising exceptions to strict construct- fon may justifiably be aceepted here in this | jurisdiction espeefally since our taz jurisprudence is abundantly dotted with Auerican authorities. Thus, says Cooley in this respects tional property or institutions are strietiy construed, the betier ruje agi 2 3 ‘ Z > , i 9 4 , k s 2a) « true! eye ry ness of construction wili n¢ ote Ba et “ 9:

‘ ne ‘ax- stion, osley, Vel. Il, pe ey un- derscoring supplied.)

The WHO is not « mereantile ccrporation but is a benevolent institution that has cone here to help us in the fight ageinst diseases and to help promote the health of the people, bringing its own funds. Considering the nature of the Wi0, its aims end funetions, its tax exemption should he cbna-co”- strued, if not liberally, at least not with the sane strictness with which tax exemptions are generally construed.

DECISION ~

CTA CASE 80, 1625 12 Respondent urges that the evidence on record shows that the contractor's tax was not discounted from the contrect price. in support of this pre- tension respondent points Bid bulletin No. 1 e€- verted to further above whieh allegedly nentions only permits, and purchases of materials. Sean- ning further said Bid bulletin, however, one will find that it also mentions all paynents te the govermment. As against this bid Sulletin, we have the certification of the WHO te the effeetthat the prospective eontrectors were advised to take into eccount that the WiIO was exempt from the payment of all indirect taxes. We find no valid reason for doubting the veracity of this certification which finds corroboration from the fact thet the WHO in effect obtained an opinion from the then Commissioner of Internal Revenue holding that the 3% contractor's tax 4s an indirect tax included in the exemption of the WHO. On tep of all these, the record of the Bureav of Internal Revenue shows that the only point the Bureau raised during the investigation of the assessment in question was the applicability of the exemption to the con- struction contract between petitioner and the WHO.

Responéent lastly urges that the exemption in question is exclusively for the WHO and cannot be extended to the petitioner being personal in 125

DECISION -

CTA CAST M9, 1625 13 nature. It should be recalled that the exemption from all direct and indirect taxes was reiterated in the Agreement of Jovember 26, 1997 of the WHO and the Government of the Republie of the Philip- pines whieh was to govern the construction in question. The exemption has thus attached itself to the construction and is not just personal to the who. At any rate, assuming erguendo thet it is personal to the WHO the fact is that the “st did use it when it advised the petitioner to take it into consideration in subsitting its price; it is not the petitioner that uses it now im the last analysis. | Wi PEPORT, the appealed decision its hereby reversed without pronouncement as to costs. | 80 ORDERED, © Qveson City, May 21, 1969.

(

Bama Pies

Associate Judge

I CONCOR:

‘

Presiding Judge

126