CTA Case No. 1943

XEPUBLIC OF THE PHILIPPINES

COURT OF TAX APPEALS J

QUEZON CITY

om IW IR LrIms, 92,97"

vetitioner, hug

vergus CTA CASE NO, 1943.

¢g SMMTESTO ma OF

INTERNAL REVERE

Respondent fa

ta we mame wm ew es oe

This is a claim for refuna of the sum of

#3, 005.00 collected by respondent as compen=

sating tax on various articles imported by —

petitioner, “hilinpine Air Lines, Ine. (PAL for

short). |

The matertal facts of this case are not

econtroverted. ‘“etitioner, a duly orgenized

corporation, is the grantee of o franchise to

operate ané engage in the business of carrying

passengers, mail and property by air by virtue

of Act No. 4271, es amended by Republic Act

Ro. 2369,

Under Section 13 of abovessid Act, MAL

is reqnired to pay « franchise tax of 2% of

ite gross receipts or gross revenue in lew of

all taxes of any kind, nature or description,

- Qm9

DRCISION «

CTA CAGE MO, 193

2

levied, established or collected by any muni-

ciral, provincial or ‘ational authority.

im December, 1965, and in the months of

January and April, 1966, PAL imported ten (1°)

air-conditioners, dental equipments and two

typoeriterss of the ten air-conditioners

imported, four (4%) were installed in the store-

room where @elicate sireraft engine and spare

parts are kepts five (5) were installed in

the PAL office in Wuente Osmeiia “treet and one

(1) in the PAL' manager's office in Mactan.

The dental equipment are being used in the

@entail clinie of PAL in Ayale Avenue, Maketi to

service the needs of PAL employees to comply

with the requirements of Hepublic ict Nos. 1094,

3961 and 239 relative to free emergancy and dental

treatment for leborers and employees of conmercial

and imivstrial establishments. The two typewriters

are being used in the Cre@it and Collections f-

fice of PAL in Ayale avenue, Makati, Sizal for

typing bills, collection letters and other papers

relative to invoicing end collection of indedted=

ness owing "AL for charge passengers an4 freight

customers.

on Angust 2, 1966, respondent collected com-

273

DECISION «

CTA CASE HO. 1943

3

pensating taxes of ¥2,16%.00 and #726.00 on (AL*s

importstion of ten (10) eair-eonditioners and

' dental equipment, respectively. Again in April,

1966, respondent collected °115.00 as compensating

taxes on PAL's importation ef two typewriters. ’

Petitioner filed a oleim for refund of the

compensating texes in the amount of #3,005.00

with respondent on June 16, 1967. Up to the

present, no final action has yet been made by

respondent on PAL’s claim fer refund. To comply

with the two-year stetutory neriod for eourt

- ection in cases of tax refund, PAL filed the |

present petition for review with this Court on

July 2, 1968. |

The issues presented before us for resolution

are: .

a

4. Whether or not rr under the

provisions of Section 13 of its fran-

chise is exempt from the of =. or

compensating taxes on the ten (10)

air-conditiowine unites, two 5 ta) type-

writers end dental pment imported

in 1965 and 1966.

2. Whether or not respondent is

Liable to pay interest on tne refund-

able amount on the ground of unreason-

able delay in the fulfillment of his

legal oblication to refund taxes il-

Saray or erroneously sellected by

Me

“ith respect to the first issue raised by

274

DECISION «

CTA CASE BO, 1943

»

the parties, the main point of eontroversy hinges

en the interpretation eof the phrase “in lieu of

all taxes of any kind, nature or deseription,

levied, established or collected by any unnicipal,

provineial er Sational authority” inecorporated in

Seetion 13 of PAL's franchise, Aet Be. +271 as

amended by R.A. 2360 whieh reads as follows: —

“SPC. 13. In consideration of

the franchise and rights hereby

granted, the — shall pay to

the National overnment during the

life ef this

ef the gross revenue or .

gross earning derived by the crantee

from ite operation under this fran-

seyehia Saneet saat te

yable eri; i be ip

oF ¥ ’

accounts of the grantee hy the

Commissioner of Internal Nevenue, a

deficiency tax is shown to be due

the deficiency tax shall be payable

within ten days from the receipt of

the assessment. The grantee 11

pay the tax on its real property in

conformity with existing lew." (Un-

derlining supplied.)

waether the seope of a tax exemption covers

taxes of a partiewlar kind largely depends on the

worling of the exemptions

* 295

DRECTSION

9

Aon exemption may be confined to

ea@ valorem taxes eas distinguished

frow franchise eouapenian ¢ or li-

eaeeytion he property & sore

precludes taxation of its

Peanghise as property but an agree-

ment for a payment ® of

eross receipts of a corporation “in

liew of all license, occupation or

sveecial tax or texes” dees net cover

~ —_ on the franchise of the ose

a property tex. (Cooley, m

( mes phrase “in lieu of all taxes of any kind,

nature or deseription" nas been generally gan-

sidered as a commutation tax, thet is, it is a

combination of two er more taxes as an excise

or franghise tax, payment of whieh would give

Pise to privilege exemption from all other taxes

(“hilippine Air Lines, inc. vs Comm. of internal

- Revenue, OTs Case So. 45, Feb. &, 1956, citing 12

Corpus Juris 216.) |Interpreting e siniler

Pail. 401), the Supreme Court said the following:

every ‘ane and nature" is & very in-

276

DECISION = -

CTA CASE NO. 1043

6

elusive statenent, soveneenly eee

it nemes, in eonnection therewith,

the only governmentel entities who

have a ri te collect texes. It

is not gree me ag but it is

algo se well exceeding ae”

1% not ineludes al

which may regerded <7

at ee ee te

> Sead. oe SS Soest

texes se encninated’

sawed’ im ont Ast fee TH97. 2 6

Interpretations showing the seope of peti-

tioner's exemption are not wanting. The Court

of Tax Appeals has considered duties on gasoline

as ineluded in the exemption. (Philippine Air

lines, Ince v. Com. of Customs, CTA Cage ilo.

184, Sept. i, 199%.) Under « franchise with -

the seme tenor es the franchise in question,

Pildpinas Orient Airways obtained o ruling from

the Secretary of Finance thet imported aviation

gasoline end other fuel ofle used in domestic

flights ere exempt from specific tex (Indorse-

ment dated July 25, 1966 of the Seeretery of

Pinanee, sustaining a Suling of the Bureau of In-

ternal Revenue) an@ another holding that its air-

planes, including releted spare parts and ground

support equinment, ere exempt from compensating

taxes in the same manner as the Philippine Air-

lines, Ine. (tet Indorsement, Mey 1%, 1965 af

the Secretary of Finance), Again, respondent,

9|77

DECISION +

CTA CAST FO, 193

se

im his letter of December 28, 1966 addressed to

counsel for petitioner ruled that imported air

conditioners to be installed in storehouses where

aireraft spare perts and equipment have to be

kept and maintained at a certain level of tea-—

perature are enecst from cempensating tax

(CTA record p. 120). an

It is plain fros a perusal of petitioner's

exemption that same 1s @ general exemption ecover-

ing all peynents which might be denominated as

taxes. The only tax te which it is subject is

the real property tax which is expressly stated |

ae an exeeption to the general exemption. Neea-

less to say, the comrensating tax aust of necessity

“de deemed included in the exemption, We are not

at liberty to include in this exception taxes

other than those provided by the lew.

In an obvious change of opinion, respondent

now urges that petitioner's tax exemption does

not inelnde the compensating tax, citing Borja

'- . Commissioner of Internal Revenue, 6.F. No. In

12134, November 3°, 1961 and Panay Electric Con-

pany v. Collector of Internal Nevenue, Oukt, Hos:

im6753, July 3, 1955, 97 Phil. 979 in support

of this change. We ere not persuaded that these.

two cases ere in point.

DECISION =

CTA CAGE BO. 1043

The pertinent provision of the franchise

bw) the Borja case reads as followe:

"one. 29. The grantee shall

pay the same taxes as are now or

Fights her the. grantee

13 & the cipal treas-

ury of (of each) sunicipality

in which it fe &

to the eo umer this

receipts

fron which texes the grantee

3 hereby expresaly exempted.”

It should be noted that the foregoing section

1° of Aet 3636, The “odel Plectric Light and Power

Prenchise Aet, opens with a positive preseription

279

DRCISION =

CTA CASE MO, 1043

9

that the grantee is liable for the sane taxes

payable by all natural and juridical persons.

The provision then eontinurs with the counutation

tax of two pereent of the gress earnings fres

eleetrie currents sold or supplied under the

franchise, which shall be in lieu of eny ané all

taxes of any kind, oature or description levied,

established, or collected on its poles, wires, -

insulators, switches; transformers and structures,

installations, conductors, and accessories, placed

in and over ané under 211] publie preperty, in-

eluding publie streets and highways, provineial -

reads, bridges and public squares, anf on its

franchise, rights, privileges, reeeipts, revenue

and profits, from which taxes the grantee is ex-

pressly exempted. ‘the franchise plainly specify

the kinds ef taxes fer which the commutation taz

stands and from which the grantee is exempted,

namely taxes on installations and on its franchise,

rights, privileges, receipts, revenue and profits

| Gerived from the franchise. Thus, the kind of

taxes for which the franchise owner ia exeupted is

particularised, end Borja is deemed subject te a!1

other taxes. It is hardly necessary te say that

the compensating tax is not a tax on installations

end, as for the rights and privileges of the

franchise owner, the exemptien clearly refers only

280

DECISION «

OTA CASE NO. 10h3

qo

to rights end privileges enjoyed by the franchise

owner es such and not these enjoyed by the public

im genersl such as the commen privilege te sake

purchases. On the other hand, the compensating

tax is within the description of the taxes for

whieh the frapehise owner is expressly held

liable under the first sentence of seetion 10 |

aforesaid. ‘Hereunder we quote the very language

of the Supreme Courts .

"It is contended, in the first

» that the above rision of

oe Same Cee itioner from

paying taxes on its installations,

whether on a public or private A as

lleged FD ay ys

a or pr

wauth unatel ty ite sloe-

by the ePantee of a franchise. {i

ue & iS?

: g 2 : th titty ae Ee 3 a F

: 3: cn oe gas 3333 aii

a ce iia

: tibialis spate

t aly , . a lites

é

" PRCISION «

282

DECISION = -

CTA CASE NO. 1943

12

tion tat petit doner 1s excess]

he gone t

peraatior he reaiped by Jaw fr te

sie tea a ee

the degardats sup=

It will be noted that in contrast te section

90 of Act 3636, seetion 13 of Republic Act 2360

dees not stipulate that petitioner “shall pay the

same taxes as are now or may hereafter be required

by law from other individuals, x = x except

property declared exempt in this section" as stip-

ulated in the former. Its commutation tax is ex-

pressed in general and all emcompassing terms,

simply stating that 4¢ is “iri dew of all taxes of ©

any kind, nature or deseription, levied, established

or eollected by any municipal, provincial or national

suthority x x x." It has no specific recital of

the kinds of taxes that it covers or for whieh it

stands as in the ease of section 10 of Act 3636.

And, it expressly crovides for only one tax,

payable by the petitioner to wit, the land tax.

Prom all these it is hardly necessary to say that

the Borja cuse isnot in point, Were we to exclude

283

DECISION «

CTA CASE NO. 1043

; 3

the compensating tax from the exemption, we would

then be adding the sane te the clearly expressed

exception whieh is, the lend tex,

In the case ef Panay Fleetric Company v.

Collector of Internal Revenue, 0.2. Noe L-6755,

July 3°, 1995, the pertinent provision ef the fran-~

chise reads as follows:

erantee shall into municd

' qenbany @f soak cipelitp, in wien

it is electricity to the pub-

lie franchise, a tax equal to

co centum of the gross

eee Se Sieaekte aeatese

) Ang Re dng thirty yours of the.

it is hardly necessary to say that the fran-

chise of said ease is fundamentally the sane ae

that of the Borja case, What we have said in

connection vith the latter ease is therefore

284

’ ‘PECTSION «

CTA Cast WO, 1043

1%

applicable te the Panay Plectrie Company case.

Respondent further contends that at the very

most the exemption should be applicable only to

imported articles, materials or equipment thet

ape indispensable ané necessary and not merely

incidental or convenient to the operation ef the

air transportation business of the petitioner.

In @istinguishing vhat is necessary and what is

incidental, respondent divides the activities of

petitioner in distinet parts, elassifies the per-

tieular activity of air transportation as dis-

tinet from other negessery supporting activities,

and declares it as the only operation thet is

covered vy the exemption, Articles, materials or

equipment used in this particular eetivity are

covered by the exemption, so petitioner's thesis

gees. Thus, a refrigeration unit used to pre-

serve food thet will be served during the flight

(tet Indorsement, February 9, 1967, of the Acting

Commiseioner ef Customs, page 11%, rece), and en

air-conditioner used in s warehouse for aircraft

spare ports that require a certain level of ten-

perature for their preservation (letter of Con-

missioner of Internal Revenue de‘e@ Deceuber 20,

1966, pe 120, ree.), are covered by the exemp-

tion because they are allegedly necessary for the

285