Frank Robertson vs. Commissioner of Internal Revenue, et al.

DECISION -

CTA CASES NOS . 2735, 2736, 2738, .& 2739 - 3 - and there , established his domici l e . He landed a j ob with the u. s. Navy Shipyard at Long Beach, California ' .

as a u.s . Federal Civil Service employee. He returned to the Philippines in 1958 with assignment at. t he u.s. Naval Base at Subic Bay, Olongapo, and has since r e - mained thru 1972.

In CTA Cas·e No·. 2738• petitioner Robert H. Cathey is a United States born c itizen who first came to the Philippi n~s with the· u.s . liberation force in 1944, and upon discharge from the military service in 1946 turned a u . s . Navy's civilian employee with station at Makati, Metro Manila.

Peti t:j.oner John Garrison (CTA Case· No·. 2739 ) i s a Philippine born American citizen alsQ repatriated to the United States in 1945 establishing his domicile a t San Francisco , California .

Soon after he was employed by the .u . s . Federal Government in its military install- ·- ations .

He returned . to the Philippi nes in 1952 assigned a t the u. s . Naval Base, Subic Bay, Philippines. All told, .the peti t ioners are cit izens of the United States ;

holder~ of American passports and admitted as Special Temporary Visitors unde r Section 9 (a) visa of the Philippine Immigration Act of 1940, as amended : civilian employees in the u .s . Military Base in the Philippines in c onnection with i ts construction, main- tenance, operation, and defense ; and incomes are solely 271

- 4 - derived from salaries from the u.s. government by reason of their employment in the u.s . Bases in the Philippines.

Sometime in March, 1970, the Philippine Mi litary Liaison Officer at the u.s. Naval Base at Subic Bay submitted a ~i st of the Filipinos working at the base ~.

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together with a handful of American citizens including the petitioners who were deemed "habitual " residents of · the Philippines prior to their employment at the u.s . bases .

The report had for particulars the peti- tioner s • e arnings in 1969, as follows :

Frank Robertson

- - - $12,045.84 James. w. Robertson - 14,985 . 54 Robert H. Ca they - - - 9,855 .20 John .L . Garrison - - - 15 , 288 . 00 I n the light of a recent ruling of the respondent Commissioner of Internal Revenue prov i di~g among other s that, .~~ Americans presently working in t he U. S . Bases in the Philippines who were either born i n t h e Philippines or were r e::. ; dent s of this countr y prior to .their employment in : td bases, are not included among those exempt f r om income tax by virtue of the fore going provisi on of the Mili tar y Bases Agr e ement" (BIR Ruling No . 70 - 30 dated May 28, .1970), petitioners were advised to file t heir i ncome tax returns under 272 .~ , - . DECISION - CTA CASES NOS. 2735 8 2736, 2738, & 2739 - 5 - Section 45(a) (1) (b ) of the Tax Code , as amended, which r equires every alien r esiding in the Philippines, regardless of whether the gross i ncome was deri ved f r om sources within or outside t he Philippines . And , for ignori ng and f a iling complianc e, petitioners were crim,inally prosecuted upon sepa r a te informations for ~· the said violation in the Court of First Instance of Zambales and Olongapo City, and wer~ subsequently f ound guilty as charged .

Despite conviction, petitioners stil l refused t o file their income tax r e turns. The respondent pre- pared the petitioners ' respective returns based on the 1969 earnings in the absence of records of incomes f or the subsequent years thru 1972 under a~thority of Section 51 (b ) of the Tax Code, providing, i ·n·ter· a'lia, that, "The Coriuni ss i oner of ·Internal Revenue shall make the return from his own knowl edge a nd f r~m such inform- a tion as he can obta-in through testi mony or otherwise, .. and"shall be prima facie gooo and s ufficient for all l e ga l purposes . "

Accor<iingly, .in separate letters and assessment notices a ll , ' rted Jul y 31, 197 4, .the r es- p ondent a.ssessed and dema nded from the petitioners deficiency income taxes for the t axab l e years 1969 to 19 7 2 including interests and s u r charges in the follow- ing amounts :

273 --- 1' •.

•

Frank Robertson

James w. Robertson - Robert H. Cathey J ohn L . Garri s on - 6 - Fl132,750 .6 5 190 , 433 .17 92 ,013.17 196 ,7 54 . 32 Petitioners' r equests for r e investigation of the said assessment were to no avail _as the same were deni ed '· ' by the r espondent on July 30, .1975 . Hence, these appeals .

By and large, petitioners hold on to t he propo- s i tion that t he i ncomessubject of the a ssessme~ts consti- tute their salaries from t he United States government as American citizens a nd Federal Civil Se rvice employees, working in the Philippines in connecti on with tle cons- truction, maintenance , operation or derense of the u.s . mi litar y bases and res idi ng in the Phi lippines by reason · thereof , .and c onsequently said . incares are exempt f r om income tax pursuant ~ 1 Article XII, par .;".. 2 of the R.P. u.s. Military Bases~·· ·eement dated 14 March 1947 .

Respondent

demur~ 'because under the said pro vi- sion, only nationals o:

"he United Sta tes who are work- ing in the u.s . Bases c res iding in the Philippi nes by r eason only of suer :mployment enjoy tax ~xemption. When the American nati c :1als wer e a lready r esidi ng in the Philippines ·pri or t o their empl oyment, it .is clear 274 .. · \

DECISION -

CTA CASES NOS . 2735, 2736, 2738, & 27 39 - 7 - that they did not reside here by reason of t heir employ- ment in the base. "

(BIR Ruling No. 70-30, May 28, 1970) . The case presents no dispute as to the simple material f a c t s but the par ties see m trying to get t h e better of each other over by a quibble on the effective application o f the t ax exempt ion clause in the Agreement . '· ' Determinative of the sense and extent of t he cover- a ge of the privilege which appear implicit i n meaning and explicit in terms under Article XII , par . 2 of the Military Bases Agreement are the requis i tes to the availmen t of the tax exemption, viz : 1) nat ional s of the United States , 2) emp loyed i n connec t ion with t he construction , maint e nance, operation or defense of the b-ases , 3) r esiding in the Phil i ppines }j'y reason of such employment, and 4) incomes derived from the United State s Government.

And, i t appears manifes t that inso- · fa r as the provision ;_s b rought t o bear upon the c i rcum- stances obtai ning, pf t tioner s • cases can readi l y s l ip i nto that cubby-hole the tax shelter contemplat ed in the provi sion .

Th~

seemed t o be where the peti- tioners s t ood with reE .

~ t to the en j oyment of the privi lege as t hen cons\ ~d a nd i mp lement e d s ince the Agr eement ' s effecti v i t y

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: ~ 1947 until t he r espondent Commissioner of Internal hevenue r endered such entitle- ment pa~se • in 1970 .

Petitioners 1 residency status 275 .,

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- 8 - had been tacked to situs of birth in the Phi l ippines. A constraint that appears n either her e ~or t here in the Agreement.

The past _becomes prologue, so to speak . We find nothing in the said treaty provision that justified the lifting of the tax exemption privi- lege . ·of the peti tioners .

Respondent has grafted a .

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meaning other than that conveyed by the p lain and clear tenor of the Agreement .

An examination of the words used and the circumstances in which they were used, shows the bas i c intendment "to exempt al l u.s. citizens working in the Military Bases from the burden of paying Philippine Inco~e Tax wi thout distinction as to whether ·born l ocally or born in their country of origin e 11 Moreover , the r uling has altered a satisfactorily settled applicatioD of the exemption clause and has .

fallen short of mea ·1ring up t o the . famil~iar principle of I nternational La that , "The obl i gation to fulfill . in good faith a tre;

~ engagement requires that the stipulations be obse !d in their spirit a s well as according t o their 1~ er and that what has been pro mised be performed w ~ JOut evasion , or subterfuge , honestly and to the bL ~ t of the ability of the party which made the promise . "

(Kunz , The Meaning and Range of the Norm Pa.cta· Sunt Serv anda , 29 A.J ei. L. 180 (1945): j 276

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DECISION -

CTA CASES NOS. 2735 8 2736, 2738 , & 2739 - 9 - cited in Freidmann, Lissitzyn , Pugh , I nt ernational Law (1969 ) 329) e Somehow, the rul ing becomes an anacoluthon and a persifl age .

I t b ears r epeating as so disclosed in the records that the petitioners t ogether with famil i es upon r epa- triation i n 1945 had s i nce acqui r ed domicile and resi - ' ' dency in the United States.

And, obtained employment with the United States Federal Service e Not unti l after several years of a hiatus , peti tioners did return to the Phi l ippines not so much of honori ng a pledge nor of sentimental journey but by reason of taking up assigned duties wi t h t he Unit ed States mi litary bases i n the Phi.lippines where they were gainful ly employed ·. by t he u.s . Federa l Government The ~i t uation of t he petitioners i s ofno .d i fferent mold as of t he rest o f the u.s. c i v i lian employees who continued t o enjoy the b e nefits of tax exempti on under the bgreement s Pet itioners • circumst ances befor e the questioned ruling remained obtaining t hru t he taxable years 1969- 19 72 .

It appear s t ' 0 much o f a s tretch to hold peti - t i oners s traight-ja.

~ted t o an i rre vers i b l e sit us of birth c onstraint and by r eas on ther eof deny a l to- gethe r a ny opportunity t o a s e r endi pitous enj oyment of a t ax re l ief accorded i n the Agreement.

Such a

r andom quirk of a pi r ouet te i n the tax treatment falls ~77 ' ' . .

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- 10 - sharply at odds with the shared expectations of the high contracting partie s .

This Court wi ll not deem .

itself authorized to depart from the p l ain meaning of the tax e~emp tion provision , so explicit in t erms and so searching i n extent .

This does not however foreclose the possibility of petitioners • c oming to roost i n the country c ontingent upon t he t e rmination of their tour of duty, but only then may the bridge be · crossed f o r t ax pu r poses . The ho l ding i n · the· Reagan Case (L-2 6379 , December 27, 1969, 30 SCRA 968 ) cited by the respondent simply infused vigor to the exercise of Philippine soverei gn author i ty .over t he u.s. Bases which seems t o have ·enervated into impotency, a s thus , "to. r ender the truth unmistakable , that the areas covered by t he United States Military Baf · ·s are not fore ign terri t ory in both the political and 'ogr aphi c sense ."

Thus , ..

the u.s . military bases ar1 1ot f oreign soil or terri - tory for purposes of income ~x legislation, except to certa in tax matters cover by appropriate exemptions as so provided i n Artic le XI- - t he RP-US Military Bases Agreement .

As earlier die ~sed , the cases of petitioners come within the impo~ and scope of the exception.

The cited consolidated decision of the Court of

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DECISION -

CTA CASES NOS . 2735 , 2736 , 2738 , & 2739 - 11 - First Instance of Zambales and Olongapo City dated May 28, 19 73, hardly presents a gripping precedent . The petitioners were indicted f or non- filing of their r espective i nc ome tax r eturns f or 1969 ; whereas the cases under review refe r to the non-payment of i ncome ta~e~ for the years 1969-19 72, otherwise payable by the petitioners if not for the tax exempt ion accorded them by the Agreement .

The situation in the case at bar is of a different prestat ion.

We accordingly hol d t hat t he pet i tioners have establ i shed their rights under t he per t inent provi sions of Article XII, par . 2 of the Military Bases Agreement and are entitle~ t o the exempti on from Phi lippine taxes on salaries by reason of their empl oyment as American citi zens and Federal Service empl oyee s worki ng in the Philippines in connection with t he construct i on, main- tenance, operation and defense o f t he u .~ . mi l itary bases .i n the Phi ' i ppines , as income deri ved f r om United Stat es Governmen:

UPON THE VIl

WE TAKE OF THE CASES , the assess- ments for deficiel , income taxes for the taxab l e years l 9q9- 1972 iL •sive of intere sts and pena l ties aga inst t h e petitic .ars :

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Frank Robertson (CTA Case Mo. 2735) ~ B132,750.65; James W. Robertson (CTA Case No. 2736) -— B190,433.17; Robert H. Cathey (CTA Case No. 2738) ~ . 92,013.17; and John L, Garrison (CTA case No. 2739) ~ B196,754.32 are hereby set aside and cancelled. No costs.

REYES

Associate Judge

WE CONCUR:

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