Manila Jockey Club, Inc. vs. « Eleae Case Nu, et al.

DECISION

This is an appeal from a decision of respondent Cellector of Internal Revenue assessing against and demanding from petitioner herein, Manila Jeckey Club, Ince, payment of the sum of ®2,9C6.27 as deficiency amusement tax, surcharge and penalty for the period from Nevember 1950 to Septembe: 1954, inclusive.

The follewing material facts ere not disputed. Petitioner herein is a corporation erganized under our laws, duly authorized and licensed to conduct horse racing in the Philippines, in accordance with the provisions of the various laws, regulations and rules on horse racing in the ceuntry.

In erder te give each horse that participates in the races conducted by petitioner an even chance te win, they are classified inte groups, depending on their age, experience, height or size, and past record, as follows: (a) *Novatos" ~- horses running for the first time in an official race; (b) *Perdi- gones* - horses which run in a “nevato" race but 151

No

ee sy ee o 2 e« failed to win first place: (c) "Vencedores*~ horses which won first place in a “*novato” race or wen a certain number of times in “*perdigones* races; (d) "Ne Clasificados” - horses which have won first or second or a certain number of times in “vencederes* races.

On horse racing days, the public place their bets on the results of a herse race, and pursuant te Section 19 of Republic Act No. 369, out ef the’ wager funds 12~1/2% thereof is “set aside as the commission ef the person, race track, racing club, ot any ether entity conducting the reces, which shall include the amounts fer the payment of autho- rized stakes or prizes for win, place and show horses, and authorized benuses for jeckeys.“ This particular prevision of Hepublic Act Ne. BOG was amended by iie- public Act No. 1933, appreved on June 22, i957. The pertinent pertion of the amendment found in Section 19 ef Republic Act No. 1933 reads as follows:

"x x x six and one half per centum shall be set aside as the commission of the person, race track, racing club, or any ether ag | conducting the races, five and one half per centum shall be set aside for the payment ef stakes or prizes for win, place or show horses and authorized bonuses for jockeys: and one half per centum shell a weg tc a Spe- cial fund te be used by Genes and Amusements Board to cover its expenses and such other purposes autherized under this Act.* Once @ year, since its institution in November, 1950 up to the present, petitioner helds a “special nevate race". This race is so-called, because the 152 ‘SY o _s . - c ... . 1 • <... s r • 292 r f th novato horses r~g1ster6d for id race. niik in the ordin ry novato race , hav to pay, &id from th inscription ond decl rati n fe ~, not cr ~ 0 d l at d as re i tr - ion f e • It is not dioput d that t e ot 1 . o t coll etod as r gi tr tion fee , toget r t count xp :rt fund tak n n, o priv co r of petiti ner, i add t th five nd on h 1 p c: nt set sid. fr t total wager funds be n o constitu prize said ~ p ci l ncv to r e n y hich ~!11 b 1 id ng the winni g h r~ r i th t Gp ci 1 nov to r c: •.

r 23, 19!34 , r d nt 1 ct r of

Int

':

d r petiti nt of def ttOC) 2, 906. 7, urc r •· h..

d fie ency l' c:ult f d fe .ur f petit1 ner to retur t x purpo& ~ h unt ived by it in tic .f fr tl rs t r pa c ~ ting i t:h p - c1 1 nov .to r ce " for th p 1950 to ; t .. c..~..~., 1954.

In pit of p tit1on bj c- ti ~ s , th c id d nd s fin lly x itor t by th 1espe dent oll ct r o Int mal ev nu on Jun 4 , 19~6, on th tho ry th t t e& r giGtr tio f for ed part f t e f r r •s gro& r cei t su ct to the a s nt x r ec on 260 of th Tax Cod • June '18.

95 , pe iti e:r il d its pet •ti n for r vi with this Court.

153 lSi

D

'"ISlet~ ..

<... r. • c. :jf tJo. 292

Th

partie rai e no issue of f ct.

Noithe.r is them th a i e•l corr ctne s of rer. end nt' s sse s nt 1 ugn d by p titi ner.

Th• only s- t lon to be rosolv d therefor • is m ther or not . the afor•s C~tid re•istr 'tion f ea eoll•cted for the ecial nc •ato races• f orm part of th gx ~s rc- eeipts of potJ ti ner subj ct to th 2J arnu e .. nt tax p:r scrib d by ~"'ection 2 of the at1onill In- ternal venu ode.

tit1on r cot nds th t inc t1e afo en- tion d 10.

~r istrttion f eft is d sti1 d to fc rt of the priz ard d to the winning ho:rse • it should v n a t t u s1r~11 r in character to the h r of th t t 1 b ccruing to th ~in- nin hors ners pr cscrib d hy· ct$on lB, Ex cutive Order o. 3 , n found in ectir.n 19 of cblic ct • as om nd d.

~d ince, 8CC~rding to pcti- tioner.

e id 5-1/2 share of he total b ts ac~ in tc inninq hoxs er d es not fo pert of it ti"n f ro s ·ec ipt • th n the 10. 00 •r gistra. ould lik ic be tx ated as not forming p rt of t rcss receipt •

•Gro

r ceipt~• for the pu ose cf to amu a- nt tax i~>os d under ~ection 260 of the t•ational Internal Aev nue Code, w s inte r t y th cr ...

tary of Justic • r l ] Oct t r ~ • 1941, thu&J

X

X

X

• itn re oct to rae: tr ck t • te 'gross r ceipts • u~ed in Section 2 . of th N t 1ona1 Internal R v nue Cod s ould be DECISION .

C.TeA. CASE NO, 992 » 5 = construed as the total amount of cash received by the rece track operator as its earning without including any amount of money that does not go to its funds as its property. The term above mentioned has been held as aynonymeus to ‘gross earnings’ (City of New York v. Thirty Supp. 344, 346). It also means the en- tire earnings, receipts or tie like, without vw deduction for expenses in- curred (Webster's New Intexnational Dic- tionary, pe 954; Fund & Wagnalls, New Dictionsry of the English Language, p.

1080; see also Pacific Gas & Electric Co. ve Hoberts, 167 bac. 645, 846, 176 Cal. 183%. Opinion No. 348, 5. 1941."

The a beve-queted opinion was rendered in an~ swer to the query cf the Manila Jockey Club (now herein petitioner, Manila Jockey Club, Inc. }, ad- dressed te the Secretzry cf Finence who endorsed it te the Secretary ef Justice for ruling thereon. The query arose from the question of whether or not the amusement tax imposed in Sectien 260 of the Tax Code should be levied on the 5% (distributed among the owners of winning horses) of the 12-1/2% total wager funds provided in Section 1& ef Executive Order Ne. 320. } Opinion No. 345, s. 1941, of the Secretary of Justice finds affirmation in “pinion No. 249, s. 1952, which, in answer te the request whether Opi- mien Ne. 135, s. 1950, tock inte consideration Opi- nion No. 245, s. 1941, in the intezpretation of the term “gross receipts" as used in Secticn 260 of the Tax Code, reads:

*x x x x

ATC

VECISION .

CeleAe CAGE NO, 292 - 6 « *In resume, while one opinien (Ne.

135, s. 1950} holds that ell receipts of the proprietor, ewner or lessee ct an amusement place, without exception, constitutes its gress receipts, the ether Cpinion Ne. 341, 8. 1941) declares that the share cf the owners of winning horses (to which may be added, the share of the Commissien on haces under Section 19, Se- public Act No. 309) in the total bets res Qistered by the totslizer is net to ve regarded as a receint of the proprietor Or Operater. lt may not, therefore, be included in his gross receipts. There can consequentiy be ne conflict between the two opinions. * Opinion No. 345, s. 1941, is further re-affirmed in Cpinien No. 340, s. 1955, which reiterated the view that there was no cenflict between the two previous oninions.

It thus apnears that the term "aross receipts", for pumoses of the amusement tax immesable under Section 260 of the Tax Cede, has been contemmora- neously and consistently intezretec by the Secretary of Justice to circumscribe only “the total amount of cash received by the race track operator as its earn- ina without including any amount of money that dees not go to its funds as its preperty." This interpretative ruling is entitled te considerable weight. | Thie is particularly se in view of the fact that it is a ruling or orinion of the chief lew officer and legal adviser of the government. 4s hes heen well said, “interpretations by the Attorney~Geners! ond the legal department of state have immertant bearing vnon sta- tutery meaning, since the Attorney-General and his office are required by lew to issue epinions for the

ASS

DECISION .

lee Lette UASE nt, 29?

| 2% :

assistance of the verious departments of the governe | ment administering the law.* (Lo Cham ve Ocampe, 77 Phil. 637, quoting Sutherlands Statutery Construetion, | 32 Gd. 517%) And courts will sesmect such intezpretae | tiens unless they are clearly erceneous. (See In re Allen, 2? "hil. G3} Melina v. Rafferty, 37 Phil. 345; Guando v. Fernandez, 95 Phil. &]4. )

Ve find the above intemretation of the Secre- tary of Justice as resoect the term “gross receipts* to be in accord with the intendment ef the Tax Code. A® correctly opined therein, the total amount of cash received by the race track onerater (petitioner herein) as its earning without including any amount of meney that dees not go to its funds as its property sheuld be deemed its gress receints, lisble to payment of the amusement tax inpesed by Section 260 of the Tax Code. It cannot be gzinssid that petitiener, in the course of its operation, may receive, by authority of law er othezwise, money whicn dees net become its pre- perty, but is merely held by it for the economic use ox benefit of ancther. Te subject petitioner te the payment of amusement tax on acceunt of this letter receipt is unquestionably unjust and not contemplated by said Section 260 of the Tax Cede. )

In the case at ber, the ©10.0O collected as registration fee from an owner of a neovate horse that participates in the special neovete races, together DELASLUN .

CeoisAe CASE NO, 999 with the cerrespending contribution of petitioner, goes to fhe owners of the winning herse as prize money. This "registration fee" is a misnomer. But, it is te be noted thet it dees not ultimately go to petitioner tc become its property. /fetitioner is merely a conduit through whieh this so-called regis- traticn fee passes to the winning horses.] This ob- servation is berne out by the fact that petitioner has listed it in the liability side of its balance sheets. The fact that it appears under the item "Employees Deposits" is of ne moment because it could not be iisted under any ether like items. Te our mind, the listing of the so-called registration fee eof #10.00 as a liability is an elequent demonstra- tion of the nature andessence of this amount « of its going te the funds as property of the owners of the winning horses, not of siaiiaidd peses and practices, this so-called fee is but a trust fund, with petitioner as trustes. For should peti- tioner appropriate it for its own economic use and gain or otherwise divert it to other than that te which it is contractually destined, petitioner will incur liability to the owners of the winning horses.) As afore-stated, Opinion No. 345, s. 1941, of the Secretary of Justice, which was affirmed and re- affirmed in subsequent opinions, was rendered in an- swer to a query involving the 5% (distributed among the owners of winning horses) of the 12-1/2% total wager Te all pur- funds provided in Section 12 of Executive Order No.

* 158 13 es rere ee eee te ee ee. — ———— a _

DECISION 7

- 9 « 320, The pertinent rrovision ef Section 1& of Executive Or’er Nee 320 wes inceorroreted as part ef Section 19 ef Republic Act No. 3, which letter statutory rrovision was substantially enacted in Section 19 of Nenmublic Act Me. 1933. “hen Congress substantially re-enacted Section 18 of Executive Order Ne. 3290 into Section 19 of Kepublic Acts Nos. 39 end 1933, it was ecquainted with the executive interpretation (Qninien No. MS, s. 1941, of the Sece retary of Justice? ef the term "gross receipts” found in Section 260 of the Tax Code. Congress, therefore, impliedly adopted the interpretation upon such re-« enectment (see Sutherland Statutory Construction, Vel. 2, pp. 523-524), in view of the foreqoing, ve believe and se hold thet the registration fees collected for the special neveto races do net form part of the gross receipts subject to the 2° emusement tax prescribed by Section 760 of the ‘etienal Internal Revenue Code.

THEREFORE, the decision appesled from is hexeby reveTsed, without pronouncement as to costs.

SU UnvENED, Manila, April 2, 1958.

Psi Aah

Presiding Judge

WE GCUNGY

neekehe —:

it te Unis Ld

Associate Judge

Cd GR Nos,.- 13 §&7,1-13%0 “<P +$o2