CTA Case No. 3346

DECISION -

CTA CASE

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Phi lippine peso a t that time was P7 . 50 and not P7 ~ 0 ~ t o a dell a~ , and the g_,ross Philippi ne billings shoul be US$2,897 ,73.7838 as shown in petitioners 8 ·_quarterly business (percentage ) tax. r eturns for the s ame period .. . .

Hence , t he deficiency i ncom t ax. fo th~ fisca ear ended March 31 , 1976 i the amount o P47 , 801.85, now under review, the de tails of which are as follows :

ACR-25-6~04A-002953-76/78

Gross Phil . Billings - ~ ; ; ~ .. ; . ; ~ . P21,690,805.55 Tax due therecn - - . ~ - ~ ~ ; ; ; ; ; ' 542,270.00 Less: Aroount already assessed - . ; ; ~ ; ; 505,701.00 B a 1 a n c e - ; ; ; ; ; ; - ; ; ; ; Jl 36, 569. 00 Add: 14% int. fr . 7-16-7~ to 9-2~7~ - ; - 11,232 •. fl~ TOTAL AMXJNT DUE & COLLECTIBLE - - ; ; . ; :- !,__ 47 ,801.£l:i The f acts are not in dispute, t he parties aving submitted t hi s case for decision or: . h ~ basis of .t he pleadings and the r ecords of the Bureau of Internal Revenue bearing on the case , after petiti oners waived t heir protest on the undeclared billings of US$8,019.69 . As narrated by r espondent i n his memorandum dated February 10, ~9S 3 (pp.

6 5-~7, CTA r ecords):.

Orient Overseas Container Line (referred to as Orient Over seas ) is a foreign co~po- . ration engaged in international shipping .

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i s r epresented in the Philippines by i ts agen ~ petitioner F.E. Zuellig (M), I nc . The Philip- .

pines is one of its ports of call whe~e it l oads cargoes fo ~ t r ansport t o foreign ports . Freigh is e ithei" free on board (FOB) , r at destination f oE" acc:oun of the f or eign buyers* (Memorandum for Commissionei" , pages 111-1.13 B .. I .,R., records) .

For f iscal year ended March 31, 1976, • petitioner Ori~nt Over seas declared in it • . l f DECISIO . •

CTA CASE NO

3346 .3 - income tax return gros s Phi l i ppine billings of US. $2 , 689,717.69 , equival ent toP20,228 , J2J: B3 converted at the exchang r ate of P7 .. 00 t o US $1. 00 (Pages 85-106, B. I . R. r eco r ds )~ J n i ts quarterly business (percentage) t ax r e t urns foe t he same period, peti tioner · r ient Overseas decl ared gross rece i pts of US $2,897, 7J7 . 38, equivalent to 21 , 690 , 80 .ss, • on the basia of the f~~: ee mar ket rate of ex- . change at the time of he vessel 9 • sailing, pur suant to Par. No. 4 of Revenue Memorandum Circular No. 1-7.5 (Pages 66- S.l , B. I . R. records) •. The differ ence between t he amount of US $2, 897 , 737 . 38 declared as gross r ecei pts i n petiti oner Orient over seas ' quart erly business (per centage) tax returns , for the f iscal year . ended March 31, 1976, and the amount of US $2 , 889,717 . 69 decl ared as gross Philippine billings in i t s i ncome t ax return for the s ame fi scal year was US $8, 019 . 69 . In a l etter and assessment not i ce , both dated September 26, 1978 , r espondent assessed and demanded f rom pe t i tioners • ' ,.c amount of P47,801 . 85 , as defic"ency inc <.... ... ~ tax, i nclu- . sive of int erest f or t he fiscal year ended March 31 , 1976 , based on peti tioner Orient Overseas ' gross Phili ppine bil lings of· P 2 1 , 690 , BO~ . S5 (Pages 119 -~20 , B. I.R. r eco r ds ) ~ I n a l etter dat ed Oct obec 24 , 1978 , peti- . tionecs protested t he assessment on the ground that t he r ate of exchange appli ed by r espondent in converting Or ient Overseas • gross Philippine billings was P7 . 50 t o US $1.00, nder Revenue Memor andum Circul ar No. 9-76 dated March 10, 1976 (Pages 1 65-~66 , B. I . R. r ecords) .

They

reiterated t heir prot est i n a letter "dated December 7, 1979 (Page 177, B. I . R. re cords ) ~ In a letter dated April 30, 1981, r espondent den i ed petitioners • p rotes t on t he ground t hat peti t i oner Orient Overseas had undeclar ed bill - i ngs i n t he amount of US $8 , 019 . 69 and t hat t ransactions i nvolving outbound r evenues in t he case of i nternat ional shipping ar e not amon t he categor ies s t a ed "n Revenu Memor andum Ci r cular No.

1~7 5 , par . 2 (b) ~ a ted J anuary .l J , 1975 (p. 181, B.I.R.

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DECI SION -

CTA CASE

O. 3346 At t he hearing of Septembe 16, 1982, petitioners manifested that t hey were aivi ng protest on the i ncome ta due on t he amoun of us i S,Ol9 . 69 which was the nde~aecla red .· billings of Orien Overseas i n i t s i ncome tax r eturn for t he fisc al year ended March 31 , 1976.

In effect, petitioners admitted t hat the actual gross Philippine b 'lli ngs of peti tioner Orient Overseas for purposes of income tax was us § 2,897 ,737.38 u not us $2,889 , 717 . 69 . .r The parti es do not quarrel that Revenue Memorandum Circular No. 1-rs dated J anuary 13, 1 ~75 , which pres- .

cribes a uniform exchange r ate of u.s .. dollars and other foreign currencies to Philippine pesos for inter na r evenue t ax l'urposes for t he calendar year 1975 and all fiscal years up to J une 30 , 1976, is the appl icable reference and guideline for the schedule of the conver- sion t ate of computing the incc:ne t..o · 1.iabilit y of peti t ionets involved i n this case . To quote Memorandum circulat No. 1-rs:

•J anuary 13, 1975 REVENUE MEMORANDUM CIRCULAR NO ,. -7.5 SUBJECT: Prescr ibing a unif orm exchange rate Ef u.s. dollars and other foreign currencies to Philippine pesos f or internal revenue tax purposes for t he calendar year 197 5 and all f iscal years up to June 30, 1976.

TO

: All I nterna Revenue Off icers and

Others Concerned:

For t he purpose of establishing a uniform rate of exchange of u8s. doll ars or other f oreign currenc ies to Philippine peso fo interna re- venu ax pu poses for he cal endar year 1975 · !_!?.

all the f iscal years up to J une 30, 197.6 , t he following schedule of exchange r ates are hereby prescrioed for reference and gu idelines of all concerned:

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OECISIO

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CTA CASE NO .

346 5 - 1.

n t he case of regular or habitua t ransact i ons nvolving actual r emittances o ~ accepLince s of U. S e dollars or other m: e ign currencies such as s alar ies, ages , f ees or other renumeration for per sonal services, r oyalt i es , r ents , interests or other f ixed or determinable annual or periodi cal i ncome n · the following rules shall govern : a ..

Wher e actual remittance is made t o t axpayers abroad, the bank • s_ sell i ng r ate of exchange of t he f oreign currency i nvolved at t he t ime o such remittance shal be used for the pur- . pose of arriving at t he tax base1 b.

Where acceptance i s made by t axpayers in the Philippines nd there is an actual conversion of he foreign cur rency to Philippine pesos at any t ime during the year , t he bank u &. buy- . i ng rate of exchange at the time of such conversion shall be used for the purpose of arrivi ng at t he t ax base7 2.

In the case of reqular 0r habitual tr ansacti0i1"5" where there-·a i:'::: .. -·;·)-:-- -~~ ·.::t:ual remit- tances or acceptances of U . s;~·- aciTia~ s or other [9reign currencies such as salari~s , wages, fee s , or other remunerations for P0.E_sonal ser- vices, royalties , rents, i nterests, or o~ fixed or determinable annual or periodical income, the following rules shall govern : (emphasis s uppl i ed.

a .

Where i ncome accr ui ng t o tax- . payers abroad is credited t o their account by mere bookkeepi ng entries and such income i s subject t o withhold- i ng tax in t he Philippines , t he r ate of exchange quoted by t he Foreign Ex- . change Department of t he Central Ban on t he dat e the withholding t ax accrues shall be used f or the purpose of com- . puting t he t ax base , b.

Where such income accru ing to ~axpayers abroad is not subject to with- holding tax but is l iable t o i ncome tax after t he close of the taxable year, the r ate of P7.00 to u.so $1.00 shall • be used .In t he case of non-~es iden t • •

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DECISI ON -

CTA CASE o. 3346 _6- cit i zens taxable under Section 2 Qf t he National Int erna

Revenue

Code , as amende b Presidential Decree No. 69 , the i ncome t ax lia-bilit y comput e in dol ars shall be converted t o Philippine pesos cat the guidin<;J r ate of ex . change quoted by t he Cent r al Bank at t he time of payment if t he tax- . payer chooses to pay hi s t ax liab- . ility i Philippine pesos# (under- .

scor i ng supplied. ) •

c. Wher e t axpayer s i n the Philippines ar e entitled to receive i ncome from abroad and there i no actual conver s ion of th f oreign currency to Philippine pesos during the year 0 the same ' ate of P7.00 t o u.s. $1.00 shall be used f or income tax purposes .

3.

In t he case of transactions involving the computation of advance sal es or compen- sating t axes , the r at e of exchange used by t he Bureau of Cus t oms at t he t ime ,- r the payment of such t axes shall prevai l. 4.

In the c.ase of tr ansactions i nvol=ying t he computation of percentage taxes , the rate of exchange quot ed by the Foreign Exch an~ pepartment of t he_Central Bank on t he date t he percentage t ax accr ues shall be used. "(underscoring supplied. ) .

S.

I n t he case of an i solated or casual tr ansaction i nvolving emittances or accept - .

ances of u.s. dollars or other f or e ign cur - rencies such as dividends , i nt erests , c api t al gai ns or other gains from occasional s al es of property and the like , t he same rules promul - . gat ed i n parag raphs 1 and 2 shall apply. 6.

Where an all ocati on of i ncome and expenses is either required or al lowed, for income t ax purposes, under Section 37 of t he Tax Code and the egulati ons promul gated nder i t , t h s am r ate of P 7o 0 0 to Us. $l o00 shall be used.

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7 Where t he cur rency i nvol ved is other than u.s. dollars, the f ore i gn currency shall 24'6 • .~· . ~ -..

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DECISION

CTA CASE NO

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·'-- fi r st be converted o u ~s . dollars a t t he prevailing r ate of e xchange betwe:en t he two cur r en ci es ~ The r esulting amount shall t hen be converted t o Phil ippine pesos in accordance with the above promulgate rules •

ENFORCEMENT AND PUBLICITY

All Inter nal Revenue Officer s and others charged wi th the enforcemen of internal r e- venue laws are enj oined to enforce t he pro- . visions of t his Circular accordingly and t o give it as wide a publicity as possible. c- ~- r:LC/Aio

APPROVED:

(sgd.) MISAEL P. VERA Commi ssi oner o f I nternal Revenue TAN-~601- S,93-~ (sgd.) ALFREDO PIO DE RODA, J R. ~cting Secr etary of Finance• "' ·.

The coll ision occurs a t t he par t J~ a r provis i on or par agraph of the memorandum circular s ecif i cally appli- . cable .

Petitioners contend tha as proper basis fo t he conversion rate of u.s. dol lars t o Philippine pesos of the gross Philippine bi lli ngs of the Or i ent Over seas Container Line f or i ncome tax purposes f or the fiscal year ended Marc h 3.1 , 1976, Paragraph 2 (b) .of Revenue Memorandum Circul ar No . 1-rs is control l ing. On the other hand, respondent ins i sts that Paragraph 4 governs the case .

Back to Paragraph 2(b of the r evenue memor andum cir- 0 cular ..

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say . •x t he case regu ar or ha itual tr an- sact ions where t her e are no dc tua r emittances or accept- ances of u.s. dollars or other forei gn currencies uch 24 '1 • . .

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OECl SION -

CTA CASE NO. 3346 .8 - as salar ies , wages , f ees , or other r emunerations f o er sonal services , roya ties , r ents, i nterests 6 or other f ixed or det erminable annual or periodical income, x x x• the rate of P7.00 to u.s. $1.00 shall be used, "Where such i ncome accr uing o t axpayers abroad i s no sub 'ect o wi thholding ta but s i ahle to income tax after t he close of the taxable year . "

Paragraph

2 b) .gives t he r eady answer when the convers on rate of P7 .. 00 t o u .. s .. $1. 00 is to be u·sed .. Here , in t he ease a t bar t he gross Philippine billings i n question of peti t ioner Or i ent Oversea Con tainer Line wer e real ized i n the cour se of i ts re9ular or habitual transactions as a for e i gn corporation • engaged in i nternat i onal shipping \. _ch do not i nvolve, admi ttedly, actual r emittances or acceptances of u.s.

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dollars or other f oreign curr enc es such as salaries , wages , fees, or other r emunerations f or personal ser - vices , royalties , rents , i nterests or other f i xe or determinable annual or periodic al i ncome . Neither were such gross Philippine bil l ings i ncome subject to wi th• hol di ng t ax but petitioners ar e l i abl e to i ncome ta after the close of t he t axabl e year . The emphases are - • no actual remittances or acceptances of u.s . dollar s" • and "not subject to withholding t ax" e Par agraph 2( b) .

i!ii c leat and spe if c ., There is o r om f o i nte rp re t~ .

ation .

Accordingly , pe·t i t ' one s • .r ight s and l icibil i t i ea ...

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~ ,- OECIS .i:ON ....

CTA CASE NO.

346 .9 - shoul d b ga u <j~e d by Par agraph 2 (b) .0

Revenue

emo .· randum Cir ~ u l a r No. 1-rs. The onversion r ate of t he u.s doll ar t o Philippine peso i n determi ning peti- . t ioners 0 ~omputed annual i ncome t ax l iability f or fiscal year ended Match 31, 1976 should t herefor e be • P7. 00 t o u .. s. $1. 00 as specified therein. 0 the as sumption t hat freigh was eithe f ree on board (FOB) _or at destinati on f or account of t he f orei gn buyers , as contended by r esponden t , we c annot infer and ' mply t hat Par agraph 4 of Memor andum Circular No. 1-r , in the case of t r ansactions involvi ng t he com- . putati on of percentage t axes , •may be applied in a s uppletory manner f or t he sake of niformity and equity.

(pp. 6-S-6_9 , CTA records .

. Adve r tir1 ~ t·:) the terms of Par agraph 4, i seems plain an~ clear t hat ~he r ate o exchange quoted by the Foreign Exchange Department of the Central Bank appl ies only in t he case of t rans- act i ons i nvol vi ng the comput ation of percent age taxes . The paragrap employs t he t erm wtransac t ions i nvol vi ng the com utation of percentage taxes.• Nothing t her e said speaks of computation of i ncome t ax on gross Philippi ne billings .

We c annot i gnore the principle t hat express ment i on i n a stat ur e , or i n t he i mpl ement- . i ng memor andum c i rcular , precludes r eading others i nto i • An even mor e , ho can we use t he r ate of exchange ~uoted by the Foreign Exchange Department of the. Ce tral 24 ~ • . ' Bank in dete~mini ng petitioners 0 ~omputed annual ncome tax l iability for. t he fiscal year ende Mar ch 31, 1976 when no evidence was presented by r espondent as to the r ate of exchange quoted by the Foreign Exchange Depat men t on the date the i ncome tax i nvolved herein accrued . • The r ule has been established that the application of ax l aws, and i mpl ementing revenue memorandum cir- . cular f ot t hat matter , ·f t he meaning is doubtful , shoul not be extended by implica ion beyond the c lear i mport of t he l anguage used. ln f act , if t he i ntent or meaning thereof is doubtful, the same should be construed most strongly agains t t he government and in f avor of t he taxpayer .

(Kuttner vs. Collector of Int erna Revenue, 18 Phil . 46·11 Stevedor ing vs . TrinL ,.:i , 43 Phi l . 803. ) To apply Paragraph 4 of Revenue Memorandum Ci rcular N l - 7.S to the · nstan case " in a suppletory manner for the s ake of uniformity and equi t y" , as respondent avers , when the applicability of Paragr aph 2 (b) .thereof is very explicit and unequivocal, i s the&:efore lltto f orce a square peg i nto a round hole" .

Revenue Memorandum Circular

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l-7.5 was issued by respondent Commissioner of Internal Revenue for t he enfor cement and i mplementation of i nternal r evenue l aws .

It i s thus t o be fairly and j ustly presumed that r espondent, who possesses such a unilatera and one- sided authorit , has so shaped Par agraph 4 as , without ambiguity oa: doubt , to bring wi thin i· "transactions 250 a - ' ..

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DECIS ON -

CTA CASE N • 3 4:

- 11 - invol vin t he computat ion o ercentage axes only as plain 'I and specifi edly s t ated therein. Un e r he circums ances , the ecision of r espondent dated Apr il 30 8 1981 holding peti t ioners liable f or the amount of 4,7 ,801.85 as ef i c i ency income tax i nclus1.ve of i nteres fo . f iscal year ended arch 1, 197 cannot b sustained .

Instead, considering tha petitioner Orient O ve~ seas Container Line's r css Philippi ne bil lings amount ed to US$ 2,897, 737 . 38 in fi s.cal year ended Mar ch 31 , 1976, i ts defic i ency i ncome tax. l i abilit y i s com- puted as fol l ows :

Gross Phil . Billings (US$2, 897 , 737. S converted at P7.00 to U.

$1 00 ) Tax due t hereon

Less :

Amount already assess·.ed Bal ance Add 14\ i nt . from 7-16-76 t o ~ -26-78

TOTAL AMOUNT DUE AND COLLECTIBLE

P20 ,284,161 . 60 p 507 , 104.00 505 , 70 l.OQ.

p 1, 403 .. 00 431.03 1 , 834.. 03 Accordingl y , petitioners Orient overseas Container Line and F.E. Zuel lig ( M ) ~ Inc . , are hereby ordered t o pay to r e:spondent Commissioner of Internal Reven e the amoun of Pl , 8l 4 03 plus 5~ surcharge and 14\ annual i nterest f rom September 26, 197S up to J uly. 31 , 960 and 20i annual i nterest f rom August 1 , 1980 unti l full y paid pucsuant to Section Sl (e) (_2) (_3) .of the Nationa l I nternal Revenue Code of 1977 , as amended by Pr es i den t ial Decr ee No. 1705, provided t hat t he maximum amoun t hat may be col ec ed as i ntet est on def iciency shall n no · . .: . , .. iJ.' ., •

DE ISIO

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C'l'

CASE

0,. 3 - 12 - case exceed t e amo nt corresp nding to a perio three year s • .

HEREFORE , the ' udgment under r evi ew is modi i ed as ind ' cated i n he above o in on of t he Court. Wi th costs .,

WE CONCUR:

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