Heavy Equipment Rentals & Construction Co., Inc. vs. Cc. T.A. Case No. 3857 Commissioner of Internal Revenue

DECISION -

W fig Wheelie oar nob the ret ttianer is liable for FU9S, 150, 34 decirniency contractor’s 7%.

lad Underbillina af Projects.

The nebkitionar claims that respondent’ s aAgReacameant carresnands ta unbilled charnes for the mneriod Oetnher ££ to Derembar Bi, 1976 in the contract with Ria Tuba and for the month of December 1976 from the project with the National Irrination Administration.» In 1ts Amended Petition for Revisw, oetitioner allened that in comoutinea the tnderbillings, respondent oot the average monthly billinns each for the two undertakinos and multioly them by three (3) an the case af Rio Tuha and hv one (1) in the dane nf NTY On the othe hand, the resonndent, in his Moocmer to the Amended Netition for Review, stated that metitioner. in peconnizing its income from the hueinesg af rentals of eoutoment and contracted Jobs, adopted the hillinng method showinn that its income for 1976 was short-billed in the amount of ' PY. 7A0,477.00: hence, the same cannot he deducted from Aros 6 income, He, however, failed to stthatantiate his allenation in his nleadinns qe

-~ 5 - Ty this Court’? sa hearing, datert Oneil *9, 199%, reenmoercdent dodo not nresent eavidanrs ta cunnort his ease and anilv made manifestation that he will just evbmit the BER Remenres as his evi dance, , This Comrt, hased on the dieadings submitted hy the marties and evidenre orecscented hy the nekitioner, fines thak nehitioner hilted correctly jis Pio Tuba nroject iit underhi lied its NTA fdbmanan nea part Tt is clear From the records that the Rio Tuba meo peck WAS completed pricar to OQetober °§ 1976, (hodit bite "Rot anc "RPL am. P7-P9, 119, 171-128, PAL, 4%, Gas, OTA Rerards), hence. there warm no + work accomolished from that date un to December 31, TATE, Tt is therefore lonical to conelude that no incnme has accrued in favor of the petitioner durins that neriod (Fyhihite "Reta", "RPA, OK and "K-42", oom, 848-845, 423-451, CTA Records). Furthermore, Rio Tuba! filed an action for damages rita £0 delay (Civil Case No. 105723) with the then ‘Court of First Instance of Manila anainst the “petitioner, Rio Tnha aljlened in paragraph X of its coamniaints ' "That defendant (netitioner in this orAse), through its nmwn Fault and/or enlert x «x x failed to comnly with its mndeptakinn "to finish and comnlete the work on oor hefore January 31, 19789", in qH

Ww

a ca id

DECISION -—

Ceie@) that ait Finished and comnleted the construction » “« »% anlv an Annust 15, 1976 » “ ¢."

With renard to NIA however, evidence for petitioner showed that it had Forwarded the estimate ancl sunpnort inn NAN S far the third nartial payment of its accomplishment as of November #70, 1976 (Fexebibits "“B-3" to "BA" and "M", on, 246-885. 469, CTA Records). Petitioner is renutarly using the hillinn or acernal method of recarctinn income and is therefore liable for work ancomnlished during the neriod from November 20 to DNeremher Si, 1976. In the. absence of any proof that there was no work accomplished during the said period, this Court tends to uphold the findings of the reenondent.

There is a presumption as to the correctness and validity nf the assessment: (Collector vs. Rohol land Transoortation CO o 1O7 Phil. 965).

Petitioner failed to rebut the said oresumption.

Petitioner contends that the Stun of Pi,400,576.67 disallowed as nayment for rental { represents the actual BXNENSaS incurred by netitioner for the lease of eaninment used in its higinees anaraktions, In its letter of November &,

DECTSTON -

TOA netitioner enumerated the fFntlowinn rental eymenmsag ag deductible items for heinn ardinary and necepcsary hor iness exnenscas, FNCB Finance, Ine. B1,007, 400, AG Rancom Finance Cornoration 320, 532. 74

Makati Leasing and Finance

Cornoration ft P, 645, 93 4 a] Total Pie t00, 376.67 The reannandenk ruled that the amounts paid mara ambkialiv inmnckhkalimante an ectinmant« mirchacsed, Noduckhionse Feom inmome are matters of lanialsativea FPA, Mniv PXxMTIONSAS which are exnresely provided for hy law and which satisfy all the renmiirements of their deductibility are AVDovemed, Evynmenses, to be dadurtibte, must be a) oecdinary and necessary, bh) naid or incurred during the taxable vear, om) paid or incurred in carrying an the trade or business of the tawnayer., and a) % ennnorted hy records or nentanent naners (Nollecs, The National Internal Rey aryprres fade of tha Prilinnines Annotated Sth eet, 1976, On GBP), This Court holds that oetitioner nassed the rearodiwamanke | fries deductihility of its rental exMenses, Sem. 3O¢Cad (1) of Commonwealth Act Na, 1 ' 466, nmarticularly known as the National Inhternal Pevennea Code, as amended nmrovides: "Gar, 30, Deduction from gross incame, ~ In ocamoutinn net income there shall he allowed as ceduction - bd3c -t ’

(a) Frenenses

(1) Tn general - O11) the ordinary and necessary eyvnenses paid or incurred during the taxable year in carryinn an AY trade ne husiness, including aA wreacaAnahle atllnwanre for wer rentals or other mayments required +o he made as a conditian to the eontinuec use or nossessinon, for the niuroases of the trade or business, of mpronerty to which the taxpayer has not taken or is not_takina title or which he has ono equity. "

(Underscoring supplied) The lease anrerpments in queetian were mreecoanted hafore this Court by the mnetitioner to prave that the oawnershion of the neanerties leased remains with the lessors durinn the entire meriond of the lease and that it has the obligation to return the pronerties subject of lease after the aynirakian of the lease nmeriad (Exhibits’ "D", "E™", “Re 'E" and cbmarkinos).

Article 1370 of the New Civil Code orovidess "TF the terms of a contract are clear and leave na darutbt upon the intention of the contractinn parties, the literal meaninn bf its stipulation shall eantrol.

To read something into a contract other than what it clearly says would no Jonger be construing it hut makino an altonether new contract for, the { narties (The Bacolod Murcia Milling Co., Ine. vs.

Baneo Nacional Filinino. 74 PRil 675) 330

DECISION -—

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Petitianer, through its Treasurer, Ms. Rosario S. Pascua, nrecented the receints it allened as evemnk oor not subject to 3% contractor’s Tax (Exhibit "J") as follows:

\. Receiots fros Marinduaque

Mining and Industrial

Cornoration. a BOI renistered pioneer enternrise under R.A, St86 P4, 007, 872.00

2. Receiots already subjected to 3% contractor's tax:

a) Rio Tuba ~ payment of 10% retention b) Anricultural Investors, Inc, - navment of 10% retention 3, Adjustment te correct orevions billings:

a) Avricultural Investors, , * P200, 000. 00 -P04, B42, 40 404, B42. 46 b) ce) Inc.

Rio Tuba

Sasar Lusber

P 62, 814,17 85,444.17 4, Rereint from non- agricultural services:

a) Asricultural Investor, 4 Inc, - refurd of vessel exnenses b) Philiopine Geothersal.

Inc, ~ refurd of trans~ portation exnenses Tota!

&% Contractor's Tax

P 91,003, 92 £2,529, 20 113,533. 12 P_138, 350, 75° *°P1 38,235.62 per BIR assessaent t Since the respondent failed to present ‘ evidence to sunpmort his assessment, this Court has no course but to modify resnondent’s ruling. 131 (16) Sec. of the Tax Code provides:

, is a 9186, - 10 — "TY contractor's tax of three near cent of nross vereints jis hereby imposed on XM (business anents and other independent contractors “0x except qroaas receipts of or from a pioneer industry under the (provisions of Renublic, Act Numbered Five. Thonsand One Hundred and Eighty-six." (Underscoring sugplied) Marindudaune Mining and’ tTnenustrial Cornooration BOI renistered pioneer enterprise under RA

An Act Prescribing Incentives and Guarantees

to Tnvasctments in the Philinopines.

Sertion & of the said Act orovides:

"Declaratian or Policy. oa To accelerate the saund develonmment of the national ernnomyv in consonance with the nrincinies and objectives of economic nationalism. and in pursuance of a nianned, economically faasible and practicable disnersal of industries, undar canditians which will encourane competition and discourane mononolies, it je Herehy declaret to be the noolicy of the stake to encourage Filipino and foreinn investments, as hereinafter set ath, ino menieets ta develon anqricuttural, mininn and maninfackuring industries which inereace national incone most at thea least cost, increase exoorks, bring about nreater economic! stability, mnrovide more onpnortunities for employment raise the standards af livinn of the’ meonle, and mravide for an equitahie distribution of wealth.”

To fully serve the purpose of the said Act, . { netitioner shauld not be held liable ‘ for contractor’.s tax oursuant to See. 191(16) of the National Internal Revenue Code, as amended.

DECISION -

C.T.A. CASE NO. 32857 likewise, petitioner is not liable for contractor? « tax with renard to receints from non— rantractiual csearvires, Refund of exnenses does not canstitute reeeints subject to contractor’s tax bret merely reduces the amount af exnenses that can be deducted from aross income.

‘Statutes levying taxes or duties are to he “construed stronniy anainst the Government and in favor of the subjects or citizens, because burdens are not imnosed or presumed to be imposed beyond what statutes exoressly and clearly declare (Commissioner of Internal Revenue vs. Court of Appeals, 204 SCRA 188). .

This Court however finds that receints already subjected to cantractor’s tax hased on ten (10%) ner cent retention ‘and adjustment to correct nrevions billinns did not, ‘in anv wav, change the Findinos made bv the resnondent.

Resnoncdent, in ‘cixtarweaing he amount of deficiency contractor’s tax, used the Following comoutations Accounts receivable - beginning P 1,608, 252.00 , Adds Income (net of 3% Tax) 14, 6686, 135.00 3% Tax payable (total credits) nen he 946, 00 Total amount collectible | P16, 541, 333.00 Less: fAecounts receivable - end 5 681,983.00 - Gross Receipts per investiaation P13, 680, 250.00°°* | ““"ehould be P13, 860, 250. 00

DECISION —-

Vesuminn that netitiaoner already had naid or had withheld the eorresnandinon ctantrartor’« tax hanerl on ten ner cant retention. the amount paid, in othe absence of any praof to the contrary, had Alreacvy been considered by the resnondent in his findinns.

In the same manner, adiustment to correct nrevious billinos forms mart of the ending balance of metitioner’s accounts receivable if no receipts were collected during the year. Thus, the oaross romaimks subiect tn contractor’ s tax exclude adinetmont not vet collected.

After considering the facts and isstes of the case. this Court holds the petitioner liable for defirniency taxes amounting to BROS, 400.45 comouted as followss g ‘|

Deficiency Income Tax

Nek income ner return P 53.134. 00

Add» Underbillinn-NIa a

Libmanan Proiect _369, 057.00 Net income P422,191.00 Tax due F137. 766.85 Income tax already assessed __ 13, 283.909 P124, 483, 85 Add: 14% interest per annum oe £83. 22 Amount still due and collectible P176,767.07 '

DECISION -

Cc.T.A. CASE NO. 3857 -~ 13 -

Deficiency Contractor's Ta

19% Retention F404, 842.40 Adinustment to carrect nrevious billinnas 85, 444.17 3% Contractor’s tax P14, 708.69 25% Surcharge for late nayvment 3,677.15 Tatal FP 18, 385.75 {4% Interest feom 1-21-77 tn 7-31-80 9,086. 39 \ cOo% Interest from 8-1-80 ;

ta 11-24-80 As 161.07 Total oamnunt ue ‘ REA. 633. 41 WHE REFOPE, IN VIEW OF THE FOREGOING, netitioner is hereby ordered. to pay the amounts of F176, 767.07 for deficiency income tax and PRA, G33. 41 for deficiency contractor's tax or a total of PPA, 400.482 with additional interest in case of contractor’s tax from November 25, 1980 until it is paid.

Associate JiyAne

WE CONCUR: i Cums 2: Gdun Pr r. a) af ERNESTO D. ACOSTA

Presiding Jude

ANUEL) K.

Associe

GRUBA

re Jucdne

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ERTIFICATIDN

1 hereby rPrt l. ·f v this was rp.;~.cherl ~fter due r.onsult<"'tion amonq thP. members of

the Court of TAx

Ano~als in a ccordance with Section 13, Article VI II of the Constitution. '·

33 :J

. I ~ ;;:;;:;- (Q .. ~ ERNESTO D. ACOSTA Pl-'esidin£:1 Judge 8ourt of Tax Apoeals ' I