Court of Tax Appeals
0Sea- Land Service, Inc. vs. Commissioner of Internal Revenue
.._.
·
REPUBLIC UF THE PHILIPPINES
COURT OF TAX APPEALS
QUEZON CITY
SEA- LAND SERVICE, INC.,
Petitioner, ·
•,
-
versus -
C.T.A. CASE NO. 4202
COMMISSIONER OF INTERNAL
REVENUE,
Respondent.
X
-
-
-
-
X
D
E
C
I
I
0
N
Petitioner
filed
the
subject
petition
fo r
review
to
toll
the
running
of
the
two-year
prescriptive period for the refund o r
t ax credit of
allegedly erroneously
paid
i ncome
taxe s
in
the
a mount
of
?1,270,517. 16
+
P341,918.91>;
and
carrier's
r
<?9 ~8,598. 25
taxes ~ amounting
!
to
P2,541,034.33 <P1,857,196.51
+ ?683,837.82> in the
total
amount
of
P3,811,551.49,
for the
taxable
years 1985 and 1986.
The facts in the opinion of the Court, follow:
Petitioner is a
resident foreign corporation
organized
in
Delaware,
U.S. A.,
engaged
in
the
business of international sea transport.
It claims
to have been contracted by the U.S. Government to
transport military household goods and effects of
U.S. military personnel in the US Military Bases in
the
Philippines
<Clark
Airbase
and
Subic
Naval
616
,•
DEC r ~..:; L Llfl -
c ·rh CAS E NU.
4202
-
2 -
Bn sP ).
The ser vices co ve r
movement of tbe said
h o u se h o ld goods and effects in container van s from
th e
So uth
Harbo r
to
load
on
the
vessels
of
p e t iti oner for shipment abroad.
In
this
connection,
petitioner
presented,
a mong
o ther things,
"MSC Container Agreement and
Ra t e
Guide"
<Container
Agreement,
for
short~
Ex h i bit
"QQ - 1" ) ,
as
well
as
a
"M e morandum
of
Agree me nt
between
Naval Supply
Depo,
Subic
Bay,
R. P .
and
Sea - Land Service,
Inc. "
<Memorandum
of
Agreement,
for
short~
Exhibit
"QQ"),in~ended to
"impl e ment
and
further
amplify"
the
Container
Agree me nt,
to
support its allegations that the
s ub jec t transactions were tax free.
•··or
the
taxable
years
1985
and
1986,
petitioner's gross Philippine billings from these
services
amounted
to
P61, 905, 550. 3 :::-t
and
P22 , 1'94, 594. 54,
respectively,
for
which it paid
i ncome taxes in the sums of P928, 598.25 for 1985,
a nd
P 3 41, 918.91 for 1986,
at 1. 5Y. thereof,
under
.J
Sec tion 24 (2) (i) of the National Internal Revenue
Code < NIRC), in relation to Article 9,
1 (a) o:f the
Convention between
the Government
of the United
S t a t. e .s
of
America
and
the
Government
of
the
Re p u blic of the Philippines with respect to taxes
617
DEL:ISION -
t:TA t:ASE NO. 4202
-
3
-
on income.
As carrier's taxes it paid 3X of said
gross
i->hilippine
billings
in
the
amounts
of
P1,857, 196. 51 for 1985, and P683,837.82 for 1986.
In
claiming
exemption
from
income
tax
for
those
years,
petitioner
cites
Article
Paragraph
4
of
the
R. P. -U.S.
Military
Agreement <MBA for short>, which reads:
"4.
No
national
of
the
United
S tates,
or corporation organized
under
the laws of the United States, resident
in the United States, shall be liable to
pay
income
tax
in
the Philippines
in
respect of any profits derived under
a
contract made in the United States with
the Government of the United States in
connection
with
the
construction,
maintenance, operation and defense of the
bases,
or any
tax in the nature of
a
license in respect of any service or wor k
for the United States in connection with
the cons true t ion,
maintenance,
operation
and defense of the bases. "
XII,
Bases
Petitioner alleges that it can avail of thr?
said
exemption
clause
because
a>
It
is
cor poration organized under the laws of the U.S. ;
b)
It entered into a contract in the U.S. with the
U.S.
government; and c) Revenue was derived by it
"from transportation services provided to the U.S .
Government for maintenance,
operation, and defense
of the bases." <See Petition, par. 6).
Petitioner cites Article XIII ,
Nos. 1 and 2 of
the MBA in claiming exemption from carrier's tax,
618
DECISION -
which are hereunder quoted:
"ARTICLE XVIII. - SALES AND SERVICES
WITHIN BASES
"1. It .is mutually agreed that the United States shall have the right to fees; sales; excise or other taxes, or imposts; Government agencies, including concessions, such as sales commissaries and post exchanges, messes and social clubs, for the exclusive use. of the United States military forces and authorized civilian personnel and. their families. The merchandise or services sold _ or dispensed by such agencies shall be free of all taxes, duties and inspection by the Philippine authorities. Administrative measures shall be taken by the appropriate authorities of the United States to prevent the resale of goods which are sold under the provisions of this Article to persons not entitled to buy goods at such agencies, and, generally, to prevent abuse of the privileges granted under this Article. There shall be cooperation between such authorities and the Philippines to this end. (Emphasis supplied. )
"2. Except as may be provided in any other agreements, no person shall habitually render any professional services in a base except to or for the United States or to or for the persons mentioned in the preceding paragraph. No business shall be established in a base, it being understood that the Government agencies mentioned in the preceding paragraph shall not be regarded as businesses for the purpose of this Article. "CEmphasis supplied) The issues raised are:
1) Whether or not the income derived from services rendered by petitioner in transporting U.S.
Military personnel’s household = goods . 619 and
DECIS ION -
CT A CASE NO. · 4202 - 5 - effec ts are exempt from income tax under Article XI I, Paragraph 4 of the R. P. - U.S. Military Bases Agreement; and 2 ) Whether or not petitioner is a concessionaire, exempt from carrier's tax under the same provision, in relation to Article XVIII, Nos. 1 & 2 of the said Agreement. Only the respondent filed a memo r andum. In regard to the first issue, pet itioner's act of transporting household goods and effects of mili tar y personnel could hardly be considered al:~ relating to the "maintenance" or " operat i on" o:f the bases, and much less will it fall under "construction" or "defense" of those bases.
"To 'maintain' means to preserve or keep in an existing state or condition, and embraces acts of repair and other acts to prevent a decline, lapse or cessation from that state or condition, and has been taken to be s ynonymous with'repair' ... " <Words and Phrases, Permanent Edition, Vol.
26, p.
103, citing Norris v.
American Liability & Surety Co., 185 A.
201,203,322 Pa.
'31. )
Further, "There is no substantial difference between 'maintenance' and 'maintaining' and operating" <!_Q.., J.__g_, !.£!., citing Roberts v. City of Los Angeles, 61 P. 2d. 323, 327, 7 Cal. 2d 477. > 620
DECISION -
CTA CASE NU. 4202 - 6 - . .1 Thus, even granting that J. M. Ellier, as well as Jorge E.
Rieber, were indeed authorized by the U.S. government to sign the Memorandum o£ Agreement <Exhibit "QQ" ) , and the Container Agreement <Exhibit "QQ - 1"), respectively, petitioner cannot s till quali£y £or exemption £rom income tax under the MBA because the shi~ment o£ the household goods and e£fects had nothing to do with the "maintenance" or "operation" o£ Clark Air base and/or Subic Naval Base, and much less was it related in any manner to the "construction" and "de£e nse" o£ those bases.
Exempt i ons are also strictly construed against the taxpayer. In view hereof, it is no longer necessary to expound on the merits of the documentary exhibits presented by petitioner.
Respecting the second issue, neither can the petitioner be considered as a concessionaire exempt £rom · carrier's tax £or the subject transport services.
Article KVI I I, No.
1, o£ the MBA, in regard to "Sales and Services Bases" (Emphasis supplied), speci£ically and clearly re£ers to "government agencies" established ~q_n Q _c.!§~l?.-~. in order to be "£ree o£ all licenses; £ees; sales; excise or other taxes, or imposts ... "
and these "government agencies" include "9.Q.D.9~..§.~_iO.!}..§., 621 - 7 - suc h as sales c ommissaries a nd pos t e xchanges , messes and social c lubs , for t he ~~ 9--! .I:J.: .§ .;l..~g. I:J.:J;:le . o :f t h e United S tates military forces and author ized civi l i an personnel and their :families." <Emphasi s s uppl i ed).
T he international s e a transport bus iness o£ petitioner wa s not e stablishe d "on b a ses " a nd th e services it r e ndered were not ":for the exclusive u se o f the United States military :forces and aut h or i z ed civilian personnel and the ir :families," g ranting that the services were indeed made • avai l a ble to them.
It, thus, strains the i ma g ination of this Court to believe petit ioner's co n ten tion that its said services qualifies as a " concession" under the MBA. As already str essed, c la i ms for exemptions are to be construed strictly a g ai n s t the taxpayer.
He nce, the claim o£ exe mp t ion from carrier's tax will also have to be d e n ied.
~), _ _.__ < 103 Phil.
'712 ( 1958 l > reinfor ces this view when it held that "what is being exempted from th~ p a yme nt of such exactions is the establishment of the a gency or concession designed for the ~~gl~siv~ use of the U.S.
Military forces and authorized c i vil personnel and their :families".
<Emphasis 622
- 8 - supplied . )
It is also pertinent to point ,out that under Article XVIII, No.
2 of the MBA, cited by petitioner itself, "No business shall be established in a base, it being understood that the Government agencies mentioned in the preceding paragraph shall not be regarded as businesses :for the purpose of this Article.
ln contrast, petitioner alleges in paragraph 3 o:f its petition that it is engaged in the business o:f "an international carrier in sea transport. " There being no legal or factual basis :for petitioner's claims for exemption :from income and carrier's taxes for the taxable years 1985 and 1986, the herein petition is hereby denied.
WHEREFORE, judgment is hereby rendered dismissing the herein petition, and this Court hereby denies petitioner's prayer 1or the re1und or tax credit of income and carrier • s taxes paid 1or the taxable years 1985 and 1986, with costs against petitioner.
SO ORDERED.
Quezon City, Metro Manila, September 3, 1992. 623 ST A
I CONCUR:
~~Q_~ ERNESTO D.
ACOSTA Presiding Judge - 9 - ;, i '· C E R T I F I C A T I 0 N I hereby certify that this decision was reached after due consultation between the members of t he Court of Tax Appeals in a ccordance wi tb Sectio n 13, Article VIII of t he Constitution. 624 Q~Q~~ ERNESl"O D. ACOSTA Presiding Judge Court o:f Tax Appeals .I