HONG & LEE, et al. vs. « C.7.A. CASE No, et al.

DECISION -

C.T.A. CASE NO, 35 * = 6 « March 1953, amounts te 10,880.06. In this amount is included the amusement tax fer other receipts ef the petitioners wach es food and drinks as well as the amusement tex for other nights during said period when the Aevier Cuget orchestra played at Clark Field and Olongepe and net at the Aiviere, Actuelly, fer the nights when the seid orchestre played at the Riviera, the petitioners declared @ total gross receipt on cever charges the amount of °23,102,5O on which they paid 10% er 2,310.25, On or about March 18, 1953, while 5.1.8, Agents Suarez, Lontok and Jongko were examining, on orden of their superiors, the books of accounts and other ia- portent papers of Ted Lewin at the Bey View Hotel in connection with his different business ventures ad promotions, the said agents came across verious working sheets, chitte, receipts and other pspers, Exhibits 2 to il, which in some way or another were connected with the performances rendered by the Xavier Cugat Orchestre at the Aiviere Might Club of which Ted Lewin was one of the beneficieries, The papers in question forued part of the bundle of records delivered volyntarily te the 8.1.8, Agents by Carles Magdaluyo, Accountent-Book- keeper of Ted Lewin, during the course of said investi- gation at the Say View Hotel. The investigating \een brought along Exhibits 2 te ll efter issuing a receipt therefor, and after carefully examining and evaluating them arrived at the conclusion thet the petitioners actually netted on the cover charges at the Kiviers Night Club during the several nights of Cugat*s per- 7 423 > [22

DECISION «

C.T.A, CASE NO. 59% oT formances the tetal sum of °41,2127,00 and net §23,102.50 as declared by thee in their returns, Consequently, the respondent assessed against the petitioners the amount of °3,170.03 46 deficiency amusement tax, in- clusive of surcharges, in accordance with section 260 of the National Internal Nevenue Code, as amended by Republic “ct No. 418. :

Petitioners’ appeal narrows down to two main questions. | 1, Whether or not the chits, papers had other gy @xhibit 2 to Le BIR Agents Suarez, Lontok onto from yo Bs office files of | of Tea in’ upen which they besed the defieiency amusement com ty of petitioners are ad- missible in evidence against the pe- titloners cr t not exhibits are sufficient to sustain the deficiency aswsement tax +o aa ment acde by respondent; and 2 Whether or not een t — xes under sec colic se Ast. “hee. 722s wnich span, isos the ged ches ae on the receipts derived esedien.

On the firet question: Petitioners' counsel contends that it is highly unfair and wost irregular to hold @ taxpayer iiable for deficiency tex based on the chits, working sheets end other pspers taken or seized from another texpayer. fo prove their point, peti- tioners presented as their witness Carlos tagdaluyo, Accountant~-Jdookkeeper of [ed Lewin, who testified that the documents, Exhibits 2 to 11, teken by the 3, 1.8, 124 /23

DECISION «

G.T.A. CASE NO, 3S * the said agents based the deficiency tax lisbility of the petitioners, alee includeiother business ventures and premotions ef his employer such as the Ortiz, Dado Marine, Jee Levis prize fights, Reller Derby, Ice Follies and Harlem Glebe Trotters and that the total emount ef cover charges paid by the petitioners to Ted Lewin for the Xevier Cuget performance at the Aiviere Might Club as per contract is #23,750.00 and not £41,217.00 as found by the 5.1.8. Agents. On the question of credibility, we find testimony of 5.1.8. Agent Keynalde Suarez, who with two other agents, made &@ thorough examination and evaluation of the doc: ments ia question, more reliable and trustworthy than that ef petitioners® witness, Carlos Megdaluyo. The petitioners have not shown any possible ulterior sotive why 5.1.4. Agent Suerez should distort the truth. There is in his favor the presumption of regularity in the per- formance ef official duties which hes not been dis- proved by petitioners. On the other head, it is easy te understand why Carlos Megdaluye testified in the manner he did in favor of petitioners. By adnitting @ greater sum than what the petitioners claim to have delivered te Ted Lewin ss his share of the cover charges, the latter would undoubtedly be held liable for a bigger amount of income tax then thet declared by hia, if he hes declared this income at ali.

As correctly pointed out by respondent's counsel in his memorandum, the notetions “Lee” “Wong” or “Wiong and Lee", written on Exhibits 4-5, S-A, 8<, Pb 125 vy

- Je

GA, 9B, 10O-A and Ll-A vefer to ne other persen or per- sens but the herein petitieners, The figures appear- ing on these exhibits could met have been in connec- tien with ether business ventures and/or prowotions of Ted Lewin because sone of bis ventures or promotions were held at the Aiviere Night Cluv except tne Aavier Cugat Show. It will be noted in Exhibit 2-A that the entries therein ere for the period fren fepruazy 13 te March © which, which fer from being just a mare coincidence, tally with the dates when the Aavier Cuget Orchestra performed at the Aiviera Night Club. The respective amounts appearing eiter eech date repre- sent no doubt the total amount of cover charges re- ceived for thet particuler day by fed Lewin from the petitioners in accordance with their contract. Gb= viously, the words end figures “at #5.00" appearing after each day on Exhibit 2-\ refer to the edmission price or cover charge charged by the petitioners for the Cugat show which they admitted to be actually #5.00 per ticket, fhis anit price eppeering on Ex- hibit 2-A certainly could not refer to drinks and feed served in the premises of the Aiviera, wWeither can it be said thet the awounts appearing on said exe hibit renging from *70.00 to $5,020.00 include receipts fer food and drinks served at the Riviera, As per contract, the receipts for feod and drinks are for the petitioners arai not fed Lewin. fhe accuracy of the figures appearing on Exhibit 2-4, which total ©41,217,00, becomes the more conyinging if we are to note as we do note, that after cach item there appears the initial of approval ef Alverto| kK. Osrosa, @ trusted employee of / { ? 42 g ‘

DECISION «

C.T.A. CASE NO. 55 “ « 10 < Ted Lewin.

fi With the admission of witness Megdaluye thet he dees net keep a regquler journel fer his employer, these chits, ruled sheets end working sheets, ixhivits 2 to il, are in our opinion the best source of an accurate and true record of the totel amount ef cover charges received by the petitieners from the Riviera Night Club during the Xevier Cugat Show which the petitioners in turn delivered to Ted Lewin in accordance with their Another clear and convincing proof to show that the various figures appearing in Exhibits 2 te Li, as summarized in Exhibit 2-A, represent the actual gross receipts of the petitioners on cover charge from Feb- ruary 13 to March 8, 1953, is the fact thet the first entry for February 15, 1953, marked as Exhibit 2-8 on | Sxhibit 2, for #3,340.00, also appears in the books of accounts of the Riviera Night Club for the same date.

«We know of no rule in evidence, and for that matter petitioners’ counsel have failed to cite any such rule, which excludes documentary evidence taken or seized from one taxpayer as evidence against another taxpayer more so if the two taxpayers have an interest dn and’ are the beneficiaries of @ common business venture. Aes- potident invokes for the admission of the questioned ex-~ hibits, geetion 15 of the National Internal Revenue Code which gives him the discretion te assess the proper tax on the "best evidence obtainable* when he believes that that return filed by the taxpsyer is false, incomplete ~-- fel + #27 €.€.8. CASE NO, 8S -li-«- or erroneous. This discretionary power conferred upon the Collector ef Internal Revenwe is net abeclute. When @ case involving « disputed tex eseesament is brought te this Court on appeal, the evidence adduced by the Goverment in support of said assessment must stand the same judicial scrutiny ss in other civil cases. In People vs. Sy Juco 37 Off. Gaz. OB the Suprese Court hes held that the suresu of Internal Revenue cannot forcibly seize and divulge the contents of letters, documents and other papers found in the possession of 6 lawyer belonging to his client os thet would viclete the required secrecy between lewyer end client. Howe ever, the exhibits presented by the respondent in the instant case in support of his deficiency swmusenent tax assessment sre not barred by any rule ef evidence, To eur mind, they axe not only admissible in evidence against the petitioners but are also of sutficient weight and relieble enough to sustain the questiened deficiency assesusen. based thereen., Gn the seconiquestion: Petitioners maintain that their gross receipts derived from cover cherges during the Xavier Cugat show rendered et the Riviera Wight Club during the period from Feoruary 13 to Merch 6, 1953 are exeapt irom anusewent tax under section 1 of Republic Act No, 722 which “exempts the holding of operas, concerts, recitals, drames, painting and art exhibitions, (lower shows, and Literary or orstorical er ausicsl programs from the peyment of any national or aunicipal asuseuent tax." fetitioners seek cover

DECISION «

@12~< Xavier Cuget show falls under such category.

ie have carefully read the explanatory note to House Bill No. 2775, now Republic Act No. 722, a8 well ae the sponsorship speeches on the floor of both houses of Congress when said bill was submitted for the con- sideration of, and approval by, both chambers (Congres- sional Record, House of Kepresentetives, Vol. 3, No. 53, op. 3181-1182; Congressional Kecord, 2nd congress of the Republic, 3rd Session, Senate, Vel. ili, No. 69, pp. 1189-1191). We find, as explained by Senator Pecson, that the main purposes for the tax exemption are "to bring about a flowering of our own culture, to stisu- late the genius of our people, to make the talented among us contribute to the honor and glory of the coun- try and te promote respect and edmiration fer Philip- pine culture.® In cur epinion, the exemption epplicc when the eusical program, opera, concert, recital, drama or art exhibition has for its primary purpose the pro- pagetion and development of art and culture and the element of profit merely incidental. in the instant case, it cannot be said thet the mein purpose of the petitioners “Wong and Lee" in contracting the services ef the Aavier Cugat Orchestra for a series of performances at the Aiviers was to enhance and promote our artistic end cultural development. Judging by the gross receipts realized from said business venture which run te several thousands, one would inevitably conclude that the pri- mary objective of the petitioners in such promotion was te popularize their night club and te bolster the sale » 129%

DEVISLUN «

Gel.As CASE NO, 5S » ]30 of drinks ond food in thelr establishment. Neither could it be said on the part of the petrons of the Riviera during those nights, that their main purpose in going there was to see the Cuget show and to en- hance their cultural and artistic background. If such were their real purpose, they could have instead seen the show at the Philippines international Pair Audi- torium at a lesser expense and with a better repertoire of South Auerican dances and songs, We velieve that the petrons of the Aiviera on the nights in qestion went there not fox cultural puxpeses but simply te dance te the tune of @ world-renowned erchestra. in other words, they went to the Aiviera te dine and dance and not for the seke of art. } Petitioners claim that the Aavier Cugat Orchestre was granted by the respondent an exewption from asuse- ment tax when lt played at the Philippines international Fair Auditorium, and thet in fairness to then (Peti- tioners), they too should be sccorded the seme privi« deve. | we ere not called upon to decide in this appeal whether the amusement tax exemption granted by the res- pondent to the Aavier Cugat Orchestra for the other per- foxmances is legsl or not. Pexheps those performances were held aad rendered under different circumstances which we are not in 4 position to state categorically for leck of proof in this regerd. All we are called upon to decide in this appeal is whether or not peti- tioners are liable for the payment of the deficiency * 130 DECIS loi « C.T.A, CASE NO, 55 i - l#o amusement tax of ©3,170.03 demanded from them by the respondent. And as pointed out above, petitioners are liable for said emount under the provision of section 262 ef the National internal Revenue Code, 46 anended by Republic Act No. 418, which imposes on the operators, proprietors and lessees ef night clubs an amisement tax of 10% on their gross receipts; « surcharge of 25% for lete payment and en additional surcharge of SOs for willfully submitting @ felee or fraudulent return. The cover charges in question, of which there hes been an underdeclaration of #18,114.50, form part of the gross receipts of petitioners realized from the Xavier Cugat performances held and rendered at the Aiviera, IN VIEW OF THE FOREGOING, the decision of the respondent Collector of Internal Kevenue appealed from is affirmed and the petitioners Wong and Lee are hereby ordered to pay to the respondent the sum of #3,170.03 es deficiency amusement tax, inclusive of surcharges, with costs agsinst petitioners.