BIR Ruling

September 7, 1967 The Chief Pilot Cebu Pilots' Association Cebu City S i r : This refers to your letter dated February 7, 1967 requesting that the Cebu Pilots' Association, Inc. (hereinafter referred to as the Association) be exempt from the payment of income tax and the filing of the corresponding income tax return. It appears that the Association is a corporation duly registered with the Securities and Exchange Commission on June 23, 1959; that all its incorporators and present stockholders are duly appointed pilots of the Pilotage District of Cebu; that it owns a building which is used as an office and headquarters for the convenience of shipping companies in calling for a pilot whenever one is needed; that it also owns launches which the pilots use in meeting vessels; that the pilots are paid in the form of extra services and overtime fees in accordance with the By-Laws of the Association, and salaries and allowances to be determined by the Association's Board of Directors at the end of the fiscal year; that all of the said remunerations are declared by the members of the Association in their respective income tax returns; and that the existence of the Association, the appointment of pilots and the determination of pilotage fees are under the direct supervision and control of the Bureau of Customs. This Office previously ruled on the exemptions of the Davao Pilots' Association and the Tacloban Pilot's Association from the payment of income tax. In justifying said exemptions, this Office cited a U.S. case. "Mobile Bar Pilot's Association vs. Commissioner of Internal Revenue" (21 AFTR 562; 97 F. 2d 695, reversing 35 BTA 12) the facts of which are identical to your case, where it was ruled that: "Pilotage is the performance of personal services requiring the pilot to have the highest degree of skill as a seaman and is controlled by law. Under the law of Alabama, Ge. Acts 81 and 611 Reg. Sess. 1931, pp. 154, 756, before a man can be licensed as a pilot at the Port of Mobile he must have a license from the United States. See U.S.C.A., par. 124. He must have served at least three years at sea and one year as an apprentice pilot. He must pass an examination before the Alabama Commission to establish his fitness and be an American citizen of good character. He must take an oath to faithfully perform his duties, give bond in the sum of $2,000.00 to guarantee that he will do so, and pay an annual privilege tax of $50. He may be deprived of his license by either the Federal or state authorities for incompetency, negligence, or habitual drunkenness. Pilotage fees are fixed by the state board. A pilot cannot demand more nor accept less than these fees under penalty fixed by law. For one not licensed to act as a pilot is a punishable offense. LLphil "Pilot association have existed at all ports in civilized countries from time immemorial. It is not necessary for a man to be a member of an association to practice his profession but in the nature of things it would be impossible for him to operate alone. He must meet vessels beyond the bar in all kinds of weather and maintain boats of sufficient size and seaworthiness to permit him to do so. This would be impossible without an organization as the cost would be prohibitive to a single individual. "For the convenience of shipping it is necessary that headquarters of some kind be maintained at each port so that the pilot can be called when needed. It is necessary for the pilots to have someone to look after their business affairs such as collecting their fees as it would be impracticable for the pilot to do that personally. "Pilotage is personal service by an individual for which he has a maritime lien on the vessel. The Queen 9 Cir., 206 F. 148. A pilot is the servant of the owner of the vessel who is responsible to third persons for his negligence or want of skill. Sherlick v. Alling, 93 U.S. 99, 23 L. Ed. 819. But an association of which the pilot is a member similar to petitioner, is responsible for his acts. Guy v. Donald, 203 U.S. 399, 27 S. Ct. 63, 51 L. Ed. 245. It would be impossible for petitioner to engage in the business of piloting as an independent contractor. Petitioner does no business. It owns no property and has no income as an entity. Consequently it is not required to pay income taxes as an association . If by mistake it has filed an Income Tax Return, estoppel does not result therefrom and it is immaterial what deductions it attempts to take from the income reported . It follows that it was an error for the Board to hold that petitioner was engaged in the business of furnishing licensed pilots and is an association taxable as a corporation." In view thereof, and considering that the Cebu Pilots' Association, Inc. is governed by the same rules and regulations of the Bureau of Customs as the Davao Pilots' Association and the Tacloban Pilot's Association, this Office believes and so holds that the Cebu Pilots' Association, Inc. is exempt from the payment of income tax and the filing of the corresponding income tax return. cdt Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue