Tax Assessment against the Philippine Electrical Supply Co., Inc.

December 13, 1960 BIR RULING NO. 530-60 6th Indorsement Returned to the Revenue Operations Executive (Assessment), Manila, the attached papers bearing on the proposed assessment of the sum of P27,136.74 against the PHILIPPINE ELECTRICAL SUPPLY CO., INC., 768-770 Juan Luna, Manila, with the following information: It appears that the taxpayer had a contract for electrical installation services on MDAP construction projects with the Armed Forces of the Philippines in 1951-55. Out of said contract of services, the taxpayer realized gross receipts in the sum of P715,597.52, the 3% contractor's tax on the said amount was not paid. (pp. 23 to 26, BIR rec.) The issue, therefore, is whether or not the gross receipts derived by the Phil. Electrical Supply Co., Inc., from the AFP, for services rendered on MDAP construction projects, are subject to the 3% contractor's tax under Section 191 of the Tax Code. Attention is invited to the letter of the Secretary of Finance, dated January 26, 1953, to the Chief of Staff, Armed Forces of the Philippines, Quezon City, the pertinent portions of which are hereunder quoted as follows: "This is with reference to the letter of January 14, 1953 of the Vice Chief of Staff and the First Indorsement thereon of the Honorable, the Undersecretary National Defense, relative to tax exemptions to be accorded in respect to construction projects of the Armed Forces of the Philippines financed out of United States Government funds under an agreement between the Government of the Philippines and of the United States concerning military assistance. We have just received a communication from the Department of Foreign Affairs on the matter inviting attention to the fact that under the exchange notes between the two Government, "no tax of any kind or description" is to "be levied on any materials, equipment or supplies which may be purchased or otherwise acquired in connection with the terms of this agreement, by any contractor engaged in work on an approved project as referred to therein, which materials, equipment or supplies are required solely for such projects." "In view of the said agreement and in attention to your above-mentioned letter of January 14, 1953, I am outlining below the procedures to be followed in order to avail of the tax exemptions referred to above." xxx xxx xxx "It is understood that the contractors concerned will be subject to the contractor's tax prescribed under Section 191 of the National Internal Revenue Code, as amended . . ." (Emphasis supplied) Our records show that the underscored portion of the said communication was never revoked or amended by the Secretary of Finance. In view of the foregoing reason, the issue, as abovestated, is hereby answered in the affirmative. cdtech MELECIO R. DOMINGO Commissioner of Internal Revenue