Sea-Land Service, Inc. v. Commissioner of Internal Revenue

[CA-G.R. SP No. 30131. October 18, 1994.] (C.T.A. Case No. 4202) SEA-LAND SERVICE, INC. , petitioner , vs . THE COMMISSIONER OF INTERNAL REVENUE and THE COURT OF TAX APPEALS , respondents . D E C I S I O N SANDOVAL GUTIERREZ , J p : Petition for review of the decision dated September 3, 1992 of the Court of Tax Appeals in C.T.A. Case No. 4202, "Sea-Land Service, Inc. vs. Commissioner of Internal Revenue" and its Resolution dated January 28, 1993 denying petitioner's motion for reconsideration. Sea-Land Service, Inc. is a corporation organized under the laws of the United States licensed by the Securities and Exchange Commission to engage in business in the Philippines. In 1985 and 1986, pursuant to its contract with the U.S. Government, Sea-Land transported abroad the household goods and effects of the U.S. military personnel assigned to the Clark Air Base and Subic Naval Base. From these services, Sea-Land derived revenue of P61,906,550.33 for 1985 and P22,794,594.54 for 1986. During the same taxable years 1985 and 1986 Sea-Land filed with the Bureau of Internal Revenue (BIR) the corresponding corporate Income Tax Returns and Percentage Tax Returns reporting the gross Philippine billings (GPS) derived from these services in the said amounts of P61,906,550.33 and P22,794,594.54. Sea-Land claims that it erroneously paid the 1.5% income tax in the amount of P928,598.25 for taxable year 1985 and P341,918.91 for taxable year 1986. Likewise, it erroneously paid the 3% common carriers tax in the sum of P1,857,196.51 for taxable year 1985 and P683,837.32 for taxable year 1986. On November 20, 1987, Sea-Land filed with the BIR claim for refund of erroneously paid income and carriers taxes amounting to P3,811,551.49. On December 4, 1987, without waiting for the BIR resolution on its claim for refund and in order to stop the running of the two-year prescriptive period under Section 243 of the National Internal Revenue Code (NIRC), Sea-Land filed with the Court of Tax Appeals (CTA) a petition for review of his claim docketed as CTA Case No. 4202. The BIR filed its answer and thereafter, CTA conducted a hearing. Only Sea-Land presented evidence. The BIR filed a Memorandum. On September 3, 1992, CTA rendered a decision, the dispositive portion of which reads: "WHEREFORE, judgment is hereby rendered dismissing the herein petition, and this Court hereby denies petitioner's prayer for the refund or tax credit of income and carrier's taxes paid for the taxable years 1985 and 1986, with costs against petitioner. SO ORDERED." Sea-Land filed a motion for reconsideration of the decision but was denied. Hence, this instant petition raising the following issues: 1. Whether or not the revenues derived by petitioner Sea-Land from transporting the household goods and effects of the U.S. military personnel are exempt from income tax under the RP-US Military Bases Agreement; and 2. Whether the same revenue derived from the same source is exempt from common carriers tax under the same Agreement. Article XII (paragraph 4) of the RP-US Military Bases Agreement provides: "4. No national of the United States, 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 work for the United States in connection with the construction, maintenance, operation and defense of the bases ." Petitioner argue that the words "maintenance" and "operation should be liberally construed to include general maintenance of military personnel, thus embracing services rendered in transporting the military personnel's household goods and personal effects. We agree with the CTA that petitioner's act of transporting household goods and personal effects of the U.S. military personnel has nothing to do with the "maintenance" or "operation" of Clark Air Base and Subic Naval Base nor is it related in any manner with the "construction" and "defense" of the bases. The main purpose of the tax exemption is to lower the cost of construction, maintenance, operation and defense of the U.S. bases. Does the removal of the used household goods and personal effects of the U.S. military personnel from their bases and transporting them abroad contribute to the reduction of the costs of the construction, maintenance, operation and defense of the bases? Obviously, it does not. In fact, those items were removed from the bases and transported outside the country because the military personnel to whom they belonged already completed their mission. Hence, there were no longer military personnel to be maintained or kept. Indeed, We cannot imagine how an isolated act of transporting those stuffs could in any way relate to "maintenance or operation" of the military bases. With respect to the second issue, Article XVIII (paragraphs 1 and 2) of the RP-US Military Bases Agreement is pertinent, thus: "ARTICLE XVIII. SALES AND SERVICES WITHIN BASES 1. It is mutually agreed that the United States shall have the right to establish on bases; free of all licenses; 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. 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 and businesses for the purpose of this Article." Petitioner argues that its contract with the U.S. Government to transport the said items is a grant or concession given by the said government expressly covered by the above provisions. It cites Araneta vs. Manila Pencil Co. 1 holding that a private domestic company rendering trucking services under a concession granted by the U.S. Government is entitled to the carrier's tax exemption under Article XVIII of the RP-US Military Bases Agreement. Again, we sustain the conclusion of the CTA that the petitioner cannot be considered as a concessionaire exempt from carrier's tax. The "sales" and "services" within the bases refer to those rendered by "government agencies" including "concessions" for the use and benefit of the U.S. military forces and authorized civilian personnel and their families. In Araneta , the Supreme Court laid the requisites in order that exemption from transportation contractor's tax may apply, thus: "It may not be amiss to state at this juncture, that the provision exempting concessionaires in sales commissaries, post exchanges, messes and social clubs from taxes must necessarily apply with equal force and effect to any other concessionaire or grantee of a similar privilege from the U.S Authorities, provided the following factors are present: (1) that there is a grant or concession from the U.S Government; (2) that the said authorities are under no limitation to grant the same; (3) that the services dispensed or the goods offered are for the exclusive benefit of the U.S. military forces, authorized civilian personnel and their families; and (4) that such services are rendered only within the jurisdictional bounds of the bases . . ." Tested by the above rule, Sea-Land's theory must fail. Sea-Land was not extended a grant or concession by the U.S. Government. The services it offered were not for the exclusive benefit of the U.S. military forces, authorized civilian personnel and their families. And the services rendered were not within the jurisdictional bounds of the bases. Moreover, the rule is well established that exemptions from taxation are construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority. 2 WHEREFORE, the petition is DENIED DUE COURSE and is DISMISSED. The appealed decision of respondent Court of Tax Appeals in CTA Case No. 4202 is hereby AFFIRMED in toto . No costs. SO ORDERED. Herrera and Reyes, JJ ., concur. Footnotes 1. G.R. No. L-8182, June 29, 1957. 2. Prov. of Tarlac vs. Alcantara, 216 SCRA 790 (1992).