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

SIXTEENTH DIVISION [CA-G.R. SP No. 36796. October 26, 1995.] (C.T.A. Case No. 4149) SEA-LAND SERVICE, INC. , petitioner , vs. COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N JACINTO , J p : Petition for Review to set aside the decision of the Court of Tax Appeals (CTA) dated 21 February 1995 which denied petitioner's claim for refund or for issuance of a tax credit certificate for the income tax it paid based on its Gross Philippine Billings for the taxable year 1984. Sea-Land Service Incorporated (SEA-LAND), and American international shipping company licensed by the Securities and Exchange Commission to do business in the Philippines entered into a contract with the United States Government to transport military household goods and effects U.S. military personnel assigned to the Subic Naval Base. From the aforesaid contract, SEA-LAND derived an income for the taxable year 1984 amounting to P58,006,207.54. During the taxable year in question SEA-LAND filed with the Bureau of Internal Revenue (BIR) the corresponding corporate Income Tax Return (ITR) and paid the income tax due thereon of 1.5% as required in Section 25(a) (2) of the National Internal Revenue Code (NIRC)in relation to Article 9 of the RP-US Tax Treaty amounting to P870,093.12. Claiming that it paid the aforementioned income tax by mistake, a written claim for refund was filed with the BIR on 15 April 1987. However, before the said claim for refund could be acted upon by public respondent Commissioner of Internal Revenue, petitioner-appellant filed a petition for review with the CTA docketed as CTA Case NO. 4149, to judicially pursue its claim for refund and to stop the running of the two-year prescriptive period under the then Section 243 of the NIRC. On 21 February 1995. CTA rendered its decision denying SEA-LAND's claim for refund of the income tax it paid in 1984. Hence, this appeal by way of petition for review. Petitioner maintains that it is exempted from income tax on its revenue derived from the transportation of household goods and effects of US personnel assigned at Subic Naval Base pursuant to Article XII, paragraph 4 of the RP-US Military Bases Agreement which provides that: No national of the United States, of 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 in connection with the construction, maintenance, operation and defense of the bases, or any tax in the nature of service or work for the United States in connection with the construction, maintenance, operation and defense of the bases. Petitioner further argues that the act of transporting the household goods and effects of U.S. military personnel assigned at the Subic Naval Base should be construed as falling within the scope of the term maintenance," which should not be restricted to the concept of preservation and upkeep of the physical facilities of the base but should extend to the "supply of necessaries and conveniences, or the furnishing . . . of the means of living or food, shelter, clothing, etc."(Moore v. McKenzie, 92 A. 296, 297, 112 Mc. 356) to military personnel assigned thereat. According to petitioner, it is impossible for the U.S. Government to perform its duty under the RP-US Military Bases Agreement without stationing military personnel in the Bases and providing for their food, clothing and personal necessities. In its Comment to the petition, respondent Commissioner of Internal Revenue merely reiterated the special and affirmative defenses set forth in its answer filed with CTA, to wit: 6. The services rendered by petitioner for taxable year 1984 were not "in connection with the construction, maintenance, operation and defense" of the United States military bases in the Philippines as provided for in paragraph 4, Article XII of the RP-US Military Bases Agreement; 7. Any amount of tax claimed to have been paid must be shown to have been actually remitted to respondent's Bureau of Internal Revenue; 8. The amount of P870,093.12 sought to be refunded or tax credited to petitioner is presumed to have been paid in accordance with law and pertinent BIR regulations; 9. Courts do not look with favor on tax exemptions. Hence, he who seek to be this privileged must justify it by words to plain to be mistaken and too categorical to be misinterpreted (Reagan v. Commissioner of Internal Revenue, L-26379, Dec. 27, 1969, 30 SCRA 968). Finally, respondent Commissioner of Internal Revenue invokes the case of Sea-Land Service Incorporated, Petitioner, v. The Commissioner of Internal Revenue, et al., Respondent (CA-G.R. Sp NO. 30131, October 18, 1994), wherein this Court held: 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, operations and defense of the base? Obviously, it does not. In fact, those items were removed from the bases and transported outside the country because the military completed their mission. Hence, there were no longer military personnel to be maintained and kept. Indeed, We cannot imagine how an isolated act of transporting those stuff could in any way relate to "maintenance or operation" of the military bases. The similarity between the case at bench and the aforesaid case is quite obvious. The parties as well as the facts and issue are identical. The only difference is that while in the instant case petitioner is claiming for refund on income tax it paid for taxable year 1984, the aforesaid case pertained to income taxes paid for 1985 and 1986. In this connection, we find no compelling reason to depart from our previous ruling on the same issue, the validity and/or logic of which still holds. For indeed, it is quite strenuous to conceive that the transportation of household goods and effects of US military personnel assigned to the Subic Naval Base has something to do with the "construction, maintenance, operation and defense of the bases," which are the very activities explicitly mentioned in the pertinent provision of the MBA relied upon by petitioner. In fact, even if we concede that there exists some doubt in the way respondents have construed such provision in the MBA, such doubts must be resolved against petitioner. This is so because tax exemptions are not favored (Western Minolco Corp. v. Commissioner of Internal Revenue, 124 SCRA 121) and are then to be strictly interpreted against the taxpayer and in favor of the taxing authority (Commissioner of Internal Revenue v. Arnoldus Carpentry Shop. Inc., et al., 159 SCRA 199 City of Baguio v. Busuego, 100 SCRA 116). WHEREFORE, premises considered, the herein petition for review is DISMISSED and the assailed judgment of respondent CTA is hereby AFFIRMED in toto . SO ORDERED. Montoya and Agcaoili , JJ ., concur.