Anscor Insurance Brokers, Inc. v. Commissioner of Internal Revenue

FIRST DIVISION [CA-SP Nos. 15559-60. May 15, 1989.] ANSCOR INSURANCE BROKERS, INC. , petitioner , vs . THE COMMISSIONER OF INTERNAL REVENUE and THE COURT OF TAX APPEALS , respondents . Gadioma Law Office for petitioner. Solicitor General Francisco I. Chaves, Assistant Solicitor General Ramon S. Desuado, Solicitors Felixberto de la Cruz and Erlinda B. Masakayan and Special Attorney Zenaida A. Abad for respondents. SYLLABUS 1. TAXATION; WORDS AND PHRASES; THE TERM "INDEPENDENT CONTRACTOR" ENCOMPASSES PERSONS ESSENTIALLY ENGAGED IN THE SALE OF ALL KINDS OF SERVICES FOR A FEE, AND ARE THEREFORE SUBJECT TO 3% CONTRACTOR'S TAX. It is apparent from Section 205 (16) of the Tax Code that the term "independent contractor" includes persons not enumerated whose activity consists essentially of the sale of all kinds of services for a fee , and, as such, are subject to the three (3) per cent contractor's tax. As against the broad sweep of the law embracing within its fold all kinds of services for a fee, the law further specifies those that are exempt therefrom. Since petitioner is engaged in the sale of insurance for a fee and does not fall under any of the exceptions expressly mentioned by the law, it is thus subject to the 3% contractor's fee. 2. ID.; ID.; DEFINITION OF THE TERM "INSURANCE BROKER" AS DISTINGUISHED FROM "INSURANCE AGENT". An insurance broker is one who acts as middleman between insured and insurance company, and who solicits insurance from the public under no employment from any special company and places order of insurance with company selected by insured or in the absence of any selection, with company selected by such broker. Broker is agent for insured though sometime for some purposes may be agent for insurer, and his acts and representations within the scope of the authority as such agent are binding on insured. An insurance agent is tied to his company whereas an insurance broker is an independent middleman not tied to a particular company (Black's Law Dictionary, Fifth Edition, cited in the case of Osborn vs. Ozlin Va. 310 Us 53, 60 Sct, 758, 761, 84 L. Ed. 1074) 3. ID.; ID.; CODAL DEFINITION OF "INDEPENDENT CONTRACTOR." The term independent contractors include persons (juridical or natural) not enumerated (but not including individual subject to the occupation tax under Section 182 (b) of the Tax Code) whose activities consist essentially of the sale of all kinds of services for a fee regardless of whether or not the performance of the service calls for the exercise or use of the physical or mental faculties of such contractors or their employees. 4. ID,; ID.; AN INSURANCE BROKER DOES NOT FALL WITHIN THE DEFINITION OF COMMERCIAL BROKER AND HE IS THEREFORE SUBJECT TO THE 3% CONTRACTOR'S TAX. It is clear that insurance brokers whose activity consists in the rendition of services for the assured are subject to the 3% contractor's tax imposed in Section 191 of the Tax Code (now Section 205) since the insurance broker does not fall within the definition of a commercial broker as defined in Section 194(t) also of the same Code. 5. ID.; DISTINCTION BETWEEN INSURANCE AGENTS WHO, ARE NATURAL PERSONS AND CORPORATIONS; NATURAL PERSON IS EXEMPT FROM THE CONTRACTOR'S TAX BUT SUBJECT TO THE OCCUPATION TAX. As regards insurance agents, if the insurance agent is a natural person, he is not subject to the 3% contractor's tax, but to the occupation tax of P75.00 pursuant to Section 12(a) of Presidential Decree No. 231 otherwise known as the Local Tax Code. If the insurance agent is a corporation, it is subject to the 3% contractor's tax prescribed under Section 191 of the Tax Code, and to the annual fixed tax of P50.00 prescribed by Section 182(a) (1) of the same Code. 6. ID.; P.D. No. 69 HAS BROADENED THE SCOPE OF THE TERM "INDEPENDENT CONTRACTOR." Until 1973 (before the PD 69 amendment) Section 191 (now Section 205) of the Tax Code, the term "independent contractor" was given restrictive denotation posing a niggling barrier to a broader connotation. Presidential Decree No. 69 amendment (effective January 1973) has broadened the scope of the term "independent contractor." Thus the present Section 205 differs from its predecessor (Section 191) primarily in the incorporation of the definition. Construed in its plain and ordinary meaning, it appears clear that the manifest presidential intent is to broaden the scope of the law to include other activities of the nature which is essentially sales of services and are heretofore enjoying exemption from tax in view of the deficiencies of the law. 7. STATUTORY CONSTRUCTION; DOCTRINE OF "EJUSDEM GENERIS" IS NOT ABSOLUTE AND MUST YIELD TO THE MANIFEST INTENT OF THE LEGISLATURE. The doctrine of ejusdem generis is a rule of construction adopted as an aid to ascertain and give effect to legislative intent when the intent is uncertain or ambiguous; it should not applied to defeat the purpose of the law. In other words, the doctrine is not of universal application. Its application must yield to the manifest intent of Congress (Cases cited). (Singh v . Commissioner of Internal Revenue, CTA Case No. 1167, July 30, 1965) 8. COURT; COURT OF TAX APPEALS; SUPREME COURT WILL NOT SET ASIDE CONCLUSION MADE BY THE COURT OF TAX APPEALS UNLESS THERE IS ABUSE IN THE EXERCISE OF AUTHORITY. In Luzon Stevedoring Corporation vs. Court of Tax Appeals, G.R. No. L-30232, July 20, 1988, the Supreme Court laid down the following guidelines in reviewing the decisions of the Court of Tax Appeals. "As a matter of principle, this Court will not set aside the conclusion reached by an agency such as the Court of Tax Appeals, which is, by the very nature of its function, dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise on the subject unless there has been an abuse or improvident exercise of authority (Reyes v . Commissioner of Internal Revenue, 24 SCRA 199 [1968]). APPEALS on certiorari from the judgment's of the Court of Tax Appeals. The facts are stated in the opinion of the Court. D E C I S I O N HERRERA , J p : These two (2) cases involve appeals on certiorari of the Decisions of the Court of Tax Appeals in C.T.A. Case No. 3602 and C.T.A. Case No. 3920 originally filed with the Supreme Court, which resolved to "refer these cases to the Court of Appeals which has concurrent jurisdiction over the subject matter of the petition." A review of the records discloses that these cases originated as claims for tax credits imposed on an "independent contractor" which petitioner contends was erroneously paid for tax years 1981 and 1982 (C.T.A. Case No. 3602) and for the period of April 1983 to February 1981 (C.T.A. Case No. 3920). We shall deal first with C.T.A. Case No. 3602, docketed in this Court as CA-G.R. SP No. 15559 since resolution thereof would automatically resolved C.T.A. Case No. 3920 (CA G.R. SP No. 15560), the questions involved in these two (2) cases being the same. Petitioner ANSCOR INSURANCE BROKERS, INC., is a domestic corporation organized and existing by virtue of the laws of the Philippines. It is duly licensed to perform such services as soliciting and procuring for a fee or commission, life or non-life contracts/policies. Petitioner acts as such insurance broker for insurance companies such as FGU, Phil-Am General Insurance, among others, thru individual insurance agents directly under its employ and which are duly licensed by the Insurance Commission. In the years of 1981 and 1982, petitioner derived commissions as income from the sale of insurance policies, and consequently paid the corresponding three (3%) per cent contractor's tax due on such fees or commissions. On March 14, 1983, or within two (2) years from payment, the petitioner filed a claim for credit in the amount of P1,823,936.12 representing independent contractors' tax which it claimed was erroneously paid. Failing to receive any action on its claim from the Commissioner of Internal Revenue, the matter was brought before the Court of Tax Appeals which after due hearing, dismissed the petition. Involved in the appeal is the application/interpretation of Section 205 of the National Internal Revenue Code, as amended, imposing a contractors' tax of 3% on the persons/ businesses/activities enumerated therein which include, among others, "other independent contractors" it being the petitioner's position that it is not covered by the said law. Petitioner poses for consideration the following: ISSUES "A. Whether or not petitioner's activity of selling insurance constitutes sale of service, hence taxable under Sec. 205, NIRC imposing a tax on independent contractors. "B. Whether or not petitioner, acting as agent of the insurance company in the sale of insurance, is an independent contractor. "C. Whether or not the canon of ejusdem generis is rendered inapplicable by the broad definition placed at the bottom of the enumeration in Sec. 205, NIRC." (p. 9, Rollo) Petitioner contends (1) that the selling of insurance does not constitute sale of services within the meaning of the law; (2) that the petitioner is not among those enumerated from Nos. 1 to 7 of Section 205 of the National Internal Revenue Code; (3) that under the principle of ejusdem generis which should have been applied in this case, the term "independent contractors" should be construed merely as to embrace only objects similar in nature to those enumerated in the law, which do not embrace petitioner's activity of selling insurance; (4) that P.D. 69, amending Section 205 of the National Internal Revenue Code, has not enlarged the meaning of the term "independent contractors"; (5) that in Stock Transfer, C.T.A. Case No. 2003, July 29, 1981, the old Court of Tax Appeals held: "When Congress added "other independent contractors at the end of the enumeration of the persons who are subject to the contractors' tax, the same should be construed to include only those which are engaged in business similar to those enumerated;" and (6) that ANSCOR is merely an agent authorized to sell insurance policies issued by its principal and as such cannot be "independent of its principal." We find the petition to be without merit. Section 205 (16) of the Tax Code, as amended, reads: "Sec. 205. Contractors proprietors or operators of dockyards and others . A contractor's tax of three per centum of the gross receipts is hereby imposed on the following: "(1) General engineering. . . xxx xxx xxx "e (17) Lessors of personal property. . . xxx xxx xxx "The term 'independent contractors' includes persons (juridical or natural) not enumerated above (but not including individuals subject to the occupation tax under Section 12 of the Local Tax Code) whose activity consists essentially of the sale of all kinds of services for a fee regardless of whether or not the performance of the service calls for the exercise or use of the physical or mental faculties of such contractors of their employees." xxx xxx xxx (p. 10, Rollo) It is apparent from a reading of the law that the term "independent contractor" includes persons not enumerated above whose activity consists essentially of the sale of all kinds of services for a fee , and, as such, are subject to the three (3%) per cent contractors' tax. As against the broad sweep of the law embracing within its fold all kinds of services for a fee, the law further specifies those that are exempt therefrom as follows: "a) Persons, associations and corporations under contract for embroidery and approved for export and gross receipt of or from pioneer industry registered with the Board of Investments under R.A. No. 5186; "b) Individuals subject to occupation tax under Section 182(b) of the Tax Code; or Section 12 of the Local Tax Code; and "c) Regional or area headquarters established in the Philippines by multinational corporations, including their alien executive, and which headquarters do not earn or derive income from the Philippines and which act as supervisory, communications and coordinating centers for their affiliate, subsidiaries or branches in the Asia-Pacific Region." Since petitioner is engaged in the sale of insurance for a fee and does not fall under any of the exceptions expressly mentioned by the law, it is thus subject to the 3% contractors' fee. Petitioner's submission that its activity of selling insurance is not the sale of a service for a fee and that it cannot be considered as an independent contractor as its transactions are no different from the sale of a commodity is not persuasive. As pointed out by the Solicitor General, an "insurance broker" is ". . . one engaged in soliciting, procuring, or placing for a consideration, insurance on lives, or on buildings or other property, either directly or through any other broker, or through any insurance agent, in or with any insurance company or association of which the one soliciting, procuring or placing the insurance in any case shall be the duly authorized agent. (Words Phrases Permanent Edition, p. 633; Banta vs. City of Chicago, 50 M.E. 233, 235, 172 111, 204, 40 L.R.A. 611; Neil v. Sinclair, 39 N.E. 124, 125, 153 111, 525). "Insurance broker one who acts as middleman between insured and insurance company, and who solicits insurance from the public under no employment from any special company and places order of insurance with company selected by insured or in the absence of any selection, with company selected by such broker. Broker is agent for insured though sometime for some purposes may be agent for insurer, and his acts and representations within the scope of his authority as such agent are binding on insured . An insurance agent is tied to his company whereas an i nsurance broker is an independent middleman not tied to a particular company (Black's Law Dictionary, Fifth Edition, cited in the case of Osborn vs . Ozlin Va. 319 US 53, 60 Sct. 758, 761, 84 L. Ed. 1074)." "More pursuant to BIR Ruling dated April 12, 1977, an 'insurance broker' is an 'independent contractor' subject to 3% contractor's tax. The ruling reads: 'April 12, 1977 'The Honorable Commissioner Office of the Insurance Commission PPL Building, United Nations Avenue Manila 'Sir" 'This refers to your letter dated March 8, 1977, requesting a ruling on behalf of Mr. Jose I. Puco, Manager, Insurance Department, smith, Bell & Company, Inc. whether insurance brokers, like insurance agents should also be subjected to the 3% contractor's tax, and not the 6% brokers tax. 'Your Office opined that both the insurance agents and the insurance brokers should be subject to the 3% contractor's tax inasmuch as they perform similar functions except that the insurance brokers represent the insured and the insurance agents represent the insurance company. 'In reply, I have the honor to inform you that the term "independent contractor" is now defined in the last paragraph of Section 191 as amended by Presidential Decree No. 69 as follows: ' The term independent contractors include persons (juridical or natural) not enumerated above (but not including individual subject to the occupation tax under Sections 182(b) of this Code) whose activities consists essentially of the sale of all kinds of services for a fee regardless of whether or not the performance of the service calls for the exercise or use of the physical or mental faculties of such contractors or their employees . (Emphasis ours). "It is clear from the foregoing that insurance brokers whose activity consists in the rendition of services for the assured are subject to the 3% contractor's tax imposed in Section 191 of the Tax Code (now Section 205) since the insurance broker does not fall within the definition of a commercial broker as defined in Section 194(t) also of the same Code which states: '(t) Commercial broker include all persons, other than importers, manufacturers, producers, or bona fide employees; who, for compensation or profit, sells or brings about sales or purchases of merchandise for other persons, or bring proposed buyers and sellers together, or negotiate freights or other business for owners of vessels, or other means of transportations, or for the shipper of consignors or consignee of freight carried by vessels or other means of transportation. The term includes commission merchants. "As regards insurance agents, if the insurance agent is a natural person, he is not subject to the 3% contractor's tax, but to the occupation tax of P75.00 pursuant to Section 12(a) of Presidential Decree No. 231 otherwise known as the Local Tax Code. "If the insurance agent is a corporation, it is subject to the 3% contractor's tax prescribed under Section 191 of the Tax Code, and to the annual fixed tax of P50.00 prescribed by Section 182(A) (1) of the same Code. "Very truly yours, "(SGD.) EFREN I. PLANA Acting Commissioner of Internal Revenue TAN P4519-F2828-A-B" (P. 78-81, Rollo) The insistence of petitioner in the application of the principle of ejusdem generis and the case of Stock Transfer Services, Inc. vs. Commissioner of Internal Revenue, C.T.A. No. 2003 July 29, 1971 to support its contention that the phrase "other independent contractors" encompasses only those which are engaged in business similar to those enumerated in Section 205 of the Tax Code, cannot be sustained. The contention has been ably met by the Tax Court in the following language: "Suffice it to state that until 1973 (before the PD 69 amendment) Section 191 (now Section 205) of the Tax Code the term 'independent contractor' was given restrictive denotation posing a niggling barrier to a broader connotation. As then ruled by this Court on July 29, 1971, 'other independent contractors' was construed as to include only those who are engaged in business similar to those enumerated (Stock Transfer Services, Case, supra ). Presidential Decree No. 69 amendment (effective January 31, 1973) has broadened the scope of the term. Thus the present Section 205 differs from its predecessor (Section 191) primarily in the incorporation of the definition, thus 'The term independent contractor includes persons (juridical or natural) not enumerated above (but not including individuals subject to the occupation tax under Section 12 of the Local Tax Code) whose activity consists essentially of the sale of all kinds of services for a fee regardless of whether or not the performance of the services calls for the exercise or use of the physical or mental faculties of such contractors or their employees. As added by Presidential Decree No. 69, January 1973. "Construed in its plain and ordinary meaning, it appears clear that the manifest presidential intent is to broaden the scope of the law to include other activities of the nature which is essentially sales of services and are heretofore enjoying exemption from tax in view of the deficiencies of the law. No facade of resounding legal rhetorics can obscure the fact that there is nothing ambiguous in the language of the provision insofar as the same is brought to bear upon the circumstances of the petitioner in the case at bar, which, as a licensed insurance broker 'performs services of soliciting, procuring and placing for a fee or commission life or non-life insurance, acting through insurance agents duly licensed by the Insurance Commission who are directly under its employ (Exh. "V", for petitioner). The nature and character of the undertaking/activity are more than sufficient to conclude that petitioner can readily slip into the warm cubbyhole of an 'independent contractor' so to speak." (pp. 83-85, Rollo) As to why the principle of ejusdem generis finds no application to the cases at bar, is well explained by the Tax Court, as follows: Moreover, this may not be a case where perforce we must attempt to apply the doctrine of ejusdem generis as would circumscribe the meaning of "independent contractor" only those class of business enumerated in Section 205 of the Tax Code. Petitioner would have the coverage of the term limited to those activities or services belonging to the same "genera" as those listed in Section 191 (now Se. 205) of the Tax Code. But the doctrine of ejusdem generis is a rule of construction adopted as an aid to ascertain and give effect to legislative intent when the intent is uncertain or ambiguous; it should not be applied to defeat the purpose of the law. In other words, the doctrine is not of universal application. Its application must yield to the manifest intent of Congress (Cases cited). (Singh v. Commissioner of Internal Revenue, CTA Case No. 1167, July 30, 1965). The language of the definition is much too clear making unnecessary any such application of an extrinsic statutory crutch. (Likewise the pellucidity of the intendment requires no further exegesis." (pp. 85-86, Rollo) With respect to the Stock Transfer Services case, the tax court likewise convincingly found that the doctrine is no longer applicable with the amendment of the tax code by P.D. 69: "Neither shall we attempt to belabor the authority relied upon by the petitioner more than to say that the animating principles enunciated in the cited Stock Transfer Service Case , could no longer portray the true meaning and intendment of the term "independent contractor" as defined in Section 205(16) of the Tax Code, as amended. The prevailing pronouncements in these case, then controlling, had been eviscerated by the Presidential Decree 69 amendment and are largely nostalgic illusions. We do not think that the amendment was intended to simply serve as a piece of idle sentimentally. "We conclude and this all that we need decide that the petitioner corporation who acts as a middleman between insured and company, and who solicits insurance from the public under no employment from any special company and places order of insurance with company selected by insured or in absence of any selection, with company selected by such broker (Pacific Fiere Ins. Co. v . Bowers, 163 VA. 349, 175 S.E. 763, Black's Law Dictionary, 4th Ed. 945), is precisely the kind of activity which the term independent contractor was designed to embrace. And, we shall be less than respecting the full and compelling import of the statute should we graft further exception into it. Petitioner cannot have the best of two worlds." (pp. 86-86, Rollo) We find no cogent or compelling reason to deviate from the aforequoted ruling of the tax court. In Luzon Stevedoring Corporation vs. Court of Tax Appeals, G.R. No. L-30230, July 29, 1988, the Supreme Court laid down the following guidelines in reviewing the decisions of the Court of Tax Appeals: "As a matter of principle, this Court will not set aside the conclusion reached by an agency such as the Court of Tax Appeals, which is, by the very nature of its function, dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise on the subject unless there has been an abuse or improvident exercise of authority (Reyes v . Commissioner of Internal Revenue, 24 SCRA 199 (1968), which is not present in the instant case." WHEREFORE, the petitions (CA-G.R. SP NOS. 15559 and 15560) are DISMISSED, and the Decisions of the Court of Tax Appeals in C.T.A. Case No. 3602 and C.T.A. 3920 are AFFIRMED. SO ORDERED. Lombos-De La Fuente and Santiago , JJ ., concur. Petitions dismissed and decisions of the Court of Tax Appeals in C.T.A. Cases Nos. 3602 and 3920 are affirmed .