DOJ Opinion No. 057, s. 1983

DOJ OPINION NO. 057 , s. 1983 April 5, 1983 The Commission on Audit Quezon City Sir : This refers to your request for opinion on the query posed by the Auditor of the National Computer Center (NCC) on whether or not the said Center may be required to shoulder the 3% contractor's tax imposed by the National Internal Revenue Code as stipulated in the contract of lease entered into by and between the National Computer Center and the IBM, Philippines for the use by the former of IBM machines owned by the latter. LLjur The query arose from the within request of the NCC Auditor for opinion where he noted that under the terms and conditions of the above-cited lease contract/agreement "it was impliedly agreed upon that the 3% contractor's tax shall be borne by the National Computer Center"; whereas "under Section 191 of the National Internal Revenue Code, the contractor's tax is suppose to be chargeable against the gross receipts due the contractor" (IBM, Philippines). She contends that "the aforesaid stipulation is contrary to law", and asks for opinion on whether or not the stipulation that the NCC shall shoulder the contractor's tax is enforceable. Upon the other hand, the Regional Director of the COA holds the view that "although the aforequoted stipulation may not be binding upon the agency entrusted with the collection of taxes," such stipulation is nevertheless "valid and binding between the contracting parties," thinking the provisions of Article 1159 of the New Civil Code which provides that "obligations arising from contractions have the force and effect of law between the contracting parties and should be complied with in good faith". He relies on the case of Gibbs vs. Collector of Internal Revenue (4 SCRA 1165 /1962/) wherein the Supreme Court ruled that while the law determines who shall pay any given tax and what shall be the basis thereof, the operation of which cannot be affected by the provisions of a contract to which the Government is not a party, this is without prejudice to the right of a party to an agreement to demand reimbursement from the other party, but such right of reimbursement is independent of, and foreign to, the right and duty of the Collector of Internal Revenue to collect taxes in the manner and under the conditions prescribed by law. Accordingly, the Regional Director opines that the contractor's tax assessed by the Bureau of Internal Revenue on the gross receipts of the IBM, Philippines arising from the lease agreement is due and collectible from the IBM, Philippines, but "this is without prejudice to the right of IBM to demand reimbursement of the amount it paid [to the BIR] from the National Computer Center", pursuant to its obligation arising from the lease agreement. We concur with the view expressed by the Regional Director. The lease agreement, it must be noted, was freely entered into by and between the contracting parties. It is not an uncommon practice among parties to any contract to stipulate, among others, that taxes arising from or by reason of the contract shall be shouldered by a party not legally liable therefor. While the law (the National Internal Revenue Code) determines the person against whom a particular tax may be assessed., there is no legal inhibition for a party to an agreement to assume the burden of the tax that may be assessed against the other contracting party by reason of the agreement. It is axiomatic that the parties to a contract may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public policy and public order (See Art. 1306, N.C.C.). A contract is the law between the contracting parties and where there is nothing in it which is contrary to law, morals, good customs, public policy or public order, the validity of the contracts must be sustained. (Consolidated Textile Mills, Inc. vs. Reparations Commission, 22 SCRA 674 [1968]; Lazo vs. Republic Surety and Insurance Co., Inc., 31 SCRA 329 [1970]). prcd The principle is also well settled that an existing law enters into and forms part of a valid contract without the need for the parties expressly making reference to its (Lakes ng Manggagawang Makabayan (LMM) vs. Abiera, 36 SCRA [1970]). In application of this rule in the instant case, the provision of the law which determines the person against whom a particular tax is due and collectible must be deemed to have been entered into as part, and in effect, forms part of the lease agreement. Accordingly, the government has the statutory right to assess and collect from IBM, Philippines, the tax due and collectible from the gross receipts arising from the lease agreement, but this is without prejudice to the contractual right of IBM, Philippines to demand reimbursement from the NCC for the tax that it has paid. Wherefore, we reiterate our concurrence with the views of the Regional Director of the COA hereinabove expressed. cdlex Please be guided accordingly. Very truly yours, (SGD.) RICARDO C. PUNO Minister of Justice