CTA Case No. 2003 (Decision)

r .~..... 1\EPUBLJC OJ' TIE PBILIPPINEI COURT OF TAX APPEALI QU~N eiTY .' STOCK TRANSFER SERVICE, INC., CTA CASE NO. 2003 Petition~r, �versus COMNISSIONER OF I NTERNAL REVE~UE, Respondent. X- - - - - - - - - - ~ X l DE C I S I 0 N This is an appeal from the decision of re- spondent holding petitioner liable for the payment of the fixed and percentage taxes .as an indepen<.\ent contractor under �sections 182 and 191 of the National Internal Revenue Code. Petitioner is a corporation duly org�anized and existing under and by virtue of the laws of the Philippines with principal offices at the A. Soriano Building, Ayala Avenue, ~~kati, ' Rizal. Its principal activity is to act as transfer agent �of corporations managed by A. Soriano y Cia. On October 4, 1962, petitioner received an assessment dated August 15, 1962, signed by the Regional Director, North Manila, requiring it to pay the sum of , 2,185.63 representing percentage tax as independent contractor for 1957, inclusive of it20.00 as fixed tax (C-4L537) and 2516 surcharge, plus ' 900. 00 as compromise penalty, or a total of �3,085.63 � ..

I. DECISION - CTA CASE NO. 2003 2 ~ On May 27, 1966, peti~1oner received two assessments, both signed by the Regional Director, North Manila, requiring it to pay: (1) percentage ~ax as independent contractor f'or 1960 in the amount of ~2,129.48, inclusive of 25% st~charge and ~300.00 as compromise penalty, and (2) fixed tax of ~20.00, plus the compromise penalty of �10.00. Petitioner contested these assessments and without waiting for respondent's subordinates to act on it, elevated them to resp.ondent Commissioner of Internal Revenue for decision in a letter d~ted November 6, 196?. In a letter dated October 25, 1968, respondent rendered a decision rejecting petitioner's claim that it is not an independent contractor and reiterated the demands for payment of the various amounts contained in the questioned assessmentso On February 20, 1969, petitioner wrote respondent a letter requesting reconsideration of his decision and alleged tvto additional grounds to prove that it is not an independent contractor. On ~~rch 11, 1969, respondent denied petitioner's request for reconsideration and reiterated his demand con~ tained in -his letter dated October 25, 1968 .. Not satisfied with the denial of its request for re- consideration, petitioner, on April 23, 1969, in- -terposed the present appeal� �

DECISION - ��' ' CTA CASE NO. 2003 3 The principal issues presented for the Court's resolution are as follows: 1. vfuether or not petitioner is an ''independent contractor" within the purview of Section 191 of the Revenue Code, and therefore liable to pay fixed and percentage taxes and surcharges for _1957 and 1960; and 2. Whether or not the right of the Government to assess contractor's tax against petitioner -for the year 1960 has already prescribed. We will first consider the issue whether or not the right of the Government to make the assess- ment for the year 1960 has already prescribed. The assessment in �question refers to the percentage tax allegedly due from petitioner as an "independent contractorn for the year 1960 under Section 191 of the Revenue Code. Taxpayers liable for said tax are required to file returns and to pay the tax wi~hin 20 days after the end of each month1, pursuant to Section 183(a) � .No return vtas filed by petitioner obviously because it believes that it is not liable for said tax. However, its income as a transfer agent was re- ported for purposes of the income tax in its income tax return for said year. Section 331 of �the Revenue Code provides that internal revenue taxes may be assessed only 1Formerly, quarterly returns were .required.

DECISION CTA CASE NO. 2003 4 within five years from the date the return was filed , or if the return was filed before the last day for filing, within five years from. the date the return was due. If no return was filed, 4he assessment may be made within ten years from the date of the omission to file the return, pursuant � to Section 332 . In this case, no return was filed for purposes of the percentage tax in accordance with Section 183{a). The return for purposes o~ the statute of limitation upon assessment and collection of an internal revenue tax refers to the return required to be t'iled for the tax sought to be assessed or collected . An income t~x return is no substitute for a percentage tax return. (See Butuan Sawmill v . C. T.A., G.R . No. L-20601, Feb. 28, 1966.) Petitioner not having filed any r,eturn for the percentage tax under Section 191, in relation to Section 183(a) , of the Revenue Code, the right of the Government to assess the tax in question is governed by Section 332 which author- izes the Commissioner of Internal Revenue to make the assessm~nt within ten years from the date of discovery of the omissfon to file tne returns . Therefore, petitioner's -contention that the right to assess the percentage tax for 1960 has already prescribed because the assessment was made beyond five years from the date its income tax return

DECISION- CTA CASE NO. 2003 5 for that year was filed must be rejected as un- tenable. We will now proceed to discuss the merits of this case. , that is, _whether or not petitioner is an "independent contra.ctorn taxable under Sectio~ 191 of the Revenue Code. For a clearer appreciation of the law in- volved, we are reproducing below the pertinent ' portion ,of Section 191 of the Revenue Code, the basis of respondent's assessment: SEC. 191. Percentage tax on ,.toad , building , irrigation, artesian r~~1;o3tz~~~;!~t or~~ ~E~~~i;~:~ruct- or operators of dockYards , ind others. -Road', building , irrigation , artesian well, waterworks, and other construction work- contractors; filling contractors; , demolition and salvage work contrac- .tors; arrastre contra.ctors; persons .engaged in the installation of gas or electric light , heat , or power;' per- sons selling water , light , hea't , o.t' :power, except those paying a fran- . chise tax; proprietors or operators of dockyards , mine drilling apparatus , smelting plants , engraving plants, plating establishments, plastic lami- nation establishments, vulcanizing and recapping establishments; estab- ,lishments for washing and/or greasing of motor vehicles, battery charging , planing or surfacing and recutting of lumber; sawmills under contract to saw and/or cut logs belonging to others; drycleaning or dyeing establishments, steam laundries, laundries using wash- ing machines; photographic studios, telephone or -telegraph lines or ex- changes, broadcasting or wireless stations� funeral parlors; shops for the construction or repair of bicycles ( ~/?

; 'I � DECISION - CTA CASE NO. � 2003 6 . or vehicles of any ~ind, mechanical devices, instruments apparatus, or furniture 'of any kinA, .shoe repairing by machine or any mechanical contri- vance, and tailor shops� beauty par- lors, dressmakers, milliners, hatters, keepers of hotels, lodging houses, stevedores, warehousemeni plumbers, smiths; house or sign pa~nters; litho- graphers, publishers, except those engaged in the publication or printing and publication of any newspaper, magazine, review or bulletin which appears at regular intervals, with fixed prices for subscription and sale, and which is -not devoted principally to the publication of adver,tisements; printers and hbeorokibnidnedpeernsdebnut scinonetsrsac~ agents and ot tors, except persons, -associations and corporations under contract. for em- broidery and apparel for export as well as their agents and contractors, shall pay a tax equivalent to three ~ ~- ~ of their gross receipts. � The main thrust of respondent 1 s argument, in his bid to sustain the assessments in question, is found in his decision of October 25, 1968 where- in it is stated that the purpose of the la.w in providing for the taxability of "independent con- tractors" is "to include all persons whose activity consists essentially of the sale of all kinds of services for a fee � � � regardless as to whether 1 or not the performance of which calls for the exercise or use of the mental or physical or manual faculties of its employee or employees.'' Petitioner, on the other hand, assails as ~ unwarranted the unlimited construction laid by re- spondent on the term "independent contractor." It anchors its defense against the assessments on

DECISION - ~ CTA CASE NO. 2003 7 the "control test 11 theory and the rule of ejusdem generis in the interpretation and construction of the "independent contractor" as used in Sec- tio of the Revenue Code. J Section 191 of the Revenue Code enum' era.tes ti/' ne kinds of contractors who are subject to tax and adds ,to the list 11other independent contractors.'' The allega~ion of respondent that the addit~on of "other independent contractors" to the list is intended ttto include all persons whose activity consists essentially of the sale of all kinds of services for a fee � � � regardless as to �whether or not the performance of which cam��:for the ./ exercise or use of the mental or physical or manual faculties of its employee or employees" is unwarranted. It is a settled rule �of statutory construction that where general words follow the designation of particular things or classes of p~rsons or subjects, the general words are to be construed as including only the p~rsons or subjects of the same class or general nature as those spe- cifically enumeratedo This is a rule of statutory construction known as ejusdem gener:t�� (Dllada v. C.T~A., 99 Phil. 604, citing Crawford, The Con- J struction of Statutes, PP� 326-327 .) ~'hen Congress added u�other independent contractors" at the end o� the enumeration of the persons who are subject � to the contractors' tax, the same should be con- t t/ I

) DECISION - :, CTA CASE NO. 2003 ' 8 strued to include only those who are engaged in /1 businesses similar to those enumerated. The main business of petitioner is that of a transfer agent. Its functions as such transfer agent consist of registering transfers and is- suance of certificates of stock. The business of petitioner does not come under any of the classes of businesses enumerated in Section 191 of the Revenue Code., In fa.ct, we believe that the busi- ness of a transfer agent is totally alien to any 'Of the -businesses listed in said sectiono The business to which a tr~~sfer agent comes closest in the list is that of a business agent. But a business agent as defined in Section 194(v) of the Revenue Code ''includes all per sons who act as agents of others in the transa~tion of business with any public officer, as well as those who conduct collecting, advertising, employment, or private detective agencies." By no stretch of the imagination may a transfer agent be classed under the same category as a business agent. The argument that the addition of ttother in- dependent contracto.rsn to the list of businesses taxable under Section 191 was intended to tax any and all independent contractors is not justi- fied by the wor~ing of the l~w. It will be noted that the term ttother independent contractors'' was added to the lfst of taxable businesses un- der Section 191 of the Revenue Code by Section 11

DECISION - CTA CASE NO. 2003 r9 of Republic Act Noo 1612; which became eff ective on August 24, 1956. Said amendatory Act added \ the following businesses to those previously tax� able under Section 191 , along with "other in- dependent contractors": (1) demolition and sal- vage work contractors; (2) arrastre contractors; (3) persons selling water; (4) plastic lamination establishments; (5) vulcanizing and recapping establishments; (6) establishments for washing and/or greasing of motor vehicles; (7) battery chargi.ng; (8) planing or surfacing and recutting of lumber; (9) sawmills under contract to saw andj or cut logs belonging to others; (10) laundries using washing machines; (11) ~hoe repairing by machine or any mechanical contrivance; and ~~ business agents. If, as all eged, Congress in- .,/ tended to tax all inde pendent contractors irres- pective of the nature or kind of the business en- gaged in, there was absolutely no need for the addi- tion of the twelve businesses mentioned ~bove. That Congress saw fit to add particular kinds of busi- nesses to the taxable list along with "other in- dependent contractors" is an eloquent proof that it was i ntended to limit the application of the general words to businesses of the same kind and category as those enumerated . The taxability of one engaged in business as a 11 ~ontractor under Section 191 of the Revenue ""')

DECISION - CTA. CASE NO. 2003 10 had �its �origin in Section '+3, A<?t No. 2339, which became Section 1617 of Act No; 2657 , known as the Administrative Code and later Section 1462 of Act No�. 2711, the Revised Administrative Code of 1917 (see Luzon Stevedoring C~. v . Trinidad, 43 Phil . 803; Vols. 16-17, Phil . Anno. -Laws) . As early as 1922, the Supreme Court in the case of Luzon Stevedoring C'o. v . Trinidad, supra, had rejected the theory that all persons or corpora- tions who enter into a contract for sale of all kinds of services for a fee is a 11 contractor" sub-1 ject_to the percentage tax . Said the Supreme Court: The only question presented by the appellant upon the foregoing facts. is: Is the plaintiff a con- tractor? Generally speaking, every person who enters into a contract may be denominated a' contractor but evidently the Legislature dfd not mean to apply the wor.K: ncoi?-tr,ctor," as used in said section 1462, - to every person, partnership or corpora- tion. who entered into a contract; or, otherwise; it would not have been necessary to have mention_ed in the same section other classes -of busi- .ness, such a.s warehousemen, proprietors \ . of dockyards and persons selling light, heat, or power, as well as persons engaged in conducting telephone or telegr~ph line or exchanges, and pro- ptietors of steam laundries and of / shops for the construction and repair of bicycles or vehicles of any kind . and keepers of hotels and restaurants , etc. If the word ncontractoru in said section 1462 meant every person who entered into a contract, then it would _ have� included warehousemen, and the ohher classes of business mentioned in ~� � said section, for the reason that every transaction t>y the other persons .men- tioned in said section is by virtue of 1Now .Section 191, National Internal Revenue Code.

DECISION ;.. CTA CASE NO. 2003 11 an express o.r; implied contracts. The s~~e thing might 1bwe hseareidkweeiptherrsefoefrence to section 1463, \ garages, transportation contractors; persons who transport passengers or freight for hire, and common carriers, etc . 7 are also- subject to an internal revenue tax �./ If the Legislature had intended the word 11 contractor," as used in section 1462, to ' cover all persons who entered into a contract I then it would have been unnecessary to have mentioned the other persons re- ferred to in sections 1462 and 1463. Horeover, if the general and broad meaning is to be given to the word "contractorn as used in said section 14627 it would include bankers, mer- chantsi brokers? lawyers; farmers in the sa e of thelr products , and every person who enter into a contract of whatever nature or character. It would also include school teachers in the public and private schools as well as common laborers who work by the day under a contract. It would also apply to all persons loaning money upon �promissory notes, for the reason that their transaction is a contract and the pa,rties thereto, broadly speaking, are contractors . We may also add that if, as alleged, any p~r son performing service for another as an indepen- dent contractor is taxable, then a surgeon who perfoms a surgical operati.on, on a patient/ would be taxable. The same rule would apply to a den- tist who extracts decayed teeth from a patient�; or to a lawyer who prepares a deed of sale or any ) similar instrument for his client; or to a priest / or minister who celebrates mass for the dead. ~/ 1Now Section 192, National Internal Revenue Code. I

DECISI0N - CTA CASE NO. -2003 12 There can be no question that these persons may be regarded as independent contractors in the broad sense, and should be subject to the con- tractors� tax, if respondent is to be believed. That such a result is not in keeping with the legis- lative purpose is too apparent to require furthe~ ~ elucidation. ~ We are, therefore , of the opinion that a stock transfer agent is not an independent con- tractor within the meaning of Section 191 of the Revenue Code. WHEREFORE, t .he decision of respondent dated March 11, 1969, is hGreby reversedo \�lithout pro- houncement as to costs. SO ORDERED . Quezon City, July 29, 1971. ' WE CONC!1'R: ~ ~ L�A.OwRl�@.ALVtA.kR~Eft Associate Judge ~ 11--- 1 Jv__ � RAMON L. AVANCENA Associate Judge