CTA Case No. 4202 (Decision)

-� .._. REPUBLIC UF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY SEA - LAND SERVICE, INC., Petitioner, � �, - versus - C.T.A. CASE NO. 4202 COMMISSIONER OF INTERNAL REVENUE, Respondent. X- - - -X D E C I I 0 N Petitioner filed the subject petit ion fo r review to toll the running of the two-year prescriptive period for the refund o r t ax credit of allegedly erroneously paid i ncome taxe s in the r a mount of ?1,270,517. 16 <?9 ~8,598. 25 + P341,918.91>; and carrier's taxes ~ amounting to ! P2,541,034.33 <P1,857,196.51 + ?683,837.82> in the total amount of P3,811,551.49, for the taxable years 1985 and 1986. The facts in the opinion of the Court, follow: Petitioner is a resident foreign corporation organized in Delaware, U.S. A., engaged in the business of international sea transport. It claims to have been contracted by the U.S. Government to transport military household goods and effects of U.S. military personnel in the US Military Bases in the Philippines <Clark Airbase and Subic Naval 616 ,�

DE C r ~..:; LLlfl - c �rh CA S E NU. 4202 -2- Bn sP ). The ser vices co ve r movement of tbe said h o u se h o ld goods and effects in container van s from the So uth Harbo r to load on the vessels of pe t iti oner for shipment abroad. In this connection, petitioner presented, a mong o ther things, "MSC Container Agreement and Ra t e Guide" <Container Agreement, for short~ Ex h i bit "QQ - 1" ) , as well as a "M e morandum of Agree me nt between Naval Supply Depo, Subic Bay, R. P . and Sea - Land Service, Inc. " <Memorandum of Agree ment, for short~ Exhibit "QQ"),in~ended to "impl e ment and further amplify" the Container Ag ree me nt, to support its allegations that the s ub jec t transactions were tax free. ���or the taxable years 1985 and 1986, petiti oner's gross Philippine billings from these services amounted to P61, 905, 550. 3 ::-:t and P22 , 1'94, 594. 54, respectively, for which it paid i n come taxes in the sums of P928, 598.25 for 1985, a nd P 3 41, 918.91 for 1986, at 1. 5Y. thereof, under .J Sec tion 24 (2) (i) of the National Internal Revenue Code <NIRC), in relation to Article 9, 1 (a) o:f the Conv ention between the Government of the United S t a t. e .s of America and the Government of the Re p u blic of the Philippines with respect to taxes 617

DEL:ISION - t:TA t:ASE NO. 4202 -3- on income. As carrier's taxes it paid 3X of said gross i->hilippine billings in the amounts of P1,857, 196. 51 for 1985, and P683,837.82 for 1986. In claiming exemption from income tax for those years, petitioner cites Article XII, Paragraph 4 of the R. P. -U.S. Military Bases Agr ee ment <MBA for short>, which reads: "4. No national of th e United S tates, 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 wo r k for the United States in connection with the cons true t ion, maintenance, operation and defense of the bases. " Petitioner alleges that it can avail of thr? said exemption clause because a> It is cor poration organized under the laws of the U.S. ; b) It entered into a contract in the U.S. with the U.S. government; and c) Revenue was derived by it "from transportation services provided to the U.S . Government for maintenance, operation, and defense of the bases." <See Petition, par. 6). Petitioner cites Article XIII , Nos. 1 and 2 of the MBA in claiming exemption from carrier's tax, 618

DECISION - CTA CASE NO. 4202 -4- which are hereunder quoted: "ARTICLE XV I I I. - SALES AND SERVICES WITHIN BASES "1. It . is mutually agreed that the United States shall have the !:"..i9h..t._.._t..Q. F?..~!:_<!.Q_.!__;i,_�.h__Q.!)___I;?_~�~_�,_ � r ee o � a 11 1 i c ens e s ; �ees; sales; excise or other taxes, or imposts; Government agencies, ~nc+.~gjng 9.Q.D_9..F?..�_�_;j,_q_n_t;!,_ such as sales commissaries and post exchanges, messes and social c 1 u b s, !.0 :r.... -.t.h.~.___g ..~gJ, .~.!?..! .Y...I;_' _...__ )d.�.�.:__._.Q.f._...........t..h.�?. 1J.n_.!.t ..~.Q..._. .........~t.l::l..t .4?..!?.... .----!!l..!..!.!..t ..~.!.:.Y.__..._......! . Q.L9...�'...!?......._ ......l::l..r.:!..9. '3..~_"t_Q..Q_:r_t_~_F?.Q__.~ :j,_y__;i,__!_:L<!..r::!...._...P_~.!:.�Q.~ ng..J._ .......l::l..!!.9__._t_l:.t~.i r f..l::l..J.!.l.!..!.!..F?..!?...~.----�--~I..h.g____.!!l.~.!:.9J:.t_~.D-Q.!..!?.~.......Q.!:._.....!?..F?...!:.Y..:i.��'..1?.. �.9...! ..9.__.9.:!.:....-..9. :i.:. e:J.P.!E_I_lJ'!.~.9...-.!>..Y....._.�.~P...h _._!:'I_9 .4?..J.:l.P._:ig..�_._�jlE..! ..! . P.~.. . . .__!.:r.::~.F?.--�---9...! . . ___~_J.,_L_. ._.t�l..~. F?..!?..'- duties and inspection by the Philippine authorities. Administrative measures shall be taken by the appropriate authorities o� the United States to prevent the resale of goods -� which are sold under the provisions o� this Article to persons not entitled to buy goode at such agencies, and, generally, to prevent abuse o� the privileges granted under this Article. There shall be cooperation between such authorities and the Philippines to this end. <Emphasis supplied. ) "2. Except as may be provided in any other agreements, no person shall habitually render any pro�essional services in a base except to or for the United States or to or �or the persons mentioned in the preceding paragraph. No business shall be established in a base, i t being unders toad that :th~__.�.QVE?_:r.!!.f.!.l.�_'!!i ?..9 .4?..!!.91._!?..�__~~ n t .J._Q.J.:!.�?d_____i_I}___._the_.__p_re..f:.�?.d :l!!R P-.!'!!:.�l..9 .:!.:.l::l..P..h.._._~j~l a.!J....._ _n_o t ___p..F?....__!'_~g_~ rg_~c!..-.-~..�. P..!!s i n e_I�!_�.~.!?_ __!..QL._.._:t t"lg__.__P. u :f...RQ_�_F?..__.__o :f.._.___t_h_;i. s A.!:.:!:.:.!.9_l�?..!... " [Emphasis supplied] The issues raised are: 1) Whether or not the income derived �rom services rendered by petitioner in transporting u.s. Military personnel's household goods and 619

DECI S ION - CTA CASE NO. �4202 -5- effec ts are exempt from income tax under Article XI I, Paragraph 4 of the R. P. - U.S. Military Bases Agr ee ment; and 2) Whether or not petitioner is a concessionaire, exempt from carrier's tax under the same provision, in relation to Article XVIII, Nos. 1 & 2 of the said Agreement. Only the respondent filed a memo r andum. In regard to the first issue, pet itioner's act of transporting household goods and effects of mili tar y personnel could hardly be considered al:~ relating to the "maintenance" or " operat i on" o:f the bases, and much less will it fall under "construction" or "defense" of those bases. "To 'maintain' means to preserve or keep in an existing state or condition, and embraces acts of repair and other acts to prevent a decline, lapse or cessation from that state or condition, and has been taken to be s ynonymous with'repair' ... " <Words and Phrases, Permanent Edition, Vol. 26, p. 103, citing Norris v. American Liability & Surety Co., 185 A. 201,203,322 Pa. '31. ) Further, "There is no substantial difference between 'maintenance' and 'maintaining' and operating" <!_Q.., J.__g_, !.�!., citing Roberts v. City of Los Angeles, 61 P. 2d. 323, 327, 7 Cal. 2d 477. > 620

DECISION - CTA CASE NU. 4202 -6- ..1 Thus, even granting that J. M. Ellier, as well as Jorge E. Rieber, were indeed authorized by the U.S. government to sign the Memorandum o� Agreement <Exhibit "QQ" ) , and the Container Agreement <Exhibit "QQ - 1"), respectively, petitioner cannot s till quali�y �or exemption �rom income tax under the MBA because the shi~ment o� the household goods and e�fects had nothing to do with the "maintenance" or "operation" o� Clark Air base and/or Subic Naval Base, and much less was it related in any manner to the "construction" and "de�e nse" o� those bases. Exempt i ons are also strictly construed against the taxpayer. In view hereof, it is no longer necessary to expound on the merits of the documentary exhibits presented by petitioner. Respecting the second issue, neither can the petitioner be considered as a concessionaire exempt �rom � carrier's tax �or the subject transport services. Article KVI I I, No. 1, o� the MBA, in regard to "Sales and Services Bases" (Emphasis supplied), speci�ically and clearly re�ers to "government agencies" established ~q_n Q_c.!�~l?.-~. in order to be "�ree o� all licenses; �ees; sales; excise or other taxes, or imposts ... " and these "government agencies" include "9.Q.D.9~..�.~_iO.!}..�., 621

DECI SI ON - CTA CASE NO. 4202 -7- such as sales c ommissaries a nd pos t e xchanges , messes and social c lub s , for t he ~~ 9--! .I:J.:.�.;l..~g. I:J.:J;:l e . o :f t h e United S tates military forces and autho r ized civi l i an personnel and their :families." <Emphasi s s uppl i ed). T he international s e a transport bus iness o� p etiti oner was not e stablishe d "on b a ses " a nd th e services it r e ndered were not ":for the exclusive u se o f the United States military :forces and aut h or i z ed civilian personnel and the ir :families," g ran ting that the services were� indeed made avai l a ble to them. strains the It, thus, i ma g ination of this Court to believe petit ioner's co n ten tion that its said services qualifies as a " conce ssion" under the MBA. As already st r essed, c la i ms for exemptions are to be construed strictly a g ai n s t the taxpayer. He nce, the claim o� exe mp t ion from carrier's tax will also have to be d e n ied. ~),__.__ <103 Phil. '712 ( 1958 l > reinfo r ces this view when i t held that "what is being exempted from th~ p a yme nt of such exactions is the establishment of th e a gency or concession designed for the ~~gl~siv~ use of the U.S. Military forces and authorized c i vil personnel and their :families". <Emphasis 622

DECISION - CTA CASE NO. 4202 -8 - supplied. ) It is also pertinent to point ,out that under Article XVIII, No. 2 of the MBA, cited by petitioner itself, "No business shall be established in a base, it being understood that the Government agencies mentioned in the preceding paragraph shall not be regarded as businesses :for the purpose of this Article. ln contrast, petitioner alleges in paragraph 3 o:f its petition that it is engaged in the business o:f "an international carrier in sea transport. " There being no legal or factual basis :for petitioner's claims for exemption :from income and carrier's taxes for the taxable years 1985 and 1986, the herein petition is hereby denied. WHEREFORE, judgment is hereby rendered dismissing the herein petition, and this Court hereby denies petitioner's prayer 1or the re1und or tax credit of income and carrier �s taxes paid 1or the taxable years 1985 and 1986, with costs against petitioner. SO ORDERED. Quezon City, Metro Manila, September 3, 1992. ST A 623

DECISION - CTA CASE NO. 4202 -9 - ;, i '� I CONCUR: ~~Q_~ ERNESTO D. ACOSTA Presiding Judge C E RT I F I C AT I 0 N I hereby certify that this decision was reached after due consultation between the members of t he Co urt of Tax Appeals in a ccordance wi tb Section 13, Article VIII of t he Constitution. .I Q~Q~~ ERNESl"O D. ACOSTA Presiding Judge Court o:f Tax Appeals 62 4