CTA Case No. 4149 (Decision)

RF.PIIIl L lC OF TfrE: PlllT.l PPTNES COURT OF TAX APPEALS Qll l~ZON G lTY SEA-LAND SERVICES, INC., C.T.A CASE NO. 4149 Petitioner, _PFroE11_111B1g_"2' 11_P1d9___:_...;95::.__~ - versus - --X COMMISSIONER OF INTERNAL REVENUE, RespnndPul:. X- - - - - DECISION This is a judicial claim for refund or� tAx Cl'f~dit of alleged ('l't�unennsly pnid iu('omP tax on petitioner's gross Philippine billings r o " j II I h �~ amount of P870,093.12. Petitioner is a corporation organized and existing under and by virtue of the laws of the United States and conducts its business here in the Philippines through its branch office located in Ennita Center Building, Hoxas Boulevard, Manila. It is engaged in the business of international sea t ran sport and i 1: i s in t h is capac i t y that i t en t ere d into a contract with the US government to transport household goods and effects of IJS military personnel to and from the military bases in the Philippines (Clark Airbase and . 380

DECISION - C.T.A Case No. 4149 - 2- Subic Naval Base). lt is mentioned in pPtitioner's letter claim for refund that the services cover movement of military household goods ir1 container vans belonging to military personnel assigned to these military bases from the South Harbor for loading to the vessels of Sea- Land for shipment abroad. For the calendar year J 981~, petitioner's reported gross Philippine billings derived from the services it rendered to the US government amounted to P58,006,207.54 and paid the amount oi P870,093.12 as income tax pursuant to Section 24(2)(i) of the 1984 Tax Code, in relation to article 9, J.(a) of the convention between the Government of the United States of America and the Government of the Philippines, computed as follows: Gross Philippine Billings P58,006,207.54 Multiply by. tax rate 1. 5% Total income paid p 870,093.12 lt is the contention of the petitioner that as an entity engaged in the business of international sea transport it is exempt irom the payment of income tax on its gross Philippine billings in accordance with a spe-cific provision included in the Military Bases agreement entered into between the United States and the Philippines. Working on this assumption, pPI.i I inner 381 i .J

DF.CISfON - C.T.A Case No. 4149 - 3- filed a claim for ref1111d \vith the BTR ()ll April 15, 1987 and on t he same d n y f i 10 d A p e t- i t i o 11 f n r r P v i e w '" i t h t h i s Cnttrt- ill an npparent ly frn11t i(� move to beat the two-yeAr prescriptive period provided hy Section 210 n[ the Tax Code for claiming a refund. Respondent in his 811 s lve r.�, adduced the following special and a[firmativf~ defenses, thus: 6. The services rendered by petitioner for taxable year 1984 were not "in connectio11 with the coustruction, maintenance, operation a11d defc>tJse" of the United States miliUuy bases in the Philippines HS provided for in paragraph 4, Article Xl[ of the RP-US t--lilitilry Bases Agreement; 7. Any amount of tax claimed to have been paid must be sho\vn 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 pertinPnt BlR regulations; 9. Courts do not look with favor on tax exemptions. Hence, he who seek to be thus privileged must justify it by words too plain to be mistaken and too categorical to be misinterpreted (Reagan vs. Commissioner of Internal H.evenue, L-26379, Dec. 27, 1969, 30 SCRA 968. The issue presented t:o Us for determination is whether or not income derived from services by petitioner i n t ran s p o r t i n g lT . S . ~~ i I i t: a r y p e r son n e 1 ' s h o 11 s e h o 1d goods 382

DECISION - C.T.A Case No. 411~9 and ef feels fa 11 1-Jithill the 1 :1 x e x e 111 p t i o n provided by article XII, Paragraph the RP-US Military Bases AgrePment. Petitioner anchors its claim on the aforementioned Article XII, Paragraph RP-US Hilitary Bases Agreement: (HBA for short) which pr�ovides as follows: 4. No nat-i!lnal of the United States, or corporation organized under the laws of the Un i t e d S t a t e s , l' e s i rl e n I i n t h e IT n i t e d S t a t e s , sha 11 be 1 i able to pay income tax in the Philippines in respect. of any profits derived under a contract made in t-he 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 1-'0rlz for the United StAtes in connection with the CllTISiruction, mnintenance, operation And def(-'tJSe of 1 hP bases. Petitioner is firm itt his belief that the nature of the it ill has mnt n I 1 requirements outlined in t: h e :ll n r e c i t e d p r o v i s i on o t t he MBA, to wit: a) Petitioner is a corporation organiz0.d under the laws of th~ n.s.; b) Petitioner ltas entered i11Lo a contrnct i11 the U.S. with th~ U.S. government; and c) Re v e u u (~ i s de r i v P d by p e t i t i o n e t' f rom tt�ansportatioll sPrvicPs provided In t-he U.S. government fot� mai.ntPnance, opE"'ratiutl and defense (>I the hnses. 383

- DECISION - C.T.A Case No. 4149 - 5- To support its claim for refund, petitioner offered as evidence its corporate quarterly income tax returns filed for the calendar year 1.984, the MSC containers Agreement and Rate Guide and the depositions of its two witnesses, Cmdr. Rodney M. Tllompson and Capt:. J.K. Fyfe who are both officers of the u.s. Navy. These two officers testified among other things that tile "lifting of US Military servicemen's household goods to their assigned posts in the Philippines was not only a matter of entitlement but we considered it an integral part of the maintenattce and operation of the facilities because without these conveniences and effects the morale of the sailors and their depe!ldents \vOU l rJ be ;;uJ v e r s e 1 y affected". ln ils m<~morandum, pet itio11er emphasizes that the transportation .of thP milit.ar:y personnel's household goods to be used by them in their assigned areas fall within t:he concept of "m n i n t� en an c e" and "operation" of the hnses. I t is the ide~1 p e t. i t ion e r t h a t I he "rna int~enancP" a ,C..', used in the MBA is synonymous with "sustenance", oe to sustain t.he military pen;nnnel by providing fot� their personAl HPeds such as food, clothing and shelter tvhen they are assigned in places away from home. It stretched out this argument f u t� the r by 384

DECISION - C.T.A Case No. 4l4q - 6- reasoniug t lw t t II e "supply ol gouds and services to militar�y personnel is inherent in the operation and the or defense tile bnsPs IH~cause lor obvious reasuns, m i 1 i t a r� y p e 1� son n e I c il n not function effectively without the said goods and servic'PS (p. 110, CTA reconls). Respondent did tlOt pr<>sent. nny con t� rover t i ng evidence and expressed his intention not to f i 1e memorandum as he finds that the memorandum he submitted in CTA Case No. L,202 \vi 11 suffice. The petition for review lacks merit. Itt a similar c<1se involving the same parties, this Court has already ruled that "the act of transporting household goods and effects of military personnel could hardly he considered as relating to the "maintenance" or "operation" of the l~:tses, :3nd much less w i l I it fa 1 1 under "cons t r u c t ion " o r� de fens e " of those bases. (Sea Land St>rvice Inc. vs Cnmmissio11er of Internal Revenue, CTA Case No. 4202, September 3, 1992). This ruling was later aftirmed by the Court of Appeals in a decision dated 0 c t n be 1� 1 8 , 1994; CA-G.R. SP No. 30131, when it declared that: "We agree with t-hp CTA that petitioner's act of transporting household good::; and personal effect-s nf the U.S. milit-ary personnel has 11othing t.o do with the "maintetHHlcP" or "operation" of Clark Air !Jase and Subic Naval 385

DECISION - C.T.A Case No. 414q - 7- Bas P nor i s i 1: n~ I nt e d i u any manner wi l h t he "construction" and "defense" of the bases. The main purpose of the tax exemption is to lower the cost of construction; maintenance uperat ion and defpnse ol 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 nbrciad contribute to the reduction of the costs of the construction, maintenance, . operation and defetlSC' of the hnsPs. Obviously, it does not. In fact, those items were removed from the bases and tr<lnsported outside the country because the mi I itary personnel to tvhom they belonged already completed their mission. Hence, there were no longer military personnel to be maintained or kept. Indeed, we cannot imagine how an isolated act of transporting those stuffs could in any \vny relntr to "maintenAnce or operat:ion" of the milit:aey bases." WUF.RF.FORF., f i 11 d i n g r l1 P instant petition for review without merit, thP snmp is IH~t�c>by dismissed ;Jnrl tlte claim for refund is hereby de11ied. SO ORIH:RED. f(~Q.~ ERNESTO D. ACOSTA Presiding .JndgP 386

DEGTSTON - C.T.A Case No. 4149 - 0- C! J�! .R ']' T F T c: AT I 0 N T h~rehy certify that this decision wns reached after dne cnosnlt:atioH among the members of the Court: of Tax Appeals in 8Ccordaitr�e I.Villl Section l'l Article VIT of the Constitution. <?~~. ~\Q,~ ERNESTO D. ACOSTA Presiding Judge Court of Tax Appeals 387 ��