CTA Case No. 951 (Decision)

Pf-HL ..U'l. LEON BALBAS, DONATO ABITONG C.T.A. and NEMESIO VALDEZ, - CASE NO. 951 Petitioners, - versus - MELECIO R. DOMINGO, Commissioner of Internal Revenue, Manila, Respondent. X~ - - - - - ~ - - - ~ - � - - X DECISION / This is a joint appeal from decisions of respon- dent requiring petitioners to pay contractor's fixed and percentage taxes, plus surcharge and compromise penalties. However, in view of the ruling in Col- lector vs. u.s.T., G.R. Nos. L-11274 and L-11280, Nov- ember 28, 1958, relative to compromise penalties, res- pondent, in the memorandum submitted in support of his stand, bas withdrawn his claim for the payment of said penalties. On August 10, 1956, petitioners Leon Balbas, Donato Abitong and Nemesio Valdez individually ex- ecuted contracts with the Canlubang SUgar Estate, a corporation duly organized under Philippine laws, in consequence or which they earned gross receipts. On the theory that petitioners are independent contractors, respondent assessed against and demanded from them the payment of the respective sums of ?5,722.95, ~,715.90 and ~,818.70, as fixed and percentage taxes, surcharge

DECISION - C.T.A. CASE NO. 951 - 2- and compromise penalties. Having failed to obtain from respondent a cancellation of the assessments, petitioners interposed the instant appeal. The resolution of this case hinges upon the question of whether petitioners are independent con- tractors. If in the affirmative, as contended by respondent, they are subject to the payment of fixed and percentage taxes in pursuance of Sections 182 and 191 of the Tax Code. Otherwise or if they are merely employees, as is urged upon us, they are not thusly liable. nWhether a person is an employee or an indepen- dent contractor is an ultimate fact to be determined from the evidence, and it may be called a conclusion of fact, since it is a conclusion to be drawn from the contract itself, the attitude of parties toward eaeh others, the nature of work and all relevant cir- cumstances." (Words and Phrases, Vol. 14-, p. 572, citing Review Board of Unemployment Compensation Divi- sion of Department of Treasury v. Mammoth Life & Acci- dent Ins. Co., 42 N.E. 2d 379, 382, III Ind. App. 660.) In this determination, "there are many" well-recognized and fairly typical indicia of the status of an inde- pendent contractor, even though the presence of one or more of such indicia in a case is not necessarily con- clusive." (27 Am. Jur., Sec. 5, p. 485.) However, the true test of the latter person "would seem to be that he renders the service in the course of an inde-

DECISION - C.T.A. CASE NO. 951 - 3 .- pendent occupation, representing the will of his em- ployer only as to the result of his work, and not as to the means by which it is accomplished. n (Luzon Stevedoring Co. v. Trinidad, ~3 Phil. 803, 807-808 citing In re Unger, 22 Okla., 755; State vs. McNally, ~5 La. Ann., 44, l.t-6; Ney vs. Dubuque, etc., Railroad Co., 20 ~owa, 347, 352j Lehigh, etc. Co. vs. Central Railroad Co. of New Jersey, 29 N.J. Equity, 252, 255; State vs. Emerson, 72 Me., ~55, ~56; Todd vs. Kentucky Union Ry. Co., 52 Fed. Rep., 2~1, 2~7 L18 L.R.A., 3057; Hale vs. Johnson, 80 Ill., 185.) With the above jurisprudential considerations in mind, we will now proceed to determine the status of petitioners. By the terms of the contracts entered into bet- ween petitioners and the Canluaang SUgar Estate, the former are obliged to recruit men, preferably natives of the Ilocos provinces, to harvest the cane of the Es- tate in accordance with a harvest schedule to be pro- vided by the latter which reserves the right to change the same at anytime. The fact that a person is em- powered to hire the persons who will assist him in the performance of the work affirms his independent status {20 A.L.R. PP� 77~775). This indication of indepen- dence is further bolstered by the provision of para- graph 6 of the contract that petitioners "will pay for his (their) own account all recruiting expenses, actual cost of transportation of recruits and their subsistence

DECISION - C.I .A. CASE NO. 951 94 - allowance while en route to Canlubang." It is un- usual for an employee or servant to defray like ex- penses incurred by persons he hired to assist him in the work . And the contractual limitation at bar to the effect that petitioners recruit preferably natives of specifically named provinces does not detract from the independence of the contract . Neither does the condition that the work be done in accordance with a harvest schedule. The second provision of the contracts relates to the payment by the istate of petitioners' services at rates fixed per ton and from which rates peti- tioners agree to pay their men . The circumstance that the remuneration of the person employed is com- puted with reference to the quantity of work per- formed by him indicates an independent contractor re- lationship (27 Am. Jur ., Sec . 13, p. 495) . The con- tractual requirement that petitioners pay their men from what they receive from the Estate as compensa- � tion does not alter this relationship, considering that, as affirmed in the last sentence of paragraph 3, all payments to petitioners' men are made by the peti- tioners or their duly authorized representatives . Paragraph 3 yields to petitioners the right of access to copies of cane weigher's reports from which they compile the payrolls of their men~ The payrolls are submitted to the Estatefur verification of the

DECISION - C.T.A. CASE NO. 951 - 5- total amounts appearing thereon. And all payments are made by the petitioners o~ thei~ dUly authorized representatives, with persons assigned by the Estate tow i tness the same. The preparation of the payrolls by petitioners and the added circumstance that pay- ments to the men are made by the former lend credit to the claim of independence. If petitioners were employees of the Estate, persons in the accounting or clerical department of the Estate would normally attend to these tasks. The presence of aen assigned by the Estate durlng the payments does not dlsprove the lndependence of petitioners beaause the former are there merely "to witness all payments which will be made by the contractor or his duly authorized repre- sentative. 11 Under the provisions of paragraphs ~ and 5, the Estate furnishes the tools, implements, track or other equipments for which petitioners are res ponsible. Any damage thereto due to lack of proper care and precau- tion shall be repaired or replaced at petitioners' ex- pense. Provisions relative to responsibility for tools and equipments are not ordinarily found in contracts of hiring and service. They have a tendency to prove independence status. And the fact that, in the case at bar, the tools, implements, track or other equip- ment are furnished by the Estate is not conclusive of dependency as other factors point otherwise.

DECISION - C.T . A. CASE NO. 9$1 - 6- Paragraph 7 regulates the daily tonnage of harvested cane that petitioners can deliver tot he main line. This is not indicative of petitioners' subserviency. It is a mere prudent precaution in the regulated use of the Estate's portable track. Paragraphs 8, 9 and 11 respectively provide for the cutting of cane in accordance with rules or instructions laid down by the Estate, violation of which empowers the Estate to employ laborers to do the cutting accordingly and for the account of peti- tioners, plus $~ penalty; the gathering of cane found on the ground and left unloaded within two days after cutting for~e accou.~t of petitioners, plus 5~fo; the responsibility of petitioners tot seeing to it that seed cutting shall not be more than one day ahead of the cutting of the cane; the nanloading by petitioners of rotten, diseased or decayed cane, and either deduction from the weight of loaded cane of the weight of rotten, diseased or decayed cane, or sorting out of the latter cane at petitioners expense; the pro- hibition of cane burning without written instructions of the Estate; and that petitioners shall abide by the rules, regulations, orders -or instructions furnished by the Estate for the proper harvesting of all cane. It has been held that a contract is none the less independent in its character merely because it contains stipulations to the effect that the work is to be done

DECISION - C.T.A. CASE NO. 951 ' - 7- with instructions from the employer or as the em- ployer may direct (27 Am . Jur., Sec. 9, p. 491). This is particularly true where, as in the present case , provisions for defraying by the contractGr of expenses or damages for violations of such rules, regulations or instructions are provided. Paragraph 10 encumbers petitioners with the obligation to furnish at their expense loading boards to be used in loading . This has a tendency to indi- cate that petitioners are independent contractors. Filially, petitioners are required to execute security for the performance of their undertaking under the contracts and for full payment of all ad- vances made to them (Paragraph 12). In this connec- tion, it has been observed that a contractual provi- sion obliging the person employed to provide protec- tion to the employer for losses or damages occasioned to the latter is specified among the material elements involved in the many cases where the former is held to be an independent contractor. The validity of the con- elusion relative to his being an independent contractor springs from the consideration that contractual provi- sions of similar tenor are absent from contracts of hiring and service (27 Am. Jur., Sec. 24, p. 503; 20 A.L.R. PP� 788-789). But, petitioners, with the view of contending for their subservience presented testimonial evidence showing the presence, in the fields, of plant ation or

DECISION - C.T.A. CASE NO. 951 - 8- field superintendents, hacienda overseers, foremen and other employees of the Estate who see to it that the work is done according to the rules, regulations or instructions. The circumst-ance that the work is to be done under the supervision of the employer's agent does not make a contract none the less ind pen- dent in its character (27 Am. Jur., Sec. /9, p. 491). Similarly, that medical treatment is provided to the cane cutters by the Estate's own physicians in the latter's hospitals, and that some cane cutters were giv~n compensation under the provisions of the Work- m' en's Compensation Act by theE state are not conclusive of the subserv~ent status of petitioners because the probative significance of these circumstances is not sufficient to change the status of petitioner s which is shown by the remainder of the evidence to be an in- dependent one. WHEREFORE, the decisions appealed from are hereby ' modified in the sense that petitioners are ordered to pay to respondent Commissioner of Internal Revenue or his authorized representative fixed and percentage taxes, including 25'% surcharges, in the following amounts'- Pedro Balbas - P5,522.95; Donato Abitong - ?4,515.90; and Nemesio Valdez - f6,618 . 70. Without costs. SO ORDERED. ~ ~ Maeila, February 9, 1962. MARIANO lVABIE Presiding Judge