CTA Case No. 48 (Decision)

R�PUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS MANILA MARCELO STEEL CORPORATION, Petitioner, - versus - C.T.A. CASE NO . 48 HON. J � ANTONIO A.RANETA, as Collector of Internal Revenue, Respondent. x- - - - - - - - - - - - - - - - - - -x DECISION On December 9, 1954, the petitioner herein, Marcelo Steel Corporation, filed a petition for review before this Court of the decision of the Collector of Internal Revenue , dated November 16, 1954 (Annex I, Stipulation of Facts} denying its request for exemption from the payne nt of the do- nee's gift tax on account of the donation of six (6) parcels of land received on April 24, 1951, from the Philippine Land Improvement Company , and oroering the petitioner to pay the donor's and donee's gift taxes in the amounts of ~375 .98 and P3 ,723.83 respectively, plus the additional 1% monthly in- terest from January 31, 1954, as per assessment notices dated January 7, 1954. � On December Z7, 1954, after this Court acquired juris- diction over the case, the petitioner filed a supplemental petition for review stating that subsequent to the filing of the original petition, it paid under protest the sum of !"4.,064.25 representing the donee 1s tax, including penalties, surcharges, and i~terests assessed and demanded by the res- pondent. In its supplemental petition, the petitioner claims for the refund of the amount in question.

DECISION - C.T . A. CASE NO . 48 -2- On March 11 19551 the parties through their respective cQunsel, submitted the following stipulation of facts: / "I That petitioner Marcelo Steel Corporation is a corporation existing and registered in ac- cordance with the laws of �the Philippines and the r espondent is the duly appointed and qualified Acting Collector of Internal Revenue; II That the petitioner was and is still en- gaged , among others, in the manufacture of nails for which petitioner was granted tax exemption under the provisions of Republic Act 35 as per communication of the Honorable Secretary of Fin- ance addressed to the Marcelo Steel Corporation, dated June 10, 1953, which communication for pur- poses -of identification, is attached hereto as an integral part and marked Annex A of this stipula- tion; III That on April 24, 19511 the Philippine Land Improvement Company donated to the petitioner six road lots described in the deed of donation, copy of which is hereby attached and made an in- tegral part hereof as Annex B; IV That the petitioner filed the correspond- ing donee's gift tax returns with the Bureau of Internal Revenue , a copy of which return is at- tached hereto and made an integral part hereof and marked Annex C; V That the Bureau of Internal Revenue served the order of payment, dated May 26, 19511 upon the petitioner or demanding the latter to pay among other amounts the sum of P696.15 as gift tax on the donation of the six road lots covered by An- nex B and which order of payment is made an in- tegral part hereof and attached hereto as Annex D; VI That the petitioner paid to the Bureau of Internal Revenue the sum of P696.15 as donee's gift tax on the donation covered by Annex B under do- nee's gift tax receipt No . 1256, dated May 26, 1951, which receipt is attached hereto and made an inte- gral part hereof and marked Annex E; VII That the Collector of Internal Revenue served notice upon petitioner, dated March 17, 19531 assessing donees' gift tax covering the deed of donation, Annex B, in the total sum of P3,769.20, plus interest minus the sum of P696.15 previously paid, which notice of assessmen~ is attached and made an integral part hereof and marked Annex F;

DIDlSION - C.T .A. CASE' NO. 413 - 3- VIII That the Collector of Internal Revenue again served notice upon petitioner, dated Feb- ruary 27, 1954, assessing donees gift tax covered by Annex B in the sum of 3,769.2JJ, plus interest and surcharge minus W>96.J..5 previously paid which gift tax and tax assessment of notice is attached hereto and made an integral part hereof and marked Annex G; IX That on January 28, 1954, counsel for petitioner claimed exemption from payment of gift tax in a communication addressed to the Collector of Internal Revenue, a copy of which communication is attached hereto and made integral part hereof and marked Annex H; X That on November 16, 1954, the Collector of Internal Revenue denied the petition for tax exemption under the provisions of Republic Acts Nos. 35 ard 901 in a communication received by counsel for petitioner on November 22, 1954, which letter is attached hereto and made an integral part hereof and marked Annex I; XI That counsel for petitioner upon instruc- tions from petitioner filed the corresponding pe- tition for review on December 9, 1954. However, subsequent to the filing of this petition for review, petitioner paid the donees gift tax pursuant to a notice on December 20, 1954, under Official Receipt No. 2034 in the sum of P4,064.34 which is attached hereto and made integraL part hereof and marked Annex J and which is the subject matter for refurd in the supplemental petition for review. ' XII That the payment made by petiti oner under lnnex E as well as the payments made by petitioner ~er Annex J correspond to the same gift tax co- vered by the deed of donation Annex B; XIII That the six road lots donated by the Philippine Land Improvement Company to the peti- tioner under the deed of donation, Annex B, are presently occupied by the factory of petitioner used in the manufacture of nails; that the petitioner started the construction of said factory for the manufacture of nails as early as 1950; XIV That on April 24, 1951, and for sometime prior thereto up to the present time, petitioner has been manufacturing nails in its plants and fac- tory occupying the six road lots donated to peti- tioner by the Philippine Land Improvement Company under Annex B;

DECISION - C. T.A. CASE NO. 48 -4- XV That the tax exemption of petitioner started from August 11, 1949 ani e:xpired on Aug- ust 11, 1953 under the provisions of Republic Act; No, � 35 but Republic Act No. 901 was ap- proved and the Marcelo Steel Corporation was and is exempted from payment of all taxes until now under Republic Act No. 901; an:i IVI That the six road lots described in the deed of donation marked Annex B had a fair market value of P24, 846 .00 as of the deed of donation on April 24, 1951, appearing on page 20 of the Bureau of Internal Revenue records . " / The petitioner, in its reply to the memorandum of the respondent , admits that it does not claim for exemption from the payment of the donor's gift tax, nor does it claim for the refund of the amount of P696.15 which was voluntarily paid on May 26, 1951 as donee's gift tax. However, peti- tioner questions the legality of the latest assessment of additional donee's gift tax made by the respondent in the amount of P4,064. 25, which it had paid under protest on Dec- ember 20, 1954. Therefore , the only issue in this case is whether or not the petitioner, Marcelo Steel Corporation, is exempt from the payment of the donee's gift tax in the amount of fik4,064 . 25 as assessed by the respondent on account of the donation of six (6) parcels of land which the petitioner received from the Philippine Land Improvement Company on April 24, 1951. The petitioner contends that its tax exemption as a new and necessary industry includes the donee's tax in question because under Republic Act No. 351 it is exempt from the pay- ment of �11 internal revenue taxes directly payable by it, and under Republic Act No . 901, its tax exemption inol\Xies all taxes directly payable by it in respect to the industry to which it is engaged. 7

DECISION- C.T .A. CASE NO . 48 - 5- On the other hand, the respondent maintains that the petitioner is "not exempt from the payment of the donee's gift tax in question, considering that the gift tax is not a tax levied directly upon the business .or income of the new industry to which the petitioner is devoted." (Decision of the Collector of Internal Revenue , dated November 16, 1954). The respondent argues that since gift taxes are excises upon _ the transfers of property by gift and not upon the property, which is the subject-matter of the gift , the exemptions granted by law to taxpayers engaged in new and necessary industries does not include the exemption from the payment of donor's and donee's gift taxes, as in the case at bar. The contention of the petitioner is in our opinion correct. It finds legal support in the provisions of Re- public Act Nos . 35 and 901, and the precedent established by this Court in the ease of Marble Corporation of the Phil- ippines vs. The Collector of Internal Revenue and the Sec- retary of Finance , B.T.A. Case No. 126, decided on Decem- ber 17, 1954. Section 1 of Republic Act No. 35 providesc "SECTION 1. Any person, partnership, com- pany, or corporation who or whioh shall engage in a new and necessary industry shall, for a period of four years from the date of the or- ganization of such industry, be entitled to exemption from the payment of all internAl re- ven~e tAxeS directly PAYable by such person, partnership, company, or corporation in res)ect to said industry." (Underscoring supplied. And Section 1 of Republic Act No . 901 states in part as fol- lowa: ttm;CTION 1. Any person, partnership, com- pany or corporation who or which, subsequent to the approval of this Act, shall engage in a new and necessary industry shall be entitled to ex:

DECISION - C.T.A. CASE NO. 48 - 6- emption until December thirty-one, nineteen hun- dred and fifty-eight frgm the p8Yffient of all taxes directly nuable by such person, partnership, com- pany or corporation in respect to said industty and to a diminishing exemption � � X X X X ~rovided, still furth.,r, Th~t those who or which were declared engaged in a new nprl necessary in- dustry under the provisions of Republic Act Num- bereg Thirty-five and still enjoying e;emption thereunder from all internal revenue taxes for a period of four years, shall automatically be en- titled to exemption under thi� Act, but in no case shall the total number of years of their exemption, both under Republic Act Numbered Thirty-five and this Act, be for more than ten years. x x x " (Underscoring supplied) ��(The above-cited provisions of Republic Act Nos. 35 and 901 are clear, plain and specific, and should be given an in- terpretation according to the ordinary and generally accepted meaning of its tenns. The test to determine whether a tax is payable by one engaged in a new and necessary industry is the following: Is the tax directly payable by the person, partner- ship, company or corporation engaged in the new and necessary industry in respect to said industry? If so, the tax is within the exemption. Otherwise, the person, partnership, company or corporation concerned is liable to pay the tax. It is obvious that the donee's gift tax which is the sub- ject of the present controversy, is payable directly by the pe- titioner herein in respect to the industry in whi ch it is en- gaged, and under the test of tax exemption mentioned above, the petitioner is not liable to pay the donee's gift tax on the do- nation received from the Philippine Land Improvement Company. ) Furthermore, petitio~er 1 s claim that the donee's tax in question is included within its tax exemption as a new and neces- sary industry appears to conform with the intention of Congress in enacting Republic Act Nos. 35 and 901. Congressman Jose Roy,

DECISION - C.T.A. CASE NO . 48 - 7- in his sponsorship speech of House Bill No � .3151 (Now Republic Act No . 901) stated in part as follows: "Mr . Speaker and Gentlemen of the House: The present bill under consideration seeks to provide for the exemption of new and necessary industries from the payment of all internal revenue taxes. It provides for their totAl exemption from the payment of 111 internal revenue taxes during a period of six years and for a diminishing exemption during a period of four years in a gradual scale. 0 It will be remembered, Mr. Speaker, that among the first Acts passed by the First Congress of the Republic was Republic Act No � .35. In said Act, the Congress has provided for the total ex- empti2Q from the payment of gll internal revenue taxes for a period of four years of new and neces- sary industries. The experience of the last six years, however, has shown that the objective or purpose of said law was not achieved; hence, the necessity of presenting the present bill, which has for its objectives, the following: First, to encourage the establishment of new and necesaary industries, and, secondly, to encourage the tapping of idle capital. x x x n (First Copy, Congres- sional Reco~ No . 47, House of Representatives, Second Congress, Fourth Regular Session, Monday , &pril 1.3, 195.3). (Underscoring supplied ) From the sponsorship speech of Congressman Roy and the deliberations on the floor of Congress of House Bill No � .3151, we find quite manifest the intention of Congress in enacting Republic Act I'fos � .35 and 901. The purpose is to be liberal and to lend as much encouragement to infant industries upon which the future economic stability of our new Republic has to depend to a large extent. Considering also the fact �that when House Bill No � .3151 was finally passed and enacted into law, the tax exemption was extended to include, not only all internal revenue taxes, but A,ll tms, there can be no doubt that the purpose of our legis- lature is to extend a very generous helping hand to new and necessary industries by releasing them from their obligation

DECISION - C.T.A. CASE NO. 48 -8- to pay any tax directly payable by them in respect to said / industries, including donee's gift taxes as in the instant case. Obviously, therefore, the tax exempting provisions of Republic Act Nos . 35 and 901 should be interpreted in order that its objectives will be attained, and not in such a way as to make our Government appear as a solicitous and liberal pater familia~ on the one hand, and a tight-fisted Shylock on the other. We note in the letter of the Secretary of Finance, dated April Z7, 19_51, that the tax exemption of the petitioner herein is limited to the following internal revenue taxes: 1. The fixed and privilege tax on business; 2. The percentage tax on the sales of manufactured products in r espect to which exemption is granted; 3. The compensating tax on the articles, goods or ~ materials exclusively used in the new -and necessary industry; 4. The documentary stamp tax; ani 5. The income tax with respect to the net income derived from the exempted in:lustry. Undoubtedly, un:ler this limited tax exemption granted to the petitioner, the donee's gift tax subject of the present appeal is not included. However, in the case of Marble Corp- oration of the Philippines vs. The Collector of Internal Re- venue and the Secretary of Finance, supra, we expressly and categorically defined the extent of tax exemption of new and necessary industries under Republic Act Nos . 35 and 901, and the authority conferred upon the Secretary of Finance by the said Republic Acts, in the following words: "VIe note that while under section 2 of Re- public Act No . 35, the Secretary of Finance is empowered to recommend to the President of the - /.J

DECISION - C.T. A. CASE NO. 48 - 9- Philippines the qualifications that the industries should possess in order to be entitled to the bene- fit of said Act, the law does not confe~ upon the Secretary of Finance the discretion to determine what taxes should b.e paid or should not be paid by the beneficiary of such grant . On the contrary, under section 1 of the said Act, once the appli- cant has established his right t9 exemption as a new and necessary industry, he is �ipso facto en- titled to exemption from the payment of all inter- nal revenue taxes� Again, under section l of Re- public Act No . 901, it is provided that 1any person, partnership, company or corpo~ation who or which, subsequent to the approval of)this Act, shall en- gage in a new and necessary industry, shall be .. entitled to exemption until. December thirty-one, nineteen hundred and fifty-eight .from payment of ~11 ta!�s directly payable by such person, partner- ship, company or corporation in respect to such in- dustry x x x 1 Republic let No. 901 seems to be more liberal still because it exempts new and ne- cessary industries from all taxes unlike Republic Act No. 35 which limits the exemption to internal revenue taxes . x x x We cannot find any provision, either in Republic Act No. 35 or Republic let No. 901, which e~ressly or impliedly confers upon the Secretary of Finance the power to determine what taxes the beneficiary of the grant should pay and � what taxes he need not pay. lVhat we do gather after reading carefully all the provisions of the two Republic Acts , is that once the applicant has established his right to exemption as a new and necessary industry, he is ipso facto entitled to exemption from ill taxes . To allow the Secretary of Finance to limit the taxes which new and neces- sary industries are entitled to exemption would be stretching the law too far. Such an interpreta- tion would be contrary to the spirit of the law in helping new and necessary industries to weather the financial troubles to which they may be exposed in the formative years at their extstence .� Lastly, the respondent argues that the only donations ex- empt from the donor's and donee's gift taxes are those enume- rated in section 112 (Exemption of Certain Gifts) of the Na- tional Internal Revenue Code , and inasmuch as the donation made by the Philippine Land Improvement Company to the peti- tioner herein does not fall under anyone of the categories enumerated in said section, the same is not exempt from the donor's and donee's gift taxes . , -;.

DECISION - C.T.A. CASE NO. 48 -10- This a~ument of the r espondent is in conflict with the fundamental and cardinal rule of statutory construction that in case of conflict between a special law and a gen- eral law, the special must prevail over the general. Ac- cordingly, Republic Act Nos. 35 and 901 which are special laws must govern in the case at bar, and not the National Internal Revenue Code (Commonwealth Act No. 466) which is a general law. WHEREFORE, i n view of the foregoing considerations, the petitioner herein, is hereby declared exempt from the payment of the donee's gift tax on the donation of six (6) parcels of land received by it from the Philippine Land Improvement Company, and the respondent Collector of In- ternal Revenue is hereby ordered to refund to the petitioner the sum of P4,064.25 representing the donee's gift tax which was assessed and collected by the respondent in violation of Republic Acts Nos. 35 and 901, without pronouncement as to coste. SO ORDERED. Manila, Philippines, May 16, 1955. I ooncurc ~M~ Presiding JUdge