CTA Case No. 626 (Decision)

., ' (I Republic of the- Phil ippines COURT OF TAX APPEALS MANILA PHILIPPINE PACKING CORPORATION , Petiti oner, - versui - C. T. A. CASE NO . 626 COMMISSIONER OF INTERNAL REVENUE , Respondent. X- - - - - - - -X DECI S I 0 N The petitioner is seeking the refund of the , sum of ~127 �217. 13 , representing 50% of the specific( tax paid on oils used by it in the operation of its machinery and equipment located in its processing plant at Bugo , Misamis Oriental , durjng the period from June 18, 1952 to June 18, 1957. ... Petitioner has a pineapple plantation in Bukid- non . The pineapple fruits produced from its farm are processed and canned- in its processing plant at Bugo , Misamis Oriental , and the finished articles are sold as canned pineapple products. The processing of its pineapple proaucts is described as follows : "Pineapple fruits are harvested . from the plants . After they are washed , peeled ~nd sorted , then sliced , cubed , or crushed , the raw materials are placed in cans . The residual air is removed and heavy syrup , made up from a mixture of juice and sugar , is added . The cans are closed. Heat is applied to steril- ize the contents , after which the cans are cooled rapidly. With respect to the canned ~ineapple juice , no sugar is added . ;Jjj)

DECISION - C. T. A. CASE NO . 626 -2- Unless preserved in tin cans , fresh pine- apple fruits are very perishable and will not keep longer than two days.� (Phil. Packing Corp . v. Cell . of Int . Rev., G. R. No . L-9040, Dec. 26 , 1956.) In the processing of its pineapple products from June 18 , 1952 to June 18, 1957 , petitioner con - sumed oils on which the sum of ~254 , 434. 26 was paid as specific tax under Section 142 of the National In- ternal Revenue Code , as amended. This section of the Revenue Code was amended by Republic Act No. 755, ef - fective on June 18 , 1952 , which provides: "Whenever any of the oils mentioned above are , during the five years from June eighteen , nineteen hundred and fifty- two , used in agriculture , fifty Re~ ~ tum of the specific ta~ paid thereon shall be refunded by the Collector of In- ternal Revenue x x x. " Contending that it is entitled to the refund of 50% of the specific tax on the oils consumed by it from June 18, 1952 to June 18 , 1957 , as provided in Section 142 of the Revenue Code , as amended by Repub - lic Act No , 755, petitioner filed with the Bureau of Internal Revenue a written claim . for refund of 50% of the aforesaid sum of ~254 , 434.26. The claim for refund was denied , hence this appeal. The claim for refund of petitioner was denied by respondent on the following grounds: �x x x the aforesaid protest can- not be given due course for the reason that the packing , preserving and refining of pineapples grown by the said corpora - tion is not comprehended in the term ' agricultural use ' within the purview of the section 142 of the Tax Code~ ( II ~

DECISION - C.T.A. CASE NO_ 626 - 3- ttThe term ' agriculture' is construed as the 'act or science of cultivating the ground , especially in fields or large quantities , including the preservation of the soil , planting of seeds , the rais- ing and harvesting of crops , and the rearing , feeding and management of live- stock. ' {Snyt~v. Phoenix , 123 P. Ed. 1010 , 1012 , 63 Idaho 585 "It will be noted from the above definition that the word 'agriculture' embraces two departments of labor , namely: (a) the preservation of soil , planting of seeds , raising and harvesting of crops; in gen- eral the cultivation of plant; (b). the rearing , feeding and management of livestock. "The first category is what is cor- rectly denoted as arming' which is a branch of agriculture . ccordingly , in- as -much as the raising and harvesting of pineapples of your client falls under the branch of 'farming', an examination of the extent ~nd scope of the term is made in order to determine whether or not the term ' agriculture ' in the parti- cular department of ' farming ' comprehends the packing, refining and preserving of pineapples. '1The term '-farming ' denotes the operation , mane'\gement , conservation , improvement , or maintenance of the farm or tools or equipments including ~ ling 1 drying , packing , grading or stor- ing any agricultural or horticultural commodit in its unmanufactured state. Federal Tax Service, 36 , 808 , 38, 641- 645) (undersc f ing ours) Consequently, in-as-much as the packing , refining and preserving pineapples by your client t the Philippine Packing Corporation , in- volves manufacturing process , the proviso of Section 142 of the Tax Code does not apply in your clients case and , there- fore , � cannot be used as an authority in the claim for refund . � (Exh. 1 , pp. 183-184, BIR records .) The sole issue presented for our consideration .�

'� DECISION - C. I . A. CASE NO . 626 -4 - is whether or not the oils in question used by pet~ tioner in the operation of its machiner� and equip - ment at Bugo , Misamis Oriental , were �used in agricul - ture~ within the meaning of Section 142 of the Rev - enue Code , as amended by Republic ct No . 755 , so as to entitle petitioner to the refund of 50% of the specific tax paid on said oils . In Philippine Packing Corporation v. Collector of Internal Revenue , G. R.. No . L- 9040 , December 26 , 1956 (motion for reconsideration denied on January 22 , 1957) , it was held that the canned pineapple prod - ucts produced by petitioner in its Bugo plant are agricultural products , although not in their original state. Said the Supreme Court : "The state has not shown that the canned products of appellant corpora - tion have acquired , as a consequence of the processing to which they are subjected , any_use to which the ori - ginal fruit was not suited , or could not be devoted 9 I t is practically admitted (and the Court may well take judici al cognizance thereof) that the nature , qualiti es and texture of the products are in no way altered , and it di tinctly remains an agri cultural Q!Oduct . Certainly the canned pine - apples as compared to the original fruit have undergone less change than that found in the case of centri- fugal sugar obtained from the sugar cane or of abaca fiber when compared with the raw plant stalks . And yet the state admits that the sugar from the can~ is exempt from the _ tax under sec. 188(b) of the Internal Revenue Code . � (Unders coring ours . ) I f canned pineapple products produced by peti - tioner in its Bugo plant are agri cultural products , it - 116

DECISION - \ C.I . A. CASE NO . 626 -5- follows that the oils used in the operation of its machinery and equipment in said plant for the produc- t i on of such agricultural products were ~~ed in agri - culture within the meaning of Section 142 of the Revenue Code , as amended . Such being the case , peti - refund of 50% of the spe ci - . fie on said oils . decision appealed from is reversed , and / respondent is ordered to refund to petitioner the sum of ~127 , 217 . 13 , withou~ pronoucement as to costs. Manila , November 29 , 1961. WE CONCUR: -~ Presiding Judge ' I I I?