CTA Case No. 3940 (Decision)

-� RIPUBLIC Of THE PHILIPPIMIB COURT OF TAX APPEALS QUIZOM CITY SOCIETE INTERNATIONALE DE TELECOMMUNICATIONS AERONAUTIQUES (SITA), Petitioner, - versLts - C.T.A. CASE NO. 3940 THE COMMISSIONER OF INTERNAL REVENUE, Respondent. X- - - - - - - - - - - - X D E C I S I CJ N In this sLtit petitioner seeks the cancellation of deficiency fixed and percentage ta x assessments for the years 1959 to 1970, inclLtsive, in violation of Sections 178 and 182, 183 and 191, penalized Linder Sections 208 and 209, respectively, all of the Ta x Code. ,, It appears that petitioner is a branc h of the BelgiLtm- based So c iete Internationale de Tele c ommunications Aeronautiques (abbreviated as SITA) which is a cooperative society of airline companies formed for the stLtdy, creation, acqLlisi tion, Llti 1ization and operation of methods of commLlnications in any coLlntry; that the society also Linder takes anything of commercial, indLlstrial, or financial character which has a

- / " \ DECISION CTA CASE NO. 3940 - 2- bea~ing di~ectly o~ indi~ectly in whole o~ pa~t on the society's object (A~ticles 1, 2, and 3, Constitution of SITA); that the application of SITA fo~ a license to � engage in business in the Phi 1 ippines was app~oved on Febr- ua~y 19, 1959 and has been engaged in the following activities, viz.: 1. I t ope~ates and cont~ols a g~oup of facilities available fo~ the exclusive use of the cont~acting companies fo~ thei~ ai~ t~anspo~t needs; .,..,... It places at the disposal of the con t~ac ting companies all the facilities which constitute the networ-k that i t p~ovides and ope~ates; 3. Subject to the conditions in the Oper-ations ManLtal, i t unde~takes to use a l l necessa~y measu~es to secu~e the t~ansmission of the cont~acting company's message with utmost secr-ecy and ~apidity; 4. The cha~ge fo~ the t~ansmission of messages will be calculated on the basis of actual e:<penditu~es. The pa~ticipation of the company in these costs of t~ansmission will be p~opo~tional to the Ltse of the netwo~k acco~ding to the methods defined in the Finane ia 1 P~ocedu~es Manual; 5. The cont~acting companies ag~ee to pay monthly a par-t of SITA's administ~ative and management costs, such par-t being an equal division amongst all SITA membe~-companies of a p~e-dete~mined po~tion of the total monthly costs; and 4C J J

DECISION CTA CASE NO. 3940 - 3- 6. The debit and c~edit balances pr�esented by SITA tcJ the comp.;mies conce~ned a~e to be invoiced monthly by the c~editor companies to the debto~ companies. (Exhs. P and P-1) Having conside~ed the fo~egoing activities constitutive of sale of services~ ~espondent issued Assessment Notices Numbe~ed BT-73-0047 to BT-73-0058 and Demand Lette~ all dated Ma~ch 26, 1973 receipted by peti tione~ on May 18, 1973 fo~ the collection of deficiency fixed and contractor's pe~centage taxes fo~ the years 1959 to 1970 in the total amount of P497~495.65 plus P3,600.00 as comp~omise penalty fo~ late payment and willful neglect to file ~etu~ns o~ a total of P501,095.65 co~~esponding to the period from 1959 to 1970. In June 13~ 1973 lette~, petitione~ p~otested the assessment on the g~ound that it does not operate a business~ that i t does not sell se~vicesJ and that i t has no ta>:able "gr�oss ~eceipts" within the meaning of the Ta:�: Code. I t ~equested the cancellation and withd~awal of the said assessment fo~ lack of factual and legal basis. Under lette~ dated April 16, 1985, the respondent Commissione~ of Inte~nal Revenue

DECISION CTA CASE NO. 3940 - 4- rendered his final decision on the disputed assessments denying the protest which was received by petitioner on April 30, 1985. Petitioner has taken the instant recourse. The case presents a two-fold concern, whether ....._ or not (1) petitione~ is legally subject to a fixed and percentage (contractor's) and ( 2) respondent's right to enforce collection has been -) barred by prescription. The fi~~t, petitioner posits that its activity ( has a non - profit objective of ensuring the transmission of messages of all categories connected with the operation of the air-transport organization of its members; that its capital is purely of a symbolic nature and deposited with its bankers in Brussels and has never been used for any transaction nor paid any interest or dividend; that its shares are merely indicators of a member's use of the communication facilities; and that the telecommunications facilities used are merely rented from telegraphic and cable companies intended solely for the benefit of its member's transport operation; and that the billings are purely on the basis of costs and in the nature of advancements to be applied against member's share in maintaining the center and circuit costs.

DECISION CTA CASE NO. 3940 - 5- Respondent's unvarying assertion ascertained upon investigation is that petitioner is engaged in business in providing communications service to a particular sector of the public which is the airline industries, and they provide these to lATA members as well as non-IATA members. The services rendered by SITA to the airline companies amount to services rendered by an independent contractor. And, that its gross receipts consist of the aggregate participation of the member- airlines in the costs of transmitting message on the SITA Network in the Philippines as provided in Article 10 of its contract agreement with its members, as follows: "SITA will render to the company (member airlines) monthly statements for the company's share in all services received on the SITA Network." Petitioner's stance that it derives no profit from its activities does not in any way relieve it from liability for the herein fixed and percentage tax assessments. It having been already established that petitioner is actually engaged in business, it necessarily follows that it is subject both to the f i :�:ed and percentage ta:<es prescribed under Sections 182 and 191 (now Sections 161 and 170), respectively, of the Tax Code. It must be

DECISION CTA CASE NO. 3940 - 6- pointed out that the 3 % now 4% percentage tax is an e Hcise tax imposable on gross receipts and not on net receipts. In other words, regardles s whether a business entity earns profit or not, the same is always subject or liable to pay perc entage tax based on its gross r�e c ei pt s ." We reach the same conclusion as the respondent Commissioner that the assessed ta :�:es are legally due and rightly impose d. Mo r eover, we fa i 1 to find any expressed or necessarily implied provision or language that purports such a grant of exemption privilege to the petitioner. It is a c ardinal rule in ta xation that ta x exemptions from payment thereof are highly disfavored by law, and the party claiming exemption must justify his claim by a clear, positive or e:�:press grant of such privilege by law, and the party c la i ming exemption must justify his c laim by a clear, positive or express grant of such privilege of law. (Collector v. Hanila Jockey Club~ Phil. 670 .; Coaaissioner o"f Internal Revenue v. P.J. Kiener Co., Ltd., 65 S CRA 14 2 ). Petitioner urges in the ~~-�Q_r:L<;t issue that the respondent ' s right to enforce collection of the deficiency taxes has been barred by the statute of 47 2

DECISION CTA CASE NO. 3940 - 7- limitations. Thu s , f rom t!.�.Y.:.--.-~_�j_,.___..J_cr_?_~. ( assess men t and demand notices) to AI?L!..L_..J.Q.-~..--. -)._~.�~. (dec i'!!!ion denying the protest) a period of more than eleven (11) years had elapsed and well beyond the five years fh:ed for collection prescribed in Section 332(c) of the Tax Code, which reads: Where the assessment of any internal revenue tax has been made within the period of 1 imitation above-prescribed such tax may be collected by distraint or levy or by a proceeding in court, but only if begun (1) within five years after assessment of the tax, or ( 2) prior to the expiration of any period for co 11 ec tion agreed upon in writing by the Commissioner and the ta>:payer before the expiration of such five-year period. The period so agreed upon may be extended by subsequent agreements in writing made before the expiration of the period previously agreed uport. Petitioner ventilates, thus: "In the case at bar, respondent was never prohibited from making the a s sessment or beginning distraint or levy or proceeding in court, and for si xty days thereafter. Neither did petitioner ever asked for re-investigation. Nor can it be said that petitioner c:oul d not be located in the address which it gave respondent as appearing in its Philippine Office Income Tax Returns. And peti - tioner did not also make any written agreement w.i th the respondent e:-.tending the period of limitation. "Considering, therefore, res- pon9ent's failure to issue and serve a warrant of distraint or levy on petitioner or to file or institute a proceeding in court for collection of the fixed and percentage taxes under the disputed assessments, within five (5)

DECISION CTA CASE NO. 3940 - 8- years from May 18, 1973 when letters of demands (E ..,�h:.::. N. 1'1 - 1 and ,.,- 2.J and the assessment notices (Exh:.::. N, N- 1 to N- 11.J were received by petitioner, respondent's right to collect, assuming arguendo that petitioner is legally subject to fixed and percentage ta>:es, is barred by the statute of 1imitations. I j ~ Finally, i t must be emphasized the 5- year period mentioned in Section 332, subparagraph (c) is �.\.l;;t?..QJ_!:-.tt.g_. Witness the Supreme Court - "We note the narrowly- confined restriction of time within which a proceeding in court may be brought: 'but only if begun (1) within five years after the assessment of the t a>~ � ' l .m.P..Ml .!-~-~-t_____!!l.___t_h~---���~.Q_L.�1 s t:!.~tt..._._qn!.Y_.___,_:t..�~�--�--��-t..tJ..9..J. ,. ____.J,:HJ..t!?..a?.. Q!;,.b~_r.:.!1J._~~-�--�---~-L.LtJ.lQ.L.i:..?._g_g_____,__.__..RY- . . ?..!.~ .t..'=~.t!?:?. ,. _. _.t .h.!i.?.__~::.Y_~_.;,. r:.___Q!i.?..!:..!..P9.__.._,t.,.?.. ~.R.?.9J. ~tt_~_ . (Cor df!r o v. Con da .� - 18 SCRA 331; Underscoring supplied)" We find nothing ambiguoLIS nor obscure in the language of Section 332(c), ibid., insofar as the same is brought to bear upon the circumstances obtaining in the case at bar. The records show that at no time did petitioner by positive act induce the respondent to suspend the collection of the tax assessed against it. It merely disputed or questioned the legality of the assessment by giving reasons why it should not pay the said deficiency taxes. Thus in a case where the taxpayer contended 474

DECISION CTA CASE NO. 3940 - 9- that the tax sought to be collected was not due and gave reasons therefor, it was held that he had a perfectly legitimate right to do so and the same did not suffice to estop him from invoking the statute of limitations. The on 1y agreement that can suspend the running of the prescriptive period for the collection of taxes is a written agreement between the taxpayer and the Collector of Internal Revenue~ e:�: tending the period of limit.ation prescribed by law. (Collector v. Pineda . 2 SCRA 402). This is what was also held in the analogous case of Coli ector o"f Internal Revenue v. Solano~ G.R. No. L-1147.5 .� ~7uly .31 .� 19.58. (Colon, Court of Tax Appeals Digest (1971), .5.56 - .5.57). Accordingly~ we find the defense of prescription as interposed by the petitioner neither a trivial pursuit nor a niggling barrier to the respondent's right to enforce collection of the tax assessed. WHEREFORE, the respondent" !5 dec i 5ion appea 1ed from is hereby set aside and cancelled. No pronouncement as to co5ts. SO ORDERED. Quezon City~ Metro Manila, October 31, 1989. ~~. -/A:~~teREJuYdE 47~

DECISION CTA CASE NO. 3940 - 10 -� WE CONCUR: "----. . ROAQUIN Judge CERTIFICATION I hereby certify that this decision was reached after due consultation among the members of the Court of Tax Appeals in accordance with Section 13~ Article VIII of the Constitution. ~~~~ AMANTE ILLER Presidi g Judge Court of Tax Appeals 47G '�