CTA Case No. 3442 (Decision)

fUti'(JBLIC 0 F ""HE tJIHLIPPt,..,.� ~OURT OF TAX .APPJ::.AL,S QlJEZON C.:J {J' ARROW FORWARDING CORPORATION, Petitioner, - versus - C.T.A. CASE NO. 3442 COMMISSIONER OF INTERNAL �� REVENUE, Respondent. X- - - - - - - - - - - - - X DE C I S I 0 N This is an appeal from the decision ot the respondent Commissioner ot Internal Revenue assess- ing against and demanding from petitioner deficiency percentage tax plus surcharge and interest for the year 1Y75 in the total amount of ~38,726.34. In April 1980, petitioner received from Deputy Commissioner of Internal Revenue Ruben Ancheta, a letter dated April 16, 1980 (Exh. K, p. 95, BIR xec.) assessing against and demanding from it the payment of the amount of ~3~,726.34 as deficiency percentage tax, inclusive of surcharge and interest, for 1975. Said a�ssessmen t dated Apr i 1 16, 198 0, is quoted here- under in full: \ 182

f DECISION - CTA CASE NO. 3442 - 2- April 16, 1980 Arrow Forwarding Corporation Benguet Bldg., Pasong Tamo Ext. Makati, Metro Manila t. Gentlemen: Please be informed that per investi- gation conducted by a revenue examiner of this Office for business tax purposes covering the year ~975, it was ascertained that you failed to pay the correct amount of percentage tax due on your gross receipts as forwarders pursuant to section l83(a) and 191, penalized und e r section 209, all of the Tax Code lnow sections ~93la), 205 and 221, respectively, Tax Code of 1977, as amended). There is, therefore, due from you the amount of ~38,726.34 as computed below, subject to adjustment ot interest up to the actual date of payment. Gross receipts ..�........�.. ~~~~~Z:!:~~~=QQ 3% tax due thereon ........��. ~ 58,114.62 Less: Amount paid (2%) ..�..... 38,765.00 Deficiency percentage tax ..... ~ 19,349.62 25% surcharge for late payment. 4,837.41 14% int. fr.l-21-76 to 5-16-80. 24,187.03 Total amount due .....�...... 14,539.31 It is requested that you pay the afore- said amount of ~38,726.34 to the Receivable Accounts Division, this Bureau, BIR National Office Building, Revenue Road, Diliman , this city, on or before May 16, 1980. Should you desire to settle extrajudicially the violation mentioned above, you may pay the amount of P3UO.UO as compromise penalty, like- wise to the same collecting Division and within the same period. Very truly yours, RUBEN B. ANCHETA \ Deputy Comm1ssioner 18 3

DECISION - 3- CTA CASE NO. 34 4 2 ,. Petitioner, thru 1ts President, protested the aforesaid assessment in a letter dated May 3, 1980 {Exh. L, p. 97, BIR rec.) and which was filed on ~. May 8, 1980. � On March 18, 198 2 , petitioner received the res- pendent's final decision , through its Deputy Commis- sioner Tomas Toledo, dated February 8, 1982 (Exh. M, p. 117, BIR rec . ) on the disputed assessment, denying the former ' s protest and holding that it is a forwarder subject to J% contractor ' s tax, which decisionf is herewith quoted hereinbelow: February 8, 1982 Arrow Forwarding Corporation Benguet Bldg., Pasong Tamo Extension Makati, Metro Manila At tn.: Mr. M. E. Gatera President Gent l eme n: Wi th reference to yo u r letter dated May 3, ~ 980 protesting our assessment issued against you for ~38,726. 3 4 repre- sent i ng deficiency percen tage tax on your gross receipts in 1975 as forwarders, including surcharge and interest, under Letter of Demand No. IT-80-0098, dated April 16, 1980, I regret to inform you tha t after a thorough and careful review of the facts of the case, and the law and jur i sprudence applicable thereto, this Office tinds no p lau s1ble reason to favor- ably consider your protest. \ 184

DECISION - - 4- CTA CASE NO. 3442 ,. You contend that your Company is operating as a common carrier, duly registered with the appropriate agencies of the Government, and that you have faithfully paid your business tax pur- suant to Section 207 of the Tax Code . Our inv~stigating officers however, fou n d that you are a forwarder subject to the 3% contractor's tax and not to the 2% common carrier's tax, it appearing that you are contracting for the transportation and hauling of freight and passengers to any place in the Philippines . Our decision on your protest was based on the document- ary evidence in the docket of the case and the report of our investigating offi c ers inasmuch as you failed to appear at our scheduled hearing on May 21, 1981. It is believed that the records available , together with the said report is suffi- cient for this Office to render a judicious decision on your protest . In view of all the foregoing, you are requested to pay the aforementioned amount of ~38 , 726 . 34, representing deficiency percentage tax on your gross receipts as forwarder in 1975 , inclusive of surcharge and interest to our Collection Agent at Makati, Metro Manila, within fifteen (15) days from receipt hereof, in order that this case may be closed and terminated. This constitutes our final decision on the matter . Very truly yours, TOMAS C . TOLEDO Deputy Commissioner On April 12, 1982, petitioner appealed to this Court. The only issue to be resolved in this case is whether or not petitioner is a forwarder subject to \ 185

DECISION - CTA CASE NO. 3442 - 5- the 3% contractor's tax assessed against it by respondent Commissioner of Internal Revenue in the amount of PJ8,726 . 34, under Section 191(13) (now '� Section 205(13), or as a carrier subject to 2% car- rier's tax under Section 19~ (now Section 207), both of the Tax Code. Petitioner vigorously asserts that it is a carrier and not a forwarder as defined and understood in the law and as shown by the testimonial and docu- mentary evidence presented by it. On the other hand, as shown in respondent Commissioner of Internal Revenue's "Special and Affirmative Defenses" in his Answer, he contends and insists that petitioner i s a forwarder as indicated in its firm name "Arrow Forwarding Company", and as such, is taxable as a contractor, pursuant to , Section 191(13) of the Tax Code, which provides�as follows: SEC. 191. Contractors, propriet~~ or operators of dockyards, and others.- A contractor's tax of three per cent of gross receipts is hereby imposed on the following: XXX XXX XXX XXX XXX XXX (13) Proprietors or operators of arrastre and stevedoring, warehousing, or forwarding establishments; (Under lining OU{S.) X;KX XXX XXX 18G

DECISION - - 6- CTA CASE NO. 3442 .i-�� and that, as such, his assessment is in accordance with the law and regulations; and the tax assessment levied against petitioner is presumed correct and '� valid, and that it is incumbent upon petitioner to prove the contrary. During the hearing petitioner submitted, in defens e against assessment for 3% percentage (for- warder's) tax, both documentary and testimonialevidence. In the l a tter, the evidence consists of the testimonies of Nicanor Villanueva, Assistant Vice-Presient of petitioner, and Felix Gabuyo, Manager of petitioner's 1 Brokerage Division, who both testified that the busi- ness of petitioner is truc k ing and brokerage; that it was granted certificates ot public convenience by the Bo~ r d of Transportation to operate a trucking tirm; that its franchise covers the routes Manila to any part in Luzon, Valenzuela to any part of Luzon, and San Fernando, La Union to any part in Luzon; and that petitioner owns trucks in the conduct of its businesso On the other hand, respondent Commissioner of Internal Revenue did not present any witness or counter- va~ling evidence and decided to submit his case before us based upon the records of the case. \

DECISION - CTA CASE NO. 3442 - 7- It is true that an assessment of the Commissioner of Internal Revenue is presumptively correct. (Benipayo ~' vs. Coll . , 4 SCRA 1~2.) Howeve r , since the Commissioner's determination of a tax liability .is not evid ence, it disappears when countervailing evidence of petitioner is produced against it. (Hemphills School, Inc. v. Comm., 137 F 2d 961, cited in Pars. 7.3-7.9, Vol. 2, Fed. Tax Practice ; see also Par. 8.6, ibid, p. 201.) Hence, when petitioner Arrow Forwarding Corporation presented its two witnesses, Vice-President Nicanor Villanueva and Manager Felix Gabuyo, whose testimonie s not only were corroborative but also were uncontroverted, and for lack of evidence presented by respondent Commis sioner of Internal Revenue with which to controvert said evidence and sustain his assessment, the evidence thus prese nted undisputedly proves that petitioner is a common carrier and not a forwarding establishment. Their testimonies were overwhelming ly supported by convincing documentary evidence showing that petitioner, in the conduct of its operational activity, is that ot a common carr1er. Petitioner possessed franchises issued by the Board of Transportation and their linffior routes of operation is ! within the island of Luzon and used its own transport- ation facilities in the transport of cargoes . (pp. 21-22, \ .1..... 8 0-")

---- DECISION CTA CASE NO. 3442 - 8- tsn, March 7, 1983). It was testified to that pet1- tioner, in its engagement of business, transports cargoes, merchandise, goods and equipment by using its own facilities in the transport and delivery thereof to its clients; that it 'obtained a Certif1cate of Public Convenience on April 10, 1973 (Exh. B) wherein it was authorized t6 operate trucks and transport freight and merchandise from Valenzuela, Bulacan to any point of Luzon; a Certificate of Public Co nvenience dated May lb, 1973 (Exh. C), granting it equal authority to operate freight trucks for the City of Manila to any point in Luzon; a Certiticate of Authority (Exh. D) to change the motor of 1ts Ford truck authorized in its franchise; that petitioner operates trucks for h1re duly registered w1th the Land Transpor tation Commission (Exhs. E, F, G, H and J) i. and that 1n transporting freight or cargo to the points in the Phil1ppines afore- said granted ro it under certificates of public con- vinience, it generally uses its own trucks, equipment and facilities. Under the above stated facts, we are certainly of the opinion and so hold that petitioner 1s a common caurier as such defined and understood by the whole body of laws and jurisprudence and not a forwarder or \ 189

DECISION - CTA CASE NO. 3442 - 9- a forwarding establishment as considered by respondent. From its Articles of Incorporation (Exh. A), in its first paragraph, Second Article (Exh. A-1), duly re- gistered with the Securities and Exchange Commission (SEC), petitioner's primary purpose is its engageme nt "xxx in the business of handling and transporti!l9_ passengersL freight good~, wares, produce, merchandise and other property by means of trucks, buses, trailers, vans and other forms of motor vehicle or conveyance as a carrier xxx and to acquire, own operate, lease and dispose of like business." (Underscoring ours.) Per the testimony of Nicanor G. Villanueva, Assistant Vice-President of petitioner, who handles the overall operations of the movements of transport- ation, administrative support, and one who provides material and logistic operation, on the question �pro- pounded to him as to what is his employer's (petitioner's} principal business, he said that: "A. Our company is engaged in business of transporting cargos, merchandise, goods and equipment using our facilitie s in the transfer and delivery of cargos to destination of our clients." (p. 4, tsn, March 7, 1983.) He testified that the "Ce>mpany is a common carrier", and has a Certificate \ 1 Qu... ..A.V

- ' DECISION - CTA CASE NO. 3442 - 10 - of Public Convenience from the Boa rd of Transportation and is authorized as a common carrier (p. 7, tsn, ibid.); and that he presented all the certificates of public conveniences .used by petitioner (see pp. 7-9, tsn, ibid.) and that the latter was registered ~th the Bureau of Land Transportation and paid the registration fees thereon (p. 10-16, tsn, ibid.); that in transporting freight or cargoes to any point in the Philippines, in areas where certificates of public convenience were issued, petitioner used its own equipment and facilities. (p. 20, tsn, ibid.) Felix Gabuyo, Manager of the Brokerage Division of petitioner, and in control and supervision of the daily activities of said division , corroborating the testimony of�Nicanor G. Villanueva, Assistant Vice-President, stated in open court that: "A. The line of business ot�our (petitioner) corporation is trucking and brokerage." (p. 4, tsn, July 1, 19~3) and affirmed that petitioner were granted franchises or certificates of public con- venience to operate a t r ucking firm (p. 4, tsn, ibict.); and that the areas covered are: Manila to any point of Luzon.: Valenzuela to any point of Luzon; San Fernando, LaiUnion to any point of Luzon (p. q, tsn, ibid.); and it was the line of business in which petitioner was \

DECISION - CTA CASE NO. 3442 - ll - engaged in 1975; and that it owns trucks in conducting its business as a trucker ~(p. 5, tsn, ibid.) Petitioner was granted on April 10, 1973, a certi~ ficate of public convenience to operate a TH truck service for the transportation of freight in the Municipality of Valenzuela, Bulacan to any place in Luzon with the use of 3 units granted by the Board of Transportation (Exh. B, p. 37, CTA rec.): and that petitioner was granted this certificate subject to the conditions among others that: "4. In operating the TH service under the provi- sional permit herein granted, applicant shall charge the following schedule of rates; ~0.03 per 100 kilos per kilometer or fraction thereof with a minimum charge of ~0.25. "5. Applicant shall also take all the necessary means and precautions to furnish the public with satis- factory, safe and adequate service: shall paint the schedule of rates on the windshield of the truck hrein authorized or on a signboard hung in a conspicuous place inside the truck; shall issue freight stub receipts in duplicate to be printed in accordance with the model fo~m prescribed by this Board for the issuance of freight- age collected; and shall observe and comply and shall be \ i. 19 2

DECISION - - 1~ - CTA CASE NO. J44~ J" responsible for the observance and compliance by its agents, employees and representatives with all the rules and regulations of the Board of Transportation relative to " .TH " service." Again, petitioner was given a certificate of public convenience to operate TH Freight truck service in the City of Manila to any part in Luzon subject to the same conditions as to the rates of freight and the use of freight stub receipts (Exh. C, pp. 41, 43-44, CTA rec.). Considering the aforementioned circumstances and the fact that it received gross receipts from out of its operations in trucking and brokerage in 1~75, these meets the definitions and characteristics of a common carrier to which it is actually engaged in. It has met the' definition of the common carrier, i.e., "a person, c o rporation, firm or association engaged in the ~usiness of carrying or transporting passengers or goods or botn, by land, water, or a1r, tor compensation, offering them services to the public" (Art. 17 32, Civil Code of the Philip~ines). Its essential characteristics are that it is a (1) regular business of carrying passengers or property for all persons or for the general public who mayl choose to employ them; and (2) for remunerative pur- poses (U.S. vs. Quinajon, 31 Phil. 196; Words and \ ~, p. 15; Bouvier's Law Dictionary, Vol. I, Phrases, Vol. 193.

DECISION - CTA CASE NO. 3442 - 13 - 3rd Edition, pp. 553-~54); (3) that it is responsible for loss and damage except acts of God (Webster Third New Int'l Dictionary, Unabridged, Vol. I, p. 458); and '� (4) finally, it is a quasi public agency enjoying a fran- chise to serve the public. (Lucastin R. Co. vs. Kelly, 28 A 2d, 619, 620, 20 N.J. Misc. 477; Words and Phrases, Vol. 8, p. 16; Underscoring ours; see also Webster's Third New Int'l Dictionary, Unabridged, 2�� cit.) . On the other hand, it cannot be a forwarder since a "Forwarder - as defined by Bouvier x x x is a person who receives and forwards goods, taking on himself the expense of transportation for which he receives a com- pensation from the owners, but who has no concern in the vessels or wagons by which they are transported, and no interest in the treight. Schloss v. Wood, l7P. 910, 911, ll Colo. 287." (Words and Phrases, Vol. 17, p. 447.) A "forwarding merchant" or "forwarder" is one who ships or sends forward goods for others to thei r destination by the instrumentality of third pe rsons without himself incurring the liability of a carrier to deliver them, and neither includes a consignor shipping goods nor a carrier engaged in transporting them. In re Emerson Marlon & Co., 199 F 95, 98, 117 C.C.A. 635." (Ibid. J "x x x The liability of fo~rders is likewise that of warehouse- man and\common agents, and is governed by the general 194

DECISION - - 14 - CTA CASE NO. 3442 /' rule applicable to other bailees for hire, not subject to extraordinary liabilities. They are re s pon s ible for ordinary care, skill, a nd diligence - that is, such care and diligence as prudent men in similar circumstances usually exercise in the management of their own business. Hooper v. Weils, Fargo & Co., 27 Cal. Ll, 26, 85 Am. Dec. Lll" (Ibid.) Finally, a forwarder is "a. an agent who performs services (as clearing of customs, receiving, assembling, or delivering) designed to assure and faci- litate the passage of goods of his principal to their destination-called also freight forwarder." (Webster's Third New International Dictionary, Unabridged, Vol. I, p. 896.) As petitioner had shown by overwhelming evidence that it does not only receives and facilitates the for- warding of the goods to its client for a fee, but is operating as a common carrier which carries cargo for all persons or the general public, which line of business is covered by franchies or certificates of public conve- nience 'to operate trucks for hire, and subject to a government imposed restrictie rates of freight schedules, it is de f initely not, therefore, a forwarder for which itlcan be held liable for 3% contractor's tax as a \ 19v

DECISION - CTA CASE NO. 3442 - 15 - forwarding merchant under the provision of paragraph 13, Section 191 (now 205) of the Tax Code. Consequently, we are of the opinion and so hold that petitioner is a' � common carrier subject to the 2% common carrier's tax based on their monthly gross r eceipts unde r the provision of Section 192 (now Section 207) of the Tax Code , whi c h provide s as follows: SEC. 192. Percentage t~x on carriers and keepers of garages.- Keepers of garages, cars for rent or hire driven by the les s ee, transportation contractors, persons who transport passengers or freight for hir e , and common carriers by land, air, or wate r , e xcept owners of bancas, and owners of animal-drawn two-wheeled vehicles, shall pay a tax equivalent to two per centum of their monthly gross receipts. XXX XXX XXX WHEREFORE, the decision of the Commissioner of Internal Revenue appealed from is hereby set aside. No pronouncement as to costs. SO ORDERED. Quezon City, Metro Manila, Apri~~, 1987. ._.L.:t� I CONCUR: CON~ ' TANT~ ~ROAQUIN 1 Cd�w~. ssociate Judge Al.\1ANTE ILLER Presiding Judge \ Dissen~s in separate opinion ALEX Z. REYES 19o As sociate Judge

ttt:9UBLIC 0 F Hlt: l"a--tLlPJ"INn ~OURT OF TAX ~PP�AU QlJE'LOIC CJ rt' ARROW FORWARDING CORPORATION, Petitioner, - versus - C.T.A. CASE NO. 344 2 COMMISSIONER OF INTERNAL REVENUE, Respondent. X---- ----------- X DISSENTING OPINION I take except ion to the majority's decision por- traying the petitioner corporation in the bestpossible light as a "common carrier" subject to the reduced rate of contractor's tax of 2% prescribed under Section 192 now Sec. 207 of the Tax Code apparently because - The purpose for which the cdrporation is formed is to engage in the business of hauling and transporting passengers, freight; goods, wares, produce, merchandise and other property by means of trucks, buses, trailers, vans, and other forms of motor ve hicle or conveyance as a common carrier or otherwise in any point or part of the Philippines, and to acquire, own, operate, lease and dispose of .like business. (Articles of Incorporation). It is by no means clear whether a corporation can no longer be considered in the category of other con- tra~tors for tax purposes even if its Articles of \

DISSENTING OPINION - CTA CASE NO. 3442 - 2- Incorporation is coupled with other corporate purpose s, to wit: ,, To carry on the business of cu s toms broke rage and in connection the r e with to appl y for, build, own or othe rwise acquire and operate a bonded warehouse or ware- houses, to take charge of and perform on be half and for account of its clie nts the duties of bonding, receiving, landing, haul- ing, paying freight s and other c harges, duties and taxes due on goods, articles, wares , merchandise o r other cargoes a nd to do all such other acts inherently and commonly carried on or undertaken by cus- toms brokers in customs clear i ng. tArticles of Incorporation as amended, November ~3, 1973). To carry on the business of receiving, loading, unloading, delivering, weighing, warehousing, gauging, measuring, and coper- ing goods, wares, and merchandise de stine d for or unladen from steam vessels, ships and every other kind of watercraft and to perform in connection there with services �ordinarily performed by receiving, delivery, stevedores, tally and dock clerks, weighers, coopers, and to issue or take receipts for such goods, wares, and merchandise as prin- cipal, agent or otherwise, and in ge neral to do any and all acts that may be necessary, convenient, or appurtenant to any one of the above-mentioned objects. The nature of the above-describe d undertaking appears more than sufficient to show that petitioner corporation can readily slip into that warm cubby-hole of Section 191 ll3) now Sec. 205 (13) ot the Tax Code which reads - \ \ 198

DISSENTING OPINION - - 3- CTA CASE NO. 3442 I' Sec. 205. Contractors, proprietors or operators of dockyards, and others. - A contractor's tax of three per c e ntum of the gross receipts is hereby imposed on the following: XXX XXX XXX ll3J Proprietors or operators of arrastre and stevedoring, warehousing or forwarding establishments. (Underscoring supplied) The tendentious question of being operated as a common carrier and registered as such does not detract from the fact that by design and purpose petitioner corporation is likewise a forwarding establishment as its business name so indicates . Moreover, both services, i.e., common carrier and forwarder, may be combined and perfo r med by th e same corporation and the varied rates of tax a tion as provided by law should be imposed and collected. Different strokes have to be applied on the transactions so to speak. I sustain the respondent's deficiency assessment again st petitioner. \ 183