CTA Case No. 108 (Decision)

~-� ... ''~!-.~~----------------------~--~~----------~-- I .... � (!mPUBLIC f' '"1' 'T'm! pHJT_ll"...,,.~�o;;s .(;:;0 U.Rl' l.~ ' .X A�.t .k.:..n.A.oli) ~""" � JAI ALAI CORPOF~TION I1 OF THE PHILIPPINES , Petitionpr , - versus - C. I . A. CASE NO . 108 J . ANTONIO ARANETA , in his c-0/\_f capacity as Acting Collector ,. \ .x------- of Inte1:nal Revenue , 1. \ \ :e:p:n:e:t~ -x~f 1 DECISION This is a petition to review the decision of the respondent , ,Collector of Internal Revenue dated January 29 , 1955 , assessing and demanding from the petitioner , Jai Alai Corporation of the ' Philippines an aggregate sum of P62 , 586. 56 , as deficiency amusement tax , real estate dealer ' s tax and compromise penalty , after previously de - ducting the sum of P75 , 000 . 00 allegedly paid or � r deposited by petitioner upon the total original demand of ~137 , 586 . 85 (Ex h . "E" , pp . 197 - 201 Bol,; ~i . Re cord) . This case was submitted for determination abd d sposition by this Court on the basis of the stipulat"on of facts (hereinafter cited as STIFALTS ) and other do~umentary exhibits submitted by the parties . Since 1940, the petitioner has been operating "Pelota Bas ca '' (Jai Alii. games with betting in ,. ... 429.. . ~�

DECISJ � A - MANilA j C. T . A. CASE NO . lOts �� - 2- accordance with the provisions of Commonvvealth Acts Nos . 485 and 601 (p.ar . 1 and 3 , STIFACTS ). ~etitioner charged its patrons admission fees to the games . Wager funds or the proceeds from the sale of betting tickets are distributed in accor- dance with the provisions of Executive Or.der No . 135 , series 1948 , as amended by Executive Order No. 168 , series , l948. In addition , petitioner operates the Sky Room where wine , liquor and food are served and a dance floor provided. A portion of the Jai Alai building is leased at a monthly rental of 2 , 500. 00 to Mr. Joaquin Lopez , who maintains and operates the "Keg Room" , "Bamboo Bar" and "Popular Bar~ . On September 20 , 1951 , the respondent Collect - or of Internal Revenue assessed against and de - I manded of the petitioner the p�ayment of a total sum of Pl27 , 813. 82 representing deficiency amuse - ment tax on its gross receipts and admission fees and surcharges in relation thereto , p~us the sum of 3.'!800 . 00 as compromise penalty (par. 4 , STI~ FACTS) . On October 23 , 1952 , the petitioner requested for a reconsideration of the aforesaid demand and the matter was referred to the Conference Staff of the Bureau of Internal Revenue and docket - ed as C. S. Case No . 2. � J�1eanwhi le , between October 20 , 1951 and Jan - ,., .' 4 3 0

J I' ' t [ \. ' DECISION _ ' C. T. A. C SE NO . 108 .;~ i - 3- uary 22 , 1953 , petitioner paid to or deposited with (this is disputed) the respondent in monthly installment sums of ~5 , 000 . 00 th e total sum of f!75 ,0CX) . o0 , the same to be credited against the . assessment of September 20 , 1951. After the hearing before the ~onference Staff and after further investi~ation of the case , the res pondent issued on January 29 , 1956 , a revised assessment given hereunder and demanded from the petitioner the payment thereof after deducting the aforementioned P75 ,000. 00. The respondent also asked the petitioner to pay a compromise penalty of Pl , CXX) . OO;, . The foll'OV'Jing is the re - � v i sed assessment, toge~her with the compromise penalty. 1 . 20% defjcjeocy amusement tax from ~~y 4 , 1948 to ..;une 17 , l 949 : 20% deficiency amusement tax illl , 543. 9l ~86 , 085 . 80 Less: 20% tax on P57 , 719 . 54 662. 00 81 , 20;2 . 91 20% tax on ~3 , 310 . 00 75 , QQQ . OO (~l , 120. 1 1 ) Various payments made Overpayment 2 . ~musement taxes and sur - charges on receipts de - rived from admissions - to the Jaj lai from June 18 , 194B to August , 19~~: 2 , 240 @ ~3 . 50 admission @ ~81 p 1,814. 40 tax ;~;- 8,493 @ 3. 00 admission � @ 1!. 69 5 , 860. 17 3 , 496 @ 1!2. 50 admission @ p.i . 58 2 ,027. 68 3 , 973 @ ~2. 00 admis - sion @ ~ . 46 1 , 827. 58 45 , 151 @ PI. 50 ad - mission @ 1!.35 15 , 802. 72 4 31

DECISION _ C. I . A. C SE NO . 108 , -4 - 86 , 567 @ P1 . 00 admis- ~ 13 , 850. 72 sion @ . 16 tax 65 ,403 @ 0.5u admis - 5 , 232. 24 sion @ �.08 tax musement tax due p 46 ,415. 64 11 , 603. 91 25% surcharge 1'58 ,019. 55 tax and surcharge due Amusement taxes and sur- ~hHr�e� an re ceipts de- rjved from admi s sions to the Jaj Alai from September 1954 to December , 1954: 820 @ 2. 00 admis- sion at P. 46 tax ~ 377.20 197 _@ ~1 . 50 admission @ '", 35 tax 68. 95 19 788@ �1 . 00 admis - 286. 08 sion @ !l!. l6 tax 10 , 346 @i P0,,50 admis - sion @ r . 08 tax 827168 Amusement tax due p 1 , 559. 91 25% surcharge 3B9. 98 Tax & Surcharge due p 1 . 949. 89 Tot~1 amusement taxes and surcharges due ~59 . 969 . 44 ' 3. 10% deficiency amusement tax and surcharge from March 8 to July 31 , 1949 : 10% deficiency amusement � 1 , 496 ~ 81 tax 378. 21 25% surcharge Total deficiency amusement tax it 1 , 875. 02 4. Real estate deiUlrJ-s 862. 50 fjxed tax and surcharge from the second QUarta;r , 194Q to the 4th Qua rte~ , ' 1..2.5;t: I 5. Real estate dealer s fixed tax (C- 8) for the period from 2nd quarter , 1949 to the 4th quarter , 1954 - 23 quarters @ lt337., 50 per quarter 6. tompromise penalty 1 . Q(X) . OO T0 TA L �62 , 586 , 85 "The present petition for review was filed before this Court to review the foregoing decision � (revised assessment)� � 432

eECISION C SE NO . 108 C. T. A. - 5- The parties raised here the following issues : (1) Whether or not the collection of taxes in question constitutes a violation of the con- tract clause of the Constitution; (2) Whether or not the petitioner is liable for the payment of 20% deficiency amusement tax on the following recei pts : (a) share of wager ~ funds ; (b) 2% management fee ; \c) "differences" or "breakages"; (d) unclaimed dividends ; (e) ad - mission fees ; and lf) miscellaneous income ; (3) Whether or not petitioner is liable for the paYment of the real estate dealer ' s fixed tax prescribed in section 193 ,(q) of the Tax Code ; (4) Whether or J!Ot petitioner is liable for the payment of the graduated amusement tax pres - cribed in the first paragraph of sec. 260 of the Tax Code , as amended by rlepublic Ac~ No . 418 on admission fees received on June 18 , 1949 and thereafter ; (5) ~w hether or not petitioner is liable for the payment of deficiency amusement tax and sur- charge on the receipts of the Sky hoom ; (6) Whether or not the petitioner is liable for the payment of Pl ,OOO. OO as compromise penalty ; and (7) Whether or not this Court has jurisdiction to take cognizance of the petition for review in respect to the action for refund� � �� - � ,. 433

DECISION - C. T. A. CASE NO. 108 -6- Tax Exellf>�ion On the first issue, the petitioner contends 1..1 that by its franchise, Commonwealth Act No. 485, it is exempted from all other taxes not embraced therein and the taxes sought to be imposed by respondent is in contravention of the constitu- tion more particularly the �impairment clause�. This proposition is predicated on the theory that Commonwealth Act No. 485 ~s implemented BYi :5XtC\Jl-!e tive Orders Nos. 135 and 168, both series of 1948, has created a contractual relationship between the petitioner and the government. It is the view of petitioner that in consider- ation of being permitted to operate the game of jai-alai for 25 year~, the petitioner pays ~he government ~% (formerly ~%) of the gross receipts from the wager or bets in every game, an annual license fee of P500.00 and real estate tax on its property (Section 3, Commonwealth Act No. 485), besides being bound to transfer automatically to the government after the twenty-five year period the ownership of its properties consisting of the buildings and the land of which the court and the . staduim is established. These properties, when the first game was played, were valued at P3 , 675 ,- 846.27 (Exhibit "I� , Petitioner) and as of June 1949, were worth over 5,000,000.00 (pp. 81-82, Vol. 2, BIR records). Thus, petitioner argues .,$ .

DECISION - C. T. A. CASE NO. 108 - 7- that these conditions have been imposed as an exemption from all other taxes. We find this contention without merit. At best, Commonwealth Ac$ No. 485 merely permits or authorizes the operation of jai-alai games with gamb- ling, which ~therwise would be illegal. There is nothing in the law that will indicate a grant of a franchise under a contractual relation between the petitioner and the government. But even assuming arguendo,that a contractual rela- tionship was established between the petitioner ,- and t he government, there is nothing in the entire text of Commonwealth Act No. 485, to indicate a legislative mandate 6f intention to the effect that the conditions or obli~ations imposed upon the petitioner by the said Act would be in lieu of all other obligations imposed by general laws as tax statutes. In brief, the transfer of the properties after 25 years, the payment of the li- cense fees; realty tax and the ~%participation in the gross receipts on the total betting when imposed upon petitioner, were not ordained tt be in lieu of the payment of any and all other taxes that might be due to t he government. The case of House v. Posadas (53 Phil. 338) is in point. In this case, appellant House wa~ authorized under Act 2700 to operate an electric light, heat and power system and was required ... 435

DECISION - C. T. A. CASE NO. 108 - 8- under the law to pay quarterly to the government ~ one-half of one per centum of the gross earnings . ~ ' On the question of whether taxpayer was still sub- ject to the payment of income taxes and percent - , age tax�'On business , t he Supreme Court held that since there was no specific mandate that the tax on gross earnings was in lieu of the payment of all other taxes , the grantee of the fran Ghise was not exempt from the payment of the income and percentage taxes generally imposed by law upon corporations. "x X X We n~t infrequently find in corporate charters , in connection with the imposition of particular charges , that payment of such imposition shall_ be in lieu of other taxes . No wo%ds to this effect are found in section 8 of Act No. 2700 , where the appellant is required to pay quarterly into the treasury of Tacloban one-half of one per centum of the gross earnings of the enterprise during the first twenty years; and that it was not intended that satisfaction of this imposition should exempt him from other taxes is apparent from the language of section 14 of the same Act which declares that the grantee shall pay on his realestate , buildings , plant , machinery , and other personal property the same taxes as _ are now or may herafter be required by law from other persons. It is obvious that income , after it has accrued to a dapitalist , is personal property, and /,ptheellainnctomweas tax collected from the ap - properly exated under the language which requires the grantee to pay the same taxes on 'other' personal property as are required from other rax- payers. �rhe percentage tax on business is not so clearly a tax on personal pro- perty , since this tax is rather a tax L13 6

on ,the ri il~ge of doing � ut ev n so, it is a tax xactE::d f r th' �enefi f th neral overn ent under h provisions of general la ; and no alid r ason pe rs to us ~ h � th app ll nt cho 1 not pay this tax. �Th ta o6 one-half of 1 per c ntu f the ro s arnings which . ~ndor s cti 8, st be p id to the treasury of Taclob , as undoubtedl impose upon hi in vi '!of a . revision con- - tained i~ection 2 of th hilippin Autono y Act (Act of Congress of August 29, 1916 },. which d clares t at every grant of franchis shall contain rrovi- \ ion for the pay nt of a re sonable p rc tag of the 9ross arnin:}S f th~ corror~tion int0 the tr ~sury oft e Philip in I la dst or Qf t e pro ince or municinality vithin hich such fra - chi es are granted and exercis d. ut in conn ction '~ith that provision it is � aid that t is tax is impos d for the \ official inspection and regu� tion of t e book nd accounts of such corpora- tions nd her � nothing in t. lan. gu-g to the eontention th t th tax here cont molated v s inten d to in lieu of o~ber tax s .� (Ho e v. sa a , 53 hil. 338 at 340-341. ) cann t_ pply 1 ret e doctxin laid o~n by th Supre e Court in th case of t.h~ Philip- pi~e ailway Co. vs. Collector of Intern l e- v nue (G.! � No . L-3859 , March 25, 1952) and ,.. Visayan Electric o. v. David (G. H�. No. L-5 57, r~ril 27, 1953) the charters involved being to- tally different from the se t bar. ln bot case , t Suprem Court rul d tha... th f:r: � hi e- ?1 ers (taxpayer) ~ere not liable for _ti paymen of th 5~ � franchi e tax i, osed by Sec i n 259 of th tional lntern-1 Revenue Cod , for t e reason -h t t eir resp c i h :r e1s 437

��~ DECISION - C. T. A. CASE NO. 16~ - 10 - (Act 1497 and Act 3499) specifically provided "fit that the amount equal to 1~% and 2% of their res - pective gross warnings paid to the government , were "in lieu of all taxes" . Exemptions from taxation are highly dis - favored in law. The party claiming tax exemp - I tion must Justify his claim by a c:Ear , positive or express grant of such privilege by law. When doubt arises as to the intention of Congress as regards a tax exemption , the doubt must be re - solved in favor of, the State , f!Jr am exelJlption from a common burden can not be permitted to exis t upon vague implication . (~ollector v. Manila Jockey Club , G. R. L-8755, March 23 , 1956; Asiatic Petroleum ~o . v. Llanes , 49 Phil . 466; see also House vs . Posadas , 53 Phil . 338; Philip - pine Telephone and Telegraph Co. v. Collector (' of Internal Revenue , 53 Phil. 639) Tax on Gross Receipts having arrived at the conclusion that the petitioner is not exempt from th E: payment of other taxes , we shall proceed to the next issue whe - ther or not the petitioner is liable for payment of th e 20% deficiency amusement tax on its "gross receipts" . We shall consider each disputed item detailed (Annex E, STIFACTS) as follows : 438 �

., DECISION - C. T. A. CASE NO. 108 - 11 - I! 27 , 383. 33 (a) Share of commission or wager fund 25 , 245. 54 . (b) 2% Management fee 735. dJ (c) "differences" or "breakages" 21 , 908. 34 (Jan. to June 17 , 1949) 1 , 916. 28 (d) Unclaimed dividends 2 , 242. 02 (e) Admis s ion fees 376. 66 2 , 949. 53 (f) Miscellaneous income (Jan. to 1 , 538. 79 June 17 , 1949) 1 , 844. 83 T o t al p 86 , 140. 32 Less : Ovexpayment on "differences" 17. 94 (May to December , 1948) Overpayment on receipts from concessiona�res Overpayment on miscellaneous . 01 incone (May to Dec . 1948) 36. 57 20~{ tax on "57 , 719 . 54 - �:11 .�~543 . 91 20% tax on ~ 3 , 310. 00 662i OO 12 . 205. 91 '" V3 , 879 . B9 Share of Wa g er ~ unds . - In view of our finding that the petitioner is liable for other taxe~ on its business , pa rticularly the tax on its "gross receipts" there is no longer any doubt that ~e p etitioner is subject to pay the amusement tax on its net share of the wager funds or bets obtained from the dai - alai games . We , therefore , affirm the assessment by the respondent on this point and hold the petitioner liable for the de~iciency amusement tax of f-52 , 628. 87 on the receipt deno - minated as "share of wager funds" . The succeeding questions relate to t he issue of whether or not the othe r i te ms should be included as part of petitioner's taxable "gross receipts", and we shall therefore proceed to discuss each iiem s eparately. 2% Management Fees: The respondent assessed � ., �' 43 9

I I DECISION - CTA CASE NOo 108 - 12- the herein petitioner , the sum of ~22 , 643 . 34 , representing 20% deficiency amusement tax on that portion of petitioner ' s receipts denominated as "management fees" which it had not declared for tax purposes for the period from May 4 , 1948 to June 17 , 1949. Thes "management fees" consisted of a sum equal to 2% of the total bettings or wager funds p aid as compensation for services of Me ssrs . Jauregui and Assadourian and more particularly described as follows : "This 2% management fee represents the compensat ion paid for the services of Messrs . Jauregui and Assadouri an. When -the corporation was being organ - ized , it was deemed wise to engage the services of men from abroad who are well versed in the operation of jai - alai games . Consequently , the services of Messrs . Jauregui and Assa - dourian were paid ' promotion fees ' at the rate of 2% of the wager funds . " The petitioner contends that the 2~& "promotion fees" of the wager funds do not form part of its "gross receipts" by virtue of a contract of peti- tioner and Messrs . Jauregui and Assadourian in that such funds had already been earmarked and set aside for such purpose and therefore assumed a status similar in character to the 3% share accruing to the national government. Hence , peti - tioner argues th�t the amount did not belong to it , and was , in fact never received by it . We find this view without merit . In the first place , the contract was made by petitioner and the corresponding management fees were in - 44 0

! DECI ON - C. T. CA o C SE NOo 108 - 13 - curred by it on its own account . In fac t , the management fees are actually taken out t of peti - tioner's sha r e (1V2%) of the bets and are not determined before t he distribution of the shaPes according �to Executive ~rder No. 135, as amendes bJ Executive Order No . 168 . both se r ies of 1948. We believe that one vesjed with the right to re- ceive thet gross income derived from t he jai - alai games as the petitioner , cannot escape the tax on such "gross receipts" by any king of anticip atory arrangement , by which it procures payment of it to another , since by the exercise of his power to command the said receipts , oe enjoys the benefits of the amount on which the t ax is laid (Helvering v. Horst , 311 u . s . 112; Harrison v. Scha~r , 312 U. S . 5b9) . And in the second place , the tax i mposed by section 260 of the Tax Code , is imposed upon 11 all the receipts of the proprietor lessee or operator of t he amusement pbi!:eu which must be understood to befer to the "total receipts received by the company before anything was deduc - ted for expenses of management .� (St ate v . Illinois Cert . R. Co., 92 NW 814 , 847jQpr to the " entire income without deducti ons of any sort, and do not contemplate a tax upon gross profits� ( acific Gas & Electric Co . v . Roberts , 167 P 845 , 846 ; 176 Cal . 183.0 Since , the 2% managemeny fees we_re incurred by petitioner f cr compensation 441

DEClSl � - C. T. A. C SE 0�. 10 - 14- sum i of service eont �act d for by it lone .� t in fac expenses to p titian r and y not b d d cted from the gross receipts for purpo e of determining the tax on �g:rc s receipts�. are, th refo f th opinion and so hold . that pet tion r is liable fo the s.u f 22.,643. 24 a fie' ncy a use nt tax on the portion of i s und cl r d gross receipt no �nat ment f s�. espondent assessed tb titi ner the 'sum � 1,898. 34 ( 1,91 � 28 le.ss 17.94; as defici ncy mus me!lt ta n t e so-c 11 d � ifference or Break g � 1his su eonsist of the fraction of ten centavos ( .10) whicn e�re limin �t in the co utation of <.livi - dends paid to th innin bettors p r uant to s e- tion 18 of Ex cutive Ord r ~o .. 13~, as a d d by Ex c tive Order t� o. 1 S, eri of 1948, to itt SE � 18. ~"'l:.~t..;.u~~-AJWL....u..J.�J..� ...,..,....A,....,. .. Th fac value of the wager tickets for any ev nt shall not exe ed .5. 00 whet er for ' in' o:r 1 plac t, or for ahy combin tion or grouping in- ning numbers . The fac valu of aid tiekets, as h cas y b , shall b t1e b sis cor th co utation of th dividends and such dividends shall be pa ~ft r � l_minatin9 fractions o t n c ntavos ( . 10) for exampl if r sultinq dividend is Pl0. 43 . the divi- , dends th �t shall b paid ~till b only j 1 . 43.� ile it ~s true t a.t these *differanc s� or break g originally fo d part of t 85 of th t otal �a9~r,}1!t sine th p ,titioner is .r ouired 442

DECISION - C. T. A. �cASE NO. 108 - 1�"'- to pay the winning bettors only the net diuidend~, after eliminating the fractio ns , t he portions retqined by petitioner become part of its "gross 'J r eceipts 11 If petitioner Jo oses to Pf.lY to the winners all such fractional amounts , it will perhaps be rea s onable to say that such fractions I never formed part of petitioner s gross receipts . However , where the petitioner actually exercised its privilege to eliminate theflXac~ions as author - iz ed by the above - quoted rule , it did in fact acquire the right of disposition over the "differ- ences" , so t ha t the same became part of its gross ,� receipts . Taxation is a practical matter . In the application of the taxes on gross receipts and gross income , revenue law s are not so much con - cerned with the requirements of title as with the actual command over the income which is taxed and the actual benefit for whi ch th e tax is paid (see 0 elvering v. Clifford , 309 U. S. 331). We are , therefore , of the opinion and so hold that the peti - tioner should be held liable for the deficiency amus ement tax of Pl , 898. 34 including surcharges on its gross receipts de nominated ~ifferences or . breakages � l~ c l a imed dividend s: This item refers to the sum of P2 , 618. 68 (not P3 , 618. 68) assessed as de - ficiency amusement tax of 20% on the amount of Pl3 ,093. 40 denominated as "unclaimed dividends" . L14 3

DECISION - C. T. A. CASE NO. 108 - 16 - These �unclaimed dividends" cover the amounts due to winning tickets but which have remained uncollected for a period of ten (10) days after the winnings are announced . Not having been claimed , they had been declared forfeited under section 5, Chapter X of the Rules and Regulations of the petitioner , quoted belowS "Winning tickets not collected on the sa~e day may be collected from the Genera CAs hier ' s office within the next en (10) days . After the lapse of this period, the dividend shall be declared forfeited in favor of a charitable institution , to be selected by the management.� Petitioner maintains thatthis amount does not f orm part of its gross receipts in that it is a mere trustee for the benefit of the charitable . institutions who shall be designated as beneficiaries by petitioner. We find petitioner's view not well taken. ~ommonwealth Act No. 485 , as implemented , ear- marks eighty- five per cent (85%) of the total bets received for distribution as dividends to the win - ning tickets . At first blush , this will include the portion thereafter to be known as �unclaimed dividends" . In the final analysis , however , upon the forfeiture of thi "unclaimed dividends" these s ums became part of petitioner ' s gross re- ceipts in that the right to dispose of the same was vested immediately upon petitioner. In fact , � L14 4,� J

\,., /' DECISION - � Co T. A. CASE NO. 108 / - 17 - petitioner has treated it ~n this manner by con- sidering the unclaimed dividends as lawfully its own (Annex �a�, STIFACTS, - ~I ol. II, BIR Records, PP� 125, 134, 137 )�� This-' ls corroborated by the fact that at one time petitioner sought to have the �un- claimed dividends� declared as bonus to its em- ployees. On top ofthis, petitioner has never designajed any charitable institution as beneficiary of such unclaimed dividends, and we entertain doubts that any such institution may compel petitioner to haye the unclaimed dividends paid to it/ Finding that the pe~itioner did and does in fact exercise the right of enjoyment anddisposi- tion or control over the �unclaimed dividends�, we agree with respondent's assessment and hold the :t"' petitioner liable for the sum of ~2,618.68 de- ficiency amusement tax on its gross receipts de- signated as �unclaimed dividends�. Understat~Admission Feess The respondent assessed petitioner .the sum of 14,488.32 as de- ficiency amusement tax on its admission fees for the period from May, 1948 to June 17, 1949. While petitioner paid and declared for tax p~rposes its admission fees, it only declared the net admis- sion fees, after excluding the amusement tax on such fee which had been billed separately and allegedly passed on to the patrons. Petitioner ... 445

DECISIOJ _ C. To A. C SE NO. 108 - 18 - contends that its procedure in declaring for tax purposes only the net admission fees is in accord with the procedure as regards sales taxes which it argues as applicable here. j v ejind petitioner~s contention without ~ merit . vf the tax imposed under section 260 of the 1 Tax Code refers to "admission fees" , ~nd "gross receipts" . As regards the "admission fees" , we see no reason to deduct therefrom the tax which is admittedly a part thereof . In other words , the tax is based upon the amount r ?id by the cus - tomer , without considering the component parts that make 9p the total admission fee and without deducting therefroffi'any of the items or incidents taken into acco unt by petitioner in fixing his ad - mission f e"6s .~ "When the legislature based license taxes due by retailers on gross sales , it evidenced an inten- tion to aaopt , as the basis for the tax , the total amount paid by the purchasers , without consideting the c cmponent parts making up the total sale price and without deducting ther~from any of those items . � (State vs . Menefee Motor Co ., 1~9 So. ~1; cited with ~� approval 1acondray <:). Co . , . In c. vs . � El Adm. de Rentas Internas , G. R: L_ 2624 , Sept . 29 , 1951; the Insular Lum- ber Co. v. The Sollector of Internal Revenue , G. R. L- 7190 , April 28 , 1956 . Q I Moreover, while there may be an administrative permission to deduct from the gross selling price the sales tax when billed separately , no similar ~ adm' nistrative rule exists in connection �ith the .. ... ..} '., ...�. ' 446

DECISION _ C. T. A. C SE NO. 108 - 19 - amusement taxes to which petitioner may perhaps claim such privilege . The fact that the provi - sion of law here involved (Sec . 260, M. ILR. C. ) expressly permits the deduction of the tax on the admission fees of theatres for tax purposes mili- tates against petitioner, there being no express grant as to jai - alai games;) We therefore affirm respondent's assessment of �4 ,488. 32 in this regard . Mj sceJ 1aoPOJIS In come: This i tern refers to income derived by , petitioner from advertisements, rents , interests earned , fines , etc. for the period from Jan~ery to June 17, 1949 (Vol. II , BIR Rec . '- ords , pp . 11, 185 and 187) . On this item res- pondent assessed a deficiency amusement tax of ~1 , 808. 26 . petitioner presented no evidence to controyert this part of assessment and did not in fact advance any fefutation thereto in its memo- (� randum. Since the burden of proof is upon the taxpayer to show the illegality or incorrectness of the assessment made by the respondent ~ollect or of Internal Revenue (Inte~provincial Autobus - IJ Co., Inc . v. Cc ollector /-195�1 52 Off . 9az. No . 2 , P� 791) which petitioner has failed to do, we must sustain the assessment and so hold the peti- tioner liable for the sum of ~1 , 808. 26 as defi- ciency amusement tax in its gros s receipts deno- minated "miscellaneous incomeM � .. +To summarize , we hold the petitioner liable 447

.,. - DECISION C. T � i CASE NO . 108 - 2Q - fo~ the total amount of t86 ,085. 80 as deficiency amusement tax on its gross receipt . Against this liability , it has already paid P87 , 205. 91 , wo that there results an overpayment of ,1 , 120. tl which may be applied to other deficiencies hereinafter adjudged. RSaJ Estate Dealer ' s Tax W e now proceed to consider the third issue whether or not petitioner is liable for the pay- ment of the real estate dealer ' s fixed tax . The respondent assessed the sum of ~862 . 50 as tax due from petitioner for the period from the second quarter of 1949 to the fourth quarter of 1954 or twenty - three (23) quarters at ~3~ . 5� per quar- ter. This tax is imposed under section m~ of the National Internal Revenue Code , as amended by Section 3 of Republic Ac~ No. 42 , and Section 6 , of Republic Act i'lo. 588 , in relation to sec- tion 193 (q) of the same Code . Petitioner argues that it is not subject to the tax in that it is not engaged in the real estate b~siness as defined in the case of Domingo Imperial vs . Collector of Internal Revenue ~G . R. No. L- 7924 , September 30 , 1955). Petitioner ' s contention is not well taken. evidence shows that the petitioner leased the Keg Room , Bamboo Bar , and the Popular Bar to Mr. lilt 448

'' } DECISION - C. I. A. CASE NO. 108 - 21 - 1 Joaquin Lopez during the period above mentioned , at the rate of �- 2 , 500.00 a month (Anne xes "B" and 11 f", STIFACTS) . The leased. premises , are the unoccupied portions of the Jai-Alai building , not needed by the petitioner as operator of the jai- .alai games . ~onsidering the kind and nature of petitioner's building (Exhibit "1 11 ) in regard to its spacing capacity and the extent of the portion thereof used by it , the amount of rental charged , and the period for which the lease ex isted~ the conclusion is inevii~ble that the petitioner, is a real estate dealer, or engaged in said business within the purview of Section 194 (s) as amended by Republic Acts Nos . 42 and 588.J There is no parity between this case and the eit@d Imperial c~se, for in the latter , the tax- p~yt~ hed ft@t ~@@ft engaged in business. On the other hand, we believe that the petitioner 1 s situation is more akin to the more recent case of Veronica Sanchez v. Collector of Internal Revenue (G. R. No. L- 7521, October 18, 1955) wherein the Court after considering "the kind and nature of . . the building constructed ~ � � whic h is a four door 'accessoria' " as to show ~that it was from the beginning intended for lease as a source of income or profit to the owner", the courtheld that .the petitioner was "engaged in business" within the pu~view of Section 194 (s as amended, 449

DECISI ON - C.T . A. CASE NO. 10$ - 22 - of .the Tax Code . In view of t he above , we are of the o~lnion and so hold that the petitioner is liable for t he real estate dealer ' s tax of i862 . 50o 6{)aduated Amusement Taxes on Admission Fees The next issue refers to the assessment in the sum of ~59,969 . 44 , as gr aduated amusement tax on the ''admission fees" fro m June lf), 1949 to ' December 31, 1954 , imposed under t he first paragtaph of Section 260 of the National Internal Revenue Code as amended by Repu ol i c Acts Nos . 39 and 418 o Petitioner contends that the deletion of the word 11 J a i - Alai r1 from the th"ird paragraph of s a id sec - tion 260 by Hepublic Act No . 418 , effective June 18 , 1949 carried with it the e4emption of the peti- tioner not only from the 20% amuse ment tax on gross receipts but also t he amusement tax a t graduated rates on its admission fees � .1.''or a better understanding of the question , we quote below s ection 260 as it ori ginally ap - �~ peared in \Jommonweal th Act No . 466 when it t-ook effect on July 1 , 1939: 11 SEC . 260 . Amusement taxes - There shall be collected fr om the pro- prietor, lessee , or operator of both theaters , cinematographs , concert halls , circuses , boxing exhibit ions , and other places of amusement the following t axes: (tax rates omitted) "in the case of theaters or cine- matographs , t he taxes herein prescribed shall first be deducted and withheld by the proprietors , lessees , or operators of such t heaters or cinematographs and

DECISION - - 23 C. T. A . CASE NO . 108 .. - 23 - paid to the Collector of Internal Re- venue before the gross receipts are divided bwtween the proprietors , les- sees, or operators of the theaters or cinematographs and the distributors of thecinematographic filifs . 11 In the case of coC:kpits, race tracks , cabarets , there shall be col- lected from the proprietor , lessee , or operator a tax equivalent to ten per centum of the gross receipts, ir- respective of Rhether or not any amount is charged or paid for admission: Provided , howetier, That in the case of Face tracks , this tax is in addition to the privilege tax prescribed in sec- tion 193 , or the purpose of the amuse- ment tax , the term ' gross receipts' embraces all tpe receipts of the pro- prietor ' s place , excluding t he re- ceipts derived by him from the sale of liquors, beverages , or other articles subject to speci fic tax or from any business subject 'to tax under this Code . " (underlining supplied) .nepublic ,iict No . 39 , which took effect on October 1 , 1946 amended this section by increasihg the graduated rates of amusement taxes on admis- sion fees given in the first� paragraph~ provided changes in phraseology of tha secon8 and third parag~aphs and adding two new paragraphs in the manner following - 11Sec . 260 . Amusement taxes - There shall be collected from the pro- prietor , lessee , or operator of thea- ters , cinematographs , concert halls , circuses , boxing exhibitions , and other 1laces of amusement the following taxes : Tax rates omitted ) "i n the case of theaters or cine- matographs , the taxes herein prescribed shall first be deducted and withhela _by the proprietors, lessees , or opera- tors of such theaters or cinema tographs .. and paid to the Collector of Internal

DECISION - C. T. A. CASE NO . 108 - 24 - Revenue before the gross receipts are divided between the proprietors, lessees, or operators of t he theaters or cine- matographs and the distributors of the cinematogr~ph~t films . "In the case of cockpits, cabarets, and~night clubs , there shall be col- lected from the proprietor, lessee or operator a tax equivalent to ten per centum, and in the case of &ace - tracks Jai-alai, twenty per centum of the gross receipts, irrespective of whether or not any amount is char ged or paid for admission: Provided, however, That in the case of race- tracks, the tax is in addition to the ptivilege tax pres- cribed in section one hundred and nine- ty three . For the purpose of amuse- ment tax, t he term ' gro ss recei pts ' embraces all the receipts of the pro- prietor, lessee, or operator of the amusement place . 11 The taxes i mpo sed herein shall be payable at the end of each month and it shall be the duty of the pro- prietor lessee , or operator concerned, within ten days after the end of each month , to make a true and complete re - turn of the amount of gross receipts de - rived during the preceding moth and pay the taE due thereon. "In case of willful~.neglect t o f ile the return within th(3 pe riod prescribed herein, or in case of false or fraud- ulent return is willfully made , there shall be added t o the tax or to the de- ficiency tax , in case any payment has been made on the basis of such return before the discovery of the falsity or fraud , a surcharg e of fif t y per centum of its amount . The amount so added to any tax shall be colle cted at the same time and in the s ame manner and as part of the tax unless t he tax has been paid before the discovery of the falsity or fraud , in which case the amount se added shall be collected in the same manner as the tax . " (undersc<Dring supplied) It will be noted that with the foregoing amendment 11 jai- alai 11 was specifically introduced 452

DECISION - C. T. A. CASE NO . 108 - 25 - ih the third paragr pah of the aforecited provi- sion ~ Howeger , by another amendatory legisla- tion, Republic Act No . 418 which took effect on June 18 , 1949 , said sec t ion 260 was modified this time by deleting the words "jai- alaii' f rom the tpird para g r aph~ so that said paragraph would read: "In the case of cockpits , cabarets a nd night~lubs, there shall be co l lect- ed from the proprietor , lessee, or operator a tax equivalent to ten per centum, and in the case of r ace- tracks , twenty per centum of the gross receipts irrespective of'.whether or no t any amount is charg ed or paid f or admis e sion; this tax is i n addition to the privilege tax prescribed in section one- humdred ninet~three . For the pur- pose of amusement tax , the term ' gro s s r e ceipts ' embraces all the receipts of the proprietor , lessee , or operator of the amusement place . (emphasis sup- plied) With the deletion of 11 jai- alai" from the third paragraph of the law here involved , the principal question narrows down to whether 11 jai- alai11 is within t he phrase "other places of amuse- ment" as contemplated by sai d section 260 . Br ief- ly, it is ,, the contention of petitioner tha t the "jai- alai is not a place of amusement and under the principle of "ejusdem generis" had not or would never have been taxable under said section 260 , except during the br i ef period that Republiv Act No . 39 , was enforced , i . e . only until the word vJas deleted by Republi c Ac j No . 418 , ~e f ind the contention of the petitioner 453

DECISION C. T. A. C SE NO . 108 - 26 - not well taken . While it is true that 11 jai- alai 11 is not now specifically enumerated in the first paragraph o! section 260 of the Tax Code , neve~ theless , we believe it is within the purview of the phrase 11other places of amusement 11 � Accor - . ding to Webster ' s International Dictionary, "amuse- ment,, is synonymous wi th11 pleas urable diversion , entertainment , recreation, relaxation, avocation , pastime , sport , and fun" (see also Pearson v. Oity of ueat:tle, 44 P . 884 , 14 vJash . 438, cited in 3 Words and Phras.ea , p . 537) � Hence, the term 11 places of amusement 11 denotes those places which furnishes t he pleasurahle occupation of the senses~. or provide recreation, relaxation, pastime as to occupy attention with somet ing pleasing and en- tertaining (see RadclJ'ffe v . Query , 153 S . C. 76 , 150 s. E. 352) . / we believe that the peti - tioner ' s jai- alai games , even as it does involve �. gambling, furnishes people with diversion , relax- ation and pastime , and ther,,efore , comes with the phrase "place of amusement used in sec tion 260 of the Tax Code~ . We might add in this regard the pe culiar statuto~y phraseology and arrangemen~regarding � . ll the amusement tax . It is to be noted that sec- \ tion 260 comes under Chap t er II , entitled "Amuse- ment Taxes 11 of Title VIII entitled "Miscellaneous Taxest� of the i~ational Internal Revenue Code . 454

D6CIUION C . T. A. CASE J.W . 10,...,8 - 27- , - / Under this partivular section, the amusement tax ,.. ......~ is i mposed not only upon those specifically ' � .. r enumerated therain as theaters, cinematographs , concert halls, circuses , boEing exhibitions , cockpits, cabarets, night clubs and race- tracks , but also upon "other places1of amusements 11 o Our attention is drawn pa rticularly to the fact that the a musement tax is iJ;tpos e d upon "cockpitsn and 11race-tracks II which a re admittedly forms -of legal- ized gambling in the same way as the 11 jai - alai"is . Tmis is cle~rly indicative of a legislative in- tention to consider thes e establishments as "place s of amusement . " In fact , horse races have been held to be in~luded in the terms ''shows" and 11 amusement 11 when used to atllhhorize municipal corporations to license and tax th e~icals and other exhibitions , shows and amusement (Webber V. � ii ty of Chicago, 148 lLL. 313, 36 i'JE 7U) . 13eti - tioner's jai- alai admittedly a gambling establish- ment is squally a place which ~rovi de entertain- ment, relaxation, pastime and s; ort and , there- fore , comes within the ;Jurview of t he phrase , u,;nd other places of amusements 11 subject to the amuse- ment tax on its admission fees . Our position is further buttressed by the fact that section 260-1A as inserted by Republic Act No. 586 is found in the same chapter and title of the Tax Code and imposes an amusement tax upon the winnings or "dividends" of a persona derived from ''horse races 4,5 5

DECISION - C. I . A. CASE NO. 108 - 28- or jai-alai�. We believe that the doctrine of ejusdem generis finds no application in this case as the word �amusement� or the phrase "other places of amusement" does not require construct - ion (Stiska v. City of Chicago , 405 111 . 374; 70 NE 2d 7442). We believe that the entire con - text of section 260 of the Revenue Code adequate - ly declares that the amusement tax imposed there- in is not restricted to theatrical , boxing , musical dancing or other exhibitions but also in- cludes other places of amusement as cockpits , race - tracks and petitioner ' s jai - alai . We agree with the respondent that while the elimination of the words "jai-alai" from the thi rd paragraph of section 260 of the National Internal Revenue Code by Republic Act No. 418 exempted petitioner from the taa on gross receipts pres- cribed therein, the same did not thereby exempt petitioner from the payment of the amusement tax on its admission fees prescribed in the first paragraph thereof, the latter tax being different from the former. Without being repititious , suf- fice it to say that the claims of exemption of petitioner cann ot be permitted to exist by im- plication (Collector v. Manila Jockey Club , supra; Ilag~R v. Alejandrino, C. I . A. Case No. 43 , July 25, 1956). Finding the respondent ' s assessment in this regard as being in accord with law , we 456

. f .~ DECISI0N - C. T. A. CASE. NO. 108 - 29- hold the petitioner liable for the sum of 59 , 969. 44 as amusement taxes on its admissi on fees . DeficiencY Amusement Tas and Surcha r ge on the Re- ceipts of the Sky Room .. The fifth issue refers to the ten per cent , (10%) deficiency amusement tax including surcharge in the amount of Pl , 875. 02 assessed by the res - pondent upon the receipts of the Sky Room , from March 1.9.. 49 to July 31 , 1951 (See Annex "E� , STIFACTS ; P � 9 , BIR r �cords , Vol . 2). There is no ~ispute that the Sky Room is a night .club. During the period in question , peti- tioner had , for purposes of the 10% amusement tax declared only its net sales as the taxable base and not its gross receipts . Since petitioner , under the law is required to pay taxes on its "gross receipts� (�ee section 260 , supra) , the respondent assessed the deficiency amusement taxes on the difference between the gross receipts and the net sales. Petitioner 'did not present any evidence to contest this assessment nor made any refutation thereto on legal grounds . Consider- ing that the burden of proof is upon petitioner to assail the assessment which it has failed to do , and in view of our discussion above rega r ding - ,. the meaning of "gross receipts" , we are constrained to hold that petitioner is liable for the defi- ciency amusement tax of Pl , 875. 02. ,,

DECISION - C. I . A. CASE NO . 108 - 30- Compromise penalty of ~1 ,000 . 00 : In relation to the ,penultimate issue , respondent seeks to collect from the petitioner the sum of ~1 , 000 . 00 , as compromise penalty fo~ violation of th e real estate dealer ' s tax prescribed by section 193 (q) of the Tax Code and other alleged violations , citing the doctrine of the Supreme Court in the case of the City of Manila v . Pa�ific Commercial Co., 60 Phil . 813. The ruling cited is not appli - � cable in that the penalty was not in the nature of a compromise. On th e other hand , a similar question has already been passed upon by this Court in the case of Soledad R. Brinas v. Collect - or of Internal Revenue , (C . I.A . Case No. 16 , September 14 , 1955) where it was ruled that - "In addition to the deficiency percent age tax and surcharge , the sum of 20. 00 is sought to be collected � from p etitioner by way of "compro- mise ' in extrajudicial settlement of her penal liability under section 209 of the National Internal Reveriue Code. Criminal violation of the Revenue Code may be compromised by the Collector of Internal Revenue by virtue of the authority conferred upon him by section 309 of the same code . A compromise by its nature implies mutual agreement by the par- ties in regard to the thing or sub- ject matter which is to be compromised. An offer of compromise does not , there - fore , assume the category of a com- promise until it is voluntarily ac - cepted by the other party , and no obligation arises or is created by a simple offer or suggestion coming from one of the parties without acceptance by the other. � '.) . 458 l

DECISIOO - C. T�� CASE NO. 108 - 31 - We are , t erefore , of the opinion and so hold that this Court has no jurisdiction over the matter involving the compromise penalty of 1 ,000. 00. Jurisdiction as to the Refund of 75,000. 00. The last issue refers to the jurisdiction of this Court to order the refund cf ~75 , 000. 00. This amount was paid in installment by petitioner in partial payment of the original assessment made by respondent , which however has been subse - quently incorporated in the ass e ssment now under review . Considering that we are sustaining res - pondent's assessment on the amusement taxes and therefore no refund of any payment is contemplated , we find it unnecessary to pass upon this question . FOR ALL THE FOREGOING CONSIDERATIONS , except qS regards the compromise penalty of ~1 , 000 . 00 over which this court is without jurisdiction , the decision of the Collector of IRternal Revenue dated January 29 , 1955 , is hereby affirmed , and the petitioner is hereby ordered to pay the res- pondent Collector of I nternal Revenue the total sum of 61 , 586 . 85 , rep resenting defic iency amuse - ment taxes , including surcharges and real estate dealer's fixed tax. With cost against the petitioner. SO ORDERED. Manila , Philippines , July 31 , 1956. MARIAN NABLE Presiding Judge I COU-

DECISION - - 32 - C. T. A. CASE NO . 108 cur : AUGUSTO M. LUCIANO Associate Judge Judge Roman M. Umali did not take parto $1' c~ : 460 �(