CTA Case No. 2737 (Decision)

- qt!!fUSLU: OP ';'U� t'i-l ll!Pf'IN1-'9 COUKT OF TAX APPEAL..q Q 11:.'2.0!� (;J fY JOHN C. BEGG, Petitioner, - versus - C.T.A. CASE NO. 2737 COMMISSIONER OF INTERNAL REVENUE, Respondent. X- - - - - - - - - - - X DE C I S I 0 N The case before Us presents an issue no different from the question raised in the cases of Frank Robertson v. Commission~r of Internal Revenue, CTA Case No. 2735i James W. Robertson v. Commissioner of Internal Revenue , CTA Case No. 2736; Robert H. Cathey v. Commissioner of I~ternal Revenue, CTA Case No. 2738; and John L. Garrison v. Commissioner of Internal Revenue, CTA Case No. 2739, involving the judic1al determination of the scope of the tax exemption provision in Article XII, Par. 2 of the RP-PS Military Bases Agreement of 1947, quoted as follo.ws: "l. No national of the United States serving in or employed in the Philippines in connection with the construction, main- tenance, operation or defense of the bases and residing in the Philippines by reason only of such employment, or his spouse and \ 223

- - - - - - - - -- - -- - - - - - DECISION - CTA CASE NO. 2737 - 2- minor children and dependent parents of either spouse, shall be liable to pay income tax in the Philippines except in respect of income derived from Philippine sources other than the United.States." Petitioner John C. Begg un~~r similar circum- stances, i.e., a national of the United States employed in connection with the construction, main- tenance, operation or defense, ot the bases , residing in the Philippines by reason of such employment, a nd the income derived is from the u.s. Government, was likewise assessed for deficiency income tax inclu s ive of inte r est ana penalties amounting to~lq2,693 . 81 for the taxable years 1969 thru 1912 under letter dated July 31, 1914 ot the respondent Commiss1oner of Internal Revenue. Petitioner's request tor reconsideration thereof on A ugu ~t 29, 1974 invoking the tax e xemption privilege accorded in Art. XII, Par. 2 of the Agreement, sup!~, proved to no avail as the r e spondent denied the same under letter dated July 30, 1975. Hence, this petition. The records show that no facts or legal principles have been presented in this case that were not cons1dered ip the cases abovementioned, ~nd those cases are stare deci~is and govern the issue in the instant case . We \ 2q 'x�,' h.

DECISION - CTA CASE NO. 2737 - 3- regard the question now raised conclusively settled in our consolidated decisi on which on appeal, was subsequently upheld by the Supreme Court {Commissioner'' of Internal Revenue v. Frank Robertson, et al. and the Court ot Tax Appeals, Nos. L-70116-19, August i2, 1986; 143 SCRA 401-402), by holding, inter alia, that, "~'7e find no justifiable reason to disturb the findings and rulings of the lower court (CTA) in its decision reading as follows: 'We find nothing in the said treaty provision that justified the lifting of the tax exemption privilege of the pet i- tioners (private respondents herein). Respondent (petitioner herein) has grafted a meaning other than that conveyed by the plain and clear tenor of the Agreement. An examination of the words used and the circumstances in which they were used, shows the basic intendment "to exempt all U.S. citizens working in the Military � Bases from the burden of paying Philippine � Income Tax without distinction as to whether born locally or born in their country of origin." pbi lex non distinguit_nec nos ~istinguere debemos (one must not dis- tinguish where the law does not distinguish) (Translation ours). Moreover, the ruiing has altered ~ sati~factorily settled appli- cation of the exemption clause and has fallen short of measuring up to the familiar principle of International Law that, "The obligation to fulfill in good faith a treaty engagement requires that the sti- pulations be observed in their spirit as well as according to their letter and that \ 22 0

DECISION - CTA CASE NO. 27~7 �- 4 - what has been p rorn1sed be performed without evasion, or subterfuge, honest- ly and to the best of the ability of the party which made the promise." (K unz, The Meaning and Range of the t. Norm (Pacta Sun t Servanda, 29 A.J.I.L. ~80 (1945): cited in Freidmann, Lis s tzyn, Pugh, Iriteinational Law (1969) 329). Somehow, the ruling becomes an anacolution and a persiflage. 'It bears repeating as so disclosed in the records that the petitioners together with fami l ies upon repatriation in 1945 had s1nce acquired domicile and residency in the United States. And, obtained employment with the United States Federal Service. Not until after several years of a hiatus, petitioner s did return to the Philippines not so much of honoring a pledge nor of sentimental journey but by reason of taking up assigned duties with the United States m1litary bases 1n the Philippines where they were gainfully employed oy the U.S. Federal Government. The situation of the petit ioner s is of no different mold as of the rest of the u.s. civilian employees who continued to enjoy the benefits of tax exemption under the Agreement. Petitioners 1 circumstances before the questioned ruling remained obtaining thru the taxable years 1969- 19/2. It appears too much of a stretch to hold petitioners straight-jacketed to an irreversible situs of birth constraint and by reason thereof deny altogether any opportunity to a serendipitous enJoyment of a tax relief accorded in the Agreement. Such random quirk of pirouette in the tax treatment falls sharply at odds with the shared expec tat ions of the high contracting parties. Thi s Court wi l l not deem itself au tho r:i;,z.e d to .~rt trom thSP.1ain meaning ot the t~x ex.e_!!!Qtion provision, SS?_ explicit in terms and so searching in exte n t. (Em]:i"asis \

DECISION - CTA CAS~ NO. 2737 - 5- by the supreme Court) This does not how- ever foreclose the possibility of peti- tioners' coming to roost in the country contingent upon the termination of their tour of duty, but only then may the bridge be crossed for tax purposes. (pp. u2-B 4, HecordJ �: ' ACCORDINGLY, the ctefic.:imcy ' income tax assessment aggregating~l62,693.81, inclusive of interest and penalties for the taxable years 1969 to 1~72 against the petitioner is hereby set aside a nd cancelled. No costs. SO ORDERED. Quezon City, Metro Manila, April 15, 1987. WE CONCUR: Presidi.� Judge ; \ � q �") ��. ;c.r- I j