CTA Case No. 3726 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY USS ENGINEERS AND CONSULTANTS, I NC., Petitioner, - versus - C.T.A. CASE NO. 3726 THE HONORABLE C0/1/fiSSIONER OF INTERNAL l?EVENflE, Respondent. X- - - - - - - - - - - - - -X DEC~ISION Th .is is about a claim for the refund of the sum of P792 , 750. 00 representing alleged erron eow:;ly ~ thheld income tax for the taxable year 1981. Th e r e c(>rd shor,rs that petiti oner USS Engineers and Consultants, Inc ., a non -- res .ident foreign c o:r:�porati on undertook a feasibility study of an Int egrated Ste el Mill Project for the Nati onal Stee l Corporat i on , a wh o lly o rm ed Philippine Government entity. And fol' s u c h sc:Tvices, petitioner Teceived fees amounting to $1, 606 , 653. 70, inclusive of a $300, 000 grant from the United States Government

DECISION - CTA CASE NO. 3726 -2- r,rhich r,ras subjected to a 35 .~ w.i t:hholding tax aggregating $562, 3.28. 80 (or ?12,130,235.54) as reflected in the Nationa .l Stee.l Corporation's Quarter.ly Return of F.ina.l Income T,_'ix ending December 31. 1981, and duly :t�eceipted by Bureau of In t:erna.J Regvenue on <January 25 , 1982. The tax cc� .-rresponding to the $300, 000 as deduced from the total payment is computed this r.,rise: Sen !. ce Fee $300,000 Tax Rate X. ........ �..3!5. US$ - Peso Rate Tax W.i thheld $105,000 X ..... ] ../5.!5. P792, 750 It appears that the grant ()f $300,000 is embodied in an August 21, 198.1 Agreement entered .into by and between the National Stee .l Corpo ration and the U.S. Trade and Development Program acting in bebalf of their respective gove1~ments, the Philipp _ines and United States of America, r,:hich provides .in:sof'ar as .relevant that - H. This l3.greemen t and the Grant r,:ill be free from any taxation or fee:s .impo sed under laws in effect in the Philippines. To the extent that an.v contractor, including any consulting firm, or any personnel of such contractor financed under the Grant are not exempt for identifiable taxes, tariffs, dutie:s, or (Jth e r l evieB imposed under lar,:s in effect in the Ph.ilippines, the Government 7 40

DECISION - CTA CIJSE NO. 3726 - 3- o f the Philippines will pay or reimburse the s:<tme with funds o ther than those provided under this Grant and will not c laim reimbursement f or such taxes, tar .iffs , etc., under this Grant . On the basis thereo f, petitioner claimed on November 9, 1983 the refund of P792, 750.00 correspondingly withheld on the $300,000. 00 drawn from the Grant, but f or the apparent inaction of the r espondent Commissioner, filed the present petition for revier,r on tlanua-ry 23 , 1984. Thu s . the ques ti on o f r.rh ether or not petiti on er has established a valid claim to a refund r.ri th the responde nt Commissioner of Internal Revenue. The mate1�.i a l facts are relative .Z.v si mple .so is the .i s.s u e under r esc-, J ve. And, the .sprouting .impress i on precipi t;ate .l:v broach ed by the petitioner that the tax on th e fees finan c ed out of the grant has been erroneou.sly imposed can hardly be a reas s uring prospect that can readily be reconciled r.rith the affiliating statutory limitations. The Grant can by no means be deemed the authority for a non-tax exempt entity to an enjoyment of the pri vi .lege. Neither could it be naively viewed as 7 {)

DECISION - C1~ CASE .NO. 3726 -� 4 - c)f s u c h hrc.., ,':ld scope a nd spectrum r.ri th open ended .f eat ures a~:: to validly .in :t'use cogni zance t o a c l a im in disregard o[ the proscr.ipti on s o f the r e venue _l t H.TR . I t need n c., t be s t r essecl that exempti o n from th e common l)unien c.cwn ot be permitted to exist o ut of in .f e ren ce o r vague impl .i cat i o n.s . Si n ce a refund undo ul..> tecily pa rt a k es the n ature of an exempti on, it cannot b e ~llowed unl es s gz~nted in the mos t explic.it and categorical l anguage. ( Res .ins, I n c. v . IJ.udi tor Genera .l . 25 SCRA 754). And the that p e t .i t:.i o n e r , n eith e r privy t o th e Agreement nor a tax exempt e nti t.v P e T f::ie has .fail e d to "ju s tify its exemp ti o n t '.V r,1ords t no plain t o be mist aken and t oo ca f. ego l� ic ~'ll to be mi si nt e rpreted." (Reaga n v. Comm.ission e r of Internal Reve n ue, 30 SCRA 969). Be as it may, the National Steel Corporati on, ..-dgnatory agen c y , ha s .v et to comply with the prestati on in the Agreement. Thus enjoined, "To the extent that any contnwtor x x x financed under t h e Grant are not exempt f r om ident .ifi~'lble taxes x x x imposed under laws in effect in the Ph ilippines, the government of t h e

DECISION - CTA CASE NO. 3726 -5- Philippines will pay or reimbu .rse the same with funds other than those pr(wided under this Grant. " The ch .ips otherr-1ise falLing on the pet itioner but by the t erms and cr~ndi tions in the Agreement, apparently lie with the National Stee.l Corporation upon which the rec ourse for the refund may be addressed. The respondent Commissioner of Internal Revenue cannot serve as a convenient "wailing wall'' as would r e lieve petitioner's predicament. The tax sought to be refunde d is legally due and therefore r .igh t.ly impo sed a11d collected on petitioner � s realized income on its undertaking. Obviously, the subject c .laim sounds sort o f barldng at the wrong tree expecting the unexpected, so t o ..::pel3.k. HHERF.FORK, petition .i s dismissed at petitioner 's costs. SO ORDERED Quezon C.i ty , !1e tro Nani.la, December 15, 1988. Associate tludge 78

DF.CISION -- -6- CTA CASE NO. 3726 1- WE CONCUR: CERTIFICATION I hereby certify that this decision r.fas reached after due consultation among the members of the Court of Tax Appeal s in accordance with Section 13, Article VIII of the Constitution. ~j8J Presiding thldge Court of Tax Appeals 7 4'-