COMMISSIONER OF INTERNAL REVENUE vs.

CITYTRUST INVESTMENT
PHILS., INC.
G.R. No. 139786, September 27, 2006

ASIANBANK CORPORATION vs. COMMISSIONER OF INTERNAL

REVENUE,
G.R. No. 140857, September 27, 2006

Under the ordinary basic methods of handling accounts, the term gross receipts, in the
absence of any statutory definition of the term, must be taken to include the whole total
gross receipts without any deductions

The legislative intent to apply the term in its plain and ordinary meaning may be
surmised from a historical perspective of the levy on gross receipts. From the time the
GRT on banks was first imposed in 1946 under Republic Act No. 39 the legislature has
not established a definition of the term "gross receipts."

Under Revenue Regulations No. 12-80 and No. 17-84, as well as several numbered
rulings, the BIR has consistently ruled that the term "gross receipts" does not admit of
any deduction. This interpretation has remained unchanged throughout the various re-
enactments of the present Section 121 of the Tax Code.

Facts

G.R. No. 139786

Citytrust is a domestic corporation engaged in quasi-banking activities. In 1994,

Citytrust reported the amount of P110,788,542.30 as its total gross receipts and paid the
amount of P5,539,427.11 corresponding to its 5% GRT.

On January 30, 1996, the CTA, in Asian Bank Corporation v. Commissioner of Internal
Revenue (ASIAN BANK case), ruled that the basis in computing the 5% GRT is the
gross receipts minus the 20% FWT.

Based on this ruling, Citytrust claimed for tax, seeking to be reimbursed of the 5% GRT
it paid on the portion of 20% FWT or the amount of P326,007.01.

The Court of tax Appeals held that monies or receipts that do not redound to the benefit
of the taxpayer are not part of its gross receipts for the purpose of computing its taxable
gross receipts. The 20% final tax on the passive income was already deducted and
withheld by various withholding agents. Hence, the actual or the exact amount received,
as its passive income in the year 1994, was less the 20% final tax already withheld by
various withholding agents. To include it again would tantamount to double taxation

G.R. No. 140857

Asianbank is a domestic corporation also engaged in banking business. It remitted to the

BIR 5% GRT on its total gross receipts. It filed a claim for refund for the overpaid GRT
based on the Asian bank case.

The Court of Tax Appeals allowed refund in the reduced amount of P1,345,743.01, but
later reversed by the Court of Appeals.
According to the Court of Appeals, it is true that Revenue Regulation No. 12-80 provides
that the gross receipts tax on banks and other financial institutions should be based on all
items of income actually received. Actual receipt here is used in opposition to mere
accrual. But receipt may be actual or constructive. The 20% final tax withheld from
interest income of banks and other similar institutions is not income that they have not
received; it is simply withheld from them and paid to the government, for their benefit.

PETITIONER’S ARGUMENT:

Commissioner’s Arguments:

First, there is no law which excludes the 20% FWT from the taxable gross receipts for the
purpose of computing the 5% GRT;

Second, the imposition of the 20% FWT on the bank's passive income and the 5% GRT
on its taxable gross receipts, which include the bank's passive income, does not constitute
double taxation;

Third, the ruling by this Court in Manila Jockey Club, cited in the ASIAN BANK case, is
not applicable; and

Fourth, in the computation of the 5% GRT, the passive income need not be actually
received in order to form part of the taxable gross receipts.

RESPONDENT’S ARGUMENT:

First, Section 4(e) of Revenue Regulations No. 12-80 dated November 7, 1980 provides
that the rates of taxes on the gross receipts of financial institutions shall be based only on
all items of income actually received;

Second, Court's ruling in Manila Jockey Club is applicable

Issues

1. Whether or not the 20% FWT on a bank's interest income forms part of the
taxable gross receipts for the purpose of computing the 5% GRT.

Ruling:

NO. Numerous cases are unanimous in defining "gross receipts" as "the entire receipts
without any deduction.”

CIR v. Bank of Philippine Islands: The Tax Code does not provide a definition of the
term "gross receipts". Accordingly, the term is properly understood in its plain and
ordinary meaning and must be taken to comprise of the entire receipts without any
deduction

CIR v. Bank of Commerce: The word "gross" must be used in its plain and ordinary
meaning. It is defined as "whole, entire, total, without deduction." Gross is the antithesis
of net.

China Banking Corporation v. Court of Appeals: Under the ordinary basic methods of
handling accounts, the term gross receipts, in the absence of any statutory definition of
the term, must be taken to include the whole total gross receipts without any deductions
The legislative intent to apply the term in its plain and ordinary meaning may be
surmised from a historical perspective of the levy on gross receipts. From the time the
GRT on banks was first imposed in 1946 under Republic Act No. 39 the legislature has
not established a definition of the term "gross receipts."

Under Revenue Regulations No. 12-80 and No. 17-84, as well as several numbered
rulings, the BIR has consistently ruled that the term "gross receipts" does not admit of
any deduction. This interpretation has remained unchanged throughout the various re-
enactments of the present Section 121 of the Tax Code.

Commissioner of Internal Revenue v. Solidbank Corporation: When we speak of the

"gross earnings" of a person or corporation, we mean the entire earnings or receipts of
such person or corporation from the business or operation to which we refer. Webster's
Dictionary gross ="whole or entire."

Issue

2. Whether or not there is double taxation.

NO. The 20% FWT and 5% GRT does not constitute double taxation.

Double taxation means taxing for the same tax period the same thing or activity twice,
when it should be taxed but once, for the same purpose and with the same kind of
character of tax. This is not the situation in the case at bar. The GRT is a percentage tax
under Title V of the Tax Code ([Section 121], Other Percentage Taxes), while the FWT is
an income tax under Title II of the Code (Tax on Income). The two concepts are different
from each other.

In the Solidbank Case, a percentage tax is a national tax measured by a certain percentage
of the gross selling price or gross value in money of goods sold, bartered or imported; or
of the gross receipts or earnings derived by any person engaged in the sale of services. It
is not subject to withholding. An income tax, on the other hand, is a national tax imposed
on the net or the gross income realized in a taxable year. It is subject to withholding. Tax
Code imposes two different kinds of taxes.
 COMMISSIONER OF INTERNAL REVENUE vs. SOLIDBANK
CORPORATION,
G.R. No. 148191. November 25, 2003

Under the Tax Code, the earnings of banks from passive income are subject to a twenty
percent final withholding tax (20% FWT). This tax is withheld at source and is thus not
actually and physically received by the banks, because it is paid directly to the
government by the entities from which the banks derived the income. Apart from the 20%
FWT, banks are also subject to a five percent gross receipts tax (5% GRT) which is
imposed by the Tax Code on their gross receipts, including the passive income.

Since the 20% FWT is constructively received by the banks and forms part of their gross
receipts or earnings, it follows that it is subject to the 5% GRT. After all, the amount
withheld is paid to the government on their behalf, in satisfaction of their withholding
taxes. That they do not actually receive the amount does not alter the fact that it is
remitted for their benefit in satisfaction of their tax obligations.

Stated otherwise, the fact is that if there were no withholding tax system in place in this
country, this 20 percent portion of the passive income of banks would actually be paid to
the banks and then remitted by them to the government in payment of their income tax.
The institution of the withholding tax system does not alter the fact that the 20 percent
portion of their passive income constitutes part of their actual earnings, except that it is
paid directly to the government on their behalf in satisfaction of the 20 percent final
income tax due on their passive incomes.

Facts

Solidbank filed its Quarterly Percentage Tax Returns reflecting gross receipts amounting
to P1,474,693.44. It alleged that the total included P350,807,875.15 representing gross
receipts from passive income which was already subjected to 20%final withholding tax
(FWT).

The Court of Tax Appeals (CTA) held in Asian Ban Corp. v Commissioner, that the 20%
FWT should not form part of its taxable gross receipts for purposes of computing the tax.

Solidbank, relying on the strength of this decision, filed with the BIR a letter-request for
the refund or tax credit. It also filed a petition for review with the CTA where the it
ordered the refund.

The CA ruling, however, stated that the 20% FWT did not form part of the taxable gross
receipts because the FWT was not actually received by the bank but was directly remitted
to the government.

The Commissioner claims that although the FWT was not actually received by
Solidbank, the fact that the amount redounded to the bank’s benefit makes it part of the
taxable gross receipts in computing the Gross Receipts Tax. Solidbank says the CA ruling
is correct.

Issue

Whether the 20% FWT Forms Part of the Taxable Gross Receipts
Ruling

Yes. In a withholding tax system, the payee is the taxpayer, the person on whom the tax
is imposed. The payor, a separate entity, acts as no more than an agent of the government
for the collection of tax in order to ensure its payment. This amount that is used to settle
the tax liability is sourced from the proceeds constitutive of the tax base.

These proceeds are either actual or constructive. Both parties agree that there is no actual
receipt by the bank. What needs to be determined is if there is constructive receipt. Since
the payee is the real taxpayer, the rule on constructive receipt can be rationalized.

The Court applied provisions of the Civil Code on actual and constructive possession.
Article 531 of the Civil Code clearly provides that the acquisition of the right of
possession is through the proper acts and legal formalities established. The withholding
process is one such act. There may not be actual receipt of the income withheld;
however, as provided for in Article 532, possession by any person without any power
shall be considered as acquired when ratified by the person in whose name the act of
possession is executed.

In our withholding tax system, possession is acquired by the payor as the withholding
agent of the government, because the taxpayer ratifies the very act of possession for the
government. There is thus constructive receipt.

The processes of bookkeeping and accounting for interest on deposits and yield on
deposit substitutes that are subjected to FWT are tantamount to delivery, receipt or
remittance. Besides, Solidbank admits that its income is subjected to a tax burden
immediately upon “receipt”, although it claims that it derives no pecuniary benefit or
advantage through the withholding process.

There being constructive receipt, part of which is withheld, that income is included as
part of the tax base on which the gross receipts tax is imposed.
 CHINA BANKING CORPORATION (CBC) VS. COURT OF APPEALS
G.R. No. 146749 and G.R. No. 147938, June 10, 2003

The Tax Code does not define the term “gross receipts” for purposes of the gross
receipts tax on banks. Absent a statutory definition, the BIR has applied the term in its
plain and ordinary meaning.

In ordinary terms “gross receipts” means the entire receipts without any deduction.
Deducting any amount from the gross receipts changes the result, and the meaning, to net
receipts. Any deduction from gross receipts is inconsistent with a law that mandates a
tax on gross receipts, unless the law itself makes an exception.

The tax code does not define for gross receipts except for the amusement tax which is
also a business tax. It defines it as it “embraces all receipts of the proprietor, lessee or
operator of the amusement place.” The Tax Code further adds that “[s]aid gross receipts
also include income from television, radio and motion picture rights, if any.” This
definition merely confirms that the term “gross receipts” embraces the entire receipts
without any deduction or exclusion, as the term is generally and commonly understood.

Facts

CBC is a universal banking corporation organized and existing under Philippine law.
CBC paid P12,354,933.00 as gross receipts tax in 1994. On 2006 CTA in Asian Bank
Corporation v. Commissioner of Internal Revenue ruled that the 20% final withholding
tax on a bank’s passive interest income does not form part of its taxable gross receipts.

CBC now claims for tax refund or credit of P1,140,623.82 from the P12,354,933.00 gross
receipts tax that CBC paid. Citing Asian Bank, CBC argued that it was not liable for the
gross receipts tax on the sums withheld by the Bangko Sentral ng Pilipinas as final
withholding tax on CBC’s passive interest income in 1994.

Commissioner claims that CBC paid the gross receipts tax pursuant to Section 119 (now
Section 121) of the NIRC. The Commissioner argued that the final withholding tax on a
bank’s interest income forms part of its gross receipts in computing the gross receipts tax.
The Commissioner contended that the term “gross receipts” means the entire income or
receipt, without any deduction.

Ruling of CTA

CTA ruled in favor of CBC and held that 20% Final withholding tax on interest income
does not form part of CBC’s taxable gross income based on the Asian Bank ruling.

Ruling of CA

CA affirmed the CTA ruling

Issue

Whether the 20% final withholding tax on interest income should form part of
CBC’s gross receipts in computing the gross receipts tax on banks
Ruling

The amount of interest income withheld in payment of the 20% final withholding tax
forms part of CBC’s gross receipts in computing the gross receipts tax on banks.

The Tax Code does not define the term “gross receipts” for purposes of the gross receipts
tax on banks. Absent a statutory definition, the BIR has applied the term in its plain and
ordinary meaning.

In ordinary terms “gross receipts” means the entire receipts without any deduction.
Deducting any amount from the gross receipts changes the result, and the meaning, to net
receipts. Any deduction from gross receipts is inconsistent with a law that mandates a tax
on gross receipts, unless the law itself makes an exception.

Under Revenue Regulations Nos. 12-80 and 17-84, as well as in several numbered
rulings, the BIR has consistently ruled that the term “gross receipts” does not admit of
any deduction.

The interpretation has yet to be changed until the present tax code. The legislature has
adopted the BIR’s interpretation, following the principle of legislative approval by re-
enactment.

The tax code does not define for gross receipts except for the amusement tax which is
also a business tax. It defines it as it “embraces all receipts of the proprietor, lessee or
operator of the amusement place.” The Tax Code further adds that “[s]aid gross receipts
also include income from television, radio and motion picture rights, if any.” This
definition merely confirms that the term “gross receipts” embraces the entire receipts
without any deduction or exclusion, as the term is generally and commonly understood.

Interest income forms part of Gross Receipts.

In Asian Bank, the Court of Tax Appeals held that the final withholding tax is not part of
the bank’s taxable gross receipts.

In Collector of Internal Revenue v. Manila Jockey Club, which held that “gross receipts
of the proprietor should not include any money which although delivered to the
amusement place has been especially earmarked by law or regulation for some person
other than the proprietor.” The tax court adopted the Asian Bank ruling in succeeding
cases involving the same issue.

CTA reversed its ruling in Asia Bank. In Far East Bank & Trust Co. v. Commissioner
and Standard Chartered Bank v. Commissioner, it ruled that the final withholding tax
forms part of the bank’s gross receipts in computing the gross receipts tax. The tax court
held that Section 4(e) of Revenue Regulations No. 12-80 did not prescribe the
computation of the gross receipts but merely authorized “the determination of the amount
of gross receipts on the basis of the method of accounting being used by the taxpayer.”

Section 121 of the Tax Code includes “interest” as part of gross receipts, it refers to the
entire interest earned and owned by the bank without any deduction. “Interest” means the
gross amount paid by the borrower to the lender as consideration for the use of the
lender’s money. This definition does not allow any deduction. The entire interest paid
by the depository bank, without any deduction, is what forms part of the lending bank’s
gross receipts.
CBC cites Collector of Internal Revenue v. Manila Jockey Club as authority that the final
withholding tax on interest income does not form part of a bank’s gross receipts because
the final tax is “earmarked by regulation” for the government.

Manila Jockey Club paid amusement tax on its commission in the total amount of bets
called wager funds from the period November 1946 to October 1950. But such payment
did not include the 5 ½ % of the funds which went to the Board on Races and to the
owners of horses and jockeys. We ruled that the gross receipts of the Manila Jockey Club
should not include the 5 ½% because although delivered to the Club, such money has
been especially earmarked by law or regulation for other persons.

The Manila Jockey Club does not apply to the cases at bar because what happened there
is earmarking and not withholding. Earmarking is not the same as withholding. Amounts
earmarked do not form part of gross receipts because these are by law or regulation
reserved for some person other than the taxpayer, although delivered or received. On the
contrary, amounts withheld form part of gross receipts because these are in constructive
possession and not subject to any reservation

In the instant case, CBC owns the interest income which is the source of payment of the
final withholding tax. The government subsequently becomes the owner of the money
constituting the final tax when CBC pays the final withholding tax to extinguish its
obligation to the government. This is the consideration for the transfer of ownership of
the money from CBC to the government. Thus, the amount constituting the final tax,
being originally owned by CBC as part of its interest income, should form part of its
taxable gross receipts.

CBC also relies on the Tax Court’s ruling in Asian Bank that Section 4(e) of Revenue
Regulations No. 12-80 authorizes the exclusion of the final tax from the bank’s taxable
gross receipts. Section 4(e) states that the gross receipts “shall be based on all items of
income actually received.”

The Tax Court erred in interpreting Section 4(e) of Revenue Regulations No. 12-80.
Income may be taxable either at the time of its actual receipt or its accrual, depending on
the accounting method of the taxpayer. Thus, the interest income actually received by the
lending bank, both physically and constructively, is the net interest plus the amount
withheld as final tax.

CBC’s contention that it can deduct the final withholding tax from its interest income
amounts to a claim of tax exemption. The cardinal rule in taxation is exemptions are
highly disfavored and whoever claims an exemption must justify his right by the clearest
grant of organic or statute law. CBC must point to a specific provision of law granting the
tax exemption. The tax exemption cannot arise by mere implication and any doubt about
whether the exemption exists is strictly construed against the taxpayer and in favor of the
taxing authority. CBC failed to cite any provision of law allowing the final tax as an
exemption, deduction or exclusion
 COMMISSIONER OF INTERNAL REVENUE, vs. THE PHILIPPINE
AMERICAN ACCIDENT INSURANCE COMPANY, INC., THE PHILIPPINE
AMERICAN ASSURANCE COMPANY, INC., and THE PHILIPPINE
AMERICAN GENERAL INSURANCE CO., INC.
G. R. No. 141658. March 18, 2005

Sec. 195-A. Percentage tax on dealers in securities; lending investors. Dealers in

securities and lending investors shall pay a tax equivalent to three per centum on their
gross income.

Neither Section 182(A)(3)(dd) nor Section 195-A mentions insurance companies. Section
182(A)(3)(dd) provides for the taxation of lending investors in different localities. Section
195-A refers to dealers in securities and lending investors. The burden is thus on
petitioner to show that insurance companies are lending investors for purposes of
taxation.

The definition in Section 194(u) of CA 466 is not broad enough to include the business of
insurance companies. The Insurance Code of 1978 is very clear on what constitutes an
insurance company. It provides that an insurer or insurance company shall include all
individuals, partnerships, associations or corporations xxx engaged as principals in the
insurance business, excepting mutual benefit associations.

Plainly, insurance companies and lending investors are different enterprises in the eyes
of the law. Lending investors cannot, for a consideration, hold anyone harmless from
loss, damage or liability, nor provide compensation or indemnity for loss. The
underwriting of risks is the prerogative of insurers, the great majority of which are
incorporated insurance companies

Facts

Respondents are domestic corporations licensed to transact INSURANCE business in the

country.

From August 1971 to September 1972, respondents paid the BIR under protest the 3%
tax imposed on lending investors by Section 195-A4 of Commonwealth Act No. 466 (the
NIRC applicable at that time)

Respondents paid the certain amounts from Philippine American ("PHILAM") Accident
Insurance Company, PHILAM Assurance Company and PHILAM General Insurance
Company. Such amounts represented 3% of each company’s interest income from
mortgage and other loans. Respondents also paid the taxes required of insurance
companies under CA 466.

Respondents sent a letter-claim to CIR seeking a refund of the taxes paid under protest
but did not receive a response, and so each respondent filed a petition for review with the
CTA.

RESPONDENTS ARGUED THAT THEY WERE NOT LENDING INVESTORS

AND AS SUCH WERE NOT SUBJECT TO THE 3% LENDING INVESTORS’
TAX UNDER SECTION 195-A.

The CTA ruled that respondents were not taxable on their lending transactions
independently of their insurance business and were entitled to their refund. Its decision
stated that respondents are not taxable as lending investors because the term "lending
investors" does not embrace insurance companies.
Originally, a person who was engaged in lending money at interest was taxed as a money
lender. The term money lenders was defined as including "all persons who make a
practice of lending money for themselves or others at interest." [Sec. 1465(v), id.] Under
this law, an insurance company was not considered a money lender and was not taxable
as such.

The lending of money at interest by insurance companies constitutes a necessary incident

of their regular business. For this reason, insurance companies are not liable to tax as
money lenders or real estate brokers for making or negotiating loans secured by real
property. The same rule has been applied to banks.

The term "money lenders" was later changed to "lending investors" but the definition of
the term remains the same.

The practice of lending money at interest is part of the insurance business. CA 466
already taxes the insurance business. The law recognizes and even regulates this practice
of lending money by insurance companies.

CA 466 also treated differently insurance companies from lending investors in regard to
fixed taxes. Insurance companies were subject to the same fixed tax as banks and finance
companies. The insurance companies were grouped with banks and finance companies
because the latter’s lending activities were also integral to their business. In contrast,
lending investors were taxed at a different fixed tax. Insurance companies had never been
required by respondent to pay the fixed tax imposed on lending investors.

CIR appealed to CA. CA affirmed CTA’s decision and ruled that respondents are not
taxable as lending investors.

Issue

Whether respondent insurance companies are subject to the 3% percentage tax as lending
investors under Sections 182 (A)(3)(DD) and 195-A, respectively in relation to Section
194 (U) of the NIRC.

Ruling

NO. The SC ruled that respondents are not liable to the 3% tax, that insurance companies
are not taxable as lending investors

In this case, petitioner does not dispute that respondents are in the insurance business.
Petitioner merely alleges that the definition of lending investors under CA 466 is broad
enough to encompass insurance companies. Petitioner insists that the two principal
activities of the insurance business, namely, underwriting and investment, are separately
taxable. CA 466 states:
(u) "Lending investor" includes all persons who make a practice of lending money
for themselves or others at interest.

The above provision does not tax the practice of lending per se. It merely defines what
lending investors are. The question is whether the lending activities of insurance
companies make them lending investors for purposes of taxation.

SC SAID THAT THE DEFINITION OF LENDING INVESTORS UNDER CA 466

DOES NOT INCLUDE INSURANCE COMPANIES.
The definition in 466 is not broad enough to include the business of insurance companies.
The Insurance Code of 1978 is very clear on what constitutes an insurance company. It
provides that an insurer or insurance company "shall include all individuals, partnerships,
associations or corporations xxx engaged as principals in the insurance business,
excepting mutual benefit associations." The respondents fall under the category of
insurance corporations as defined in Section 185 of the Insurance Code.

Insurance companies and lending investors are different enterprises in the eyes of the law.
Lending investors cannot, for a consideration, hold anyone harmless from loss, damage
or liability, nor provide compensation or indemnity for loss. The underwriting of risks is
the prerogative of insurers, the great majority of which are incorporated insurance
companies like respondents.

SC also stated that the Granting of Mortgage and other Loans are Investment Practices
that are Part of the Insurance Business.

But this were not done independently of the insurance business. The granting of certain
loans is one of several means of investment allowed to insurance companies. No less than
the Insurance Code mandates and regulates this practice.

Unlike the practice of lending investors, the lending activities of insurance companies are
circumscribed and strictly regulated by the State. Insurance companies cannot freely lend
to "themselves or others" as lending investors can, nor can insurance companies grant
simply any kind of loan.

The creation of investment income in the manner sanctioned by the laws on insurance is
part of the business of insurance, and the fruits of these investments are essentially
income from the insurance business.

The Court has also held that when a company is taxed on its main business, it is no longer
taxable further for engaging in an activity or work which is merely a part of, incidental to
and is necessary to its main business.

Respondents already paid percentage and fixed taxes on their insurance business. To
require them to pay percentage and fixed taxes again for an activity which is necessarily a
part of the same business, the law must expressly require such additional payment of tax.
There is, however, no provision of law requiring such additional payment of tax.

CA 466 do not require insurance companies to pay double percentage and fixed taxes.
They merely tax lending investors, not lending activities.

SC also ruled that there is a Different Tax Treatment of Insurance Companies and as
provided in CA 466

SC also found no merit in petitioner’s contention that Congress intended to subject

respondents to two percentage taxes and two fixed taxes. Petitioner’s argument goes
against the doctrine of strict interpretation of tax impositions.
 COMMISSIONER OF INTERNAL REVENUE vs. UNITED STATES LINES
COMPANY
G.R. No. L-16850. May 30, 1962
EN BANC

What Section 192 of the Tax Code purports to tax is the business of transportation, so
much so that the tax is based on the gross receipts.

The person liable is of course the owner or operator, but this does not mean that he and
he alone can be made actually to pay the tax. In other words, whoever acts on his behalf
and for his benefit may be held liable to pay, for and on behalf of the carrier or operator,
such percentage tax on the business.

Facts

U.S. Lines Company, a foreign corporation duly licensed to do business in the

Philippines, under the trade name "American Pioneer Lines", is the operator of ocean-
going vessels transporting passengers and freight to and from the Philippines. It is also
the sole agent and representative of the Pacific Far East Line, Inc., another shipping
company engaged in business in the Philippines as a common carrier by water.

In the examination of its books of accounts and other records to determine its tax
liabilities for the period from January 1, 1950 to September 30, 1955, it was found that
the Company also acted in behalf of the West Coast Trans-Oceanic Steamship Lines Co.,
Inc., a non-resident foreign corporation, in connection with the transportation, on board
the "SS Portland Trader" belonging to the latter, on November 27, 1951 and April 29,
1952, of chrome ores from Masinloc, Zambales to the United States, from which carriage
or transportation freight revenue in the total sum of $272,470.00 was realized by the
vessel's owner, and for which the 2% common carrier's percentage tax imposed by
Section 192 of the National Internal Revenue Code was never paid.

As a consequence, the Commissioner of Internal Revenue assessed and demanded from

the Company, as deficiency tax, (a) the sum of P6,691.36 for its own business under the
name American Pioneer Lines; (b) P5,429.00 as agent of Pacific Far East Line, Inc.; and
(c) P13,649.05 on the freight revenue of the West Coast Trans-Oceanic Steamship Lines
Co. from the carriage or transportation of the chrome ores, or a total of P25,769.41.

At the instance of the Company, a reinvestigation of the case was conducted and a
hearing thereon held before the Appellate Division of the Bureau of Internal Revenue.
These, notwithstanding, the Commissioner maintained his demand.

Thus, the Company filed a petition with the Court of Tax Appeals contesting the
correctness of the demand on the Company of the 2% carrier's percentage tax on the
gross receipts of the West Coast Trans-Oceanic Steamship Lines from the chrome ore
shipments of November 27, 1951 and April 29, 1952, among other issues.

The Company contended that a shipping agent is not personally responsible for the
payment of the tax obligations of its principal, reasoning that there is no law constituting
a shipping agent as a withholding agent of the taxes due from its principal. It further
stated that a shipping agent can only be held liable for the payment of the common
carrier's percentage tax if such obligation is stipulated in the agency agreement, or if the
agent voluntarily assumes the tax liability.
Issue

Whether or not the 2% percentage tax under Section 192 of the Tax Code is
imposable only on owners or operators of the common carrier

Ruling

NO. It adopts a very restrictive interpretation of Section 192 of the Tax Code. What the
legal provision purports to tax is the business of transportation, so much so that the tax is
based on the gross receipts.

The person liable is of course the owner or operator, but this does not mean that he and
he alone can be made actually to pay the tax. In other words, whoever acts on his behalf
and for his benefit may be held liable to pay, for and on behalf of the carrier or operator,
such percentage tax on the business.

In the circumstances, said respondent is under obligation to pay, for and in behalf of its
principal, the tax due from the latter. And, this is but logical, because, as provided in
Article 595 of the Code of Commerce, "the ship agent shall represent the ownership of
the vessel, and may, in his own name and in such capacity, take judicial and extrajudicial
steps in matters relating to commerce". If the shipping agent represents the ownership of
the vessel in matters relating to commerce, then any liability arising in connection
therewith may be enforced against the agent who is, as a consequence thereof, authorized
to take judicial or extrajudicial steps, either in the prosecution or defense of the owner's
rights or interests. As a matter of fact, if a foreign shipping company has a claim against
the Government in relation to commerce, its local shipping agent, by virtue of Article 595
of the Code of Commerce, can file such a claim in his own name. Conversely, and
logically, it must be admitted, the Government can hold the local shipping agent liable for
the taxes due from his, principal. This is, of course, without prejudice to the right of the
agent to seek reimbursement from his principal.