THE COLLECTOR OF INTERNAL REVENUE, PETITIONER, VS. MARIANO R. LACSON, RESPONDENT.

Respondent is a lessee of a forest concession in Bayawan, Oriental
Negros, under License No. 44, granted by the Secretary of Agriculture
and Natural Resources. On June 24, 1953, he was granted a certificate
of exemption from the payment of all taxes in connection, with the
manufacture of veneer and plywood from Philippine woods, based on the
provisions of Rep. Act No. 901.

From January, 1954 to August, 1955, respondent removed from the
concession covered by License No. 44, 11,147.96 cubic meters of logs of
which 7,059.96 cubic meters were used exclusively in the manufacture of
veneer and plywood. In a letter dated December 19, 1955, petitioner
demanded from respondent payment of the sum of P8,103.52 and P2,025.88
or a total of P10,129.40 as forest charges and surcharges claimed to be
due on the 11,147.96 cubic meters of logs. Respondent claimed exemption
from the payment of forest charges on logs used in the manufacture of
plywood and veneer to view of the provisions of Section 1 of Republic
Act No. 901. The only issue involved is whether or not forest charges
come within the purview of the, tax exemption under Republic Act No.
901.

The Court of Tax Appeals ruled that respondent is not liable fox the
payment of the forest charges on those logs used by him in the
manufacture of plywood and veneer, an industry exempted under Republic
Act No. 901. The said court however confirmed petitioner’s assessment
against respondent in the amount of P3,707.35 representing forest
charges and surcharges on logs exported abroad (to Japan).

Petitioner contests the jurisdiction of the Court of Tax Appeals
over the instant case on the argument that the ultimate dispute in the
same is over the power of the Secretary of Finance under Section 11 of
Republic Act No. 901 to determine the scope and extent of the privilege
of tax exemption granted to persons, partnerships, companies, or
corporations who shall engage in a new and necessary industry.

Contrary to the Court of Tax Appeals opinion, petitioner believes
that the tax exemption provided for in said Republic Act No. 901 is
limited to those taxes directly payable by the manufacturer
in respect to the manufacturer of veneer and plywood, clearly and
specifically enumerated as follows:

” (1) The fixed and privileges tax on business;

”
(2) The percentage tax on the sales of manufactured products in respect
to which, exemptions is granted and on raw materials and supplies to be
used exclusively in the manufacture of such products;

” (3) The compensating tax on machinery and equipment to he exclusively used in the new and necessary industry.”

” (4) The documentary stamp tax; and

” (5) The income in respect to the net income derived from the exempted industry.”

Petitioner contends that forest charges arising from the operation
of a forest concession are not taxes as may be gleaned from the
observation of the Tax Commission which recommend the enactment of the
National Internal Revenue Code:

“Forest charges, though not properly taxes, are
revised upward and the administrative provisions strengthened.” (Report
of Tax Commission, p. 10, Vol. I)

“Forest charges are to be
distinguished from taxes. They are, strictly speaking, the price which
the government charges for the privilege granted to concessionaires to
exploit the public domain, rather than a tax imposed to support the
general services of government. Since under the Constitution all timber
lands in the public domain belong to the State, sound public policy
demands that they be conserved or wisely exploited in order that the
patrimony of the nation may not be impaired. The increasing production
of lumber in recent years means both a more rapid depiction of our
forest resources and increasing expenditures by the government for
reforestation “which now amount to about half a million pesos a year.”
(Report of Tax Commission, p. 90, Vol. I)

The Court of Tax Appeals had jurisdiction over the instant case in
view of the fact that the decision sought to be reviewed therefor is
that of the Collector of Internal Revenue, dated December 19, 1955,
regarding respondent’s liability for forest charges and surcharges. The
said court’s conclusion regarding the limited grant of tax exemption by
the Secretary of Finance is merely incidental to the principal issue,
namely, the validity of the assessment by the Collector of Internal
Revenue.

We cannot be charged with having split respondent’s business into
two when we state that it is engaged in the separate and distinct
businesses of forest concession and manufacture of plywood and veneer.
Logs and lumber certainly are necessary to the manufacture of plywood
but the operation of a forest concession, for the purpose of
obtaining the required lumber, is certainly not indispensable for the
manufacture of plywood and veneer. The manufacturer of said plywood can
have his supply of lumber by purchasing the same from other forest
concessionaires (who are of course liable for forest charges). Of
course, it would be more profitable for the manufacturer were it to
operate its own lumber mills and to have its own forest concession.
This way, it would cut down on its expenses (in the manufacture of
plywood) by eliminating the factors that go into the purchase of lumber
and logs from other forest concessionaires.

In conclusion, this Court sustains the dissenting opinion of
Associate Judge Roman M. Umali and hereby orders the decision appealed
from reversed. No pronouncement as to costs. So ordered.

Bengzon, Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion, Endencia, Barrera, and Gutierrez David, JJ., concur.