G.R. No. L-13355. January 28, 1961
PHILIPPINE MANUFACTURING COMPANY, PETITIONER VS. COLLECTOR OF INTERNAL REVENUE, RESPONDENT.
PADILLA, J.:
section 18, Republic Act No. 1125, for review of a judgment rendered by
the Court of Tax Appeals ordering the petitioner to pay the Government
the sum of P6,516.75 as specific tax on 43,445 lineal meters of
cinematographic films at the rate of P.15 per lineal meter it had
ordered produced by the Smith Sound System Laboratories from 19 May
1951 to 28 July 1956 (C.T.A. Case No. 309).
On 23 June 1955 the Collector of Internal Revenue assessed the Smith Sound System Laboratories as follows:
tax on 65,084 lineal meters of cinematographic films produced from 19
May 1951 to 29 December 1954 at the rate of P.15 per lineal metersLess specific tax paid on 2,967 lineal meters on 29 April 1953 (O. R. No. 389519)
tax on 1,498 lineal meters of cinematographic films entitled “Sex Gang”
produced prior to 19 February 1955 for export at P.15 per lineal meter
imposed by section 124 of the National Internal Revenue Code for
removal of cinematographic films produced without prepayment of
specific taxTotal amount assessed and demanded
and
demanded payment of the total sum of P10,042.25 (pp. 24-25, BIR rec.)
On 8 July 1955 the Smith Sound Systems Laboratories wrote to the
Collector of Internal Revenue requesting reconsideration and
countermanding of the assessment on the ground that with respect to the
65,084 lineal meters of cinematographic films it had produced, they
were educational films, hence exempt from payment of specific tax and
that with respect to the 1,498 lineal meters of cinematographic films
produced for export, they were still trying to secure from Mr. A. B.
Garcia of Deegar Cinema, Inc., who was in Europe, a copy of the export
papers (pp. 26-27, BIR rec.). On 14 April 1956 the law office of
Ozaeta, Lichauco & Picazo, counsel for the petitioner, wrote to the
respondent informing him that 30,920 lineal meters out of the 65,084
lineal meters of cinematographic films produced by Smith Sound Systems
Laboratories from 19 May 1951 to 29 December 1954 had been produced at
the petitioner’s instance; that if any tax was due on those 30,920
lineal meters of cinematographic films, it was the petitioner who
should pay the same; that those cinematographic films were “educational
films or cinematographic films used for visual education,” which are
expressly exempted by Section 146 of the National Internal Revenue Code
from the payment of the specific tax;” and that the said films were
being exhibited free of charge to the general public especially in the
rural areas by the petitioner (pp. 46-47, BIR rec.). On 28 July 1956
the same law office again wrote to the respondent to follow up its
letter dated 14 April 1956 and to inform him that from 1955 to 28 July
1956, the Smith Sound Systems Laboratories had produced for the
petitioner 12,525 lineal meters or more of cinematographic films which
were also “educational films or cinematographic films used for visual
education;” and that the said letter dated 14 April 1956 “apply with
equal force to these latter films” (p. 50, BIR rec.). On 6 August 1956
the respondent answered counsel that “while it is true that the
cinematographic films in question were used by our client, The
Philippine Manufacturing Company, to give information regarding the
proper nutrition and hints on health to the barrio people, yet it has
been definitely established that the primary purpose of your client in
producing the said cinematographic films was to use the same as the
media or vehicles in the promotion or advertisement of its products,”
and requested counsel to advise the petitioner “to pay the amounts of
P6,782.70 and P500 as specific tax and penalty, respectively, or a
total of P7,282.70” (Exhibits M, M-1, p. 54, BIR rec.). On the same
date, 6 August 1956, the respondent assessed the petitioner as follows:
Specific
tax on 32,693 lineal meters of cinematographic films produced from 19
May 1951 to 29 December 1954 at the rate of P.15 per lineal meterSpecific
tax on 12,525 lineal meters of cinematographic films produced from 1955
to 28 July 1956 at the rate of P.15 per lineal meter
imposed by section 124 of the National Internal Revenue Code for
Removal of cinematographic films produced without prepayment of
specific taxTotal amount assessed and demanded.
and
demanded payment of the total sum of P7,282.70 within five days from
receipt thereof (Exhibit 3, p. 56, BIR rec). On 24 August 1956 the
petitioner appealed from the foregoing assessment made by the
respondent to the Court of Tax Appeals. On 15 September 1956 the
respondent filed his answer on the petition for review, re iterating
his previous stand on the matter. After hearing, on 29 November 1957
the Court of Tax Appeals rendered judgment, the dispositive part of
which is as set forth at the beginning of this opinion. On 16 January
1958 the petitioner filed a notice of appeal from the foregoing
judgment in the Court of Tax Appeals and its petition for review in
this Court.
The Court of Tax Appeals found and held that
only the total of 43,445 lineal meters of cinematographic films are
subject to specific tax, because 1,773 lineal meters of the same films
had been returned by the petitioner to the producer. However, it
declined to order the petitioner to pay the compromise penalty of P500
for the reason that it is not within its competence to compel the
petitioner to accept a compromise penalty, the acceptance thereof being
left to its pleasure.
There is no dispute that 43,445 lineal
meters of cinematographic films had been produced by the Smith Sound
Systems Laboratories for the petitioner and that if any specific tax be
held legally due thereon, the latter would pay it. The only question to
be resolved in this appeal is whether or not the cinematographic films
in question are subject to specific tax imposed by section 146 of the
National Internal Revenue Code, as amended by Republic Act No. 295. The
said section provides:
There shall be
collected, only on cinematographic films, except educational films, or
cinematographic films used for visual education, imported into or
manufactured in the Philippines, the following taxes:(a) On films of more than eight but not more than sixteen millimeters in width, fifteen centavos per lineal meters; and
(b) On films of more than sixteen millimeters in width, twenty centavos per lineal meter.
This tax shall not be collected on any taxpaid cinematographic films
subsequently returned to the Philippines or unprinted positive film,
and on any reversal film used in amateur photography of sixteen
millimeters or less, and any taxes heretofore paid on cinematographic
films so returned, or on any negative films or unprinted positive
films, or on any reversal film, shall be refunded subject to the
provisions of section three hundred and nine.
To be exempt from payment of specific tax imposed by the aforequoted
section of the National Internal Revenue Code, it must be shown that
the cinematographic films imported into or manufactured in the
Philippines are “educational films or cinematographic films used for
visual education.”
Summarizing the evidence presented by the
petitioner in support of its contention that the cinematographic films
in question are educational or used for visual education the Court of
Tax Appeals said:
To justify its claim for
exemption, petitioner, as above-stated, exhibited before the Court
samples of the films in question, which were picked at random. One
film, entitled “How to Wash with Lava”, showed a woman washing clothes
with “Lava” soap, a produce of the petitioner. Another film, entitled
“Cooking is Fun”, depicted a woman demonstrating cooking techniques
before a group of women. It emphasized the advantages of using “Purico”
lard, a produce of petitioner. The other films portrayed young people
engaged in recreational activities such as picnics and outings. These
films were subtly produced to induce the unschooled mind to
inextricably associate the happy atmosphere obtaining in those
gatherings with the utility of “Star Margarine”, another produce of
petitioner.* * * * * * *
Petitioner’s own exhibits (Exhibits A to L), which are purportedly
letters from Municipal Mayors and various heads of different civic
organizations requesting and/or thanking petitioner for free shows in
the respective communities, bolster the court’s findings that the
subject films are not principally for educational purpose. Nowhere in
said exhibits can we single out any indication, confirmatory of the
contention that said films are educational. On the contrary, these
exhibits lead to the observation that the free exhibition of the films
in question was requested and petitioner was thanked for the
entertainment derived from the films.
The foregoing findings of the Court are not disputed but confirmed by the petitioner in its brief, as follows:
* * * In the case of the film showing how to clean and wash clothes
despite the use of a small quantity of soap, the picture showed that
the soap being used was one of those manufactured by petitioner,
Philippine Manufacturing Co. The wrapper of this soap bearing the name
and brand was prominently displayed. In the case of the film showing
the importance of vitamins and other nutritious elements that may be
found in certain products and how food should be properly cooked, the
film showed that the vegetable lard or shortening used by the cook who
was explaining how to properly cook food was Purico lard or, in other
words a shortening also manufactured by the petitioner-company. In the
case of the film showing how a farmer can harvest a hundred cavans of
rice from a hectare of land through the Margate System, none of the
products manufactured by petitioner appeared in the picture for the
simple reason that the petitioner does not manufacture any product used
in the planting or cultivation of rice. The only advertising value of
the picture derived by petitioner was the announcement to the effect
that the said film was being shown through the courtesy of the
Philippine Manufacturing Co. (pp. 23-24, petitioner’s brief.)
The cinematographic films in question are, therefore, not solely
“educational films or cinematographic films used for visual education.”
Their main purpose is to advertise the petitioner’s products, and
whatever information or lesson and educational value they tend to give,
convey or impart to the viewers are but incidental to the main purpose.
The petitioner is not a civic institution founded solely for the noble
purpose of serving the people, but a corporation organized for profit.
It is engaged in the manufacture of soap, lard and similar products. To
have its products known and bought by the people, the petitioner have
to resort to promotion or advertisement through the use of
cinematographic films, which is one of the media employed in modern
advertising. While the cinematographic films in question disseminate
educational and instructive information to the viewers, the
petitioner’s products are portrayed as the effective means of bringing
about a desired result and it is announced that the information is
being disseminated through the courtesy of the petitioner that
manufactures soap, lard and similar products. To follow the
petitioner’s argument that advertising is in itself a form of education
and any cinematographic film that tends to educate, disseminate
information or convey a moral lesson is, exempt from payment of
specific tax imposed by section 146 of the National Internal Revenue
Code, as amended, would result in an absurd interpretation of the law
which Congress never intended. If such be the case, then no
cinematographic film may be taxed thereunder in the guise of
educational value. For even the ordinary cinematographic films
exhibited in commercial theaters have an educational value for they
tend to convey a moral lesson or disseminate information. What the law
intends to exempt are only those used for educational purpose or those
employed for visual education. In determining what are educational
cinematographic films or those used for visual education, the
circumstances and purposes of the person, corporation, institution or
organization importing or manufacturing or causing them to be imported
or manufactured, should be taken into consideration. In the case at
bar, since their educational quality are but incidental to the main
purpose of promoting or advertising the petitioner’s products, they can
not fall within the class exempt from the payment of specific tax
imposed by section 146 of the National Internal Revenue Code, as
amended.
The judgment under review is affirmed, with costs against the petitioner.
Paras, C. J., Bengzon, Bautista Angelo, Labrador, Concepcion, Reyes, J. B. L., Barrera, Gutierrez David, Paredes, and Dizon, JJ., concur.