CHU HOI HORN, PETITIONER, VS. HON. COURT OF TAX APPEALS AND COLLECTOR OF INTERNAL REVENUE, RESPONDENTS.

The Court of Tax Appeals manifests fidelity both to the letter and
the spirit of the law when it appraises and evaluates the facts before it
diligently and well so as to frustrate any attempt on the part of a taxpayer,
or any taxpayer for that matter, under the prompting of self-interest, to
reduce to the minimum, if it could be done to the vanishing point no doubt, his
tax liability.  This appeal, therefore,
from its decision holding that petitioner’s trans­actions in neon lights was
one of sale rather than of lease and therefore taxable under the appropriate
provision of the National Internal Revenue Code,^[1]
cannot
possibly hope to succeed.  The affirmance of the above is all the more called for in view
of the authoritative command of Advertising Associates v. Collector of Internal
Revenue,^[2]
to which the respondent Collector of Internal Revenue rightfully yielded
obedience.

From an order of the other respondent, the Collector of Internal
Revenue holding petitioner Chu Hoi Horn liable for
the payment of the sum of P21,622.91, representing deficiency percentage tax on
his sales of neon signs from 1951 to the second quarter of 1953, the above
amount including surcharge and
compromise, an appeal was taken to the respondent Court of Tax Appeals.  From a decision of affirmance
of respondent Court, excluding the amount imposed as compromise, the appeal was
taken to us.

According to the decision of respondent Court of Tax Appeals, now
under review:  “The records show
that on June 29, 1953, petitioner filed a written claim for refund of the sum
of P1,696.95 with the Bureau of Internal Revenue alleging that for engaging in
the business of leasing neon signs he was not liable for the fixed and percentage
taxes as a contractor under Sections 182 and 191 of the National Internal
Revenue Code and that he was merely a business agent subject to a fixed annual tax of P60.00 * * *.  After investigation of the business
operations of the petitioner, respondent found that petitioner was not actually
leasing neon signs but was selling the same; hence, he assessed the deficiency
sales tax mentioned above after deducting the amount of the percentage tax
previously paid by petitioner as contractor under Section 191 of the Revenue
Code.”^[3]

It was stated in the aforesaid decision of respondent Court of
Tax Appeals that in holding petitioner liable, the respondent, Collector of
Internal Revenue, relied greatly on the findings of his conference staff which
conducted a hearing on the matter upon the request of petitioner himself. 
The memorandum submitted to respondent Collector likewise found favor
with respondent Court of Tax Appeals, which did not neglect to review the other
evidence of record in reaching the decision of affirmance,
except the exclusion of the compromise penalty in the sum of P300.00.

The Court of Tax Appeals, to repeat, gave the seal of approval to
such a conference report.  It is easy to
understand why.  The liability of
petitioner was made to rest on facts given due weight in such report which on
its face carried then, and carries now, conviction.  “While the taxpayer submitted certificates
of the various customers wherein they stated that, they were lessees of the
neon signs installed by the taxpayer as their place of business, nonetheless,
upon investigation conducted by an agent of this Office these customers stated
that the neon signs were sold to them and that upon payment of the last
installment, the said neon signs become their property.  Among these customers are the Oregon Hotel, Far Eastern Surety & Insurance
Company, Canada Cafe, and American Studio.”^[4]

A minute analysis of the agreements entered into between taxpayer
and its various customers according to such report likewise revealed “that
the term of the ‘lease’ corresponds with the number of installments of the ‘rent’
which would be required to total the stated value of the neon signs.”^[5]
Again both respondent Collector
of Internal Revenue and respondent Court of Tax Appeals were duly impressed by
is significance.  Nor did it escape the
attention of such conference staff that the use of the word “install”
in one of the contracts was quite indicative of the true intent of petitioner
and its customers, namely, that it “was to be one of sale and
[contemplated] transfer of ownership of the neon sign to the customer.”^[6]

Accordingly, such a report ended on this note:  “The ‘advance rental’ paid upon signing
of the agreement represents a substantial portion of the cost of the construction and installation which
signifies that it represents advance payment on the cost of the neon sign.  Furthermore, the total of all the payments
during the term of the lease covers exactly the entire cost of construction and
instal­lation of the neon sign.  If these
‘rentals’ are not for the account of the cost of the neon sign the contract
would be scandalously immoral for being usurious and oppressive.  These payments are evidently to cover the
cost of the neon sign.  It is obvious from these contracts that the intent
of the parties was to have the total of the payments equal the construction and
installation cost of the neon
sign which is a strong indication that the real intent [was for] the neon sign
to [go to] the ‘lessee’ upon the termination of the term of the alleged ‘lease’.”^[7]

What other conclusion could therefore be derived from the above
than the one reached by respondent Collector of Internal Revenue?  After a careful review of the matter, the
respondent, Court of Tax Appeals was “of the opinion that the foregoing
findings and conclusions are fully supported by the evidence.”^[8]
It enter­tained “no doubt in [its mind] that the neon signs made or constructed
by petitioner for his customers were sold and not merely leased.  This is further strengthened by the fact that
a neon sign made specially for a customer is useless to any other person.”^[9]

What then could be more logical and reasonable than to up­hold
the action of respondent Collector of Internal Revenue considering that if a
neon sign were “useless to any person other than the one for whom it was
made, it is incredible that petitioner should merely lease it instead of
selling it to the one for whom it was specially made.”^[10]

What other assumption could be entertained then other than that a
resort to a lease agreement by petitioner should be viewed as an attempt to
give the transaction a legal character it did not possess and thus reduce
considerably its tax liability.  Both
respondent Court of Tax Appeals and respondent Collector of Internal Revenue so
concluded and thus held petitioner liable for the tax to which under the law it
was properly subjected.

In the appeal to us, four errors are assigned as having been
committed by respondent Court of Tax Appeals, namely, that it should not
consider the findings of the conference staff of the Collector of Internal
Revenue as fully supported by the evidence; that the holding that there was a
sale and not a lease of the neon signs was not in accordance with the
agreements between petitioner and its customers which should not have been
considered as having been devised to avoid the payment of taxes due; that
petitioner should not have been held liable for the amount of P21,322.91 as
deficiency tax plus surcharge, the compromise of P300.00 having been set aside;
and that instead, it should have been granted a refund in the amount of
P1,696.95.

The first two errors are factual in character.  No further attention need be paid them.  “This Court is bound by the finding of
facts of the Court of Tax Appeals, especially so, where as here, the evidence
in support thereof is more than substantial, only questions of law thus being
left open to it for determination.”^[11]

Such an approach to problems of this character does not only have
a legal basis but is dictated by the realities of the situation.  A tribunal like the Court of Tax Appeals
necessarily develops expertise, dealing as it does with one particular branch
of the law; it can be relied upon, therefore, at least on factual matters to
make full and judicious use of the knowledge that has acquired through such
long years of experience.  It is in a
position to appreciate fully the manifold complexities usually associated with
tax problems and thus to come up with the correct solutions.  It has been the invariable policy of the
Court therefore, not to substi­tute its discretion for that of respondent Court
of Tax Appeals.  Petitioner has not shown
any reason why there should be a deviation from such a norm.

With the first two errors factual in character and therefore not
calling for any further inquiry from us, it is apparent why the third and the
fourth errors which would find fault with respondent Court of Tax Appeals in
not refunding petitioner with the sum of P1,696.95 which it claims as
overpayment and holding him liable for P21,322.91 would be equally devoid of
substance.

Moreover, as noted at the outset of this decision, respondent
Court of Tax Appeals, even if it were minded, could not refuse to submit to the
dictates of our holding in Advertising Associates, Inc. v. Collector of
Internal Revenue,^[12] without a breach of the rule of law
which bids inferior tribunals to apply in appropriate cases the legal principle
as authoritatively determined by us.

It would not be inappropriate then to refer even if briefly to
Advertising Associates, Inc. v. Collector of Internal Revenue.  Petitioner there, as petitioner here,
contended “that it is not a manufacturer but only a contractor of
neon-tube signs for the reason that it makes neon-tube signs, electric signs,
and electric advertising devices only by contract and by previous order of the
party paying for the signs or devices;
* * *.”^[13]

This Court in an opinion by Justice Montemayor,
took note of the extensive arguments offered as to the meaning of manufacturer
in an endeavor to show that it did not belong is such a category.  The feeling of this Tribunal, however, was
that there was “no need of seriously considering said authorities and
arguments because the decisive point involved in the case is the meaning and
purpose of [the then] section 185(k) of the Tax Code.”^[14]

What such a purpose is, was made clear in this wise:  “From the time that the tax on neon-tube
signs, electric signs, and electric advertising devices was imposed there had
been no such neon-tube signs and electric devices mass-produced for sale to the
public.  And even at the present time
petitioner admits that no such signs and devices are made or sold to the public
except upon orders by the customers. 
This being the case, and if as contended by petitioner that its business
of making manufacturing neon-tube signs, electric signs, and electric
advertising devices does not come under section 185(k) of the Tax Code then one
may ask what neon-tube signs, electric signs, and electric advertising devices
does said section 185(k) tax?  As the Tax
Board aptly frames the question in the last part of this decision:  ‘If petitioner does not come within the
purview of section 185(k) of the Tax Code, what neon-tube signs, electric
signs, and electric advertising devices does Congress intent to tax?’ The
answer would be ‘none’.  In other words,
Congress would be placed in the position of imposing a tax on something that
did not exist and so will have performed a futile and useless legislative
act.”^[15]

The opinion likewise quoted Sutherland on Statutory Construction,
thus:  “A statute is a solemn
enactment of the state acting through its legislature and it must be assumed
that this process achieves result.  It
cannot be presumed that the legislature would do a futile thing.”^[16]

Needless to say, the rationale of the above decision commends
itself for acceptance, not only for its highly realistic view but also for the
sound and orthodox approach to the problem of construing tax statutes.  It is readily apparent that if in a situation
like the present, any other view would be entertained, then a legislative
enactment in pursuance of the power to tax would be condemned as a mere
exercise in futility.  The controlling
principle must ever be to promote, not to frustrate, the objective the law
intends to achieve.

It is crystal clear therefore that on the above facts as found by
respondent Court of Tax Appeals, which to repeat, we cannot alter, both authority and
reason unite in the conclusion that peti­tioner, should not be allowed to
escape liability.

WHEREFORE, the decision of respondent Court of Tax Appeals
of September 16, 1963 is
affirmed.  With costs against petitioner Chu Hoi Horn.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Sanchez,
Castro, Angeles, and Capistrano, JJ., concur.

Zaldivar, J., on official leave.

^[1]
Section 185(k).

^[2]
97 Phil. 636 (1955).

^[3]
Decision of Respondent Court of Tax Appeals, Annex A of Brief for Petitioner, p. 63.

^[4]
Ibid, p. 66.

^[5]
Ibid, p. 66.

^[6]
Ibid, p. 68.

^[7]
Ibid, pp. 68-69.

^[8]
Ibid, p. 69.

^[9]
Ibid, p. 69.

^[10]
Ibid, p. 70.

^[11]
Alhambra Cigar & Cigarette Manufacturing Co. v. Commission of
Internal Revenue, L-23226, November
28, 1967.

^[12]
97 Phil. 636 (1955).

^[13]
Ibid, p. 638.

^[14]
Ibid, p. 639.

^[15]
Ibid, p. 640.

^[16]
Ibid, p. 640.