REPUBLIC OF THE PHILIPPINES, PLAINTIFF-APPELLANT, VS. BLAS GONZALES DEFENDANT-APPELLANT.

This is an appeal from the
decision of the Court of First Instance of Manila under Civil Case No. 42912 the
dispositive portion of which provided:

“In view of the foregoing,
judgment is hereby rendered in favor of the plaintiff and against the defendant,
ordering said defendant to pay plaintiff the sums of P106, 226.75 and P37,849.58 as deficiency income taxes for the years 1946 and
1947, respectively, (each inclusive of the 50% surcharge, plus the 50% surcharge
and 1% monthly Interest on the aforesaid amount from June 15, 1957 until the
whole amount is fully paid, and cost of this
suit.”

The records of this case disclose
that since 1946, the defendant-appellant, Bias Gonzales, has been a private
concessionaire in the U.S. Military Base at Clark Field,
Angeles City. He was engaged in the
manufacture of furniture and, per agreement with the base authorities, supplied
them with his manufactured articles.

On March 1,1947 and March 1,
1948, the appellant filed an income tax returns for the years 1946 and 1947,
respectively, with the then Municipal Treasurer of Angeles, Pampanga. In the return for 1946, he declared a net income
of P9, 352.84 and income tax liability at P111.17 while for the year 1947, he
declared as net income the amount of P16,829.10 and a
tax liability therefor in the sum of P1, 395.95. In
the above two returns, he declared the sums of P80,459.75 and P1,707,355.57 as
his total sales for the said two years, respectively, or an aggregate sales of
P1,787,848.32 for both years.

Upon investigation, however, the
Bureau of Internal Revenue discovered that for the years 1946 and 1947, the
appellant had been paid a total of P2,199,920.50 for
furniture delivered by him to the base authorities. The appellant does not deny
the above amount which, for the record, was furnished by the Purchasing Officer
of the Clark Field Air Base on the Bureau of Internal Revenue’s
representation.

Compared against the sales figure
provided by the base authorities, therefore, the amount of P1, 787, 848.32
declared by the appellant as his total sales for the two tax years in question
was short or underdeclared by some P412,072.18.
Accordingly, the appellee considered this last
mentioned amount as unreported item of income of the appellant for 1946. Further
investigation into the appellant’s 1946 profit and loss statement disclosed
“local sales,” that is, sales to persons other than the United States Army, in
the amount of P124,510.43. As a result, the appellee likewise considered the said amount as unreported
income for the said year. The full amount of P124,510.43 was considered as taxable income because the
appellant could not produce the books of account on the same upon which any
deduction could be based.

Adding up the above two items
considered as unreported income, the appellee assessed
the appellant the total sum of P340,179.84, broken down
as follows:

Net income as per return		P 9,352.84
Add: Sales to US Army	P492,531.93
Local Sales	124510.43	536,582.61
Net income as per investigation		545,935.45
Less: Personal & additional exemptions		4,500.000
		____________
Net taxable income		P541,435.45
Tax due thereon		P226,897.73
Less: Tax already assessed		111.17
		____________
Deficiency tax due		P226,786.56
50% surcharge		113,393.28
TOTAL AMOUNT DUE & COLLECTIBLE		P340,179.84
		____________

On November 14,
1953, the
Bureau of Internal sent a letter of demand to the appellant for the above amount
as deficiency income tax, the sum of P300.00 as com-promise for his failure to
keep the required journal and ledger, and finally, the sum of P153.75 as
additional residence tax, all for the year 1946.

On March
31, 1954,
on request of the appellant, the Bureau of Internal Revenue reinvestigated the
case. At the end of this new inquest, however, the appellee, thru the then Collector of Internal Revenue, insisted on the payment of the original assessment
of P340, 179.84. It suggested, though, that if the appellant disagreed with the
said finding he could submit the same for study, review and decision by the
Conference Staff of the Bureau of Internal Revenue. In due time, the above
assessment was heard before the said body which, subsequently, recommended a
reduction of the same to P249.289.26, a deficiency income tax for the year 1946.
After the recommendation was approved by the Bureau, the corresponding
assessment notice for the sum of P249,289,26 as deficiency income tax and 50%
surcharge for the year 1946 and 1% monthly interest and penalty incident to
delinquency was forthwith issued to the appellant.

On May 21,
1967, the
above assessment was further revised by segregating the appellant’s tax
liability for the two years in question. Pursuant to a memorandum of the BIR
Regional Director of San
Fernando, Pampanga, another demand was made upon the appellant for the
payment of P106, 220.75 and P37,849.58 as income taxes
due from him for the years 1946 and 1947, respectively, or a total of P144,
076.33.

When the appellant failed to pay
the above demand, appellee instituted the present suit
on April 7,
1960. The
appellant filed his answer on July 7,
1960 and
amended it on July 19,
1960.

Prior to the trial of the case,
the appellant filed with the court below a motion to dismiss grounded on
prescription ad lack of jurisdiction. The same was, however, denied by the lower
court as unmeritorious. Moreover, for failure of the appellant or his counsel to
appear at the scheduled hearing, the defendant-appellant was declared in
default. The motion for reconsideration of this last order declaring the
appellant in default for failure to appear was also denied by the trial court
for lack of merit.

On November
7, 1960,
after the appellee had presented its documentary
evidence against the appellant, the lower court rendered the decision under
appeal.

The appellant ascribes several
errors to the decision of the court a quo, the more fundamental of which is the
claim that as a concessionaire in an American Air Base, he is not subject to
Philippine tax laws pursuant to the United States-Philippine Military Bases
Agreement. In support of the claim, the following provision of the above Bases
Agreement is invoked:

“Article
XVIII.-Sales and Services within the Bases.

“1. It is mutually agreed that
the United States shall have the right to establish on bases, free of all
license; fees; sales excise or other taxes or imposts; Government agencies
including concessions, such as sales, commissaries and post exchanges, masses
and social clubs, for the exclusive use of the United States military forces and
authorized civilian personnel and their families. The merchandise or services
sold or dispensed by such agencies shall be free of all taxes, duties and
inspection by the Philippine authorities. Administrative measures shall lie
taken by the appropriate authorities of the’
United
States to prevent the sale of goods
which are sow under (he provisions of this Article to persons not entitled to
buy goods at such agencies, and, generally, to prevent abuse of the privileges
granted under this Article. There shall be cooperation between such authorities
and the Philippines to this
end.

“2. Except as
may be provided in any other agreements, no persons shall habitually render any
professional services in a base except to or for the
United
States or to or for the persons
mentioned in the preceding paragraph. No business shall be established
in a base, it being understood that the Government agencies mentioned the
preceding paragraph shall not be regarded as businesses for the purpose of this
Article.”

The contention is clearly
unmeritorious.

The above provision of the
Military Bases Agreement has already been interpreted by this Court in at least
two cases, namely: Canlas vs. Republic, G. R. No.
L-11035, May 31,
1958 and Naguiast vs. J. A. Araneta, G. R.
No. L-11594,
December 22,
1958. In
the latter case this Court said:

“The provision relied upon by the
appellant plainly contemplates limiting the exemption from the licenses, fees
and taxes enumerated therein to the right to establish Government agencies,
including concessions, and to the merchandise or services sold or dispensed by
such agencies. The income tax, which is certainly not on the right to establish
agencies or on the merchandise or services sold or dispensed thereby, but on the
owner or operator of such agencies, is logically excluded. The payment by the
latter of the income tax is perfectly consistent with and would not frustrate
the obvious objective of the agreement, namely, to enable the members of the
United States Military Forces and authorized civilian personnel and their
families to procure merchandise or services within the bases at reduced prices.
This construction is unmistakably borne out by the fact that, in dealing
particularly with the matter of income tax, the Military Bases Agreement
provides as follows:

‘INTERNAL REVENUE TAX
EXEMPTION

‘1. No member of the United
States armed forces, except Filipino citizens, serving In the Philippines in
connection with the bases and residing in the Philippines by reason of such
services or his dependents, shall be liable to pay income tax in the Philippines
except in respect of income derived from Philippine
sources.

‘2. No national of the United
States serving in or employed in the Philippines in connection with the
maintenance, operation or defense of the bases and residing in the Philippines
by reason only of such employment, or his spouse, and minor children and
dependent parents of either spouses, shall lie liable to pay income tax in the
Philippines except in respect of income derived from Philippine source or
sources than the United States source.

‘3. No persons referred to in
paragraphs 1 and 2 of this article shall be liable to pay the Government or
local authorities of the Philippines any poll or residence tax, or any import or
export duty, or any other tax on personal property imported for his own use;
provided that privately owned vehicles shall be subject to the payment of the
following only; When certified as being used for military purposes by
appropriate United States authorities, the normal license plate and registration
fees.

‘4. No national of the United
States, or corporation organized under the taws of the United States, resident
in the United States, shall be liable to pay income tax in the Philippines in
respect of any profits derived under a contract made in the United States in
connection with the construction, maintenance, operation and defense of the
bases, or any tax in the nature of a license in respect of any service or work
for the United States in connection with the construction, maintenance,
operation and defense of the bases.’

“None of the above-quoted
covenants shields a concessionaire, like the appellant, from the payment of the
income tax. For one thing, even the exemption in favor of members of the United
States Armed Forces and nationals of the
United
States does not include income derived
from Philippine sources.

“The appellant cannot seek refuge
in the use of ‘excise’ or ‘other taxes or imposts’ in paragraph 1 of Article
XVIII of the Military Bases Agreement, because, as already stated, said terms
are employed with specific application to the right to establish agencies and
concessions within the bases and to the merchandise or services sold or
dispensed by such agencies or concessions.”

The same conclusion was reached
in the case of Cantos vs. Republic, supra.

The appellant maintains, however,
that the rulings in the above two cases are inapplicable to the suit at bar
because the said cases involved the income of public utility operators in the
Air Base who were not “concessionaires” like him.

The above contention is as
unmeritorious as it is untrue. In the case of Araneta vs. Manila Pencil Company Inc., G. R. No.
L-8182, June 29,
1957,
this Court already ruled that operators of freight and bus services are within
the meaning of the word “concession” appearing in the Military Bases Agreement.
Thus, in the Canlas case above, We said:

“There is no dispute as to the
fact that defendant Manila Company, as successor-in-interest of the Philippine
Company, as successor-in-interest of the Philippine Consolidated Freight Lines
Inc., was engaged in and duly licensed by the U.S. Military authorities to
operate a freight and bus service within the Clark lie Air Base, a military
reservation established in conformity with the agreement concluded between the
Government of the Philippines and the United States on March 14, 1947 (43 Off.
Gaz., No.3, p. 1020). And as such grantee of a
franchise, which this Court was held to be embraced within the meaning of the
word ‘concession’ appearing in the treaty and was declared exempted from the
payment of the contractor’s tax (Araneta vs.
Manila Pencil Company, G. R. No. L-8182, June 29,
1957)* *
*.”

It is very clear, therefore, that
the rulings of this Court in the two cases above cited are applicable to this
appeal under consideration.

The other point raised by the
appellant on this appeal pertains to the refusal of the trial court to
reconsider its order declaring him in default for the failure of his counsel to
appear at the scheduled trial despite due notice. He complains that when the
trial proceeded in his absence, he was denied his day in court. In the premises,
his counsel insists that his absence then was for a good and reasonable
cause.

Suffice it to say in regard to
the above that the matter complained of is beyond this Court to disturb. The
matter of adjournments, postponements, continuances and reconsideration of
orders of default lie within the discretion of courts and will not be interfered
with either by mandamus or appeal (Samson vs. Naval, 41 Phil. 838) unless
a showing of grave abuse can be made against said courts. Moreover, where
absence of a party from the trial was due to his own fault, he should not be
heard to complain that he was deprived of his day in court. (Sandejas vs. Robles, 81 Phil. 421;
Siojo vs. Tecson, 88
Phil. 531.

The counsel’s excuse for his
absence at the trial was alleged “lack of transportation facilities in his place
of residence at Gagalangin, Tondo, Manila, on that morning of August 8,
when torrential rain poured down in his locality.” The lower court did not deem
this as a sufficiently valid explanation because it observed that despite such
torrential rain, the counsel for the plaintiff-appellee, a lady attorney who was then a resident of a
usually inundated area of Sampaloc,
Manila, somehow made it to the court.
Under these circumstances, the trial court’s ruling can hardly be considered as
an abuse of his discretion.

Finally, the appellant disputes
the lower court’s finding of fraud against him in this incident. He argues that
the facts invoked by the lower court do not sufficiently establish the
same.

As rightly argued by the
Solicitor General’s office, since fraud is a state of mind, it need not be
proved by direct evidence but may be inferred from the circumstances of the
case. The failure of the appellant to declare for taxation purposes his true and
actual income derived from his furniture business at the Clark Field Air Base
for two consecutive years is an indication of his fraudulent intent to cheat the
Government of its due taxes.

“The substantial underdeclaration of income in the income tax returns of the
appellant for four consecutive years, coupled with his intentional overstatement
of deductions made the imposition of the fraud penalty proper.” (Eugenio Perez vs. Court of Tax
Appeal and the Collector of Internal Revenue, G. R. No.L-10507, May 30,
1958.)

IN VIEW OF ALL THE
FOREGOING,
judgment is hereby rendered affirming in full the decision here appealed from,
with costs against the defendant-appellant.

SO
ORDERED.

Bengzon, C. J., Bautista Angelo, Concepcion, Reyes, J. B. L., Barrera, Dizon, Makalintal, Bengzon, J. P. and Zaldivar, JJ., concur.