COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS. UNITED STATES LINES COMPANY, RESPONDENT.

This is an appeal by the Commissioner of Internal Revenue from the
decision of the Court of Tax Appeals (in CTA Case No. 556) holding the
U. S. Lines Company liable for payment of common carrier’s tax
deficiency and surcharges in the total sum of only P502.75 instead of
P25,769.41 as originally assessed and demanded by appellant
Commissioner.

As found and stated in the decision of the Court of Tax Appeals, the
U. S. Lines Company, a foreign corporation duly licensed to do business
in the Philippines, name “American Pioneer Lines” (for referred to as
the Company), 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 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
$232,00.00 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 P6,001.86
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 correctioness of (1) the
conversion of “collect” revenues or those freight arid’ passage
receipts, commissions, and agency fees for services in the Philippines,
but payable in the United States, at the rate of P2.003.75 to $1.00 and
(2) 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.

The Court of Tax Appeals, in its decision, ruled for the Company on the first issue thus—

“We wish to make it dear that from the records of
the case, it appears that all the “collect” revenues, or those freight
charges, passage fares, commissions and agency fees collected in the
United States in United States currency belong to petitioner’s home
office in the United States and were not remitted to petitioner’s local
office in the Philippines. In short, the United States dollars
collected abroad were not actually converted to and received in
Philippine pesos, and therefore there is no occasion nor reason to use
a conversion rate aside from the legal rate of exchange, i.e., $1.00 to
P2.00. If we have placed the judicial stamp of approval on the agreed
conversion rates $1.00 to P2.015 and $1.00 to P2.02 with regard to
the ‘prepaid’ freight and passage revenues, respectively, we did so in
order to arrive at the actual amounts collected by the petitioner in
Philippine pesos—the correct taxable gross receipts. (Italics supplied)

As to the second issue, it ruled that the 2% percentage tax under
Section 192 of the tax Code is impossible only on owners or operators
of the common carrier, and as there is no law constituting the shipping
agent the withholding agent of the taxes due from the principal, said
shipping agent is not personally liable for the tax obligations of the
latter, unless the agent voluntarily assumes such obligation which, in
this case, the agent Company did not. Consequently, the petitioning
taxpayer was ordered to pay only a tax deficiency and surcharge in the
sum of P502.75. Hence, the institution of this appeal.

The ruling by the lower court that the conversion of the “collect” freight fees (or those earned in the Philippines but actually paid in the United States in dollar) should be at the rate of P2.00 to $1.00 as established by law (Sec. 48, Rep. Act No. 265), and not the rate of exchange
of P2.00375 to $1.00, as fixed by the Monetary Board, must be upheld.
No evidence was presented rebutting the positive allegation of
respondent taxpayer, which was sustained by the Tax Court, that the
“collect” freightage fees were not remitted to the local office of the
U. S. Lines Company (in the Philippines) nor actually converted to and
received In Philippine pesos. In other words, no foreign exchange
operations were involved here. The statement made in the Commissioner’s
brief (p. 20) that “it is uncontroverted that the respondent’s
(Company’s) dollar earnings here representing its so-called ‘collect’
revenues were accounted for thru its bank, the National City Bank of
New York at P2.00375 to a dollar, is not borne out by the records. What
appears is that the Company received certain amounts from its home
office in the United States to meet its local expenses, and these were
withdrawn from a letter of credit in the First City Bank of New York in
Manila at the rate of P2.00375 to a dollar. But the Company aserts—and
there is no evidence to the contrary—that there is no relationship
whatsoever between these funds and the freight fees collected in the
United States.

The other issue is whether on the facts of the case, the Company as
agent of the vessel “SS Portland Trader” in behalf of its owner, the
West Coast Trans-Oceanic Steamship Lines Company, can be compelled to
pay the 2% percentage tax on the freight revenue earned from the
shipment of chrome ores transported from the Philippines to the United
States. As stated earlier, the Court of Tax Appeals ruled, in the
negative, citing and adopting a unanimous decision of the defunct Board
of Tax Appeals rendered on July 30, 1953, purporting to interpret
Section 192 of the National Internal Revenue Code, in which it held
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.

If 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.

We can not agree to this view as applied to the present case,
because it adopts a very restrictive interpretation of Section 192 of
the Tax Code.^[1] 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 operators, 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.

It is claimed for the Company that it merely acted as a “husbanding
agent” of the vessel with limited powers. This appears not to be so, A
“husbanding agent” is the general agent of the owner in relation to
the ship, with powers, among others, to engage the vessel for general
freight and the usual conditions, and settle for freight and adjust
averages with the merchant.^[2]
But whatever may be the technical functions of a “ship’s husband”, the
Company, in the case at bar, was considered and acted more as a general
agent. The agency contract is not extant in the records. Still, from
the correspondence between the principal West Coast Trans-Oceanic
Steamship Lines and the Company itself, and with other entities
regarding the shipment in question, the real nature of the agency may
be gleaned. Thus, in the letter of West Coast Trans-Oceanic Steamship
Lines, dated October 20, 1951 (Exh. 30), giving instructions to the master of its vessel “SS Portland Trader”, it referred to respondent
Company as the “owner’s agents” at the loading point (Masinloc) to
which the vessel had to be consigned. In line with its designation
as the “Owner’s agent” and the vessel’s consignee, respondent Company 4
wrote the master of the vessel (Exh. 23) advising him that it had
secured Customs authority for the vessel to proceed to Masinloc, as
well as the Export Entry covering the loading of the ore, giving
instructions how to proceed with the loading and to keep it closely
advised of all movements and daily tonnages laden. It also undertook to
and did in fact prepare all the cargo documents. The corresponding bill
of lading for the cargo was prepared and signed by the respondent
Company “As Agent for West Coast Trans-Oceanic Steamship Line” wherein
it acknowledged the receipt of 9,900 long tons of chrome, a prerogative
act of a common carrier itself (p. 114, BIR record). Again, signing “As
Agents for West Coast Trans-Oceanic Steamship Line”, respondent Company
transmitted the shipping documents covering the shipment of ore to
Castle Cooke, Ltd., the vessel’s agent at Honolulu (Exh. 20). All these
were in respect to the first shipment on November 27, 1951.

Concerning the second shipment, we have first the letter of West
Coast Trans-Oceanic Steamship Lines, dated February 21, 1952 addressed
to respondent Company, advising it of the second trip of “SS Portland
Trader” and stating: “We trust that you will handle the vessel at
Manila and that your usual fee will apply”, and requesting respondent
Company to act also as supervisory agents at Saigon and Haiphong (p.
57, BIR records). The steamship company likewise, advised the master of
its vessel that “its agents for Masinloc” will be the respondent
Company from which “full assistance and information” could be obtained
(Exh. 18, dated March 12, 1952). Evidently accepting the designation,
respondent Company, representing itself as “the local agents” of the
vessel (Exh. 21, dated March 26, 1952), secured the entry and clearance
of the vessel at the customs. After the loading of ore at Masinloc,
again respondent Company prepared the shipping documents and signed the
bill of lading “As Agent for the West Coast Trans-Oceanic Steampship
Lines” (p. 114, BIR record).

All these documents show that respondent Company clearly acted—as it
held itself to the public and to the Government (specifically the
Bureau of Customs)—as the shipowner’s local agent or the ship agent
representing the ownership of the vessel. To adopt the view of the
trial court would be to sanction the doing of business in the
Philippines by non-resident corporations over which we have no
jurisdiction, without subjecting the same to the operation of our
revenue and tax laws, to the detriment and discrimination of local
business enterprises. We, therefore, hold that 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 extra judicial 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
extra-judicial 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.

The contention that the agreement between the principal and agent
solely determines the liability of the agent, is not tenable. Any
agreement or contract to be enforceable in this jurisdiction is
understood to incorporate therein the provision or” provisions of law
specifying the obligations of the parties under such contract. The
contract between herein respondent Company and its principal
consequently imposed upon the parties not only the rights and duties
delineated therein, but also the provisions of law such as that of the
Code of Commerce aforecited.

As to the third assigned error, i.e., the amount of taxable
receipts, the records are not clear. Petitioner Commissioner of
Internal Revenue claims that there are contradictions in and among the
three sets of summaries submitted by the respondent Company and they
should not have been considered by the trial court. On the other hand,
we find also that the assessments issued by the Commissioner are,
likewise, conflicting. In the present petition, the prayer sets the tax
delinquency of the respondent Company at P26,436.17, which is the
amount demanded in his letter of demand of June 6, 1958 (Exh. E, also
marked as Exh. 34).

In his brief, the Commissioner prays that respondent Company be
ordered to pay the sum of P25,769.41, the amount demanded in his letter
of June 28, 1956 (Exh. A, also marked as Exh. 26). In view of these
discrepancies, a re-examination and verification of the records is
necessary to determine the exact taxable amount on which the 2% common
carrier’s percentage tax is to be computed in accordance with the terms
of this decision.

Wherefore, the decision of the Court of Tax Appeals in this case is
modified as above-indicated, and the records remanded to the court a
quo for the purpose herein directs ed. No costs. So ordered.

Padilla, Bautista Angelo, Concepcion, Reyes, J. B. L., Paredes, Dizon, and Regala, JJ., concur.

^[1] “Sec. 192. Percentage tax on earners and keepers of garages.—
Keepers of garages, transportation contractors, persons who transport
passengers or freight for hire, and common’ carriers by land, air, or
water, except owners of bancas, and owners of animal-drawn two-wheeled
vehicles, shall pay a tax equivalent to two per centum of their gross
receipts: Provided, That those whose gross receipts do not exceed two
hundred pesos each quarters shall be exempt from the payment of the tax
provided for in this section.” (As amended by sec. 2, Rep. Act No. 39).

^[2] Bouvier’s Law Dictionary,
p. 3064, citing 4 B & Ad. 375; 1Y & C. 326; Turner vs. Burrows,
8 Wend. (N.Y.) 144; Gould V. Stanton, 16 Conn. 12