VISAYAN CEBU TERMINAL CO., INC., PETITIONER AND APPELLANT, VS. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT AND APPELLEE. D E C I S I O N

Pursuant to a Management
Agreement entered into by and between the Bureau of Customs and the Visayan Cebu Terminal Co., Inc.,
on June 24, 1957, after a public bidding the
latter as Contractor, was appointed the sole manager of the Arrastre Service at the
Port of Cebu, covering import cargoes,
including transit import cargoes. The salient features of the Management
Agreement, pertinent to the case under consideration, are:

“This agreement, made and entered
into this 24th day of June, 1957, in the City of Manila, by and between the
Bureau of Customs, in the exercise of the powers conferred upon it by Act No.
3002, as amended by Commonwealth Act No. 285 and Republic Act No. 140,
hereinafter called the BUREAU, and the Visayan-Cebu Terminal Company, Inc., a corporation duly
organized and existing by virtue of and under the laws of the Republic of the
Philippines, with principal office in the City of Cebu, Philippines, and represented in this transaction by
its President duly authorized and empowered to legally bind the corporation
hereinafter called the CONTRACTOR.

* * * * * *
*

2. During the period while this
agreement remains in force and effective, the CONTRACTOR shall be, and the
BUREAU does hereby appoint the CONTRACTOR, sole manager of the Arrastre Service at the Port of Cebu, * * *, subject always, however, to the terms,
conditions, restrictions, subjections, supervisions and provisions in this
agreement contained, * * *.

23. It is further understood and
agreed that in consideration of the rights and privileges granted the CONTRACTOR
for the management of the Arrastre Service, the Bureau
shall receive twenty-eight per centum (28%) of the total monthly gross income derived from whatever source in
connection with the operation of the Arrastre Service,
payable monthly within ten (10) days of the succeeding
month.”

* * * * * *
*

On November 26,1958, Restituto Bacareza of the Bureau
of Internal Revenue, Manila, demanded of the Company the payment of P121,919.45,
due the government, covering percentage taxes and penalties, for the period from
August 24, 1956 to October 31, 1958. The company, on December 18,
1958,
replied that it was not liable for the 3%, percentage tax demanded. Thereafter,
the books of the company (petitioner herein) were examined by two Internal
Revenue Examiners (Pascual and Fuentes) who were
introduced to the company by Andres Relampagos, then Provincial Revenue Officer of Cebu, in a formal letter dated March
24, 1959.
The two examiners, on April 7, 1959, issued a certificate that they had gone
over the books of the company and made a memorandum to the Provincial Revenue
Officer, stating that the petitioner was not “subject to the 3% percentage tax
contemplated in Section 191 in relation to 182, both of the National Internal
Revenue Code, as amended, because they are paying 28% straight based on their
gross receipts as per contract entered into and by the Bureau of Customs, hence
no assessment could be made”. Inspite of the
Memorandum, the Deputy Commissioner of Internal Revenue, Melecio Domingo, wrote the petitioner, advising that it was
liable to the government in the total sum of P73,072.17, as percentage taxes and surcharges. After a series
of communications, the liability of the petitioner was computed at P56,202.97, including P4,000.00 as compromise penalty, which was
finally reduced to P52,172.97. The compromise penalty was also reduced from
P4,000.00 to P500.00.

Not satisfied with the
assessment, the petitioner appealed the case to the Court of Tax Appeals, which
rendered judgment, the pertinent portions of which read: “Having found
petitioner to be within the ambit of Section 191 of the Tax Code, it follows
that it is liable for the payment of the percentage tax provided therefor.

“In the alternative, petitioner
contends that since the 28% of gross receipts goes to the Bureau of Customs as
its share, the same should not be included in computing the 3% percentage
tax.

“We agree to this contention. The
total amount of cash received by petitioner an its earnings from the arrastre operation without including any amount of money
that did not go to its funds as its property should be deemed its gross
receipts, liable to the payment of the percentage tax. Indeed, gross receipts
should not include any money that has been especially earmarked for some other
person (Commissioner vs. Manila Jockey Club, Inc., 108 Phil., 821). And the
government could not have intended to consider as gross receipt the 28% that
went to one of its institutions, the Bureau of Customs, and thereby collect
percentage tax on it from petitioner. To hold petitioner liable for the payment
of percentage tax is unquestionably unjust and not contemplated by Section 191
of the Tax Code.

“WHEREFORE, the decision appealed
from is hereby modified in the cense that petitioner Visayan Cebu Terminal Co., Inc.,
is ordered to pay the Commissioner of Internal Revenue the sum of r41.416.38, as
unpaid percentage tax and 25% surcharge. Without special
pronouncement as to costs.”

The above judgment is now before
Us, on appeal by both parties. Petitioner claims that
the same is “contrary to law because it completely disregards the fact that the
subject company is merely acting as the Manager of the Bureau of Customs, which
entity is the one really subject to tax, if the said tax is to be imposed”, and
prays a reversal of such judgment. Upon the other hand, the Commissioner alleges
that the CTA erred in exempting the corporation from paying percentage tax on
the 28% delivered to the Bureau of Customs.

It would seem that in the appeal
of petitioner company the only issue raised for
determination is whether or not petitioner is liable for the payment of the 3%
percentage tax as provided for in Section 191 of the National Internal Revenue
Code. The said section provides:

“Percentage tax
on road, building, irrigation, artesian well, waterworks and other construction
work contractors, or proprietors or operators of dockyards, and
others. Road,
building, irrigation, artesian well, waterworks, and other construction work
contractors; arrastre contractors; * * *, shall pay a tax
equivalent to three per centum of their
grow receipts.”

Admittedly petitioner, as found
by the Court of Tax Appeals, is an arrastre contractor, under the reproduced
section of the Tax Code. The nature of the work undertaken by petitioner is more
than sufficient to show that it is an arrastre contractor, which renders service
covering the handling of cargoes at piers and wharves (Sadaya vs. Coll. of Int. Rev., 99 Phil. 297.)
It will also be noted that in the very Management Agreement, petitioner has been
categorically referred to as CONTRACTOR. Being a contractor, the petitioner is
subject to the percentage tax.

The contention that it being
merely the manager of the Bureau of Customs, it should not be subject to tax, is farfetched. The mere fact that it
pays the Bureau of Customs 28%; of its gross receipts, does not detract from its
character as Contractor. If the Bureau of Customs is the principal of
petitioner, there is no sense in giving said Bureau 28% of the gross receipts
only, and petitioner, the agent 72%. It has been likewise argued that inasmuch
as petitioner handles only imported cargo in its arrastre operations, pursuant to Republic Act No. 140, it
should be exempted from the percentage tax, reasoning out that only those
handling interisland cargo are liable. For one thing,
section 191 of the Tax Code does not establish any distinction, moreover it is a well settled rule that he who
claims exemption should prove by convincing proofs that he is exempted.
Petitioner utterly failed to present such proofs.

The argument of the petitioner,
to the effect that it should not be made to pay the percentage tax at all,
because agents of the Internal Revenue have categorically stated in a memorandum
that it is not liable, is without legal basis. The agents did not have the power
to make such pronouncements, and even if they were so authorized, their
recommendations are always subject to the review of their superiors, who may
countermand or affirm them. The government is never estopped to collect legitimate taxes because of the error
committed by its agents (Genato Commercial Corp.
vs. CTA, et al., 104 Phil.
615.

The Commissioner of Internal
Revenue, on his part, contends that the 28% received by the Bureau of Customs
constitutes “a business expense of the respondent, which is not deductible from
the latter’s gross receipts for purposes of the 3% tax imposed by Section 191 of
the Tax Code.” In exempting the petitioner from the payment of 3% tax on the 28%
given to the Bureau of Customs, the CTA cited the case of Manila Jockey Club
vs. Collector, supra, wherein this court, among
others, has said:

“Needless to say, gross receipts
of the proprietor of the amusement place should not include any money which
although delivered to the amusement place has been especially earmarked by law
or regulation for some person other than the
proprietor.”

The Commissioner, however,
postulates that the above ruling is not applicable to the instant case, for
there is no law or regulation which specifically earmarks 28% of the total
monthly gross receipts derived from the arrastre
service in question, for the Bureau of Customs. Republic Act No. 140, amending
Act No. 3002 and Comm. Act No. 285, under which the management agreement was
entered into does not so provide. Withal, it is not disputed that said amount
had been given to the Bureau of Customs under the authority of par. 23 of the
Management Contract, heretofore reproduced, which can be lawfully construed as
“regulation.” As the learned trial Court has aptly observed: “* * * the
government could not have intended to consider as gross receipts the 28% that
went to one of its institutions, the Bureau of Customs, and there-by collect
percentage tax on it from petitioner. To hold petitioner liable for the payment
of percentage tax is unquestionably unjust and not contemplated by Section 191
of the Tax Code.”

PREMISES
CONSIDERED,
the decision appealed from should be, as it is hereby AFFIRMED, in all
respects. No special pronouncement as to costs.

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