COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS. HON. COURT OF TAX APPEALS AND MANILA GOLF & COUNTRY CLUB, INC., RESPONDENTS.

In Commissioner of Internal Revenue v. Manila Hotel Corporation,
et al., G.R. No. 83250, September 26, 1989, We overruled a decision of the
Court of Tax Appeals which declared the collection of caterer’s tax under
Section 191-A of Republic Act No. 6110 illegal because Sec. 42 of House of Bill
No. 17839, which carries that proviso, was vetoed by then President Ferdinand
E. Marcos when the bill was presented to him and Congress had not taken any
step to override the presidential veto. 
We held thus:

“The power of the State to impose the 3%
caterer’s tax is not debatable.  The
Court of Tax Appeals erred, however, in holding
that the tax was abolished as a
result of the presidential veto of August
4, 1969.  It failed to
examine the law then, and up to now, existing on the subject which has always
imposed a 3% caterer’s tax on operators of restaurants.  Since the Manila Hotel operates restaurants
in its premises, it is liable to pay the tax provided in paragraph (1), Section
206 of the Tax Code.” (Commissioner
of Internal Revenue v. Manila Hotel Corporation and the Court of Tax Appeals, G.R. No. 83250, September 26,
1989)

The petition now before Us presents an
identical question:  whether the presidential veto referred
to the entire section or merely to the imposition of 20% tax on gross receipts of operators or proprietors of
restaurants, refreshments parlors, bars and other eating places which are
maintained within the premises or compound of a hotel, motel or resthouses. 
Reference to the Manila Hotel case, therefore, might have been
sufficient to dispose of this
petition were it not for the position of the CTA that a chief executive has no
power to veto part of an item in
a bill; either he vetoes an entire section or approves it but not a fraction thereof.

Herein private respondent, Manila Golf & Country Club, Inc.
is a non-stock corporation.  True, it
maintains a golf course and operates a clubhouse with a lounge, bar and dining
room, but these facilities are for the exclusive use of its members and
accompanied guests, and it charges on cost-plus-expense basis.  As such, it claims it should have been exempt
from payment of privilege taxes
were it not for the last paragraph of Section 191-A of R.A. No. 6110, otherwise known as the “Omnibus Tax Law.” Section 191-A reads:

“Sec. 191-A.  Caterer. A caterer’s tax is hereby imposed as
follows:

“(1) On proprietors or operators of restaurants, refreshment parlors and other eating
places, including clubs, and caterers, three per cent of their gross receipts.

“(2) On proprietors
or operators of restaurants, bars,
cafes and other eating places, including clubs, where distilled spirits,
fermented liquors, or wines are served, three per cent of their gross receipts
from sale of food or refreshments and seven per cent of their gross receipts
from sale of distilled spirits, fermented liquors or wines.  Two sets of commercial invoices or receipts
serially numbered in duplicate shall be separately prepared and issued, one for
sale of refreshments served, and another for each sale of distilled spirits,
fermented liquors or wines served, the originals of the invoices or receipts to be issued to the
purchaser or customer.

“(3) On proprietors
or operators of restaurants, refreshment parlors, bars, cafes and other eating
places which are maintained within the premises or compound of a hotel, motel,
resthouse, cockpit, race track,
jai-alai, cabaret, night or day club by
means of a connecting door or passage twenty per cent of their gross receipts.

“Where the establishments
are operated or maintained by clubs of
any kind or nature (irrespective
of the disposition of their net income
and whether or not they
cater exclusively to members or their guests)
the keepers of the establishments shall
pay the corresponding tax at the
rate fixed above.” [underscoring
ours]

Republic Act No. 6110 took effect on September 1, 1969.  By this virtue, petitioner assessed the club fixed taxes as operators of golf links
and restaurants, and also percentage tax (caterer’s tax) for its sale of foods and fermented liquors/wines
for the period covering September 1969 to December 1970 in the amount of P32,504.96.  The club
protested claiming the assessment to be without basis because Section 42 was
vetoed by then President Marcos.  The
veto message reads:

“MALACANANG
Manila

August 4, 1969

“Gentlemen of
the House of Representatives:

“I have the honor to inform you that I have this day signed H.B.
No. 17839, entitled:

‘AN ACT AMENDING CERTAIN
PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED’

“Pursuant to the provisions of Section 20-(3), Article VI, of the
Constitution, however, I have vetoed the following
items in this bill:

“xxx                  xxx                   xxx

pp.
44, SEC. 42.  Inserting a new Section 191-A which imposes a
caterer’s tax of three percent of the gross receipts of proprietors or
operators of restaurants, refreshment parlors and other eating places; three
percent of gross receipts from sale of food or refreshment and seven percent on gross receipts from the sale of distilled spirits, fermented
liquors or wines, on proprietors or operators of restaurants, bars, cafes and
other eating places, including clubs, where distilled spirits, fermented
liquors, or wines are served; and twenty percent of gross receipts on
proprietor or operators of restaurants, refreshment parlors, bars, cafes and
other eating places maintained within the premises or compound of a hotel,
motel, resthouse, cockpit, race track, jai-alai,
cabaret, night or day club, or which are accessible to patrons of said
establishments by means of a connecting door or passage.

‘The burden of taxation will be shifted to
the consuming public.

‘The development of hotels, essential to
our tourist industry, may be restrained considering that big portion of hotel
earnings comes from food sale. x x x’

“This bill, H.B. No. 17839, has become Republic Act No. 6110.

“Respectfully,

“(SGD.) FERDINAND
E. MARCOS”

[underscoring
ours]

The protestation of the club
was denied by the petitioner who maintains that Section 42 was not entirely vetoed but merely the words
“hotels, motels, resthouses” on the ground
that it might restrain the development of hotels which is essential to the
tourism industry.  This in fact was the
position of the House Ways
and Means Committee which reported, to wit:

“When Congress decided to split Section 191 into two parts, one dealing with contractors, and the other dealing with
those who serve food and drinks, the intention was to classify and to
improve.  While the Congress expanded the
coverage of both 191 and 191-A, it also provided for certain exemptions. 
The veto message seems to object to certain additions to 191-A.  What
additions are objectionables can be gleaned from the
reasons given:  a general reason that this sort of tax is passed on to the consuming public, and a particular reason
that hotel developments, so essential to the tourist industry, may be
restrained.  These reasons have been
taken together in the interpretations of the veto message and the deletions of such enterprises as are connected with the tourist
industry has therefore been recommended.

“To interpret the veto message otherwise would result in the
exemption of entities already subject of tax. 
This would be absurd.  Where the Congress wanted to exempt, it was so provided in the bill.  While the President may veto any item or items in a revenue bill, the
constitution does not give him the power to repeal an existing tax.  (2nd Indorsement
dated December 9, 1969,
Chairman on Ways and Means, Sixth Congress
of the Republic of the Phil.) (Exhs. 14, p. 85, B.I.R. rec.).”
(pp. 20-21, Rollo)

It was by reason of this interpretation of the Committee that
R.A. No. 6110 was published in Volume 66, No. 18, p. 4531 of the Official
Gazette (May 4, 1970) in such a way that Section 191-A was included in the text save for the words
“hotels, motels, resthouses.”

As already mentioned, the Court of Tax Appeals, upon petition by
the club, sustained the latter’s position reasoning that the veto message was clear and unqualified, as in fact it was confirmed three years later, after much controversy, by the Office of the
President, thus:

“Mr. Antero M. Sison, Jr.

San
Martin Building,
1564,

A. Mabini,
P.O. Box 2288

Manila,
Philippines

“Dear Sir:

“With reference to your letter dated July 14, 1972, we wish to
inform you that Section 42 [which contains Sec. 191-A] of House bill No. 17839,
now R.A. 6110 was one of the Sections vetoed by the President in his veto
message dated August 4, 1969, vetoing certain sections of the said revenue bill.

Very Truly Yours,

“(SGD.) IRINEO T.
AGUIRRE, JR.

Presidential
Staff Assistant”

(p. 49, Rollo)

As mentioned earlier, We have already
ruled that the presidential veto referred merely to the inclusion of hotels,
motels and resthouses in the 20% caterer’s tax
bracket but not to the whole section.  But, as mentioned earlier also, the CTA
opined that the President could not veto words or phrases in a bill but only an
entire item.  Obviously, what the CTA
meant by “item” was an entire section. 
We do not agree.  But even
assuming it to be so, it would also be to petitioner’s favor.  The ineffectual veto by the President
rendered the whole section 191-A as not having been vetoed at all and it,
therefore, became law as an
unconstitutional veto has no effect whatsoever. 
(See Bolinao Electronics
Corp. v. Valeria, No. L-20740, June 30, 1964, 11 SCRA 486).

However, We agree with then Solicitor
General Estelito Mendoza and his associates that
inclusion of hotels, motels and resthouses in the 20%
caterer’s tax bracket are “items” in themselves within the meaning of Sec. 20
(3), Art. VI of the 1935 Constitution which, therefore, the
President has the power to veto. 
An “item” in a revenue bill does not refer to an entire section imposing a particular kind of tax, but
rather to the subject of the tax and the tax rate.  In the portion of a revenue bill which
actually imposes a tax, a section identifies the tax and enumerates the persons
liable therefor with the corresponding tax rate.  To construe
the word “item” as referring to the whole section would tie the President’s hand
in choosing either to approve the whole section at the expense of also
approving a provision therein which he deems
unacceptable or veto the entire section at the expense of foregoing the
collection of the kind of tax
altogether.  The evil which was sought to
be prevented in giving the president the power to disapprove items in a revenue
bill would be perpetrated rendering that power inutile (See Commonwealth ex rel. Elkin v. Barnett, 199 Pa. 161, 55 LRA 882 [1901]).

ACCORDINGLY, the petition is GRANTED and the decision of
the Court of Tax Appeals in CTA Case No. 2630 is set aside.  Section 191-A of RA No. 6110 is valid and enforceable and, hence, the Manila Golf &
Country Club Inc. is liable for the amount assessed against it.

SO ORDERED.

Narvasa, (Chairman), Cruz, and Griño-Aquino, JJ., concur.

Gancayco, J., on leave.