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

Commissioner of Internal Revenue versus Manila Golf and Country Club

The Case

This is a petition for review brought by the Commissioner of Internal Revenue against the Court of Tax Appeals and the Manila Golf and Country Club, Incorporated. The Commissioner asks the Supreme Court to set aside the decision of the Court of Tax Appeals, which had held that the caterer's tax under Section 191-A of Republic Act Number 6110 could not be collected because the provision had been struck down by a presidential veto. The case matters because it fixes the meaning of an item in a revenue bill for purposes of the presidential veto power, and because it settles that a club which operates eating and drinking facilities for its members and guests is covered by the caterer's tax.

Procedural History

The Commissioner assessed the club fixed taxes as operator of golf links and restaurants, and percentage tax, that is the caterer's tax, on its sale of food and fermented liquors and wines for the period from September 1969 to December 1970. The club protested, and the Commissioner denied the protest. The club then petitioned the Court of Tax Appeals, which sustained the club's position, reasoning that the veto message was clear and unqualified. The Commissioner came to the Supreme Court by petition for review, and the Court granted the petition, setting aside the decision of the Court of Tax Appeals.

Facts

The Manila Golf and Country Club, Incorporated is a non-stock corporation. It maintains a golf course and operates a clubhouse with a lounge, a bar, and a dining room, but these facilities are for the exclusive use of its members and their accompanied guests, and it charges on a cost-plus-expense basis. Republic Act Number 6110, the Omnibus Tax Law, took effect on September 1, 1969. On the strength of that law, the Commissioner assessed the club fixed taxes as operator of golf links and restaurants, and also the caterer's tax on its sale of food and fermented liquors and wines for the period covering September 1969 to December 1970 in the amount of 32,504 pesos and 96 centavos.

The club protested, claiming the assessment had no basis because Section 42 of House Bill Number 17839, which carried the proviso, had been vetoed by then President Ferdinand Marcos when the bill was presented to him, and Congress had taken no step to override the veto. The President had signed the bill into law but, invoking the Constitution, vetoed certain items, among them the page containing Section 42, which inserted a new Section 191-A imposing a caterer's tax. The veto message gave two reasons: the burden of taxation would be shifted to the consuming public, and the development of hotels, essential to the tourist industry, might be restrained since a big portion of hotel earnings comes from food sales.

The Commissioner maintained that Section 42 was not entirely vetoed, but only the words hotels, motels, and resthouses, since the concern was the possible restraint on hotel development. The House Ways and Means Committee took the same view, and on that interpretation Republic Act Number 6110 was published in the Official Gazette with Section 191-A included in the text save for the words hotels, motels, and resthouses. The club nevertheless prevailed before the Court of Tax Appeals, which relied on the veto message and on a later letter from the Office of the President confirming that Section 42 had been among the sections vetoed.

Issues

• Whether or not the presidential veto referred to the entire Section 191-A or merely to the imposition of the twenty percent tax on gross receipts of operators of eating places maintained within the premises of a hotel, motel, or resthouse.
• Whether or not the President may veto words or phrases in a revenue bill, or only an entire item.
• Whether or not the Manila Golf and Country Club, Incorporated is liable for the caterer's tax assessed against it.

Applicable Provisions

Section 191-A of Republic Act Number 6110, the Omnibus Tax Law, provides:

Section 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. (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.

The final paragraph is decisive for the club, because it expressly reaches establishments operated by clubs of any kind or nature, whether or not they cater exclusively to members or their guests.

Section 20, paragraph 3, Article VI of the 1935 Constitution, as invoked in the veto message, provides:

The President shall have the power to veto any particular item or items in an appropriation, revenue, or tariff bill, but the veto shall not affect the item or items to which he does not object.

This is the provision that defines the scope of the veto and supplies the meaning of the word item.

Ruling

On the first issue, the Court held that the presidential veto referred merely to the inclusion of hotels, motels, and resthouses in the twenty percent caterer's tax bracket, and not to the whole of Section 191-A. This question had already been settled in the earlier case of Commissioner of Internal Revenue against Manila Hotel Corporation, where the Court held that the power of the State to impose the caterer's tax is not debatable, and that the tax was not abolished by the presidential veto.

On the second issue, the Court disagreed with the position of the Court of Tax Appeals that a chief executive has no power to veto part of an item in a bill, and that he must either veto an entire section or approve it whole. The Court held that the inclusion of hotels, motels, and resthouses in the twenty percent caterer's tax bracket constitutes an item in itself within the meaning of the constitutional provision. 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. To construe the word item as referring to the whole section would tie the President's hand, forcing him either to approve the whole section at the expense of approving a provision he deems unacceptable, or to veto the entire section at the expense of foregoing the collection of the kind of tax altogether. The Court added that even assuming the veto to be ineffectual, the result would still favor the Commissioner, because an unconstitutional veto has no effect whatsoever and the whole of Section 191-A would stand as law.

On the third issue, the Court held that Section 191-A of Republic Act Number 6110 is valid and enforceable, and that the Manila Golf and Country Club, Incorporated is liable for the amount assessed against it.

Doctrine

An item in a revenue bill, for purposes of the presidential veto power, does not mean an entire section imposing a particular kind of tax. It means 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, and each such subject and rate may be vetoed separately. An unconstitutional or ineffectual veto has no effect whatsoever, so the provision stands as law. And under the final paragraph of Section 191-A, establishments operated or maintained by clubs of any kind or nature are liable for the caterer's tax, irrespective of the disposition of their net income and whether or not they cater exclusively to members or their guests.

Disposition

The petition was granted, the decision of the Court of Tax Appeals was set aside, Section 191-A of Republic Act Number 6110 was declared valid and enforceable, and the Manila Golf and Country Club, Incorporated was held liable for the amount assessed against it.

Remember This

Memorize the line that an item in a revenue bill means the subject of the tax and the tax rate, not the entire section. Examiners use this case to test the scope of the presidential veto power over revenue bills, and to test whether club facilities maintained for members and guests fall within the caterer's tax.