PLYWOOD INDUSTRIES, INC., PETITIONER, VS. JOSE ARANAS, AS COLLECTOR OF INTERNAL REVENUE, RESPONDENT.

Petitioner is a domestic corporation engaged in the manufacture of
plywood panels and veneer sheets. On 27 December 1951 it obtained a tax
exemption in respect to the manufacture of plywood panels, pursuant to
Republic Act No. 35. The exemption was subsequently extended to 31
December 1958, pursuant to Republic Act No. 901. On 21 February 1955
the Secretary of Finance, upon petitioner’s request, granted a similar
exemption in respect to the manufacture of veneer sheets for export.

When it was organized in 1951 petitioner entered into an agreement
with the Sta. Clara Lumber Company, a sister corporation operating
timber concessions near its factory site, whereby the latter supplied
the logs needed for the manufacture of petitioner’s products. In 1953
and again in 1955 petitioner acquired its own timber concessions from
the Bureau of Forestry. Thereafter the logs cut from those concessions
were used in the making of its plywood panels and veneer sheets.

From 1953 to 1957 petitioner paid forest charges in the amount of
P159,025.40 on logs removed from its concessions. In 1957 it twice
requested the refund of the said amount on the ground that forest
charges are taxes within the meaning of Republic Act 901 and hence
covered by the exemptions it had been granted. The requests were denied
by respondent (Collector) now Commissioner of Internal Revenue, as was
also a motion for reconsideration of the order of denial, whereupon
petitioner appealed to the Court of Tax Appeals.

On 21 November 1959 the said Court affirmed respondent’s decision, hence the instant petition for review.

The Tax Court ruled itself without jurisdiction over petitioner’s
claim for refund of the sum of P70,795.40 out of the total amount of
forest charges it had paid, on the ground that said sum was paid beyond
the two-year period prescribed in Section 306 of the Internal Revenue
Code, construing the provision to mean that only those charges paid
within two years prior to the filing of the petition for review of
respondent’s decision (in this case on 21, November 1957) could be the
subject of such petition. Petitioner assails this ruling as erroneous.
In our opinion, however, the point is of no importance.

The issue upon which the present controversy turns is whether or not
forest charges are taxes within the preview of the exemptions granted
to petitioner. Section 1 of Republic Act No. 901 (which is similar to
Section 1 of Republic Act No. 35 except as to the duration of the
exemption authorized) provides:

“Any person, partnership, company or corporation who
or which subsequent to the approval of this Act, shall engage in a new
and necessary industry shall he entitled to exemption until December
thirty-one nineteen hundred and fifty-eight from payment of all taxes
directly payable by such person, partnership, company or corporation in
respect to said industry. x x x”

In order that a tax may be included in the exemption it must be
shown: (1) that the tax is an internal revenue tax; (2) that it is
payable by a person, partnership, company or corporation engaged in a
new and necessary industry; and (3) that it is directly payable in
respect to said industry.

The third requisite is wanting in the case of petitioner. The forest
charges paid by it were not paid in respect to the new and necessary
industry in which it was engaged, namely, the manufacture of plywood
panels and veneer sheets but for the privilege granted to it by the
government to exploit natural resources in the public domain. They were
paid by petitioner for operating its timber concessions, which were not
essential to the maintenance of its plywood factory. It is one thing to
say that logs are necessary for the manufacture of plywood and veneer
sheets and quite another thing to claim the same necessity for the
operation of a concession from winch such logs may be taken. Proof of
this is the fast that petitioner established and was operating its
plywood factory even before it acquired its timber concessions, as well
as the fact that many concessions exist independent entry, of the needs
of the industry of plywood manufacture.

The very same issue now presented to us has already been settled in
another case decided in 1960 (Collector of Internal Revenue vs. Lacson,
G.R. No. 12945), where we said:

“We cannot be charged with having split respondent’s
business into two when we state that it is engaged in the separate and
distinct business of forest concession and manufacture of plywood and
veneer. Logs and lumber certainly are necessary to the manufacture of
plywood but the operation of a forest concession, for the
purpose of obtaining the required lumber, is certainly not
indispensable for the manufacture of plywood and veneer. The
manufacture of said plywood can have his supply of lumber by purchasing
the same from other forest concessionaires (who are of course liable
for forest charges) Of course, it would be more profitable for the
manufacturer were it to operate its own lumber mills and to have its
own forest concession. This way, it would cut down on its expenses (in
the manufacture of plywood) by eliminating the factors that go into the
purchase of lumber and logs from other forest concessionaires.”

For the reasons aforestated and on the authority of the decision
just cited, we find that the forest charges in question are not
included in the tax exemptions granted to petitioner. With this view we
take of the case, it is unnecessary to pass upon the other issues
raised by petitioner.

The decision appealed from is affirmed, with costs.

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