MINDANAO BUS COMPANY, PETITIONER, VS. THE COLLECTOR OF INTERNAL REVENUE, RESPONDENT.

Mindanao Bus Company versus the Collector of Internal Revenue

The Case

This is a tax case. Mindanao Bus Company, a common carrier operating auto-buses in Northern Mindanao under certificates of public convenience, was assessed documentary stamp taxes by the Collector of Internal Revenue on the freight tickets it issued over a period of years. The bus company disputed the assessment, insisting that its freight tickets are not the bills of lading or receipts that the Documentary Stamp Tax Law taxes, and that the assessment itself was speculative. The case matters because it settles two things a practitioner must know: that a freight ticket issued by a land carrier is, in legal effect, a bill of lading subject to documentary stamp tax, and that a revenue assessment built on a reasonable average method, unrebutted by the taxpayer, is presumed correct.

Procedural History

The Collector of Internal Revenue assessed the bus company for documentary stamp taxes covering the period from January 1, 1948 up to September 16, 1953, and imposed a compromise penalty. The company appealed the assessment to the Court of Tax Appeals. Before that court, the Collector was declared in default, and the company presented its evidence. The tax court modified the Collector's decision: it ordered the company to pay the documentary stamp tax but eliminated the compromise penalty. On the company's motion for reconsideration, the tax court reopened the case for the sole purpose of allowing the company to present the five hundred booklets and seventeen sacks of passenger and freight tickets. At the rehearing, however, the company did not submit that evidence; it offered instead stub tickets that had already been in its possession during the first hearing. The tax court denied the motion for reconsideration. The company then brought this appeal by certiorari to the Supreme Court.

Facts

Sometime in September 1953, an agent of the Bureau of Internal Revenue examined the books of accounts of Mindanao Bus Company. The agent found that the freight tickets used by the company did not contain the required documentary stamp. The agent took five hundred booklets of tickets and counted the freight receipts inside them, finding one thousand three hundred five freight tickets.

The agent could not count every ticket one by one. The used booklets were dumped inside the company's bodega in great number, and most of them were either torn or destroyed. So the agent used the average method: he took the average number of freight tickets per booklet, two and sixty-one hundredths, applied it to the total number of booklets used, and assumed that each freight ticket covered baggage valued at more than five pesos. On that basis the Collector assessed fifteen thousand seven hundred four pesos and sixteen centavos as documentary stamp taxes, exclusive of compromise penalty.

The company challenged the assessment, arguing that it rested on presumptions rather than the best evidence, that freight tickets are not bills of lading, and that the regulation treating such tickets as bills of lading is invalid. It failed, however, to present evidence showing any inaccuracy in the agent's method, even after the tax court reopened the case precisely to let it produce the tickets.

Issues

• Whether or not the tax court erred in presuming the correctness of the assessment and in not finding it arbitrary, speculative, and without factual basis.
• Whether or not the tax court erred in holding that tickets issued for excess baggage are bills of lading subject to the documentary stamp tax.
• Whether or not the tax court erred in not declaring Section 127 of Regulation Number 26 of the Department of Finance unconstitutional.
• Whether or not the tax court erred in holding the petitioner liable for the assessment of fifteen thousand seven hundred four pesos and sixteen centavos.

Applicable Provisions

Section 227 of the National Internal Revenue Code, as discussed in the decision, imposes the tax on receipts for goods shipped, and its language reaches land transport. The Court, quoting its earlier ruling, explained:

Section 227 of the National Internal Revenue Code imposes the tax on receipts for goods or effect shipped from one port or place to another port or place in the Philippines. The use of the word place after port and of the word receipt shows that the receipts for goods shipped on land are included.

This provision is the statutory anchor of the tax: because it speaks of a place, not only a port, receipts for goods shipped by land fall within its reach.

Ruling

On the first issue, the Court held that the claim of arbitrariness is devoid of merit. The average method was the only way the agent could determine the number of booklets used, since an actual count was practically impossible given the torn and destroyed booklets. The agent also correctly assumed that the value of the goods covered by each freight ticket is not less than five pesos, because it is the common practice of passengers in the rural areas not to secure receipts for cargoes of small value and to demand receipts only for valuable cargo. It was the duty of the petitioner to present evidence showing inaccuracy in the method, and it failed to do so.

On the second issue, the Court held that freight tickets of bus companies are bills of lading or receipts within the meaning of the Documentary Stamp Tax Law. Quoting its earlier ruling, the Court said:

Bills of Lading, in modern jurisprudence, are not those issued by masters of vessels alone; they now comprehend all forms of transportation, whether by sea or land, and includes the receipts for cargo transported.

The Court added that the designation and the form of the instrument are not material: if it contains an acknowledgment by the carrier of the receipt of goods for transportation, it is, in legal effect, a bill of lading.

On the third issue, the Court upheld the validity of Section 127 of Regulation Number 26 under the principle of legislative approval by reenactment. The regulation implemented provisions of the Revised Administrative Code that were reenacted in Section 227 of the National Internal Revenue Code. Quoting its earlier ruling:

There is a presumption that the legislature reenacted the law on the tax with full knowledge of the contents of the regulations then in force regarding bills of lading and receipts, and that it approved or confirmed them because they carry out the legislative purpose.

On the fourth issue, the Court held that it is merely a consequence of the first three, and so it too must be dismissed.

Doctrine

A freight ticket issued by a land carrier is a bill of lading within the meaning of the Documentary Stamp Tax Law. The designation and form of the instrument are immaterial; if it acknowledges the carrier's receipt of goods for transportation, it is in legal effect a bill of lading. Section 227 of the National Internal Revenue Code taxes receipts for goods shipped from one place to another, and the word place brings land transport within its scope.

A revenue assessment made by the average method is presumed correct where an actual count is practically impossible, and the taxpayer bears the duty to present evidence showing inaccuracy in the method. A regulation implementing a tax statute acquires the force of legislative approval when the statute is reenacted with the regulation in force.

Disposition

The Supreme Court affirmed the decision of the Court of Tax Appeals, with costs against the petitioner Mindanao Bus Company.

Remember This

The one line to memorize: a freight ticket of a bus company is a bill of lading in legal effect, and the taxpayer who does not rebut the Collector's average method of assessment bears the consequence. Examiners use this case on documentary stamp tax on land carriers and on the presumption of correctness of tax assessments.